Whirlwind Industries is a multiproduct company with severalmanufacturing plants. The Brownwood Plant manufactures anddistributes two carpet cleaning products, Household and Commercial,under the Karpet Kleen label. The forecasted operating results forthe first six months of the year are presented in the followingstatement
Karpet KleenâBrownwood Plant
Forecasted Result of Operations
For the six months ended June 30 (in thousands)
Household Commercial Total
Units 100 100 200
Sales revenue $2,000 $3,000 $5,000
Cost of goods sold 1,600 1,900 3,500
Gross profit $ 400 $1,100 $1,500
Selling & admin. expenses
Variable $ 400 $ 700 $1,100
Fixed 240 360 600
Total selling & admin expenses $ 640 $1,060 $1,700
Income (loss) before taxes $ (240) $ 40 $ (200)
The product costs per unit are as follows:
Household Commercial
Direct materials $ 7 $ 8
Direct labor 4 4
Variable manufacturing overhead 1 2
Fixed manufacturing overhead 4 5
Total product cost $16 $19
Each product is manufactured on a separate production line.Normal manufacturing capacity is 200,000 cases of each product peryear. However, the plant is capable of producing 250,000 cases ofthe Household product and 350,000 cases of the Commercial productper year. Capacity levels assume an even fl ow of productionthroughout the year, so that the maximum capacity for the secondhalf of the year is 125,000 cases of Household and 175,000 ofCommercial cases.
The following schedule reflects the top managementâs consensusregarding the price/ volume alternatives for Karpet Kleen productsin the second six months of the year. These are essentially thesame alternatives management faced during the fi rst six months ofthe year.
Household Commercial
Alternative Prices Unit Sales Alternative Prices (per unit)Unit Sales Volume
$18 120,000 $25 175,000
20 100,000 27 140,000
21 90,000 30 100,000
22 80,000 32 55,000
23 50,000 35 35,000
Top management believes the companyâs loss for the fi rst sixmonths of the year refl ects a tight profit margin caused byintense competition. Management also believes that many companieswill be forced out of this market by the next year and thatlong-term profi ts should improve.
Other Information
⢠Fixed manufacturing overhead per unit is based on normalmanufacturing capacity.
⢠Depreciation constitutes 50% of the fi xed manufacturingoverhead cost of each product and is unavoidable.
⢠The remaining fi xed manufacturing overhead expenses arisefrom factory personnel assigned to particular products.
⢠Variable selling and administrative expenses are $4 and $7 perunit, respectively, for the Household and Commercial products.
Required
a. What unit selling price should Whirlwind Industries assign toeach of the Karpet Kleen products to maximize net income for thesecond six months of the year? Support your answers withcalculations.
b. Based on the unit prices you have chosen in part (a), what isthe companyâs expected income before taxes for the second sixmonths of the year? Support your answer with an income statementprepared in the contribution margin format. Show the contributionmargin and the segment margin for each product.
c. Based on the unit prices you have chosen in part (a), shouldthe Household product be dropped for the second six months of theyear? Support your answer.
d. Management has received a special order from CleanMeCorporation for 80,000 cases of the Commercial product at a priceof $20 per case. No sales commission would need to be paid (salescommissions are normally $3.20 per case). Should they accept thisorder? Support your answer with calculations and comment on thequalitative considerations.
e. MakeIt Corporation has offered to make Karpet KleenâsHousehold product for $13 per case. Karpet Kleen would still sellthe product to its customers. The company could use its idleresources to make a new Extra Strength product. Management believesthe company could sell 45,000 cases of this new product for $40 percase; variable selling and administrative expenses would be $7 percase. They expect that introducing this product will reduce currentunit sales of the Commercial product by 10%. What is the maximumvariable cost per unit of the Extra Strength product that wouldmake this proposition worthwhile? Support your answer withcalculations and comment on the qualitative considerations.
f. Without considering your answers to previous questions,assume that the optimum price/volume alternatives for the secondsix months of the year were a selling price of $23 and a volume of50,000 cases for the Household product, and a selling price of $35and volume of 35,000 cases for the Commercial product. What was thecompanyâs expected income before taxes? Prepare an income statementin contribution margin format.
g. Without considering your answers to previous questions,assume that the optimum price/volume alternatives for the secondsix months of the year were a selling price of $23 and a volume of50,000 cases for the Household product, and a selling price of $35and volume of 35,000 cases for the Commercial product. ShouldWhirlwind Industries consider closing down its operations tominimize its losses? Support your answer with appropriatecalculations and discuss the qualitative factors that should beconsidered.
PLEASE SHOW ALL WORK. I'M TRYING TO LEARNTHIS!
Whirlwind Industries is a multiproduct company with severalmanufacturing plants. The Brownwood Plant manufactures anddistributes two carpet cleaning products, Household and Commercial,under the Karpet Kleen label. The forecasted operating results forthe first six months of the year are presented in the followingstatement
Karpet KleenâBrownwood Plant
Forecasted Result of Operations
For the six months ended June 30 (in thousands)
Household Commercial Total
Units 100 100 200
Sales revenue $2,000 $3,000 $5,000
Cost of goods sold 1,600 1,900 3,500
Gross profit $ 400 $1,100 $1,500
Selling & admin. expenses
Variable $ 400 $ 700 $1,100
Fixed 240 360 600
Total selling & admin expenses $ 640 $1,060 $1,700
Income (loss) before taxes $ (240) $ 40 $ (200)
The product costs per unit are as follows:
Household Commercial
Direct materials $ 7 $ 8
Direct labor 4 4
Variable manufacturing overhead 1 2
Fixed manufacturing overhead 4 5
Total product cost $16 $19
Each product is manufactured on a separate production line.Normal manufacturing capacity is 200,000 cases of each product peryear. However, the plant is capable of producing 250,000 cases ofthe Household product and 350,000 cases of the Commercial productper year. Capacity levels assume an even fl ow of productionthroughout the year, so that the maximum capacity for the secondhalf of the year is 125,000 cases of Household and 175,000 ofCommercial cases.
The following schedule reflects the top managementâs consensusregarding the price/ volume alternatives for Karpet Kleen productsin the second six months of the year. These are essentially thesame alternatives management faced during the fi rst six months ofthe year.
Household Commercial
Alternative Prices Unit Sales Alternative Prices (per unit)Unit Sales Volume
$18 120,000 $25 175,000
20 100,000 27 140,000
21 90,000 30 100,000
22 80,000 32 55,000
23 50,000 35 35,000
Top management believes the companyâs loss for the fi rst sixmonths of the year refl ects a tight profit margin caused byintense competition. Management also believes that many companieswill be forced out of this market by the next year and thatlong-term profi ts should improve.
Other Information
⢠Fixed manufacturing overhead per unit is based on normalmanufacturing capacity.
⢠Depreciation constitutes 50% of the fi xed manufacturingoverhead cost of each product and is unavoidable.
⢠The remaining fi xed manufacturing overhead expenses arisefrom factory personnel assigned to particular products.
⢠Variable selling and administrative expenses are $4 and $7 perunit, respectively, for the Household and Commercial products.
Required
a. What unit selling price should Whirlwind Industries assign toeach of the Karpet Kleen products to maximize net income for thesecond six months of the year? Support your answers withcalculations.
b. Based on the unit prices you have chosen in part (a), what isthe companyâs expected income before taxes for the second sixmonths of the year? Support your answer with an income statementprepared in the contribution margin format. Show the contributionmargin and the segment margin for each product.
c. Based on the unit prices you have chosen in part (a), shouldthe Household product be dropped for the second six months of theyear? Support your answer.
d. Management has received a special order from CleanMeCorporation for 80,000 cases of the Commercial product at a priceof $20 per case. No sales commission would need to be paid (salescommissions are normally $3.20 per case). Should they accept thisorder? Support your answer with calculations and comment on thequalitative considerations.
e. MakeIt Corporation has offered to make Karpet KleenâsHousehold product for $13 per case. Karpet Kleen would still sellthe product to its customers. The company could use its idleresources to make a new Extra Strength product. Management believesthe company could sell 45,000 cases of this new product for $40 percase; variable selling and administrative expenses would be $7 percase. They expect that introducing this product will reduce currentunit sales of the Commercial product by 10%. What is the maximumvariable cost per unit of the Extra Strength product that wouldmake this proposition worthwhile? Support your answer withcalculations and comment on the qualitative considerations.
f. Without considering your answers to previous questions,assume that the optimum price/volume alternatives for the secondsix months of the year were a selling price of $23 and a volume of50,000 cases for the Household product, and a selling price of $35and volume of 35,000 cases for the Commercial product. What was thecompanyâs expected income before taxes? Prepare an income statementin contribution margin format.
g. Without considering your answers to previous questions,assume that the optimum price/volume alternatives for the secondsix months of the year were a selling price of $23 and a volume of50,000 cases for the Household product, and a selling price of $35and volume of 35,000 cases for the Commercial product. ShouldWhirlwind Industries consider closing down its operations tominimize its losses? Support your answer with appropriatecalculations and discuss the qualitative factors that should beconsidered.
PLEASE SHOW ALL WORK. I'M TRYING TO LEARNTHIS!
Related questions
Andretti Company has a single product called a Dak. The companynormally produces and sells 89,000 Daks each year at a sellingprice of $46 per unit. The companyâs unit costs at this level ofactivity are given below: |
| Directmaterials | $ | 8.50 | |
| Direct labor | 8.00 | ||
| Variablemanufacturing overhead | 2.00 | ||
| Fixed manufacturingoverhead | 8.00 | ($712,000 total) | |
| Variable sellingexpenses | 3.70 | ||
| Fixed sellingexpenses | 4.50 | ($400,500 total) | |
| Total cost perunit | $ | 34.70 | |
| A numberof questions relating to the production and sale of Daks follow.Each question is independent. |
| Required: | |
| 1-a. | Assume that Andretti Company has sufficient capacity to produce115,700 Daks each year without any increase in fixed manufacturingoverhead costs. The company could increase its sales by 30% abovethe present 89,000 units each year if it were willing to increasethe fixed selling expenses by $110,000. Calculate the incrementalnet operating income. (Round all dollar amounts to 2decimal places.) |
| 1-b. | Would theincreased fixed selling expenses be justified? | ||||
|
| 2. | Assume again that Andretti Company has sufficient capacity toproduce 115,700 Daks each year. A customer in a foreign marketwants to purchase 26,700 Daks. Import duties on the Daks would be$1.70 per unit, and costs for permits and licenses would be$16,020. The only selling costs that would be associated with theorder would be $2.40 per unit shipping cost. Compute the per unitbreak-even price on this order. (Round your answers to 2decimal places.) |
| 3. | The company has 400 Daks on hand that have some irregularitiesand are therefore considered to be "seconds." Due to theirregularities, it will be impossible to sell these units at thenormal price through regular distribution channels. What unit costfigure is relevant for setting a minimum selling price?(Round your answer to 2 decimal places.) |
| 4. | Due to a strike in its supplierâs plant, Andretti Company isunable to purchase more material for the production of Daks. Thestrike is expected to last for two months. Andretti Company hasenough material on hand to operate at 25% of normal levels for thetwo-month period. As an alternative, Andretti could close its plantdown entirely for the two months. If the plant were closed, fixedmanufacturing overhead costs would continue at 40% of their normallevel during the two-month period and the fixed selling expenseswould be reduced by 20%. What would be the impact on profits ofclosing the plant for the two-month period? (Enterlosses/reductions with a minus sign. Round all calculations(intermediate and final) to whole numbers. Round unit calculationsto whole numbers.) |
| 5. | An outside manufacturer has offered to produce Daks and shipthem directly to Andrettiâs customers. If Andretti Company acceptsthis offer, the facilities that it uses to produce Daks would beidle; however, fixed manufacturing overhead costs would be reducedby 30%. Because the outside manufacturer would pay for all shippingcosts, the variable selling expenses would be only two-thirds oftheir present amount. Compute the unit cost that is relevant forcomparison to the price quoted by the outside manufacturer.(Do not round intermediate calculations.Round your answer to 2 decimal places.) |
I KNOW THIS IS A LONG QUESTION BUT CAN SOMEONE PLEASE!! ANSWERTHE FULL QUESTION it is not due immediately
Genuine Spice Inc. began operations on January 1, 2016. Thecompany produces eight-ounce bottles of hand and body lotion calledEternal Beauty. The lotion is sold wholesale in 12-bottle cases for$100 per case. There is a selling commission of $20 per case. TheJanuary direct materials, direct labor, and factory overhead costsare as follows:
| DIRECT MATERIALS | ||||
| CostBehavior | Units perCase | Cost perUnit | Cost perCase | |
| Cream base | Variable | 100 ozs. | $0.02 | $2.00 |
| Natural oils | Variable | 30 ozs. | 0.30 | 9.00 |
| Bottle (8-oz.) | Variable | 12 bottles | 0.50 | 6.00 |
| $17.00 | ||||
| DIRECT LABOR | ||||
| Department | CostBehavior | Time perCase | Labor Rateper Hour | Cost perCase |
| Mixing | Variable | 20 min | $18.00 | $6.00 |
| Filling | Variable | 5 | 14.40 | 1.20 |
| 25 min. | $7.20 | |||
| FACTORYOVERHEAD | ||
| CostBehavior | Total Cost | |
| Utilities | Mixed | $600 |
| Facility lease | Fixed | 14,000 |
| Equipment depreciation | Fixed | 4,300 |
| Supplies | Fixed | 660 |
| $19,560 | ||
Part AâBreak-Even Analysis
The management of Genuine Spice Inc. wishes to determine thenumber of cases required to break even per month. The utilitiescost, which is part of factory overhead, is a mixed cost. Thefollowing information was gathered from the first six months ofoperation regarding this cost:
| 2016 | CaseProduction | Utility Total Cost |
|---|---|---|
| January | 500 | $600 |
| February | 800 | 660 |
| March | 1,200 | 740 |
| April | 1,100 | 720 |
| May | 950 | 690 |
| June | 1,025 | 705 |
| Required-Part A: | |
| 1. | Determine the fixed andvariable portion of the utility cost using the high-lowmethod. |
| 2. | Determine the contributionmargin per case. |
| 3. | Determine the fixed costs permonth, including the utility fixed cost from part (1). |
| 4. | Determine the break-even numberof cases per month. |
Part BâAugust Budgets
During July of the current year, the management of Genuine SpiceInc. asked the controller to prepare August manufacturing andincome statement budgets. Demand was expected to be 1,500 cases at$100 per case for August. Inventory planning information isprovided as follows:
Finished Goods Inventory:
| Cases | Cost | |
|---|---|---|
| Estimated finished goods inventory,August 1, 2016 | 300 | $12,000 |
| Desired finished goods inventory,August 31, 2016 | 175 | 7,000 |
Materials Inventory:
| CreamBase | Oils | Bottles | |
|---|---|---|---|
| (ozs.) | (ozs.) | (bottles) | |
| Estimated materials inventory,August 1, 2016 | 250 | 290 | 600 |
| Desired materials inventory, August31, 2016 | 1,000 | 360 | 240 |
There was negligible work in process inventory assumed foreither the beginning or end of the month; thus, none was assumed.In addition, there was no change in the cost per unit or estimatedunits per case operating data from January.
| Required-Part B: | |||
| 5. | Prepare the August productionbudget.* | ||
| 6. | Prepare the August directmaterials purchases budget.* | ||
| 7. | Prepare the August direct laborbudget. Round the hours required for production to the nearesthour.* | ||
| 8. | Prepare the August factoryoverhead budget. If an amount box does not require an entry, leaveit blank. (Entries of zero (0) will be cleared automatically byCNOW.)* | ||
| 9. | Prepare the August budgetedincome statement, including selling expenses. NOTE: Because you arenot required to prepare a cost of goods sold budget, the cost ofgoods sold calculations will be part of the budgeted incomestatement. *
|
Part CâAugust Variance Analysis
During September of the current year, the controller was askedto perform variance analyses for August. The January operating dataprovided the standard prices, rates, times, and quantities percase. There were 1,500 actual cases produced during August, whichwas 250 more cases than planned at the beginning of the month.Actual data for August were as follows:
Actual Direct Materials | ||
|---|---|---|
| Priceper Unit | Quantity per Case | |
| Cream base | $0.016per oz. | 102ozs. |
| Natural oils | $0.32per oz. | 31ozs. |
| Bottle (8-oz.) | $0.42per bottle | 12.5bottles |
| Actual Direct | Actual Direct Labor | |
|---|---|---|
| LaborRate | Timeper Case | |
| Mixing | $18.20 | 19.50min. |
| Filling | 14.00 | 5.60min. |
| Actual variable overhead | $305.00 |
| Normal volume | 1,600cases |
The prices of the materials were different than standard due tofluctuations in market prices. The standard quantity of materialsused per case was an ideal standard. The Mixing Department used ahigher grade labor classification during the month, thus causingthe actual labor rate to exceed standard. The Filling Departmentused a lower grade labor classification during the month, thuscausing the actual labor rate to be less than standard.
| Required-Part C: | |
| 10. | Determine and interpret thedirect materials price and quantity variances for the threematerials. |
| 11. | Determine and interpret thedirect labor rate and time variances for the two departments. Roundhours to the nearest hour. |
| 12. | Determine and interpret thefactory overhead controllable variance. |
| 13. | Determine and interpret thefactory overhead volume variance. |
Questions (Part A)
1. Determine the fixed and variable portion of the utility costusing the high-low method.
| AtHigh Point | AtLow Point | |
|---|---|---|
| Variable cost per unit | ||
| Total fixed cost | ||
| Total cost |
2. Determine the contribution margin per case.
3. Determine the fixed costs per month, including the utilityfixed cost from part (1).
1 | Total fixed costs: | |
2 | ||
3 | ||
4 | ||
5 | ||
6 |
4. Determine the break-even number of cases per month.cases
Production Budget
5. Prepare the August production budget. Enter all amounts aspositive numbers.
| Genuine Spice Inc. | |
| Production Budget | |
| For the Month Ended August 31, 2016 | |
| Cases | |
| Plus | |
| Total | |
| Less | |
Direct Materials Purchases Budget
6. Prepare the August direct materials purchases budget. Enterall amounts as positive numbers.
| Genuine Spice Inc. | ||||
| Direct Materials Purchases Budget | ||||
| For the Month Ended August 31, 2016 | ||||
| Cream Base (ozs.) | Natural Oils (ozs.) | Bottles (bottles) | Total | |
| Plus | ||||
| Less | ||||
| Total | ||||
| X | ||||
Direct Labor Budget
7. Prepare the August direct labor budget. Round the hoursrequired for production to the nearest hour. Enter all amounts aspositive numbers.
| Genuine Spice Inc. | |||
| Direct Labor Budget | |||
| For the Month Ended August 31, 2016 | |||
| Mixing | Filling | Total | |
| X | |||
Factory Overhead Budget
8. Prepare the August factory overhead budget. Enter all amountsas positive numbers. If an amount box does not require an entry,leave it blank. (Entries of zero (0) will be cleared automaticallyby CNOW.)
| Genuine Spice Inc. | |||
| Factory Overhead Budget | |||
| For the Month Ended August 31, 2016 | |||
| Fixed | Variable | Total | |
| Factory overhead: | |||
| Utilities | |||
| Facility lease | |||
| Equipment depreciation | |||
| Supplies | |||
| Total | |||
Budgeted Income Statement
9. Prepare the August budgeted income statement, includingselling expenses. Enter all amounts as positive numbers. NOTE:Because you are not required to prepare a cost of goods soldbudget, the cost of goods sold calculations will be part of thebudgeted income statement.
| Genuine Spice Inc. | |||
| Budgeted Income Statement | |||
| For the Month Ended August 31, 2016 | |||
| Sales | |||
| Finished goods inventory,August 1 | |||
| Direct materials inventory,August 1 | |||
| Direct materialspurchases | |||
| Less direct materialsinventory, August 31 | |||
| Cost of direct materials forproduction | |||
| Direct labor | |||
| Factory overhead | |||
| Less finished goods inventory,August 31 | |||
| Cost of goods sold | |||
| Gross profit | |||
| Selling expenses | |||
| Income before income tax | |||
Variance Analysis (Part C)
10. Determine and interpret the direct materials price andquantity variances for the three materials.
| Direct Materials Price Variance | ||||||
| CreamBase | NaturalOils | Bottles | ||||
| Difference | ||||||
| X | ||||||
| Direct materials pricevariance | ||||||
| Direct Materials Quantity Variance | ||||||
| CreamBase | NaturalOils | Bottles | ||||
| Difference | ||||||
| X | ||||||
| Direct materials quantityvariance | ||||||
The fluctuation in caused the direct material price variances.All the quantity variances were indicating .
11. Determine and interpret the direct labor rate and timevariances for the two departments. Round hours to the nearest tenthof an hour.
| Direct Labor Rate Variance | ||||
| MixingDepartment | FillingDepartment | |||
| Difference | ||||
| X | ||||
| Direct labor ratevariance | ||||
| Direct Labor Time Variance | ||||
| MixingDepartment | FillingDepartment | |||
| Difference | ||||
| X | ||||
| Direct labor timevariance | ||||
The change in the caused the labor rate variances. This changehave been responsible for the direct labor time variance.
12. Determine and interpret the factory overhead controllablevariance.
| Factory Overhead Controllable Variance | ||
| Factory overhead controllablevariance | ||
The factory overhead controllable variance was caused by thevariance in .
13. Determine and interpret the factory overhead volumevariance. Round rate to four decimal places.
| Factory Overhead Volume Variance | ||
| Normal volume (cases) | ||
| Actual volume (cases) | ||
| Difference | ||
| X | ||
| Factory overhead volumevariance | ||
The volume variance indicates the cost of .
