Problem 1

Milwaukee Dairy Company produces cream, whole milk, and 2% milk. The joint cost of producing the three products is SAR 30,000. The split-off quantities and selling prices of each product are as follows:

Split-off Quantity (Gallons)

Price at Split off (SAR)

Cream

550

19.00

Whole milk

4,000

13.00

2% milk

1,200

6.50

Required: Calculate how much of the joint costs should be allocated to each product using the market value at split off method.

Problem 2

The following information pertains to Delicious Bakery Company:

GIVEN:

Janitorial Dept.

Cafeteria Dept.

Mixing Dept.

Baking Dept.

Square feet

420

820

2800

2500

Number of employees

12

25

65

120

Department cost (SAR)

620,000

1,200,000

3,200,000

4,200,000

Required: Allocate Janitorial and Cafeteria department costs to mixing and baking departments using the Direct method. Use square feet for allocating janitorial costs and number of employees for allocating cafeteria department costs.

Problem 3

Maintenance Hours

Maintenance Cost (SAR)

January

2,400

33,000

February

1,700

28,000

March

2,700

31,000

April

1,300

17,000

May

1,500

23,000

June

2,150

26,000

Required:

Calculate variable cost per unit using the high-low method.
Calculate fixed costs.
Calculate estimated costs at 2,700 maintenance hours.
Problem 4

Given the following:

Total (SAR)

Sales (40,000 units)

4,600,000

Variable expenses

2,700,000

Contribution margin

1,900,000

Fixed expenses

1,250,000

Net operating income

650,000

Required:

Calculate variable expense ratio
Calculate contribution margin ratio
Calculate break even sales in Units
Calculate break even sales in SAR
How many units must be sold to make a profit of 300,000 SAR?
Management is considering increasing the quality of its units by spending SAR 5 more per unit in variable costs and increasing advertising by SAR 80,000. Management believes these changes will increase unit sales by 20% at the same price.

Calculate the new operating profit or loss.
Explain whether management should make the change and why or why not.