Li Fen Holland (Ltd) is a manufacturer of deepfreeze Vietnamese meat rolls for the delivery to supermarkets. The raw materials costs (meat) are € 0.40 per meat roll. (0.1 kilogram of meat for € 4.-- per kilogram). The other variable costs (costs of packing) are € 0.02 per meat roll. All produced meat rolls will be sold instantly: There is no inventory/stock of meat rolls. The budgeted indirect fixed costs are distributed as follows: Costs management| € 200,000| |
Costs administration| € 150,000| |
Costs production installation| € 150,000| |
Costs production staff| € 700,000| |
Costs sales department| € 200,000| |
Total budgeted fixed indirect costs| | € 1,400,000|
These figures apply to the budget for the year 2009.
The budgeted market share of Li Fen Holland ltd is 10%.
The budgeted sales price of the meat rolls of Li Fen Holland is € 1.20 per meat roll. The budgeted sales of Li Fen Holland for the year 2009 amount to 2,250,000 meat rolls. The regular(normal) sales and production of Li Fen Holland is 2,350,000 meat rolls. Question A (2)Give a representation of the budgeted profit-and-loss account according to the direct costing model. (variable cost price calculation). Question B (3)Give a representation of the budgeted profit-and-loss account according to the absorption costing model. Question C (1)Does the profit according to question A differ from question B? Argue your answer! Question D (2)Calculate the safety margin (as a percentage) according to the budget. Question E (3)Calculate the operating leverage at a budgeted production level and normal production level. Li Fen Holland Ltd is thinking about hiring an extra sales representative. It is estimated that this measure will generate a sales increase of an additional 250,000 meat rolls per year. This means that the maximum production capacity (2,350,000 meat rolls) will be exceeded. However, a colleague has offered to sell to Li Fen Holland...