# Variable Cost and Company

Pages: 5 (1030 words) Published: June 5, 2013
Section B
Attempt Any Six Questions (6*5= 30)

1. Company A’s costs are mostly variable, whereas Company B’s costs are mostly fixed. When sales increase, which company will tend to realize the greatest increase in profits? Explain.

2. Crystal Telecom has budgeted the sales of its innovative mobile phone over the next four months as follows: Sales in Units

July. . . . . . . . . . . . . . 30,000
August . . . . . . . . . . . 45,000
September . . . . . . . . 60,000
October . . . . . . . . . . 50,000

The company is now in the process of preparing a production budget for the third quarter. Past experience has shown that end-of-month inventories of finished goods must equal 10% of the next month’s sales. The inventory at the end of June was 3,000 units.

Required:
Prepare a production budget for the third quarter showing the number of units to be produced each month and for the quarter in total.

3. A Trading Enterprises is the distributor for two products, Model A100 and Model B900. Monthly sales and the contribution margin ratios for the two products follow: Product
Model A100 Model B900 Total

Sales . . . . . . . . . . . . . . . . . . . .\$700,000 \$300,000 \$1,000,000 Contribution margin ratio . . . . . . . 60% 70% ?

The company’s fixed expenses total \$598,500 per month.

Required:
1. Prepare a contribution format income statement for the company as a whole. 2. Compute the break-even point for the company based on the current sales mix.

4. The following information is extracted from the books of Nepal Lube Oil Ltd.,

Particulars | 2008Amount Rs.| 2009 Amount Rs.|
Bills payable Trade creditors Out standing expensesBills receivables Trade debtors Prepaid expenses Accrued incomes Income received in advance | 1000024000400040000800004000100004000| 16000320002000360001200006000160002000|

Nepal Lube Oil Ltd earned profit of Rs. 400000 after charging or crediting the following items to its profit and loss account during the year 2009. a. Profit on sale of investment Rs. 8000
b. Loss on sale of building Rs. 18000
c. Depreciation on Fixed assets Rs. 14000
d. Goodwill written off Rs. 4000
Required

i. Determine cash flow from operation

5. How would you evaluate the following statements: “A statement of cash flows is unnecessary, and actually redundant, because the increase or decrease in cash for the period can be easily calculated by observing at the cash account on two successive balance sheets”?

6. Tata Corporation uses a predetermined overhead rate of \$23.10 per direct labor-hour. This predetermined rate was based on 12,000 estimated direct labor-hours and \$277,200 of estimated total manufacturing overhead. The company incurred actual total manufacturing overhead costs of \$266,000 and 12,600 total direct labor-hours during the period.

Required:
Determine the amount of manufacturing overhead that would have been applied to units of product during the period.

7. Operating data for Zerox Corporation are shown below:

Per Unit Percent of Sales
Selling price . . . . . . . . . . . . . . . . \$75 100%
Variable expenses . . . . . . . . . . . 45 60%
Contribution margin . . . . . . . . . . \$30 40%

Fixed expenses are \$75,000 per month and the company is selling 3,000 units per month.

Required:

a. The marketing manager argues that an \$8,000 increase in the monthly advertising budget would increase monthly sales by \$15,000. Should the advertising budget be increased? b. Refer to the original data. Management is considering using higher-quality components that would increase the variable cost by \$3 per unit. The marketing manager believes the higher-quality product would increase sales by 15% per month. Should the higher-quality components be used?

Section C
Attempt any three questions (3*10= 30)

10. Company manufactures and sells a single...

Please join StudyMode to read the full document