Problem 1: Granny Strand Company provided the following information for the product it sells:
Sales price $50 per unit
Variable cost of goods sold $23 per unit
Fixed cost of goods sold $800,000
Variable selling expense 10% of sales price
Variable administrative expense $2.00 per unit
Fixed selling expense $400,000
Fixed administrative expense $300,000
For the year ended December 31, 2010, Granny Strand Company produced and sold 100,000 units of product.
Required:
(a) Prepare a Contribution Margin income statement for the company for 2010.
(b) Calculate the company's break-even point in UNITS in 2010. Use the contribution margin technique.
(c) Calculate the company's break-even point in DOLLARS in 2010. Use the contribution margin RATIO technique.
(d) What was the company's margin of safety in dollars in 2010?
(e) How many units would need to be sold in order to earn a target net income of $100,000?
Problem 2:
Speir Specialty Manufacturing, which produces a single product, has prepared the following standard cost sheet for one unit of the product.
Direct materials (6 pounds at $2 per pound) $12
Direct labor (2 hours at $12 per hour) $24
During the month of April, the company manufactured 250 units and incurred the following actual costs:
Direct materials purchased and used (1,550 pounds) $3,255
Direct labor (515 hours) $5,974
Instructions:
Compute the total, price, and quantity variances for materials and labor.