Question

Edinburg Company Accounting information for planning and decision-making The Directors of Edinburg Company are planning for the next year (2020). They want to develop a strategic plan based on the capacity and opportunities of their business. The accountant provided the following forecast for 2020: Budgeted operating activities Sales - $ 800,000 Cost of sales (manufacturing costs) Materials 300,000 Labour 110,000 Variable overheads 50,000 Fixed overheads 60,000 $ 520,000 Selling LLL L Commission* 80,000 Variable expenses 60,000 Fixed expenses 20,000 $ 160,000 Administrative Variable expenses 30,000 Fixed expenses 30,000 $ 60,000 $ 740,000 Budgeted profit $ 60,000 Budgeted production Capacity 400,000 units 600,000 units Sales commission is equal to 10% of sales $

Answer 1

Production Capacity 400000 units 600000 units Per unit Budget $2.000 $8,00,000 Particulars Sales Less: Variable Costs Material Labour Variable Manufacturing OHS Variable Selling OHS Variable Administrative OHS Selling Commission Total Variable Costs $0.750 $3,00,000 $0.275 $1,10,000 $0.125 $50,000 $0.150 $60,000 $0.075 $30,000 $0.2001 $80,000 $1.575 56,30,000 Contribution $0.425 $1,70,000 Less: Fixed Costs Fixed Manufacturing OHs Fixed Selling OHS Fixed Administrative OHS Total Fixed Costs $60,000 $20,000 $30,000 $1,10,000 Profit S60.000

Units 400000 Per unit Question 1 $2.200 $8,80,000 Particulars Sales Less: Variable Costs Material Labour Variable Manufacturing OHS Variable Selling OHS Variable Administrative OHS Selling Commission Total Variable Costs $0.7501 $0.2751 $0.125 $0.150 $0.075 $0.220 $1.595 $3,00.000 $1,10,000 $50,000 $60,000 $30,000 $88,000 $6,38,000 Contribution 50.605 $2,42,000 Less: Fixed Costs Fixed Manufacturing OHS Fixed Selling OHS Fixed Administrative OHS Total Fixed Costs $60,000 $20,000 $30,000 $1,10,000 Additional Advertising Campaign $70,000 Profit S62,000

Units 6,00,000 Per unit Question 2 $1.80 $10,80,000 Particulars Sales Less: Variable Costs Material Labour Variable Manufacturing OHS Variable Selling OHS Variable Administrative OHS Selling Commission Total Variable Costs $0.750 $0.275 $0.125 $0.150 $0.0751 $0.180 $1.555 $4,50,000 $1,65,000 $75,000 $90,000 $45,000 $1,08,000 $9,33,000 Contribution $0.245 $1,47,000 Less: Fixed Costs Fixed Manufacturing OHS Fixed Selling OHS Fixed Administrative OHS Total Fixed Costs $60,000 $20,000 $30,000 $1,10,000 $37,000 Profit Expected Profit= 5 37000 Break Even Points - Units BEP = Fixed Cost Contribution per unit 110000 / 0.245 448980 Break even point = 448980 units

Units 500000 Per unit Question 3 $2.000 $10,00,000 Particulars Sales Less: Variable Costs Material Labour Variable Manufacturing OHS Variable Selling OHS Variable Administrative OHS Selling Commission Total Variable Costs $0.750 $0.2751 $0.125 $0.150 $0.075 $0.200 $1.575 $3,75,000 $1,37,500 $62,500 $75,000 $37,500 $1,00,000 $7,87,500 Contribution 0.425 $2,12,500 Less: Fixed Costs Fixed Manufacturing OHS Fixed Selling OHS Fixed Administrative OHS Total Fixed Costs $60,000 $20,000 $30,000 $1,10,000 Additional Sales Promotion $40,000 S62,500 Profit Expected Profit = $ 62, 500 Break Even Points - Units BEP = Fixed Cost Contribution per unit BEP = 352,941 units $150,000/0.425

100000 Particulars Per unit Question 4 Material $0.750 $75,000 Labour $0.275 $27,500 Variable Manufacturing OHS $0.275 $27,500 Variable Selling OHS $0.150 $15,000 Variable Administrative OHS $0.075 $7,500 Selling Commission Total Variable Costs $1.525 $1,52,500 Add: Fixed Costs - Shipment Cost $20,000 Total Cost of Production $1,72,500 No. of Units 1,00,000 Minimum Sales Price (Total cost units) $1.725 $0

Minimum sales price to break even = $ 1.725

Relevant cost in relation to European order = All Variable costs including Additional variable manufacturing Overhead and Additional Shipment cost borne by the company excluding Selling Commission

Selling Price less than $2 is accepted because, its a special order and not going to recur in future. Only the Variable Costs associated with this order and relevant cost exclusively incurred for this order alone has been considered in calculation of Selling price.

Profit percentage, Credit Worthiness of the customer, interest cost associated with delay in payment (if any) and other macro economic factors also to be considered in determining final price.