HOME ASSIGNMENT #13

Name:_______________________________________________________ Group:________________

ANSWERS

1 2 3 4 5 6 7 8 9 10 11 12 13

THE FOLLOWING INFORMATION REFERS TO Q 1-3

Lotus Ltd operates a small hotel. The hotel has rooms for 30 guests over an operating season of 40 weeks. The budgets for the
year ended 30 June 2016 have been prepared using the following data.

Weekly income per guest 2,200

Variable weekly cost per guest 1,200

Fixed costs per annum 400,000

The company has in the past expected an average room occupancy over the season of 60 per cent (%) of total capacity. The
directors are concerned that the global recession will reduce the demand for holidays and are considering a price reduction.

Question 1. Calculate the budgeted i) total contribution and ii) net profit for the year to 30 June 2016 if past occupancy rates
are maintained.

a) i) £720k ii) £320k

A
b) i) £1,000k ii) £600k Spring 2018 Q11

c) i) £600k ii) £200k

d) i) £2,200k ii) £1000k

Question 2. Calculate the break-even point in guest weeks and margin of safety expressed in percentage terms.

a) i) 600 ii) 30%

D
b) i) 425 ii) 50% Spring 2018 Q 12

c) i) 182 ii) 48%

d) i) 400 ii) 44%

Question 3. Calculate the occupancy level needed to maintain the net profit of £200,000 if the weekly income per guest was
reduced to £2,000.

a) 112%

b) 75%
C
c) 62,5% Spring 2018 Q 13

d) 79,5%

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 HOME ASSIGNMENT #13

Name:_______________________________________________________ Group:________________

Question 4. The costing approach that charges all manufacturing costs to the product is referred to as

a) variable costing

D
b) contribution margin costing
Spring 2017 Q13

c) direct costing

d) absorption costing

Question 5. CVP analysis does not consider

a) sales mix

b) variable cost per unit C

Spring 2017 Q14
c) fixed cost per unit

d) level of activity

Question 6. Which of the following would not be an acceptable way to express contribution margin?

a) Sales minus variable costs

b) Contribution margin per unit divided by unit selling price

c) Unit selling price minus unit variable costs D

Spring 2017 Q15
d) Sales minus unit costs

Question 7. A company requires $850,000 in sales to meet its target net profit. Its contribution margin is 30%, and fixed costs
are $150,000. What is the target net profit?

a) 255 000

b) 195 000 D $105,000

Spring 2017 Q16
c) 350 000

d) 105 000

Question 8. If a manufacturing company is operating with scarce material resources it should choose to make products which:

a) Have the highest contribution per unit of output

b) Have the lowest material usage C

Spring 2018 Q18

c) Have the highest contribution per unit of material

d) Have the highest selling price

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 HOME ASSIGNMENT #13

Name:_______________________________________________________ Group:________________

THE FOLLOWING INFORMATION REFERS TO Q 9-10

ABC manufactures key chains for college bookstores. During 2018, the company had the following costs:

Direct materials used $31 000

Direct labor $18 000

Factory rent $12 000

Equipment depreciation – factory $2 000

Spring 2017 Q17-18

Equipment depreciation – office $750

Marketing expense, variable $2 500

Administrative expenses $40 000

35,000 units produced were in 2018 and 30,000 sold.

Question 9. What is the manufacturing cost per unit using full costing method?

a) approximately $1.24
B
b) $1.80 Spring 2017 Q17
c) approximately $3.04
d) $1.82

Question 10. What is the manufacturing cost per unit using marginal costing method?

a) approximately $1.24 C
b) $1.80 Spring 2017 Q18
c) $1.82
d) $1.4

Question 11. The break-even point cannot be determined by

a) deriving it from a CVP graph

b) reading the prior year's financial statements
B
c) computing it using contribution margin Spring 2017 Q19
d) computing it from a mathematical equation

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 HOME ASSIGNMENT #13

Name:_______________________________________________________ Group:________________

THE FOLLOWING INFORMATION REFERS TO Q 12-13

Westburg, Inc. manufactures a single product. Assume the following data for 2018:

Variable costs per unit:

Selling and administrative, $14;

Production, $38.

Fixed costs in total:

Production, $140,000;

Selling and administration, $ 84,000.

During 2018, 7,000 units were produced and 6,800 units were sold.

Question 12. Under variable costing, the cost of one unit of product would be:

a) $38

b) $52
A
Spring 2018 Q19
c) $58

d) $70

Question 13. The inventory carrying value of finished goods at December 31, 2018, under variable costing would be:

a) The same as absorption costing

b) $6,800 greater than under absorption costing

D
Spring 2018 Q20
c) $6,800 less than under absorption costing.

d) $4,000 less than under absorption costing.

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 HOME ASSIGNMENT #13

Name:_______________________________________________________ Group:________________

Problem 93

The indirect costs incurred by the business on behalf of all departments taken together are given below:

Cost item Total cost this month, £

Indirect materials 36,000

Indirect labour 40,000

Rent 1,000

Insurance 1,600

Depreciation 2,000

Total 80,600

The costs must be apportioned (shared) over the departments because there is insufficient information to permit allocation of
costs as a whole. The following table sets out relevant information about each department which will be used in the process of
determining an overhead cost rate:

Assembly Finishing Maintenance

Direct materials used for production £400,000 £500,000 not applicable

Number of employees 10 25 5

Floor area 100 sq m 200 sq m 100 sq m

Value of machinery £30,000 £50,000 £20,000

Number of direct labour hours worked on 55,000 64,000 not applicable

production

Required:

Calculate the overhead cost allocated to the product. Suppose to produce the product you need to spend 2 hours in assembly
department and 3 hours in finishing department.

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 HOME ASSIGNMENT #13

Name:_______________________________________________________ Group:________________

Total direct labour

hours worked on

production

Indirect cost per

labour hour