Contribution Margin Ratio Assignment Sample

• Subject Name : Accounting and Finance

Job Costing - Solution 1

a) Calculate the contribution per unit and the contribution margin ratio.

b) Calculate the break-even point in number of food items and in dollars of revenue.

c) Calculate the sales (in units) needed to earn a target annual profit of $2,000.

d) There will be a revised breakeven point for the new proposal or offer for vending machine rental proposal, one can analyse both the available options and where the breakeven point is less should be adopted as the final choice or decision, breakeven point is point where there is no loss no gain and company or vendor will be able to recover its fixed cost any sales above this point is considered to be profitable

Revised fixed cost = (Rental + Labour +Other Fixed Exp) = $9000+$10000+$2000= $21000

Revised Contribution Margin = (Selling price – Variable Cost) = 2-1.6-.05 = .35 (revised Contribution/unit)

Revised Break Even Point in unit = $21000/.35 = 60000 units

So, in this case there is point of indifference for both the option for breakeven point, so company can see now that to earn the profit level of 2000, how much units are required i.e (21000+2000)/.35= 65714. So first one is better and rental option may not be first choice at long run.

Job Costing - Solution 2

(a) - Job costing is an accounting method in which costs and revenues are tracked on the basis of each specific Job. Every job is treated as separate entity and costing is done for individual job. It is generally done for those industries which provides goods or services on client specification basis e,g furniture industry for workstation or Interior Designer. The main purpose of job costing is that it enables standardized reporting with regards to profitability by job to job basis. It allows business to track costs by individual jobs being done by it.

(b) - In plain and simple words overheads can be defined as those ongoing business expenses that are not directly attributable to producing a product or a service or is not incurred when doing a job. In other words they are business costs that are related to the day-to-day running of the business. It should be noted that overheads are not the same as operating expenses. While operating expenses can be traced back to a specific business activity or a specific cost unit overheads cannot be traced back to a business activity. Thus we can say that overheads provide support to the overall activities of a business that generates revenue.

Four examples of overheads which are generally applicable:-

• Rent – William must be renting a place for the gate replacement business. The place must be serving as the office as well as the place in which all tools and equipment are stored. The rental expenses are an overhead cost for this gate replacement business.
• Depreciation(Tools and Equipment’s) – William must be using some tools and equipment for the purpose of replacing gates and the depreciation amount on these assets will be an overhead expense.
• Office Supplies Cost– It will include all cost of office supplies that is being consumed by William and will include stationary items and other items of office supplies.
• Cost of Advertising and Marketing – It will include all costs being incurred by William to market the gate replacement business and attract new clients.

(c) Total Number of works hours for William = 52 weeks/annum – 4 break weeks = 48 weeks

So Total hours worked in a year = 8 hours /day * 5 days/ week * 48 weeks /yr = 1,920 Hrs/Annum

Total overhead cost (given in case study) = $50,000

Indirect labour rate = $50,000/1920 hours = $26.04 /hour. So, William can start charging a total of $30+$26.04 = $56.04 /hour as his labour charges for all his future jobs.

And e.g William could have charged an amount equal to material cost + total labor cost = $10,000 + (80 hours * $56.04 per hour) for this current job also

= $14,483.33

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