Question

Managerial Accounting

Question 1:

The following is the income statement of Giza Co. for the period ended December 31, 2011:

Description	Product X	Product Y	Product Z	Total
Sales Revenue Variable cost	60,000 40000	90,000 ?	50,000 34000
Contribution margin Avoidable fixed cost Unavoidable fixed cost	? 0 10,000	20,000 8,000 15,000	? 20,000 5000
Net income (loss)	?	?	?

Required:

1. Complete the income statement
2. Do you advise the company to delete any product? Justify.
3. Prepare the income statement in case of deleting a product.
4. If the company can increase the sales of all products by 20%, do you still advice the company to delete any product? Justify.

Question 2:

The normal price per unit $120

Total cost per unit $90 (70% variable cost)

A customer from Nigeria would like to import 3000 units to sell in Bahrain for price $70 per unit.

The maximum capacity is 20,000 units

The local demand is 15,000 units.

Do you advise the company to accept this special order? Justify your answer?

If the customer seeks to receive the goods in Bahrain, and the cost of shipping is $8 per unit, do you advise the company to accept the offer in this case? Justify.

Question 3:

A company produces Cars, and purchasing the wheels for $ 100 per unit.

The management thinks to produce the wheels instead of purchasing it.

The cost of producing is as follows:

Variable cost $40

      Fixed cost:

New fixed cost to rent new equipment to produce the battery $250,000

General fixed cost (old fixed cost) $100000.

The quantity of wheels 5000

Do you advice the company to produce the wheels or not? Justify?

Question 4:

Cairo Co. can produce 3 products A, B & C; the following data is estimated to help in preparing the production plan for the coming period to maximize the profit:

	A	B	C
Price	$ 30	$50	$30
Variable cost	$ 18	35	20
Demand (maximum sales)	2000 units	4000 units	5000 units
Machine hours per unit	4 hours	3 hours	5 hours
Machine hours per unit	3	5	2

The fixed cost for the Co. is $10000 regardless the production plan.

The total machine hours are 30,000 hours (maximum capacity).

Required:

1- Prepare the production plan.

2- Prepare the income statement (Fixed cost is allocated according the sales revenue).

Question 5:

Total cost per unit $150

Compute the price in case of:

1. The price equal cost plus 25% of cost
2. The price equal cost plus 25% of price
3. The price that achieves return on assets 15% (total assets 3000.000 and the quantity of sales 100.000 units)

Answer 1

Q. 1

Description	Product X	Product Y	Product Z	Total
Sales Revenue	$ 60,000	$ 90,000	$ 50,000	$200,000
Variable cost	$ 40,000	$ 70,000	$ 34,000	$144,000
Contribution margin	$ 20,000	$ 20,000	$ 16,000	$ 56,000
Avoidable fixed cost	$         -	$    8,000	$ 20,000	$ 28,000
Unavoidable fixed cost	$ 10,000	$ 15,000	$    5,000	$ 30,000
Net income (loss)	$ 10,000	$   (3,000)	$   (9,000)	$   (2,000)
Yes. Product Z should be discontinued
Description	Product X	Product Y	Total
Sales Revenue	$ 60,000	$ 90,000	$150,000
Variable cost	$ 40,000	$ 70,000	$110,000
Contribution margin	$ 20,000	$ 20,000	$ 40,000
Avoidable fixed cost	$         -	$    8,000	$    8,000
Unavoidable fixed cost	$ 10,000	$ 15,000	$ 30,000
Net income (loss)	$ 10,000	$   (3,000)	$    2,000
Sales Increase 20%
Description	Product X	Product Y	Product Z	Total
Sales Revenue	$ 72,000	$108,000	$ 60,000	$240,000
Variable cost	$ 48,000	$ 84,000	$ 40,800	$172,800
Contribution margin	$ 24,000	$ 24,000	$ 19,200	$ 67,200
Avoidable fixed cost	$         -	$    8,000	$ 20,000	$ 28,000
Unavoidable fixed cost	$ 10,000	$ 15,000	$    5,000	$ 30,000
Net income (loss)	$ 14,000	$    1,000	$   (5,800)	$    9,200
If Product Z should be discontinued, the Net Income would increase by $800