Photo AI

Marginal Costing Mooney Ltd manufactures a single product - Leaving Cert Accounting - Question 8 - 2016

Question icon

Question 8

Marginal-Costing--Mooney-Ltd-manufactures-a-single-product-Leaving Cert Accounting-Question 8-2016.png

Marginal Costing Mooney Ltd manufactures a single product. The following is the proposed annual budget for the coming year: Sales (55,000 units) € 770,00... show full transcript

Worked Solution & Example Answer:Marginal Costing Mooney Ltd manufactures a single product - Leaving Cert Accounting - Question 8 - 2016

Step 1

Calculate the selling price per unit.

96%

114 rated

Answer

To find the selling price per unit, divide the total sales by the number of units sold:

extSellingPriceperunit=SalesNumber of units=770,00055,000=14 € ext{Selling Price per unit} = \frac{\text{Sales}}{\text{Number of units}} = \frac{770,000}{55,000} = 14 \,€

Step 2

Calculate the variable cost per unit.

99%

104 rated

Answer

The variable cost per unit is determined by dividing the total variable costs by the number of units sold:

Variable Cost per unit=Variable CostsNumber of units=467,50055,000=8.50 €\text{Variable Cost per unit} = \frac{\text{Variable Costs}}{\text{Number of units}} = \frac{467,500}{55,000} = 8.50 \,€

Step 3

Calculate the contribution from each unit sold.

96%

101 rated

Answer

The contribution per unit is calculated by subtracting the variable cost per unit from the selling price per unit:

Contribution per unit=Selling Price−Variable Cost=14 €−8.50 €=5.50 €\text{Contribution per unit} = \text{Selling Price} - \text{Variable Cost} = 14 \,€ - 8.50 \,€ = 5.50 \,€

Step 4

Calculate the break-even point in volume (units) and sales value (€).

98%

120 rated

Answer

The break-even point in units is calculated by dividing the fixed costs by the contribution per unit:

Break-even point (units)=Fixed CostsContribution per unit=137,5005.50≈25,000 units\text{Break-even point (units)} = \frac{\text{Fixed Costs}}{\text{Contribution per unit}} = \frac{137,500}{5.50} \approx 25,000 \, \text{units}

For sales value:

Sales value at break-even=Break-even point×Selling Price per unit=25,000×14=350,000 €\text{Sales value at break-even} = \text{Break-even point} \times \text{Selling Price per unit} = 25,000 \times 14 = 350,000 \,€

Step 5

Calculate the margin of safety in units and sales revenue that will yield a profit of €400,000.

97%

117 rated

Answer

The margin of safety in units can be calculated as:

Margin of Safety (units)=Budgeted sales−Break-even sales=35,000−25,000=10,000 units\text{Margin of Safety (units)} = \text{Budgeted sales} - \text{Break-even sales} = 35,000 - 25,000 = 10,000 \, \text{units}

Now, to find the sales value:

Sales value=Margin of Safety (units)×Selling Price per unit=10,000×14=140,000 €\text{Sales value} = \text{Margin of Safety (units)} \times \text{Selling Price per unit} = 10,000 \times 14 = 140,000 \,€

Step 6

Calculate the level of production and sales that will yield a profit of €400,000.

97%

121 rated

Answer

We need to find the number of units (N) needed to achieve a profit of €400,000. Using the formula:

Required Sales=Fixed Costs+Target Profit+Variable Costs per unit×N\text{Required Sales} = \text{Fixed Costs} + \text{Target Profit} + \text{Variable Costs per unit} \times N

Substituting gives:

137,500+400,000+8.50×N=14N137,500 + 400,000 + 8.50 \times N = 14N

Solving for N:

5.50N=537,500N=537,5005.50≈97,728 units5.50N = 537,500 \\ N = \frac{537,500}{5.50} \approx 97,728 \,\text{units}

Calculating total sales value:

Sales value=97,728×14=1,368,192 €\text{Sales value} = 97,728 \times 14 = 1,368,192 \,€

Step 7

Explain the term 'variable cost' in relation to Mooney Ltd. Give one example of a 'variable cost'.

96%

114 rated

Answer

A variable cost is a cost that changes with the quantity of production. In the context of Mooney Ltd, variable costs include expenses that vary directly with the number of units produced. One example of a variable cost could be the cost of raw materials used in production.

Join the Leaving Cert students using SimpleStudy...

97% of Students

Report Improved Results

98% of Students

Recommend to friends

100,000+

Students Supported

1 Million+

Questions answered

;