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(a) Calculate the breakeven point in units and sales revenue for the year ended 31 March 2023 and the year ended 31 March 2024. (b) Calculate the margin of safety in units and sales revenue for the year ended 31 March 2023 and the year ended 31 March 2024.

(a) Calculate the breakeven point in units and sales revenue for the year ended 31 March 2023 and the year ended 31 March 2024. (b) Calculate the margin of safety in units and sales revenue for the year ended 31 March 2023 and the year ended 31 March 2024.

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question 1 You are a management accountant at Capitals Ltd, a leading manufacturer of condensers for use in air conditioning systems. The company is located in Durham, UK. In the year ended 31 March 2023, manufacturing cost per unit comprised: Direct material Direct labour (20 minutes per unit) Variable manufacturing overhead Variable selling expenses Variable administrative expenses Fixed manufacturing overheads Fixed selling and distribution overheads Fixed administrative overheads £ 125 15 20 15 The company produced and sold 45,000 condensers during the year ended 31 March 2023. The selling price per unit was £300. Fixed overheads for the year ended 31 March 2023 were: 10 £000 Sam McDavid, Chief Executive of Capitals Ltd, has developed a new strategy for the business. The company has invested in a new manufacturing facility in Sunderland, UK: this investment means that fixed costs will increase by £1,450,000 from 1 April 2023. 1,650 2,850 930 However, the move to the new manufacturing facility means that direct labour costs are expected to reduce by £2 per unit, variable manufacturing overheads will reduce by £0.50 per unit and variable administrative expenses will reduce by £2 per unit. Sam McDavid believes that her new strategy will reduce the level of financial risk to which Capitals Ltd is exposed. Continued
Transcribed Image Text:Question 1 You are a management accountant at Capitals Ltd, a leading manufacturer of condensers for use in air conditioning systems. The company is located in Durham, UK. In the year ended 31 March 2023, manufacturing cost per unit comprised: Direct material Direct labour (20 minutes per unit) Variable manufacturing overhead Variable selling expenses Variable administrative expenses Fixed manufacturing overheads Fixed selling and distribution overheads Fixed administrative overheads £ 125 15 20 15 The company produced and sold 45,000 condensers during the year ended 31 March 2023. The selling price per unit was £300. Fixed overheads for the year ended 31 March 2023 were: 10 £000 Sam McDavid, Chief Executive of Capitals Ltd, has developed a new strategy for the business. The company has invested in a new manufacturing facility in Sunderland, UK: this investment means that fixed costs will increase by £1,450,000 from 1 April 2023. 1,650 2,850 930 However, the move to the new manufacturing facility means that direct labour costs are expected to reduce by £2 per unit, variable manufacturing overheads will reduce by £0.50 per unit and variable administrative expenses will reduce by £2 per unit. Sam McDavid believes that her new strategy will reduce the level of financial risk to which Capitals Ltd is exposed. Continued
From 1 April 2023, the selling price per unit of condensers will be increased by 3 per cent. The company plans to produce and sell the same quantity of condensers in the year ended 31 March 2024 as it did in the year ended 31 March 2023. The company uses a marginal costing approach to support short term planning and decision making. As part of her new strategy for the business, Sam McDavid would like to develop a target costing approach. She plans to use the contribution margin ratio (also known as the profit volume ratio) for condensers for the year ended 31 March 2023 to determine the target cost per unit for the year ended 31 March 2024. Required: (a) Calculate the breakeven point in units and sales revenue for the year ended 31 March 2023 and the year ended 31 March 2024. (b) Calculate the margin of safety in units and sales revenue for the year ended 31 March 2023 and the year ended 31 March 2024. (c) Critically discuss the new strategy developed by Sam McDavid. Use the results of your calculations in parts (a) and (b) to develop your response. (d) Calculate the target variable cost per unit for the year ended 31 March 2024. (e) Compare and contrast the marginal costing and target costing approaches to planning, decision making and control. Use the results of your calculations in part (d) to develop your response.
Transcribed Image Text:From 1 April 2023, the selling price per unit of condensers will be increased by 3 per cent. The company plans to produce and sell the same quantity of condensers in the year ended 31 March 2024 as it did in the year ended 31 March 2023. The company uses a marginal costing approach to support short term planning and decision making. As part of her new strategy for the business, Sam McDavid would like to develop a target costing approach. She plans to use the contribution margin ratio (also known as the profit volume ratio) for condensers for the year ended 31 March 2023 to determine the target cost per unit for the year ended 31 March 2024. Required: (a) Calculate the breakeven point in units and sales revenue for the year ended 31 March 2023 and the year ended 31 March 2024. (b) Calculate the margin of safety in units and sales revenue for the year ended 31 March 2023 and the year ended 31 March 2024. (c) Critically discuss the new strategy developed by Sam McDavid. Use the results of your calculations in parts (a) and (b) to develop your response. (d) Calculate the target variable cost per unit for the year ended 31 March 2024. (e) Compare and contrast the marginal costing and target costing approaches to planning, decision making and control. Use the results of your calculations in part (d) to develop your response.
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