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Thread: "MGT502 GDB 2" July 2010

  1. #1
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    27 "MGT502 GDB 2" July 2010

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    MilkyWay, is a famous chocolate brand and the company always prefers to use pop stars as the "Brand Ambassador" to promote their product among the public. On the other hand Xyer Company was facing losses until they introduced a famous dermatologist in their TV commercial that influenced the decision of the consumers to buy their skin care products.

    Q. Name the power base used by companies in the above mentioned situations.


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    Solution Question No. 1
    Part-1
    Delta Corporation
    Income Statement (Under Absorption Costing System)
    For the Quarter Ending -------------

    (Rupees)
    Sales (20,000 * 30) 600,000
    Less: Cost of Goods Sold
    Opening Stock 0
    Add: Production Cost (15.50 * 24,000) 372,000
    Less: Closing Stock (15.50 * 4,000) (62,000) 310,000
    Gross Profit 290,000
    Less: Operating Expenses
    Selling & Administrative Expenses (Fixed) 60,000
    Net Profit 230,000

    Working:
    Production Cost (Total) = 80,000+100,000+120,000+72,000 = 372,000
    Per Unit Production Cost = 372,000/24,000 = 15.50

    Part-2Delta Corporation
    Income Statement (Under Direct Costing System)
    For the Quarter Ending -------------

    (Rupees)
    Sales (20,000 * 30) 600,000
    Less: Variable Cost of Goods Sold
    Opening Stock 0
    Add: Variable Production Cost (12.50 * 24,000) 300,000
    Less: Closing Stock (12.50 * 4,000) (50,000) 250,000
    Gross Profit 350,000
    Less: Fixed Expenses
    Factory Over Heads (Fixed) 72,000
    Selling & Administrative (Fixed) 60,000 132,000
    Net Profit 218,000

    Working:
    Total Variable Cost = 80,000+100,000+120,000 = 300,000
    Per Unit Cost (Variable) = 300,000/24,000 = 12.50
    Solution Question No. 2

    Net Profit Calculation (Contribution Margin Approach)

    a) Existing Plan
    (Rupees)
    Sales (100 * 100) 10,000
    Less: Variable Cost (70 * 100) (7,000)
    Contribution Margin 3,000
    Less: Fixed Cost (2,000)
    Net Profit 1,000



    b) New Plan (Increase Sales by 10 Units)
    (Rupees)
    Sales (90 * 110) 9,900
    Less: Variable Cost (70 * 110) (7,700)
    Contribution Margin 2,200
    Less: Fixed Cost (2,350)
    Net Profit / (Loss) (150)

    Working:
    10% of 100 Units = 100 * 10% = 10
    Per Unit Existing Sales Price = 100
    Per Unit Sales Price after 10% Decreased Sales Price = 100 10 = 90

    Advice by Management Accountant:
    In this case, the new plan will not be feasible for the company to adopt as if the company adopts the new plan, it will suffer the loss instead of making any profit.
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