Mid Term project and Challenge offered to CASE Pakistan Students by Dr Imran Akhtar as part of the graduate course on Linear Systems and Control. Segway Modeling is assigned as a task.
Deskripsi lengkap
problems highlighting the concepts in financial accounting 3Full description
3-41 CVP analysis, shoe stores . The Liberty Shoe Company operates a chain of shoe stores. The stores sell 10 different styles of inexpensive men’s shoes with identical unit costs and selling prices. unit is defined as a pair of shoes. !ach store has a store manager who is paid a fixed salary. "ndividual "ndividual salespeople receive a fixed salary and a sales commission. Liberty is trying to determine whether to open another store# which is expected to have the following revenue and cost relationships$ %nit variable data &per pair of shoe' Selling price (s )00 Cost of shoes 1*+ Sales commissions 1+ ,ariable costs per unit -10 nnual fixed costs (ent 1#-0#000 Salaries #00#000 dvertising 1#/0#000 ther fixed costs 0#000 Total fixed costs #-0#000 Consider each 2uestion independently. 1. 3hat is is the annual annual brea4even brea4even point point in in &a' units units sold sold and and &b' revenu revenues5 es5 -. "f )+#000 )+#000 units units are sold# sold# what what will be be the store’ store’ss operatin operating g income income &loss'5 &loss'5 ). "f sales commissions were discontinued for individual salespeople in favor of (s 1#/-#000 increase in fixed salaries# what would be the annual brea4even point in &a' units sold and &b' revenues5 . (efer to the original data. "f the the store manager manager were paid (e 0.) per unit unit sold in addition to his current fixed salary# what what would be the annual brea4even point in &a' units sold and &b' revenues5 +. (efer (efer to the original original data. data. "f the store store manager manager were were paid (e 0.) 0.) per unit commis commission sion on each each unit sold in in excess of the brea4even point# what would be store’s operating income if +0#000 units were sold5 &This (e 0.) is in addition to both the commission paid to the sales staff and the store manager’s fixed salary.' salary.'
Solution 1. Contribution margin per pair 6 Selling price 7 ,ariable costs per pair 6 (s )00 7 -10 6 (s *0 per pair 8rea4even point in number of pairs$ 9ixed costs:Contribution costs:Contribution margin per pair 6 (s #-0#000:(s *0 6 ;#000 pairs 8rea4even points in revenues$ 9ixed costs:Contribution margin < per rupee (s #-0#000:&100<=0<' 6 (s -#00#000 2. (evenues# (s )00 x )+#000 ,ariable costs# -10 x )+#000 Contribution margin 9ixed costs perating income &loss' 3.
4.
5.
of
sales
(s 1#0+#00#000 )#+0#000 )1#+0#000 #-0#000 -#)0#000
9ixed costs$ (s #-0#000 > 1#/-#000 6 (s ;#;-#000 Contribution margin margin per pair 6 (s )00 7 1*+ 6 (s 10+ a. 8rea4even point in units 6 (s ;#;-#000:10+ 6 ;#00 pairs b. 8rea4even point point in revenues 6 (s )00 x ;#00 6 (s -+#-0#000 9ixed costs 6 (s #-0#000 Contribution margin margin per pair 6 (s )00 7 (s -10 7 (e 0.)0 6 (s ;*. a. 8rea4even 8rea4even point point in in units units 6 (s #-0#0 #-0#000:;* 00:;*.0 .0 6 ;#0- ;#0- pairs pairs &rounde &rounded' d' b. 8rea4even point in revenues 6 (s )00 x ;0- 6 (s -#0;#100 8rea4even point 6 ;000 pairs Store manager receives commission on -#000 pairs. (evenues# (s )00 x +0#000 ,ariable costs Cost of shoes
(s 1#+0#00#000 (s *#+0#000
6
Sales person commission Store manager commission Contribution margin 9ixed costs perating income
#+0#000 1-#/00
1#0+#1-#/00 #;#00 #-0#000 )#/#00
4-31 Service industry# ?ob costing# law firm. ,iash @ ssociates is a law firm specialiAing in labor relations and employee=related wor4. "t employs +0 professionals &10 partners and 0 associates' who wor4 directly with its clients. The average budgeted total compensation per professional for current year is (s -#0;#000. !ach professional is budgeted to have )#-00 billable hours to clients in current year. ,iash @ ssociates is a highly respected firmB all professional wor4 for clients to their maximum )#-00 billable hours available. ll professional labor costs are included in a single direct=cost category and are traced to ?obs on a per=hour basis. ll costs of ,iash @ ssociates other than professional labor costs are included in a single indirect=cost pool &legal support' and are allocated to ?obs using professional labor=hours as the allocation base. The budgeted level of indirect costs in current year is (s #00#000. (e2uired resent an overview diagram of ,aish’s ?ob=costing system. Compute the current year budgeted direct=cost rate per hour of professional labor. ). Compute the current year budgeted indirect=cost rate per hour of professional labor. ,iash @ ssociates is considering bidding on two ?obs$ a. Litigation wor4 for Saw ipes Ltd. which re2uires 100 budgeted hours of professional labor. b. Labor contract wor4 for D E aper Ltd. which re2uires 1+0 budgeted hours of professional labor. repare a cost estimate for each ?ob. Solution
1.
n overview of the ?ob costing system is$ I NDI RECT COST POOL
}
Legal Support
COST ALLOCATI ON BASE
}
Pr o f e ss i o na l L a bo r Ho ur s
COSTOBJ ECT : J OBFOR CLI ENT
DI RECT COST
}
I ndi r ectCos t s Di r e ctCo s t s
} Pr o f e ss i o na l Labor
-.
8udgeted professional labor=hour direct cost rate 6 8udgeted direct labor compensation per professional:8udgeted direct labor=hours per professional 6 (s -#0;#000:)#-00 6 (s /+ per professional labor=hour Fote that the budgeted professional labor=hour direct cost rate can also be calculated dividing total budgeted professional labor costs of (s 1#0#00#000 &(s -#0;#000 per professional x +0 professionals' by total budgeted professional labor=hours of 1#/0#000 &)#-00 hours per professional x +0 professionals'# (s 1#0#00#000:1#/0#000 6 (s /+ per professional labor=hour. ). 8udgeted indirect cost rate 6 8udgeted total costs in indirect cost pool:8udgeted total professional labor= hours 6 (s #00#000:)#-00 hours x +0
6 (s #00#000:1#/0#000 6 (s -.+ per professional labor=hour 4. Direct costs: Particulars Saw Pipes rofessional labor# (s /+ x 100B (s /+ x 1+0 (s /#+00 !n"irect costs Legal support# (s -.+ x 100B (s -.+ x 1+0 -#+0 *#-+0
J. . Paper (s *#+0
#1-+ 1)#;+
5-4# $cti%ity-&ase" costin', cost hierarchy. &CG# adapted' 8asista Coffee Ltd. &8CL' buys coffee beans from around the world and roasts# blends# and pac4ages them for resale. The ma?or cost is direct materialsB however# there is substantial manufacturing overhead in the predominantly automated roasting and pac4ing process. The company uses relatively little direct labor. Some of the coffees are very popular and sell in large volumes# whereas a few of the newer blends sell in very low volumes &8CL' prices its coffee at budgeted cost# including allocated overhead# plus a mar4up on cost of )0 per cent. Hata for the current year budget include manufacturing overhead of (s )0#00#000# which has been allocated on the basis of each product’s budgeted direct=labor cost. The budget direct=labor cost for current year totals (s /#00#000. purchases and use of materials &mostly coffee beans' are budgeted to total (s /0#00#000. The budgeted direct costs for one=4g bags of two of the company’s products are !n"ian (alaysian Hirect materials (s (s )Hirect labor ) ) 8CL’s controller believes the existing costing system may be providing misleading cost information. She has developed an activity=based analysis of current year budgeted manufacturing overhead costs shown in the following table. $cti%ity Cost "ri%er Cost "ri%er rate urchasing urchase orders (s +#000 Gaterials handling Setups #000 Iuality control 8atches -#00 (oasting (oasting=hours 100 8lending 8lending=hours 100 ac4aging ac4aging=hours 100
Hata regarding the current year production of the "ndian and Galaysian coffee follow. There will be no beginning or ending materials inventory for either of these coffees. Particulars !n"ian (alaysian !xpected sales 1#00#000 4gs -#000 4gs urchase orders 8atches 10 Setups )0 1(oasting=hours 1#000 -0 8lending=hours +00 10 ac4aging=hours 100 (e2uired 1. %sing 8CL’s existing costing system$ a. Hetermine the company’s current year budgeted manufacturing overhead rate using direct=labor cost as the single allocation base. b. Hetermine the current year budgeted costs and selling prices of 1 4g of "ndian coffee and 1 4g of Galaysian coffee. -. %se the controller’s activity=based approach to estimate the current year budgeted cost for 1 4g of a. "ndian coffee b. Galaysian coffee llocate all costs to the 1#00#000 4g of "ndian and the -#000 4g of Galaysian. Compare the results with those in re2uirement 1. ). !xamine the implications of your answers to re2uirement - for 8CL’s pricing and product=mix strategy. Solution
8udgeted manufactur ing overhead 8udgeted direct labor cost 1a.
8udgeted manufacturing overhead rate
6 (s )0#00#000:(s /#00#000
6
6 (s + for each rupee of direct labor
1&. Particulars Direct costs Hirect materials Hirect labor !n"irect costs Ganufacturing overhead&) J +' Total costs
!n"ian Co++ee Direct costs per unit Hirect materials Hirect labor !n"irect costs per unit urchase orders
& orders x (s +#000:1#00#000 4gs' Gaterial handling &)0 setups x (s #000:1#00#000 4gs' Iuality control &10 batches x (s -#00:1#00#000 4gs' (oasting &1#000 hours x (s 100:1#00#000 4gs' 8lending &+00 hours x (s 100:1#00#000 4gs' ac4aging &100 hours x (s 100:1#00#000 4gs' Total cost per unit
(s )
(s + 0.-0 1.0.-0
(alaysian Co++ee Direct costs per unit Hirect materials Hirect labor !n"irect costs per unit urchase orders
(s ))
(s )+ 10
& orders x (s +#000:-#000 4gs' Gaterial handling &1- setups x (s #000:-#000 4gs' Iuality control
- .;
& batches x (s -#00:-#000 4gs' 1
(oasting &-0 hours x (s 100:-#000 4gs'
1
0.+0
8lending &10 hours x (s 100:-#000 4gs' ac4aging &- hours x (s 100:-#000 4gs'
0.+0
0.10
KKKK ;.-0 Total cost per unit
0.10 KKKKK +.0
The comparative cost numbers are$ !n"ian (alaysian (e2uirement 1 (s /0 (s +0 (e2uirement ;.-0 +.0 The 8C system in re2uirement - reports a decreased cost for the high=volume Gauna Loa and an increased cost for
the low=volume Galaysian. ).
The traditional costing approach leads to cross=subsidiAation between the two products. 3ith the traditional approach# the high=volume "ndian is overcosted# while the low=volume Galaysian is undercosted. The 8C system indicates that "ndian is profitable and should be emphasiAed.
ricing of "ndian can be reduced to ma4e it more competitive. "n contrast# Galaysian should be priced at a much higher level if the strategy is to cover the current period’s cost. 8arista Coffee may wish to have lower margins with its low=volume products in an attempt to build up volume.
