Laila company has provided the following information about the company

Sales

$225,000

Sales Discount

$20,000

Overhead cost(Fixed)

$ 35,000

Overhead (Variable)

$ 20,000

Sales Return /Allowance

$2,500

Selling commission [variable ]

$ 39,600

Supplies

$2,600

Selling commission [fixed]

$ 15,000

Prepaid expense

$11,000

Variable admin expenses

$ 24500

Accrued cost

$7900

Fixed admin expenses

$ 20,000

Tax

25%

Interest expenses

$5,420

Capacity of production

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.FindCM per unit and the Contribution Margin Ratio

4.Determine the breakeven sales in units and dollars

5.Draw a graph to show the profit and lost and breakeven point for this company [BE graph]

6.Calculate margin of safety in dollars andin percentage . Explain what this concept means to a cost accountant.

7.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 willincrease by $ 85,000. Should the company accept the project or reject ?

8.Determine the sales revenue necessary to generate before tax profit if the after tax is$75,000. The tax rate is 18%

9.Determine sales revenue necessary to generate after-tax profit of $85,000 .

10. Calculate degree of leverage [DOL] and if sales increases by 25%, what will be the increase or decrease in net income in $ of this company? What will be the total net incomeif the project is accepted

[use original data in the beginning]

QUESTION 2

ABCproblem

Company LSD LTD has 4 types of overhead . The four categories and expected costs for each category for next year are listed below

Company LSD LTD

Activity cost

Setups cost

$150,000

Inspection cost

$90,000

Maintenance cost

$120,000

Material Handling cost

$ 82,000

Actual overhead Cost

$30,000

Estimates for the proposed job [Job #23] are as follows

Direct Materials

$6,000

DL (1000 hours)

$10,000

Machine Hours [maintenance cost]

500

# of material moves

12

# of setups

5

# of inspections

10

Units produced

240

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 :

Cost Drivers

Machine Hours

15,000

Material Moves

4,600

Setups

3,500

Quality Inspections

5,000

Required :

Part 1

1.Calculate the predetermined rates using the Functional based costing .

2.Determine the amount of overhead that would be applied to the proposed project if Functionalbased costing method is used

3.Determine the total cost of the proposed job using ABC

4.Calculate the unit cost using FBC

5.What bid price is the company going to use according to its FBC policy?

Part 2

1Calculate the predetermined rates using the activity based costing .

2Determine the amount of overhead that would be applied to the proposed project if activity based drivers are used

3Determine the total cost of the proposed job using ABC .

4Calculate the unit cost using ABC.

5What bid price is the company going to use according to its policy?

6Has the company over-applied or under-applied using FBC and ABC? How did you come to this conclusion?