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Product code Accounting-PH401

1) 19% - XYZ Company provides the following data:

                Sales Price - $10

                Variable Cost per unit - $6

                Fixed Cost - $20,000

                Units sold - 6,000

a) 4% - What is the contribution margin per unit for the above data and what is meant by contribution margin per unit?

b) 5% -How many units need to be sold if the company wants to earn an after tax income of $80,000. The tax rate is 40%.

c) 5% - By how much should sales price increase if the company wants to raise its advertising costs (fixed cost) by $8,000 while selling the same number of units and keeping the same level of profit?

d) 5% - If the company doesn’t change its sales price of $10, and cannot cut costs, what else would you advise the company to do to cover the anticipated extra $8,000 fixed cost to keep the same level of profit? Show by calculation why your advice is correct.. .

2) 11

% - XYZ Company provides you with the following data projected for 2018:

Projected sales are 30,000 units.  Inventory at Dec 31,2017 was 4,000 manufactured units.  The desired ending for Dec 31, 2018 is 8,000 manufactured units.

a) 5% - Provide a production budget for the number of units that need to be produced.

b) 6% - Assume for each unit manufactured, four pounds of raw materials are needed.  Assume the desired ending inventory became 10,000 manufactured units.  What effect would that have on the amount of materials to be purchased and by how much?

3) 12% - XYZ Corporation has a company with two divisions.  Division A manufactures a product that has a variable cost of $6, sales price to the market of $12 and has a capacity to produce 30,000 units and its fixed costs are $60,000.  Current production is 20,000 units.

a) 6% - Division B wants to purchase from Division A 5000 units at $7 per unit.  Currently it pays $10 per unit to purchase these units from the market.  What would you advise the company and Division A to do and why.  Support your answer with calculations.

b) 6% - If an outside company wanted to purchase the 5000 units for $7, what would you advise the company and Division A to do?  Support your answer with calculations.

4) 16% - XYZ Company annually sells 2000 units of product A and 8000 units of product B.  Product A sells for $12 and costs $6 to manufacture.  Product B sells for $10 and costs $6 to manufacture. Fixed costs are $18,000

a) 4%- What is the net income with this sales mix

b)4% - How many units of A & B must be sold for the company to breakeven?

c) 4% - How would your answer change if the sales mix was 8000 of product A and 2000 of product B?

d) 4% - What would you recommend to management about the sales mix of product A &B ?

5) 18% - Given the following data for operating departments A and B prepare a schedule using the direct and step method of allocation to allocate service department costs to the operating departments

.                                                 Costs       # of employee            Square feet  

Operating dept A                 1600             100                                   400                        

Operating dept B                 1300             100                                   300                        

Maintenance                        3000             100                                   300                        

Payroll                                   2100             100                                   300                        

For the step method begin with the payroll department.

6) 24% -   The following actual data was given for the firm.

8,000 pounds of material were purchased costing $ 40,000

Four hundred units were produced requiring 900 labor hours costing $5,400 and 1, 000 pounds of  material . The standard for labor is 2 hours per unit with a wage rate of $5 per hour and for materials 2 pounds per unit at a price of $6 per unit.

A) 10% - Calculate all labor variances

B) 10%-- Calculate all material variances

C) 4% - Write an analysis of how you would explain the variances to management


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Solution: a) Contribution margin per unit = Sales price per unit – Variable cost per unit = 10-6 = $4 b) Let the no. of units sold be x units. Revenue generated = 10x Total Expense = Total Variable cost + Total Fixed cost = 6x+20000 Profit before tax = Revenue – Total Expense = 10x –(6x+20000) = 4x-20000 Tax expense = 40% of (4x-20000) After tax profit = 60% of (4x-20000) As per the problem statement, 60% of (4x-20000) = 80000 x = 383334 units. Hence, 38334 units needs to be sold to earn an after-tax income of $80000.

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