BSc. (Applied Accounting) General/Special Degree Programme. Strategic Management Accounting. Tutorial III- Short term decision making

Transcription

1 BSc. (Applied Accounting) General/Special Degree Programme Strategic Management Accounting Tutorial III- Short term decision making 1. A company has the following costs and revenues relating to a product. Selling price per hour Raw per kg Variable overheads Fixed cost per unit 4.00 Profit per unit Required: Calculate the contribution. 2. A company manufactures and sells a single product. At the budgeted output of 1,000 units per week the standard cost card is Variable cost 42 Fixed cost 30 Profit 48 Price 120 What is the break even point in sales revenue per week, to the nearest 1000? 3. Counsell manufactures and sells four products whose selling prices, variable costs and maximum monthly demands () Product A B C D Selling price per unit Variable cost per unit Maximum monthly demand If production and sales are made in proportion to monthly maximum demand for each product and monthly fixed costs are 15,000, calculate the mix break even point to the nearest whole number, identify the individual break even points and the margin of safety. 4. A brewery sold 6,000 barrels of beer last month. The variable costs per barrel were.35 and the selling price was.52. Last month the company made a loss of.4,000. 1

2 Required: To make a profit of.12,000 next month how many barrels does the brewery need to produce and sell? 5. Henry plc sells a single product. In the coming month it is budgeted that the product will generate total revenue of.500,000, with a contribution of 300,000. Fixed costs are budgeted at 225,000 for the month. What is the % margin of safety? 6. A summary of a manufacturing company s budgeted profit statement for its next financial year, when it is expects to be operating at 75% of capacity is given below Sales 9,000 units at ,000 Less: Direct materials 54,000 Direct wages 72,000 Production overhead - fixed 42,000 variable 18, , ,000 Gross profit Less: admin, selling and distribution costs - Fixed 36,000 - Varying with sales volume 27,000 63,000 Net profit 39,000 It has estimated that: i. If the selling price per unit were reduced to.28, the increased demand would utilize 90% of the company s capacity without any additional advertising expenditure; ii. To attract sufficient demand to utilize full capacity would require a 15% reduction in the current selling price and a.5,000 special advertising campaign. You are required to: 1. Calculate the breakeven point in units, based on the original budget. 2. Calculate the profits and breakeven points which would result from each of the two alternatives and compare them with the original budget. 2

3 7. Sausage Ltd makes two products, the Mash and the Sauce. Unit variable costs are as follows. Mash Sauce Direct materials 1 3 Direct labour (3 per hour) 6 3 Variable overhead The sales price per unit is 14 per Mash and 11 per Sauce. During July the available direct labour is limited to 8,000 hours. Sales demand in July is expected to be as follows. Mash 3,000 units Sauce 5,000 units Required Determine the production budget that will maximise profit, assuming that fixed costs per month are 20,000 and that there are no opening stock of finished goods or work in progress 8. Griffith s Ltd is currently experiencing a shortage of skilled labour. In the coming quarter only 3,600 hours will be available for the production of the firm s three products for which the details are shown below Product X Y Z Selling price per unit Variable cost per unit Fixed cost per unit Skilled labour 0.40 hr 0.50 hr 0.75 hr Calculate the optimum production plan that will maximize profit for the quarter 9. A company s existing production plan is as follows: A B Units 1, Unit selling price Unit variable costs Direct material Direct labour at 2 per hour Overhead This represents the maximum demand for each product. The company is limited to 7,000 hours availability. A contract to produce 200 units of product C is under review. These are required by a 3

4 customer who will provide his own materials. Net proceeds from the contract after deducting labour and overhead costs amount to 3,000 and will utilize 1,500 labour hours. Assuming that the company wishes to maximize profit, which is the optimum production plan? 10. Pluie Limited manufactures a unique high quality umbrella and supplies two well-known department stores in Dublin. The cost of producing one umbrella is calculated as.9 and the selling price charged to the department stores is.15. The company currently has spare production capacity and has been approached by a local golf club to supply 1,000 umbrellas for a special promotion event. The golf club has specified that it would like the umbrella to be manufactured using red waterproof fabric which is the club colour and has offered to pay.12 per umbrella. The following information is available: (i) (ii) (iii) (iv) Pluie Limited recently employed Creative Product Consultants to alter the design of the umbrella. The cost of developing the revised design was.5,000. The company had received the invoice from the consultants but had not yet paid it. The umbrella comprises a steel frame, waterproof fabric and a varnished wooden handle. The steel frame costs 2.50 per umbrella and the handle costs.1 per umbrella. Each umbrella uses 2 metres of waterproof fabric which costs.1 per metre. The company does not currently use any red fabric in its production and would have to purchase the fabric from a different supplier. The supplier will only sell the red fabric in batches of 5,000 metres for a total cost of Pluie Limited does not envisage using the red fabric after the golf club order has been filled. Any red fabric not used could be sold for.0.90 per metre. The golf club has requested that the club logo (crest) is applied to each umbrella. To do this the company would have to purchase one embossed label for each umbrella at a cost of.0.45 per label. If not used on the umbrellas these labels would be scrapped. Each umbrella takes 15 minutes to cut fabric, assemble and pack. The company pays its workers.12 per hour. Currently, the company wage records show total idle time of 300 hours per month. It envisaged that the umbrellas for the golf club would be produced during the month of February (v) To produce the umbrellas for the golf club the company will have to use one particular machine which is being depreciated at.3,000 per month. This machine is 4

5 currently being leased for.4,200 per month to a company located in the building beside Pluie Limited. (vi) The company uses traditional overhead absorption costing to allocate production overheads to products. A budgeted overhead absorption rate of.2 per labour hour has been calculated for the year. Should Pluie Limited manufacture the umbrellas for the local Golf Club? 5