Accounting Problems



Accounting Problems

QE4) Data

Fixed cost = $600000

Variable cost = 55 percent of selling price

Solution

A)Contribution Margin Ratio = Since sales unit and selling price are not being provided, however, we know that company is going to spend 55 cents on every dollar

So CMR = 1-0.55= 0.45

B) Break Event Point = Fixed cost/Contribution Margin Ratio

= 600000/.45

= $1,333,333

C) Expected Sales = Fixed Cost + Profit/ Contribution Margin Ratio

= 600000 + 50000/. 45

= $1,444,444.44

E5) Data

Contribution Margin = $40

Fixed Cost = $800000

Target profit = $35,000

Solution

Break Even Point = Fixed cost/Contribution Margin Ratio

= 800000/40 = 20,000

Target Profit = Fixed Cost + Profit/Contribution Margin

= 800,000 + 35,000/40

= 20,875 Unit would be sold to achieve target profit

Units if fixed cost decreased to 10 percent

Fixed cost = $800000 *.01 = 80000

Fixed Cost new = 800000-80000 = $720000

Units = Fixed cost new + Profit/ Contribution Margin

= 720,000 + 35, 000/40

= 18,875 Units would be sold

Q P4.4)

Solution

Should company purchase of manufacture the product

As per the provided data if company plan s to manufacture product 1000 units in 5 batches than for per batch its cost would be

Per batch cost

Direct Material

$1,400

Direct Labor

1600

Unit Related Overhead

6000

Facility sustaining overhead

7200

Total

$16,200

Thus according to this per unit cost of XJ7 is $81, and company is currently purchasing it around $48 per unit. Hence it would be wise for the company to continue purchasing it from external supplier because by this it has high profit margin, and by including other cost, company will be in a strong position to sell its product at compatible market price.

If company decided to produce this product XJ7 in 2 batches, That its total cost per batch would be

Per batch cost

Direct Material

$3,500

Direct Labor

4000

Unit Related Overhead

15000

Facility sustaining overhead

18000

Total

$40,500

In this alternative per unit production cost of XJ7 is $81, thus there is no difference in production, and if company is producing an expensive product, then it would become impossible for it to compete among its competitors. In this circumstance, it would be wise for the company to continue purchasing the product from external supplier.

Before taking the final decision, management must consider other additional cost such salaries of employees, rent of place, electricity bills, maintenance of machines, security, and so many others. Thus, it is imperative for management to first develop a detail report of production, and then take a final decision

QP4.5)

Solution

Profit equation = Total revenue -Total cost

Profit equation = TR - TVC -TFC

Profit equation = ($175 * Q) - (65 * Q) -90000= 0.1($175*Q)

Offices =?

Offices = (175 * Q) - (65 * Q) -90000

= 175Q -65Q - 90000 = $17.5 * Q

= 110Q - 90000 = $17.50Q

= 92.5Q= 90000

Q = 973

Profit goal if price increased to 20 percent

Price = 175 *.2 = 210

Offices = (210 * Q) - (65*Q) - 90000= 21Q

= 124Q = 90000

= 726 offices

Company might come across various problems like decrease in customers, increase variable cost; company will not be able to compete with competitors, and other. These problems would incur because by increasing the price company is providing ...