P&L 2022 2023

Revenue 2,920.00 3,650.00

Variable Cost 1,460.00 1,430.80
Contribution Margin 1,460.00 2,219.20
Loss On sales of Machines 0.00 200.00
Insurance 0.00 22.00
Depreciation 500.00 580.00
Rent 150.00 150.00
Interest 650.00 640.00
Profit Before Tax 160.00 627.20
Tax 32.00 125.44
Profit After Tax 128.00 501.76

CHANGE FOR 2023

Revenue 25%
Contribution Margin (% change from last y -2%
Interest of Long Term Loan 8%
Inventory ( Decline in Ending levels) -15%
Accounts Receivable (days) 30
Accounts Payable (days) 35
Dividend (Paid in 2023) (% of after tax profi 50%
Machine Sales (Market value), Sold on
100
Dec 31 2023
Machines New Investment, Paid in full Jan 900
New Machine Depreciation 80
Old Machine Depreciation 100
Building Depreciation 400
Principle Payment of existing loan 1000
Old Machine Book Value @ 31 Dec 2023 300.00
Insurance Expenses 22
Tax Rate 20.00%
Loss on sales of Old Machine -200.00
BALANCE SHEET
2022 2023 2022
Fixed assets Equity

Machines 400.00 820.00 Equity 9,798.00

Retained Earnings

Buildings 15,000.00 14,600.00 Capital Raise

Total Equity 9,798.00
Total Fixed Assets 15,400.00 15,420.00 Liabilities
Current assets Long Term Loan 8,000.00
Cash 2,200.00 1,543.73 Total Long Term Liabilit 8,000.00
Inventory 90.00 76.50 Current liabilities
Accounts Receivable 230.00 270.00 Tax Payable 32.00
Accounts Payable 90.00
Total Current Assets 2,520.00 1,890.23 Dividends Payable 0.00
Total Current Liabilities 122.00

Total Assets $ 17,920.00 17,310.23 Total Equity and Liabilit 17,920.00

CASH FLOW (1/1-31/12/2023) Calculate Acc Payble

Profit Before Payable Tax 627.20

Payable Tax -32.00
Depreciation 580.00
Reduction book valueOther
Accounts Receivable, due toReceivables
sale fixed asset 300.00
and Accounts Payable) 19.41 Depr for New Machine
Inventory 13.50 Depr = Pur - Sales value / U
Accounts Receivable -40.00

Accounts Payable 45.91

Change Borrowing -1,000.00 Loss On sales of old Machin
Investment -900.00 Loss = Sold Price - Book Va
Dividend -250.88 -200.00
Net Cash Change -656.27
 2023

9,798.00
250.88

10,048.88

7,000.00
7,000.00

125.44
135.91
0.00
261.35

17,310.23

Calculate Acc Payble*=COGS+End-Start

1,417.30
135.9055

Depr for New Machine

Depr = Pur - Sales value / Useful Life Years
80

Loss On sales of old Machine

Loss = Sold Price - Book Value at the time of sales
 2022 2022
Sales Rev 2920 Long term assets
Variables cost 1460 Building 15000
Contribution margin 1460 Machines 400

Interest expense 650

Deprecition Expense Current Assets
Building 400 Cash 2200
machine 100 Account receiv 230
Rent expense 150 Inventory 90

Profit before tax 160 Total 17920

Tax 32
Profit after tax 128
 2022
Equity 9798

Long term Loa 8000

Account payab 90
Taxes payable 32

17920
 Year 1 2 3
Unit volume 300,000 150,000 420,000
Selling price €18.00 €18.00 €18.00
Revenue €5,400,000.00 ### ###
Total cost €4,000,000.00 ### ###

1) Based on the above cost and volume data, use the High-Low method to identify variable cost per
fixed costs for the company.
HAC €6,600,000.00
HAUs 420,000
Lowest Activity cost €2,100,000.00
Lowest Activity unit 120,000

VC per unit = €15.00

FC= €300,000.00
2) On the basis of your answers in part (1) above, calculate the breakeven point of the company in
sales revenue.
Profit = Sales - (Fixed cost + Variables cost)
If Profit = 0, it means that: Fixed cost + Variables cost = Sales
VC/selling price = 83.33%

BEP (sales) = FC/(1-VC/Selling price) ###

BEP (unit) = BEP (sales) / Selling pric 100,000
3) The company expects to manufacture and sell 150,000 units this year. Calculate the margin of sa
percentage terms and the operating leverage at the expected sales level.
Expected sales (unit 150,000
Selling price €18.00
Expected sales (rev) €2,700,000.00
Fixed cost = €300,000.00
Variables cost = €2,250,000.00

Margin of Safety (%) = (Current Sales Level – Breakeven Point) / Current Sales Level x 100
Margin of Safety (%) 33.33%

Operating Leverage = Contribution Margin /Operating

V:Income = Q(P-V)
Variables per unit/(Q(P-V) -FC)
FC: Fixed cost)
Operating Leverage 3
2% of the operating profit. The maximum bonus is 50% of the annual salary. What would be the min
desired level of sales revenue from the manager’s point of view if he wishes to maximise his incom

Fixed
Bonussalary
= % of the €80,000.00
Operating
50% of theprofit
annual= 2%
salary €40,000.00

Operating Profit Required to get Max Bonus

= Max Bonus / Bonus %
= €2,000,000.00

PV Ratio
= Contribution Per Unit / Sales Per Unit
= (Sales Per Unit - Varaible Cost Per unit ) / Sales Per Unit
= 16.67%

Target Contribution
= Operating Profit Required to get Max Bonus + Fixed Cost
= €2,300,000.00

Minimum Desired Sales to maximize manager's income

= Target Contribution / PV Ratio
= €13,800,000.00

5) What is meant by the terms ‘Margin’ and ‘Turnover’?

The margin is calculated by dividing net operating income by sales, where net operating inco
A higher margin is always preferable. Margin can be increased by either increasing sales or

Turnover is the amount of revenue generated per unit of operating assets invested. It is calc
 4 5 6
280,000 230,000 120,000
€18.00 €18.00 €18.00
### ### ###
### ### ###

method to identify variable cost per unit and annual

reakeven point of the company in both units and

his year. Calculate the margin of safety in

es level.

en Point) / Current Sales Level x 100

ncome = Q(P-V)
Variables per unit/(Q(P-V) -FC)
: Fixed cost)
nual salary. What would be the minimum
f he wishes to maximise his income?

er unit ) / Sales Per Unit

ax Bonus + Fixed Cost

me by sales, where net operating income is earnings before interest and taxes.
creased by either increasing sales or decreasing operating expenses.

of operating assets invested. It is calculated by dividing sales by average operating assets, which include assets such as cash,
ude assets such as cash, inventory, receivables, plant, and machinery. We calculate the average of those assets by adding the
hose assets by adding the beginning and ending values and dividing by two.
1. Prepare a schedule to show the relevant cash flows for the project
YEAR 0 1 2 3

Invest ###
Rev ### ### ###
VC (35%) $665,000.00 $665,000.00 $665,000.00
Depreciation $450,000.00 $450,000.00 $450,000.00
Other Fixed cost $350,000.00 $350,000.00 $350,000.00
Loan $800,000.00
Interest pay
Deposit from(8%) $ 64,000.00 $ 64,000.00 $ 64,000.00
customer $300,000.00
Profit before Tax $371,000.00 $371,000.00 $371,000.00
Tax $ 85,330.00 $ 85,330.00 $ 85,330.00
Profit after Tax $285,670.00 $285,670.00 $285,670.00
Depreciation $450,000.00 $450,000.00 $450,000.00
Sell quipment $ - $ - $ -
Loan pay $ - $ - $ -
Deposit pay $ - $ - $ -

Cash Flow ### $735,670.00 $735,670.00 $735,670.00

2. Given that the company has a relevant cost of capital of 15%, would you advise them to conduct this p
Cost of capital 15%
NPV $685,744.01 Because the project's npv is positive and hence attra

3. What is the internal rate of return and what does that tell you in your own words?
60.18% This is the rate of return at which a project's net prese
4. What would NPV be for the project if the last year of the project had an additional variable cost of 215,250 and

YEAR 0 1 2 3

Invest ###
Rev ### ### ###
VC (35%) $665,000.00 $665,000.00 $665,000.00

Depreciation $450,000.00 $450,000.00 $450,000.00

Other Fixed cost $350,000.00 $350,000.00 $350,000.00

Loan $800,000.00
Interest pay (8%) $ 64,000.00 $ 64,000.00 $ 64,000.00

Deposit $300,000.00

Profit before Tax $371,000.00 $371,000.00 $371,000.00

Tax $ 85,330.00 $ 85,330.00 $ 85,330.00
Profit after Tax $285,670.00 $285,670.00 $285,670.00
Depreciation $450,000.00 $450,000.00 $450,000.00
Sell quipment $ - $ - $ -
Loan pay $ - $ - $ -
deposit pay $ - $ - $ -

Cash Flow ### $735,670.00 $735,670.00 $735,670.00

Cost of capital 15%

NPV $590,980.20 Should Invest

Are there any other factors to consider (provide examples)? Explain your answer.
 4

$ 1,900,000.00
$ 665,000.00
$ 450,000.00
$ 350,000.00 In addition,
and other
will repay thefixed
loan costs,
in one excluding
lump suminterest
in year cost, are expected
four. The interest istoexpected
increasetobybe$350,000 each
8% and will bey
each yea
$ 64,000.00 The company expects to receive an advance payment of $300,000 from the customer for the proje
The deposit will be refunded in full to the customer once the project is fully complete.
$ 371,000.00
$ 85,330.00 Tax rate 23%
$ 285,670.00
$ 450,000.00
$ 200,000.00 Equipment has a salvage value of 200,000 with a contract for sale in year four.
$ 800,000.00
$ 300,000.00

$ (164,330.00)

you advise them to conduct this project? Explain your answer.

ect's npv is positive and hence attractive. It represents the discounted present value of all future cash flows related to that proje

return at which a project's net present value equals zero. It is the percentage rate earned on each dollar invested over the cou
ditional variable cost of 215,250 and should they invest in the project? Are there any other factors to consider (provide example

$ 1,900,000.00
$ 880,250.00

$ 450,000.00

$ 350,000.00
 $ 64,000.00

$ 155,750.00
$ 35,822.50
$ 119,927.50
$ 450,000.00
$ 200,000.00
$ 800,000.00
$ 300,000.00

$ (330,072.50)

xplain your answer.

 ectedistoexpected
erest increasetobybe$350,000 each
8% and will beyear.
paid at the end of

00,000 from the customer for the project as a deposit.

project is fully complete.

r sale in year four.

future cash flows related to that project .

on each dollar invested over the course of the investment.

r factors to consider (provide examples)? Explain your answer.
 Offer price €150,000.00

P&L
Revenue:
Passenger £ €250,000.00
Cargo €30,000.00
Total £ €280,000.00
Expenses:
Variable expenses €90,000.00
Allocated fixed expenses €100,000.00
Total €190,000.00
Profit £ €90,000.00

Worldwide Flight will save £5,000 in reservation and ticketing expenses if the offer is accepted.
€5,000.00
If this company accept the offer
P&L
Revenue:
Passenger £ €150,000.00
Cargo
Total £ €150,000.00
Expenses:
Variable expenses €90,000.00
Saves from ticketing exp €5,000.00
Allocated fixed expenses €100,000.00
Total €185,000.00
Profit £ -€35,000.00

a) Should Worldwide Flight accept

- there thebe
should offer? Explain
no impact your
to the answer.
price charged to other customers (i.e. does not change
- fixed costs must truly be fixed
makes a contribution margin of £70,000, because the two idle airplanes are not technically suitable for the
route. Should Worldwide still accept the offer? Explain your answer.
route has 70,000 Euro Company Loss/Gain
profit)
any new route, just keep -€105,000.00 and loss in fixed assets for the route which
smae operation) -€100,000.00 this is the Loss in fixed assets for the route

The company decline the offer and operate as usual, then only lost a fixed assets of 100,000 Euro on
c) Define opportunity cost and name one example of opportunity cost in the above question.
The potential benefits that an individual or business foregoes when choosing one alternative over ano
he offer is accepted.

mers (i.e. does not change market price)

hnically suitable for the

assets for the route which was cut

fixed assets for the route Singapore and Beijing in (a)

assets of 100,000 Euro on the Singapore and Beijing trip in (a)

g one alternative over another is referred to as opportunity costs. It is the value of the next best alternative. As an illustration, T
native. As an illustration, The salary lost while attending college, as well as the income lost if a vacation was taken.
n was taken.
The production manager has recommended against this move by pointing out that the cost to produc

The unit product cost of the component based on a production level of 60,000 units per year is shown
Per Unit
Direct materials €5.00
Direct labour €1.25
Variable manufacturing overhead €1.00
Fixed
commonmanufacturing overhead,
(allocated based trace
on direct €3.00
labour hours) €2.75
Total production cost €13.00

Should the company accept

salaries that canthe offer of this
be eliminated outside supplier given the following addition info
if the
components are
manufacturing purchased.
equipment. €1.00
The equipment has no resale value.
on the common fixed costs of the €2.00
company
produce the component has no
other use.

*** ==> Consider to ifproduce

risky but need
they produce toneed
over check some factor
quatity
inting out that the cost to produce the component would be greater than the current £10.00 per unit purchase price.

of 60,000 units per year is shown below:

An outside supplier has offered to supply the component to Lante for £10.00 per unit.

ven the following addition information?

*==> The final production cost of the component is 10 Euro euqual outide offer
So the toal FC is still same even producing this component or not
not affect other activity
urchase price.
Question 5 (6 points) In your own words, provide brief answers for the following (a few sentences or
estion 5 (6 points) In your own words, provide brief answers for the following (a few sentences or bullet points):

1.
theExplain how fixed manufacturing
fixed manufacturing
costs assigned to thatcosts arethen
rather than cost of goods sold.
overhead
unit will shifted from one
become part period to anotherand
of the inventory under
be absorption
reported oncosting
the ba

2. Why do firms use predetermined overhead rates rather than actual manufacturing overhead costs in applying ove
Using a predetermined overhead rate can help reduce fluctuations in actual overhead due to periodic fluctuations (s
ead to jobs under job order costing?
h as seasonal changes). This will ensure that the cost of the product remains constant over the years.