Reference no: EM132572602
QUESTION 1
Tan and Company operates a chain of specialty retail outlets in the Asia-Pacific Region selling wireless speakers.
The management of Tan and Company is trying to determine the viability of opening a new outlet in Vietnam to tap into the Vietnamese market.
The revenue and cost information for the new outlet is as follows
Unit variable data (average) Selling price
Manufacturing costs Sales commissions Total variable costs
|
$400
$240
$J 0
$250
|
Annual fixed costs
|
|
Rent
|
$15,000
|
Salaries
|
$100,000
|
Selling and administrative costs
|
$70,000
|
Other fixed costs
|
$40,000
|
Total fixed costs
|
$225,000
|
The outlet will be managed by an outlet supervisor who has a team of sales associates under his charge. The outlet supervisor will be paid a fixed salary while the sales associates will be paid fixed salaries and sales commissions.
Required:(Each question is to be considered independently.)
A) What will be the annual breakeven point in terms of (i) units sold and (ii) sales revenue?
B) If 1,000 units are sold, what will be the operating profit (loss) of the store?
(C) The management is considering a change in the salary plans for the sales associate. The current plan for sales associate is a fixed salary and sales commission.
(i) If the sales associates were given an increase of $31,000 in their fixed salaries with no sales commissions, what would be the annual breakeven point for the company in terms of units sold and sales revenue ?
(ii) At which unit sales level will the management be indifferent between the original salary plan (with the fixed salary and commission) and the new one (with the increase in fixed salary of $31,000 and no sales commission)?
(iii) Which salary plan should the management implement for the sales associates if unit sales level is forecasted to be 4,200 units? Show your working using the contribution margin income statements under the original salary plan and under new salary plan.
(D) Explain to management what would happen to the breakeven units and margin of safety if the company experience a selling price increase in its products.
QUESTION 2
You have recently joined Sunspot Limited as an accountant.
Required: (Each question is to be considered independently.)
(A) You have been given the following 6 months information from the company, Sunspot Limited to analyze the overhead costs.
|
Overhead
|
No. of
|
Month
|
cost
|
Labour Hours
|
April
|
$60,160
|
867
|
May
|
56,500
|
624
|
June
|
58,900
|
689
|
July
|
63,500
|
974
|
August
|
59,325
|
730
|
September
|
62,400
|
901
|
(i) Using the high low method, construct a cost formula for the total overhead cost.
(ii) Assume that 9600 labour hours are budgeted for the coming year. Use the formula to calculate the overheads for the coming year.
(B) Explain to management why would cost behaviour change outside of the relevant range? Give an example.
(C) You have also been given the following information from the company, Sunspot Limited for the month of December 2019:
$'000
Beginning raw materials inventory 5,000
Ending raw materials inventory 10,000
Beginning work in process inventory 15,000
Ending work in process inventory 24,000
Beginning finished goods inventory 20,000
Ending finished goods inventory
|
28,000
|
Purchases of raw materials
|
80,000
|
Direct labor
|
10,000
|
Manufacturing Overhead
|
35,000
|
(i) What was the value of cost of goods manufactured in December? Please show working clearly.
(ii) What was the value of cost of goods sold? Please show working clearly.