A company reports the following information about its sales and cost of sales. Draw an estimated line of cost behavior using a scatter diagram, and compute fixed costs and variable costs per unit sold. Then use the high-low method to estimate the fixed and variable components of the cost ofsales.
You are given the following data:
Fixed expenses = Rs. 4,000
BEP = Rs. 10,000
Calculate: P/V Ratio. Profit when sales are Rs. 20,000. New BEP, if the Selling Price is reduced by 20%.
In deciding whether to perform mandatory drug testing, we claimed that it is difficult to justify such testing under reasonable conditions. Check this yourself in the following questions.
a. Drug testing ought to be more attractive if the test is more reliable. Keeping the costs the same as in the example, use Precision Tree’s two-way sensitivity tool to see whether the optimal decision (test or not test) changes as the probability of a false positive and the probability of a false negative both change. You can let them vary through some reasonable ranges. Explain the results.
b. Repeat part a, but first double the two monetary values that make the test more attractive: the benefit of identifying a user and the cost of not identifying a user. How do your results differ from those in part a?
c. In this part, keep the probabilities of false positives and false negatives the same, but let the benefits and costs vary. Specifically, let the benefit of identifying a user and the cost of not identifying a user be of the form 25a and 20a, where a is some factor that you can vary. Similarly, let the cost of barring a nonuser and the cost of violating privacy be of the form 50b and 2b. The cost of the test is still 1. (The idea is that large values of a and/or small values of b will make the testing more attractive.) Use Precision Tree’s two-way sensitivity tool to see whether the optimal decision (test or not test) changes for a reasonable range of values of a and b. Discuss your results.
What are the three approaches to calculating the sales required to achieve the target profit? Give the formula for each one.
What is the variable cost ratio? The contribution margin ratio? How are the two ratios related?
The McCune Barber Shop employs four barbers. One barber, who also serves as the manager, is paid a salary of $3,900 per month. The other barbers are paid $1,900 per month. In addition, each barber is paid a commission of $2 per haircut. Other monthly costs are: store rent $700 plus 60 cents per haircut, depreciation on equipment $500, barber supplies 40 cents per haircut, utilities $300, and advertising $100.The price of a haircut is $10.
Instructions
(a) Determine the variable cost per haircut and the total monthly fixed costs.
(b) Compute the break-even point in units and dollars.
(c) Prepare a CVP graph, assuming a maximum of 1,800 haircuts in a month. Use increments of 300 haircuts on the horizontal axis and $3,000 increments on the vertical axis.
(d) Determine the net income, assuming 1,700 haircuts are given in a month.
Vikram Ltd. produces 4 products using 3 different
machines. Machine capacity is limited to 3,000 hours for each machine. The
following information is available for February, 2009:
Products A B C D
Contribution (Sales-direct material)`
Machine Hours Required/ Unit:
1,500 1,200 1,000 600
Machine 1 10 6 2 1
Machine 2 10 9 3 1.5
Machine 3 10 3 1 0.5
Estimated Demand (units) 200 200 200 200
From the above information you are required to identify the bottleneck
activity and allocate the machine time.
Quality Cost Report, Taguchi Loss Function Kathy Shorts, president of Oliver Company, was concerned with the trend in sales and profitability. The company had been losing customers at an alarming rate. Furthermore, the company was barely breaking even. Investigation revealed that poor quality was at the root of the problem. At the end of 2015, Kathy decided to begin a quality improvement program. As a first step, she identified the following costs in the accounting records as quality related: 2015 Sales (621,000 units @ $100) $62,100,000 Retesting 1,925,100 Rework 2,359,800 Vendor certification 807,300 Consumer complaints 1,552,500 Warranty 2,173,500 T est labor 1,738,800 Inspection labor 1,676,700 Design reviews 310,500 1. Prepare a quality cost report by quality cost category. Round percentages to one decimal place if rounding is required. For example, 5.78% would be entered as "5.8". quality costs total quality costs percentage sales prevention costs vendor certificate 807300
Keesha Co. borrows $275,000 cash on November 1, 2015, by signing a 150-day, 10% note with a face value of $275,000.On what date does this note mature? Assume a 365 day yearWhat is the amount of interest expense in 2015 and 2016 from this note? (Use 360 days a year. Do not round intermediate calculations.)Prepare journal entries to record (a) issuance of the note, (b) accrual of interest at the end of 2015, and (c) payment of the note at maturity. (Use 360 days a year. Do not round intermediate calculations.)Record the issuance of the $275,000 noteRecord the interest accrued on the note as of December 31, 2015.Record payment of the note at maturity, assuming no reversing entries were made on January 1.
Furnival has a distillation plant that produces three joint products, P. Q and R. in the proportions. 10:5:5. After the split off point the products can be sold for industrial use or they can be taken to the mixing plant for blending and refining. The latter procedure is normally followed. For a typical week. in which all the output is processed in the mixing plant. the following Profit and Loss Account can be prepared:
The joint process costs are 25% fixed and 75% variable, whereas the mixing plant costs are 10% fixed and 90% variable and all the 'other separable costs' are variable. If the products had been sold at the split-off point the selling price per gallon would have been:
There are only 45 hours available per week in the mixing plant. Typically 30 hours are taken up with the processing of products P, Q and R (10 hours for each product line) and 15 hours are used for other work that generates (on average) a profit of £200 per hour after being charged with a proportionate share of the plant's costs (including fixed costs). The manager of the mixing plant considers that he could sell all the plant's processing time externally at a price that would provide this rate of profit. It has been suggested:
(i) that, since product R regularly makes a loss, it should be sold off at the split-off point.
(ii) that it might be possible advantageously to change the mix of products achieved in the distillation plant. It is possible to change the output proportions to 7:8:5 at a cost of £1 for each additional gallon of Q produced by the distillation plant.
You are required to compare the costs and benefits for each of the above proposals. Use your analysis, to suggest any improvements that seem profitable and set out the weekly Profit and Loss Account for the improved plan, in a manner which you consider will assist the management with further problems of this type.
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