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Cost Accounting and Control

1. The document provides a problem set involving cost accounting calculations for a company called XYZCo. 2. It includes calculations of variable costing income statements, contribution margin, break-even points, margin of safety, degree of operating leverage, and additional problems calculating sales levels required to hit income targets. 3. A second problem involves similar calculations for a company called Rojo Products and its camp lantern product, including break-even analysis and calculating contribution format income statements with proposed price and sales volume changes.

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Jell Democer
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301 views5 pages

Cost Accounting and Control

1. The document provides a problem set involving cost accounting calculations for a company called XYZCo. 2. It includes calculations of variable costing income statements, contribution margin, break-even points, margin of safety, degree of operating leverage, and additional problems calculating sales levels required to hit income targets. 3. A second problem involves similar calculations for a company called Rojo Products and its camp lantern product, including break-even analysis and calculating contribution format income statements with proposed price and sales volume changes.

Uploaded by

Jell Democer
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Cost Accounting and Control- 2nd Sem

Name: Jellie Marve Democer

Problem 1

Problem1–50points;show your solutions

XYZCo., makes small plant stands that sell for P25each.The company’s annual level of

Production and sales is 120,000 units. In addition to P430,500 of fixed manufacturing overhead

And P159,050 of fixed administrative expenses, the following per unit costs have been

Determined for each plant stand:

Direct material P6.00

Direct labor 3.00

Variable manufacturing OH 0.80

Variable selling expense 2.20

1. Prepare a variable costing income statement at the current level of production and sales.
a. Total variable expense per unit= DM+ DL+ Variable FOH +Variable selling expense
=6+3+0.80+2.20
=12
b. Total fixed expense= fixed FOH + Fixed S&A expenses
=430 500+159 050
=589 550

XYZ Co.
Variable Costing Income Statement
Sales(P25x120 000) P3 000 000
Less:Total variable expense (12x120 000) 1 440 000
Total contribution margin 1 560 000
Less:Total fixed expense 589 550
Net Operating Income 970 450

2. Calculate the unit contribution margin in pesos and the contribution margin ratio for a plant
stand.
Contribution margin per unit= Price- Variable Cost per Unit
=P25-12
=13

Contribution margin per unit


Contribution Margin ratio=
Price
13
=
25
=0.52 or 52%

3. Determine the break-even point in number of plant stands


¿
Break-even point in units=Total ¿ cost Contribution MArginUni t
589550
=
13
=45 350

4. Calculate the break-even point using the contribution margin ratio.


¿
Break-even point using contribution margin ratio= Total ¿ cost
Contribution marggin rat io
589550
=
52 %
=1 133 750

5. Determine XYZ’s margin of safety in units, in sales pesos and as a percentage

Margin of safety in units= Total Units- Breakeven point in units


=120 000-45 350
=74 650

Margin of safety in sales=Budgeted sales-Break even sales


=25(120 000)-25(45 350)
=3 000 000-1 133 750
=1 866 250

Margin of safety as a percentage=margin of safety(P)/Budgeted sales


=1 866 250/3 000 000
=62.21%

6. Compute the company’s degree of operating leverage.


Total Contribution margin
Operating leverage=
Profit ∨net operating income
1560 000
=
970 450
=1.61

7. If sales increase by 25% by what percentage will before-tax income increase?


Percent Change in Operating Income
=DOL x Percent change in sales
=1.61x 25%
=40.25%

8. How many plant stands must the company sell to earn P996 450 in before tax income?

Target Level of sales:


(589 550+99 450)/13= 122 000

It has to sell 122 000 units to earn P996 450.

9. If the company wants to earn P657 800 after tax and is subject to a 20 percent tax rate, how
many units must be sold?

100%-20%= 80%

=657 800(80%)=822 250

=(822 250+589 550)/13

=108 600

10. How many plant stands must be sold to break even if XYZ’s fixed manufacturing cost
increasesbyP7,865?(use the original data).
=Total fixed cost/Contribution Margin
=589,550+7,865/13
=597,415/13
=45,955number of plant stands must be sold to break even if XYZ's fixed
manufacturing cost increases by 7,865

11. The company has received an offer from a Brazilian company to buy 4,000 plant stands
at P40 per unit. The per-unit variable selling cost of the additional units will be P2.80 (rather
than P2.20), and P18,000 of additional fixed administrative cost will be incurred.
This sale would not affect domestic sales or their costs. Based on quantitative factors
alone, should XYZ accept this offer?

Sales: (4 000x40) 160 000 Sales (4 000x25) 100 000


Less: Variable Cost (4 11 200 Less: variable Cost 8 800
000 x2.80)
Contribution margin 148 800 Contribution Margin 91 200
Less: Fixed Cost 18 000 Less: fixed Cost 18 000
Net income 130 800 Net Income 73 200
XYZ should accept this offer because the company will benefit more at a selling price of 40.

Problem 2

Rojo Products sells camping equipment. One of the company’s products, a camp lantern, sells

for P900 per unit. Variable expenses are P630 per lanterns, and fixed expenses associated with

the lantern total P1,350,000 per month.

1. Compute the company’s break-even point in number of lanterns and in total sales pesos.
Break even points in units= Total fixed cost/ Contribution margin ratio
= 1 350 000/(900-630)
=1 350 000/270
=5 000 units

Break even points in pesos= Total fixed cost/ contribution margin ratio
=1 350 000/(270/900)
=1 350 000/.30
=4 500 000

2. If the variable expenses per lantern increase as a percentage of the selling price, will it
result in a higher or a lower break-even point? Why?

An increase in the variable expenses per lantern will increase or result to higher break even
point. The higher the variable expense, the lower will be the contribution in the percentage of
sales.

3. At present, the company is selling 8,000 lanterns per month. The sales manager is
convinced that a 10% reduction in the selling price will result in a 25% increase in the
number of lanterns sold each month. Prepare two contribution income statements, one
under present operating conditions, and one as operations would appear after the
proposed changes. Show both total and per unit data on your statements.

Original data Proposed Contribution Format Statement


Total Per Total Per Unit
Unit
Sales P7 200 000 P900 Sales P8 100 000 P810
Less: Variable Cost 5 040 000 630 Less: Variable Cost 6 300 000 630
Contribution margin 2 160 000 270 Contribution Margin 1 800 000 180
Less: fixed Cost income 1 350 000 Less: Fixed Cost 1 350 000
Net operating income P810 000 Net operating income P450 000

10% reduction in the selling price


=900x.90
=810
25% increase in the number of lanterns sold
=8 000 x1.25
=10 000

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