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

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

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 6 months ago

1. Consider the following company. Revenues: 500 Variable costs 250 Fixed costs 100 Operating Income 150...

1. Consider the following company. Revenues: 500 Variable costs 250 Fixed costs 100 Operating Income 150 1. Assuming that volume increases 10%, what will revenues, variable costs and fixed costs be in year 2? What will operating income be? What will the operating margin be in year 2? 2. Assume in the example above that variable costs were 150 and fixed costs were 200. What will revenues, variable costs and fixed costs be in year 2? What will the operating...

Consider the following company. Revenues: 500 Variable Costs: 250 Fixed Costs: 100 Operating Income: 150 Assuming...

Consider the following company. Revenues: 500 Variable Costs: 250 Fixed Costs: 100 Operating Income: 150 Assuming that volume increases 10%, what will revenues, variable costs, and fixed costs be in year 2? What will operating income be? What will the operating margin be in year 2? Assume in the example above that variable costs were 150 and fixed costs were 200. What will revenues, variable costs and fixed costs be in year 2? What will the operating margin be in...

One of the variable production costs is the cost of steel. The standards for steel purchase...

One of the variable production costs is the cost of steel. The standards for steel purchase prices and usage as set at the beginning of 2016 were: Standard price of steel $25.00 per pound Standard quantity of steel per car 100 pounds per car Data on actual steel purchases for 2016 were: Actual cost of steel purchased and used $28,700,000 Actual pounds of steel purchased and used 1,210,000 pounds Recall that budgeted production for the year was 10,000 cars, while...

. Fixed Costs, Variable Costs, Total Costs, Revenues are used to estimate profitability. This is an...

. Fixed Costs, Variable Costs, Total Costs, Revenues are used to estimate profitability. This is an intersection with Economics and Accounting. Explain how they are derived and used for both disciplines.

Fisk Company uses a standard cost accounting system. During January, the company reported the following manufacturing...

Fisk Company uses a standard cost accounting system. During January, the company reported the following manufacturing variances. Materials price variance $1,290 U Labor quantity variance $910 U Materials quantity variance 730 F Overhead variance 830 U Labor price variance 440 U In addition, 8,490 units of product were sold at $9 per unit. Each unit sold had a standard cost of $5. Selling and administrative expenses were $7,580 for the month. Prepare an income statement for management for the month...

How are manufacturing costs reported in the financial statements?How are period costs reported in the financial...

How are manufacturing costs reported in the financial statements?How are period costs reported in the financial statements?

Q.4.2 In the 2020 fiscal year, Company B reported an accounting profit of $1,000. In the...

Q.4.2 In the 2020 fiscal year, Company B reported an accounting profit of $1,000. In the same year, the accounting depreciation expense for plant was $150, while the tax deduction for plant depreciation was $200. There was no other difference between accounting and tax in the year. In the 2019 fiscal year, the company recorded a tax loss ($300) and recognized a deferred tax asset in respect of this tax loss. In the 2020 fiscal year, the company reduced the...

You have collected the following data on output and total variable costs: Q TVC 1 533...

You have collected the following data on output and total variable costs: Q TVC 1 533 2 1024 3 1491 4 1952 5 2425 6 2928 7 3479 8 4096 9 4797 10 5600 Over what range of output does this firm exhibit increasing returns (increasing MPMP), and diminishing returns (decreasing MPMP)? Select one: a. Increasing returns for output levels at 2 and higher, and decreasing returns for output levels at 3 and lower. b. Increasing returns for output levels...

Variable Costing—Production Exceeds Sales Fixed manufacturing costs are $37 per unit, and variable manufacturing costs are...

Variable Costing—Production Exceeds Sales Fixed manufacturing costs are $37 per unit, and variable manufacturing costs are $111 per unit. Production was 91,000 units, while sales were 86,450 units. a. Determine whether variable costing income from operations is less than or greater than absorption costing income from operations. b. Determine the difference in variable costing and absorption costing income from operations. $

1.If a company uses accrual basis accounting, accrued revenues differ from deferred revenues in that accrued...

1.If a company uses accrual basis accounting, accrued revenues differ from deferred revenues in that accrued revenues are a) recorded as liabilities before the cash is collected from customers. b) recorded as liabilities before they are recognized as revenue earned. c) recognized as revenue earned after cash is collected from customers. d) recognized as revenue earned before cash is collected from customers. e) journalized only when cash is collected from customers. 2. A company paid $24,000 for six months of...