RantauBags Company plans to sell 10,000 handbags at $400 each in the coming year. Data on cost per handbag are as follows: Direct materials $80 Direct labour $125 Variable overhead $15 Variable selling expense is a commission of 5 per cent of the sales price. Total fixed factory overhead amounts to $800,000. Fixed selling and administrative expense totalled $400,000. Required: (a) Prepare a contribution margin income statement for RantauBags for the coming year. (b) What is the effect on RantauBags operating income if 13,000 units are manufactured and sold next year? Show computation. (c) Calculate the number of units RantauBags must sell to breakeven. (d) Calculate the number of units RantauBags must sell to achieve a target operating income of $240,000.
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
RantauBags Company plans to sell 10,000 handbags at $400 each in the coming year. Data on cost per
handbag are as follows:
Direct materials $80
Direct labour $125
Variable
Variable selling expense is a commission of 5 per cent of the sales price. Total fixed factory overhead
amounts to $800,000. Fixed selling and administrative expense totalled $400,000.
Required:
(a) Prepare a contribution margin income statement for RantauBags for the coming year.
(b) What is the effect on RantauBags operating income if 13,000 units are manufactured and sold next
year? Show computation.
(c) Calculate the number of units RantauBags must sell to breakeven.
(d) Calculate the number of units RantauBags must sell to achieve a target operating income of
$240,000.
(e) Calculate the margin of safety in sales ($) for the coming year.
(f) Discuss TWO benefits of manager's possessing the knowledge/understanding on cost-volume-profit
analysis.
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