Income calculation

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Technical University of Mombasa**We aren't endorsed by this school

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ACCOUNTING 100101

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Accounting

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Jan 14, 2025

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Uploaded by GrandTitanium7659

1.1 Total Costs (Fixed + Variable)To find the total cost of production, we combine the fixed costs and variable costs for producing 15,000,000 cans of soft drink.Total Fixed Costs:614,000+423,000+623,000=1,660,000614,000 + 423,000 + 623,000 = 1,660,000614,000+423,000+623,000=1,660,000Total Variable Costs:433,500+2,213,000+171,500=2,818,000433,500 + 2,213,000 + 171,500 = 2,818,Total Costs:Total Costs=Fixed Costs+ Variable Total Costs=1,660,000+2,818,000=4,478,000Cost Per Can (Total):Cost per can=Total Costs Produced=4,478,000/15,000,000=0.2985 can (29.85 cents per can)2. Breakdown of Fixed and Variable Costs (Percentage Contribution)Fixed Costs Contribution:Percentage of Fixed Costs=Fixed Costs Total Costs×100 100Percentage of Fixed Costs=Total Costs Fixed Costs×100 Percentage of Fixed Costs=1,660,0004,478,000×100≈37.07% Variable Costs Contribution:

Percentage of Variable Costs=Variable Costs Total Costs×100 100Percentage of Variable Costs=Total Costs Variable Costs×100 Percentage of Variable Costs=2,818,0004,478,000×100≈62.93% 3. Scalability AnalysisFixed Costs Scalability:Fixed costs like development, executive salaries, and plant overhead are spread over the production volume. Increasing production beyond 15,000,000 cans will decrease the fixed cost per unit, improving cost efficiency.Example:If production increases to 20,000,000 cans:Fixed Cost per Can=Total Fixed Costs Total Cans Produced Fixed Cost per Can=1,660,000/20,000,000=0.083Cost per Can} = {1,660,000}/{20,000,000} = 0.083This is a significant reduction compared to the current fixed cost per can:1,660,00015,000,000=0.1107 (11.07 cents per can)Variable Costs Scalability:Variable costs are linear. Producing more cans will result in a proportional increase in variable costs.4. Profitability Analysis (Hypothetical)Revenue:Revenue=Price per Can× Cans Produced Revenue=0.50×15,000,000=7,500,000Profit:Profit=Revenue−Total CostsProfit=7,500,000−4,478,000=3,022,000Profit Margin:Profit Margin=ProfitRevenue×100

Profit Margin=3,022,0007,500,000×100≈40.29%5. Recommendations1.Increase Production:To reduce fixed costs per unit, the company could increase production beyond 15,000,000 cans if demand supports it. This would improve cost efficiency and increase profitability.2.Monitor Variable Costs:Since variable costs form 62.93% of the total costs, the company should negotiate better prices for raw materials or streamline cleaning and calibration processes to reduce costs.3.Optimize Overhead:iReviewing plant overhead costs ($623,000) may reveal areas for cost reduction, such as improving energy efficiency or streamlining supervision processes.4.Focus on Pricing Strategy:At a selling price of $0.50 per can, the company enjoys a healthy profit margin of ~40%. However, adjusting prices based on competitors or market demand could further optimize revenue.1.2Q1. Using the Current Traditional (Simple) Costing SystemThe basis for allocating support costs is direct labor dollars.Step 1: Calculate Total Direct Labor DollarsDeluxe Direct Labor Dollars= 50,000×180=9,000,000 Standard Direct Labor Dollars= 400,000×130Total Direct Labor Dollars= 9,000,000+52,000,000 = 61,000,000Step 2: Determine the Allocation RateTotal Manufacturing Support Costs = 80×50,000+120×400,000=40,000,000Allocation Rate = Total Manufacturing Support CostsTotal Direct Labor Dollars=40,000,000 /61,000,000=0.6557 {40,000,000}/{61,000,000}x 100 = 0.6557 (or 65.57%)

Step 3: Assign Support Costs Per UnitDeluxe Support Costs Per Unit = 180×0.6557=117.97180 /0.6557 = 117.97Standard Support Costs Per Unit = 130×0.6557=85.23130 / 0.6557 = 85.23Step 4: Calculate Total Cost Per UnitDeluxe Total Cost Per Unit = 180+117.97=297.97180 + 117.97 = 297.97Standard Total Cost Per Unit = 130+85.23=215.23130 + 85.23 = 215.23Step 5: Calculate Profit Per UnitDeluxe Profit Per Unit = 650−297.97=352.03650 - 297.97 = 352.03Standard Profit Per Unit = 475−215.23=259.77475 - 215.23 = 259.77 2. Using the Activity-Based Costing (ABC) SystemStep 1: Compute the Cost Driver RatesSetup Cost Rate = 500,000 500=1,000{500,000}/{500} = 1,000 per setupMachine-Related Cost Rate = 4,000,000{4,000,000}/ {600,000} = 6.67 per machine hourPacking Cost Rate = 5,000,000250,000=20{5,000,000}/{250,000} = 20 per shipmentStep 2: Assign Costs to Each Product1.Setup Costs:oDeluxe = 400×1,000=400,000oStandard = 100×1,000=100,000100 2.Machine-Related Costs:oDeluxe = 300,000×6.67=2,001,000oStandard = 300,000×6.67=2,001,0003.Packing Costs:oDeluxe = 50,000×20=1,000,000oStandard = 200,000×20=4,000,000

Step 3: Total ABC CostsDeluxe ABC Costs= 400,000+2,001,000+1,000,000=3,401,000400,000 + 2,001,000 + 1,000,000 = 3,401,000Standard ABC Costs= 100,000+2,001,000+4,000,000=6,101,000100,000 + 2,001,000 + 4,000,000 = 6,101,000Step 4: Calculate Per Unit ABC CostsDeluxe ABC Cost Per Unit = 3,401,00050,000=68.02{3,401,000}/ {50,000} = 68.02Standard ABC Cost Per Unit = 6,101,000400,000=15.25{6,101,000}/ {400,000} = 15.25Step 5: Total Cost Per Unit Using ABCDeluxe Total Cost Per Unit = 180+68.02=248.02180 + 68.02 = 248.02Standard Total Cost Per Unit = 130+15.25=145.25130 + 15.25 = 145.25Step 6: Profit Per Unit Using ABCDeluxe Profit Per Unit = 650−248.02=401.98650 - 248.02 = 401.98Standard Profit Per Unit = 475−145.25=329.75475 - 145.25 = 329.75Summary of ResultsCosting MethodDeluxe Cost/UnitDeluxe Profit/UnitStandard Cost/UnitStandard Profit/UnitTraditional297.97352.03215.23259.77ABC248.02401.98145.25329.751.3 Data Given

1. Absorption CostingTotal Absorption Cost per Unit:Absorption Cost=1.30+0.20+0.25+0.30=2. 2. Variable CostingUnder variable costing, the cost per unit includes only the variable manufacturing costs:Direct Material Costs = $1.30Direct Labor Costs = $0.20Variable Manufacturing Costs = $0.25Total Variable Cost per Unit:Variable Cost=1.30+0.20+0.25=1.75 3. Throughput CostingUnder throughput costing, only the direct material cost is included:Direct Material Costs = $1.30Total Throughput Cost per Unit:Throughput Cost=1.30 1.4QLet's solve the problem step by step and calculate the missing values: A, B, C, D, and E. Here's the breakdown:Data from the table:AnalysisActual ResultsFlexible VariancesFlexible BudgetSales-Volume VariancesStatic BudgetUnits Sold112,500112,500103,125Revenues42,080$1,000(A)1,400(B)

AnalysisActual ResultsFlexible VariancesFlexible BudgetSales-Volume VariancesStatic BudgetVariable Costs(C)$20015,8602,34018,200Fixed Costs8,280$8609,1409,140Operating Income17,740(D)16,000(E)15,1401. Flexible-Budget Revenues (A):To calculate A, we use the formula:Flexible Budget Revenues=Units Sold (Flexible Budget) ×Selling Price per Unit From the "Actual Results" column:Actual Revenues = $42,080 for 112,500 unitsThus, the Selling Price per Unit = $42,080 / 112,500 = $0.37493 per unit.Now calculate the Flexible-Budget Revenues:Flexible-Budget Revenues (A)=112,500×0.37493=$42,180.625=$42,181 2. Static-Budget Revenues (B):Using the Static Budget Units Sold = 103,125, and the same Selling Price per Unit = $0.37493,Static-Budget Revenues (B)=103,125×0.37493=$38,647.28 3. Actual Variable Costs (C):To calculate C, use the formula:Actual Variable Costs=Flexible Budget Variable Costs+Flexible Variance forVariable Costs. From the table:

Flexible Budget Variable Costs = $15,860Flexible Variance for Variable Costs = $200So:Actual Variable Costs (C)=15,860+200=$16,060 4. Actual Operating Income (D):Operating Income is calculated as:Operating Income=Revenues−Variable Costs−Fixed Costs. From the "Actual Results":Revenues = $42,080Variable Costs = $16,060Fixed Costs = $8,280Thus:Operating Income (D)=42,080−16,060−8,280=$17,740. 5. Sales-Volume Variance for Operating Income (E):The Sales-Volume Variance for Operating Income is calculated using the formula:Sales-Volume Variance=(Actual Units Sold−Static Budget Units Sold)×Contribution Margin per Unit Step 1: Calculate the Contribution Margin per Unit:From the Flexible Budget:Contribution Margin per Unit=Revenues - Variable Costs Units Sold=42,181−15,860112,500=0.23485 per unit. Step 2: Calculate Sales-Volume Variance:Sales-Volume Variance (E)= (112,500−103,125)×0.23485=9,375×0.23485=$2,200.47 Final Answers:1.A (Flexible-Budget Revenues):$42,1812.B (Static-Budget Revenues):$38,647

3.C (Actual Variable Costs):$16,0604.D (Actual Operating Income):$17,7405.E (Sales-Volume Variance):$2,200Question 2.1Required:1.What are the respective flexible-budget revenues (A)?2.What are the static-budget revenues (B)?3.What are the actual variable costs (C)?Given Information:CategoryActual ResultsFlexible BudgetStatic BudgetUnits Sold112,500112,500103,125Revenues42,080AABBVariable CostsCC20,00018,200Fixed Costs8,28018,56018,200Operating Income17,74016,08015,140Step 1: Flexible-Budget Revenues (A)Flexible-budget revenues are based on the actual number of units sold(112,500) and the static-budget selling price per unit.1.Selling Price per Unit:Selling Price=Static Budget Revenue Static Budget Units=51,400103,125=0.50Flexible-Budget Revenues:Flexible-Budget Revenues=112,500×0.50=56,250

Step 2: Static-Budget Revenues (B)Static-budget revenues are provided directly in the table:Static-Budget Revenues=51,400 Step 3: Actual Variable Costs (C)The flexible-budget variable cost is $20,000, and the variable cost variance is $200 favorable.1.Actual Variable Costs:Actual Variable Costs=Flexible-Budget Variable Costs−Favorable VarianceActual Variable Costs=20,000−200=19,800 Final Answers for Question 2.11.Flexible-Budget Revenues (A): $56,2502.Static-Budget Revenues (B): $51,4003.Actual Variable Costs (C): $19,800