Accounting

Formal Exams SP51, 2021 BXS172 Management Accounting for Non-Accountants Question 2 (15 marks) ZT Corporation manufactures and sells one product an infant car seat called LittleSeat at a price of $50 per seat. Variable costs equal 520 per seat. Total fixed costs are $495,000. ZT manufactures LittleSeat on the receipt of orders from its customers. In 2020 it sold 30,000 units of LittleSeat. One onT's customers, Toddler Corporation, has asked if in 2021 whether ZT will manufacture a different style of car seat called BigSeat. Toddler will pay $25 for each unit of BigSeat. The variable cost for BigSeat is estimated to be $15 per seat. ZT has enough capacity to manufacture all the units of LittleSeat it can sell as well as the units of BigSeat that Toddler wants without incurring any additional fixed costs. ZT estimates that in 2021 it will sell 30,000 units of LittleSeat (assuming the same price and variable costs as in 2020) and the 20,000 units of BigSeat. The management accountant at ZT checks the effect of accepting Toddler's offer on the breakeven revenues for 2020. Using the planned sales mix for 2021, she is surprised to find that the revenues required to break even appear to increase. She is not sure that her numbers are correct, but if they are, the management accountant feels inclined to recommend rejecting Toddler's offer. She asks for your advice. Reguired: 1. Calculate the breakeyen point in units revenues for 2020. (3 marks} 2. Calculate the breakeyen point in units m revenues for 2021 at the planned sales mix. (4 marks) 3. Explain why the breakeven point in units calculated in 1. and 2. above changes. (4 marks) 4. What should the management accountant do? Do you think she should recommend accepting Toddler's offer? Explain. (4 marks}