ANSWER THE FOLLOWING MANAGEMENT ACCOUNTING QUESTION.

Question

SK Corporation has provided the following miscellaneous information regarding the operations of financial year 2020;

sh

Sales                                                                           10,000,000

Direct materials used                                                 4,000,000

Direct labor                                                               1,500,000

Fixed manufacturing overheads                                2,000,000

Fixed selling and administration expenses                1,000,000

Gross profit                                                                2,000,000

Net loss                                                                      500,000

Calculate:

(i)  Factory cost of goods sold

(ii) Variable factory overhead

(iii) Variable selling and administration expenses

(iv) Contribution margin in in shillings 

(v) Break-even point in shillings

Answer 1

Answers to SK Corporation questions

i) Factory cost of goods sold

Using the information given/know, we can work backwards or assign formula

Gross profit (given) = 2,000,000 and sales = 10,000,000

Since Cost of goods sold is given by Sales less Cost of goods sold

Then, Cost of goods sold (COGS) = Sales - Gross profit

Therefore, COGS = 10,000,000 - 2,000,000 = 8,000,000

ii) Factory variable overhead

NB: Fixed overhead is given but total overhead is not given. Hence, not enough information is given to

calculated variable overhead

iii) Variable selling and admin expenses

Response is same as for (ii) above

iv) Contribution margin

Contribution margin is given by selling price less variable cost per unit.

Neither selling price nor number of units sold is given, so would be difficult to calculate contribution

margin.

v) Break-even point

This is Total Fixed cost divided by contribution margin

We don't have enough information to calculate contribution margin (see question (iv) above), so we are

unable to calculate Break-even point