Simoniz (Pty) Ltd (hereafter Simoniz) is a new division of Alco Motor Group Limited (herafter Alco)...

Transcribed Image Text:

Simoniz (Pty) Ltd (hereafter Simoniz) is a new division of Alco Motor Group Limited (herafter Alco) that started on 1 October 2008. Simoniz manufactures a high quality polishing product used by the motor spray- painting industry to achieve a high gloss shine on new or re-sprayed motor cars. In the first year of operations, Simoniz reported the following net income to its Alco Head Office. Simoniz (Pty) Ltd Income Statement For the Year ended 30 September 2009 Sales Less: Cost of goods sold b Gross margin Less: Selling and administrative expenses Net income R 42,500,000 32,500,000 10,000,000 5,125,000 4,875,000 a The selling price is R85 per unit b Variable manufacturing costs are R51 per unit c Fixed selling expenses are R2,000,000 In 2009, Simoniz produced 100,000 units more than it sold because sales were less than expected. The marketing manager believed the sales slump was due to a soft economy and was confident that sales for the next year (2010) could be at least 10 percent higher. Overhead is applied on the basis of units produced using expected actual activity. Any under- or overapplied overhead is closed to Cost of Goods Sold. For 2009, there was no under- or overapplied overhead. In 2010, total fixed costs, planned production units, variable costs per unit, and selling price per unit remained unchanged from 2009. Also budgeted fixed costs equalled actual fixed costs. The production for 2010 was 95,000 units less than expected because of unexpected equipment problems. The production manager was however pleased that production costs were completely in line with plans. Simoniz sold 575,000 units in 2010 and the marketing manager was pleased that actual sales had exceeded his prediction of a 10 percent sales increase. You are the recently appointed financial manager. Simoniz (Pty) Ltd (hereafter Simoniz) is a new division of Alco Motor Group Limited (herafter Alco) that started on 1 October 2008. Simoniz manufactures a high quality polishing product used by the motor spray- painting industry to achieve a high gloss shine on new or re-sprayed motor cars. In the first year of operations, Simoniz reported the following net income to its Alco Head Office. Simoniz (Pty) Ltd Income Statement For the Year ended 30 September 2009 Sales Less: Cost of goods sold b Gross margin Less: Selling and administrative expenses Net income R 42,500,000 32,500,000 10,000,000 5,125,000 4,875,000 a The selling price is R85 per unit b Variable manufacturing costs are R51 per unit c Fixed selling expenses are R2,000,000 In 2009, Simoniz produced 100,000 units more than it sold because sales were less than expected. The marketing manager believed the sales slump was due to a soft economy and was confident that sales for the next year (2010) could be at least 10 percent higher. Overhead is applied on the basis of units produced using expected actual activity. Any under- or overapplied overhead is closed to Cost of Goods Sold. For 2009, there was no under- or overapplied overhead. In 2010, total fixed costs, planned production units, variable costs per unit, and selling price per unit remained unchanged from 2009. Also budgeted fixed costs equalled actual fixed costs. The production for 2010 was 95,000 units less than expected because of unexpected equipment problems. The production manager was however pleased that production costs were completely in line with plans. Simoniz sold 575,000 units in 2010 and the marketing manager was pleased that actual sales had exceeded his prediction of a 10 percent sales increase. You are the recently appointed financial manager.