Question 1
Inspired Ltd manufactures spurs. Factory overhead is applied to the production of spurs using a predetermined rate based on budgeted direct labour hours. Budgeted cost of production (for 30,000 units) for the year to 30 June 2015 was:
| Direct materials | $ 225,000 |
| Direct labour (6,000 hours) | 75,000 |
| Fixed factory overhead | 39,000 |
| Variable factory overhead | 30,000 |
Actual factory overhead incurred in the year to 30 June 2015 was $72,000. Actual direct labour hours were 6,100.
Required:
( a ) Calculate the factory overhead application rate (per direct labour hour) for the year.
( b ) Calculate the total amount of factory overhead for the year applied to the production of spurs.
( c ) Analyse under or over-applied overhead into two variances. Your answer must name the two variances, and indicate whether they are favourable/unfavourable.
Question 2
Mrs Mac sells burgers and is considering whether to open a second outlet. The burgers have a single selling price and identical costs, regardless of where they are produced.
The following data is supplied:
Variable data per burger:
Selling Price $6.00
Purchase Costs $3.90
Selling & Promotional Costs $0.30
Annual Fixed Costs:
Rent $60,000
Salaries $200,000
Other $100,000
Required: (Consider each part independently)
( a ) Calculate the annual break even point in unit sales.
( b ) If 220,000 burgers were sold, calculate the profit or loss.
( c ) Calculate how many burgers must be sold to achieve a target profit before tax of $167,940.
( d ) Calculate how many burgers need to be sold to achieve an after tax profit of $126,000 if the tax rate is 30%.
( e ) If the selling costs are $0.60 per unit, calculate the annual break even point in dollar sales.
( f ) If the budget is to sell 300,000 burgers, what is the Margin of Safety?
( g ) List two assumptions which need to be considered regarding Cost volume profit analysis.
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