Solution –
Direct materials = $22800
Direct labour hours = 600
Direct labour rate per hour = $16
Direct labour cost = 600 * $16 = $9600
Machine hours used = 400
Applied factory overhead rate per machine hour = $30
Total factory overhead = 400 * $30 = $12000
Total manufacturing cost = $22800 + $9600 + $12000 = $44400
Cost per coffee table for Job No. X10 = $44400 / 150 = $296
Solution –
Activity cost pools |
Cost drivers |
Estimated overhead |
Use of cost drivers |
Activity rates for overhead items |
Purchasing |
Number of orders |
$1200000 |
40000 |
$1200000/40000 = $30 |
Machine set ups |
Number of set ups |
$900000 |
18000 |
$900000/18000 = $50 |
Machining |
Machine hours |
$4800000 |
120000 |
$4800000/120000 = $40 |
Quality control |
Number of inspections |
$700000 |
28000 |
$700000/28000 = $25 |
Particulars |
Amount ($) |
Direct materials (260000*$700) |
18200000 |
Direct labour (26000 * $120) |
3120000 |
Overhead: |
|
Purchase activity (17000 * $30) |
510000 |
Set up cost (5000 * $50) |
250000 |
Machining (75000 * $40) |
3000000 |
Inspection (11000 * $25) |
275000 |
Total cost of production |
25355000 |
Cost per unit ($25355000 / 26000) |
975.19 |
Particulars |
Amount ($) |
Selling price per TRI-X |
1600 |
Cost per TRI-X as per ABC |
975.19 |
Gross profit per TRI-X |
624.81 |
It is highly recommended that the firm must adopt activity based pricing as it will help the firm in earning profit of more than $600 per model. This model is effective in determining the accurate cost of the product after identifying the major activities concerned with the product. Under traditional costing, the product cost has been found as $1048 but using ABC method of costing, cost has been determined as $975.19. ABC method of costing is effective method to find out the cost of the product.
Cash receipts budget schedule |
|||
(Amounts in $) |
July |
August |
September |
Sales (units) |
1000 |
1500 |
2000 |
Sales revenue |
140000 |
210000 |
280000 |
Receipts: |
|||
15% immediate less 4% discount |
20160 |
30240 |
40320 |
25% one month later |
35000 |
52500 |
|
40% two months later |
56000 |
||
Total receipts |
20160 |
65240 |
148820 |
Material purchases budget schedule |
||||
(Amounts in $) |
July |
August |
September |
October |
Material used |
87000 |
99000 |
127200 |
147600 |
Add: closing material |
19800 |
25440 |
29520 |
|
Less: Opening inventory |
19800 |
25440 |
||
Purchases |
106800 |
104640 |
131280 |
|
Paid |
106800 |
104640 |
Cash Budget for July |
|
Particulars |
Amount ($) |
Material |
|
Labour |
14500 |
Variable overheads |
18850 |
Fixed overheads |
42000 |
Total payments |
75350 |
Receipts |
20160 |
Net cash flow |
-55190 |
Opening balance |
250000 |
Closing balance |
194810 |
The payment for the materials has been made in the following month. Therefore, the payment for the material used in July has been paid in August.
Variable cost per unit = $3
Shipping cost = $0.20
External selling price = $4
Contribution from external market = $4 - $3 - $0.20 = $0.80
Transfer price will be estimated on the basis of variable cost only as the Bottle Division has sufficient capacity to meet demand of units raised by Perfume Division as well as from external market.
Transfer price = Variable cost per unit incurred as goods are transferred
Transfer price = $3
Here, it would be considered beneficial for Perfume Division to initiate transfer of bottles as it can buy these bottles at the rate of $3.50 from external market.
New transfer price = Variable cost per unit + Opportunity cost foregone
New transfer price = $3 + $0.80 = $3.80
Solution –
Alpha |
Beta |
Gamma |
Total |
|
Sales mix |
50% |
40% |
10% |
100% |
Selling price per unit |
$250 |
$400 |
$1500 |
|
Variable cost per unit |
$80 |
$200 |
$800 |
|
Contribution margin per unit |
$170 |
$200 |
$700 |
|
Unit sales |
12000 |
6000 |
2000 |
20000 |
Contribution margins |
$2040000 |
$1200000 |
$1400000 |
$4640000 |
Weighted average unit contribution margin = $4640000 / 20000 = $232
Annual fixed cost = $5000000
Break even point = $5000000/ $232 = 21552 units
Break even units of Alpha printer = 21552 * (12000/20000) = 12931 units
Break even units of Beta printer = 21552 * (6000/20000) = 6466 units
Break even units of Gamma printer = 21552 * (2000/20000) = 2155 units
i) Margin of safety indicates the units of sales that are beyond the break even point. This shows the amount by which the sales of the company might reduce before the firm will have no profits.
ii) Calculation of margin of safety
Given projected sales as 25000 units
Break even units = 21552 units
Margin of safety = 25000 – 21552 units = 3448 units
Solution –
Particulars |
Amount ($) |
Selling price |
240 |
Cost price |
201 |
Profit per unit |
39 |
Costs: |
|
Direct material |
570000 |
Direct labour |
600000 |
Variable manufacturing overhead |
168000 |
Fixed manufacturing overhead |
2400000 |
Special costs |
42000 |
Shipping cost |
90000 |
Total cost |
3870000 |
Cost per unit |
387 |
Profit per unit required |
39 |
Minimum acceptable price |
426 |
Minimum acceptable price would be $426 per unit as lower than this price would fetch losses to the firm.
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