The year has passed and Ron has become used to being able to come to you with
Question:
The year has passed and Ron has become used to being able to come to you with more and more complex finance and accounting questions about this Ukrainian Division. He has come into your office in the middle of November of the following year. Your projects are going quite well as he has a new task for you.He's been reviewing the operations of the Ukrainian plant and has some questions about the Income Statement.The plant appears to be much more profitable than the other bottling plants within the company and he's wondering about implementing some of the practices that he has seen there into Canadian Bottling sites. He has provided you with the Income Statement that the Canadian finance team has provided him and wants some key pieces of information from you.
| Ukrainian Bottling Company Inc. | ||
| Income Statement | ||
| For the Year Ended October 31st, XXXX | ||
| Revenue | $652,900.00 | |
| Cost of Goods Sold | ||
| Labour | $77,900.00 | |
| Material | $52,900.00 | |
| Total Cost of Goods Sold | $130,800.00 | |
| Gross Profit | $522,100.00 | |
| Expenses | ||
| Packaging Labour | $69,900.00 | |
| Electricity | $16,900.00 | |
| Amortization | $34,900.00 | |
| Rent | $17,900.00 | |
| Shipping | $162,900.00 | |
| Total Expenses | $302,500.00 | |
| Net Income | $219,600.00 |
An executive summary of their financial position has been provided by the Ukrainian Management team; all of this information appears to be useful to them but, only some is relevant to you.Highlights of the financial figures are as follows:
| Current number of units produced: | 12,000 |
| Number of Employees on Staff: | 521 |
| Original cost of Smelting Machinery: | $85,000 |
| Number of Shares Outstanding: | 125,000 |
| Trading Price per Share: | $12 |
Required:
1. Identify all the expenses above as being either Fixed or Variable. For expenses labeled Shipping, Amortization and Electricity, explain why you chose either fixed or variable. (7 Marks)
There are no "mixed expenses". Identify the expenses as fixed or variable only.
Hint: If there is a variable component treat as variable.
2. Using your cost behaviour breakdown, calculate the Contribution Margin for each unit produced. (7 Marks)
3. What would be the number of units necessary to produce for a breakeven scenario? (5Marks)
4. Management has recently discovered that they are now able to lower their packaging labour costs to $45,000 within the year with all other costs remaining the same. What is the Contribution Margin now? (7 Marks)
5. Calculate the Gross Profit Margin and Net Profit Margin Ratios using the original statement, not with the new packaging labour cost. (4 Marks)
Assumption: All units produced are sold.
Expert Answer:
Answer 1 Identifying expenses as Fixed or Variable Labor Variable expense Material Variable expense Packaging Labor Variable expense Electricity Mixed ... View the full answer
