5. Assume that after the successful business operation in the first year the owners decided to change their location in the next year. After some careful investigation of various options the owners decided to set up their selling store in Alki Beach, Seattle. For this new selling store, they now have to pay a rental of $1000 per month. Their previous store will now be fully used for the production of meat pies from where they will deliver the pies to the final selling destination, the Alki beach. For the customers sitting arrangement on the beach, the owners decided to purchase some tables and benches; $120 per table & bench set X 10 = $12,000. The table and bench sets are expected to last next 5 years. From next year the two owners also decided to take fixed salary of $1000 each. Also the owners decided to give the sales personnel $.50commission per pie sold, besides giving them fixed salary. Furthermore, in order to keep the pie production space meticulously clean the owners now want to spend $200 for supplies per month. The other costs given in the case (from first year of operation) will remain the same. a) Calculate the monthly fixed manufacturing overhead cost for the production of meat pies. [1] b) Calculate the monthly fixed selling and administrative cost. [1] c) Calculate the variable per unit cost of production of meat pies. [1] d) Calculate the per unit selling and administrative cost. [1] e) Calculate the new breakeven point in units. [1] f) In the next year the owners have decided to sell 25,000 pies in the first month of operation. Calculate the margin of safety percentage based on this information. Also interpret the result. [1+1] g) Consider the following information of January and February. And prepare income statement of only February based on both variable costing and absorption costing. [2+2] h) Reconcile the operating income calculated under variable costing and absorption costing for the month of February. [2] January February 0 500 Beginning units Units produced Unit sold 24,500 26,000 25,000 24,000 i) If produced units exceeds units sold, which method (variable or absorption costing) would you expect to show the higher operating income? Why? (1+1] 5. Assume that after the successful business operation in the first year the owners decided to change their location in the next year. After some careful investigation of various options the owners decided to set up their selling store in Alki Beach, Seattle. For this new selling store, they now have to pay a rental of $1000 per month. Their previous store will now be fully used for the production of meat pies from where they will deliver the pies to the final selling destination, the Alki beach. For the customers sitting arrangement on the beach, the owners decided to purchase some tables and benches; $120 per table & bench set X 10 = $12,000. The table and bench sets are expected to last next 5 years. From next year the two owners also decided to take fixed salary of $1000 each. Also the owners decided to give the sales personnel $.50commission per pie sold, besides giving them fixed salary. Furthermore, in order to keep the pie production space meticulously clean the owners now want to spend $200 for supplies per month. The other costs given in the case (from first year of operation) will remain the same. a) Calculate the monthly fixed manufacturing overhead cost for the production of meat pies. [1] b) Calculate the monthly fixed selling and administrative cost. [1] c) Calculate the variable per unit cost of production of meat pies. [1] d) Calculate the per unit selling and administrative cost. [1] e) Calculate the new breakeven point in units. [1] f) In the next year the owners have decided to sell 25,000 pies in the first month of operation. Calculate the margin of safety percentage based on this information. Also interpret the result. [1+1] g) Consider the following information of January and February. And prepare income statement of only February based on both variable costing and absorption costing. [2+2] h) Reconcile the operating income calculated under variable costing and absorption costing for the month of February. [2] January February 0 500 Beginning units Units produced Unit sold 24,500 26,000 25,000 24,000 i) If produced units exceeds units sold, which method (variable or absorption costing) would you expect to show the higher operating income? Why? (1+1]
