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Tutorial 2
Q1. What are some different managerial uses of cost information? ( 3-1, pg
121 )
50
Variable costs
30
Contribution margin
20
Required
b. Determine the number of units Patterson must sell to break
even.
$
Sales Revenue
50
Variable costs
30
Contribution margin
20
Required
c. Determine the sales revenue required to earn (pretax) income
equal to 20% of the revenue.
Required
d. How many units must Patterson sell to generate an after-tax
profit of $120,000 if the tax rate is 40% ?
Profit before tax = 120,000/ (1-0.4)
= $200,000
Target sales (unit)
= 180,000 + 200,000/ $20
= 19,000 units
No. of units = $380,000 / $20
= 19,000 units
Required
e. Patterson is considering increasing its advertising expenses by
$40,000. how much of an increase in sales units is necessary
from expanded advertising to justify this expenditure
(generate an incremental contribution margin of $40,000) ?
Increase
in Sales units =
= $ 40,000 / $ 20
= 2,000 units
Q3) 3-31
Florida Favourites Company produces toy allogator and
toy dolphins. Fixed costs are $1,290,000 per year. Sales
revenue and variable costs per unit are as follow:
Alligator
Dolphin
Selling price
$20
$25
Variable costs
8
10
Alligator
Dolphin
Total
140,000
60,000
200,000
0.7
0.3
Ratio
Selling price
$20
$14
$25
$7.5
$21.5
Variable costs
5.6
10
8.6
Contribution margin
12
8.4
15
4.5
12.9
(b) Suppose the company currently sells 60,000 alligators per year
and 140,000 dolphins per year. Assuming the sales mix stays
constant, how many alligators and dolphins must the company sell
to break even per year?
b)
Alligator
Dolphin
Total
60,000
140,000
200,000
0.3
0.7
$20
$6
$25
$17.5
$23.5
Variable cost
2.4
10
9.4
Contribution margin
12
3.6
15
10.5
14.1
(Q4) 3-33
Healthy Hearth specializes in lunches for
health-conscious people. The company
produces a small selection of lunch offerings
each day. The menu selections vary from day
to day, but Healthy Hearth charges the same
price per menu selection because it adjusts the
portion sizes according to the cost of
producing the selection. Healthy Hearth
currently sells 5,000 meals per month.
$4.50
each,
to
accommodate
the
b)
Opportunity cost : 500 meals @ $4.50 per meal
Contribution margin per meal = $4.50 - $3
= $1.50
Reduction in operating income
= $750
Loss in operating income
= $200
= $1.50 x 500
= $500 - $750
Q5. 3-36
a) List out the relevant costs:
Old Grinding Machine:
Current salvage value
RM6,000
New Grinding Machine:
Cost
RM60,000
Annual operating costs
RM8,000
Overhaul of Old Grinding Machine:
Cost of overhaul
RM35,000
Annual operating cost after overhaul
RM13,000
RM60,000
RM48,000
RM20,000
Costs
Annual operating
costs:
-$8000 x 5 Years
-$13000 x 5 Years
Current salvage value
Buying an new
machine
$60,000
$35,000
$40,000
$65,000
($6,000)
$96,000
$100,000
Q6. 3-38
a)
Smartphone
($140 x 50000 units)
Components:
Internal : $35 x 50000 units
Make
Buy
7,000,000
7,000,000
1,750,000
1,700,000
8,750,000
8,700,000
b)
Smartphone
($140 x 50000 units)
Components:
Internal : $30 x 50000 units
Make
Buy
7,000,000
7,000,000
1,500,000
1,700,000
8,500,000
8,700,000
Q7 3-49 (pg.130)
Fixed Cost
Sales staff salaries
Office & showroom
rental
Depreciation on
carpentry equipment
RM
Variable Cost
Advertising
Miscellaneous fixed
O/H
300,000
=
= 37,500 units
RM
600,000
450,000
180,000
350,000
1,580,0
00
=15800
00/5000
0
=31.60
Q8 3-57 (pg.133)
(a) Practical capacity profit
=(SP-VC)2000chips FC
=($500-$450)2000 $75,000
=$25,000
(b) Estimate change in profit
=($480-$450) * 200chips
= $6,000
(c)
New order profit
(480-450)*600chips
$18,000
Opportunity cost
(500-450)*200
-$10,000
Net increase
$8,000