Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Trumpet Ltd is considering producing a new product to market overseas. It expects that it will be able to sell the product for $400 per

Trumpet Ltd is considering producing a new product to market overseas. It expects that it will be able to sell the product for $400 per unit. The costs involved with the product are variable costs of $200 per unit and fixed costs of $1,500,000.

The managing director wants you to provide the following information:

(a)The break-even point in units and dollars

(b)The profit/loss on 30,000 units

(c)The new break-even figures if fixed costs increased to $3,500,000

You have been provided with the following information on the expenses of Trumpet Ltd for the month of May 2020:

ACTUAL

100,000 units

BUDGET

80,000 units

Materials

211,200

160,000

Direct labour

158,000

128,000

Maintenance

20,800

16,000

Glue, screws, nails

10,000

8,000

Supplies

38,000

32,000

Electricity

31,000

24,000

Rent

24,000

24,000

Salaries

9,000

9,000

TOTAL

$502,000

$401,000

You are required to:

(i)Prepare the performance report for the month of May 2020 using the flexible budget approach

(ii)Where there is an unfavourable variance give possible reasons and corrective action

During the year 2020, Trumpet Ltd sold two products. The budgeted and actual details are as follows:

Details

Actual 2020

Budget 2020

Sales of product A

1,400 units at $60 each

1,400 units at $66 each

Product cost of A

1,400 units at $36 each

1,400 units at $40 each

Sales of product B

400 units at $160 each

500 units at $150 each

Product cost of B

400 units at $80 each

500 units at $84 each

You are required to:

(i)Prepare a profit & loss statement showing budget, actual and variance figures in order to do a sales and gross profit analysis

(ii)Calculate the sales mix or volume variance

(iii)Calculate the price variance

(iv)Calculate the cost variance

(v)Reconcile the total gross profit variance

(vi)Give a summary of the above results, reasons for unfavourable variances and recommendations for correction.

Trumpet Ltd is considering expanding its operations in Kenya. The directors have identified two projects among the various options available to them, Project X and Project Y. The details are as follows:

Project X

Project Y

Initial investment

Life

Profit after tax

Net cash inflows

$112,500

4 years

$18,000

$37,500

$130,000

5 years

$20,000

$40,000

The directors want you to state if the projects are acceptable and given a choice which one you would select giving working and reasons. Furthermore, because the directors want to be sure they select the correct option, they want you to evaluate the above projects using the following four methods:

(a)Accounting rate of return - The required rate is 15%

(b)Payback period - A project is required to pay for itself within 3.25 years

(c)NPV assuming an interest rate/cost of capital of 14%

(d)Profitability Index

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

Introduction To Financial Accounting

Authors: Charles T Horngren, John A Elliott

9th Edition

0131479725, 978-0131479722

More Books

Students also viewed these Accounting questions

Question

2. The purpose of the acquisition of the information.

Answered: 1 week ago

Question

1. What is the meaning of the information we are collecting?

Answered: 1 week ago