ClariMak Ltd (the Company) is engaged in manufacturing and selling two types of sneakers, S-GUYS and S-LADIES.
Question:
ClariMak Ltd (“the Company”) is engaged in manufacturing and selling two types of sneakers, “S-GUYS” and “S-LADIES”. The information below relates to the 2020 financial year of the business:
Type of Sneaker S-GUYS S-LADIES
Annual Market demand (units) 14000 5000
Selling price per unit (GHS) 140 170
Material cost per unit (GHS) 20 40
Labour cost per unit (GHS) @(GHS
100/Hour) 50 60
Fixed overhead cost (GHS) 500,000
The following additional information is provided:
(i) In 2021, the selling prices of these two products and the labour rate are expected to remain constant. However, all variable costs (except labour costs) in 2021 are expected to increase by 15%.
(ii) In 2021, ClariMak Ltd is planning to introduce a new product, the “S-KIDS”, a product for kids. Expected selling price and relevant costs of this new product are presented below:
S-KIDS
Annual Market demand (units) 5000
Selling price per unit (GHS) 200
Material cost per unit (GHS) 60
Labour cost per unit (GHS) @(GHS 100/Hour) 70
(iii) Despite the addition of a new product in 2021, fixed costs and market demand for the existing two products are expected to remain as in 2020.
(iv) Show your workings to two decimal places.
REQUIRED:
I). Using variable (marginal) costing methods, calculate the net income and breakeven point in monetary value (GHS) for entire company in 2020. [12 marks]
II). Estimate the breakeven point and margin of safety in monetary values (GHS) for the individual products in 2020 [4 marks]
III). Using variable (marginal) costing methods, how does the net income and breakeven point in monetary value (GHS) for entire company change in 2021 when the company begins the production of “S-KIDS”? [15 marks]
IV) Projections are that sales in 2021 will decline by 7% due to the ongoing covid-19. Determine resultant impact of the sales decline on net income of the entire company in 2021 [4 marks]
V). How does practical standards compare with ideal standards and state the effect of each on the motivation level of employees [5 marks]
1B). Manufacturing organizations acknowledge the relevance of Standard Costing is a control technique in the production of goods and services. According to literature, the technique establishes a predetermined estimate for the cost of a product and service and then compares this predetermined cost with the actual cost and revenue as they arise to obtain variance. Briefly explain how a standard costing system operates in a typical manufacturing firm [10 marks]
Accounting Business Reporting for Decision Making
ISBN: 9780730302414
4th edition
Authors: Jacqueline Birt, Keryn Chalmers, Albie Brooks, Suzanne Byrne, Judy Oliver