The Light Company manufactures a single type of desk-lamp which has a selling price of 49...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
The Light Company manufactures a single type of desk-lamp which has a selling price of £49 per un Annual sales volume is 8,000 units. The company is considering changing its production methods ar introducing a mainly automated production process. The new production method would result in a superior product and would enable sales to be increased to 25,500 units per annum at a price of £52.50 each. Costs would change as follows: Existing production method New production method Variable unit cost £21.00 £17.50 Annual fixed cost £85,400 £111,020 Required: a) Calculate the breakeven point in terms of units sold under both the existing and the new production methods. Show all workings. [8 marks] b) Calculate the income from operations under the existing method. If the company wishes to achieve the same income from operations under the new method, how many units would need to be sold? Show all workings. [8 marks] c) Briefly explain how cost-volume-profit analysis can help to assess risk. [4 mark] Question 1. Fresh plc has drawn up the following records for its first two accounting periods: Period 1 Period 2 Sales [units] Production [units] 9,500 10,300 10,000 10,000 In both periods, the selling price was £6.40 per unit, the variable cost per unit was £3.60, and the fixed production overhead was £15,000. REQUIRED: (a) For both periods, calculate the operating profit using (i) variable (marginal) costing and (ii) full (absorption) costing. Clearly show your workings. (b) For period 1 only, explain any differences between the results calculated in part (a) for variable costing and full costing. The Light Company manufactures a single type of desk-lamp which has a selling price of £49 per un Annual sales volume is 8,000 units. The company is considering changing its production methods ar introducing a mainly automated production process. The new production method would result in a superior product and would enable sales to be increased to 25,500 units per annum at a price of £52.50 each. Costs would change as follows: Existing production method New production method Variable unit cost £21.00 £17.50 Annual fixed cost £85,400 £111,020 Required: a) Calculate the breakeven point in terms of units sold under both the existing and the new production methods. Show all workings. [8 marks] b) Calculate the income from operations under the existing method. If the company wishes to achieve the same income from operations under the new method, how many units would need to be sold? Show all workings. [8 marks] c) Briefly explain how cost-volume-profit analysis can help to assess risk. [4 mark] Question 1. Fresh plc has drawn up the following records for its first two accounting periods: Period 1 Period 2 Sales [units] Production [units] 9,500 10,300 10,000 10,000 In both periods, the selling price was £6.40 per unit, the variable cost per unit was £3.60, and the fixed production overhead was £15,000. REQUIRED: (a) For both periods, calculate the operating profit using (i) variable (marginal) costing and (ii) full (absorption) costing. Clearly show your workings. (b) For period 1 only, explain any differences between the results calculated in part (a) for variable costing and full costing.
Expert Answer:
Answer rating: 100% (QA)
Answer 5a Formula for BEP units total fixed cost selling pr... View the full answer
Related Book For
Intermediate Accounting
ISBN: 978-0324300987
10th Edition
Authors: Loren A Nikolai, D. Bazley and Jefferson P. Jones
Posted Date:
Students also viewed these accounting questions
-
The Acute Company manufactures a single product. On December 31, 2006 Acute adopted the dollar-value LIFO inventory method. It computes the inventory on that date using the dollar-value LIFO...
-
Good Furniture Ltd. manufactures a single type of desk for office use. Components are purchased from various suppliers and are then assembled at the companys factory. You have been asked to (a)...
-
The Wernli Manufacturing Company manufactures a single product. The managers, Brandon and Chris Wernli, decided on December 31, 2008, to adopt the dollar-value LIFO inventory method. The inventory...
-
You are asked to evaluate the following two projects for Boring Corporation using the NPV method combined with the PI approach, which project would you select? Use a discount rate of 10 percent....
-
Heston Company purchases inventory with a list price of $7,000 for $6,300 on account. Heston pays a transportation company $200 to deliver the inventory. Upon receipt, Heston notices some defects,...
-
Auto pistons at Wemming Chung's plant in Shanghai are produced in a forging process, and the diameter is a critical factor that must be controlled. From sample sizes of 10 pistons produced each day,...
-
In the study of water quality in New Zealand streams, documented in McBride et al. (2002), a high level of Campylobacter was de ned as a level greater than 100 per \(100 \mathrm{ml}\) of stream...
-
The worksheet for Olympic Company shows the following in the financial statement columns. Dividends ......... $15,000 Common Stock ....... 70,000 Net income ......... 47,000 Prepare the closing...
-
the Database Administrator (DBA), is responsible for keeping the data safe in the organizations/ industries. However , there is many incidence of patients death caused by data leaks and lack of...
-
Harper Morgan owns White Mountain Assessments in Laconia, New Hampshire. The standard workweek is 40 hours. For the weekly payroll ending September 9, 2022, checks dated September 14, 2022, complete...
-
A reaction takes place in a continuous flow stirred tank reactor (CSTR). The volumetric flow rate into the reactor is given by Q = 200 L/min, and the volume of the reactor is V = 500 L. The reaction...
-
In the following application problems, assume a linear relationship holds. Exercise 2.57 (Solution on p. 38.) The variable cost to manufacture a product is $25, and the fixed costs are $1200. If z...
-
EJ Corp has just begun a forecasting system to estimate the future NZD and EUR spot rates. Here are the forecasted and realized values for the last 4 months: NZD/USD Forecasted Month January 0.52...
-
Discuss the advantages and disadvantages of the four (4) sourcing approaches and explain which works best in your organisation. Include the reasons for deciding on such approach(es) and provide...
-
Find the GCD of 1260 and 1234, by hand, and find integers x and y so that 1260 x + 1234 y = GCD (x,y). Is i possible to find integers u and v so that 1260 u + 1234 v = 10? Either find them or explain...
-
Suppose that f(x) = e(x-4) for x > 4. Determine the following: (a) The CDF of X (b) P(X > 1) (c) P(2 X <5) (d) P(X > 5) (e) P(8 < x < 12) (f) The value of x such that P(X > x) = 0.90
-
Do you believe unions should focus their efforts and limited resources on protecting their membership through the winning of strong contracts and grievance procedures? Or should they focus less on...
-
$10,000 was borrowed at 3.5% on July 17. The borrower repaid $5000 on August 12, and $2000 on September 18. What final payment is required on November 12 to fully repay the loan?
-
On January 1, 2007 Pierce Company establishes a performance based share option plan for its 80 top executives. The terms of the plan are that each executive is granted a maximum of 200 options after...
-
You are engaged in the examination of financial statements of the Dewoskin Company and are auditing the Machinery and Equipment account and the related depreciation accounts for the year ended...
-
Hogan Company uses the net method of accounting for sales discounts. Hogan also offers trade discounts to various groups of buyers. On August 1, 2007, Hogan factored some accounts receivable on a...
-
Using the tools provided to you in this chapter, conduct a comprehensive review one of the websites listed below. Is it a reliable resource without underlying motivations? MinimumWage.com ...
-
Research and find at least three reports of fabricated or misleading news causing damage to a company or organization. Consider how the news was created and disseminated. What could have been done,...
-
What are the strategies for effective secondary research searches?
Study smarter with the SolutionInn App