Cost-volume-profit analysis Company Z Assignment Help
1.Company Z has two products (Z1 and Z2) with the following unit costs for a period:
|Variable production overheads||0.70||0.80|
|Fixed production overheads||1.10||1.10|
|Variable selling overheads||0.15||0.20|
|Fixed selling overheads||0.50||0.50|
Production and sales of the two products for the period were:
|(`000 units)||(`000 units)|
a)Explain whether, and why, absorption or marginal costing would show a higher company profit for the period, and calculate the difference in company profit depending upon which method is used.
i.) breakeven sales units; and
ii.) breakeven sales revenue (based on average selling price) for the period (to the nearestRM`000) with regards to the above sales mix.
2.The Ronowski Company has three product lines of belts—A, B, and C— with contribution margins of $3, $2, and $1, respectively. The president foresees sales of 200,000 units in the coming period, consisting of 20,000 units of A, 100,000 units of B, and 80,000 units of C. The company’s fixed costs for the period are $255,000.
a)What is the company’s breakeven point in units, assuming that the given sales mix is maintained?
b)If the sales mix is maintained, what is the total contribution margin when 200,000 units are sold? What is the operating income?
c)What would operating income be if 20,000 units of A, 80,000 units of B, and 100,000 units of C were sold? What is the new breakeven point in units if these relationships persist in the next period?
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3.Swishing Shoe Company of Durham, North Carolina, has received an order for 50,000 cartons of athletic shoes from Southampton Footware, Ltd., of England, payment to be in British pounds sterling. The shoes will be shipped to Southampton Footware under the terms of a letter of credit issued by a London Bank on behalf of Southampton Footware. The letter of credit specifies that the face value of the shipment, £400,000, will be paid 120 days after the London bank accepts a draft drawn by Southampton Footware in accordance with the terms of the letter of credit. The current discount rate in London on 120-day banker’s acceptances is 12% per annum, and Southampton Footware estimates its weighted average cost of capital to be 18% per annum. The commission for selling a banker’s acceptance in the discount market is 2.0% of the face amount.
a. Would Swishing Shoe Company gain by holding the acceptance to maturity, as compared to discounting the banker’s acceptance at once?
b. Does Swishing Shoe Company incur any other risks in this transaction?
4.USAco is a domestic corporation that manufactures products in the U.S. for distribution in the U.S. and abroad. During the current year, USAco derives a pre-tax profit of $10 million, which includes $1 million of foreign-source income derived from a country X sales office that is considered an unincorporated branch for U.S. tax purposes. The country X corporate income tax rate is 50% and the U.S. tax rate is 35%.
a)What would be the worldwide effective tax rate on the $1 million of foreign profits, assuming the U.S. taxes the worldwide income of domestic corporations, but allows an unlimited credit for foreign income taxes?
b)What would be the worldwide effective tax rate on the $1 million of foreign profits, assuming the U.S. allows a credit for foreign income taxes, but the credit is limited to the U.S. tax attributable to foreign-source income?
c)How would your answer to part (b) change if the foreign tax rate was 30% rather than 50%?
5.Corcovado Pharmaceutical’s cost of debt is 7%. The risk-free rate of interest is 3%. The expected return on the market portfolio is 8%. After effective taxes, Corcovado’s effective tax rate is 25%. Its optimal capital structure is 60% debt and 40% equity.
a. If Corcovado’s beta is estimated at 1.1, what is its weighted average cost of capital?
b. If Corcovado’s beta is estimated at 0.8, significantly lower because of the continuing profit prospects in the global energy sector, what is its weighted average cost of capital?
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