Final Exam Review - SOLUTIONS

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York University *

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2700

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Management

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Apr 3, 2024

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30

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KEEP OR DROP DIVISION/PRODUCT LINE CONSIDER THE FOLLOWING lost CONTRIBUTION MARGIN from shutting down a Any AVOIDABLE fixed costs that are SAVED when sh ANY increases/decreases in sales or costs for other d IRRELEVANT - UNAVOIDABLE FIXED COSTS, ALLOCATED TO EXAMPLE You shut down a division/product line and customers (who increase for the other divisions. You shutdown your division/product line, and you LOSE sal was shutdown DROVE sales in other areas or had some typ Simple example, you shut down you HOT DOG division, whi
division or product line (lose revenue but SAVE on variable costs) hutting down a division or product line. divisions from shutting down this division/product line. A DIVISION. ole or in part) from that division move to your other divisions, so sal les (but save on variable costs, lose CM) in other divisions because t pe of relationship. ich causes your BUN division to lose sales.
les and variable costs (+CM) the division that
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a) b)
Lost Contribution Margin - 20,000.00 if we shut down games Fixed Cost is occuring regardless Keep the division Lost Contribution Margin - 20,000.00 avoidable foxed cost of games 15,000.00 - 5,000.00 Keep the division c) Lost Contribution Margin - 20,000.00 avoidable foxed cost of games 15,000.00 CM Increase of Restaurant (10%) 14,000.00 CM Increase of bar (10%) 12,000.00 21,000.00 Recommend to Close it
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a) CM Loss on Trp Div Avoidable FC KEEP b) CM Loss on Trp Div Avoidable FC Increase of Bus Dov Increase of Taxi Dov Management Cap, he
- 2,970,000.00 2,350,000.00 - 620,000.00 - 2,970,000.00 2,350,000.00 525,300.00 95,680.00 980.00 ence keep because we loose the opprtunity to get 11mill in revenue
TYPICALLY, with NO constraints, our production will follow the following process when we have MUL Step 1 maximize production of the highest CM per unit product until we satisfy expected d Take the second highest CM per unit product, and produce until you maximize demand… a In reality, we are going to have CONSTRAINTS on our business Labour hours, machine hours, materials available, capital, etc. With constraints that limit our production, whatever is our constrained resource (are bottleneck) we It alters our production steps. STEP 1 Calculate contribution margin for each product Step 2 Calculate the contribution margin for each product by the CONSTRAINED resou STEP 3 Rank the products in order of HIGHEST contribution margin per constrained res STEP 4 Maximize the production of the product with the HIGHEST CM per constrained STEP 5 Repat step 4 with the product with the next highest CM per constrained resour EXAMPLE Our constrained resource is direct labour hours Rank 2 1 Product A Product B CM per unit $ 20.00 $ 10.00 DLH 4 1 CM per DLH $ 5.00 $ 10.00 Imagine we had only 20 direct labour hours (as IF WE MADE PRODUCT A, we can only make 20 If we made product b, we can make 20/1 = 20 REQUIRED STEP IF WE HAVE A MINIMUM DEMAND FOR SOME PRODUCTS. STEP 3.5 First ensure ALL minimum demand is satisfied
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LTIPLE products demand and so forth e need to take into consideration. urce, e.g., Contribution margin per DLH or per machine hours, etc. source to lowest resource until you satisfy demand or use up the resource. rce and keep repeating until all of the constrained resource has been used (or not enough left to p s LET'S SAY WE HAD 4 HOURS We could make 1 PRODUCT A = $20 total CM OR we could make 4 product B = 4 x $10 = $40 CM ssume demand of 100 for each product) 0/4 = 5 units which X $20 CM = $100 of CM units with 20 DLH = 20 x $10 = $200 of CM
produce anymore)
regular deluxe Sales Price $16.00 $25.00 per square yard $10.00 $15.00 per square yard CM per sq yd $6.00 $10.00 per square yard CONSTRAINED RESOURCE Available hours 4,600 DLH regular deluxe DLH per yard 0.15 0.2 CM per DLH $40.00 $50.00 RANK 2 1 Max Demand 30,000 8,000 SQUARE YA PRODUCTION First we produce Deluxe untill we use up DLH constrained or meet demand. The now we have 3000 DLH remaining for regular regular deluxe Leftover DL DLH per yard 0.15 0.2 Yards made 20,000 8,000 DLH used 3,000 1,600 - VC per yard 2
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ARDS e max used for delxue is 8000 yards i.e. DLH used is 1600 and hence LH =F16-D35-E35
DM per unit DL per unit VOH per unit XL1 200,000 $10.00 $4.00 $2.00 $2.00 XL2 200,000 $14.00 $4.70 $3.30 $3.30 XL3 200,000 $12.00 $5.00 $2.50 $2.50 Constraint 120,000 machine hours RANK 1 3 2 XL1 XL2 XL3 CM per unit $2.00 $2.70 $2.00 MH per unit 0.20 0.35 0.25 CM per MH $ 10.00 $ 7.71 $ 8.00 Demand 200,000 200,000 200,000 Production 200,000 85,714 200,000 MH per unit 0.20 0.35 0.25 MH utilized 40,000 30,000 50,000 Total unit demand for next year Sales Price per Unit
Rank $2.00 0.20 $ 10.00 1 $2.70 0.35 $ 7.71 3 $2.00 0.25 $ 8.00 2 =TRANSPOSE(range cell) Remaining - CM per unit (SP - DM - DL - VOH) Machine Hours (MH) per unit CM per MH
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Master Budget A merchandising firm that sells one product estimates it at $60 per unit in December. In November, the firm gath a budget for December, as shown here: Merchandise Inventory, December 1 Desired merchandise inventory for December 31 Cost per unit of merchandise purchases Selling & Administrative expenses Cash balance, December 1 November Sales The firm estimates that 60% of each month's sale and the remaining 40% is collected in the month a The $200,000 of selling and admin expenses inclu The company pays for half of merchandise purcha and pays the remainder during the month followi purchases for November are $340,000. All other out-of-pocket expenses are paid for in ca QUESTIONS A) How many units of merchandise will the firm budget t of budgeted merchandise purchases for December? B) Prepare a budgeted income statement for the month C) Prepare a statement of estimated cash flows for the m PART A November Sales Plan Number of units
Sales Price Sales Revenue $600,000 Purchases Plan Units for sales Add: Desired Ending Inventory Requirements Less: Beginning Inventory Units to be purchased Cost per unit of merchandise purchases Dollar Purchases $340,000 PART B Budgeted Income Statement Sales Revenue Cost of Goods Sold Gross Profit SG&A Costs Operating Income PART C RELEVANT INFORMATION November Sales Revenue $600,000 Dollar Purchases $340,000 CASH BUDGET
Cash Inflows 60% in month of sale 40% in month after sale Cash outflows purchases (50% in month of purchase) purchases (50% in NEXT month after purchase) SG&A Expenses excluding depreciation Net Change in Cash Opening Cash Balance, Dec 1 Ending Cash Balance, Dec 31
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will sell 12,000 units of its product hered other information to prepare 2,000 units 3,000 units $40 $200,000 $30,000 $600,000 es is collected in the month of sale after the sale udes $40,000 of depreciation. ases during the month of purchase ing the purchase. Estimated monthly ash. to purchase in December? What is the dollar amount ended December. month ended December. December Revenue = Sales Price x Volume 12,000
$60.00 $720,000 12,000 3,000 15,000 2,000 13,000 Units to be purchased = Desired Endi $40 $520,000 Dollar purchaes = Units to be purchas December $720,000From the Sales Plan $480,000units from the sales plan x cost per unit $240,000 $200,000 $40,000 December $720,000from the Sales Plan $520,000from the Purchases Plan
December $432,00060% of December sales are collected in DECEMBER $240,00040% of November sales are collected in DECEMBER $672,000 -$260,00050% of December dollar purchases are paid in DECE -$170,00050% OF November dollar purchases are paid in next -$160,000 -$590,000 $82,000Cash inflows + cash outflows
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ing Inventory + Expected Unit Sales - Opening Inventory sed x Cost per unit to purchase
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EMBER t month, in December
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October Cash Sales $100,000 Credit Sales $100,000 Total $200,000 Collectible Credit Sales $95,000 Cash Receipts Schedule October Cash Sales 100,000.00 Credit SCash in month of sale (60%) 57,000.00 Cash in next month of sale (40%)
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1.5% discount -$17,662.500 October Sales $200,000 COGS (70%) $140,000 Purchases $189,000 Cash Disbursements Schedule 25% paid in month of purchase 75% paid in month after purchase
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November December $120,000 $80,000 $150,000 $90,000 $270,000 $170,000 $142,500 $85,500 November December 120,000.00 80,000.00 85,500.00 51,300.00 38,000.00 57,000.00
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-$27,393.750 -$21,183.750 216,106.25 167,116.25 Estimated November December January $270,000 $170,000 $200,000 $189,000 $119,000 $140,000 $119,000 $140,000 $29,750 $35,000 $141,750 $89,250 $171,500 $124,250
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# of deliveries (X) Delivery Costs (Y) 1 11,540 $148,620 2 12,180 $150,980 3 16,560 $199,200 Cost 4 11,685 $143,100 Activity 5 16,685 $203,695 6 14,875 $183,065 7 13,010 $156,390 Slope 8 13,010 $193,440 9 15,555 $189,330 Y-Inter 10 11,970 $151,200 11 12,630 $158,445 A = 250 12 15,300 $188,085 13 14,580 $182,320 14 11,980 $144,520 15 13,000 $155,680
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MIN MAX $148,620 203,695 $55,075 11540 16,685 $5,145 10.7045675413022 =H4/H5 25,089.29 A = Y - Bx 089.29 - 10.704x
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11,000 12,000 13,000 14,000 15,000 16,000 17,000 $0 $50,000 $100,000 $150,000 $200,000 $250,000 R² = 0.829753863988992 Chart Title
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