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If Hours = 120,000
Variable cost = 120,000 x 0.50 = RM60,000
Fixed Cost = RM10,000
-----------------
Estimated Total Cost RM70,000
==========
Month X Y
Jan 4000 7250
Feb 6500 8250
Mar 8000 10500
April 10500 12000
May 12000 13500
Jun 9000 10750
July 7500 9750
Total
Cost
No of Guest days
Solution 4.
Y =a + bx
_ _
A= y b (x )
= 489.88
You are also required to calculate a formulae to determine the expected level of cost for any given volume of
output using H& L and Least Square Methods.
If the output increase to 35000 units what is the total estimated cost using both method.
Calculate the value of R ? What does it shows you.
Solution 5.
Solution to Q5
High and Low Method
b = 122K 90K/ 30K-18K
b = 32K/12K
b =2.67
FC = 90K (18 x 2.667)
FC = 42,000
When x = 35,000
TC = 42K + (35K x 2.67)
= 135,450
REGRESSION METHOD
Months.
Months. X000 Y000 XY X =a+bx (Y -) (Y-)
Jan 24 102 2448 576 103.0074 1.01481 1
Feb 18 90 1620 324 86.15938 14.7504 169
Mar 28 113 3164 784 114.2394 1.53606 100
Apr 20 88 1760 400 91.77538 14.2535 225
May 30 122 3660 900 119.8554 4.59939 361
(Y -)
n=5 X = y= XY = X = = (Y-) =
5 120 515 12652 2984 36.1541 856
mean x = mean y =
24 103
y = a + b(x)
b = n(XY) - XY / n(X) - X Y
b = (5x 12652)-(120X515)/ (5x2984) - (120 x 120) 35615.4 2.808
divide
b= 1460 by 520 35615.4 2.808
b= 2.807692 35615.4 2.808
35615.4 2.808
a = -(b*) 35615.4 2.808
a= 35615.38
Equation= 35615.38 + 2.808(x)
Using
Regression,
when x =
35000
Y = Total Cost
= 35615 +
2.808(35,000)
= 133,895
R square is
measurement
of goodness
of fit of the
independent
variable on
dependent
variable
It explain the
extend of
variation in Y
due to
variation in X
SOLUTION 5(b)
STUDENTSASSIGNMENT
Solution 6
a B/E (RM) = Fixed Cost/ Contribution sales ratio
900,000 = 1,285,714
350/500
= 2572 units.
= 2857 sets
X = 900,000
350-25
= 2769 units.
============
= 1,428,714.
==========
= RM42.9 million
================
Solution 8
Product X Product Y Total
Sales (unit) 20,000 40,000 60,000
Sales (RM) 120,000 80,000 200,000
c Observation.
At the old sales mix, the profit will be RM20,000 (80,000 60,000).
At the new sales mix, the profit is RM30,000 (90,000 60,000)
In other words, the company will maximize profit if it decides to produce more of product which will offer
higher contribution per unit.
Question 9 Manira Sdn Bhd. is a Malaysian company established in 2014. The company has the following
data for one of its manufactured products called XY.
Required:
Solution 9 Manira
(a) B/E (RM) = FC = 180,000/ 0.4
Contribution sales Ratio
= 450,000
========
(b) Selling Price - (variable cost) = 0.40
Selling Price
% of N = 450,000/550,000 81.18%
You have been employed to assist the sales manager in the costing department and are required to calculate the
following.
a) Total Break Even points in units for the whole firm.
b) Break Even point in sales (RM) for each product sold above.
c) What is the percentage of sales you can afford to reduce to ensure that you would sustain minimum profit.
d) Assuming that the fixed production cost increase by RM50,000, calculate the new Total B/E (RM) and Net Profit
before tax from above the financial information.
e) What is the importance of DOL in the CPV analysis.
SOLUTION TO Q11
= 500,000+343,600
1110k/50k
=38,000 units
A company operating leverage refers to the relative amount of fixed and variable cost that make up its
total cost. Companies with high operating leverage have relatively more fixed cost and relatively fewer variable
cost.
Operating leverage helps manages to understand their risk if volume decreases due to a recession, or
other changes in the market place. When sales decrease, the total contribution margin will drop significantly
because each sales dollar contains a high percentage of contribution margin. The high fixed cost will remain,
thus these companies can easily turn from profit to loss if sales volume declines.
A companys operating leverage factor tell how responsive a company operating income would react to
a change in sales volume . The greater the dol factors, the greater the impact in sales volume has on operating
income.
Question 12
A new company has just been set up with the objective of manufacturing and selling product X, Y and Z .
A budget also incorporates the break even planning for the mixed product.
You have just been appointed as an assistant management accounting manager and is being asked to assist to
provide solutions to the few questions based on the following financial data.
Solution to Q12
a) Total B/E in units = Fixed cost/ WACpu
WACpu = RM1,500,000/50000 units = RM30
d) Contribution RM1500,000
Fixed Cost
Manufacturing (650,000 x 1.1) (715,000)
Selling and Administration (325,000)
Solution 13
E 7-60B
$3.00
Contribution margin ratio = = .15
$20.00
= 15%
Sales Revenue (130,000 $20.00) $ 2,600,000
Less: Variable expenses (130,000 $17.00) <2,210,000>
Contribution margin.. $ 390,000
4. $290,100 96,700
B/E sales in units = =
$3.00 units
$290,100
B/E sales in dollars = = $1,934,000
15%
5. $290,100 + $260,100
= 183,400 units
$3.00
(continued) E 7-60B
$312,600 135,914
New breakeven in units = =
$2.30 Units
$390,000
Operating Leverage factor = = 3.90
$99,900
8. Increase in volume.. 7%
Operating leverage factor.. 3.90
New fixed expenses 27.3%
9. Margin of safety = Sales Sales at breakeven
$2,600,000 $1,934,000
=
(from part 1) (from part 4)
= $666,000
Margin of safety as a percentage 666,000
= = .256 = 25.6%
2,600,000
10. 1 GB 2 GB Total
Sales price.. $20 $45
Variable cost.. <17> <28>
Contribution margin. $ 3 $17
Sales mix. 6 1 7
Contribution margin. $18 $17 $35
Weighted-average contribution margin per (35)
unit (7) $5.00
The target profit volume is lower than before (Req. 5) because now the company is selling a product with
a much higher unit contribution margin.
Q14
Kelseys Ice Cream sold 9,000 servings of ice cream during June for RM3 per serving. Kelsey purchases
the ice cream in large tub from the Blue Bell Ice Cream Company. Each tub costs Ke;sey RM15 and has
enough ice cream to fill 30 ice cream cones. The ice cream cone size is equivalent to one serving. Kelsey
purchases the ice cream cones for RM0.05 each from a local warehouse club. Kelseys is located in a local
strip mall, and she pays RM1,800 a month to lease the space. Kelsey expenses RM250 a month for the
depreciation of the companys furniture and equipment. During June, Kelsey incurred an additional
RM2,500 of other operating expenses (75% of these were fixed costs).
You are required to prepare:
1. Kelseys June income statement using a traditional format.
2. Kelseys June statement using a contribution margin format.
Solution 15
Req. 1
*$15 per tub 30 servings = $0.50 for ice cream + $0.05 per
ice cream cone = $0.55
a
$2,500 25% variable = $625
b
$2,500 75% fixed = $1,875
Solution to Q16.
(25-35 min.) P 6-76A
Req. 1
January February
Absorption Variable Absorption Variable
Costing Costing Costing Costing
Total product cost.... $4.35 $4.00 $4.50 $4.00
(continued) P 6-76A
Req. 2a
Marcus Meal
Income Statement (Absorption Costing)
Month Ended January 31
Jan. 31 Feb. 28
Sales revenue $12,600 $14,400
Cost of goods sold (6,090) (7,110)
Gross profit 6,510 7,290
Operating expenses (1,800) (2,000)
Operating income $ 4,710 $ 5,290
Req. 2b
Marcus Meal
Income Statement (Variable Costing)
Month Ended January 31
January 31 February 28
Sales revenue $12,600 $14,400
Variable expenses:
Variable cost of goods sold 5,600 6,400
Sales commission expense 1,400 (7,000) 1,600 (8,000)
Contribution margin 5,600 6,400
Fixed expenses:
Fixed manufacturing overhead 700 700
Fixed marketing and administrative
expenses 400 (1,100) 400 (1,100)
Operating income $4,500 $5,300
Req. 3
In January, absorption costing operating income exceeds variable costing
income. This is because units produced were greater than units sold.
Absorption costing defers some of Januarys fixed manufacturing overhead costs
in the units of ending inventory. These costs will not be expensed until those
units are sold. Deferring these fixed manufacturing overhead costs to the future
increases Januarys absorption costing income.