EAST AFRICA COLLEGE

POST GRADUATE PROGRAM FOR MBA

Course Name: Accounting for Managers
Course Code: (MBA 682)
Group Assignment One (1)
Submitted to: Feleke Tefere (PhD Scholar)
Year: 10/5/24
st
Term: Yrs. 2nd Sem
Address: Adama-Ethiopia
Accounting for Managers Group Assignment One (1)
Name of the Students: ID No. Dept.
1, Werdi Abdella PGR/00241/15 MBA
2, Ahmadnur Abdoo PGR/00243/15 MBA
Q1. Arian Carpet Cleaners completed the following transactions during month of May
2023.

May 1. Issued shares for $35,000, as initial investment in Arian Carpet Cleaners
1. Purchased truck $6000, paid $2000, remaining on account.
2. purchased supplies on account $1500.
5. Paid for insurance for 12 months $1200.
14. provided services to customers on account, $4800.
18. paid creditors on account $2000.
20.Paid salary expense of the month, $7000.
21.Collected $3800 from credit customers.
28. provided services to customers on account, $2500.
31. Paid advertising expense, $2000.
31. paid dividend, $3000.
Instructions

a. Journalize the transactions.

b. Prepare separate ledger for each Account.
Prepare Unadjusted Trial Balance on May 31, 2023.
c. Prepare worksheet and Record adjustment entries.
i. Balance of Supplies on hand on May 31, 2023 was $400.
ii. Depreciation of truck was $200.
iii. Accrued salary, not paid was $ 700.
iv. Service provided on account, not recorded $1000.
v. Insurance premium expired during the month was not recorded.
d. Prepare Corresponding Financial statements.
e. Record Closing entries.
f. Prepare Post-closing Trial Balance.
 Q2. The following table indicates financial ratios output of Cooke NV. Compute three years
average and interpret against the Industry average.

Industry
RATIOS YEARS
Average
2021 2020 2019
2.74
CURRENT RATIO Current Asset/Current Liabilities 2.34 1.17 2.33
(CA-INVENTORIES)/Current 1.00
ACID TEST RATIO Liabilities 0.84 0.39 0.85
1.33
DEBT TO EQUITY Total Debt/Total Liabilities 0.79 4.82 1.21
0.50
DEBT TO TOTAL ASSET Total LIAB/Total Asset 0.44 0.83 0.55
0.35
TOTAL CAPITALIZATION Long Term Debt/Total Equity 0.20 1.47 0.49
4.25
INTEREST COVERAGE EBIT/Interest Cost 7.04 - 4.34
Net Sales/Receivables or 9.00
RECEIVABLE TURNOVER Average Receivables 8.01 9.55 9.77
AVERAGE COLLECTION 40.55
PERIOD 365/Receivable Turnover 45.5 38.24 37.35
5
Net Sales/Inventory or 6.10
INVENTORY TURN OVER Average Inventory 3.42 4.29 4.00
Net Sales/Total Asset or 2.60
TOTAL ASSET TURNOVER Average Asset 2.01 2.10 2.34
0.17
GROSS PROFIT MARGIN Gross profit/ Net sales 0.16 0.08 0.17
0.03
NET PROFIT MARGIN Net Income/ Net sales 0.04 - 0.03
9.10
RETURN ON ASSET Net Income/ Total Asset 0.07 - 0.06
0.18
RETURN ON EQUITY Net Income/ Total Equity 0.13 - 0.13
RETURN ON 0.05
INVESTEMENT(DU Asset Turnover*Net Margin 0.07 - 0.06
)
Asset Turnover*Net 0.13
RETURN ON EQUITY(DU) Margin*Asset to Equity Ratio 0.13 - 0.13

Q3. Company ‘A’ wants to achieve a target profit of $300,000 in 2024. A unit of its product is sold
for $50. A variable cost of a unit is $ 30. Total fixed cost of production is $200,000 per year.

a. What’s contribution margin percentage?

b. Estimate Break even quantity and Break even sales.
c. What is sales volume necessary in order to achieve profit of $300,000?
d. Assume that budgeted sales are 20,000 units. What is margin of safety at budgeted sales
 units?
Q4. The following information is available for the Orbit Company for August 2020.
Finished Goods-July 31, 2020...................$32,000

Ending Finished goods-August 31, 2020. .$35,000

Units manufactured in 2002...................4500

Direct materials used......................................$54,000

Direct labor used.............................................$85,000

Indirect manufacturing costs:

Indirect materials......15,000 Repair and maintenance ….20,

Indirect labor............11,000 000 Miscellaneous.....7000
Depreciation.............30,000
Sales.........................700,000
Electric power.........40,000
Property taxes & Insurance Administrative expenses. .22,00
........................................
5,000
Requirements
 A,Prepare an Income Statement and separate Schedule of Cost of Goods sold for
the Orbit Company for August 2020.
B,Assume beginning and ending WIP inventory of 2020 were $ 11,500 and $ 9000
respectively, compute total cost of goods manufactured and unit cost of goods
manufactured.

Q1. SOLUTIONS
Q.1 (a)
General Journal J1

Date Account titles and Explanations Ref. Debit (Dr) Credit (Cr)
2023 Cash 101 35,000
May 1 Common stock 311 35,000
(Issued shares of stock for cash)
May 1 Truck 157 6,000
Cash 101 2,000
Accounts payable 201 4,000
(Purchased Truck paid in cash and balance on account)
May 2 Supplies 126 1,500
Accounts Payable 201 1,500
(Purchased Supplies on account)
May 5 Prepaid Insurance 130 1,200
Cash 101 1,200
(Paid Insurance in cash for 12 months)
May 14 Accounts Receivable 112 4,800
Service Revenue 400 4,800
(Provided Service for Customer on account)
May 18 Accounts Payable 201 2,000
Cash 101 2,000
(Paid cash for previous amount purchased on account)
May 20 Salary and Wages Expense 726 7,000
Cash 101 7,000
(Paid in cash for Salary of the month)
May 21 Cash 101 3,800
Accounts Receivable 112 3,800
(Received cash for service provided)
May 28 Accounts Receivable 112 2,500
Service Revenue 400 2,500
(Provided Services for Customer on account)
May 31 Advertising Expense 682 2,000
Cash 101 2,000
(Paid cash for advertisement)
May 31 Dividends 332 3,000
Cash 101 3,000
(Paid Dividends in cash for Shareholders)

Q.1 (b) Posting (From Journal to General Ledger account)

General Ledger account

Cash No.101
Date Explanations Ref. Debit (Dr) Credit (Cr) Balance
2023
May 1 J1 35,000 ___ 35,000
1 J1 ___ 2,000 33,000
5 J1 ___ 1,200 31,800
18 J1 ___ 2,000 29,800
20 J1 ___ 7,000 22,800
21 J1 3,800 __ 26,600
31 J1 ___ 2,000 24,600
31 3,000 21,600

Accounts Receivable No.112

Date Explanations Ref. Debit (Dr) Credit (Cr) Balance

2023
May 14 J1 4,800 ____ 4,800
21 J1 ____ 3,800 1,000
28 J1 2,500 ____ 3,500

Supplies No.126
 Date Explanations Ref. Debit (Dr) Credit (Cr) Balance
2023
May 2 J1 1,500 ____ 1,500

Prepaid Insurance No.130

Date Explanations Ref. Debit (Dr) Credit (Cr) Balance

2023
May 5 J1 1,200 ____ 1,200

Equipment No.157

Date Explanations Ref. Debit (Dr) Credit (Cr) Balance

2023
May 1 J1 6,000 ____ 6,000

Account Payables No.201

Date Explanations Ref. Debit (Dr) Credit (Cr) Balance

2023
May 1 J1 ___ 4,000 4,000
2 J1 ___ 1,500 5,500
18 J1 2,000 ____ 3,500

Common Stock No.311

Date Explanations Ref. Debit (Dr) Credit (Cr) Balance

2023
 May 1 J1 ____ 35,000 35,000

Dividends No.332

Date Explanations Ref. Debit (Dr) Credit (Cr) Balance

2023
May 31 J1 3,000 ____ 3,000

Service Revenue No.400

Date Explanations Ref. Debit (Dr) Credit (Cr) Balance

2023
May 14 J1 ____ 4,800 4,800
28 J1 ____ 2,500 7,300

Salary and Wages Expenses No.726

Date Explanations Ref. Debit (Dr) Credit (Cr) Balance

2023
May 20 J1 7,000 ____ 7,000

Advertising Expenses No.682

Date Explanations Ref. Debit (Dr) Credit (Cr) Balance

2023
 May J1 2,000 ____ 2,000
31

Arian Carpet Cleaners

Unadjusted Trial Balance
For the month Ended on May 31,2023

Account Title Debit Credit

Cash 21,600 ____
Accounts Receivable 3,500 ____
Supplies 1,500 ____
Prepaid Insurance 1,200 ____
Equipment 6,000 ____
Accounts Payable ____ 3,500
Common Stock ____ 35,000
Dividends 3,000 ____
Service Revenue ____ 7,300
Salary and Wages Expense 7,000 ____
Advertising Expense 2,000 ____
45,800 45,800
 Q1.c. Prepare WorkSheet
Arian Carpet Cleaners
Worksheet
For the month Ended on May 31,2023
Account Titles Trial Balance Adjustments Adjusted Trial Income Statement Balance Sheet
Balance
Dr Cr Dr Cr Dr Cr Dr Cr Dr Cr
Cash 21,600 21,600 21,600
Accounts Receivables 3,500 (iv) 1,000 4,500 4,500
Supplies 1,500 (i) 1,100 400 400
Prepaid Insurance 1,200 (v) 100 1,100 1,100
Equipment 6,000 6,000 6,000
Account Payable 3,500 3,500 3,500
Common Stock 35,000 35,000 35,00

Dividends 3,000 3,000 3,000

Service Revenue 7,300 (iv)1000 8,300 8,300

Salaries and Wages 7,000 (iii) 700 7,700 7,700

Expense
Advertising Expenses 2,000 2,000 2,000
Total 45,800 45,800

Supplies Expense (i) 1,100 1,100 1,100

Insurance Expense (v) 100 100 100

Accumulated (ii) 200 200 200

Depreciation
Depreciation Expense (ii) 200 200 200

Salaries and Wages (iii) 700 700 700

Payable
Total 3,100 3,100 47,700 47,700 11,100 8,300 36,600 39,400

Net Loss 2,800 2,800

Total 11,100 11,100 39,400 39,400

 c. Adjustment
Adjusting Entries J2

Date Account titles and Explanations Ref. Debit (Dr) Credit (Cr)
2023 Supplies Expense 631 1,100
May 31 Supplies 126 1,100
(To record supplies used 1,500-400)
May 31 Depreciation Expense 711 200
Accumulated Depreciation-Truck 158 200
(To Record Depreciation on Truck)
May 31 Salaries and Wages Expense 726 700
Salaries and Wages Payable 212 700
(To record Accrued Salaries and Wages)
May 31 Accounts Receivable 112 1,000
Service Revenue 400 1,000
(To Record Service provided on account previously not
recorded)
May 31 Insurance Expense 722 100
Prepaid Insurance 130 100
(To record prepaid Insurance expired)

Post Adjusting entries to ledger accounts

Account Receivable No.112

Date Explanations Ref. Debit (Dr) Credit (Cr) Balance

2023
May 14 J1 4,800 ____ 4,800
21 J1 ____ 3,800 1,000
28 J1 2,500 ____ 3,500
31 J2 1,000 ____ 4,500
Supplies No.126

Date Explanations Ref. Debit (Dr) Credit (Cr) Balance

2023
May 2 J1 1,500 ____ 1,500
31 J2 1,100 400

Prepaid Insurance No.130

Date Explanations Ref. Debit (Dr) Credit (Cr) Balance

2023
May 5 J1 1,200 ____ 1,200
31 J2 100 1,100

Accumulated Depreciation No.158

Date Explanations Ref. Debit Credit (Cr) Balance

(Dr)
2023
May 31 J2 ____ 200 200

Salaries and Wages Payable No.212

Date Explanations Ref. Debit Credit (Cr) Balance

(Dr)
 2023
May 31 J2 ____ 700 700

Service Revenue No.400

Date Explanations Ref. Debit (Dr) Credit (Cr) Balance

2023
May 14 J1 ____ 4,800 4,800
28 J1 ____ 2,500 7,300
31 J2 1,000 8,300

Supplies Expenses No.631

Date Explanations Ref. Debit (Dr) Credit (Cr) Balance

2023
May 31 J2 1,100 ___ 1,100

Insurance Expenses No.722

Date Explanations Ref. Debit (Dr) Credit (Cr) Balance

2023
May 31 J2 100 ___ 100
 Depreciation Expenses No.711

Date Explanations Ref. Debit Credit (Cr) Balance

(Dr)
2023
May 31 J2 200 ___ 200
No.711

Date Explanations Ref. Debit (Dr) Credit (Cr) Balance

2023
May 20 J1 7,000 ___ 7,000
31 J2 700 ___ 7,700
Salaries and Wages Expenses No.726

d. Preparing Corresponding Financial Statement

Arian Carpet Cleaners
Adjusted Trial Balance
For the month Ended on May 31,2023

Account Title Debit Credit

Cash $ 21,600 ____
Accounts Receivable 4,500 ____
Supplies 400 ____
Prepaid Insurance 1,100 ____
Equipment 6,000 ____
Accumulated Depreciation ____ $ 200
Accounts Payable ____ 3,500
Salaries and Wages Payable ____ 700
Common Stock ____ 35,00
Dividends 3,000 ____
Service Revenue ____ 8,300
Salary and Wages Expense 7,700 ____
Supplies Expenses 1,100 ____
Advertising Expense 2,000 ____
Insurance Expenses 100 ____
Depreciation Expenses 200 _____
47,700 47,700

Arian Carpet Cleaners

Income Statement
For the month Ended on May 31,2023
Revenue
Service Revenue 8,300
Expenses
Salaries and Wages Expense 7,700
Supplies Expense 1,100
Insurance Expense 100
Advertising Expense 2,000
Depreciation Expense 200
Total Expenses 11,100
Net Loss ( 2,800)

Arian Carpet Cleaners

Retained Earnings Statement
For the month Ended on May 31,2023

Retained Earnings, May 1 $_0_

Add: Net Loss (2,800)

Less: Dividend 3,000

Retained Earnings, May 31 (5,800)

Arian Carpet Cleaners

Owner’s Equity Statement
For the month Ended on May 31,2023
Owner’s Capital, May 1 $ _0_
Add: Investments 35,000
Net Income (or net Loss) (2,800)
Less: Dividend 3,000
Owner’s Capital, May 31 29,200

Arian Carpet Cleaners

Balance Sheet
For the month Ended on May 31,2023

Assets
Cash $ 21,600
Accounts Receivable 4,500
Supplies 400
Prepaid Insurance 1,100
Equipment $ 6,000
Less: Accumulated Depreciation__Equipment 200 5,800

Total Assets $ 33,400

Liabilities And Stockholders’ Equity

Liabilities
Accounts Payable $ 3,500
Salaries and Wages Payable 700
Total Liabilities $ 4,200
Stockholders’ Equity
Common Stock 35,000
Retained earnings (5,800)
Total Labilities and Stockholders’ equity $ 33,400

e. Record Closing Entries

Closing Entries J3

Date Account titles and Explanation Ref. Debit Credit

2023 Service Revenue 400 8,300
May 31 Income Summary 350 ___ 8,300
(To Close Revenues)
2023 Income Summary 350 11,100
May 31 Supplies Expenses 631 ___ 1,100
Insurance Expense 722 ___ 100
Depreciation Expenses 711 ___ 200
Advertising Expenses 682 ___ 2,000
Salaries and Wages Expenses 726 ___ 7,700
(Close Expenses to Income Summary)
2023 Owner’s Capital 311 2,800
May 31 Income Summary 350 ___ 2,800
(To close Net loss to Capital)
2023 Owner’s Capital 311 3,000
May 31 Owner’s Drawings 332 ___ 3,000
(To Close Drawing’s to Capital)
f, Post-Closing Trial Balance
Arian Carpet Cleaners
Post-Trial Balance
For the month Ended on May 31,2023

Account Title Debit Credit

Cash $ 21,600 ____
Accounts Receivable 4,500 ____
Supplies 400 ____
Prepaid Insurance 1,100 ____
Equipment 6,000 ____
Accumulated Depreciation ____ $ 200
Accounts Payable ____ 3,500
Salaries and Wages Payable ____ 700
Common Stock ____ 35,00
Retained Earnings _____ (5,800)
$ 33,600 $ 33,600

Q2. Solutions

*CURRENT RATIO (Current Asset/Current Liability)

The three-year average debt-to-equity ratio for the company Cooke NV is

approximately (2.34+1.17+2.33)/3=1.95 and an industry average is 2.74

Interpretation:
Cooke NV's three-year average current ratio of 1.95 is lower than the industry average of 2.74.
This suggests that Cooke NV may have a weaker liquidity position compared to the industry.
A current ratio below the industry average indicates that Cooke NV may have difficulty meeting
its short-term obligations using its current assets.
*Average Acid-Test Ratio Calculation:
The Acid-Test ratio of Cooke NV company for three years is approximately:
(0.85 + 0.39 + 0.84) / 3 = 0.70 and the industry average is 1.00
Interpretation:
When compared to the industry average of 1, the company's average acid-test ratio of 0.70
indicates that it may have a lower liquidity position than the industry average.
It shows that the company faces challenges to cover its current liabilities with its current assets.

*DEBT TO EQUITY RATIO (Total Debt/Total Liability)

The three-year average debt-to-equity ratio for the company Cooke NV is approximately:
= (0.79+4.82+1.21)/ 3 = 2.27 and industry average is 1.33
Interpretation:
The three-year average debt-to-equity ratio 2.33 is higher than the industry average of 1.33.
This indicates that the company has a higher level of debt compared to its equity, which could be
a sign of financial risk, and as a higher debt burden can make it more difficult to meet debt
obligations and make it more vulnerable to economic challenges.
*DEBT TO TOTAL ASSET RATIO (Total Liability/Total Asset)
The debt to total asset of Cooke NV company for three years is approximately:
(0.44 + 0.83 + 0.55) / 3 =0.61 And industry average is 0.50
Interpretation:
The industry average debt to total asset ratio is 0.50 and we can say that Cooke NV company has
a higher debt to total asset ratio than the industry average. This suggests that Cooke NV
company may have a higher proportion of its assets financed by debt compared to the industry
average, which can indicate higher financial leverage and potential risk.
Total capitalization (Long-term debt/Total Equity)
The three-year average long-term debt to total equity ratio for Cooke NV company is
approximately (0.20+1.47+0.49)/3 = 0.72 and an industry average is 0.35
Interpretation:
we can say that Cooke NV company has a higher long-term debt to total equity ratio than the
industry average. This suggests that Cooke NV company relies more on long-term debt
financing relative to its equity compared to the industry average, indicating a higher level of
financial leverage and potential risk.
*Interest Coverage (EBIT/Interest Cost)
The three-year average of Interest Coverage ratio for Cooke NV company is approximately:
(7.04 +0+ 4.34) /3 = 3.79 and an industry average is 4.25
Interpretation:
we can say that Cooke NV Company's average interest coverage ratio 3.79 is slightly lower than
the industry average 4.25. A lower interest coverage ratio indicates that the company may have a
higher risk of being unable to meet its interest obligations.
*RECEIVABLE TURNOVER (Net sales/ receivables or average receivable)
The three-year average of Receivable Turnover ratio for Cooke NV company is approximately
(8.01+9.55+9.77) /3 =9.11 and an industry average is 9.00
Interpretation:
We can say that Cooke NV company has a slightly higher receivable turnover ratio than the
industry average. This suggests that Cooke NV company is able to collect its receivables slightly
faster than the industry average, which can indicate efficient management of its accounts
receivable.
*AVERAGE COLLECTION PERIOD (365/Receivable Turnover)
The three-year average of Collection Period ratio for Cooke NV company is approximately
(45.55+38.24+37.35)/3 ≈ 40.38 and an industry average is 40.55
Interpretation:
The industry average collection period is 40.55 days and the Cooke NV company's three-year
average of 40.38 days, we can say that Cooke NV company has a slightly lower average
collection period than the industry average. This suggests that Cooke NV company is able to
collect its receivables slightly faster on average than the industry average, indicating efficient
management of its accounts receivable.
INVENTORY TURNOVER (Net sales/Inventory or average Inventory)
The three-year average Inventory Turnover ratio for Cooke NV company is approximately
(3.42+4.29 +4.00)/3 = 3.90 and an industry average is 6.10
Interpretation:
Cooke NV company's three-year average inventory turnover ratio of 3.90 is lower than the
industry average of 6.10.
So, we can say that Cooke NV company is not efficiently managing its inventory, potentially
resulting in excess or obsolete inventory, which can negatively impact profitability.
*TOTAL ASSET TURNOVER (Net Sales/Total Asset or Average Asset)
The three-year average total asset turnover ratio for Cooke NV company is approximately
(2.01+2.10 +2.34)/3=2.15 and an industry average is 2.60
Interpretation:
The three-year average total asset turnover ratio for the Cooke NV company is 2.15, which is
lower than the industry average of 2.60.
This suggests that the Cooke NV company is not utilizing its assets as efficiently as the industry
average.
GROSS PROFIT MARGIN (Gross Profit/Net Sales)
The three-year average Gross profit margin ratio for Cooke NV company is approximately
(0.16+0.08+0.17)/3=0.14
and an industry average is 0.17
Interpretation:
The Cooke NV company's three-year average gross profit margin of 0.14 is lower than the
industry average of 0.17.
This suggests that the Cooke NV company may need to review its pricing strategies, cost
management, or operational efficiency to improve its gross profit margin and align it more
closely with the industry average.

*NET PROFIT MARGIN (Net Income/Net Sales)

The three-year average Gross profit margin ratio for Cooke NV company is approximately
(0.04+0+0.03)/3=0.02
and an industry average is 0.03.
Interpretation:
The Cooke NV company's three-year average net profit margin of 0.02 is lower than the industry
average of 0.03.
The lower net profit margin may be a concern for the company, as it means they are generating
less profit per dollar of sales compared to the industry average.
*RETURN ON ASSET (net income/ total asset)
The three-year average Return on Asset ratio for Cooke NV company is approximately
(0.07+0+0.06)/3=0.04
and an industry average is 9.10.
Interpretation:
The three-year average ROA for Cooke NV company is 0.04, which is significantly lower than
the industry average of 9.10.
A lower ROA suggests that the company is not utilizing its assets efficiently to generate income,
or it may be facing challenges in its operations, management, or market conditions.
*RETURN ON EQUITY (net income/ total equity)
The three-year average Return on Asset ratio for Cooke NV company is approximately
(0.13+0+0.13)/3=0.09 and an industry average is 0.18.
Interpretation:
The Cooke NV company's ROE 0.09 is significantly lower than the industry average 0.18
This indicates that Cooke NV company is not utilizing its shareholders' equity as efficiently as
the industry peers. In other words, the company is generating a lower return on the capital
invested by its shareholders compared to the industry standard.
*RETURN ON INVESTMENT(DU) (asset turnover*net margin)
The three-year average Return on Investment ratio for Cooke NV company is approximately
(0.07+0+0.06)/3=0.04
and an industry average is 0.05.
Interpretation:
The Cooke NV company's three-year average ROI ratio 0.04 is lower than the industry average
0.05, indicating that the company's return on investment is underperforming the industry average
over the three-year period.
RETURN ON EQUITY(DU) (asset turnover*net margin*Asset to Equity ratio)
The three-year average Return on Equity ratio for Cooke NV company is approximately
(0.13+0+0.13)/3=0.09
and an industry average is 0.13.
Interpretation:
The three-year average ROE for Cooke NV company is 0.09, which is lower than the industry
average of 0.13.
A lower ROE suggests that the company may be less efficient in utilizing its shareholders' equity
to generate profits or may be facing challenges in its operations, profitability, or financial
management.
Q3. Solutions:
a. Contribution margin percentage can be:
Contribution Margin Percentage = ((Selling Price - Variable Cost) / Selling Price) * 100
Selling Price = $50 and Variable Cost = $30
Contribution Margin Percentage = (($50 - $30) / $50) * 100
Contribution Margin Percentage = ($20 / $50) * 100
Contribution Margin Percentage = 40%
b. To Estimate the break-even quantity:
Break-even Quantity = Fixed Costs / (Selling Price per unit - Variable Cost per unit)
BEP=FC/CM per unit
Break-even Quantity = $200,000 / ($50 - $30)
Break-even Quantity = $200,000 / $20
Break-even Quantity = 10,000 units
To Estimate break-even sales:
Break-even Sales = Break-even Quantity * Selling Price per unit
Break-even Sales = 10,000 units * $50
Break-even Sales = $500,000
Break-Even Sales=FC/CM ratio
Break-Even Sales=$200,000/40%
=$500,000
c. The sales volume necessary to achieve a profit of $300,000 can be calculated using the
formula:
Target Sales Volume (Sales in Dollars) = (Fixed Costs+Target Profit) / Contribution Margin
Sales Volume = ($200,000 + $300,000) / $20
Sales Volume = $500,000 / $20
Sales Volume = 25,000 units
d. Margin of safety at budgeted sales units can be calculated using the formula:
Margin of safety =Expected Sales-Break even Sales
Expected Sales=20,000
Break even Sales=10,000
Margin of safety =20,000-10,000
=10,000 units
Margin of safety at budgeted sales units can be calculated using the formula:
Percentage Margin of Safety=Expected Sales-Break even sales
Expected Sales
= (20,000 - 10,000) / 20,000
Percentage Margin of Safety = 10,000 / 20,000
Percentage Margin of Safety = 0.5 or 50%
Q.4 Solutions
(a)Prepare Income Statement and separate Schedule of Cost of Goods Sold:
*First calculate total cost of Manufactured Goods:
Direct Material----------------------------------$54,000
Direct Labor--------------------------------------$85,000
Indirect Material--------------------------------15,000
Indirect Labor------------------------------------11,000
Depreciation-------------------------------------30,000
Electric Power------------------------------------40,000
Property Tax and Insurance--------------------5,000
Repair and Maintenance-----------------------20,000
Miscellaneous ------------------------------------7,0000
Total Manufacturing Costs-------------------$267,000
Prepare Income Statement
Orbit Company
 Income Statement
For the month Ended on August 31,2020

Total Sales $700,000

Less: Cost of Goods Sold 264,000
Gross profit 436,000
Less: Administrative 22,000
Expenses
$414,000
Net Income

Schedule of Cost of Manufactured Goods

Beginning finished goods Inventory $32,000
Add: Cost of Goods Manufactured 267,000
Goods available for Sales 299,000
Less: Less Ending Finished Inventory 35,000
Cost of Goods Sold $264,000

*Cost of Goods Sold = Beginning Finished Goods + Cost of Total Manufactured Goods-
Ending Manufactured goods
Cost of Goods sold= $32,000+$267,000-$35,000=$264,000
Q4(b). Total Cost of Goods Manufactured and Unit Cost of Goods Manufactured
Total Cost of Goods Manufactured=Beginning WIP + Total Manufacturing Cost-Ending
WIP
$11,500+$267,000-$9,000=$269,500
To Calculate Unit Costs of Goods Manufactured
Unit Cost of Goods Manufactured = (Total Cost of goods Manufactured/ Number of Units
Manufactured)
Unit Cost of good Manufactured=$269,500/4,500 =$59.89

The End