Managerial Accounting and Control Assignment -
Question 1 - Cot-Candy currently sells only cotton candy at amusement parks all around the country. During a typical month, Cot-Candy reports a profit of $9,000 with sales of $50,000, fixed costs of $21,000, and variable costs of $1.60 per bag.
Next year, Cot-Candy plans to start selling candy-coated popcorn for $3 a box. The popcorn will have variable costs of $1.80 per box, and new equipment and personnel required to handle the popcorn will increase monthly fixed costs by $8,640. Initial sales of popcorn should total 10,000 boxes. However, it is believed that most of the popcorn sales will come from current cotton candy customers. As a result, monthly sales of cotton candy will drop to $20,000.
Required:
(a) Compute the selling price of cotton candy per bag and the current number of bags of cotton candy sold a month before the introduction of the popcorn product.
(b) Determine the current monthly breakeven sales in units and dollars before adding the popcorn product.
(c) Determine the monthly sales mix after the introduction of the popcorn product.
(d) Assuming a constant sales mix, determine the monthly breakeven sales, in units and dollars, after the introduction of the popcorn product.
(e) Briefly describe the main product or service or class of product/service that the organisation you work for sells, or one that is sold by an organisation that you are familiar with. Do you agree with the following two statements?
(i) "If we raise the price of our product, the company's breakeven point will be lower."
(ii) "Then we should raise our price. The company will be less likely to incur a loss.
Briefly explain why you agree or disagree with the statements.
Question 2 - Sharon, a sales representative for a large medical company, has decided to spend less time travelling. She intends to spend only 160 hours per month with her customers. To do this, she will have to give up some of her customers.
The following information relates to her last full month's sales activities for her three categories of customers:
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Corporate Customers
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Small Businesses
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Professional Partnerships
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Number of customers
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10
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50
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80
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Average sale per customer
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$2,000
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$1,000
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$500
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Commission percentage
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5%
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7%
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10%
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Average time per customer
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4 hours
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2 hours
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2.5 hours
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Required:
(a) Compute the commission per hour for each of the three categories of customers.
(b) Advise Sharon on an appropriate client mix for her to maximise her sales commissions.
(c) Compute Sharon's sales commission based on your recommendation in (b) above.
(d) Sharon remembered hearing that sunk costs and opportunity costs are inherent in decision making, but she is not sure about the nature of those costs. Briefly explain the terms "sunk cost" and "opportunity cost" to Sharon, and highlight how sunk costs should be treated when making decisions.
Question 3 - GRB Ltd is thinking of upgrading the company's information technology network system so as to increase the efficiency of its operational activities. The following three proposals were received:
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Proposal 1
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Proposal 2
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Proposal 3
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Initial investment in equipment
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$45,000
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$45,000
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$45,000
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Annual cash savings:
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Year 1
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$40,000
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$22,500
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$45,000
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Year 2
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$5,000
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$22,500
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-
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Year 3
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$22,500
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$22,500
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-
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Estimated useful life
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3 years
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3 years
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1 year
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The company uses straight-line depreciation for all capital assets, and has a required rate of return of 14% for all capital budgeting decisions.
Required:
(a) Compute the following for each of the three proposals received by GRB Ltd:
(i) Payback period,
(ii) Net present value, and
(iii) Accrual accounting rate of return (use average annual cash savings as the numerator).
(b) Rank and evaluate each proposal using the three methods in (a) above. Briefly explain which proposal is the best.
Question 4 - The following information for GWC Wire Ltd relates to the production of 300 rolls of copper wire for the month of July. Some of the items are missing because the costing records were lost in a fire.
Direct Materials (all materials purchased were used):
Standard cost per roll: A kg at $3.20 per kg
Total actual cost: B kg costing $5,673
Standard cost allowed for units produced: $5,760
Materials price variance: $C
Materials efficiency variance: $96 unfavourable
Direct Manufacturing Labour:
Standard cost: 2 hours per roll at $7 per hour
Actual cost per hour: $7.25
Total actual cost: $D
Labour price variance: $E
Labour efficiency variance: $140 unfavourable
Required:
(a) Compute the missing elements in the report represented by A to E. For items C and E, also state whether they are favourable or unfavourable.
(b) GWC Wire Ltd decides to take a closer look at its operational activities so as to enhance operational efficiency and reduce costs of quality. Briefly explain the difference between internal and external failure costs to the management, and advise which of these two costs will likely be more troublesome for a company that desires to succeed in an extremely competitive marketplace.
Attachment:- Assignment File.rar