Hartl Corporation is a single product firm with the above ...



Hartl Corporation is a single product firm with the above selling price and cost structure for next year:

|Selling price per unit.................................. |      $1.80 |

|Contribution margin ratio.......................... |       40% |

|Total fixed expenses for the year.............. |$218,700 |

How many units will Hartl have to sell next year in order to break-even? 

|[pic] |121,500 |

|[pic] |202,500 |

|[pic] |303,750 |

|[pic] |546,750 |

| | |

| | |

| | |

|Variable cost per unit = $1.80 × (1 - 40%) | |

|Variable cost per unit = $1.08 | |

|Sales = Variable expenses + Fixed expenses + Profit | |

|$1.80Q = $1.08Q + $218,700 + $0 | |

|$0.72Q = $218,700 | |

|Q = $218,700 ÷ $0.72 per unit = 303,750 units | |

Cherry Street Market reported the above information for the sales of their only product, cherries sold by the pint:

|  |Total |Per Unit |

|Sales.................................. |$31,500 |$4.50 |

|Variable expenses.............. |    9,450 |  1.35 |

|Contribution margin.......... |  22,050 |$3.15 |

|Fixed expenses.................. |  13,000 |  |

|Net operating income........ |$  9,050 |  |

Cherry Street would like to increase their selling price by 50 cents per unit, and feel that this will decrease sales volume by 10%. Should Cherry Street increase the price, and what will the effect be on net operating income? 

|[pic] | Yes; $3,500 increase |

|[pic] |Yes; $945 increase |

|[pic] |No; no change |

|[pic] |No; $945 decrease |

| | Current sales (dollars) = Current per unit price × Current sales (units) |

| |$31,500 = $4.50 × Current sales (units) |

| |7,000 = Current sales (units) |

| | |

| | |

| | |

| |7,000 units |

| |6,300 units |

| | |

| | |

| |Sales (7,000 units × $4.50, 6,300 units × $5.00) |

| |$31,500 |

| |$31,500 |

| | |

| | |

| |Variable expenses |

| |(7,000 units × $1.35, 6,300 units × $1.35) |

| |9,450 |

| |8,505 |

| | |

| | |

| |Contribution margin |

| |22,050 |

| |22,995 |

| | |

| | |

| |Fixed expenses |

| |13,000 |

| |13,000 |

| | |

| | |

| |Net operating income |

| |$ 9,050 |

| |$ 9,995 |

| | |

| | |

| |Increase in net operating income: $9,995 - $9,050 = $945 |

Data concerning Kardas Corporation's single product appear above:

|  |Per Unit |Percent of Sales |

|Selling price....................... |$140 |100% |

|Variable expenses.............. |   28 | 20% |

|Contribution margin........... |$112 | 80% |

The company is currently selling 8,000 units per month. Fixed expenses are $719,000 per month. The marketing manager believes that a $20,000 increase in the monthly advertising budget would result in a 180 unit increase in monthly sales. What should be the overall effect on the company's monthly net operating income of this change? 

|[pic] |decrease of $160 |

|[pic] |increase of $20,160 |

|[pic] |decrease of $20,000 |

|[pic] |increase of $160 |

| | |8,000 units |8,180 units |

| |Sales (8,000 units, 8,180 units × $140) |$1,120,000 |$1,145,200 |

| |Variable expenses | 224,000 | 229,040 |

| |($1,120,000, $1,145,200 × 20%) | | |

| |Contribution margin |896,000 |916,160 |

| |Fixed expenses | 719,000 | 739,000 |

| |Net operating income |$ 177,000 |$ 177,160 |

Increase in net operating income: $177,160 - $177,000 = $160

Wilson Company prepared the above preliminary budget assuming no advertising expenditures:

|Selling price....................... |$10 per unit |

|Unit sales........................... |100,000 |

|Variable expenses.............. |$600,000 |

|Fixed expenses.................. |$300,000 |

Based on a market study, the company estimated that it could increase the unit selling price by 15% and increase the unit sales volume by 10% if $100,000 were spent on advertising. Assuming that these changes are incorporated in its budget, what should be the budgeted net operating income? 

|[pic] |$175,000 |

|[pic] |$190,000 |

|[pic] |$205,000 |

|[pic] |$365,000 |

| |Sales (110,000 units × $11.50) |$1,265,000 |

| |Variable expenses (110,000 units × $6*) | 660,000 |

| |Contribution margin |605,000 |

| |Fixed expenses ($300,000 + $100,000) | 400,000 |

| |Net operating income |$ 205,000 |

* Current variable expenses ÷ Current sales in units = Variable expense per unit

$600,000 ÷ 100,000 = $6 variable expense per unit

The Bronco Birdfeed Company reported the following information:

|Sales (400 cases)............................ |$100,000 |

|Variable expenses.......................... |    60,000 |

|Contribution margin...................... |    40,000 |

|Fixed expenses.............................. |    35,000 |

|Net operating income.................... |    $5,000 |

How much will the sale of one additional case add to Bronco's net operating income? 

|[pic] |$250.00 |

|[pic] |$100.00 |

|[pic] |$150.00 |

|[pic] |$12.50  |

Current contribution margin ÷ Current sales in cases = Contribution margin per case

$40,000 ÷ 400 = $100 contribution margin per case

If one additional case is sold, net operating income will increase by $100.

Escareno Corporation has provided its contribution format income statement for June. The company produces and sells a single product.

|Sales (8,400 units)......................... |$764,400 |

|Variable expenses.......................... |  445,200 |

|Contribution margin...................... |  319,200 |

|Fixed expenses.............................. |  250,900 |

|Net operating income.................... | $ 68,300 |

If the company sells 8,200 units, its total contribution margin should be closest to: 

|[pic] |$301,000 |

|[pic] |$311,600 |

|[pic] |$319,200 |

|[pic] |$66,674 |

Current contribution margin ÷ Current sales in units = Contribution margin per unit

$319,200 ÷ 8,400 = $38 contribution margin per unit

If 8,200 units are sold, the total contribution margin will be 8,200 × $38, or $311,600.

Use the above information to complete problem 26. Comparative income statements for Boggs Sports Equipment Company for the last two months are presented below:

|  |July |August |

|Sales in units.................................................... |    11,000 |    10,000 |

|Sales...............................................................|$165,000 |$150,000 |

|. | | |

|Cost of goods sold.......................................... |    72,600 |    66,000 |

|Gross margin................................................... |    92,400 |    84,000 |

|Selling and administrative expenses: |  |  |

|Rent.............................................................. |    12,000 |    12,000 |

|Sales commissions........................................ |    13,200 |    12,000 |

|Maintenance expenses.................................. |    13,500 |    13,000 |

|Clerical expense............................................ |    16,000 |    15,000 |

|Total selling and administrative expenses....... |    54,700 |    52,000 |

|Net operating income...................................... |$  37,700 |$  32,000 |

All of the company's costs are either fixed, variable, or a mixture of the two (i.e., mixed). Assume that the relevant range includes all of the activity levels mentioned in this problem.

Which of the selling and administrative expenses of the company is variable? 

|[pic] | Rent |

|[pic] |Sales Commissions |

|[pic] |Maintenance Expense |

|[pic] |Clerical Expense |

Stuart Company is a merchandising company. During the next month, the company expects to sell 450 units. The company has the following revenue and cost structure:

|Selling price per unit.......... |$230 |

|Cost per unit...................... |$120 |

|Sales commission............... |12% of sales |

|Advertising expense.......... |$18,000 per month |

|Administrative expense..... |$32,500 per month |

What is the expected contribution margin next month? 

|[pic] |$66,420 |

|[pic] |$37,080 |

|[pic] |$50,500 |

|[pic] |$53,000 |

| | |

| |Sales ($230 × 450) |$103,500 |

| |Less variable expenses: | |

| |Variable production expense ($120 × 450) |54,000 |

| |Sales commissions (12% × $103,500) | 12,420 |

| |Contribution margin |$ 37,080 |

The management of Bushovisky Corporation, a manufacturing company, has provided the following financial data for January:

|Sales..........................................................|$230,000 |

|Variable production expense..................... |  $31,000 |

|Fixed production expense......................... |  $47,000 |

|Variable selling expense............................ |  $19,000 |

|Fixed selling expense................................ |  $27,000 |

|Variable administrative expense................ |  $26,000 |

|Fixed administrative expense.................... |  $65,000 |

The contribution margin for January was: 

|[pic] |$15,000 |

|[pic] |$152,000 |

|[pic] |$91,000 |

|[pic] |$154,000 |

| |Sales |$230,000 |

| |Less variable expenses: | |

| |Variable production expense |31,000 |

| |Variable selling expense |19,000 |

| |Variable administrative expense | 26,000 |

| |Contribution margin |$154,000 |

Vicuna Wool Company manufactures and sells sweaters. Last year, Vicuna operated at 100% of capacity and had the following cost formula for total manufacturing costs: Y = $50,000 + $400X

Assuming no change in cost structure, what would Vicuna's cost formula have been last year if they only operated at 90% of production capacity? 

|[pic] |Y = $45,000 + $360X |

|[pic] |Y = $45,000 + $400X |

|[pic] |Y = $50,000 + $360X |

|[pic] |Y = $50,000 + $400X |

Farah Corporation has provided the following production and total cost data for two levels of monthly production volume. The company produces a single product.

|Production volume......................... |2,000 units |3,000 units |

|Direct materials.............................. |  $146,200 |  $219,300 |

|Direct labor.................................... |    $37,200 |    $55,800 |

|Manufacturing overhead................ |  $146,600 |  $158,100 |

The best estimate of the total cost to manufacture 2,300 units is closest to: 

|[pic] |$332,120 |

|[pic] |$379,500 |

|[pic] |$355,810 |

|[pic] |$360,960 |

To calculate the variable manufacturing cost per unit:

| |Production Volume |Total Manufacturing Overhead Cost |

| |(Units) | |

|High activity level |3,000 |$158,100 |

|Low activity level |2,000 |$146,600 |

Variable manufacturing overhead cost

= Change in cost ÷ Change in activity

= ($158,100 − $146,600) ÷ (3,000 – 2,000) = $11.50

Fixed cost element of manufacturing overhead

= Total cost − Variable cost element

= $158,100 − ($11.50 × 3,000) = $123,600

| |Per Unit Cost |Number of Units |Total Cost |

|Direct materials |$73.10*  |2,300 |$168,130 |

|Direct labor |$18.60** |2,300 |42,780 |

|Variable manufacturing overhead |$11.50    |2,300 |26,450 |

|Fixed manufacturing overhead | | | 123,600 |

| Total cost to manufacture 2,300 units | |$360,960 |

*$219,300 ÷ 3,000 units = $73.10 per unit

**$55,800 ÷ 3,000 units = $18.60 per unit

The following production and average cost data for a month's operations have been supplied by a company that produces a single product.

 

|Production volume......................... |       1,000 units |     2,000 units |

|Direct materials.............................. |  $4.00 per unit |$4.00 per unit |

|Direct labor.................................... |  $3.50 per unit |$3.50 per unit |

|Manufacturing overhead................ |$10.00 per unit |$6.20 per unit |

The total fixed manufacturing cost and variable manufacturing cost per unit are as follows: 

|[pic] |$3,600; $7.50 |

|[pic] |$3,600; $9.90 |

|[pic] |$7,600; $7.50 |

|[pic] |$7,600; $9.90 |

| |First, calculate the variable manufacturing cost per unit: |

| | |

| | |

| |Production Volume (Units) |

| |Average Cost per Unit |

| |Total Manufacturing Overhead Cost (units × average cost per unit) |

| | |

| |High activity level |

| |2,000 |

| |$6.20 |

| |$12,400 |

| | |

| |Low activity level |

| |1,000 |

| |$10.00 |

| |$10,000 |

| | |

| | |

| |Variable manufacturing overhead cost = Change in cost ÷ Change in activity |

| |= ($12,400 − $10,000) ÷ (2,000 – 1,000) = $2.40 |

| | |

| |Fixed cost element of manufacturing overhead = Total cost − Variable cost element |

| |= $12,400 − ($2.40 × 2,000) = $7,600 |

| | |

| |Total variable cost per unit = Direct material + Direct labor + Variable manufacturing overhead = $4.00 + $3.50 + $2.40 = $9.90 |

| | |

| |There are no fixed direct materials or direct labor, so the total fixed costs would be equal to the fixed cost portion of |

| |manufacturing overhead, or $7,600 |

Clerical costs in the billing department of Craig Company are a mixture of variable and fixed components. Records indicate that average unit processing costs are $0.50 per account processed at an activity level of 32,000 accounts. When only 22,000 accounts are processed, the total cost of processing is $12,500. Assuming that this activity is within the relevant range, at a budgeted level of 25,000 accounts

|[pic] |processing costs are expected to total $8,750. |

|[pic] |fixed processing costs are expected to be $10,400. |

|[pic] |the variable processing costs are expected to be $0.35 per account processed. |

|[pic] |processing costs are expected to total $14,975. |

| |Accounts |Average Cost per |Total Utility Cost (accounts × |

| | |Account Processed |average cost per account |

| | | |processed) |

|High activity level |32,000 |$0.50 |$16,000  |

|Low activity level |22,000 | |$12,500* |

*Given

Variable cost = Change in cost ÷ Change in activity

= ($16,000 − $12,500) ÷ (32,000 – 22,000) = $0.35

Fixed cost element = Total cost − Variable cost element

= $16,000 − ($0.35 × 32,000) = $4,800

Therefore, the cost formula for total utility cost is $4,800 per period plus $0.35 per account processed, or Y = $4,800 + $0.35X.

At an activity level of 25,000 accounts, total cost is estimated to be:

Y = $4,800 + ($0.35 × 25,000) = $13,550

Iacono Corporation is a wholesaler that sells a single product. Management has provided the above cost data for two levels of monthly sales volume. The company sells the product for $127.20 per unit.

|Sales volume (units).................................. |      5,000 |      6,000 |

|Cost of sales.............................................. |$419,000 |$502,800 |

|Selling and administrative costs................ |$186,500 |$202,200 |

The best estimate of the total contribution margin when 5,300 units are sold is: 

|[pic] |$230,020 |

|[pic] |$51,410 |

|[pic] |$146,810 |

|[pic] |$32,330 |

Variable component of cost of goods sold:

Variable cost = Change in costs/Change in units

Variable cost = ($502,800 − $419,000)/(6,000 − 5,000)

Variable cost = $83.80 per unit

Variable component of selling and administrative expenses:

Variable cost = Change in costs/Change in units

Variable cost = ($202,200 − $186,500)/(6,000 − 5,000)

Variable cost = $15.70 per unit

|Sales revenue ($127.20 × 5,300) | |$674,160 |

|Variable expenses: | | |

|Variable cost of goods sold ($83.80 × 5,300) |$444,140 | |

|Variable selling and administrative expense ($15.70 × 5,300) |  83,210 |     527,350 |

|Contribution margin | |$   146,810 |

A is a fixed cost; B is a variable cost. During the current year the level of activity has decreased but is still within the relevant range. We would expect that: 

|[pic] |The cost per unit of A has remained unchanged. |

|[pic] |The cost per unit of B has decreased. |

|[pic] |The cost per unit of A has decreased. |

|[pic] |The cost per unit of B has remained unchanged. |

Destry Company uses the weighted-average method in its process costing system. The first processing department, the Welding Department, started the month with 10,000 units in its beginning work in process inventory that were 30% complete with respect to conversion costs. The conversion cost in this beginning work in process inventory was $19,200. An additional 60,000 units were started into production during the month. There were 19,000 units in the ending work in process inventory of the Welding Department that were 70% complete with respect to conversion costs. A total of $380,060 in conversion costs were incurred in the department during the month. What would be the cost per equivalent unit for conversion costs for the month? (Round off to three decimal places.) 

|[pic] |$6.400 |

|[pic] |$6.334 |

|[pic] |$6.209 |

|[pic] |$4.811 |

| |To solve for units transferred: | |

| |+ Work in process, beginning |10,000 |

| |+ Units started into production during the month |60,000 |

| |− Work in process, ending |19,000 |

| |= Units completed and transferred out during the month |51,000 |

| |Equivalent units of production | |

| | |Conversion |

| |Transferred to next department |51,000 |

| |Ending work in process (conversion: 19,000 units × 70% complete) |13,300 |

| |Equivalent units of production |64,300 |

| | | |

| |Cost per Equivalent Unit | |

| | |Conversion |

| |Cost of beginning work in process |$  19,200 |

| |Cost added during the period | 380,060 |

| |Total cost (a) |$399,260 |

| | | |

| |Equivalent units of production (b) |64,300 |

| |Cost per equivalent unit, (a) ÷ (b) |$6.209 |

Barnett Company uses the weighted-average method in its process costing system. The company adds materials at the beginning of the process in Department M. Conversion costs were 75% complete with respect to the 4,000 units in work in process at May 1 and 50% complete with respect to the 6,000 units in work in process at May 31. During May, 12,000 units were completed and transferred to the next department. An analysis of the costs relating to work in process at May 1 and to production activity for May are posted above:

|  |Materials |Conversion |

|Work in process 5/1....................... |$13,800 |  $3,740 |

|Costs added during May............... |$42,000 |$26,260 |

The total cost per equivalent unit for May was: 

|[pic] |$5.52 |

|[pic] |$5.62 |

|[pic] |$5.72 |

|[pic] |$5.82 |

| | |

|The correct answer is $5.10 (see below) | |

| |Equivalent units of production | | | |

| | |Materials |Conversion | |

| |Transferred to next department |12,000 |12,000 | |

| |Ending work in process (materials: 6,000 units × 100% complete; | 6,000 | 3,000 | |

| |conversion: 6,000 units × 50% complete) | | | |

| |Equivalent units of production |18,000 |15,000 | |

| | | | | |

| |Cost per Equivalent Unit | | | |

| | |Materials |Conversion |Total |

| |Cost of beginning work in process |$13,800 |$ 3,740 | |

| |Cost added during the period | 42,000 | 26,260 | |

| |Total cost (a) |$55,800 |$30,000 | |

| | | | | |

| |Equivalent units of production (b) |18,000 |15,000 | |

| |Cost per equivalent unit, (a) ÷ (b) |$3.10 |$2.00 |$5.10 |

The Assembly Department started the month with 83,000 units in its beginning work in process inventory. An additional 334,000 units were transferred in from the prior department during the month to begin processing in the Assembly Department. There were 34,000 units in the ending work in process inventory of the Assembly Department.

How many units were transferred to the next processing department during the month? 

|[pic] |417,000 |

|[pic] |285,000 |

|[pic] |451,000 |

|[pic] |383,000 |

| | |

| |To solve for units transferred: | |

| |+ Work in process, beginning |83,000 |

| |+ Units started into production during the month |334,000 |

| |− Work in process, ending |  34,000 |

| |=Units completed and transferred out during the month |383,000 |

Heller Cannery, Inc., uses a predetermined overhead rate based on machine-hours to apply manufacturing overhead to jobs. The company estimated that it would incur $510,000 in manufacturing overhead during the year and that it would work 100,000 machine-hours. The company actually worked 105,000 machine-hours and incurred $540,000 in manufacturing overhead costs. By how much was manufacturing overhead underapplied or overapplied for the year? 

|[pic] |$4,500 overapplied |

|[pic] |$4,500 underapplied |

|[pic] |$30,000 overapplied |

|[pic] |$30,000 underapplied |

|Actual manufacturing overhead |$540,000 |

|Applied manufacturing overhead | 535,500 |

|($5.10 per DLH* × 105,000 DLHs) | |

|Manufacturing overhead underapplied |$   4,500 |

*Predetermined overhead rate = $510,000 ÷ 100,000 machine-hours

= $5.10 per machine-hour

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