Fifth edition Alnoor Bhimani Charles T. Horngren Srikant M. Datar Madhav V. Rajan Farah Ahamed



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solutions-manual-to-bhimani-et-al-management-and-cost-accounting-pearson-2012-1
22.17 Downsizing.
(60 min)
1
The downsizing plan would be acceptable as the required subsidy is less than 20% of the current subsidy, €15,000 compared to €16,700, which is calculated as follows
Under downsizing plan
Annual revenue
[(150 sandwiches
× €3.60) + €230 beverages/desserts] × 250 days
€192,500 Cost of supplies €192,500
× 50%
€96,250 Cost of downsizing plan Wages and fringe benefits a €81,250 Utilities and equipment maintenance
30,000 Annual cost of supplies 96,250 Total costs 207,500 Annual revenue
192,500 Mayfair downsizing plan subsidy
€15,000 a + (25%
× €65,000) = €81,250
Under current cafeteria plan
Annual revenues
[(100 starters
× €4) + (80 salads/sandwiches × €3) +
€200 beverages/dessert]
× 250 days
€210,000 Cost of supplies (60%
× €210,000)
€126,000 Calculation of subsidy limitation Current operation Wages and fringe benefits [€110,000 + (25%
× €110,000)]
€137,500 Utilities and equipment maintenance Cost of supplies (€210,000
× 60%)
126,000 Total costs 293,500 Annual revenue
210,000 Mayfair current operations subsidy
€83,500 Mayfair Corporations subsidy limitation
20% of current subsidy (20%
× €83,500)
€16,700


Bhimani, Horngren, Datar and Rajan, Management and Cost Accounting, 5
th
Edition, Instructor’s Manual
© Pearson Education Limited 2012
2
The Wilco Foods proposal is more advantageous to Mayfair Ltd than the downsizing plan as the subsidy at the projected volume is €5,140 less than the downsizing plan €15,000 compared to €9,860. The calculations areas follows Revenue to Mayfair
Wilco revenue a €251,500 Less Breakeven sales b 48,000 Revenues in excess of breakeven sales
€203,500 Revenues payable to Mayfair c (€203,500
× 0.04)
€8,140 Plus Rent d 12,000 Total payments to Mayfair Cost to Mayfair Fixed costs
(utilities and equipment maintenance)
30,000
Mayfair’s Wilco Foods proposal subsidy
€9,860 a starters
× €5) + (94 sandwiches/salads × €4) + €300] × 250 days b monthly payment
× 12 months) ÷ (1 − 75%) contribution margin c
Revenues in excess of breakeven sales
× 4% d monthly payment
× 12 months
22.18 Question from the Chartered Institute of Management Accountants, Intermediate

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