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In: Accounting

E6.2 The selling price of a service is $25 per hour. Variable costs of providing the...

E6.2 The selling price of a service is $25 per hour. Variable costs of providing the service are $7.00 per

         hour and fixed costs for the business are $3000.

         (a) Calculate the contribution margin per unit.

(b) Calculate the contribution margin ratio.

(c) Prepare a contribution margin statement for the business if it sells 250 hours during a  period.

E6.3 A company has a target profit of $100 000. Its fixed costs are $150 000, variable costs are $12 per unit and the average selling price is $20 per unit.

Calculate:

(a) the number of units to be sold to achieve the target profit.          

(b) the total sales value necessary to achieve the target profit.

P6.1 Unicorn Ltd has provided the following information for the months of January and February:

                                                        January                 February

          Units sold                               25,000                    35,000

          Total costs                            $50,000                   $67,500

          Selling price per unit                $4                           $4

a. Calculate the variable costs per unit and the fixed costs per month.

b. Calculate the value of sales in a year that are needed to break even.

(c) Calculate the value of sales in a year that are needed to generate a profit of $10 000 per month.

P 6.2 Brisbun and Adlayde are two companies selling similar products in a competitive market. While

          their profitability is similar, their cost structure is different. The summary results for each

          company are shown below.

                                                                             Brisbun          Adlayde

            Sales 10,000 @ $20                                  200,000         200,000

            Less variable costs:

                      10,000 @ $10                                100,000

                      10,000 @ $5                                                          50,000

            Less fixed costs                                      75,000           125,000

            Profit ($)                                               $25,000            $25,000

  1. Calculate the contribution per unit and the break-even point in both units and sales value for each company.
  2. Which company has the highest risk? Explain why this is so.
  3. Which company is likely to make the highest return if sales exceed 10 000 units? Explain why this is so.

Q5. A business has fixed costs of $200 000, sells its products for $25 each and has variable costs of $10 each. Draw a CVP graph and show the break-even point in sales value and units.

Q6. Explain what is meant by the overhead allocation problem. Why is it important?

Q7. Explain how the allocation of overhead costs to products/ services differs under absorption costing and

       activity-based costing.  What are the costs and benefits of each method?

E6.6 The following customer profitability analysis has been prepared. Present the information in a more meaningful way.

                                                            Customer A      Customer B      Customer C

Sales                                                    $200,000         $300,000         $400,000

Variable costs                                       $120,000         $180,000         $240,000

Customer-specific marketing,

selling and distribution costs                 $100,000         $ 80,000          $ 80,000

Fixed corporate costs allocated

as 10% of sales                                      $ 20,000          $30,000           $40,000

How does the performance of each customer compare? What steps could management take to improve overall profitability?

Solutions

Expert Solution

ekkarill92 answered 2 years ago
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