1 CVP question Laila company has provided the following information about the company Sales $225,000 Sales Discount $20,000 Overhead cost (Fixed) $ 35,000 $ 20,000 $2,500 Overhead (Variable) Sales Return/Allowance Selling commission [variable] Selling commission [fixed] Variable admin expenses $ 39,600 $15,000 $ 24500 $ 20,000 Fixed admin expenses 25% Interest expenses $5,420 Capacity of producing 4,000 units Units sold 3,500 Units produced 3,500 Hint: all selling and admin costs are operating expenses REQUIRED 1. Calculate the net income using contribution approach 2. Calculate Net income using the absorption method [ Financial Accounting method] 3. Find CM per unit and the Contribution Margin Ratio 4. Determine the breakeven sales in units and dollars 5. Calculate margin of safety in dollars and in percentage. 6. The sales manager believes that a project of the company could increase sales by 25% but variable cost will also decrease by $5,000 and fixed cost will increase by $ 85,000. Should the company accept the project or reject? 7. Determine the sales revenue necessary to generate before tax profit of $75,000. 8. Determine sales revenue necessary to generate after-tax profit of $75,000 if tax rate is 30% 9. Calculate degree of leverage [DOL] and if sales increases by 25%, what will be the increase or decrease in net income of this company? What will be the total net income if the project is accepted [use original data in the beginning] QUESTION 2 ABC problem Company LSD LTD has 4 types of overhead. The four categories and expected costs for each category for next year are listed below Setups Inspection Maintenance Material Handling Actual overhead Cost $150,000 $90,000 $120,000 $82,000 $30,000 Estimates for the proposed job [Job #23] are as follows Direct Materials $6,000 DL (1000 hours) $10,000 Machine Hours 500 # of material moves 12 # of setups 2 # of inspections 10 The company has been asked to submit a bid for a proposed job. The plant manager thinks getting this job would result in new business in future years . Usually bids are based upon full manufacturing cost plus 30%. In the past, full manufacturing cost has been calculated by allocating overhead using volume based cost driver [[DLH]. The plant manager has heard of a new way of applying overhead that uses cost pools and cost drivers. Expected activity for the four activity based cost drivers that would be used are: Machine Hours Material Moves Setups 35,000 4,600 3,500 Quality Inspections 5,000 Required: 1. Calculate the predetermined rates using the activity based costing. 2. Determine the amount of overhead that would be applied to the proposed project if activity based drivers are used 3. Determine the total cost of the proposed job using ABC 4. What bid price is the company going to use according to its policy? 5. Has the company over-applied or under-applied? How did you come to this conclusion? Question 3. Theory Questions A. Differentiate between Functional based Costing and Activity based costing B. What are the weaknesses of Functional based costing? C. Give two examples of unit level drivers and two examples of non-unit level drivers D. Mention three assumptions of CVP analysis E. Explain what the following measures indicate to the managers: i. Margin of Satety ii. Degree of Operating Leverage