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    Ma FM-05 Group-5 Project-Excel

    Uploaded by

    Saranya Batra
    1. Stark Ltd is considering accepting an order for 15,000 additional packets. 2. Incremental analysis shows accepting the order would generate $15,000 in operating income. 3. Key factors in the incremental analysis include 50% variable overhead costs and only delivery selling costs being incurred for the new order. 4. Accepting the order would utilize idle capacity and generate a positive contribution margin.

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    Ma FM-05 Group-5 Project-Excel

    Uploaded by

    Saranya Batra
    18 views4 pages
    1. Stark Ltd is considering accepting an order for 15,000 additional packets. 2. Incremental analysis shows accepting the order would generate $15,000 in operating income. 3. Key factors in the incremental analysis include 50% variable overhead costs and only delivery selling costs being incurred for the new order. 4. Accepting the order would utilize idle capacity and generate a positive contribution margin.

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    MA_FM-05_GROUP-5_PROJECT-EXCEL

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    1. Stark Ltd is considering accepting an order for 15,000 additional packets. 2. Incremental analysis shows accepting the order would generate $15,000 in operating income. 3. Key factors in the incremental analysis include 50% variable overhead costs and only delivery selling costs being incurred for the new order. 4. Accepting the order would utilize idle capacity and generate a positive contribution margin.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Download as xlsx, pdf, or txt
    18 views4 pages

    Ma FM-05 Group-5 Project-Excel

    Uploaded by

    Saranya Batra
    1. Stark Ltd is considering accepting an order for 15,000 additional packets. 2. Incremental analysis shows accepting the order would generate $15,000 in operating income. 3. Key factors in the incremental analysis include 50% variable overhead costs and only delivery selling costs being incurred for the new order. 4. Accepting the order would utilize idle capacity and generate a positive contribution margin.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Download as xlsx, pdf, or txt
    of 4

    Stark Ltd.

    - Incremental Analysis Case


    Unit economics for 84000 packets being produced
    The following informati
    Particulars Per Unit Annual Total 1. Accepting this order
    Sales $ 25.00 $ 21,00,000 2. To manufacture 15,0
    3. The per unit overhea
    Direct Material $ 12.00 $ 10,08,000 4. Selling costs {include
    Direct Labour $ 6.00 $ 5,04,000 packets, since it did not
    incurred.
    Overhead $ 0.50 $ 42,000 5. Administrative expen
    Selling Expenses $ 1.75 $ 1,47,000  
    Administrative Expenses $ 0.25 $ 21,000
    Total Costs and Expenses $ 20.50 $ 17,22,000
    Operating Income $ 4.50 $ 3,78,000

    Unit economics for accepting order for 15000 more packets

    Particulars Per Unit Annual Total


    Sales $ 20.00 $ 3,00,000
    Direct Material $ 12.00 $ 1,80,000
    Direct Labour $ 6.00 $ 90,000
    Overhead $ 0.50 $ 7,500
    Selling Expenses $ 1.75 $ 26,250
    Administrative Expenses $ 0.25 $ 3,750
    Total Costs and Expenses $ 20.50 $ 3,07,500
    Operating Income $ -0.50 $ -7,500.00

    This method is not correct as the the idle capacity is being


    utilised adjustment relating to incremental revenue and cost
    The following information is discovered with further analysis:
    1. Accepting this order would not impact current sales.
    2. To manufacture 15,000 packets would require $12.00 of direct materials and $6.00 of direct labour.
    3. The per unit overhead cost of $0.50 is 50% variable ($0.25) and 50% fixed ($0.25).
    4. Selling costs {includes commissions($1/packet) and delivery costs($0.75/packet)} for the 15,000
    packets, since it did not require and selling effort by any employee only the delivery cost would be
    incurred.
    5. Administrative expenses would not change.
     

    Incremental Analysis
    Particulars Per Unit Annual Total
    Sales $ 20.00 $ 3,00,000
    Direct Material $ 12.00 $ 1,80,000
    Direct Labour $ 6.00 $ 90,000
    Overhead $ 0.25 $ 3,750
    Selling Expenses $ 0.75 $ 11,250
    Administrative Expenses - -
    Total Costs and Expenses $ 19.00 $ 2,85,000
    Operating Income $ 1.00 $ 15,000
    SALES PRICE VARIABLE
    PER SQUARE COST PER
    FOOT SQUARE FOOT
    BUILDER GRADE $ 6.25 $ 3.25
    ACRHITECTURAL $ 7.75 $ 4.50
    RESTORATION $ 9.25 $ 6.25

    5 FT2 OF BUILDER GRADE AT $6.25 $ 31.25


    3 FT2 OF ARCHITECUTRAL AT $7.75 $ 23.25
    2 FT2 OF RESTORATION AT $9.25 $ 18.50
    SELLING PRICE OF 1 COMPOSITE UNIT $ 73.00

    5 FT2 OF BUILDER GRADE AT $3.25 $ 16.25


    3 FT2 OF ARCHITECUTRAL AT $4.5 $ 13.50
    2 FT2 OF RESTORATION AT $6.25 $ 12.50
    VARIABLE COST OF 1 COMPOSITE UNIT $ 42.25

    SELLING PRICE PER COMPOSITE UNIT - VARIABLE COST PER COMPOSITE UNIT = CONTRIBU

    (𝑻𝑶𝑻𝑨𝑳
    BREAK-EVEN POINT PER COMPOSITE UNIT 𝑭𝑰𝑿𝑬𝑫
    = 𝑪𝑶𝑺𝑻𝑺)/(𝑪𝑶𝑵𝑻𝑰𝑹𝑩𝑼𝑻𝑰𝑶𝑵 𝑴𝑨𝑹𝑮𝑰𝑵 𝑷𝑬𝑹 𝑪𝑶𝑴𝑷

    ($
    = 145000)/($ 30.75)

    4715.45 COMPOSITE UNITS

    BUILDER GRADE 23577.25 23577


    ACRHITECTURAL 14146.35 14146
    RESTORATION 9430.9 9431
    TOTAL UNITS 47154
    E UNIT = CONTRIBUTION MARGIN PER COMPOSITE UNIT

    𝑴𝑨𝑹𝑮𝑰𝑵 𝑷𝑬𝑹 𝑪𝑶𝑴𝑷𝑶𝑺𝑰𝑻𝑬 𝑼𝑵𝑰𝑻)

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