Wolaita Sodo University

College of Business and Economics

Department of Management
Master of Business Administration (MBA) Programme
Financial & Managerial Accounting Individual Assignment
Academic Year: 2021 Weight: 10% Instructor: Dr. Andualem

Date: 04-03- 2021 Submission Date: on or before Final Exam date

1. The Frozen Delicacies Company specializes in preparing tasty main courses that are
frozen and shipped to the finer restaurant in the Los Angles area. When a diner orders
the item, the restaurant heats and services it. The budget data for 20 x 2 :

Product
Chicken Cordon Bleu Veal Marsala
Selling price to restaurants $5 $7
Variable expense 3 4
Contribution margin $2 $3
Number of units 250,000 125,000

The items are prepared in the same kitchens, delivered in the same trucks, and so forth.
Therefore, the fixed costs of Br. 840,000 are unaffected by the specific products.
Instructions:
a) Compute the planned net income for 20x2
b) Compute the BEP in units, assuming that the planned sales mix is maintained.
c) Compute the BEP in units if only veal were sold and if only chicken were sold.
d) Suppose 90,000 units of veal and 270,000 units of chicken were sold. Compute
the net income. Compute the new BEP if there relationship persisted in 20 x 2.
What is the major lesson of this problem?

2. SELAM Company has a single product. The company normally produces and sells
40,000 units of this product each month at a selling price of Br. 36 per unit. The
company's unit costs at this level of activity are given below:
Direct material Br. 8.00
Direct labor 7.00
Variable manufacturing overhead 4.20
Fixed manufacturing overhead 2.50
Variable selling expense 2.80
Fixed selling expense 3.00
Total cost per unit Br. 27,50

1
One of the materials used in production of SELAM product is obtained from a foreign
supplier. Civil unrest in the supplier's country has caused a cutoff in material shipments that
is expected to last for four months. SELAM Company has enough of the material on hand to
operate at 25% of normal levels for the four-month period. As an alternative, the company
could close the plant down entirely for the four months. Closing the plant would educe fixed
overhead costs by 40% during the four-month period; the fixed selling costs would continue
at two-thirds of their normal level while the plant was closed. Moreover, start up costs at
the end of the shutdown period would total Br. 26,000.
Instructions:
a) What would be the birr advantage or disadvantage of closing the plant for the
four-month period?
b) At what level of sales in units per month would SELAM Company be indifferent
between closing the plant and keeping it open? Show supporting computations.

3. BEST Company currently operating at 80% capacity has the following particulars:

Sales Br. 3,200,000

Direct material 1,000,000
Direct labor 400,000
Variable overheads 200,000
Fixed overheads 1,300,000

An export order has been received that would utilize half of the capacity of the factory.
The order cannot be split, i.e., it has either to be taken in full and executed at 10% below
the normal domestic prices, or rejected totally.
The alternatives available to the management are:

i. Reject the order and continue with the domestic sales only (as at present), or

ii. Accept the order, split capacity between overseas and domestic sales and
turn away excess domestic demand, or
iii. Increase capacity so as to accept the export order and maintain the
present domestic sales by
a) Buying equipment that will increase capacity by 10%. This will result
in an increase of Br. 100,000 in fixed costs, and
b) Work overtime to meet balance of required capacity. In that case
labor will be paid at one and a half times the normal wage rate.
Instruction: Which of these alternatives the company should decide upon? Why?