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Chapter 3

COMMERCE 2AB3 Chapter Notes - Chapter 3: Fixed Cost


Department
Commerce
Course Code
COMMERCE 2AB3
Professor
Mohamed Shehata
Chapter
3

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Question 1
Tembo Inc. produces3productlines(L’s,M’s&N’s)inayearwiththefollowingsellingprices
and manufacturing costs per unit based on the volumes given for each product line:
Sales Mix in Units 2 units 1 unit 3 units
Selling Price $20.00 per unit $10.00 per unit $30.00 per unit
Costs:
Direct Materials $4.00 per unit $2.00 per unit $2.00 per unit
Direct Labour $2.00 per unit $1.00 per unit $2.00 per unit
Variable MOH $1.00 per unit $1.00 per unit $2.00 per unit
Total Fixed Costs $115,200
Required:
1. How many units of each product line would the company have to sell in the year if they
desire net income after taxes of $12,000? Income taxes are expected to be 40%?
2. What is the total sales revenues ($) to breakeven?
Question 2
Jim's Computer Products manufactures keyboards for computers. In June, the two production
departments had budgeted allocation bases of 10,000 machine hours in Department 1 and 5,000
direct manufacturing labour hours in Department 2. The budgeted manufacturing overheads for
the month were $34,500 and $37,500, respectively. For Job 501, the actual costs incurred in the
two departments:
Department 1 Department 2
Direct materials purchased on account
$66,000
$106,500
Direct materials used
19,500
8,100
Direct manufacturing labour
31,500
32,100
Indirect manufacturing labour
6,600
5,400
Indirect materials used
4,500
2,850
Lease on equipment
9,750
2,250
Utilities
600
750
Job 501 incurred 1,000 machine hours in Department 1 and 300 manufacturing labour hours in
Department 2. The company uses a budgeted departmental overhead rate for applying overhead
to production.
What is the total cost of Job 501?
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