The managing director of Onyx Garages Ltd is concerned about the profitability of the business. She asked for cost details of the three divisions of the business - repairs, petrol sales, and spare parts together with a breakdown of sales revenue. Unaware of the differences between costing approaches, she asked for overheads to be apportioned on full-cost principles according to labor cost. The following data were provided. When the managing director saw these details, she said, 'If we close down our repair division, then total annual profits will rise - they would have been $15,000 higher last year if we had shut down repairs in 2008.' Overall profit made by the business in 2009 (55,000 + 6,000)- 15,000 = $46,000. As a trainee accountant working with this company, you have been asked for your opinion on the figures.
The managing director of Onyx Garages Ltd is concerned about the profitability of the business. She asked for cost details of the three divisions of the business - repairs, petrol sales, and spare parts together with a breakdown of sales revenue. Unaware of the differences between costing approaches, she asked for overheads to be apportioned on full-cost principles according to labor cost. The following data were provided. When the managing director saw these details, she said, 'If we close down our repair division, then total annual profits will rise - they would have been $15,000 higher last year if we had shut down repairs in 2008.' Overall profit made by the business in 2009 (55,000 + 6,000)- 15,000 = $46,000. As a trainee accountant working with this company, you have been asked for your opinion on the figures.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:The managing director of Onyx Garages Ltd is concerned about the profitability of the business. She
asked for cost details of the three divisions of the business repairs, petrol sales, and spare parts-
together with a breakdown of sales revenue. Unaware of the differences between costing approaches,
she asked for overheads to be apportioned on full-cost principles according to labor bost. The following
data were provided. When the managing director saw these details, she said, 'If we close down our repair
division, then total annual profits will rise- they would have been $15,000 higher last year if we had shut
down repairs in 2008."
Overall profit made by the business in 2009 = (55,000 + 6,000)- 15,000 $46,000.
As a trainee accountant working with this company, you have been asked for your opinion on the figures.
2013 ($000s)
Repairs
Petrol
Parts
Revenue (A)
27
300
68
Direct labour cost
15
25
10
Direct materials
180
35
Other direct costs
10
Apportioned overheads
(total $60,000)
18
30
12
Total cost (B)
42
245
62
Profit/(Loss) (A-B)
(15)
55
1. Use the contribution- or marginal-costing method and produce a new costing statement.
Do you agree with the managing director that the repairs division should be closed in order to
increase overall garage profits? Justify your answer with both quantitative and qualitative
2.
reasons.
4.
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