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Midterm

MGAB03H3 Study Guide - Midterm Guide: Fixed Cost


Department
Financial Accounting
Course Code
MGAB03H3
Professor
Liang Chen
Study Guide
Midterm

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MONEYBAGS INC.
Moneybags Inc. is planning on a large expansion project to build another factory in the near
future and has asked you, their accountant to figure out some numbers so that they can make some
decisions regarding this project. Moneybags Inc. only manufactures one type of good, money bags.
April 2009
Selling Price per unit
$84.50
Direct Materials per unit
$5.33
Direct Labour per unit
$16.86
Variable Manufacturing Overhead per unit
$1.77
Moneybags was able to sell 869 units in the month of April. Their rent expense for the month is
$3500, property taxes are $60,000 for the quarter, insurance expense of $1052 per month and $80,000
for the annual salary of each of the three employees.
1.) Find the Safety Margin percent in Sales Amount and Quantity on a monthly basis
2.) Using the Degree of Operating Leverage find the percent change in profits if management is
expecting to increase sales by 15%
3.) >[ÇZD}vÇPneeds to have their operating income equalling 55% of their sales on
an annual basis in order to fund their project. Find the number of items they would need to sell
to achieve this. *Note: Assume that the selling price of the moneybags are fixed and that the
variable and fixed costs remain the same
4.) Ignoring the effects from Question 3Uo[ÇZZZvZ(}oo}Á]vPÁ}
months product/sales information.
May 2009 (sold 750 moneybags)
Selling Price per unit
Increase of 1.77% from April
Direct Materials per unit
Increases by 2.251% from April
Direct Labour per unit
$16.86
Variable Manufacturing Overhead per unit
Increases by 1.130% from April
*Assuming that the fixed costs remain constant in this period (compared to April)
June 2009 (sold 866 moneybags)
Selling Price per unit
Increases by 0.058% from May
Direct Materials per unit
$5.45
Direct Labour per unit
Decreases by 2.135 % from April
Variable Manufacturing Overhead per unit
Decreases by 2.825 % from April
*Assuming that the fixed costs remain constant in this period (compared to April)
Using the High-Low Method project the total costs to be incurred in July assuming that the selling price
of money bags remains at the June 2009 level but the number of projected units to be sold is 825.
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