Test 1
Jacob Ltd wishes to sell 14,000 units of its product, which has a variable cost of $15 to make and
sell. Fixed costs are $47,000 and the required profit is $23,000.
Calculate the sales price per unit. [10 Marks]
Solution
Required contribution
=
=
=
fixed costs plus profit
47,000 + 23,000
$70,000
Required sales
=
14,000 units
Required contribution per unit sold
Variable cost per unit
Required sales price per unit
$5
15
20
Test 2
Mufaro Company operates a wine outlet in the Boterekwa tourist area of Shurungwi. One gallon
bottles sell for $18. Daily fixed costs are $4 500, and variable costs are $9 per gallon. An average
of 750 gallons are sold day. Mufaro has a capacity of 800 gallons per day.
a). Determine the average cost per gallon. [2 Marks]
($4500/750)= 6 +9 = $15
b). A bus loaded with 40 senior citizens stops by at closing time and the tour director offers
Mufaro $450 for 40 gallons. Mufaro refuses saying that they would lose $3.75 on each gallon. Is
Mufaro correct about the $3.75? Why or why not? [5 Marks]
450/40 = 11.25
$15- 11.25 = $3.75
Mufaro is not correct because the $3.75 includes fixed costs
c). A fund-raising organization has offered Mufaro a one-year contract to buy 300 gallons a day
for $10.75. Should they accept the offer? [5 Marks]
Mufaro has an excess capacity of only $50 gallons a day. He must not accept the offer he would
make a loss on the 250 galoons.
d). In addition to considering the quantitative aspects of your computations, what other
qualitative considerations could influence your decision to reject or accept the offer. [5 Marks]
effect on loyal customers
A firm can accept additional work (esp in times it is short of work) provided sales revenue covers marginal
cost of that work and any additional fixed costs incurred. Although the new work might not show profit on a
full costs basis (where it was given a share of the total fixed costs), it provides an additional contribution
thereby reduce any overall loss (or increase) overall profit. However, in the long term a firm will not survive
unless it covers all its fixed costs.
Test 3
A company has a cash balance of $27,000 at the beginning of March and you are required to
prepare a cash budget for March, April and May having regard to the following information.
Creditors give 1 month credit
Salaries are paid in the current month
Fixed costs are paid one month in arrears and include a charge for depreciation of $5,000 per
month.
Credit sales are settled as follows: 40% in month of sale, 45% in next month and 12 % in the
following month. The balance represents bad debts.
Month
Cash Sales
Credit Sales Purchases Salaries
Fixed
Ovehead
Jan
74,000
55,200
9,000
30,000
February
82,000
61,200
9,000
30,000
March
20,000
80,000
60,000
9,500
30,000
April
22,000
90,000
69,000
9,500
32,000
May
25,000
100,000
75,000
10,000
32,000
[25 Marks]
Test 1
Jacob Ltd wishes to sell 14,000 units of its product, which has a variable cost of $15 to make and
sell. Fixed costs are $47,000 and the required profit is $23,000.
Calculate the sales price per unit. [10 Marks]
Test 2
Mufaro Company operates a wine outlet in the Boterekwa tourist area of Shurungwi. One gallon
bottles sell for $18. Daily fixed costs are $4 500, and variable costs are $9 per gallon. An average
of 750 gallons are sold day. Mufaro has a capacity of 800 gallons per day.
a). Determine the average cost per gallon. [2 Marks]
b). A bus loaded with 40 senior citizens stops by at closing time and the tour director offers
Mufaro $450 for 40 gallons. Mufaro refuses saying that they would lose $3.75 on each gallon. Is
Mufaro correct about the $3.75? Why or why not? [5 Marks]
c). A fund-raising organization has offered Mufaro a one-year contract to buy 300 gallons a day
for $10.75. Should they accept the offer? [5 Marks]
d). In addition to considering the quantitative aspects of your computations, what other
qualitative considerations could influence your decision to reject or accept the offer. [5 Marks]
Test 3
A company has a cash balance of $27,000 at the beginning of March and you are required to
prepare a cash budget for March, April and May having regard to the following information.
Creditors give 1 month credit
Salaries are paid in the current month
Fixed costs are paid one month in arrears and include a charge for depreciation of $5,000 per
month.
Credit sales are settled as follows: 40% in month of sale, 45% in next month and 12 % in the
following month. The balance represents bad debts.
Month
Cash Sales
Credit Sales Purchases Salaries
Fixed
Ovehead
Jan
74,000
55,200
9,000
30,000
February
82,000
61,200
9,000
30,000
March
20,000
80,000
60,000
9,500
30,000
April
22,000
90,000
69,000
9,500
32,000
May
25,000
100,000
75,000
10,000
32,000
[25 Marks]