{"id":3382,"date":"2018-07-18T18:03:35","date_gmt":"2018-07-18T08:03:35","guid":{"rendered":"https:\/\/casestudyhelp.com\/sample-questions\/?p=3382"},"modified":"2019-09-19T20:35:42","modified_gmt":"2019-09-19T10:35:42","slug":"accounting-case-study-question-answers","status":"publish","type":"post","link":"https:\/\/casestudyhelp.com\/sample-questions\/accounting-case-study-question-answers\/","title":{"rendered":"Accounting Case Study Question & Answers"},"content":{"rendered":"

Case Study <\/strong><\/span><\/h2>\n

\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 Scenario 01\u00a0 \u00a0<\/strong> \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0<\/span><\/p>\n

Read the following case and answer the questions<\/a> asked.<\/p>\n

\"Scenario<\/a><\/p>\n

Eric considers that the profit and the rate of return are very attractive, but he is weak in accounting.\u00a0 Help Eric by solving the following questions?<\/p>\n

Question 01: Calculate the contribution margin per unit of cake. <\/strong><\/p>\n

Question 02: Identify the fixed costs and find total fixed costs per month.<\/strong><\/p>\n

Question 03: Calculate profit earned in each month and annual profit.<\/strong><\/p>\n

 <\/p>\n

\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 Scenario02\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0<\/strong><\/span><\/p>\n

Read the following paragraph and make recommendations to Eric.<\/p>\n

\"Scenario02\"<\/a><\/p>\n

Should Eric acquire the cake shop? Help Eric by answering the following questions.<\/p>\n

Question 04: Calculate units of cakes to be sold per month to break even.<\/strong><\/p>\n

Question 05: Calculate the margin of safety to determine the \u201ccushion\u201d before incurring a loss if the expected sales fail to materialize. Express this measure in percentage.<\/strong><\/p>\n

 <\/p>\n

\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0Scenario03\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0<\/strong><\/span><\/p>\n

There is a chance that the supplier will increase the price of each cake from $6 to $7.5, but in Mary\u2019s opinion, the selling price could only be increased by $1 to maintain the existing sales volume.<\/p>\n

Help Eric in figuring out the impact on the annual profit if this new situation occurs by answering the following questions?<\/p>\n

Question 06: Calculate the new unit contribution.<\/strong><\/p>\n

Question 07: Calculate the new annual profit.<\/strong><\/p>\n

Question 08: Calculate the new BEP in units.<\/strong><\/p>\n

Question 09:\u00a0 Calculate the new margin of safety in units. Express this measure in percentage too. <\/strong><\/p>\n

Question 10: Provide comments on the new Margin of safety.<\/strong><\/p>\n

 <\/p>\n

\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 Scenario04 \u2013 Acceptance of a proposal\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0\u00a0<\/strong><\/span><\/p>\n

Refer to the original cost figures of scenario 01. Now assume, Eric receives a proposal from Mary after he acquired the cake shop.\u00a0 You are now required to help Eric to analyze the proposals and determine whether to accept it or not.<\/p>\n

Mary\u2019s Proposal<\/span><\/strong><\/p>\n

If the company spends $10,000 per month in advertising, the monthly sales volume will increase by 10,000 units.<\/p>\n\n\n\n
Eric performs a calculation and finds that the unit cost will increase from$9 to $10 and concludes that profit will remain unchanged if the proposal is implemented. <\/p>\n

Eric\u2019s calculation \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 <\/strong><\/p>\n

Total fixed cost per month\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 = \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 $30,000<\/p>\n

Fixed cost per unit\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 =\u00a0 \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 $30,000 \/ 10,000 units<\/p>\n

= \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 $3<\/p>\n

Variable cost per unit \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 =\u00a0 \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 $6<\/p>\n

Total cost per unit\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0=\u00a0 \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 $3 + $6 = $9<\/p>\n

 <\/p>\n

Additional expenditure\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0= \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 $10,000<\/p>\n

Additional cost per unit\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 = \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 $10,000 \/ 10,000 units<\/p>\n

=\u00a0 \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 $1<\/p>\n

 <\/p>\n

Cost per unit\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0=\u00a0 \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 $9 + $1<\/p>\n

(on additional sales)\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0=\u00a0 \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 $10<\/span><\/p>\n

 <\/p>\n

Profit per unit\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 =\u00a0 \u00a0 \u00a0 \u00a0 \u00a0Selling price \u2013 unit cost<\/p>\n

= \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 $10 – $10<\/p>\n

= \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Nil<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n


\nQuestion 11: What is wrong with Eric\u2019s calculation? Help Eric make the right decision on accepting the proposal. Should Eric accept the proposal?<\/strong><\/p>\n

 <\/p>\n

\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0Scenario05 \u2013 Solving Business Problem\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0\u00a0<\/strong><\/span><\/p>\n

One year after Eric acquired the cake shop business \u2026\u2026\u2026\u2026..<\/p>\n

\"Scenario05\"<\/a><\/p>\n

Without implementing the proposal made by Mary in Scenario 4, the profit for the first year of operation is $120,000 as expected.\u00a0 After receiving the letter, Eric asks you how this change will affect the company\u2019s annual profit (do not consider changes of scenario 3 & 4).<\/p>\n

Question 12:\u00a0 What is the change to fixed costs?\u00a0 How does it affect the annual profit, BEP, and margin of safety? Advise Eric on this issue.\u00a0 \u00a0\u00a0<\/strong><\/p>\n

 <\/p>\n

\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0Scenario06 \u2013 Adding chocolate mix topping on the cake\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0\u00a0<\/strong><\/span><\/p>\n

Eric has a plan to develop his business.\u00a0 His wife has a special chocolate mix recipe.\u00a0 He plans to add chocolate topping on the cake, using his wife\u2019s special recipe.<\/p>\n

\u00a0\"Scenario06\"<\/a><\/p>\n

Special recipe on the cake:
\nAdd chocolate topping on the cake.<\/p>\n

Eric expects the new production unit selling price to increase by $1 and the monthly sales volume to increase to 11,000 units.\u00a0 The supplier of the cake will give Eric a 5 % discount on 11,000 units per month.<\/p>\n

Extra costs:<\/strong><\/p>\n