BU1902 Accounting for Decision Making

Published : 20-Sep,2021 | Views : 10

Question:

The Dorquay Hotel has twenty rooms available for rent. During the month of December its average room rate is expected to be $180 and its room occupancy 90 per cent. Due to the holiday season in January, the room rate is to be increased by 10 per cent, and the occupancy is expected to be 95 per cent. In February, no further room rate increase is planned and occupancy is expected to be 85 per cent.

Calculate the budgeted room revenue for each of the three months (December, January & February).

Discuss how the management of the Dorquay Hotel could have estimated the occupancy rate.

Erle Smith is the financial controller with Practical Solutions Ltd, an entity that sells software products to accounting firms and small businesses. Mr Smith is analysing a number of software packages that focus on budgeting. He needs to select a package he can recommend to his clients. Each software vendor is keen to have their software selected as it will result in a significant increase in sales for their company.

AnitahLoh is a salesperson for software company Dogto Ltd. She has asked Mr Smith to go to Los Angeles to analyse her company’s software package properly, and the programming experts there can give him a thorough demonstration. Ms Loh also suggested Mr Smith take his family, so he feels relaxed in a foreign country and can undertake his analysis without worrying about being away from his family. Dogto Ltd would pick up the expenses for the trip.

Required (your individual response)

Do you think Mr Smith should take the trip Outline any ethical concerns involved.
What would be the advantages and disadvantages to Practical Solutions Ltd of having an employee code of conduct What measures might be included in such a code of conduct

Chloe Enterprises operates a single-product entity. Data relating to the product for 2015 were as follows.

Annual volume	35 000 units
Selling price per unit	$60
Variable manufacturing cost per unit	$ 28
Annual fixed manufacturing costs	$ 120 000
Variable marketing and distribution costs per unit	$ 12
Annual fixed non-manufacturing costs	$ 370 000

Required (group)

Calculate the break-even in both dollars and units for 2015.
Calculate the margin of safety in both units and sales dollars.
Calculate the profit achieved in 2015 given the annual volume of 32 000 units..
Changes in marketing strategy are planned for 2016. This would increase variable marketing and distribution costs by $4 per unit, and reduce fixed non-manufacturing costs by $80 000 per year.

Calculate the units that would need to be sold in 2016 to achieve the same profit as in 2015.

Would you recommend the change proposed in d. above Explain.

Answer:

Annual volume	35000
Selling price per unit	$60.00
Variable manufacturing cost per unit	$28.00
Annual fixed manufacturing costs	$1,20,000.00
Variable marketing and distribution costs per unit	$12.00
Annual fixed non-manufacturing costs	$3,70,000.00
Total Fixed Costs	$4,90,000.00
Total Variable costs	$40.00
Contribution Margin	$20.00
Contribution Margin Ratio	33.33%
Expected annual sales	$21,00,000.00
In units	24500
In Dollars	$14,70,000.00
In units	175
In Dollars	$6,30,000.00
Annual Volume	32000
Contribution Margin	$20.00
Total Profit	$6,40,000.00
Revised variable marketing and distribution costs per unit	$16.00
Revised Annual fixed non-manufacturing costs	$2,90,000.00
Total Fixed Costs	$4,10,000.00
Total Variable costs	$44.00
No of units	40000