Final Exam C (With Solution)

Final Exam C (With Solution) - CONCORDIA UNIVERSITY Course:...

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Unformatted text preview: CONCORDIA UNIVERSITY Course: Managerial Accounting, No.: Comm. 305 & Acco. 240 Sections All Examination: Final Date: April 18, 2008 No. of Pages: 9 including the cover page Material Allowed: Non-programmable calculators and dictionaries Special Instructions: Return the exam questions with your answers. Student Name: Student Id. No.: Section: Instructor: 1 QUESTION-1 16 POINTS The condensed income statement for Montreal Inc for 2007 is as follows: A cost behaviour analysis indicates that 75% of the cost of goods sold is variable, 50% of the selling expenses are variable, and 25% of the administrative expenses are variable. Instructions ( Round to nearest unit, dollar, and percentage, where necessary. Use the CVP income statement format in calculating profits.) (a) Calculate the break-even point in total sales dollars and in units for 2007. (b) The CFO has proposed a plan to get the company out of the red and improve its profitability. She feels that the quality of the product could be substantially improved by spending $0.55 more per unit on better raw materials. The CFO estimates that sales volume will increase by 30% but the selling price per unit could be increased to only $6.50 because of competitive pressures. What effect would the CFO's plan have on the profits and the break-even point in dollars of the Montreal Inc? (c) Following its review of a recent marketing research report the CEO believes that sales volume can be increased by 50% if extensive advertising and promotional campaigns are undertaken. He therefore proposed the following plan as an alternative to CFO's: (1) increase variable selling expenses to $0.85 per unit, (2) lower the selling price per unit by $0.20, and (3) increase fixed selling expenses by $20,000. If these changes were made, what effect would the CEO's plan have on the profits and the break-even point in dollars of the Montreal Inc? (d) Which plan should be accepted? Explain your answer. 2 SOLUTION QUESTION-1 16 POINTS (a) 5 PTS Selling price per unit ($1,200,000 200,000) $6.00 .5 PT Costs Variable Portion Fixed Portion Total Cost of goods sold Selling Administrative Total $600,000 160,000 40,000 .75 PT $800,000 $200,000 160,000 120,000 1.75 PT $480,000 $ 800,000 320,000 160,000 $1,280,000 Variable costs per unit are: Cost of goods sold ($600,000 200,000) .5 PT $3.00 Selling ($160,000 200,000) .5 PT .80 Administrative expenses ($ 40,000 200,000) .5 PT .20 Total $4.00 Break-even point in units = Fixed costs CM per unit 240,000 = $480,000 $2 . .5 PT Break-even point in dollars = 240,000 X $6 = $1,440,000 .5 PT 3 (b) 5 PTS Variable unit cost of goods sold = $3.55 = ($3.00 + $0.55) .5 PT Sales volume = 260,000 units (200,000 X 130%) .5 PT Net income computation: Sales Total sales = 260,000 X $6.50 = $1,690,000 .25 PT $1,690,000 Variable costs Cost of goods sold.............................................. $923,000 (260,000 X $3.55) .25 PT Selling expenses.................................................Selling expenses....
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This note was uploaded on 05/17/2011 for the course COMM 305 taught by Professor T.hutchison during the Spring '09 term at Concordia Canada.

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Final Exam C (With Solution) - CONCORDIA UNIVERSITY Course:...

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