Reference no: EM13340507
Using Profit and Loss Statement information to perform CVP analysis
Last year's profit and loss statement for ABC Ltd was presented as follows:
Sales (20 000 @ $20) $400 000
Cost of Sales:
Direct Materials $120 000
Direct Labour 80 000 200 000
200 000
Other Expenses:
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Fixed
|
40 000
|
|
|
Variable
|
100 000
|
140 000
|
|
Net Profit
|
|
$60 000
|
This year sales volume is expected to decrease by 5%, and total material and labour costs are expected to increase by 10%. Other variable expenses fluctuate directly with dollar sales. Fixed expenses are expected to drop by $3500.
Required:
(a) Ignoring income taxes, what is this year's expected net profit?
(b) What sales price per unit will be necessary this year if management wishes to maintain the same profit to sales ratio as last year?
Multi-product CVP: 2 products
A company makes two products, X and Y. At present the sales mix is 1 unit of X to 3 units of Y. Fixed costs per period are $20 000. Selling prices and variable costs per unit for each product are:
X Y
Unit selling price $18 $15
Unit variable cost $10 $11
Required:
(a) How many units of each product must be sold in a period to make a profit of $15 000?
(b) If in a period the sales mix changed to 2 units of X to 2 units of Y, and the total number of units sold in the period were 8000, how much profit would be earned in the period?
(c) Assume that there is no specific sales mix. Write the breakeven equation and graph it. Name two breakeven points, and calculate a third breakeven point which is a linear combination of the two, using g = 0.25. Prove that your third point is indeed a breakeven solution.
CVP under uncertainty: discrete probability distribution for sales Management is considering producing one of two proposed new products, Product A or Product B. Both products have the same unit contribution margin of $4 and the same incremental fixed costs of $400 000 per annum. Sales volumes, however, are uncertain, but the following probability distributions of sales have been estimated:
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Sales
Units
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Probability Distribution
Product A
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Probability Distribution
Product B
|
|
50 000
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0.1
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0.2
|
|
75 000
|
0.2
|
0.3
|
|
100 000
|
0.3
|
0.2
|
|
125 000
|
0.3
|
0.1
|
|
150 000
|
0.1
|
0.1
|
|
225 000
|
0
|
0.1
|
Required:
(a) Calculate the breakeven sales units for each product. (b) Calculate the expected sales for each product.
(c) Calculate the expected profit for each product.
(d) What is the probability of making a loss on (i) Product A? (ii) Product B? (e) What is the probability of making a profit on (i) Product A? (ii) ProductB?
(f) What is the maximum profit possible on each product?
(g) Would management be indifferent between selecting either product?
Explain your answer.
Theory of Constraints
AB Manufacturing Co. Ltd produces two products, A and B. Both products require machining, and assembly and packaging. Total material cost and labour and machining requirements per unit are as follows:
|
|
Product A
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Product B
|
|
Direct material
Direct labour
Machining time
|
$3.00
15 min
60 min
|
$3.00
30 min
30 min
|
Last year's costs for the production of 20 000 units of A and 40 000 units of B were as follows:
|
Direct material
|
$180 000
|
|
Direct labour
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$250 000
|
|
Overhead
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$280 000
|
|
Total costs
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$710 000
|
Overhead costs were all fixed costs. The following data were derived in respect of overhead costs.
|
Overhead
Activity
|
Overhead
Cost
|
Cost
Driver
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Cost Consumption
Driver
|
|
Product A
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Product B
|
|
Machining
Setups Receiving Packing
|
$140 000
45 000
35 000
60 000
|
Machine hours
Number Setups Number Receipts Number Orders
|
20 000
100
300
800
|
20 000
50
200
400
|
|
$280 000
|
Overhead costs and output are expected to be the same this year as last year. This year maximum sales will be 20 000 units of A and 40 000 units of B.
Required:
(a) Assuming that each activity's cost pool is allocated using a separate cost driver as indicated above, calculate the total overhead to be allocated to one unit of each product.
(b) Assume that this coming year machining will be a bottleneck resource with only 30 000 hours per annum available. Both products sell for $15 per unit. Based on the TOC philosophy, determine the appropriate product mix for this year which will maximise annual profits.