456 Accounting: Business Reporting for Decision Making
10.47 Relevant information for decision making LO8
Magic Dusters has also identified that another ingredient Delta D (500 litres required) will also
be used in the special order for Stay Clean Ltd, (see problem 10.46). Unlike Alpha A, Delta D
is currently used in the production of the normal production for Magic. The current inventory of
Delta D was purchased at a cost of $20 per litre. The replacement cost is $22 if ordered in the
normal schedule; however, if a rush order is required the cost will be $25. Another requirement
of the supplier of Delta D is that the minimum order is 1000 litres.
Required
Analyse the cost to be included for Delta D in the following circumstances:
a. Sufficient inventory of Delta D available to meet order without impacting normal production.
b. Requirement to make a rush order for Delta D to satisfy the special order.10.48 Break-even: single product; profit calculation LO2, 6
Janna Processing is a single-product entity, and provides the summary data shown below relating
to its product for 2017.Selling price per unit
Variable manufacturing costs
Annual fixed manufacturing costs
Variable marketing, distribution and administration costs
Annual fixed non-manufacturing costs
Annual volume$ 50
24
500 000
8
256 000
48 000 unitsRequired
a. Calculate the contribution margin per unit.
b. Calculate the contribution margin ratio.
c. Calculate the break-even in units and sales dollars for 2017.
d. Calculate the profit earned in 2017.
e. Janna Processing is considering changes in plant operations and the production process for- The changes would result in a reduction of variable costs per unit of $6, and increase
fixed manufacturing costs by $265 000. How many units would need to be sold to earn the
same profit as in 2017? Would you recommend the changes?
f. Prepare the statement of profit or loss for (d) and (e) above.
10.49 Profit calculation; price to achieve profit target LO2
The management of Kayla Industries has been aggressive in trying to build market share. The
price was set at $5 per unit, well below the existing market price. Variable costs were $4.50 per
unit, and annual fixed costs in the first year were $600 000.
Required
a. If Kayla Industries were to sell 1 million units in the first year, what profit (loss) would be achieved?
b. If sales were to remain at 1 million in the second year, and the fixed and variable costs
remained the same, what price would need to be set to achieve a profit of $25 000?10.50 Special order with no spare capacity LO10
Crystal Lattice produces exercise mats for use in fitness centres. Production capacity is
40 000 mats per year. Due to a chain of fitness centres closing, Crystal Lattice now has spare
capacity of 4000 mats per year. An international hotel chain, Resteasy, has recently contacted
Crystal Lattice to place a one-off order for 6000 mats. The hotel chain has recently remodelled a
number of its hotels to incorporate fitness centres for guests.
Budgeted costs for 40 000 mats are:
• variable manufacturing costs $1 600 000
• fixed manufacturing costs $1 800 000.
Mats normally sell for $100 each, and Resteasy has offered to pay $90 per mat. Resteasy has
also requested that each mat be embossed with its company logo. An embossing machine costing