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ACF1200WorkshopHandoutQuestions Week9 Question1 Assumethatashopcanpurchasedenimjeansforatotalvariablecostof$42perpair.Thejeansaresoldfor$70per pairandtotalfixedcostsamountto$84,000. Required: (a) (b) (c) (d) (e) (f)

Calculatethecontributionmarginperunit. Calculatethebreak‐evenpointinunits. Calculatethecontributionmarginratio. Calculatethebreak‐evenpointinsalesdollars. Calculatethequantityofsalesrequiredtoachieveatargetprofitof$40,000. Distinguishbetweenthebehaviouroffixedandvariablecosts,bothperunitand intotal.

Question2***PRESENTATIONQUESTION***

AAAAntiqueFurnitureManufacturersPtyLtdmakesspecialisedantique‐stylechairsforsalethroughretail homemaker outlets. The business operates from a leased property in Frankston, which includes a large factory and an administration office located on the same premises. The factory has the capacity to manufacture 3,100 pieces of furniture per annum. There are two full‐time factory supervisors that work rotating shifts to cover the hours of operation, and three full time office administration staff. Other employeesinclude15labourerswhoarehiredonacasualbasisinthefactory(theirhoursvaryonaweekly basisdependingondemandforthefurniture). Thereisanextensiveamountofmachineryinthefactory,allofwhichisownedbythecompany.Timberand other raw materials are ordered from suppliers on demand, and all furniture is sold on a credit basis. Advertisingisprimarilythroughlocalnewspapers,butoccasionalradioadvertisementsareundertaken. (a) ClassifythefollowingselectedcostsrelatedtoAAAAntiqueFurnitureManufacturersPtyLtdbymarking thecategorytheybelongin. Typeofcost Supervisors’salaries Casuallabourers’wages Administrationstaffsalaries Materialsusedinmanufacture Depreciationofmachinery Leaseofpremises Advertising Telephoneexpense Utilitiesexpense

Variablecost

Fixedcost

Mixedcost

AssumethatAAAAntiqueFurnitureManufacturersPtyLtd’sfixedcoststotal$497,500perannum.The chairstheysellretailat$950perchair,andvariablecoststotal$650perchair. (b) Calculatethenumberofchairsthatmustbesoldperyeartobreak‐even(inunits).

(c) Calculatethenumberofchairsthatmustbesoldperyeartobreak‐even(indollars)basedonyour answertopart(b).  (d) Calculatethenumberofchairsthatmustbesoldperyeartobreak‐even(indollars)usingthe alternativebreak‐evenformula(usingcontributionmarginratio).  (e) Whichanswerdoyouthinkismoreappropriatetouse?Why?  (f) IfAAAAntiqueFurnitureManufacturersPtyLtdwishestomakeatargetprofitof$500,000peryear, howmanychairsmustthecompanymanufactureandsell?  (g) Isthisquantityachievableunderthecircumstances?Explain.  (h) Underwhatcircumstanceswouldthecompanybeabletoachievethetargetprofitinpart(f)?  (i) AssumingAAAAntiqueFurnitureManufacturersPtyLtdmanufacturedandsold2,500chairsina year,determinetheprofitthecompanywouldhaveearnedbypreparingacontributionmargin statement(showingsaleslessvariablecosts=contributionmargin,lessfixedcosts=profit).  (j) Calculatewhatbothfixedandvariablecostswouldbeifthecompanymanufacturedandsold3,000 chairs.Explainyouranswers.  (k) WhatisAAAAntiqueFurnitureManufacturersPtyLtd’srelevantrange?  (l) Whatcouldhappento(i)fixedcostsand(ii)variablecostsifmanufactureexceedsthatrelevant range?  (m) AAAAntiqueFurnitureManufacturersPtyLtdemploysacontractorthatcomesintothefactoryto attachthefabrictochairs.Thisprocedurerequiresspecialmachineryandtools.Thecontractor spends8hoursperchairtoattachfabric,andispaid$20perhour.Thefabriccosts$70perchair. Anopportunityhasarisentooutsourcetheprocessatacostof$233perchair(maximum3,100 chairs).Ifoutsourcingischosen,fixedcoststotalling$45,000wouldbeavoided.Determinewhether outsourcingisafinanciallybeneficialoption.  (n) IdentifyrisksthatAAAAntiqueFurnitureManufacturersPtyLtdmayfaceiftheychooseto outsourcethefabricprocess.   ...