Variable Cost and Company
Section B
Attempt Any Six Questions (6*5= 30)
1. Company A’s costs are mostly variable, whereas Company B’s costs are mostly fixed. When sales increase, which company will tend to realize the greatest increase in profits? Explain.
2. Crystal Telecom has budgeted the sales of its innovative mobile phone over the next four months as follows:
Sales in Units
July. . . . . . . . . . . . . . 30,000
August . . . . . . . . . . . 45,000
September . . . . . . . . 60,000
October . . . . . . . . . . 50,000
The company is now in the process of preparing a production budget for the third quarter. Past experience has shown that end-of-month inventories of finished goods must equal 10% of the next month’s sales. The inventory at the end of June was 3,000 units.
Required:
Prepare a production budget for the third quarter showing the number of units to be produced each month and for the quarter in total.
3. A Trading Enterprises is the distributor for two products, Model A100 and Model B900. Monthly sales and the contribution margin ratios for the two products follow:
Product
Model A100 Model B900 Total
Sales . . . . . . . . . . . . . . . . . . . .$700,000 $300,000 $1,000,000
Contribution margin ratio . . . . . . . 60% 70% ?
The company’s fixed expenses total $598,500 per month.
Required:
1. Prepare a contribution format income statement for the company as a whole.
2. Compute the break-even point for the company based on the current sales mix.
4. The following information is extracted from the books of Nepal Lube Oil Ltd.,
Particulars | 2008Amount Rs. | 2009 Amount Rs. | Bills payable Trade creditors Out standing expensesBills receivables Trade debtors Prepaid expenses Accrued incomes Income received in advance | 1000024000400040000800004000100004000 | 16000320002000360001200006000160002000 | Additional Information Nepal Lube Oil Ltd earned profit of Rs. 400000 after charging or crediting
Attempt Any Six Questions (6*5= 30)
1. Company A’s costs are mostly variable, whereas Company B’s costs are mostly fixed. When sales increase, which company will tend to realize the greatest increase in profits? Explain.
2. Crystal Telecom has budgeted the sales of its innovative mobile phone over the next four months as follows:
Sales in Units
July. . . . . . . . . . . . . . 30,000
August . . . . . . . . . . . 45,000
September . . . . . . . . 60,000
October . . . . . . . . . . 50,000
The company is now in the process of preparing a production budget for the third quarter. Past experience has shown that end-of-month inventories of finished goods must equal 10% of the next month’s sales. The inventory at the end of June was 3,000 units.
Required:
Prepare a production budget for the third quarter showing the number of units to be produced each month and for the quarter in total.
3. A Trading Enterprises is the distributor for two products, Model A100 and Model B900. Monthly sales and the contribution margin ratios for the two products follow:
Product
Model A100 Model B900 Total
Sales . . . . . . . . . . . . . . . . . . . .$700,000 $300,000 $1,000,000
Contribution margin ratio . . . . . . . 60% 70% ?
The company’s fixed expenses total $598,500 per month.
Required:
1. Prepare a contribution format income statement for the company as a whole.
2. Compute the break-even point for the company based on the current sales mix.
4. The following information is extracted from the books of Nepal Lube Oil Ltd.,
Particulars | 2008Amount Rs. | 2009 Amount Rs. | Bills payable Trade creditors Out standing expensesBills receivables Trade debtors Prepaid expenses Accrued incomes Income received in advance | 1000024000400040000800004000100004000 | 16000320002000360001200006000160002000 | Additional Information Nepal Lube Oil Ltd earned profit of Rs. 400000 after charging or crediting