Test

GMBA8: Managerial Accounting

Question 1.1:

The Karin Co. began operations on 01.01.2012. It manufactures and distributes a single product and charges a price per unit of 20.00 NIS.

The company manufactured and sold 50,000 units in 2012. The company's controller assembled the following information:

Variable costs per unit:

Direct materials 6.00 NIS

Direct labor 2.50

Variable manufacturing overhead 1.50

Variable selling expenses 0.50

Fixed annual costs:

Manufacturing 65,000 NIS

Distribution 47,500

Management 220,000

Required:

1. Calculate the company's operating profit using Contribution approach.

2. Calculate the company's breakeven point for 2012 in units and in shekels.

Assume now that the board has set an ambitious target sales level for 2013 - a 50% increase in the sales volume (in units) over 2012. Assume that the company has the capacity to achieve the higher level without increase in fixed costs of manufacturing, distribution, or management. The CEO presents to the board two alternative courses of action. Assume that either one can achieve the 2013 target sales level:

i. Offer a new incentive to distributers, at 10% of the unit price.

ii. Reduce the unit price by 1.00 NIS, and at the same time launch an advertising campaign at an estimated cost of 50,000 NIS.

3. Which alternative should the board adopt, and why?

Question 1.2:

The table below provides results for 2014 for "The Top 1%" travel agency. Prices, variable costs, and product mix (3 nights / 1 flight) are expected to continue in 2015:

Round trip flights | Hotel rooms(nights) | Product |

200 | 600 | Expected number of units manufactured and sold |

1,500 | 1,000 | Sales price per unit (NIS) |

500 | 750 | Variable costs per unit (NIS) |

The company's Total fixed costs are expected to be 280,000 NIS in 2015.

1. Calculate the break-even point for 2015 for the company, in units and in NIS, using the two approaches that were...