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Cost separation assignment

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The following is the extract of the Income statement of a Rubber Glove company in Malaysia :

 

 

 

STATEMENTS OF COMPREHENSIVE INCOME

 

2016

 

 

2017

 

 

2018

 

 

2019

 

 

    2020

 

Revenue

 1,377,931,000

 1,529,077,000

 2,079,432,000

 2,053,916,000

 2,314,454,000

 

Cost of sales

-1,150,360,000

-1,155,975,000

-1,640,550,000

-1,818,767,000

-1,851,563,200

 

 

Gross profit

    227,571,000

    373,102,000

     438,882,000

    235,149,000

    462,890,800

 

 

 

 

 

 

 

 

 

Other Income

8,973,000

        6,979,000

       10,372,000

       26,689,000

       15,634,000

 

 

Selling and distribution expenses

    -46,520,000

     -95,484,000

   -66,008,000

      -67,121,000

      -71,401,000

 

 

Administration expenses

    -46,155,000

        -53,091,000

   -80,987,000

       60,495,000

    -178,910,800

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Profit

   143,869,000

 231,506,000

  302,259,000

     134,222,000

      228,213,000

 

 

 

 

 

 

 

 

 

 

Interest income

                     0

                  0

       4,288,000

       10,573,000

        12,340,000

 

 

Finance cost

    -10,151,000

   -8,530,000

        -639,000

           -242,000

            -113,000

 

 

Share of loss/profit

           909,000

      -984,000

         -947,000

            917,000

             262,000

 

 

Profit before tax

    134,627,000

 221,992,000

   304,961,000

     145,470,000

      240,702,000

 

 

Taxation   

     -26,524,000

  -53,922,000

    -54,550,000

      -30,338,000

       -33,417,000

 

 

Profit / (Loss) after tax

    108,103,000

  168,070,000

    250,411,000

     115,132,000

       207,285,000

 

 

 

 

 

 

 

 

 

 

 

You are required :

1.     Separate the fixed and variable costs of the company

2.     Determine the projected Fixed overheads / Operating expenses of the company for 2023

3.     Determine the projected Profit margin of the company’s manufacturing operation

4.     Determine the Breakeven point of the company’s manufacturing now ? What is the current level of Safety margin of the company ?

5.     Determine the Degree of Operating Leverage  (DOL) of the company ?

6.     Determine the degree of Financial Leverage (DOL) of the company ?

7.     If the company have been selling its rubber glove at an avverage price of RM 0.40 per pair, what could be the lowest price that company could accept for a special order of say 500,000,000 gloves if the company could create the cpacity conveniently without increasing its operating costs ?

 

8.     Based on the average variable costs of manufacturing per pair, could the company consider taking over a manufacturing space / capacity that could produce at RM 0.15 per pair. ?

 

 

 

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[Solved] Cost separation assignment

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  • Submitted On 02 Nov, 2021 05:03:50
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QUESTION 1 FIXED AND VARIABLE COST YEAR 2016 (RM) 2017 (RM) 2018 (RM) 2019 (RM) 2020 (RM) FIXED COST Administration Expenses 46,155,000 53,091,000 80,987,000 60,495,000 178,910,800 Finance cost 10,151,000 8,530,000 639,000 242,000 123,000 Taxation 26,524,000 53,922,000 54,550,000 30,338,000 33,417,000 TOTAL FIXED COST 82,830,000 115,543,000 136,176,000 91,075,000 212,450,800 increase of expenses = total fixed cost (2017) - Total Cost (2016) VARIABLE COST % increase = Selling & distribution Expenses 46,520,000 95,484,000 66,008,000 67,121,000 71,401,000 QUESTION 2 PROJECTED FIXED EXPENSES/ OPERATING EXPENSES FOR 2023 Projected Fixed Expenses: 2016 (RM) 2017 (RM) 2018 (RM) 2019 (RM) 2020 (RM) 2023 (RM) Increase of Fixed Expenses 0 32,713,000 20,633,000 -45,101,000 121,375,800 % of increase 70% 22% -68% 181% Average increase per year 51.25% In 2023 increase over 2020 i.e for 3 years 3*51.25= 153.75% Projected Fixed Expenses in 2023 307,991,093 Projected Operating Expenses Sales Revenue 1,377,931,000 1,529,077,000 2,079,432,000 2,053,916,0...
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Cost separation assignment

QUESTION 1 FIXED AND VARIABLE COST YEAR 2016 (RM) 2017 (RM) 2018 (RM) 2019 (RM) 2020 (RM) FIXED COST Administration Expenses 46,155,000 53,091,000 80,987,0...

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