Ch.18 Graded Practice - Lecture notes 18 PDF

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Ch.18 Graded Practice 1. Th following information is available for a company’s maintenance cost over the last seven months. 1. Month Maintenance HoursMaintenance Cost June 10 $ 4,550 July 19 6,530 August 11 4,770 September 14 5,430 October 20 6,750 November 23 7,410 December 5 3,450 Using the high-low method, estimate the fixed and variable components of its maintenance cost. High-low method – calculation of variable cost per maintenance hour Cost at high point minus cost at low point/Volume at high point minus volume at low point. 7,410 – 3,450 = 3,960 / 23 – 5 = 18 = 220 Calculation of fixed cost Total costs at high point

7,410

Variable costs at high point

5,060 (220 x 23)

Fixed cost at high point

2,350

Total cost at low point

3,450

Total variable cost at low point

1,100 (220 x 5)

Fixed cost at low point

2,359

2. Compute and interpret the contribution margin ratio using the following data: sales, 5,900; total variable cost 3,009. Contribution Margin Sales

5,900

Less: Variable cost Contribution margin

- 3,009 2,891

Contribution Margin Ratio Contribution Margin Sales

2,891 / 5,900 = 49%

3. SBD Phone Company sells its waterproof phone case for 90 per unit. Fixed costs total 210,600, and variable costs are 36 per unit. 1) Determine the contribution margin per unit Selling price per unit

90

Less: Variable cost per unit

36

Contribution margin per unit

54

2) Determine the break-even point in units. Total fixed cost 210,600 / Contribution per unit 54 = 3,900 to break even 4. SBD Phone Company sells its waterproof phone case for 118 per unit. Fixed costs total 232,000, and variable costs are 53 per unit. 1) Determine the contribution margin ratio Sales

118

Less: Variable Cost

53

Contribution Margin per unit

65

2

Contribution margin ratio Contribution margin per unit / selling price per unit = contribution margin ratio 65/118 = (Contribution margin ratio) 55% 2) Determine the break-even point in dollars Total Fixed costs / Contribution margin ratio = break-even point 232,000/55% = 421,818 Break-even in dollars

5. SBD Phone Company sells its waterproof phone case for 122 per unit. Fixed costs total 262,000, and variable costs are 52 per unit. Compute the units of product that must be sold to earn pretax income of 228,000. Units to be sold to achieve targeted income Total fixed costs plus pretax income/Contribution margin per unit 490,000 / 70 = 7,000 units to achieve target income Contribution margin per unit Selling price per unit

122

Less: Variable cost per unit

52

Contribution margin per unit

70

Contribution margin income statement Per Unit

7,000 units

122

854,000

Variable Costs

52

364,000

Contribution Margin

70

490,000

Sales

Fixed costs Net income (pretax)

3

262,000 228,000

6. Zhao Co. has fixed costs of 483,000. Its single product sells for 195 per unit, and variable costs are 126 per unit. If the company expects sales of 10,000 units, compute its margin of safety in dollars and as a percent of expected sales. Margin of safety Sales at expected level (10,000 x 195)

1,950,000

Sales break-even level (7,000 x 195)

1,365,000

Margin of safety

585,000

Margin of safety as % of expected = 585,000 / 1,950,000 = 30% How to fix sales at break-even level 1. Total Fixed costs/ contribution margin per unit = breakeven point in units - 483,000 / 69 = 7,000 units to break even 2. Then multiply break-even units by sales per unit to find sales at break-even level - 7,000 x 195 = 1,365,000 7. US-Mobile manufactures and sells two products, tablet computers and smartphones, in the ration 5:3. Fixed costs are 88,920, and the contribution margin per composite unit is 117. What number of each type of product is sold at the break-even point. 1. Determine the break-even pint in composite units - Total fixed/contribution margin per unit = Breakeven units 88,930/117 = 760 2. Determine the number of units of each product that will be sold at the break-even point. Quantity Tablet

4

5

Num. of composite unit Unit sales at break x

760

3,800

Smartphones

3

x

760

2,280

Total units

8

x

760

6.080

8. Vijay Company reports the following information regarding its production costs. Direct materials $ 9.60 Direct labor $ 19.60 Overhead costs for the year Variable overhead $ 9.60 Fixed overhead $121,600 Units produced 16,000

per unit per unit per unit units

Compute its product cost per unit under absorption costing. Product cost per unit: Direct materials: 9.60 Direct labor: 19.60 Variable overhead: 9.60 Fixed overhead (121,600/16,000): 7.60 46.40 per unit product costs

9. Vijay Company reports the following information regarding its production costs. Direct materials $ 10.10 Direct labor $ 20.10 Overhead costs for the year Variable overhead $ 10.10 Fixed overhead $170,100 Units produced 21,000

5

per unit per unit per unit units

Compute its product cost per unit under variable costing. Product cost per unit: Direct materials: 10.10 Direct Labor: 20.10 Variable Overhead: 10.10 40.30 per unit product costs Fixed overhead (170,100 / 21,000) = 8.1 period expenses

10. Aces Inc., a manufacturer of tennis rackets, began operations this year. The company produced 5,300 rackets and sold 4,200. Each racket was sold at a price of 83. Fixed overhead costs are 65,190, and fixed selling and administrative costs are 64,500. The company also reports the following per unit costs for the year: Variable production costs Variable selling and administrative expenses

$24.30 $1.30

Required: Prepare and income statement under variable costing. ACES INC. Variable Costing Income Statement Sales (4,200 units x 83 per unit) 348,600 Less: Variable costs Variable production costs (4,200 x 24.30) 102,060 Variable selling and administrative expenses (4,200 x 1.30) 5,460 Total Variable Costs - 107,520 Contribution Margin 241,080 Less: Fixed expenses Fixed overhead 65,190 Fixed selling and administrative costs 64,500 Total Fixed expenses - 129,690 Net Income (Loss) 111,390

6

*Under absorption costing, the value of ending inventory, and also net income, would be higher by 9,600. The amount of fixed overhead included in ending inventory. 72,000 in fixed overhead divided by 6,000 units produced is a fixed overhead cost of 12 per unit. 800 units added to inventory x 12 FOH per unit = 9,600. 11. Aces Inc., a manufacturer of tennis rackets, began operations this year. The Variable production costs $25.40 Variable selling and administrative expenses$ 2.40

company produced 6,400 rackets and sold 5,300. Each racket was sold at a price of 94. Fixed overhead costs are 85,760, and fixed selling and administrative costs are 65,600. The company also reports the following per unit costs for the year.

Fixed overhead costs: 85,760/6,400 = 13.40 Aces Inc. Absorption Costin Income Statement Sales (5,300 x 94)

498,200

Less: Cost of goods sold Variable Production costs (5,300 x 25.40)

134,620

Fixed overhead costs (5,300 x 13.40)

71,020

Total Cost of goods sold

- 205,640

Gross Margin

292,560

Less: Selling general and administrative expenses Fixed selling and administrative expenses

65,600

Variable selling and administrative expenses

12,720

(5,300 x 2.40)

7

Total selling, general, and administrative expenses Net Income (loss)

8

- 78,320 214,240...