Milwaukee Dairy Company produces cream, whole milk, and 2% milk. The joint cost of producing the three products is SAR 30,000 (October-2020)
Milwaukee Dairy Company produces cream, whole milk, and 2% milk. The joint cost of producing the three products is SAR 30,000 (October-2020)
Complete the following three questions using Microsoft Excel. No other submission format is allowed. Review the grading rubric to confirm you are meeting the assignment requirements.
| Problem 1 | ||
|---|---|---|
| Milwaukee Dairy Company produces cream, whole milk, and 2% milk. The joint cost of producing the three products is SAR 30,000. The split-off quantities and selling prices of each product are as follows: | ||
| Split-off Quantity (Gallons) | Price at Split off (SAR) | |
| Cream | 500 | 20.00 |
| Whole milk | 4,500 | 12.00 |
| 2% milk | 1,000 | 6.00 |
Required: Calculate how much of the joint costs should be allocated to each product using the market value at split off method.
| Problem 2 | ||||
|---|---|---|---|---|
| The following information pertains to Delicious Bakery Company: | ||||
| GIVEN: | Janitorial Dept. | Cafeteria Dept. | Mixing Dept. | Baking Dept. |
| Square feet | 400 | 800 | 3000 | 2000 |
| Number of employees | 10 | 20 | 60 | 100 |
| Department cost (SAR) | 600,000 | 1,000,000 | 3,000,000 | 4,000,000 |
Required: Allocate Janitorial and Cafeteria department costs to mixing and baking departments using the Direct method. Use square feet for allocating janitorial costs and number of employees for allocating cafeteria department costs.
| Problem 3 | ||
|---|---|---|
| Maintenance Hours | Maintenance Cost (SAR) | |
| January | 2,500 | 32,500 |
| February | 1,800 | 29,000 |
| March | 2,800 | 32,000 |
| April | 1,200 | 16,000 |
| May | 1,600 | 22,500 |
| June | 2,200 | 27,000 |
Required:
- Calculate variable cost per unit using the high-low method.
- Calculate fixed costs.
- Calculate estimated costs at 2,700 maintenance hours.
| Problem 4 | |
|---|---|
| Given the following: | |
| Total (SAR) | |
| Sales (40,000 units) | 4,800,000 |
| Variable expenses | 2,880,000 |
| Contribution margin | 1,920,000 |
| Fixed expenses | 1,200,000 |
| Net operating income | 720,000 |
Required:
- Calculate variable expense ratio
- Calculate contribution margin ratio
- Calculate break even sales in Units
- Calculate break even sales in SAR
- How many units must be sold to make a profit of 300,000 SAR?
Management is considering increasing the quality of its units by spending SAR 5 more per unit in variable costs and increasing advertising by SAR 80,000. Management believes these changes will increase unit sales by 20% at the same price.
- Calculate the new operating profit or loss.
- Explain whether management should make the change and why or why not.
You must show all your work for credit.
Sample Problem 4 Solution
A. Variable expenses ratio = Variable expenses / sales
Variable expenses ratio = 2880000 / 4800000 = 0.60 or 60%
B. Contribution margin ratio = Contribution margin / sales
Contribution margin ratio = 1920000 / 4800000 = 0.40 or 40%
C. Break-even sales in units = Fixed cost / Contribution margin per units
Contribution margin per units = 1920000 / 40000 units = 48 per units
Break-even sales in units = 1200000 / 48 = 25000 units
D. Break-even sales in SAR = Fixed cost / Contribution margin ratio
Break-even sales in SAR = 1200000 / 40% = $3000000
E. Target profit units = ( Fixed cost + target profit ) / Contribution margin per units
Target profit units = ( 1200000 + 300000 ) / 48 = 31250 units is needed to get profit of 300000
Given data
Increase in variable exp. by SAR 5 per units
Increase In advet. Exp (fixed cost ) = SAR 80000
Increase in sales by 20%
F. New profit
New Variable cost per units = 2880000 /40000 = 72 + 5 =77
New sales units = 40000 + 20% = 48000
Sales ( 4800000 + 20% ) 5760000
Less: Variable exp. (77 *48000 ) 3696000
Contribution margin 2064000
Less: fixed cost 1200000
Less: advertising exp. 80000
Net operating income after
change
784000
G. Management should make the changes, since the net operating profit would increase by SAR 64000.
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