Cost Accounting

Bin Biosa Ary Handy 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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