ACTG 2P12 Chapter Notes - Chapter 14: Fixed Cost, Variable Cost, Income Statement

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13 Mar 2017

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Cmr = 4,650 / 6500 = . 7154 or 71. 54% Palsy"s petals has two products, pansies and petunias. The products are grown in separate greenhouses, so costs can be kept for each product separately. Be = fc (,000) / cmu (. 50) = 3,104. Compute the breakeven point in units for pansies and petunias separately: Be = fc (,000) / cmu (. 50) = 8,261. Compute the breakeven point in units for pasty"s petals as a whole: Wtavg cmu = ((13,50 / 20,000)*11. 50) + ((6500 / 20,000) *14. 50) = . 475. Be = ,000 + ,000 + 56,300 / 12. 475 = 15,736. Compute the breakeven point in sales dollars for pasty"s petals as a whole: Cmr = (,500 / ,250 ) = 46. 62% Be $ = (95,000 + 45,000 + 56,300) / . 4662 = ,064. Total: 15,750 > 15,736 (10,622 pansies, 5,115 petunias) At the beginning of may, patsy learned that april"s sales were:

Related Questions

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

â¢ Fixed manufacturing overhead per unit is based on normalmanufacturing capacity.

â¢ Depreciation constitutes 50% of the fi xed manufacturingoverhead cost of each product and is unavoidable.

â¢ The remaining fi xed manufacturing overhead expenses arisefrom factory personnel assigned to particular products.

â¢ 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!

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

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

What was Rusty Co.âs weighted average unit contributionmargin?

	a.	$20.00
	b.	$22.50
	c.	$60.00
	d.	$40.00

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%

Flying Cloud Co. has the following operating data for itsmanufacturing operations:

Unit selling price	$250
Unit variable cost	100
Total fixed costs	$840,000

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

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	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

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

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%

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

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

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ACTG 2P12 Chapter Notes - Chapter 14: Fixed Cost, Variable Cost, Income Statement

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