Due to erratic sales of its sole product – a high capacity battery for laptop computers – PEM, Inc. has been experiencing difficulty for some time. The company’s contribution format income statement for the most recent month is given below: Rs. Per Unit Sales (19,500 units) 585,000 30 Variable Expenses (409,500) (21) Contribution Margin 175,500 9 Fixed Expenses (180,000) Net Operating Loss (4500) Required: 1- Compute the company’s CM ratio and its break-even point in units and in sales revenue. 2- The President believes that a Rs. 16,000 increase in the monthly advertising (fixed cost)budget will result in a 1,000 units increase in monthly sales units. If the President is right, what will be the effect on the company’s monthly net operating profit or loss? 3- Refer to the original data; the Sales Manager is convinced that a 10% reduction in the selling price, combined with an increase of Rs. 60,000 in monthly advertising (fixed cost) budget, will cause unit sales to double. What will the new contribution format income statement look like if these changes are adopted? 4- Refer to the original data, the Marketing Department think that a fancy new package for the laptop computer battery would help sales. The new package would increase packaging (variable) costs by Rs. 0.75 per unit. Assuming no other changes, how many units would have to be sold each month to earn a profit of Rs. 9750?
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
Due to erratic sales of its sole product – a high capacity battery for laptop computers – PEM, Inc. has been experiencing difficulty for some time. The company’s contribution format income statement for the most recent month is given below:
Rs. Per Unit
Sales (19,500 units) 585,000 30
Variable Expenses (409,500) (21)
Contribution Margin 175,500 9
Fixed Expenses (180,000)
Net Operating Loss (4500)
Required:
1- Compute the company’s CM ratio and its break-even point in units and in sales revenue.
2- The President believes that a Rs. 16,000 increase in the monthly advertising (fixed cost)budget will result in a 1,000 units increase in monthly sales units. If the President is right, what will be the effect on the company’s monthly net operating profit or loss?
3- Refer to the original data; the Sales Manager is convinced that a 10% reduction in the selling price, combined with an increase of Rs. 60,000 in monthly advertising (fixed cost) budget, will cause unit sales to double. What will the new contribution format income statement look like if these changes are adopted?
4- Refer to the original data, the Marketing Department think that a fancy new package for the laptop computer battery would help sales. The new package would increase packaging (variable) costs by Rs. 0.75 per unit. Assuming no other changes, how many units would have to be sold each month to earn a profit of Rs. 9750?
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