Question

Dell is an American multinational computer technology company that develops, sells, repairs, and supports computers and related products and services. It is one of the largest technological corporations in the world. The expenses budgeted for production of 10,000 units computers at 100% capacity level of the factory of the company are furnished below: Unit Cost (OMR) 90 40 22 Details Material Cost Labor Direct Expenses Work Overhead (30% Fixed) Administrative Expenses (60%Variable) Distribution Expenses - Fixed (120,000) Selling Overhead - Fixed (40,000) 30 25 12 4 Due to the current Covid-19 pandemic situation, the board of directors of Dell Inc. decided to reduce production for the upcoming period. As a Management Accountant of Dell Inc, you are directed to advise the board of directors which is the best profitable level of activity by comparing 60% and 80 % levels of production capacities. Assume that the unit cost of a computer is OMR 250.

Answer 1

Answer: Unit cost of Computer OMR 250 60% 80% Capacity >>> No of units Particulars 6000 8000 Unit cost 1500000 2000000 90 540000 Total sales Less: Variable cost Direct Material Direct Labor Direct expenses Work OH Admin expenses 40 22 9 240000 132000 54000 90000 720000 320000 176000 72000 120000 15 Total Variable cost 1056000 1408000 Less: Fixed cost Work OH Admin expenses Distribution expenses Selling OH 90000 187500 90000 187500 120000 40000 120000 40000 Total Fixed cost 437500 437500 Net profit 6500 154500 Net profit at 60% level was OMR 6500, where as at 80% level it was OMR 154500 Working Note: Variable and Fixed Particulars Fixed Variable (unit cost) 90 Total (unit cost) 90 40 22 30 25 12 40 0 22 Direct Material Direct Labor Direct expenses Work OH Admin expenses Distribution expenses Selling OH Total 9 15 90000 187500 120000 40000 0 4 0 223 176 437500