Part A: Fixed & Variable Cost
B: CVP Analysis
Output |
120000 |
Kgs |
|
Total |
Per kilograms |
||
Sales |
$ 5,40,000 |
4.5 |
|
Variable Expenses |
$ 3,60,000 |
3 |
|
Contribution Margin |
$ 1,80,000 |
1.50 |
|
Fixed Expenses |
$ 1,20,000 |
||
Net Operating Profits |
$ 60,000 |
||
1. Break Even Points (KGs.) |
80000 |
||
2. Break Even Points in Dollars |
$ 3,60,000 |
||
3. Target sales to earn target profits of |
$90,000 |
180000 |
|
4. Margin of Safety ($) |
$ 1,80,000 |
ii).
1. Fixed Lease Charges |
$ 20,000 |
||
Variable Lease Charges |
$ 12,000 |
||
hence at the level of production, the company should |
|||
Pay lease rent of $ 0.10 rather than going for a fixed plan. |
|||
2. Break Even Points(Kgs) |
38709.68 |
||
3. BEP ($) |
$ 1,74,194 |
||
4. Target sales to earn target profits |
150000 |
C : Relevant Cost/ Special order
Variable Manufacturing Overhead |
$ 2,25,000 |
||
Fixed Manufacturing Overhead |
$ 6,30,000 |
||
Direct Labour hours |
45000 |
||
Overhead rate per hour |
$ 19 |
||
VO / hour |
$ 5 |
||
FO per hour |
$ 14 |
||
Variable Manufacturing cost per units |
|||
Direct Material cost per units |
$ 21 |
||
Direct labor cost per units |
$ 41 |
||
VO per units |
$ 5 |
||
Total Variable Cost per units |
$ 67 |
||
Suppliers' price is $ 78 per unit hence it is advisable to buy. |
|||
Fixed cost is irrelevant |
Part d: Relevant cost make or buy
Total Cost per units of Manufacturing of part U 67 |
|||
Per Units |
|||
Direct Material Cost |
$ 8.70 |
||
Direct Labour Cost |
$ 2.70 |
||
Variable Overheads |
$ 3.30 |
||
Supervisor salary |
$ 1.90 |
||
Dep for sp Equipment |
$ 1.80 |
||
Allocated General Overheads |
$ 5.50 |
||
Total Cost per units |
$ 23.90 |
||
Relevant cost if buy from suppliers |
|||
Suppliers price |
21.4 |
||
Allocated General Overheads |
4.64 |
||
Relevant total cost |
26.04 |
||
As the relevant supplier cost is more it is better to manufacture it. |
Part E :
Particulars |
A |
B |
Selling price without further processing |
$ 21 |
$ 44 |
Total cost of Manufacturing(36+15) = 51 |
$ 16 |
$ 35 |
Profits if sold without processing |
$ 5 |
$ 9 |
Profits when it is further processed |
||
Selling Price |
$ 32 |
$ 64 |
less : further processing cost |
$ 14 |
$ 28 |
Net Realisable Value |
$ 18 |
$ 36 |
Total cost of Manufacturing(36+15) = 51 |
$ 17 |
$ 34 |
Profits when it is further processed |
$ 1 |
$ 2 |
It is better to sell as it is because it is making more profits |
||
compare to further processed |
Part F: Relevant cost / dropping a product
Statement of Net Operating Incomes |
If Continued |
If discontinued |
Sales |
150000 |
0 |
Less: Operating Cost |
||
Variable Expenses |
72000 |
0 |
Contributions |
78000 |
0 |
Fixed Manufacturing Exp |
50000 |
20000 |
Fixed Selling & Distribution Exp |
33000 |
20000 |
Total Cost |
83000 |
40000 |
Net Operating Profts (Loss) |
-5000 |
-40000 |
b. if the company discontinued than a loss will increase by 35000 |
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