Question

In: Accounting

Q.1) Emirates Steel Company reported the following accounting values: Revenues OR 4,500,500 Variable manufacturing costs 20.18%...

Q.1) Emirates Steel Company reported the following accounting values:

Revenues OR 4,500,500
Variable manufacturing costs 20.18% of revenue
Variable nonmanufacturing costs 18.09 % of revenue
Fixed manufacturing costs 14.50 % of revenue
Fixed nonmanufacturing costs 12.11 % of revenue

Required:

Part 1:

a. Compute contribution margin.

b. Compute contribution margin percentage.

c. Compute gross margin.

d. Compute gross margin percentage.

e. Compute operating income.

Part-2:

Write a note on the above retrieved ratios and give comments whether investment in the shares of M/s Emirates Steel Company is a prudent decision as an investor or not? In both cases, respond why you taken decision of ‘Yes’ or ‘No’ (give reasons)?

Q.2) Pepsi Cola Company wants to estimate the cost for each process. It is a beverage manufacturing unit and only produce different flavors of beverages.

Required:

a. Classify each of the following costs as either direct or indirect with respect to production process.

b. Classify each of the following costs as either fixed or variable with respect to Pepsi Cola Company per day.

Direct Indirect Fixed Variable
Admin & Security
Tools & Accessaries
Employee Wages
Employees Transportation
Plant & Machinery

Solutions

Expert Solution

(A)

Contribution margin = sales/revenue - variable expenses

Variable expenses = variable manufacturing costs + variable non-manufacturing costs

In this example,

Variable manufacturing costs = 20.18% of revenue = 20.18% x 4500500 = 908201

And, variable non-manufacturing costs = 18.09% of revenue = 18.09% x 4500500 = 814140

Therefore,

Contribution margin = 4500500 - (908201+814140) = 4500500 - 1722341

= 2778159

(B)

Contribution margin percentage = (contribution margin/revenue) x 100

= (2778159/4500500) x 100

= 62% approximately.

(C)

Gross margin = sales/revenue - variable manufacturing costs - fixed manufacturing costs

= 4500500 - 908201 - 652573

= 2939726

Where,

Fixed manufacturing costs = 14.50% of revenue = 14.50% x 4500500

= 652573

(D)

Gross margin percentage = (gross margin/revenue) x 100

= (2939726/4500500) x 100

= 65% approximately

(E)

Operating income:

Revenue

(-) variable manufacturing costs

(-) fixed manufacturing costs

4500500

908201

652573

Gross margin

(-) variable non manufacturing costs

(-) fixed non manufacturing costs

2939726

814140

545011
Operating income 1580575

Where,

Fixed non manufacturing costs = 12.11% of revenue = 12.11% x 4500500 = 545011

ekkarill92 answered 3 weeks ago
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