Question

In: Accounting

Use the following information to answer questions 31 to 36: CDE Ltd has provided you with...

Use the following information to answer questions 31 to 36:

CDE Ltd has provided you with the following data relating to the product manufactured by his factory:

Selling price per unit

$ 100

Variable manufacturing costs per unit

48

Fixed manufacturing costs per annum

250,000

Variable marketing, distribution and administration costs per unit

16

Fixed non-manufacturing costs per annum

182,000

What is the contribution margin per unit? Show your workings.

Calculate quantity to produce to break even in both units and sales dollars. Show your workings.

CDE Ltd expects to sell 15,000 units in the coming year. What is the margin of safety at this level of activity?

How much profit will the business make for the year if its estimated level of activity of 15,000 units is accurate? Show your workings.

CDE Ltd has spare capacity and receives a special order from an interstate retailer for 1,000 units at a price of $80 per unit. Briefly explain why CDE Ltd should accept or reject the order based on financial analysis.

List two qualitative factors CDE Ltd ought to take into consideration in a special order decision.


Solutions

Expert Solution

31 Sales Price per unit 100
Less:Variable Cost per unit:
Variable manufacturing cost per unit $                              48
Variable marketing, distribution cost cost per unit $                              16 $                        64
Contribution Margin per unit $                        36
Contribution Margin ratio($36 / $100) 36%
32 Total Fixed Costs($250,000+$182,000) $                    4,32,000
Break-even point in units($432,000 / $36) 12000 units
Break-even point in $($432,000 / 36%) $                  12,00,000
33 Break-even point in Dollar $                  12,00,000
Margin of Safety($1,500,000-$1,200,000) $                    3,00,000
34 Income Statement at 15,000 units
Sales(15000*$100) $                  15,00,000
Less:Variable Costs(15000*$64) $                    9,60,000
Contribution Margin $                    5,40,000
Less:Fixed Costs $                    4,32,000
Net Income $                    1,08,000
35 The Relevant cost for decision making are the variable costs, which in this case is $64 per unit
Since the price offered by the Buyer is $80, there is a Income of $16 per unit. Hence the special order should accept the order
The net benefit shall be $16,000(1000*$16)
36 Whether the employees of the company are willing to make the extra units or not, It means whether they have the motivation to commit to this extra work
Whether transporation of the special order is feasible to the Seller or not.

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