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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