Writers Surname, 1

Name:
Instructors Name:
Course:
Date:

13.
(a)

Answer:
Contribution margin per unit
= unit selling price unit variable costs
= (Sales / units sold ) (VC / units sold)
=( 800,000 /50,000) ( 626,650 / 50,000)
= 16 12.533
= 3.467
Therefore, estimated contribution margin per unit = 3.467.

13.(b) Answer:
Total fixed costs
Fixed selling and administrative expenses
Add: Fixed silk-screen overhead expenses
Silk-screen workers wages
Interest Cost
Income tax
Total fixed costs for 2013:

23,280
51,800
72,000
1,600
4,934
153,614

13.(c) Answer:
Break-even point (units) = Fixed costs CM per unit
= 153,614 3.467
= 44,307.47 units or 44,308 units
CM ratio = CM per unit Selling price per unit
= 3.467 16
=0.216
Break-even point ($) = Fixed cost CM ratio
= 153,614 0.216
= 708,920

Writers Surname, 2

14.(a) Answer:
Required sales (units) = (Fixed costs + Targeted net income) / CM per unit
= (153,614 + 25,000) / 3.467
= 178,614 / 3.467
= 51,518.32 units or 51,519 units

14.(b) Answer:
The reason for difference in Michaels net income and cash balance is due to using accrual
basis of accounting while calculating net income. Due to this, net income contains revenue and
expenses which have not been received and paid. For instance, Michael involved revenue of
57,600 (= 192,000 X 30%) in his Income Statement which was not included in his Cash Budget
as it was earned but not yet received i.e. accounts receivable or debtors. Similarly, other items
like accounts payable, interest payable, and income taxes payable also affect Income Statement
and Cash Budget in different periods. Further, net profit does not take consider any payments or
receipts made to loans or revenues. Likewise, non-cash expenses such as depreciation is included
in income statement but the same is not incorporated in cash budget.

15. Answer:
I think it will not be beneficial to pay Sue 10% commission in excess of the salary. Sue is
currently earning 94,400 (= annualized salary of 14,400 + budgeted commission of 80,000).
However, total annual wages for the six silk-screen workers are merely 72,000. Budgeted net
income for the business is just 19,736, which is less than targeted net income of 25,000 per year.
In comparison with Sues salary plus commission in 2013, companys net income and each silkscreen workers salary during the year 2013 are quite low. If Michael is aiming to achieve 25,000
per annum, he should reduce the amount of commission payable to Sue. Further, if other
employees work harder as compared to Sue and get relatively lower wage than her, it would
likely to cause serious resentment among other staff.