25 May IDENTIFY POSSIBLE COSTS FOR JAY’S BUSINESS THAT HE HAS NOT IDENTIFIED. LIST AND BRIEFLY DESCRIBE FIVE OF THESE.
(i) List all of the costs described and indicate whether each cost is (1) a relevant fixed cost, (2) a relevant variable cost, or (3) NOT relevant to Jay’s decision.
(ii) Calculate the contribution margin per unit and the contribution margin ratio.
(iii) Write down the total cost function for the clocks and calculate the annual breakeven point in units and in revenues.
(iv) How many clocks would Jay need to sell annually to earn his salary plus $4000 profit per month?
(b) Identify uncertainties about the CVP calculations:
(i) Explain why Jay cannot know for sure whether his actual costs will be the same dollar amounts that he estimated. In your explanation, identify as many uncertainties as you can. (Hint: For each of the costs Jay identified, think about reasons why the actual cost might be different than the amount he estimated.) (Word count: maximum 250 words)
(ii) Identify possible costs for Jay’s business that he has not identified. List and briefly describe five of these.
(iii) Explain why Jay cannot know for sure how many clocks he will sell each year. In your explanation, identify as many uncertainties as you can. (Word count: maximum 150 words).
(c) Discuss whether Jay is likely to be biased in his revenue and cost estimates. (Word count: maximum 100 words)
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