# MGAB03H3 Study Guide - Midterm Guide: Fixed Cost

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.) >[ÇZD}vÇPneeds 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[ÇZZZvZ(}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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