1 Hair Co manufactures three types of electrical goods for hair: curlers (C), straightening irons (S) and

dryers (D.) The sales prices and variable cost information is as follows:
C S D
Selling price $110 $160 $120

Variable cost Information

Material 1 12 28 16
Material 2 8 22 26
Skilled labor 16 34 22
Unskilled labor 14 20 28

Variable cost per Unit 50 104 92

The general fixed overheads are expected to be $640,000 for the next year.

Calculate the total break-even in units for the next year for Hair Co. for different sales mix mentioned
below.

C S D

a) 10 11 13

b) 1 1 1

c) 13 15 17

2 Process Co has two divisions, A and B. Division A produces three types of chemicals: products L,
M and S, using a common process. Each of the products can either be sold by Division A to the external
market at split-off point (after the common process is complete) or can be transferred to Division B for
individual further processing into products LX, MX and SX.

In November 2013, which is a typical month, Division A’s output was as follows:

Product Kg
L 1,200
M 1,400
S 1,800

The market selling prices per kg for the products, both at split-off point and after further processing, are
as follows: $ $

L 5·60 LX 6·70
M 6·50 MX 7·90
S 6·10 SX 6·80

The specific costs for each of the individual further processes are:

$
Variable cost of $0·50 per kg of LX
Variable cost of $0·70 per kg of MX
Variable cost of $0·80 per kg of SX
Required:
(a) Calculate and conclude whether any of the products should be further processed in
Division B in order to optimize the profit for the company as a whole.
3 Tablet Co makes two types of tablet computer, the Xeno (X) and the Yong (Y). X currently
generates a contribution of $30 per unit and Y generates a contribution of $40 per unit. There are three
main stages of production: the build stage, the program stage and the test stage. Each of these stages
requires the use of skilled labour which, due to a huge increase in demand for tablet computers over
recent months, is now in short supply. The following information is available for the two products:
Stage Xeno (X) Yong (Y)
Minutes per unit Minutes per unit
Build ($10 per hour) 24 20
Program ($16 per hour) 16 14
Test ($12 per hour) 10 4

Tablet Co is now preparing its detailed production plans for the next quarter. During this period it
expects that the skilled labour available will be 30,000 hours (1,800,000 minutes) for the build stage,
28,000 hours (1,680,000 minutes) for the program stage and 12,000 hours (720,000 minutes) for the
test stage. The maximum demand for X and Y over the three-month period is expected to be 85,000
units and 66,000 units respectively. Fixed costs are $650,000 per month.

Due to rapid technological change, the company holds no inventory of finished goods.
Required: Using the information provided above Answer following questions

a) Calculate sales price per unit of Xeno and Yong

b) Keeping in view the expected time available for build stage, answer that is it possible
to produce 85000 units of Xeno?
c) Keeping in view the expected time available for build stage, answer that if we decide to
produce 66,000 units of Yong, how much units of Xeno can be produced?
d) Prepare the contribution margin income statement considering we decide to produce
66,000 units of Yong and 20,000 of Xeno.

7 The following table shows the number of clients who attended a particular accountancy practice over
the last four weeks and the total costs incurred during each of the weeks:

Week Number of clients Total cost

$
1 400 36,880
2 440 39,840
3 420 36,800
4 460 40,000

Applying the high low method to the above information, which of the following could be used to
forecast total cost ($) from the number of clients expected to attend (where x = the expected number
of clients)?

8 Oxco has two divisions, A and B. Division A makes a component for air conditioning units which
it can only sell to Division B. It has no other outlet for sales.
Current information relating to Division A is as follows:
Marginal cost per unit $100
Transfer price of the component $165
Total production and sales of the component each year 2,200 units
Specific fixed costs of Division A per year $10,000
Cold Co has offered to sell the component to Division B for $140 per unit. If Division B accepts this offer,
Division A will be shut.
If Division B accepts Cold Co’s offer, what will be the impact on profits per year for the group as a
whole?
A Increase of $65,000
B Decrease of $78,000
C Decrease of $88,000
D Increase of $55,000

9 Jewel Co is setting up an online business importing and selling jewelry headphones. The cost of each
set of headphones varies depending on the number purchased, although they can only be purchased in
batches of 1,000 units. It also has to pay import taxes which vary according to the quantity purchased.
Jewel Co has already carried out some market research and identified that sales quantities are expected
to vary depending on the price charged. Consequently, the following data has been established for the
first month:

Number of batches Average cost per unit Total fixed costs Expected selling price imported and sold
including import taxes per month per unit:

Number of batches Average cost per unit Total fixed costs Expected price
imported and sold including import taxes per month per unit

$ $ $
1 10·00 10,000 20
2 8·80 10,000 18
3 7·80 12,000 16
4 6·40 12,000 13
5 6·40 14,000 12

Required:

(a) Calculate how many batches Jewel Co should import and sell

10 A company makes and sells product X and product Y. Twice as many units of product Y are made and
sold as that of product X. Each unit of product X makes a contribution of $10 and each unit of product Y
makes a contribution of $4. Fixed costs are $90,000.

What is the total number of units (and particular number of units of X and Y) which must be made and
sold to make a profit of $45,000?

11 Product GX consists of a mix of three materials, J, K and L. The standard material cost of a unit of GX
is as follows:
$
Material J 5 kg at $4 per kg 20
Material K 2 kg at $12 per kg 24
Material L 3 kg at $8 per kg 24
During March, 3,000 units of GX were produced, and actual usage was:

Material J 13,200 kg
Material K 6,500 kg
Material L 9,300 kg

Required:
Calculate the variance in KGs keeping in view the above information
12 Corfe Co is a business which manufactures computer laptop batteries and it has developed a
new battery which has a longer usage time than batteries currently available in laptops. The selling price
of the battery is forecast to be $45.

The maximum production capacity of Corfe Co is 262,500 units. The company’s management accountant
is currently preparing an annual flexible budget and has collected the following information so far:

Production (units) 185,000 200,000 225,000

$ $ $
Material costs 740,000 800,000 900,000
Labour costs 1,017,500 1,100,000 1,237,500
Fixed costs 750,000 750,000 750,000

In addition to the above costs, the management accountant estimates that for each increment of 50,000
units produced, one supervisor will need to be employed. A supervisor’s annual salary is $35,000.

a) Assuming the budgeted figures are correct, what would the flexed total production cost
be if production is 80% of maximum capacity?

A $2,735,000
B $2,770,000
C $2,885,000
D $2,920,000

b) The management accountant has said that a machine maintenance cost was not included in
the flexible budget but needs to be taken into account. The new battery will be
manufactured on a machine currently owned by Corfe Co which was previously used for a
product which has now been discontinued. The management accountant estimates that
every 1,000 units will take 14 hours to produce. The annual machine hours and maintenance
costs for the machine for the last four years have been as follows:

Machine time Maintenance costs

(hours)
Year 1 5,000 850,000
Year 2 4,400 735,000
Year 3 4,850 815,000
Year 4 1,800 450,000

What is the estimated maintenance cost if production of the battery is 80% of maximum capacity?