Homework assignment 5: Sokolov GmbH In Tutorial Library

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TITLE: Homework assignment 5: Sokolov GmbH

CLASS / COURSE: Management Accounting

QUESTION DESCRIPTION:

Sokolov GmbH operates a printing press with a monthly capacity of 2000 machine hours. Sokolov has two main customers: Huesson and Krueger. Data for each customer for the month of June are as follows (all money figures in euros):
 
Huesson Krueger Total
Revenues 120,000 80,000 200,000
Variable costs 42,000 48,000 90,000
Allocated fixed costs 60,000 40,000 100,000
Total costs 102,000 88,000 190,000
Operating profit 18,000 (8000) 10,000
Machine hours required 1600 hours 400 hours 2000 hours
 
Required:
 
1. Provide a recommendation: Should Sokolov GmbH drop Krueger as acustomer? Take into account that if it would drop Krueger, Sokolov’s fixedcosts would decrease by 20%. Show your calculations.
 
In the following: Assume the situation is as described above and Krueger is retained as a customer of Sokolov.
 
Krueger contacts Sokolov and askes if it wants to do an additional €80,000 worth of printing in the month of July. The variable costs and machine hours required for this extra job are identical to the normal production for Krueger. Sokolov expects the work for Huesson to be the same in July as in June. Fixed costs in July are the same as in June.
 
2. Supposing Sokolov could accept any order size from Huesson and Krueger that it wants (so between 0 and €120,000 for Huesson and between 0 and €160,000 for Krueger), what should it do if it wants to maximize its short term profits? What is the maximum profit that Sokolov could make in July?

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SUBJECTS / CATEGORIES:
1. Finance
2. Financial Management
3. Accounting

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