Accounting Business Reporting for Decision Making

454 Accounting: Business Reporting for Decision Making

Required

a. Calculate the approximate number of school tennis players required for Advantage Tennis

Coaching to break even on the proposal.

b. Calculate the contribution margin ratio.

c. Calculate the revenue required to earn a profit of $4800.

d. Calculate the decrease in total variable costs necessary to maintain the break-even point calcu-

lated in requirement (a) if fixed costs increase by $800. (Also calculate the per unit decrease.)

Problems

 BASIC |   MODERATE |    CHALLENGING

10.40 Break-even analysis  LO5

If an entity has an objective of profit maximisation, break-even analysis is not necessary. Discuss

this assertion.

10.41 Outsourcing and qualitative risks  LO9

Briefly outline some of the key qualitative risk considerations with respect to outsourcing

decisions.

10.42 Special order with spare capacity  LO2, 10

Coconut Plantations Pty Ltd manufactures and sells candles, soaps and detergents and distributes
them to stores located in Australia and New Zealand. The normal selling price per carton of
candles is $25; the variable cost of a carton of candles is $15. The principal of the local primary
school has asked Coconut Plantations to provide 20 cartons of candles for its spring fair. The
principal wants to purchase the candles at cost. Unlike regular sales, this special order of candles
will not incur the average distribution costs of $3 per carton. Coconut Plantations has sufficient
capacity to meet the order.
Required
a. Calculate the contribution margin per carton of candles for those sold to the usual outlets.
b. Calculate the variable costs per carton of candles for the special order from the local primary
school.
c. If the principal can pay no more than $12 per carton, should Coconut Plantations accept the
order? Why?
d. Would your decision change if Coconut Plantations was operating at full capacity and had to
give up normal sales of candles to accept the principal’s order?
10.43 Special order with spare capacity

The Cone Head House sells ice-cream cones in a variety of flavours. Financial data for a recent

week are shown below.  LO10

Revenue (1000 cones @ $2.00)

Cost of ingredients

Rent

Store attendant

$2 000

600

350

650

Profit 400

The Cone Head’s manager received a call from a university student club requesting 100 cones to

be picked up in three days. The cones could be produced in advance by the store attendant during

slack periods, and then stored in the freezer. Each cone requires a special plastic cover that costs

$0.10.

Required

a. Discuss the quantitative information relevant to this decision.

b. Calculate the minimum price per cone for this special order.