Sedili enterprise is a manufacturer of school uniforms.
QUESTION 1
Sedili enterprise is a manufacturer of school uniforms. The company's income statement for year 2016 is shown below.
| Sales (49,000 units @ RM26.00) |
RM1,274,000 |
| Cost of goods sold (49,000 units @ RM20.00) |
980,000 |
| Gross Profit |
294,000 |
| Sales and Administrative expenses |
99,000 |
| Net income |
RM195,000 |
|
|
The General Manager went to a seminar in management accounting and learn about variable costing method. As he was trying to improve the Company’s profitability, he gathered the following data to assess the behavioural patterns of the cost. The following is incurred:
Direct material, direct labour & variable
manufacturing overhead cost |
RM15 per unit |
| Sales and Administrative expenses |
RM 1.00 per unit
|
Required:
a) Compute the cost of a pair of uniforms based on variable costing method.
b) Prepare the income statement for the Company using variable costing approach.
c) Explain why the net income reported under variable costing method different from that recorded by the absorption method (show the calculation the income reconciliation).
d) Based on the answers obtained in (b) and using cost-volume-profit analysis, determine:
i. Break-even point (in unit and ringgit).
ii. Calculate the unit sales given that the Company is targeting an operating income of RM250,000.
iii. The marketing manager believe that an increase of RM 5,000 in advertising expenditures will generate sales of 50,000 units. Should this action be taken? QUESTION 1
Sedili enterprise is a manufacturer of school uniforms. The company's income statement for year 2016 is shown below.
| Sales (49,000 units @ RM26.00) |
RM1,274,000 |
| Cost of goods sold (49,000 units @ RM20.00) |
980,000 |
| Gross Profit |
294,000 |
| Sales and Administrative expenses |
99,000 |
| Net income |
RM195,000 |
|
|
The General Manager went to a seminar in management accounting and learn about variable costing method. As he was trying to improve the Company’s profitability, he gathered the following data to assess the behavioural patterns of the cost. The following is incurred:
Direct material, direct labour & variable
manufacturing overhead cost |
RM15 per unit |
| Sales and Administrative expenses |
RM 1.00 per unit
|
Required:
a) Compute the cost of a pair of uniforms based on variable costing method.
b) Prepare the income statement for the Company using variable costing approach.
c) Explain why the net income reported under variable costing method different from that recorded by the absorption method (show the calculation the income reconciliation).
d) Based on the answers obtained in (b) and using cost-volume-profit analysis, determine:
i. Break-even point (in unit and ringgit).
ii. Calculate the unit sales given that the Company is targeting an operating income of RM250,000.
iii. The marketing manager believe that an increase of RM 5,000 in advertising expenditures will generate sales of 50,000 units. Should this action be taken?
