What will be the annual breakeven point

Assignment Help Managerial Accounting

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.

$'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.

Reference no: EM132572602

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