Question 1
Jake owns a machine shop. In reviewing the shop's utility bills for the past 12 months, he found that the highest bill of $2,800 occurred in July when the machines worked 1,400 machine hours. The lowest utility bill of $2,600 occurred in December when the machines worked 900 machine hours.
Requirements - using the high-low method
a. Calculate the variable rate per machine hour and the total fixed utility cost.
b. Show the equation for determining the total utility cost for the machine shop
c. If Jake anticipates using 1,200 machine hours in January, predict the shop's total utility bill using the equation from requirement (b).
Question 2
Compute the missing amounts for the following table (show all computations)
A B C
Number of units 260 units 720 units 1,500 units
Sales price per unit $20 $8 $25
Variable costs per unit $8 $2 $20
Total fixed costs $14,400 $12,000 $5,000
Target profit $36,000 $15,000 $$20,000
Calculate :
Contribution margin per unit
Contribution margin ratio
Required units to achieve target profit
Required units to breakeven
Required sales dollars to breakeven
Question 3
Clarke manufactures and sells two products. The first product is a disposable shaving razor blade that lasts about 7 days. The second product is shaving cream. Customers of the first product use one bottle of shaving cream every 28 days. As a result, razor blades outsell shaving cream by a 4:1 ratio. Shaving Cream sells for $8 per bottle, and has a contribution margin ratio of 50%. The razor blades sell for $3 per blade, but only generate variables costs of $1.50. The company's total fixed costs are $3,500,000.
Requirements:
a. What level of total sales is necessary to achieve break even?
b. If a competitor began selling razors that forced Clarke to reduce the price for its razors to $2.50 (to maintain market share and the 4:1 ratio of razors to shaving cream), how many Razor sets must be sold for the company to break even?
Question 4
Cyber Inc manufactures networking devices for personal computer systems, using just-in-time methods. After receiving an order for 300 devices, the company bought materials (for cash) costing $14,000 to fill this order. It incurred labor and overhead costs of $48,000, of which $10,000 was for wages and the rest overhead.
After the production was finished, but before all goods were sold, the company needed to compute an inventory cost for financial statement purposes. The cost of finished goods inventory was $2,480.
Requirements:
a. Use T-accounts to show the flow of costs under traditional costing system
b. Prepare journal entries for these transactions using backflush costing.
c. Use T-accounts to show the flow of costs using a JIT system with backflush costing.