Workshop WEEK 11 Solutions PDF

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Chapter 9 Cost–volume–profit analysis and relevant costing Application exercises – Easy AE9.1

Solution: Units

Difference

2,000 3,000 1,000

Total Cost $ 30,000 40,000 10,000

Variable Cost $ 20,000 30,000 10 per unit

Fixed Cost $ 10,000 10,000

F C per unit $ 5.00 3.33

(a) Total fixed cost $10,000 (b) Variable cost per unit $10 (c) Total cost per unit: o at 2,000 units $15 o at 3,000 units $13.33 AE9.2

Solution: (a) (b) (c) (d)

Required Contribution margin ($) Break-even (units) Profit ($) Margin of safety (units)

Formula SP$ -VC$

Calculation $9.20 - $4.40

Answer $4.80

FC$/CM$ (Units x CM$) - FC$

$40,320/$4.80 (11,200 x $4.80) - $40,320 $53,760 - $40,320 #11,200 - # 84,00

8,400 units $13,440

Sales units-BE units

2,800 units

AE9.3

Solution: (a) (i) (ii)

Required Contribution ratio Fixed costs

margin

Formula (SP$ -VC$)/SP$ BE units x CM$

Calculation ($86 - $53)/$86 $33/$86 #5500 x $33

Answer 0.3837 38.37% $181,500

(b) Required Formula Calculation Answer Contribution margin SP$ -VC$ $24 - $16.80*1 $7.20 ($) (ii) Break-even ($) FC$/CMR# $32,000/0.3 $106,666.67 (iii) Margin of safety (#) Sales units-BE units #5,500*2 - # 4445*3 1,055 units *1 VC = (1-CMR) x SP = 0.7 x $24 = $16.8 *2 Sales units =Sales $/SP $ per unit = $132000/$24 = #5500 *3 Break-even units = Break-even sales $/SP $ per unit = $106666.67/$24 = 4444.44 (i)

AE9.4

Solution: (a) Sales $’000 Wages $’000 High 240 141 Low 150 97 Difference 90 44 Rate 48.89% Using the ‘high-low’ method, ‘Wages’ represent 48.89% of Sales over the sales range $150,000 to $240,000. (b) Units

Total Cost $

Level 1 2,000 15,000 Level 2 5,000 22,500 Difference 3,000 7,500 The total fixed cost being $10,000

Variable Cost $ 5,000 12,500 2.50 per unit

Fixed Cost $ 10,000 10,000

F C per unit $ 5.00 3.33

AE9.10

Solution: Fixed/variable calculations Material $ Units Variable cost $ Labour $ Units Variable cost $ Fixed cost $ Overheads $ Units Variable cost $ Fixed cost $

Period 6 300,000 10,000 300,000 212,000 10,000 175,000 37,000 418,000 10,000 175,000 243,000

Calculations needed for solution Required Formula FC $

(a) (b)

VC$ CM ($) CMR Break-even (units) Break-even ($) Sales units Sales $

SP$ − VC$ (SP$ – VC$)/SP$ FC$/CM$ FC$/CMR (FC$ + DP$)/CM$ (FC$ + DP$)/CMR

Period 7 360,000 12,000 360,000 247,000 12,000 210,000 37,000 453,000 12,000 210,000 243,000

Change 60,000 2,000 $30 per unit 35,000 2,000 $17.50 35,000 2,000 $17.50

Calculation $37,000 + $243,000 + $116,000 $30 + $17.5 + $17.5 – $10 $100 − $55 ($100 – $55)/$100 $396,000/$45 $396,000/0.45 ($396,000 + $140,000)/$45 ($396,000 + $140,000)/0.45

Answer $396,000 $55 $45 0.45 8,800 units $880,000 11,911 units $1,191,111

AE9.15

Solution: Costs/Revenues per unit Selling price $ Variable costs

80

Direct materials Direct labour Variable overheads

25 10 5 40 40

Contribution per unit

Performance Sales

2017 existing volume 1,600,000 (200,000 x $80)

DM DL VO Contribution Fixed costs Profit

500,000 200,000 100,000 800,000 800,000 650,000 150,000

Capacity = 20,000 x 100/80 = 25,000 Break-even is 65% = 16,250 At b/e contribution = Fixed costs i.e. 16,250 x $40 = $650,000 so Fixed costs = $650,000

2018 1,600,000 20,000 x 25.5 20,000 x 11.50 20,000 x 5.5 850,000 (20,000 x 42.5) 750,000 650,000 100,000

Further options 1

2

New

Lost sales

Net

Accept/turn away excess Receive New sales 12,500 x $64

800,000

7,500 x $80

600,000

VC 12,500 x 42.50

531,250

7,500 x 42.50

318,750

Contribution

268,750

Increase capacity New sales VC Contribution Additional fixed costs Depreciation Overheads—interest Rent Increase contribution

800,000 531,250 268,750 75,000 50,000 25,000 150,000 118,750 so choose this option

281,250

−12,500...