Topic 3 - practice style exam question Part 1 Ash & John is a Brisbane-based company that manufactures tennis racquets. The company produced and sold 1,000 racquets in December 2019. Each racquet was sold at $180. Ash & John had the following accounting record for the period: Raw materials inventory, 1 December $ 42,500 Raw materials inventory, 31 December $ 28,000 Work-in-process (WIP), 1 December $ 33,500 Work-in-process (WIP), 31 December $ 65,000 Finished goods, 1 December $ 20,500 Finished goods, 31 December $ 9,500 Raw materials purchased $ 65,500 Indirect materials used $ 23,000 Direct manufacturing labour (820 hours) $ 24,600 Indirect manufacturing labour (620 hours) $ 18,600 Depreciation - production equipment S 7.000 Rent - production plant $ 9,000 Rent - administration office $ 1,200 Salary - production manager S 6,000 Salary - administration manager $ 4,500 Other sales, general and admin costs $ 8,000 The following additional information is now available: Direct materials used were $57,000. Indirect material costs and indirect labour costs were proportional to production volume. The company applies straight-line depreciation. 50% of other sales, general and admin costs were fixed. Required: A. Calculate the following amounts for the month December 2019: VI. Total variable costs. VII. Contribution margin. VIII. Contribution margin ratio. IX. Sales revenue required to break even. B. The recent rises of several Australian tennis players at the international level have led to the increased market demand for tennis equipment. Ash & John is currently operating at capacity and would like to increase its production to meet the market demand. If the company is to expand its capacity, the following changes will take place: I. A decrease in unit variable costs mainly due to the greater discount on large purchases of materials. II. An increase in production volume. III. An increase in sales volume. IV. An increase in fixed costs due to the need to rent additional production facilities and hire a new production supervisor. Consider each of the above changes separately, what is the effect of each on Ash & John's break-even point? Part 2 You are friends with Ash & John's accountant Nick K. Nick realised you are performing CVP analysis for his company and would like to help you out. He informed you that the company in fact sells two types of racquets: Power Pro and Control Plus. The production of each type of racquets requires different resources, however, Ash & John sells all racquets at the same price $180 each. Nick quickly put together the following additional information for you: For the month December 2019 Power Pro Control Plus Total Sales and production volume (unit) 600 1,000 Unit variable cost $108 400 $140 Required: C. Find the number of each type of racquets to sell to break even