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    CVP question/Product cost

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    These 2 questions are proving to be too much for me and I am running short of time!! I really need to see how one would work through these calculations, step by step and then understand why.

    Question 1:
    The Yandina Manufacturing Company Ltd produced 40,000 lamps in 2008. The following
    cost data were obtained from company records:
    Annual Amounts$
    120,000
    200,000
    80,000
    120,000
    40,000
    80,000
    Amounts Per unit $
    3.00
    5.00
    2.00
    3.00
    1.00
    2.00
    Direct materials
    Direct labour
    Variable overheads
    Fixed overheads
    Variable selling admin
    Fixed selling and admin
    Revenue sales for 2008 were $2,500,000 with a selling price per unit of $62.50.
    The company's income tax rate last year was 50 per cent and is expected to remain the
    same next year.
    Sales in units for 2009 are expected to remain the same. Based on market research,
    Yandina anticipates that it with be possible to achieve an increase of 8 per cent in the selling price
    in 2009.
    All variable costs are budgeted to increase by 5 per cent while fixed costs are estimated to
    increase 3 per cent.
    Required
    1. Calculate the annual contribution margin and the contribution margin per lamp unit for 2008.

    2. Using the contribution margin approach, calculate the company's break-even point in units for
    2008
    3. What is the contribution margin ratio for 2008?

    4. Calculate the break-even sales revenue. Use the contribution margin ratio in your calculation
    for 2008
    5. Using CVP analysis, how many lamps must Yandina Company sell in 2009 to have a net
    operating profit after tax (NPAT) of $1,000,000?)
    6. Will the Yandina Company achieve the desired 2009 net operating profit after tax (NPAT) of
    $1,000,000 if sales for 2009 remain at 40,000 lamps (as in 2008)? Explain, briefly in about 25
    words, why or why not
    7. Explain, in about 100 words, how cost volume profit (CVP) analysis can be used by
    management
    8. One of the assumptions underlying CVP analysis is a constant sales mix over the relevant
    range of activity. What are the other assumptions underlying CVP analysis? Provide your
    answer in about 100 words
    Page 1 of 2

    Questions 2:
    The Noosa Bicycle Co Pty Ltd (NBC) manufactures two types of racing bicycles?amateur and
    professional. NBC uses the plantwide costing approach to allocate overhead costs to each product
    and base the allocation on the direct labour hours used by each product. Currently, the total
    overhead costs budgeted for January 2009 is $14,800. NBC uses the cost plus 20% mark-up
    method to establish each product's selling price. Consequently, NBC has set its current selling
    price for amateur at $182.40 and professional at $255.60.
    In recent months, a trend has developed in orders where demand for the professional racing
    bicycles has increased by 10% but amateur racing bicycles have decreased by 5%. For example,
    NBC sold 210 amateur bicycles and 90 professional bicycles in December 2008. The managing
    director is considering reducing the production level of amateur bicycles and possibly, if the
    current trend continues, dropping the amateur range. However, you believe that before making a
    decision on changing production levels or dropping a product range you need to examine the
    accuracy of the current costing system.
    You have been engaged as an external consultant. You think that you need to analyse the
    information using the activity-based costing method because you believe it will be a better means
    to allocate overhead costs to each product. The following information has been provided for
    January 2009. The sales forecast figures, monthly costs, and activities reflect the changing trend
    in demand for each product:
    Budgeted Monthly Sales and Costing Data for January 2009
    Product
    Amateur
    Professional
    Quantity of
    January Sales
    200
    100
    Direct Material
    Costs
    $90
    $120
    Component
    No. of Parts
    10
    15
    25
    Direct Labour
    Hours
    400
    300
    Activity
    No. of Design
    Changes
    6
    9
    15
    Direct Labour
    cost
    $4,000
    $3,000
    Activity
    No. of
    Setups
    5
    7
    12
    Monthly Activity and Component Data for January 2009
    Activity
    No. of times bicycles
    are Handled
    20
    30
    50
    Product
    Amateur
    Professional
    Total activities
    The total overhead costs based on activities and components for January 2009 were:
    Handling$5,000
    No. of parts$6,500
    Design changes$1,800
    Setups$1,500
    Total$14,800

    Required
    1. Calculate the unit cost for each product using direct labour hours as the basis for applying
    overhead (i.e., the Plantwide approach)
    2. Calculate the unit cost for each product using activity-based costing (i.e., ABC approach) and
    new selling price for each bicycle using the cost plus 20% mark-up method.

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    https://brainmass.com/business/cost-volume-profit-analysis/cvp-question-product-cost-246775

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    Solution Summary

    The solution explains two questions - one dealing with CVP calculations and the other relating to calculation of product cost using plantwide rate and activity based costing

    $2.19