Practical questions
Part 3:
Question 1:
Each pair of shoes produced at the factory will be sold for $80. Variable costs required to
manufacture one pair of shoes will be $20 and total fixed costs per year are expected to
$60,000. Green Sole Shoes has decided that it would like to earn a target profit of $90,000
in the coming year.
Using the information above;
1. Calculate the contribution margin per unit for each pair of shoes
2. Calculate the total contribution margin if 1,200 pairs of shoes were sold.
3. Determine the breakeven point in sales of pairs of shoes.
4. Determine how many sales of shoes would need to be sold to earn Green Sole
Shoes’ target profit of $90,000.
Question 2:
The following data relate to Socks Company for the year ended December 31:
Direct materials (variable) $360,000
Direct labor (variable) $504,000
Manufacturing overhead:
Variable $180,000
Fixed $360,000
Sales commissions (variable) $108,000
Sales salaries (fixed) $72,000
Administrative expenses (fixed) $144,000
Units produced: 150,000
Units sold (at $18 each): 120,000
There were no beginning inventories.
Required:
1. Calculate the production cost per unit under Absorption costing
and Variable costing.
2. Prepare two income statements—a variable costing income
statement and an absorption costing income statement.
Part4:
Question 3:
Activity 1:
From the information obtained during the meeting prepare the following operating
budgets (with a quarterly breakdown) for the new beach towel line for the year
ending 30 June 2017:
1. Sales Budget
2. Production Budget
3. Material Budget
4. Labour Budget
5. Overhead Budget
Question 4:
You are an accountant working in Aza Pty Ltd. It is the beginning of the year, and you are
going to prepare a cash budget. The following depicts the relevant information:
The cash balance at the beginning of January 2017: $22,000
Customers pay their bills one month after their purchase. The sales for the last
December is $98,000; and the expected sales will be: January $139,000; February
$140,000.
A machine worth $34,000 will be sold in January for cash.
Your company pays suppliers 50% of purchases in the same month and the
remaining 50% in the following month. The purchase information for the last
December is $68,000, and the expected purchases will be January $76,000;
February $30,000.
Labour costs for the previous December were $55,000, the expected salary in
January is $50000, and February $58,000 (Wages are paid in the following month).
Manufacturing overhead: January $30,000; February $28,000 (overhead will be paid
when it occurs).
Selling and administrative expenses: January $18,000; February $17,000 (costs will
be paid when they occur).
A loan worth $10,000 will be due in January.
Aza Pty Ltd expects to maintain a minimum $12,000 in cash on hand at the end of
each month. If the cash is not enough, they will borrow from a local bank.
Required
Prepare a cash budget for the month of January and February.
AZA PTY LTD
Cash Budget
for the two months ended 28 February 2017
Question 5:
Proposal X and proposal Y require an initial investment of $10,000 and are expected to
generate an equal cash inflow of $20,000 over their life of four years. The net cash
inflow for each year of life of both the proposals is given below:
Required:
1. Compute the present value of cash inflows generated by both the proposals
assuming a discount rate of 18%.
2. Which of the two proposals is better if compared using net present value method?
