For six months ended 31st October, 2013, Luanshya Limited (LL), an importer and distributor of one type of printer’s machine has the following transactions in his records. There was an opening balance of 100 units which had a value of K3,900. Date Bought Quantity in Units Cost per Unit K
May 100 41
June 200 50
August 400 51.875
The price of K51 875 each for the August receipt was K6.125 per unit less than the normal price because of the large quantity ordered.
Date Sold Quantity in Units Unit Price Each K
July 250 64
September 350 70
October 100 74
Required:
(a) Prepare the stores ledger records using weighted average, FIFO and LIFO methods, showing clearly inventory balance.
(b) Prepare the trading account for the period to show the gross profit using each of the three methods above.
(c) Based on the calculations in (b) comment on the method which can be regarded as the best measure of profit.
QUESTION TWO
(a) The following was extracted from the standard cost card of Kafue Cement Plc.
Selling price 100kg pocket of cement K360
Direct material cost per 100kg pocket of cement K50
Direct labour cost per 100kg pocket of cement K50
Variable production overhead per 100kg pocket of cement K29
Other relevant cost information extracted from the budgets:
Fixed production costs K9,750,000
Fixed selling and distribution costs K3,456,000
Sales commission 5% of selling price
Sales 90,000 100kg pockets of cement
Required:
i. Calculate the breakeven point both in sales volumes (number of pockets) and sales value. (2 marks)
ii. Calculate the margin of safety both in percentage and in volume. (2marks)
b. Suppose the selling price per pocket of cement was to be increased to K375 and the sales commission increased to 8% and a further K150,000 on advertising.
Required
Calculate the revised breakeven point sales volume based on suggestion in (3) above and comment accordingly.
(c).The following information applies to a company operating in Chilanga. It is the operational results for the year just ended, 2019.
The company, which manufactures a single product coded ‘zeron’, achieved a sales value of K8, 000, 000 for the period under consideration. A unit of ‘zeron’ was being sold at K20. During the period under review, the company operated at 80% capacity.
Suggestions are being made to increase the operating capacity. Details of the cost structure are hereby given:
Direct material K4
Direct labour K4
Variable production overhead K80,000
Variable selling overhead K160,000
Variable distribution overhead K120,000
Fixed production overhead K320,000
Fixed selling overhead K180,000
Fixed distribution overhead K80,000
Fixed administration overhead K1,440,000
Further, sales agents are paid a commission of 5% on sales value for selling 'zeron'.
Required
(i) Compute the company's breakeven point in sales value (2 marks)
(ii) Prepare income statements, given three scenarios depicted hereunder:
Scenario 1
At the present level of sales
Scenario 2
If the unit selling price is reduced by 5% which should increase sales volume by
12.5%
Scenario 3
If the unit selling price is reduced by 10% which should increase sales volume by
25%,
Comment on scenario three above which will stretch the capacity limit (10 marks)