Assignment Task:
Case 1: Muscat Furniture Manufacturing Company produces and sells two types of furniture: home furniture and office furniture since 2014. The income statement for 2018 is presented below:
|
|
Home Furniture "OMR"
|
Office Furniture "OMR"
|
Total Company "OMR"
|
|
Sales
|
1,000,000
|
700,000
|
1,700,000
|
|
Variable costs
|
-600,000
|
-420,000
|
-1,020,000
|
|
Contribution margin
|
400,000
|
280,000
|
680,000
|
|
Direct fixed costs:
|
|
|
|
|
Salaries for production managers
|
-200,000
|
-200,000
|
-400,000
|
|
Common fixed costs:
|
|
|
|
|
Insurance
|
-14,706
|
-10,294
|
-25,000
|
|
Cleaning
|
-3,529
|
-2,471
|
-6,000
|
|
Company's President salary
|
-76,470
|
-53,530
|
-130,000
|
|
Net income
|
105,295
|
13,705
|
119,000
|
The office furniture product line takes up approximately 50% of the company's retail floor space. The CEO of the company is trying to decide whether the company should stop producing office furniture and just concentrate on home furniture. The Cost Accounting Manager provided the CEO with the following information to help him make the right decision:
- If the company stopped producing office furniture, direct fixed costs can be avoided.
- If the company stopped producing office furniture, sales and cost of sales of home furniture can increase by 20% without affecting all fixed costs.
- Common fixed costs are allocated based upon number of employees and this allocation is considered arbitrary and inaccurate.
Requirement: The CEO of the company could not make a decision based upon the information provided by the Cost Accounting Manager, so he asked you (as a senior manager) to analyze the situation and recommend whether the Company should stop producing office furniture according to the financial benefits of stopping the office furniture production line.
Case 2: Kaboura Manufacturing Company was established in February, 2018 to produce and sell only product (X) as a start. The internal experts of the company for product (X) set the following costs as targets:
- Monthly fixed costs 750,000 OMR
- Variable cost per unit 60 OMR
- Monthly production 20,000 units
Based upon the above information, the management of the Company has set the following targets:
- Target selling price 150 OMR per unit
- Monthly target profits 100,000 OMR
Requirement 1: Even though the level of competition is low, the CEO of the company is very concerned about the selling price of the product; he thinks that the price might be high, so he asked you (as a senior manager) to determine the lowest selling price that the company can sell all monthly production and achieve the target profit set by the internal experts.
In March, 2018, the company decided to sell product (X) to one customer only. The following customers offered to purchase the following quantities from product (X). The offers are presented below:
|
Office received
|
Quantity
|
Price offered
|
|
Customer A
|
19,000 units
|
106 OMR
|
|
Customer B
|
15,000 units
|
115 OMR
|
|
Customer C
|
17,000 units
|
109 OMR
|
|
Customer D
|
20,000 units
|
103 OMR
|
Requirement 2: The president of the company asked you to recommend which offer to accept from the above received offers knowing that the cost of storing one unit of product (X) will be 14 OMR.