Question 1. (23 marks) fixed Nice Inc. sells fashionable sneakers to the trade and retail stores. The company has identified three major cost pools: ordering, storage and shipping. It has relatively high costs of ordering among other activities The following information relates to actual activities in the year ended 30th April 2019. Activity Cost driver Quantity of usage of Cost of cost driver (number of) costs driver variable fixed Storage Packs storage 6,006 packs 193 per order 30,000 Ordering Packs ordered 10,500 packs 100 per pack 200.000 Shipping Shipments 15.000 shipments 65 per shipment 23,000 The general fixed costs were 500,000. In 2019,250,000 pairs were sold at 168 per pair and the average purchase price was 150 per pair. For year ended 30th April 2020, Nice Inc. plans to sell twice the number of pairs of sneakers as of in 2019. However, competitive conditions will require a reduction in unit selling prices of 3% in order to achieve these sale volumes. Sneaker's suppliers have agreed to a price reduction of 2,5% Through additional negotiations with suppliers and reconfiguration of their internal operations, Nice Inc. forecasts that the following can be achieved: Activity Cost driver Quantity of usage of cost Cost of cost driver (number of driver variable Storage Packs storage 5,500 packs 95 per order 10,000 Ordering Packs ordered 8,000 packs 100 per pack 200,000 Shipping Shipments 14,000 shipments 58 per shipment 10,000 General fixed cost will be 3,500,000 Required: (a) Calculate the net income and the net income as a percentage of sales made by Nice Ine for the year ended 30 April 2019, (5 marks) (b) Assuming that general fixed costs are allocated based on numbers of pairs ordered and using appropriate cost drivers, calculate the contribution, the Activity Based Cost net income, and the net income as a percentage of sales, for each of the following two orders (use 2019 data) Sales Order Air Power 666" Sales Order "Bryant Pairs ordered 500 10.000 Ordering 10 different orders 30% of 30 different orders Storage 15 packs 15 packs Shipping 5 shipments 1 shipment (8 marks) (c) Using the figures you obtained in b), compare the two orders and comment on the reasons for differences in profitability. (3 marks) (d) Using the figures provided above, create a budget for year ended 30 April 2020. Explain the results, providing at least 2 examples of possible reasons of such changes compared to 2019 budget. (7 marks) Question 1. (23 marks) Nice Inc. sells fashionable sneakers to the trade and retail stores. The company has identified three major cost pools: ordering, storage and shipping. It has relatively high costs of ordering among other activities, The following information relates to actual activities in the year ended 30th April 2019: Activity Cost driver Quantity of usage of Cost of cost driver (number on) costs driver variable fixed Storage Packs storage 6,006 packs 93 per order 30,000 Ordering Packs ordered 10,500 packs 100 per pack 200,000 Shipping Shipments 15,000 shipments 65 per shipment 23,000 The general fixed costs were 500,000. In 2019,250,000 pairs were sold at 168 per pair and the average purchase price was 150 per pair. For year ended 30th April 2020, Nice Inc. plans to sell twice the number of pairs of sneakers as of in 2019. However, competitive conditions We requires a TOT UN semmig prices of 3% in order to achieve Shipping Shipments 14,000 shipments 58 per shipment 10,000 General fixed cost will be 3,500,000 Required: Calculate the net income and the net income as a percentage of sales made by Nice Inc. for the year ended 30 April 2019. (5 marks) (b) Assuming that general fixed costs are allocated based on numbers of pairs ordered and using appropriate cost drivers, calculate the contribution, the Activity Based Cost net income, and the net income as a percentage of sales, for each of the following two orders (use 2019 data): Sales Order "Air Power 666" Sales Order "Bryant" Pairs ordered 500 10,000 Ordering 10 different orders 30% of 30 different orders Storage 15 packs 15 packs Shipping 5 shipments I shipment (8 marks) (c) Using the figures you obtained in b), compare the two orders and comment on the reasons for differences in profitability. (3 marks) (5 marks) (b) Assuming that general fixed costs are allocated based on numbers of pairs ordered and using appropriate cost drivers, calculate the contribution, the Activity Based Cost net income, and the net income as a percentage of sales, for each of the following two orders (use 2019 data): Sales Order "Air Power 666" Sales Order "Bryant" Pairs ordered 500 10,000 Ordering 10 different orders 30% of 30 different orders Storage 15 packs 15 packs Shipping 5 shipments 1 shipment (8 marks) (c) Using the figures you obtained in b), compare the two orders and comment on the reasons for differences in profitability (3 marks) Using the figures provided above, create a budget for year ended 30 April 2020. Explain the results, providing at least 2 examples of possible reasons of such changes compared to 2019 budget. (7 marks) (d)
