392 ACCOUNTING FOR MANAGERS
If the company has a limited production capacity, preventing all its budgeted sales
from being produced, how should Magnificent rank its products for manufacture
in order to maximize profitability?
9.8 CarParts has a new automotive product that is in the final stages of design.
Marketing expects to achieve the desired market share and volume at a price of £29
per unit and the manufacturer expects a 25% margin on the selling price. Current
designs have been calculated to result in a production cost of £22.50 per unit.
Calculate the reduction required to meet the target cost per unit.
9.9 Buena Manufacturing has sales of £850,000. It used materials of £450,000,
direct labour of £175,000 and incurred other variable manufacturing expenses of
£30,000. The business also incurred fixed manufacturing expenses of £65,000 and
selling and administrative expenses of £40,000. Its opening stock of finished goods
was £120,000 and its closing stock had reduced by £25,000.
Calculate each of the:
žcost of production;
žcost of sales;
žcontribution margin; and
žoperating profit.
Questions for Chapter 10
10.1 Grant & McKenzie is a firm of financial advisers that needs to calculate an
hourly rate to charge customers for its services.
The average salary cost for its advisers is £40,000. National Insurance is
11% and the firm pays a pension contribution of 6%. Each adviser has four
weeks’ annual holiday and there are 10 days per annum when the firm closes for
bank holidays and Christmas. Each adviser is expected to do chargeable work
for clients of 25 hours per week, the remainder of the time being administra-
tive work.
Calculateanhourlyrate(tothenearesthour)tocoverthecostofeachfinan-
cial adviser.
10.2 Local Bank does not know how much of its cheque-processing costs are
fixed and how much are variable. However, total costs have been estimated at
£750,000 for processing of 1,000,000 transactions and £850,000 for processing of
1,200,000 transactions.
žWhat are the variable costs per transaction?
žWhat are the fixed costs?
10.3 Cardinal Co. needs 20,000 units of a certain part to use in one of its products.
The following information is available.