Question

          Question 1                                                                                      (Total: 30 marks)

Tabulation Corporation manufactures and sells two types of electronic calculators: EL-520 W and EL-620 T. The following data was gathered from last month’s activities:

                                                                                                      EL-520 W             EL-620 T

Sales in units                                                                               5,000                    3,000

Selling price per unit                                                                $50                       $100

Variable production costs per unit                                       $10                       $26

Traceable fixed production costs                                          $100,000             $150,000

Variable selling expenses per unit                                        $5                          $6

Traceable fixed selling expenses                                           $5,000                  $7,500

Allocated division administrative expenses                        $50,000               $60,000

Required:

1. Prepare a segmented income statement in the contribution format for last month, showing both "Amount" and "Percent" columns for the company as a whole and for each model.
2. Why might it be very difficult to calculate separate break-even sales for each model?
3. Refer to the original data and, if necessary, the results of the segmented income statement prepared in part (1) above. Calculate the total break-even sales (in both units AND dollars) for last month, assuming that none of the fixed production costs and fixed selling expenses is traceable. Allocate the total break-even sales between the two models.
4. Again, refer to the original data and, if necessary, the results of the segmented income statement prepared in part (1) above. Calculate the total break-even sales (in both units AND dollars) for last month, assuming that the "allocated" amounts of the company's administrative expenses are actually traceable. Allocate the total break-even sales between the two models.
5. How reasonable are the total break-even sales numbers calculated in parts (3) and (4) given the actual results for last month?

Answer 1

Solution

Segmented Income Statement

Particulars	EL- 520 W	Units	EL - 620 T	Units	Total
Selling price	50	50	100	100
Sales in units	5,000		3,000
Total Sales	250,000		300,000
Less : Variable Production costs (5000:3000*10:26)	50,000	10	78,000	26
Variable Selling costs (5000;3000* 5;6)	25,000	5	18,000	6
Total Variable costs	(75,000)	15	(96,000)	32
Contribution	175,000	35	204,000	68	379,000
Less : fixed Production costs	100,000		150,000
Fixed Selling costs	5,000		7,500
Allocated division Administrative expenses	50,000		60,000
Total Fixed Costs	(155,000)		(217,500)		(372,500)
Profit	20,000		(13,500)

Total Break Even Sales (in units) = Fixed Costs / Contribution per unit

= 372500 / 103

= 3616.5 rounded off to 3617 units

Total Break Even Sales (In dollars) = Fixed Costs / PV ratio (WN 1)

= 372,500 / 31.33%

= $ 118,856.27

Working Note

PV Ratio = Variable Cost / Total Sales * 100/ Variable cost per unit / selling price per unit

= 47 / 150 * 100 = 31.33%