ACIS 2115 Lecture Notes - Lecture 6: Earnings Before Interest And Taxes, Fixed Cost, Income Statement
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Question 1: (allocating costs using ABC,product profit margin)
Generic Motors Corporation has two product lines, A and B. Itscontribution margin statement for last year is as follows:
| Product A | Product B | Total | |
| sales volume (units) | 150 | 300 | 450 |
| Revenue | $6,000 | $30,000 | $36,000 |
| Variable costs: | |||
| direct materials | $1,200 | $6,000 | $7,200 |
| direct labor | $3,000 | $12,000 | $15,000 |
| Contribution margin | $1,800 | $12,000 | $13,800 |
| Fixed costs | $11,700 | ||
| Profit | $2,100 |
Generic Motors uses ABC to allocate the fixed costs. It examinedthe main activities in the firm, and decided to break up the totalfixed costs of $11,700 into 3 cost pools:
* "labor-related" - the total cost in this pool is $3,000,allocated based on direct labor dollars
* "sales-related" - the total cost in this pool is $2,700,allocated based on number of units
* "production setups" - the total cost in this pool is $6,000,allocated based on the number of production batches. A is producedin batches of 10 units, and B is produced in batches of 5units.
Required:
a) for each cost pool, compute the allocation rateand the amounts allocated to product A and product B. (assume thatpractical capacity = total activity volume for each pool)
(hint: The amounts allocated to A and B from each pool shouldadd up to the total cost in that pool. To allocate the costs in the"production setups" pool, you will have to compute the number ofbatches. If the total number of batches for A and B does not add upto 75, you are doing something wrong).
* "labor-related" pool:
allocation rate = $ ______ per DL$
FC allocated to A = $ ______
FC allocated to B = $ ______
* "sales-related" pool:
allocation rate = $ ______ per unit
FC allocated to A = $ ______
FC allocated to B = $ ______
* "production setups" pool:
allocation rate = $ ______ per batch
FC allocated to A = $ ______
FC allocated to B = $ ______
b) using the allocated costs from (a), compute theprofit margin for product A and product B.
If you get a negative number, enter it with a minus sign, i.e.,enter negative $100 as -100, not ($100)
profit margin for A = $ ______
profit margin for B = $ ______
1.
Payton Industries has fixed costs of $490,000, the unit sellingprice is $35, and the unit variable costs are $20. What is thebreak-even sales (units) if fixed costs are reduced by $40,000?
| a. | 32,667 units | |
| b. | 14,000 units | |
| c. | 24,500 units | |
| d. | 30,000 units |
2.
Rusty Co. sells two products, X and Y. Last year, Rusty sold5,000 units of X and 35,000 units of Y. Related data are:
Unit Selling Price | Unit Variable | Unit Contribution | |
Product | Price | Cost | Margin |
X | $110.00 | $70.00 | $40.00 |
Y | 70.00 | 50.00 | 20.00 |
â
â
What was Rusty Co.âs weighted average unit contributionmargin?
| a. | $20.00 | |
| b. | $22.50 | |
| c. | $60.00 | |
| d. | $40.00 |
3.
Charlotte Co. has budgeted salary increases to factorysupervisors totaling 9%. If selling prices and all other costrelationships are held constant, next year's break-even point
| a. | cannot be determined from the data given | |
| b. | will increase by 9% | |
| c. | will decrease by 9% | |
| d. | will increase at a rate greater than 9% |
4.
Flying Cloud Co. has the following operating data for itsmanufacturing operations:
| Unit selling price | $250 |
| Unit variable cost | 100 |
| Total fixed costs | $840,000 |
â
The company has decided to increase the wages of hourly workerswhich will increase the unit variable cost by 10%. Increases in thesalaries of factory supervisors and property taxes for the factorywill increase fixed costs by 4%. If sales prices are held constant,the next break-even point for Flying Cloud Co. will be
| a. | increased by 800 units | |
| b. | increased by 640 units | |
| c. | increased by 400 units | |
| d. | decreased by 640 units |
5.
Given the following cost and activity observations for BountyCompanyâs utilities, use the high-low method to calculate Bountyâvariable utilities costs per machine hour. Round your answer to thenearest cent.
â
â | Cost | Machine Hours |
March | $3,100 | 15,000 |
April | 2,700 | 10,000 |
May | 2,900 | 12,000 |
June | 3,600 | 18,000 |
| a. | $10.00 | |
| b. | $0.11 | |
| c. | $0.63 | |
| d. | $0.67 |
6.
Costs that remain constant in total dollar amount as the levelof activity changes are called
| a. | variable costs | |
| b. | mixed costs | |
| c. | product costs | |
| d. | fixed costs |
7.
Lee Industry sales are $525,000, variable costs are 53% ofsales, and operating income is $19,000. What is the contributionmargin ratio?
| a. | 47% | |
| b. | 26.5% | |
| c. | 53% | |
| d. | 9.5% |
8.
If Kaden Company's fixed costs are $46,800, the unit sellingprice is $42, and the unit variable costs are $24. What is thebreak-even sales (units)?
| a. | 1,950 | |
| b. | 1,114 | |
| c. | 2,400 | |
| d. | 2,600 |
9.
Contribution margin is
| a. | the same as sales revenue | |
| b. | the excess of sales revenue over variable cost | |
| c. | another term for volume in the "cost-volume-profit" analysis | |
| d. | profit |
