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Hewitt Co. has 4,000 machine hours available to produce either Product 22 or Product 44. The cost accounting department developed the following unit information for each product: Product 22 Product 44 Sales price $25 $50 Direct materials 6 8 Direct labor 3 2 Variable manufacturing overhead 4 5 Fixed manufacturing overhead 3 5 Machine time required 15 minutes 60 minutes Instructions Management wants to know which product to produce in order to maximize the company’s income. Taking into consideration the constraints under which the company operates, prepare a report to show which product should be produced and sold. Ex. 142 Reynolds, Inc. manufactures and sells two products. Relevant per unit data concerning each product are given below: Product Standard Deluxe Selling price $50 $75 Variable costs $26 $33 Machine hours 2 3 Instructions (a) Compute the contribution margin per unit of limited resource for each product. (b) If 1,000 additional machine hours are available, which product should be manufactured? Ex. 143 Oscar Corporation produces and sells three products. Unit data concerning each product is shown below. Product X Y Z Selling price $200 $300 $250 Direct labor costs 45 75 60 Other variable costs 110 130 106 Ex 143 (cont.) The company has 2,000 hours of labor available to build inventory in anticipation of the company’s peak season. Management is trying to decide which product should be produced. The direct labor hourly rate is $15. Instructions (a) Determine the number of direct labor hours per unit. (b) Determine the contribution margin per direct labor hour. (c) Determine which product should be produced and the total contribution margin for that product. Ex. 144 Shanahan Co. of Dublin, Ireland is contemplating a major change in its cost structure. Currently, all of its drafting work is performed by skilled draftsmen. Mike Shanahan the owner, is considering replacing the draftsmen with a computerized drafting system. However, before making the change, Mike would like to know the consequences of the change, since the volume of business varies significantly from year to year. Shown below are CVP income statements for each alternative. Manual System Computerized System Sales $1,500,000 $1,500,000 Variable costs 1,200,000 900,000 Contribution margin 300,000 600,000 Fixed costs 150,000 450,000 Net income $150,000 $150,000 Ex. 144 (cont.) Instructions (a) Determine the degree of operating leverage for each alternative. (b) Which alternative would produce the higher net income if sales increased by $300,000? \ Ex. 145 The following CVP income statements are available for Chantal Corp. and Mantle, Inc. Chantal Corp. Mantle, Inc. Sales revenue $700,000 $700,000 Variable costs 350,000 210,000 Contribution margin 350,000 490,000 Fixed costs 175,000 315,000 Net income $175,000 $175,000 Instructions (a) Compute the degree of operating leverage for each company. (b) Assume that sales revenue decreases by 20%. Prepare a CVP income statement for each company. Ex. 146 An investment banker is analyzing two companies that specialize in the production and sale of gourmet cappuccino and chai mixes. Roasted Beans Co. uses a labor-intensive approach and Monat Industries uses a mechanized system. Variable costing income statements for the two companies are shown below: Roasted Beans Monat Industries Sales $1,000,000 $1,000,000 Variable costs 650,000 300,000 Contribution margin 350,000 700,000 Fixed costs 175,000 525,000 Net Income $ 175,000 $ 175,000 The investment banker is interested in acquiring one of these companies. However, she is concerned about the impact that each company’s cost structure might have on its profitability. Instructions (a) Calculate each company’s degree of operating leverage. (b) Determine the effect on each company’s net income if sales decrease by 10% and if sales increase by 15%. Do not prepare income statements. aEx. 147 Indicate with a check mark whether each of the following would be a product cost or a period cost under an absorption or a variable system for Sour Industries. Absorption Variable Product Period Product Period a. Direct materials _________ _________ _________ ________ b. Direct labor _________ _________ _________ ________ c. Factory utilities _________ _________ _________ ________ d. Factory rent _________ _________ _________ ________ e. Indirect labor _________ _________ _________ ________ f. Factory supervisor salaries _________ _________ _________ ________ g. Factory maintenance (variable) _________ _________ _________ ________ h. Factory depreciation _________ _________ _________ ________ i. Sales salaries _________ _________ _________ ________ j. Sales commissions _________ _________ _________ ________ aEx. 148 Nimble Corp. manufactures and sells a variety of camping products. Recently the company opened a new plant to manufacture a deluxe portable cooking unit. Cost and sales data for the first month of operations are shown below: Manufacturing Costs Fixed Overhead $140,000 Variable overhead $3 per unit Direct labor $12 per unit Direct material $30 per unit Beginning inventory 0 units Units produced 10,000 Units sold 9,000 Selling and Administrative Costs Fixed $200,000 Variable $4 per unit sold The portable cooking unit sells for $110. Management is interested in the opening month’s results and has asked for an income statement. Instructions Assume the company uses absorption costing. Calculate the production cost per unit and prepare an income statement for the month of June, 2013. aEx. 149 On-Road Wheels, Inc. manufactures a basic road bicycle. Production and sales data for the most recent year are as follows (no beginning inventory): Variable production costs $90 per bike Fixed production costs $400,000 Variable selling and administrative costs $22 per bike Fixed selling and administrative costs $550,000 Selling price $200 per bike Production 20,000 bikes Sales 18,000 bikes Instructions (a) Prepare a brief income statement using absorption costing. (b) Compute the amount to be reported for inventory in the year-end absorption costing balance sheet. aEx. 150 On-Road Wheels, Inc. manufactures a basic road bicycle. Production and sales data for the most recent year are as follows (no beginning inventory): Variable production costs $95 per bike Fixed production costs $400,000 Variable selling and administrative costs $22 per bike Fixed selling and administrative costs $550,000 Selling price $200 per bike Production 20,000 bikes Sales 16,000 bikes Instructions (a) Prepare a brief income statement using variable costing. (b) Compute the amount to be reported for inventory in the year-end variable costing balance sheet. aEx. 151 Cutting Edge Corp. produces sporting equipment. In 2012, the first year of operations, Cutting Edge produced 25,000 units and sold 20,000 units. In 2013, the production and sales results were exactly reversed. In each year, selling price was $100, variable manufacturing costs were $40 per unit, variable selling expenses were $8 per unit, fixed manufacturing costs were $540,000, and fixed administrative expenses were $200,000. Instructions (a) Compute the net income under variable costing for each year. (b) Compute the net income under absorption costing for each year. (c) Reconcile the differences each year in income from operations under the two costing approaches. aEx. 152 Graham is a division of Flynn, Inc. The division manufactures and sells a pump that is used in a wide variety of applications. During the coming year, it expects to sell 30,000 units for $25 per unit. Steve Moss, division manager, is considering producing either 30,000 or 35,000 units during the period. Other information is presented in the schedule below: Division Information – 2013 Beginning inventory 0 Expected sales in units 30,000 Selling price per unit $25 Variable manufacturing cost per unit $7 Fixed manufacturing overhead costs (total) $420,000 Fixed manufacturing overhead costs per unit Based on 30,000 units ($420,000÷ 30,000) $14 Based on 35,000 units ($420,000÷ 35,000) $12 Manufacturing cost per unit Based on 30,000 units ($7 variable + $14 fixed) $21 Based on 35,000 units ($7 variable + $12 fixed) $19 Selling and administrative expenses (all fixed) $25,000 Instructions (a) Prepare an absorption costing income statement with one column showing the results if 30,000 units are produced and one column showing the results if 35,000 units are produced. (b) Why is income different for the two production levels when sales is 30,000 units either way? aEx. 153 Graham is a division of Flynn, Inc. The division manufactures and sells a pump that is used in a wide variety of applications. During the coming year, it expects to sell 30,000 units for $20 per unit. Steve Moss, division manager, is considering producing either 30,000 or 40,000 units during the period. Other information is presented in the schedule below: Division Information – 2013 Beginning inventory 0 Expected sales in units 30,000 Selling price per unit $20 Variable manufacturing cost per unit $7 Fixed manufacturing overhead costs (total) $360,000 Fixed manufacturing overhead costs per unit Based on 30,000 units ($360,000÷ 30,000) $12 Based on 40,000 units ($360,000÷ 40,000) $9 Manufacturing cost per unit Based on 30,000 units ($7 variable + $12 fixed) $19 Based on 40,000 units ($7 variable + $9 fixed) $16 Selling and administrative expenses (all fixed) $25,000 Instructions Prepare a variable costing income statement with one column showing the results if 30,000 units are produced and one column showing the results if 40,000 units are produced.

Hewitt Co. has 4,000 machine hours available to produce either Product 22 or Product 44. The cost accounting department developed the following unit information for each product:

Product 22 Product 44

Sales price $25 $50

Direct materials 6 8

Direct labor 3 2

Variable manufacturing overhead 4 5

Fixed manufacturing overhead 3 5

Machine time required 15 minutes 60 minutes

Instructions

Management wants to know which product to produce in order to maximize the company’s income. Taking into consideration the constraints under which the company operates, prepare a report to show which product should be produced and sold.

 

Ex. 142

Reynolds, Inc. manufactures and sells two products. Relevant per unit data concerning each product are given below:

Product

Standard Deluxe

Selling price $50 $75

Variable costs $26 $33

Machine hours 2 3

Instructions

(a) Compute the contribution margin per unit of limited resource for each product.

(b) If 1,000 additional machine hours are available, which product should be manufactured?

 

Ex. 143

Oscar Corporation produces and sells three products. Unit data concerning each product is shown below.

Product

X Y Z

Selling price $200 $300 $250

Direct labor costs 45 75 60

Other variable costs 110 130 106


Ex 143 (cont.)

The company has 2,000 hours of labor available to build inventory in anticipation of the company’s peak season. Management is trying to decide which product should be produced. The direct labor hourly rate is $15.

Instructions

(a) Determine the number of direct labor hours per unit.

(b) Determine the contribution margin per direct labor hour.

(c) Determine which product should be produced and the total contribution margin for that product.

 

Ex. 144

Shanahan Co. of Dublin, Ireland is contemplating a major change in its cost structure. Currently, all of its drafting work is performed by skilled draftsmen. Mike Shanahan the owner, is considering replacing the draftsmen with a computerized drafting system.

However, before making the change, Mike would like to know the consequences of the change, since the volume of business varies significantly from year to year. Shown below are CVP income statements for each alternative.

Manual System Computerized System

Sales $1,500,000 $1,500,000

Variable costs 1,200,000 900,000

Contribution margin 300,000 600,000

Fixed costs 150,000 450,000

Net income $150,000 $150,000


Ex. 144 (cont.)

Instructions

(a) Determine the degree of operating leverage for each alternative.

(b) Which alternative would produce the higher net income if sales increased by $300,000?

\

Ex. 145

The following CVP income statements are available for Chantal Corp. and Mantle, Inc.

Chantal Corp. Mantle, Inc.

Sales revenue $700,000 $700,000

Variable costs 350,000 210,000

Contribution margin 350,000 490,000

Fixed costs 175,000 315,000

Net income $175,000 $175,000

Instructions

(a) Compute the degree of operating leverage for each company.

(b) Assume that sales revenue decreases by 20%. Prepare a CVP income statement for each company.

 

Ex. 146

An investment banker is analyzing two companies that specialize in the production and sale of gourmet cappuccino and chai mixes. Roasted Beans Co. uses a labor-intensive approach and Monat Industries uses a mechanized system. Variable costing income statements for the two companies are shown below:

Roasted Beans Monat Industries

Sales $1,000,000 $1,000,000

Variable costs 650,000 300,000

Contribution margin 350,000 700,000

Fixed costs 175,000 525,000

Net Income $ 175,000 $ 175,000

The investment banker is interested in acquiring one of these companies. However, she is concerned about the impact that each company’s cost structure might have on its profitability.

Instructions

(a) Calculate each company’s degree of operating leverage.

(b) Determine the effect on each company’s net income if sales decrease by 10% and if sales increase by 15%. Do not prepare income statements.

 

aEx. 147

Indicate with a check mark whether each of the following would be a product cost or a period cost under an absorption or a variable system for Sour Industries.

Absorption Variable

Product Period Product Period

a. Direct materials _________ _________ _________ ________

b. Direct labor _________ _________ _________ ________

c. Factory utilities _________ _________ _________ ________

d. Factory rent _________ _________ _________ ________

e. Indirect labor _________ _________ _________ ________

f. Factory supervisor salaries _________ _________ _________ ________

g. Factory maintenance (variable) _________ _________ _________ ________

h. Factory depreciation _________ _________ _________ ________

i. Sales salaries _________ _________ _________ ________

j. Sales commissions _________ _________ _________ ________

 

aEx. 148

Nimble Corp. manufactures and sells a variety of camping products. Recently the company opened a new plant to manufacture a deluxe portable cooking unit. Cost and sales data for the first month of operations are shown below:

Manufacturing Costs

Fixed Overhead $140,000

Variable overhead $3 per unit

Direct labor $12 per unit

Direct material $30 per unit

Beginning inventory 0 units

Units produced 10,000

Units sold 9,000

Selling and Administrative Costs

Fixed $200,000

Variable $4 per unit sold

The portable cooking unit sells for $110. Management is interested in the opening month’s results and has asked for an income statement.

Instructions

Assume the company uses absorption costing. Calculate the production cost per unit and prepare an income statement for the month of June, 2013.

 


aEx. 149

On-Road Wheels, Inc. manufactures a basic road bicycle. Production and sales data for the most recent year are as follows (no beginning inventory):

Variable production costs $90 per bike

Fixed production costs $400,000

Variable selling and administrative costs $22 per bike

Fixed selling and administrative costs $550,000

Selling price $200 per bike

Production 20,000 bikes

Sales 18,000 bikes

Instructions

(a) Prepare a brief income statement using absorption costing.

(b) Compute the amount to be reported for inventory in the year-end absorption costing balance sheet.

 

aEx. 150

On-Road Wheels, Inc. manufactures a basic road bicycle. Production and sales data for the most recent year are as follows (no beginning inventory):

Variable production costs $95 per bike

Fixed production costs $400,000

Variable selling and administrative costs $22 per bike

Fixed selling and administrative costs $550,000

Selling price $200 per bike

Production 20,000 bikes

Sales 16,000 bikes

Instructions

(a) Prepare a brief income statement using variable costing.

(b) Compute the amount to be reported for inventory in the year-end variable costing balance sheet.

 

aEx. 151

Cutting Edge Corp. produces sporting equipment. In 2012, the first year of operations, Cutting Edge produced 25,000 units and sold 20,000 units. In 2013, the production and sales results were exactly reversed. In each year, selling price was $100, variable manufacturing costs were $40 per unit, variable selling expenses were $8 per unit, fixed manufacturing costs were $540,000, and fixed administrative expenses were $200,000.

Instructions

(a) Compute the net income under variable costing for each year.

(b) Compute the net income under absorption costing for each year.

(c) Reconcile the differences each year in income from operations under the two costing approaches.

 


aEx. 152

Graham is a division of Flynn, Inc. The division manufactures and sells a pump that is used in a wide variety of applications. During the coming year, it expects to sell 30,000 units for $25 per unit. Steve Moss, division manager, is considering producing either 30,000 or 35,000 units during the period. Other information is presented in the schedule below:

Division Information – 2013

Beginning inventory 0

Expected sales in units 30,000

Selling price per unit $25

Variable manufacturing cost per unit $7

Fixed manufacturing overhead costs (total) $420,000

Fixed manufacturing overhead costs per unit

Based on 30,000 units ($420,000÷ 30,000) $14

Based on 35,000 units ($420,000÷ 35,000) $12

Manufacturing cost per unit

Based on 30,000 units ($7 variable + $14 fixed) $21

Based on 35,000 units ($7 variable + $12 fixed) $19

Selling and administrative expenses (all fixed) $25,000

 

Instructions

(a) Prepare an absorption costing income statement with one column showing the results if 30,000 units are produced and one column showing the results if 35,000 units are produced.

(b) Why is income different for the two production levels when sales is 30,000 units either way?

 

aEx. 153

Graham is a division of Flynn, Inc. The division manufactures and sells a pump that is used in a wide variety of applications. During the coming year, it expects to sell 30,000 units for $20 per unit. Steve Moss, division manager, is considering producing either 30,000 or 40,000 units during the period. Other information is presented in the schedule below:

Division Information – 2013

Beginning inventory 0

Expected sales in units 30,000

Selling price per unit $20

Variable manufacturing cost per unit $7

Fixed manufacturing overhead costs (total) $360,000

Fixed manufacturing overhead costs per unit

Based on 30,000 units ($360,000÷ 30,000) $12

Based on 40,000 units ($360,000÷ 40,000) $9

Manufacturing cost per unit

Based on 30,000 units ($7 variable + $12 fixed) $19

Based on 40,000 units ($7 variable + $9 fixed) $16

Selling and administrative expenses (all fixed) $25,000

Instructions

Prepare a variable costing income statement with one column showing the results if 30,000 units are produced and one column showing the results if 40,000 units are produced.

 

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