QUESTION 4

Fitness First Co manufactures three types of fitness equipment: treadmills (T), cross trainers (C) and rowing machines (R). The budgeted sales prices and volumes for the next year are as follows:

T C R

Selling price RM1,600 RM1,800 RM1,400

Units 420 400 380

The standard cost card for each product is shown below.

T C R

RMRMRM

Material 430 500 360

Labor 220 240 190

Variable overheads 110 120 95

Labor costs are 60% fixed and 40% variable. General fixed overheads excluding any fixed labor costs are expected to be $55,000 for the next year.

REQUIRED:

A.Calculate the weighted average contribution to sales ratio for Fitness First Co using the formula of Total Contribution/Total Sales Revenue for the three products. (9 Marks)

B.Calculate the margin of safety in RM revenue for Fitness First Co. (5 Marks)

C.Using a graph paper and assuming that the products are sold in a CONSTANT MIX, draw a multi-product break even chart for Fitness First Co. Label fully both axes, any lines drawn on the graph and the breakeven point. (6 Marks)

D.Explain what would happen to the breakeven point if the products were sold in order of the most profitable products first. (5 Marks)

QUESTION 5

Excellent Sdn Bhd is preparing its budgets for the coming year. It expects to be able to sell 10,000 units of its only product, ExSmart, in January 2020. Sales are then expected to rise to 11,000 units in February and 14,000 units in March, and then remain stable for the rest of the year. Excellent Sdn Bhd aims to carry a finished goods inventory at the end of each month equal to 10% of the following month's sales. Each ExSmart takes four labor hours to make.

The company's 280 production workers are employed on contracts that require them to work a minimum of 160 hours per month and are each paid RM1,280 per month. Production workers are highly skilled and require a minimum of one year's training. In short term, it is not possible to recruit any more production workers. Any labor hours required in excess of 160 hours per worker are made up by overtime that is paid at basic rate plus an overtime premium of 50%.

You are required to prepare, for the first three months of 2020:

i. A production budget, showing opening and closing inventories of finished goods. (8 Marks)

ii.A labor budget, showing both hours and labor cost. (7 Marks)