Question

Hi There

Please assist me on this essay.

The subject is Management Accounting.

Seiko Manufacturers is expected to commence business on 01 July 2020, making smart watches. The budgeted figures for July 2020 (Question 1) and August 2020 (Question 2) are provided below. You are expected to assist Seiko Manufacturers in its planning phase by undertaking CVP analysis and preparing an income statement using absorption costing.

Question 1:

Estimated production and sales                                       3000 units

Selling price per watch                                                     R900

VARIABLE MANUFACTURING COSTS PER WATCH:

- Direct materials                                                               R270

- Direct labour                                                                   R180

- Overheads                                                                      R 90

Fixed manufacturing overheads                                       R282 000

Marketing and administrative costs:

Fixed costs                                                                       R150 000

Variable costs                                                                  R10% of sales

Required:

1.1 Calculate the break - even quantity

1.2 Calculate the target sales value using the marginal income ratio, if a profit of R600 000 is desired.

1.3 The sales manager made the following proposal to increase profitability:

Decrease the selling price by R40 PER UNIT AND INCREASE ADVERTISING EXPENSE BY r24 000 WITH THE EXPECTATION THAT SALES VOLUME WILL INCREASE BY 10%. should the sales manager's proposal be accepted? Motivate your answer with the relevant calculations.

Question 2:

The financial manager of Seiko Manufacturers provided the following budgeted information for the month ended 31 August 2020:

Estimated production                                             5 000 units

Estimated sales                                                     4 500 units

Selling price per watch                                        R    900

Variable manufacturing costs per watch             R    550

Fixed manufacturing overheads                         R 300 000

Marketing and administrative costs:

Fixed costs                                                        R 150 000

Variable costs per watch sold                           R      100

Required:

Prepare the income statement for the month ended 31 August 2020 using the absorption costing method.

Kind Regards

Annelie

Answer 1