A Lighting industry manufactures and sells a single product, heavy-duty battery operated standby lamp. The financial controller has prepared the following income statement for the most recent year: An Industry Income Statement under Absorption costing, for the year ended December 31. Sales Revenue RM2,450,000 Less: Cost of Goods Sold RM1,140,000 Gross Profit RM1,310,000 Less: Operating Expenses RM 750,000 Operating Income RM 560,000 The company produced 40,000 units and sold 30,000 units during the ear ending Dec 31. Fixed manufacturing overhead (MOH) for the year was RM320,000, while fixed operating expenses were RM450,000. Assume per unit cost of Direct Material and direct labor is RM15 and RM12 respectively. The company had no beginning inventory. Requirements Will the company’s operating income under variable costing be higher, lower or the same as operating income under absorption costing? Why? Project the company’s operating income under variable costing without preparing a variable costing income statement Prepare a variable costing income statement for the year
Question 3
A Lighting industry manufactures and sells a single product, heavy-duty battery operated standby lamp. The financial controller has prepared the following income statement for the most recent year:
An Industry Income Statement under Absorption costing, for the year ended December 31.
|
Sales Revenue |
RM2,450,000 |
|
Less: Cost of Goods Sold |
RM1,140,000 |
|
Gross Profit |
RM1,310,000 |
|
Less: Operating Expenses |
RM 750,000 |
|
Operating Income |
RM 560,000 |
The company produced 40,000 units and sold 30,000 units during the ear ending Dec 31. Fixed manufacturing overhead (MOH) for the year was RM320,000, while fixed operating expenses were RM450,000. Assume per unit cost of Direct Material and direct labor is RM15 and RM12 respectively. The company had no beginning inventory.
Requirements
- Will the company’s operating income under variable costing be higher, lower or the same as operating income under absorption costing? Why?
- Project the company’s operating income under variable costing without preparing a variable costing income statement
- Prepare a variable costing income statement for the year
Question 4
Uni Berjaya manufactures and sells three products with the following selling prices and variable costs per unit:
Premier Pen Standard Pen Basic Pen
(RM/unit) (RM/unit) (RM/unit)
Selling Price 5.00 4.20 3.50
Marginal Cost 2.80 2.40 2.10
The company is considering expenditure on advertising and promotion of Premier Pen.
It is hoped that such expenditure, together with a reduction in the selling price of the product premier pen, would increase sales.
Existing annual sales volume of the three products is:
Premier pen 550,000 units
Standard pen 1.2 million units
Basic pen 420,000 units
If RM80,000 per annum was to be invested in advertising and sales promotion, sales of Premium pen at reduced selling price would be expected to be:
720,000 units at RM4.70 per unit.
OR 1.0 million units at RM4.40 per unit
Annual fixed cost is currently at RM2.20 million per annum.
Required:
- Calculate the current break even sales revenue of the business.
(b) Advise the management of Uni Berjaya as to whether the expenditure on advertising and promotion, together with the selling price reduction, should be introduced on Premium pen
(c) Calculate the required unit sales of Premium pen, at a selling price of RM4.70 or RM4.40 per unit in order to justify the expenditure on advertising and promotion.
(d) Explain the term margin of safety(MOS) with particular reference to the circumstances of Uni Berjaya and how will MOS helps to strengthen the decision to adopt additional cost pertinent to advertising and promotion.
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