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The total capacity is 80,000 tons.

Fixed cost = $40,000 per year

coke will sold at $6 per ton

reduce by $ 1.50 per ton

Outside purchase.then purchase price will be $5

per ton. Manager believe that it is not a profitable

option

Requried no1:

The transfer price become the cost of blast furnace and the

company is interested to charge the cost at minium.

of it which is (80,000 ton x 80%) = 64,000 tons and

the variable cost is $ 4.50 which is less than $5 per unit

Profit of Coke:

Present Sale to Dept 2 (64,000 x $6) 384,000

Sale to Outsider(16,000 x$7.50) 120,000

Total Sale 504,000

Less:Cost (80,000 x $4.50) (360,000)

Less: Fixed cost (40,000)

Profit 104,000

Sale to Outsider (16,000 x$7.50) 120,000

Total Sale 440,000

Less:Cost (80,000 x $4.50) (360,000)

Less: Fixed cost (40,000)

Profit 40,000

Required 2: Decision whether to invest money and sell entire coke to outside:

Proposal:

Sales (80,000 units x $6)

Less: Cost of Sales:

1 Variable Cost (80,000 x $3)

2 Variable marketing exp (80,000 x 0.50)

Total Variable cost

4 Fixed Productive and Equip 60,000

Profit

5 Cost of purchasing by Furnace dept

(64,000 tons x $5)

Net Loss

Present:

Sales (16,000 tons x $ 7.50) 120,000

(64,000 tons x $6) 384,000

1 Variable Cost (80,000 x $4.50)

2 Fixed cost

Profit

3 Cost of Coke to Furnance dept

(64,000 tons x $6)

$6 per ton

variable cost

will be $5

a profitable

oke to outside:

480,000

240,000

40,000

280,000

100,000 (380,000)

100,000

(320,000)

(220,000)

504,000

360,000

40,000 (400,000)

104,000

(384,000)

(280,000)

Required no. 1: For each of Product:

Turnover rate Profit to Sales on Capital employed

Investment / Capital Employed Sales

500,000 times 2,000,000 = 4 times x 3% = 12%

300,000 times 5,000,000

600,000 times 3,000,000

200,000 times 1,800,000

Period

Investment

Annual Cash Inflow

75,000

60,000

200,000

D 200,000 3.33 years

60,000

100,000 - 100,000 = 0 = IRR = DCF

28% 3.269 Payback 3.333

0.196 0.132

for Product D

(0.132/0.196 x 2%) + 26%

27.35%

Rate of return

on Capital employed

3% = 12%

es x 0.9% = 15%

5.83% = 29.15%

2% = 18%

Solution of Pb 27-1

Inventory turnover rate = Cost of Goods Sold 451,000

Average Inventory 90,200

Required no. 2: Return Of Capital Employed (ROCE) ratio (after Income Tax) 19 A

Return of Capital Employed ratio = Net Income 75,115

Capital Employed 517,125

0.145

14.5%

W-1 Calculation of capital employed:

Capital Employed = Equities = Total Asset = Current Assets + Non- current assets

Non- current assets 350,000

CAPITAL EMPLOYED 517,125

Required no. 3: Rate of return (after income tax) on book value of total assets

19 B

Rate of return (after income tax) = Net Income

Book Value of total assets

57,125

521,450

0.11

11%

W-1: Calculation of net Income (after Income tax) for the year 19 B

Sales (100,000 units x 8.40) 840,000

Less:

Total variable cost (100,000 units x 6) 600,000

Total Fixed cost 125,750 (725,750)

Less: Income tax (50%) (57,125)

Net income after income tax 57,125

Value of current asset (840,000 x 22.25%) 186,900

Balance of non currnet asset (at start) of 19 B 350,000

Less: Current year depreciation (19 B) (15,450) 334,550

BOOK VALUE OF TOTAL ASSETS (19 B) 521,450

Sales 751,150

times

urrent assets

CA

FA

TA

Required no. 1: Profit for 6,000,000 Cases

a) Bottle b) Cologne c) The

Division Division Company

PROFIT 2,800,000 5,500,000 8,300,000

Required no. 2:

a) Bottle Division:

Volume

Cases 2,000,000 4,000,000 6,000,000

PROFIT 800,000 1,800,000 2,800,000

b) Cologn Division:

Volume

Cases 2,000,000 4,000,000 6,000,000

Revenue 25,000,000 45,600,000 63,900,000

PROFIT 4,600,000 6,200,000 5,500,000

c) The Company

Volume

Cases 2,000,000 4,000,000 6,000,000

PROFIT 5,400,000 8,000,000 8,300,000

Less: FC 1,200,000 1,200,000 1,200,000

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