Q3. Last week, as part of the planning round, Tansey Ltd prepared the forecasts below for a range of potential levels of activity in the coming month. Due to storage constraints, the company does not carry inventory of finished goods and all units produced in a month are sold in the same month. Sales volume: units 10,000 Revenue (£) 126,000 90,000 Total cost (£) Profit (£) 36,000 11,000 138,600 95,000 43,600 12,000 151,200 100,000 51,200 Following scrutiny of the forecasts by the budget committee, it was agreed that the most likely activity level would be 10,000 units and so this was the figure on which further detailed operational plans were based. Today, an email has been sent by Mr Grey, the Sales Director, reporting that unfortunately it was now clear that only 7,500 units would be sold in the month. He went on to say, "Demand being down by 25% is of course a blow, but a profit of £27,000 next month would still be a respectable result." Required: a. Comment on Mr Grey's statement, fully discussing any misconceptions which it implies and recomputing the profit expected from 7.500 units.

Q3. Last week, as part of the planning round, Tansey Ltd prepared the forecasts below for a range of potential levels of activity in the coming month. Due to storage constraints, the company does not carry inventory of finished goods and all units produced in a month are sold in the same month. Sales volume: units 10,000 Revenue (£) 126,000 90,000 Total cost (£) Profit (£) 36,000 11,000 138,600 95,000 43,600 12,000 151,200 100,000 51,200 Following scrutiny of the forecasts by the budget committee, it was agreed that the most likely activity level would be 10,000 units and so this was the figure on which further detailed operational plans were based. Today, an email has been sent by Mr Grey, the Sales Director, reporting that unfortunately it was now clear that only 7,500 units would be sold in the month. He went on to say, "Demand being down by 25% is of course a blow, but a profit of £27,000 next month would still be a respectable result." Required: a. Comment on Mr Grey's statement, fully discussing any misconceptions which it implies and recomputing the profit expected from 7.500 units.

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter2: Basic Cost Management Concepts

Section: Chapter Questions

Problem 4CE: Refer to Cornerstone Exercises 2.2 and 2.3. Next year, Pietro expects to produce 50,000 units and...

See similar textbooks

Similar questions

Ranger Industries has provided the following information at June 30: Other information: Average selling price, 196 Average purchase price per unit, 110 Desired ending inventory, 40% of next months unit sales Collections from customers: In month of sale20% In month after sale50% Two months after sale30% Projected cash payments: Inventory purchases are paid for in the month following acquisition. Variable cash expenses, other than inventory, are equal to 25% of each months sales and are paid in the month of sale. Fixed cash expenses are 40,000 per month and are paid in the month incurred. Depreciation on equipment is 2,000 per month. REQUIREMENT You have been asked to prepare a master budget for the upcoming quarter (July, August, and September). The components of this budget are a monthly sales budget, a monthly purchases budget, a monthly cash budget, a forecasted income statement for the quarter, and a forecasted September 30 balance sheet. The worksheet MASTER has been provided to assist you. Ranger Industries desires to maintain a minimum cash balance of 8,000 at the end of each month. If this goal cannot be met, the company borrows the exact amount needed to reach its goal. If the company has a cash balance greater than 8,000 and also has loans payable outstanding, the amount in excess of 8,000 is paid to the bank. Annual interest of 18% is paid on a monthly basis on the outstanding balance.
Total Pops data show the following information: New machinery will be added in April. This machine will reduce the labor required per unit and increase the labor rate for those employees qualified to operate the machinery. Finished goods inventory is required to be 20% of the next months requirements. Direct material requires 2 pounds per unit at a cost of $3 per pound. The ending inventory required for direct materials is 15% of the next months needs. In January, the beginning inventory is 3,000 units of finished goods and 4,470 pounds of material. Prepare a production budget, direct materials budget, and direct labor budget for the first quarter of the year.
Pietro expects to produce 50,000 units and sell 49,300 units. Beginning inventory of finished goods is 42,500, and ending inventory of finished goods is expected to be 34,000. Required: 1. Prepare a statement of cost of goods sold in good form. 2. What if the beginning inventory of finished goods decreased by 5,000? What would be the effect on the cost of goods sold?
Click the Chart sheet tab. On the screen is a column chart showing ending inventory costs. During a deflationary period, which bar (A, B, or C) represents FIFO costing, which represents LIFO costing, and which represents weighted average? Explain your reasoning. On January 4 following year-end, Rio Enterprises received a shipment of 60 units of product costing 580 each. These units had been ordered by Del in December and had been shipped to him on December 27. They were shipped FOB shipping point. Revise the FIFOLIFO3 worksheet to include this shipment. Preview the printout to make sure that the worksheet will print neatly on one page, and then print the worksheet. Save the completed file as FIFOLIFOT. Using the FIFOLIFO3 file, prepare a 3-D bar (stacked) chart showing the cost of goods sold and ending inventory under each of the four inventory cost flow assumptions. No Chart Data Table is needed. Use the values in the Calculations Section of the worksheet for your chart. Enter your name somewhere on the chart. Save the file again as FIFOLIFO3. Print the chart.
Bradshaw Company reported sales of 5,000,000 in 20X1. At the end of the fiscal year (June 30, 20X1), the following quality costs were reported: Required: 1. Prepare a quality cost report. 2. Prepare a graph (pie chart or bar graph) that shows the relative distribution of quality costs, and comment on the distribution. 3. Assuming sales of 5,000,000, by how much would profits increase if quality improves so that quality costs are only 3% of sales?
Refer to Cornerstone Exercises 2.2 and 2.3. Next year, Pietro expects to produce 50,000 units and sell 49,300 units at a price of 12.50 each. Beginning inventory of finished goods is 42,500, and ending inventory of finished goods is expected to be 34,000. Total selling expense is projected at 26,000, and total administrative expense is projected at 134,000. Required: 1. Prepare an income statement in good form. Be sure to include the percent of sales column. 2. What if the cost of goods sold percentage for the past few years was 65 percent? Explain how management might react.
Based on the expected sales volume of 2 400 units, determine the sales price per unit (expressedin rands and cents) that will enable the company to break even. INFORMATIONSamcor Limited manufactures tables. The following information was extracted from the budget for the year ended 30 June 2022:1. Total production and sales 2 400 units2. Selling price per table R1 2003. Variable manufacturing costs per table:Direct material R288Direct labour R192Overheads R964. Fixed manufacturing overheads R216 9605. Other costs:Fixed marketing and administrative costs R144 000Sales commission 5%
The S&OP team at Kansas Furniture has received the following estimates of demand requirements: Month Expected Demand Jul 1,000 Aug 1,200 Sep 1,400 Oct 1,800 Nov 1,800 Dec 1,800 Assuming one-time stockout costs for lost sales of $100 per unit, inventory carrying costs of $20 per unit per month, and subcontracting cost of $45 per unit. Evaluate the following plan: keep the current workforce steady at a level producing 1,300 units per month. Subcontract the remainder to meet demand. Assume that 300 units remaining from June are available in July. A) What is the total inventory carrying cost? B) What is the total subcontracting cost? C) What is the stockout cost?
L Incorporated provided the following estimated sales data in the first five months of 2021: Month Estimated Sales (units) January 15,000 February ??? March 16,000 April ??? May 18,000 The desired ending inventory of finished goods is 20% of next month’s expected sales. Budgeted production for the month of February and April are 16,600 and 18,640 respectively. Each unit costs 120 to manufacture and is sold to yield gross profit of 25% based on cost. All sales are made on account. 20% is collected in the month of sale; 30% of the balance is collected in the following month, another 40% is collected two months after the month of sale while the rest are collected three months after the month of sale. What is the budgeted sales (in pesos) for the month of February? a. 2,400,000 b. 2,512,500 c. 2,010,000 d. 2,450,500 e. Answer not among the choices
The Bebemo Company has provided information concerning its projections for the coming year as follows: Net sales - P10,000,000; Fixed manufacturing costs - P 1,000,000. Bush projects variable manufacturing costs of 60% of net sales. Assuming no change in inventory, what will the projected cost of goods sold be? A. P5,000,000 B. P6,000,000 C. P7,000,000 D. P8,000,000
KCO, SRL anticipates the following sales in the given months: March 42,000 units April 59,000 units May 49,000 units June 55,000 units July 52,000 units Company policy is to maintain an ending finished goods inventory equal to 50% of the following month's sales. On the basis of this information, how many units would the company plan to produce in May?
The following information is available for a company's cost of sales over the last five months. MonthUnits soldCost of salesJanuary560$28,600February740$34,000March1,300$46,000April2,560$58,000 Using the high-low method, the estimated total fixed cost is: