Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Case 1 Cost-Volume-Profit (CVP) analysis + marginal analysis You are the manager in Bright company that produces paper bags for food shops and supermarkets. You

Case 1 Cost-Volume-Profit (CVP) analysis + marginal analysis

You are the manager in Bright company that produces paper bags for food shops and supermarkets. You are provided with following information:

  • Bright company is able to produce 80,000 packs of bags.
  • Its current sale volume is 60,000 packs of bags per year. This has achieved its maximum sale force.
  • Current selling price is $12 per pack of bags.
  • Variable costs in total are $240,000;
  • Fixed costs are $ 150,000.

A newly established shop has approached you, informing a willingness of purchasing 10,000 packs of bags per year at a price of $6 for each bag. If this proposal is accepted, unit variable costs would remain the same however fixed costs would increase by $10,000 per year.

Required:

  1. Discuss whether this proposal is worthwhile from a financial point of view.

  1. Analyze, if your competitor in the paper industry knows the above cost and price information, what action(s) may the competitor take to beat you in the market.

Case 2 Activity-based Costing (ABC) vs. Time-based Costing

Hello company manufactures three products, A, B and C.Forecast data concerning overheads (indirect costs) of the products for the next period as follows.

A B C
Forecast output (units) 50 60 80
Machine hours per unit 2 3 4
Number of customer orders 10 10 15
Number of quality control inspections 20 30 20
Number of engineering consultancies 10 8 7
Areas of workshops (m2) 2,500 5,000 2,500

Cost pools and related cost drivers

Cost pool $ Cost driver

Machine operating 30,000 Machine hours

Order processing 7,000 No. of customer orders

Quality control 4,000 No. of quality control inspections

Engineering consultancy 2,500 No. of engineer consultancies

Rent of the campus 10,000 Areas of workshops

Required

Calculate the overhead cost to be absorbed by each of the products using the following absorption costing methods.

  1. A traditional absorption method based on a machine hour rate.

(2) An activity-based method, using the relevant cost drivers to trace overhead costs to the individual products.

Case 3: Flexible budgets and variance analysis

Mary is a principal of a school which provides education and accommodation for students. The school secretary prepared the following summary of costs for 2020, including a column showing the original budget for 2020.

The School - cost analysis 2020 budget 2020 actual
Number of students 200 180

Fixed costs

Utilities $ 60,000 $ 64,000
Janitorial services 40,000 38,000
Repairs and maintenance 32,000 28,000
Salaries for non-convent employees 180,000 190,000
Total fixed costs 312,000 320,000

Variable costs

Food 1000,000 920,000
Clothing 90,000 82,000
Laundry & Linen Service 30,000 25,000
Educational costs 60,000 52,000
Allowances 50,000 48,000
Total variable costs 1,230,000 1,127,000

Total Costs

1,542,000

1,447,000

Mary is pleased that total costs were below budget for the year, but she wonders if this is partly due to the fact that the school enrolled fewer children than expected for the year.

Required:

  1. Prepare a flexible budget for 2020, based on the number of children actually enrolled in 2020.
  2. Should Mary be satisfied with the school's cost management in 2020? Explain.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Modern Management Concepts And Skills

Authors: Samuel Certo, S Certo

15th global Edition

978-1292265193, 1292265191

More Books

Students also viewed these Accounting questions

Question

5. Give some examples of hidden knowledge.

Answered: 1 week ago