Question 1: The Bruggs & Strutton Company manufactures an engine for carpet cleaners called the "Snooper." Budgeted cost and revenue data for the "Snooper" are given below, based on sales of 40,000 units.
Sales $1,600,000
Less: Cost of goods sold 1,120,000
Gross Margin $ 480,000
Less: Operating expenses 100,000
Net income $ 380,000
Cost of goods sold consists of $800,000 of variable costs and $320,000 of fixed costs. Operating expenses consist of $40,000 of variable costs and $60,000 of fixed costs.
Required:
(A) Calculate the break-even point in units and sales dollars.
(B) Calculate the safety margin.
(C) Bruggs & Strutton received an order for 6,000 units at a price of $25.00. There will be no increase in fixed costs, but variable costs will be reduced by $0.54 per unit because of cheaper packaging. Determine the projected increase or decrease in profit from the order.
Problem 2: Jacobs manufactures two products: A and B. The firm predicts a sales volume of 10,000 units for product A and ending finished-goods inventory of 2,000 units. These numbers for product B are 12,000 and 3,000, respectively. Jacobs currently has 7,000 units of A in inventory and 9,000 units of B.
The following raw materials are required to manufacture these products:
Required for product
Raw material Cost per pound A B
X $2.00 2 pounds
Y 2.50 1 Pound 1 Pound
Z 1.25 3 Pounds
Product A requires three hours of cutting time and two hours of finishing time; B requires one hour and three hours, respectively. The direct labor rate for cutting is $10 per hour and $18 per hour for finishing.
Required:
(A) Prepare a production budget in units.
(B) Prepare a materials usage budget in pounds and dollars.
(C) Prepare a direct labor budget in hours and dollars for product A.