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Question No. 1 5 Marks The following Table contains data for the Block Company for the year just ended. The company makes industrial power drills. The Table shows the costs of the plastic housing separately from the costs of the electrical and mechanical components. Answer each of the following questions independently.



Description



Sales: 100,000, units at $100 Variable costs: Direct materials Direct Labor Variable factory overheads Other variable costs Sales commission, at 10% of sales Total variable costs Contribution margin Total fixed costs Operating income



A B A+B Electrical and Plastic Industrial Mechanical Housing Drills Components* -----------------------Amounts in $----------------------10,000,000 4,400,000 400,000 100,000 100,000 1,000,000 6,000,000



500,000 300,000 200,000 1,000,000



2,200,000



480,000



4,900,000 700,000 300,000 100,000 1,000,000 7,000,000 3,000,000 2,700,000 300,000



*Not including the costs of plastic housing (column B).



1.



During the year, a prospective customer in an unrelated market offered $82,000 for 1,000 drills. The drills would be manufactured in addition to the 100,000 units sold. Block Company would pay the regular sales commission rate on the 1,000 drills. The president rejected the order because “it was below our costs of $97 per unit.” What would operating income have been if Block Company had accepted the order?



2.



A supplier offered to manufacture the year’s supply of 100,000 plastic housings for $12.00 each. What would be the effect on operating income if the Block Company purchased rather than made the housings? Assume that Block Company would avoid $350,000 of the fixed costs assigned to housings if it purchases the housings.



3.



Suppose that Block Company could purchase the housings for $13.00 each and use the vacated space for the manufacture of a deluxe version of its drill. Assume that it could make 20,000 deluxe units (and sell them for $130 each in addition to the sales of the 100,000 regular units) at a unit variable cost of $90, exclusive of housings and exclusive of the 10% sales commission. The company could also purchase the 20,000 extra plastic housings for $13.00 each. All the fixed costs pertaining to the plastic housings would continue because these costs relate primarily to the manufacturing facilities used. What would operating income have been if Block had bought the housings and made and sold the deluxe units?



Question No. 2 5 Marks Vendmart Food Services Company operates and services snack vending machines located in restaurants, gas stations, and factories in four southwestern states. The machines are rented from the manufacturer. In addition, Vendmart must rent the space occupied by its machines. The following expense and revenue relationships pertain to a contemplated expansion program of 80 machines. Fixed monthly expenses follow: Machine Rental: 80 machines @ $22.10 Space rental: 80 locations @ $20.00 Part-time wages to service the additional 80 machines Other fixed costs Total monthly fixed cost



$1,768 $1,600 $500 $132 $4,000



Other data follow:



Selling price Cost of Snack



Per Unit (Snack) $ 1.00 $ 0.68



Per $100 of Sales 100% 68%



Contribution Margin



$0.32



32%



These questions relate to the given data unless otherwise noted. Consider each question independently. 1. What is the monthly break-even point in number of units (snacks)? In dollar sales? 2. If 45,000 units were sold, what would be the company’s net income? 3. If the space rental cost was doubled, what would be the monthly break-even point in number of units? In dollar sales? 4. Refer to the original data. If, in addition to the fixed space rent, Vendmart Food Services Company paid the vending machine manufacturer $.07 per unit sold, what would be the monthly breakeven point in number of units? In dollar sales? 5. Refer to the original data. If, in addition to the fixed rent, Vendmart paid the machine manufacturer $.11 for each unit sold in excess of the break-even point, what would the new net income be if 45,000 units were sold?



Question No. 3 5 Marks ConAgra produces meat products with brand names such as Healthy Choice, Armour, and Butterball. Suppose one of the company’s plants processes beef cattle into various products. For simplicity, assume that there are only three products: steak, hamburger, and hides, and that the average steer costs $700. The three products emerge from a process that costs $100 per steer to run, and output from one steer can be sold for the following net amounts: Steak (100 pounds)



$ 400



Hamburger (500 pounds) Hide (120 pounds) Total



600 100 $ 1,100



Assume that each of these three products can be sold immediately or processed further in another ConAgra plant. The steak can be the main course in frozen dinners sold under the Healthy Choice label. The vegetables and desserts in the 400 dinners produced from the 100 pounds of steak would cost $110, and production, sales, and other costs for the 400 meals would total $330. Each meal would be sold wholesale for $2.10. The hamburger could be made into frozen Salisbury steak patties sold under the Armour label. The only additional cost would be a $200 processing cost for the 500 pounds of hamburger. Frozen Salisbury steaks sell wholesale for $1.70 per pound. The hide can be sold before or after tanning. The cost of tanning one hide is $80, and a tanned hide can be sold for $170. Required: 1. Compute the total profit if all three products are sold at the split-off point. 2. Compute the total profit if all three products are processed further before being sold. 3. Which products should be sold at the split-off point? Which should be processed further? 4. Compute the total profit if your plan in number 3 is followed.



6-B4 Sell or Process Further ConAgra produces meat products with brand names such as Healthy Choice, Armour, and Butterball. Suppose one of the company’s plants processes beef cattle into various products. For simplicity, assume that there are only three products: steak, hamburger, and hides, and that the average steer costs $700. The three products emerge from a process that costs $100 per steer to run, and output from one steer can be sold for the following net amounts:



Assume that each of these three products can be sold immediately or processed further in another ConAgra plant. The steak can be the main course in frozen dinners sold under the Healthy Choice label. The vegetables and desserts in the 400 dinners produced from the 100 pounds of steak would cost $110, and production, sales, and other costs for the 400 meals would total $330. Each meal would be sold wholesale for $2.10. The hamburger could be made into frozen Salisbury steak patties sold under the Armour label. The only additional cost would be a $200 processing cost for the 500 pounds of hamburger. Frozen Salisbury steaks sell wholesale for $1.70 per pound. The hide can be sold before or after tanning. The cost of tanning one hide is $80, and a tanned hide can be sold for $170. 1. Compute the total profit if all three products are sold at the split-off point. 2. Compute the total profit if all three products are processed further before being sold. 3. Which products should be sold at the split-off point? Which should be processed further? 4. Compute the total profit if your plan in number 3 is followed.



Answer 1- If the three products are sold at split off So the three products emerge from a process that costs $100 per steer and output from one steer can be as: Steak (100 pound) + Hamburger (500 pound) + Hide (120 pound) = 400+600+100=1,100 $



But there is a joint cost =100+700 = 800$ per steer So total profit for selling 3 products from 1 steer = 1,100-800= 300$ 2- Total profit for 3 products if they were processed further will be as Total meals came from 100 pound of Steak = 400 Total sales for 400 meals = 2.1 * 400 =840$ Total cost processing for 400 meals = 330+110= 440$ Frozen Salisbury steaks from 1 pound Hamburger = 1.70$ Total sales from 500 pound of Hamburger = 1.7 * 500= 850$ Total cost to process 500pound of Hamburger = 200$ The cost of tanning 1 hide = 80 $ Total sales for 1 tanned hide = 170 $



Product



Steak



Sales



840



Separable costs



440



Hamburgers



Hide



Total



850



170



1,860



200



80



720



Joint Costs Total profit



800 400



650



90



340



So total profit for 3 products if we take into consideration the joint cost will be 340 $



3- for Steak Sales at split off Sales Costs after split off Net income



400 0 400



Processing 840 (440) 400



Difference 440 (440) 0



So processing further for Steak will not affect the net income, but other qualitative factors may be taken into consideration here.



For Hamburger Sales at split off Sales



600



Processing 850



Difference 250



Costs after split off



0



Net income



600



(200)



(200)



650



50



So processing further for Hamburger will increase the total net income by 50 $, this means that company should process further.



For Hide Sales at split off Sales Costs after split off Net income



100 0 100



Processing 170



Difference 70



(80)



(80)



90



(10)



So processing further for Hide will decreases the total net income by 10 $, this means that company should sell at split off. 4- Total profit if steak and hamburger process further and hid sell at split off point will be = 400+650+100 – 800 = 350$ So total profit for 3 products according to this plan if we take into consideration the joint cost will be 350 $.



ASSIGNMENT NO. 4 5 Marks The Country Store is a retail outlet for a variety of hardware and housewares. The owner is eager to prepare a budget and is especially concerned with her cash position. The company will have to borrow in order to finance purchases made in preparation for high expected sales during the busy last quarter of the year. When the company needs cash, borrowing occurs at the end of a month. When cash is available for repayments, the repayment occurs at the end of a month. The company pays interest in cash at the end of every month at a monthly rate of 1% on the amount outstanding during that month. The owner has gathered the data shown in the Table below to prepare the simplified budget. In addition, she will purchase equipment in October for $19,750 cash and pay dividends of $4,000 in December. You are required to prepare the Country Store’s master budget for the months of October, November, and December.



Table Balance Sheet as at September 30, 20X1 Assets Cash Accounts receivable Inventory Plant and equipment (net)



$ 9,000 $ 48,000 $ 12,600 $ 200,000



Total Assets



$ 269,600



Liabilities and stockholders’ equity Interest payable Note payable Accounts payable Capital stock Retained earnings Total liabilities and stockholders’ equity Budgeted expenses Salaries and wages Freight out as a percent of sales



Advertising Depreciation Other expenses as a percent of sales Minimum inventory policy as a percent of next month’s cost of goods sold



$0 $0 $ 18,300 $ 180,000 $ 71,300



Budgeted sales September (actual) October November December January 20X2



Other data: Required minimum cash balance Sales mix, cash/credit Cash sales Credit sales (collected the following month) Gross profit rate Loan interest rate (interest paid in cash monthly)



$ 60,000 $ 70,000 $ 85,000 $ 90,000 $ 50,000



$ 8,000 20% 80% 40% 12%



$ 269,600



$ 7,500 6%



$ 6,000 $ 2,000 4% 30%



Inventory paid for in Month purchased Month after purchase Salaries and wages, freight out, advertising, and other expenses are paid in cash in the month incurred



50% 50%