Rift Valley University, Assignment for the course Managerial and Financial Accounting (MBA, 2019)

Rift Valley University Harar Campus

Assignment for Managerial and Financial Accounting (MBA)
General Directions:
Attempt each of the following questions according to their respective instructions and
provide detailed explanations and show all the necessary computations as needed.
The assignment should be only completed individually and copying from others
disqualifies results. This assignment will definitely help you succeed in your final exam.
Therefore, if you do it by yourself you will get your own fruit which I believe is appetizing.
Assignment due date: Final exam date. Assignments which are submitted after the due
date will result in deduction of 5 marks for each day. If you are late by three days the
assignment is totally worthless.
Maximum mark: 35%

Part I- Work out and analyzing cases

1. Nesru shop is a new shop in Harar city shopping center that sells high-end teas and coffees.
Recently, they have added Milk with coffee to their product line. Below are sales and cost data
for the company:

Coffee Tea Milk with coffee

Sales price per Cup serving $1.35 $1.25 $1.95
Variable cost per Cup serving 0.60 0.45 0.75
Fixed costs per month $8,000
Currently the company sells each month an average of 6,000 servings of coffee, 3,750 servings of
tea, and 2,250 servings of Milk with coffee.
A. Calculate the current before-tax profit, contribution margin ratio, and sales mix based on
sales dollars.
B. Using a sales dollar analysis, calculate the monthly break-even point assuming the sales
mix does not change.
C. Calculate Nesru’s operating leverage ratio. If sales increase by 20 percent, by how much
will before-tax income be expected to change? If sales decrease by 20 percent, by how
much will before-tax income be expected to change?

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Rift Valley University, Assignment for the course Managerial and Financial Accounting (MBA, 2019)

2. The cost department of Shambu furniture factory collected the following cost data for financial
statement presentation for the year ended on December 31, 2008.
Inventories January 1,2008 December 31,2008
Direct material Br. 34,500 Br. 49,300
Work in process Br. 81,500 Br. 42,000
Units of Finished goods 300unit 420 units
Cost of Finished goods Br. 48,600 ?
Additional Information
 Sales during the year are 3,880 units at Br. 220 per unit
 Direct material purchased ------- Br. 364,000
 Prime cost -------------- Br. 511,700
 MOH cost -------------------- 48% of conversion cost
 Operating expense ---------------- 50% of gross profit
 All units in the ending finished goods inventory are from current period production.
Requirements:
Compute the following based on the above information.
a) Cost of direct material used c) Units of goods manufactured
b) Cost of goods sold d) Operating income
3. Suppose that Magik Bicycles wants to produce a new mountain bike called Magik bike III and
has forecast the following information.
Price per bike $800
Variable cost per bike $300
Fixed costs related to bike production $5,500,000
Target profit $200,000
Estimated sales 12,000 bikes
a) Find the total contribution margin.
b) Find the breakeven quantity and revenue by using equation method.
c) Find the breakeven quantity and revenue by using contribution margin method.
d) Find the breakeven quantity and revenue by using graphic method.
e) Compute the margin of safety in units and in dollar and explain the result.
f) Calculate the degree of operating leverage and explain the result.
g) How many magik bikes should magic bicycles sell to reach target operating income of
$200,000?
h) Suppose that Magik Bicycles plans for an after-tax profit of $180,000 and its tax rate is 40%.
How many magik bikes should magic bicycles sell to reach the target net income?

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 Rift Valley University, Assignment for the course Managerial and Financial Accounting (MBA, 2019)

4. Sino-woodworks Ethiopia Ltd makes office furniture from fine hardwoods. The company uses a
job-order costing system and predetermined overhead rates to apply manufacturing overhead cost
to jobs. The predetermined overhead rate in the Preparation Department is based on machine-
hours, and the rate in the Fabrication Department is based on direct materials cost. At the
beginning of the year, the company’s management made the following estimates for the year:

Job-C was started on April 1 and completed on May 12. The company’s cost records show the
following information concerning the job:

Required :
a) Compute the predetermined overhead rate used during the year in the Preparation and
Fabrication Departments.
b) Compute the total overhead cost applied to Job-C.
c) What would be the total cost recorded for Job-C? If the job contained 25 units, what
would be the unit product cost?
d) At the end of the year, the records of the company revealed the following actual cost and
operating data for all jobs worked on during the year:

What was the amount of under-applied or over-applied overhead in each department at the end of
the year?

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 Rift Valley University, Assignment for the course Managerial and Financial Accounting (MBA, 2019)

5. Gafat Engineering Ethio Plc manufactures two types of TV sets – 32 Inch and 43 Inch– both
having only one model. The 43 Inch and 32 Inch television sets sell for Br 8,000 and Br 5,000,
respectively. The company sells its products through its own stores and other outlets. Total
fixed expenses are Br 12,000,000 per month. Variable expenses and monthly sales data are
given below:

43 Inch 32 Inch
Variable expenses Br 4,000 Br 3,000
Monthly sales in units 2,000 3,000
Required: (unless stated figures should be computed for one month)
a) Determine breakeven total volume of sales and sales volume for each product.
b) Determine sales volume and sales revenue for the company to earn Br 600,000 profit after 40%
profit tax.
c) The company has planned to incur Br 200,000 monthly selling (promotional) expenses to
increase sales volume for its 43 inch TV sets to 4,000. If the plan materializes and other things
remain constant, determine breakeven sales volume and sales revenue for the company.
d) The company has planned to buy new and improved technology that reduces variable
production expenses for its 32 inch TV set to Br 4,000 while increasing its monthly fixed
production costs by Br 1,000,000. If the plan materializes and other things remain constant,
determine breakeven sales volume and sales revenue for the company.
e) If the company is guaranteed with total sales volume of 10,000 TV sets in a given month,
should it go for option “c” or “d” above given that sales mix remained constant as provided in
each of the two options? Why? What if the guaranteed total sales volume of 8,000 instead of
10,000? Why? What should be the guaranteed total sales volume for the two options to provide
equal profit to the company?

6. Based on the following incomplete information, compute the required items .work it out using
the necessary steps.
 Beg. FG…………………$12,000
 Beg.WIP………………..10,200
 Beg. Raw material………9,300
 Net sales…………………..260,000
 Cost of goods available for sale………200,000
 DL cost………………….105,000
 Material purchased…….. 72,000
 FOH = 30% Conversion cost
 Cost of goods manufactured 125% of Prime cost
 Gross profit (margin) on sales is 25%
 Selling and distribution cost are $ 30,000
 General administrative expenses $24,000

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 Rift Valley University, Assignment for the course Managerial and Financial Accounting (MBA, 2019)

7. The following data pertain to the operations of Finfine furniture Co. a manufacturer of furnitures.

January 31, 2019 December 31, 2019

Inventories:
Finished goods 20,000 25,000
Direct materials 147,000 136,000
Work in process 118,000 122,000
During the year:
Sales 1,646,000
Sales return and allowance 16,000
Sales discount 30,000
Direct materials purchased 455,000
Purchase return and allowance (DM) 5,000
Direct labor 236,000
Indirect materials used 40,000
Indirect manufacturing labor 50,000
Supplies needed for the plant 15,000
Heat, light and power 35,000
Depreciation –Plant Building 15,000
Depreciation – Plant Equipment 20,000
Insurance for plant Equipment 15,000
Miscellaneous expenses for the plant 5,000
Office Supplies 25,000
Office salaries 45,000
Depreciation –office Building 10,000
Depreciation – office Equipment 20,000
Miscellaneous office expenses 10,000
Advertising expense 30,000
Office utilities 3000
Insurance for office Equipment 7000
Required:
1. Compute:
 Total DM available for use
 DM used
 Total manufacturing cost
 Prime costs
 Conversion costs
2. Prepare a statement of cost of goods manufactured
3. Prepare income statement for the year ended 31, 1999.

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Rift Valley University, Assignment for the course Managerial and Financial Accounting (MBA, 2019)

8. HORA Fabrics manufactures quality bath towels at one of its highly automated plants. The
plant has a production capacity of 80,000 towels each month. Currently, the monthly
production is 60,000 towels. Retail department stores account for all existing sales. Expected
results for the coming month April are presented below. We assume that all costs can be
classified as either variable with respect to a single cost driver (units of outputs) or fixed. The
manufacturing cost per unit of $20 consists of the following.

Variable cost Fixed costs Total costs

per unit per unit per unit

- Direct materials $10.00 $0 $10.00

- Direct manufacturing labor 2.50 1.50 4.00
-Manufacturing overhead 2.00 4.00 6.00
-Total manufacturing costs $14.50 $5.50 $20.00
Additional information
i) The marketing costs per unit are $9, ($7 of which is variable).
ii) Fancy Fabrics has no R & D costs and product-design costs. Marketing costs include
distribution costs and customer-services costs.
iii) As a result of a strike at its existing towel supplier, a luxury hotel chain has offered to
buy 10,000 towels from Fancy Fabrics in April at $24 per towel. No subsequent sales
to this customer are anticipated.
iv) Fixed manufacturing costs are related to the 80,000-towel production capacity. Thus,
if Fancy Fabrics accepts the special orders, it will use existing idle capacity to produce
the 10,000 towels, and hence fixed manufacturing costs will not change.
v) No marketing costs will be necessary for the 10,000-units one-time-special orders.
vi) The acceptance of this special order is not expected to affect the unit selling price of
$40 charged to regular customers and/or the quantity of towels sold to regular
customers.
The Budgeted income Statements for Fancy Fabrics is given below.
Total Per unit

Revenues (60,000 towels ×$40) ----------------- $2,400,000 $40

Cost of goods to be manufactured and sold) ------ 1,200,000 20
Gross Profit-------------------------------------- 1,200,000 20
Marketing costs -------------------------------------- 540,000 9
Operating income --------------------------------- 660,000 11

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Rift Valley University, Assignment for the course Managerial and Financial Accounting (MBA, 2019)

Required:
a) Make the necessary analysis and determine whether Fancy Fabrics should accept the hotel
chain’s offer? You can use either the Incremental or the contribution Margin approaches
b) Assume that the decision to accept this one-time-only especial order could have long-term
implication on the amount of price charged to regular customer, should the company
accept the one-time-only-especial order given that it has idle capacity?
c) Now assume that the acceptance of special order has no long run implication on unit
selling price to customer and quantity demanded by regular customers, but Fancy Fabric
has no idle capacity, should the one time only especial order be accepted, given that a per
unit total manufacturing cost of $20 per unit is required while no marketing cost is needed
for the especial order?
d) Assume further that the acceptance of special order has no long run implication on unit
selling price to customer and quantity demanded by regular customers, and Fancy Fabric
has the idle capacity, should the one time only especial order be accepted, given that a per
unit total manufacturing cost of $20 per unit is required and the variable marketing cost is
also needed for the especial order?

Part II: Discussion Questions

1. Discuss how financial, cost, and managerial accounting interface. Is one more important
than another? Discuss the rationale for your answer.
2. Cost Volume Profit Analysis (CVP) is a decision making model that can be used only by
business organizations. Comment
3. Identify not for profit organization in your locality and study whether they are using CVP
analysis as decision making tools or not? If they are using describe how they are using. If
they are not using, try to find out the reason, why they are not using the model, and
suggest the benefit of apply CVP in administrative process in not for profits.
4. You are considering the sale of your old stereo system. According to your records, you
paid Br. 500 for the stereo system. The current market value of the stereo is Br. 150. A
new stereo of the same make and model could be purchased today for Br. 375. Which of
these figures is relevant to your decision to sell or keep the stereo system? If any figures
are not relevant, explain why.
5. Addisu Abera, owner of Addis Cafe, is trying to decide whether to make Enjera or buy
them from a supplier. Addisu has come to you for advice. What factors would you tell him
to consider in making his choice?

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