Cost Accounting
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1.
What is your recommendation regarding the 103 product line? Conduct some financial analysis to support your recommendation.
Company’s operating income is – 176.17 with contribution margin per unit 0.63(VC per unit=1.160).
To achieve breakevenpoint company must sells at least more than 1.882 units (Total FC = 1.176).
2.
What would happen to financial results in the short-run if this product were deleted?
All Products
%
Without 103
Net Sales
9,960
100.0%
7,800
100.0%
COGS
(7,498)
75.3%
(5,684)
72.9%
Gross Margin
2,462
24.7%
2,116
27.1%
Selling Expense
(1,064)
10.7%
(824)
10.6%
General Adm
(820)
8.2%
(630)
8.1%
Operating Income
578
5.8%
662
8.5%
Int Expense
(250)
2.5%
(196)
2.5%
R&D
(175)
1.8%
(137)
1.8%
Income Before Taxes
153
1.5%
329
4.2%
If 103 products were deleted, the Operating Income Margin would raised to more than 8%.
Selling Price
1.35
Quantities
1,600
Variable Cost
Total
Per/Unit
DM
512
0.320
DL
608
0.380
Utilities
30
0.019
Maintenance
10
0.006
1,160
0.725
Fixed Cost
Total
Rent/Lease
136
Dep
408
Other Factory Cost
110
SGA
430
Int Exp
54
R&D
38
1,176
Operating Income
=(SPxQ)-(VC*Q)-FC
(176.17)
Contribution Margin per Unit
=SP-VC
0.63
Breakeven Quantity
=Total FC/CM per unit
1882
BEP
=SP*Q
2,540.52
3.
Estimate a break-even point by product line. 4.
4.
What is your short-run/long-run enthusiasm for the 103 product line?
To achieve breakevenpoint for 103 product line, company must sells at least 1.882 units (Total FC = 1.176). If company can’t do that, company should stop producing 103 product.
5.
At the firm level, if you were a consultant, what strategy recommendations would you have for Andrea and Jill?
Product 103 has the highest CM per unit (eventhough has the highest VC per unit) and lowest BE Quantity (easier to achieve than the other products). I would like to recommend the company to produce more product 103 (at least more than BE quantity) and stop producing product 102.
Product 101
Selling Price
1.20
Quantities
4,333
Variable Cost
Total
Per/Unit
DM
1,293
0.298
DL
1,340
0.309
Utilities
23
0.005
Maintenance
18
0.004
2,674
0.61712
Fixed Cost
Total
Rent/Lease
186
Dep
565
Other Factory Cost
140
SGA
1,014
Int Exp
131
R&D
91
2,127
Product 102
Selling Price
1.25
Quantities
2,080
Variable Cost
Total
Per/Unit
DM
610
0.293
DL
774
0.372
Utilities
25
0.012
Maintenance
15
0.007
1,424
0.684615
Fixed Cost
Total
Rent/Lease
157
Dep
428
Other Factory Cost
110
SGA
440
Int Exp
65
R&D
46
1,246
Product 101
Operating Income
=(SPxQ)-(VC*Q)-FC
398.71
Contribution Margin per Unit
=SP-VC
0.58
Breakeven Quantity
=Total FC/CM per unit
3649
BEP
=SP*Q
4,378.75
Product 102
Operating Income
=(SPxQ)-(VC*Q)-FC
(69.94)
Contribution Margin per Unit
=SP-VC
0.57
Breakeven Quantity
=Total FC/CM per unit
2204
BEP
=SP*Q
2,754.64
101
102
103
Revenue
5200
2600
2160
Selling Price
1.2
1.25
1.35
VC per unit
0.617
0.684
0.725
CM per unit
0.583
0.566
0.625
BE Quantity
3649
2204
1882
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