Rift valley uni

College of Accounting and Management Studies

Department of Accounting and Public Finance
2012 AY, 2011 Entry, 2nd Year, 2nd Semester
Cost and Management accounting II (ACPF312) individual assignment
for ACPF Weekend/Regular/Extension Degree Program
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COST AND MANAGEMENT ACCOUNTING II ASSIGNMENT I (10%)

Part I : Multiple choice

1. Sales total Br 200,000 when variable costs total Br 150,000 and fixed costs total Br 30,000.
The breakeven point in sales dollars is:

A. Br 200,000 C. Br 40,000
B. Br 120,000 D. Br 30,000

2. Which of the following statements about determining the breakeven point is FALSE?

A. Operating income is equal to zero.

B. Contribution margin - fixed costs is equal to zero.
C. Revenues equal fixed costs plus variable costs.
D. Breakeven revenues equal fixed costs divided by the variable cost per unit.

3. What is the breakeven point in units, assuming a product's selling price is Br 100, fixed
costs are Br 8,000, unit variable costs are Br 20, and operating income is Br 3,200?

A. 100 units C. 400 units

B. 300 units D. 500 units

4. How many units would have to be sold to yield a target operating income of Br. 22,000,
assuming variable costs are Br. 15 per unit, total fixed costs are Br. 2,000, and the unit
selling price is Br. 20?

A. 4,800 units C. 4,000 units

B. 4,400 units D. 3,600 units

Stephanie's Bridal Shoppe sells wedding dresses. The average selling price of each dress is Br
1,000, variable costs are Br 400, and fixed costs are Br 90,000.

5. How many dresses must the Bridal Shoppe sell to yield after-tax net income of Br 18,000,
assuming the tax rate is 40%?

A. 200 dresses C. 150 dresses

B. 170 dresses D. 145 dresses

6. The strategy most likely to reduce the breakeven point would be to:
 A. increase both the fixed costs and the contribution margin
B. decrease both the fixed costs and the contribution margin
C. decrease the fixed costs and increase the contribution margin
D. increase the fixed costs and decrease the contribution margin

Part-II: Workout

Workout Each of the Following Questions Clearly

1. Alex Moti Company sells car batteries to service stations for an average of Br 30 each. The
variable cost of each battery is Br 20 and monthly fixed manufacturing costs total Br 10,000.
Other monthly fixed costs of the company total Br 8,000.

Required:

A. What is the breakeven point in batteries?

B. What is the margin of safety, assuming sales total Br 60,000?
C. What is the breakeven level in batteries, assuming variable costs increase by 20%?
D. What is the breakeven level in batteries, assuming the selling price goes up by 10%,
fixed manufacturing costs decline by 10%, and other fixed costs decline by Br 100?

2. Bona Textile Company sells shirts for men and boys. The average selling price and variable
cost for each product are as follows:

Men's Boys'
Selling Price Br 28.80 Selling Price Br 24.00
Variable Cost Br 20.40 Variable Cost Br 16.80
Fixed costs are Br 38,400.

Required:

A. What is the breakeven point in units for each type of shirt, assuming the sales mix is 2:1
in favor of men's shirts?
B. What is the operating income, assuming the sales mix is 2:1 in favor of men's shirts,
and sales total 9,000 shirts?

3. Anu’s Amusement Center has collected the following data for operations for the year:
Total revenues . . . . . . . . . . . . . . . . .Br. 1,600,000
Total fi xed costs . . . . . . . . . . . . . . ..Br. 437,500
Total variable costs . . . . . . . . . . . . . Br. 900,000
Total tickets sold . . . . . . . . . . . . . . . 100,000
Required
a. What is the average selling price for a ticket?
b. What is the average variable cost per ticket?
c. What is the average contribution margin per ticket?
d. What is the break-even point?
e. Anu has decided that unless the operation can earn at least Br. 43,750 in operating profi ts,
she will close it down. What number of tickets must be sold for Anu’s Amusements to
make a Br. 43,750 operating profi t for the year on ticket sales?
4. The manager of Kima’s Food Mart estimates operating costs for the year will include
$900,000 in fi xed costs.
Required
a. Find the break-even point in sales dollars with a contribution margin ratio of 40 percent.
b. Find the break-even point in sales dollars with a contribution margin ratio of 25 percent.
c. Find the sales dollars required to generate a profi t of $200,000 for the year assuming a
contribution margin ratio of 40 percent.

Part I: Multiple choice

1. The breakeven point in sales dollars is: Br 40,000

2. The FALSE statement about determining the breakeven point is: Revenues equal fixed costs
plus variable costs.

3. The breakeven point in units is: 400 units

4. The number of units that would have to be sold to yield a target operating income of Br.
22,000 is: 4,800 units

5. The number of dresses the Bridal Shoppe must sell to yield after-tax net income of Br 18,000
is: 170 dresses

6. The strategy most likely to reduce the breakeven point would be to: decrease the fixed costs
and increase the contribution margin

Part II: Workout

1. The breakeven point in batteries is calculated as follows:

Breakeven point = (Fixed costs) / (Selling price per unit - Variable cost per unit)

Breakeven point = (10,000 + 8,000) / (30 - 20) = 18,000 / 10 = 1,800 batteries

2. The margin of safety is calculated as follows:

Margin of Safety = (Actual sales - Breakeven sales) / Actual sales

Margin of Safety = (60,000 - (1,800 * 30)) / 60,000 = 24,000 / 60,000 = 0.4 or 40%

3. The breakeven level in batteries, assuming variable costs increase by 20%, is calculated as
follows:
New variable cost per unit = Variable cost per unit + (Variable cost per unit * 20%)

New variable cost per unit = 20 + (20 * 0.2) = 20 + 4 = 24

Breakeven point = (Fixed costs) / (Selling price per unit - New variable cost per unit)

Breakeven point = (10,000 + 8,000) / (30 - 24) = 18,000 / 6 = 3,000 batteries

4. The breakeven level in batteries, assuming the selling price goes up by 10%, fixed
manufacturing costs decline by 10%, and other fixed costs decline by Br 100, is calculated as
follows:

New selling price per unit = Selling price per unit + (Selling price per unit * 10%)

New selling price per unit = 30 + (30 * 0.1) = 30 + 3 = 33

New fixed manufacturing costs = Fixed manufacturing costs - (Fixed manufacturing costs *
10%)

New fixed manufacturing costs = 10,000 - (10,000 * 0.1) = 10,000 - 1,000 = 9,000

New other fixed costs = Other fixed costs - Br 100

New other fixed costs = 8,000 - 100 = 7,900

Breakeven point = (New fixed manufacturing costs + New other fixed costs) / (New selling price
per unit - Variable cost per unit)

Breakeven point = (9,000 + 7,900) / (33 - 20) = 16,900 / 13 = 1,300 batteries

5. The breakeven point in units for each type of shirt, assuming the sales mix is 2:1 in favor of
men's shirts, is calculated as follows:

Total fixed costs = Br 38,400

Contribution margin ratio for men's shirts = (Selling price - Variable cost) / Selling price =
(28.80 - 20.40) / 28.80 = 8.40 / 28.80 = 0.2917

Contribution margin ratio for boys' shirts = (Selling price - Variable cost) / Selling price = (24 -
16.80) / 24 = 7.20 / 24 =