sorzo2t Assignment Print View Score 6O/6O points 100 « hitpstezto mheducation.comihm tpx?ted 925271856... 14 15SinglePrintViewasinglaQuestionN postSubmissiorView=132527 15543011291 wisorzo2t 2. ar 0 out 1600 points Tracey Douglas isthe owner and managing director of Hertage Garden Furniture Lis, a South Afican company tht makes museum-qualty reproductions of antque outsoorfurnturs. Tracey woud ike advice conceming te advaabiity of shminating the model C3 lawn ena These Assign rent Print View Iga chars have been among the company's bestseling products, but they seem unpoftabl ‘condensed statement of operating income fr the company and forthe model C3 awn chal forthe quarter ended June 30 follows: ‘Direc mats Fringe benefits (20% of dec abou \Vanabe manufackrng ovemead Bulg ret nd mainance Toa cost of sales Gross margin ‘Seling and aris Prosuct managers 6 Seles commision (5% sales) Fringe banat (20% of salves and commision) Shoang General administrate expenses ‘ota seing and administrate expenses Net operating income (oss) "The currency in South Aa isthe rand, denoted hereby R ‘The folowing adctona data have been supple by the company: Direct labours a variable cost at Hertage Garden Furi. Alo the company's products are manufactured inthe same facty and use the same equipment. Bulding rent, maintenance, and deprecation ae allocated to prodcts using various bases. The equipment does not wear out tough Use eventual becomes obsolete «, Tore is ample capac to lal oder, Model C3 240,000 988,900 ‘28800 174.800, 7200 "38.000, aaa “77 sao 1.592200 12900 95.000 ‘9960 '57,000, soo 162000 ‘yease07 _490200~ 4 Dropping he madel C3 lawn chair would have no effect on sales of other product nes. © lrventores af work in procasso* finshed goods are insignieant. “Shipping costs are tacos dct to products, 8. Gonoral administrative exoonsos are allocated to products onthe basis of sales dollars. There would bo no foc on the otal gonoral aadminisvative expenses ithe movel C3 lawn chav wore dropped h Ifthe modo! C3 awn chair were dropped, the product manager would be aid of Requires: 3-1, Alcurret level sles, compute the effect of net operating income if he Medel C3 lan chair is dropped, 7 [erat peraing naomi by R oreo “4b. Would you recommend thatthe modal C3 lawn char be dropped? No! 2. What would sales of tye modo C3 lawn chair have tobe, a minimum, nordor to jst retaining th product? (Hint: Sot hs up as a broake ‘en problem, but include ony the relevant cost rom part (1). (Round "Contribution margin ratio" to 2 decimal places and final answer to the nearest whole number) (eesvoume [Rk _10agat > References hitpstezto mheducation.comivm tpx2ledo 15SinglePrintViewasinglaQuestionN ApostSubmissionView=182527 1554301129 1&wid=182527 1554 2asorzo2t ‘Assignment Pit View Learning Objective: 08-01 Understand and apply the Felevant costing approach to ‘cision making, Tracey Douglass the owner and managing decor of Hetage Garden Furniture Lt, @ South Afican company that makes meseun-qaly reproductions of antique outdoor furtute. Tracey would Ike advice concering the adviabily of elminatig the madl C3 lawn chal. These lawn chars have beon among the companys bestsoling product, but thoy soem unpoftabl. ‘A condensed statement of operating income forthe company and forthe model G3 lnwn chat for he quator ded June 30 follows Modal 62 Sales 00,000" 380,000 Cost of alee: Feng bonofis (20% of dractabow) 2800 1743800 \anable manutacturng overneed, yoo “000 Depresition 36400___98,000 “Totacst of eles ¥e6.200~ “7207 600 Gross marge Tagan —Tsz200 Seling and asminsrave expenses: Produc manage salaries san 95.000 Soles commissions (3% 9 ss) 3900 130.000 ge benef (20% of slares and commissions) 980 ‘57.000 Shipoing sso +5200 General adrstative exponsos 99,000___ 608.000 Toa sling and ndrintratve expanses 788,700 a0 Net operat income tos) Ris4s00) 490.200 “The curroneyn South Aca isthe rand, denotd hero by R The following addtional data have been supplied bythe company: Direct labour isa variable costa Heritage Garden Furie Alo the company’s products are manufactured inthe same facity and use the same equipment. Bulding rent, maintenance, and ‘opreciation are afocatod to products using varlous bases, The oqupmont doos nol wear out trough use it eventually Bocomes obsolete «. There fs ample capacty to fil al orders. Dropping the mosel C3 lawn chair would have no elect on sales of ther product nes. © Inventories of workin procoss or fished goods are insignificant t 8 ‘Shipping costs are traced drelly lo produce ‘Gonoral adminstratve exponsos are alocated to products onthe bass of sales dollars. There would be no effect on tho total gonoral adiin'svalve expenses tho model C3 lawn chalr wore dropped fh ifthe model C2 lawn char were dropped, the product manager would be lid of Required ‘1 At current lavl of sales, compute the operatngincomeby _R[___ 107280 fect of net operating income I the Model C3 lawn chairs dropped. 4, Would you recommend tat the model C3 lawn chair be stopped? Noo 2. What would sales ofthe model C3 lawn chair have lobe, a minimum, inorder o justly retaining the product? (Hint: Sot his up as a break ‘ven problem, but include only the relavant costs rom part(1).) (Round “Contribution margin ratio" to 2 decimal places and final answer to the nearest whole number) steve _|xf 7] 15SinglePrintViewasingleQuestionN postSubmissionView=182527 186490112018wid=1325271554... 3/4sora ‘Assignment Pit View Explanation 7 Only the avoidable costs are relevant ina decsion ta drop the Model CS lawn char product. The avoidable costs are Dect mataale 240.000 Fringe borat 20% of dec abour) 73.500, ‘Vaal manufacturing oveead 7200 Product manager's salary 193800 Salo commision (5% sales) 30.000, Fringe bevata (20% of salaries and commissions) 9.060, otal avoidable cost ae2.760_ Tstavogabieeost ROO The following costs are not relevant inthis decision coe Reason not relevan Bulg rent and maintenance [Al product we the some facies no apace would be reads product were dropped. | Depreciation [A products ase the same equipment sono eausment canbe sl, Futbe"mor, be equipment doesnot wear at through wee General adminatatve expanses ‘roping the Hadal C3 lav cha wold nave no etc on tal gunerl admin expaneed, Having determined the costs that ean be avoided ifthe Model C3 lawn chai is cropped, we can naw make the follwing computation: Sales everue lst fhe Model C3 lsum halls dropped 60,000 leas: Cons tat ean be evaded eae above) 292,780 Decree = overall company nl operating come the Medel C3 lsan chats kopped RIOT 240, “Thus, the Model C3 lawn chai should not be dropped unloss the company can find more profitable uses forthe resources consumed bythe Model C3 lawn cha. 2 ‘Te eotermine the minimum acceptable level of sales, we must frst classy the avoidable costs nt variable and fixed costs as fallow: Direct mater 240000 Fringe Sores (20% of dec abour 29/800 \Vanabe manufackrng ove 7200 Product managers sales 19.900 Stles commision (0! slo) 30,000 Fringe covoft (20% of slanee and commision) 000 3.980 Shopng 13,000 Total oon 65.000 Ra5.760 “The Model C3 lawn chair shouldbe retained as long as ts contribution margin covers ls avodable fixed costs. Broak-oven analysis can be used| {ong the sales volume whore the contrbton margin just oquals the avoidable ied cos. ‘The contribution margin rata ie computed a flows: CMraio = ————Contiton margin _ -2600,000 = 459,000 pias R600 000 ‘The breakoven sales volume can be found using the breakeven formu Broak-ovon point = Riog.aet Therefore, a6 tng asthe sales revenue tom the Model C3 lain chal exceeds R108 84, ts covering Hs own avoidable fixed cost ade contibting toward covering the common fed costs an toward th pro of he entre company. 15SinglePrintViewasinglaQuestionN postSubmissionView=132527 156430112018wid=132527 1554... 4/4