Questions -
Q1. Hayden, Inc. produces two different products, Product A and Product B. Hayden uses a traditional volume-based costing system in which direct labor hours are the allocation base. Hayden is considering switching to an ABC system by splitting its manufacturing overhead cost across three activities: Engineering, Manufacturing, and Inspection. The cost of each activity and usage of the activity drivers are as follows:
|
Cost
|
Usage by Product A
|
Usage by Product B
|
|
Engineering (Engineering Hours)
|
$600,000
|
2,000
|
8,000
|
|
Manufacturing (Direct Labor Hours)
|
$800,000
|
400,000
|
400,000
|
|
Inspection (Batches)
|
$200,000
|
4,000
|
1,000
|
Hayden manufactures 10,000 units of Product A and 5,000 units of Product B per month.
Required:
a. Calculate the predetermined overhead rate under the traditional costing system.
b. Calculate the activity rate for Engineering.
c. Calculate the activity rate for Manufacturing.
d. Calculate the activity rate for Inspection.
e. Calculate the indirect manufacturing costs assigned to each unit of Product A under the traditional costing system.
f. Calculate the indirect manufacturing costs assigned to each unit of Product B under the traditional costing system.
g. Calculate the indirect manufacturing costs assigned to each unit of Product A under the ABC system.
h. Calculate the indirect manufacturing costs assigned to each unit of Product B under the ABC system.
i. Which product is under-costed and which is over-costed under the volume-based cost system compared to ABC?
Q2. Campbell, Inc. sold 100,000 units last year for $2.00 each. Variable costs per unit were $0.30 for direct materials, $0.50 for direct labor, and $0.30 for variable overhead. Fixed costs were $60,000 in manufacturing overhead and $40,000 in nonmanufacturing costs.
a. What is the total contribution margin?
b. What is the unit contribution margin?
c. What is the contribution margin ratio?
d. If sales increase by 20,000 units, by how much will profits increase?
Q3. Harmony sells a product for $50 per unit. Variable costs per unit are $30, and monthly fixed costs are $150,000.
a. What is the break-even point in units?
b. What unit sales would be required to earn a target profit of $100,000?
c. Assume they achieve the level of sales required in part b, what is the degree of operating leverage?
d. If sales increase by 40% from that level, by what percentage will profits increase?
Q4. Hanson Corp produces three products, and is currently facing a labor shortage - only 3,000 hours are available this month. The selling price, costs, and labor requirements of the three products are as follows:
|
Product A
|
Product B
|
Product C
|
|
Selling price
|
$50.00
|
$30.00
|
$40.00
|
|
Variable cost per unit
|
$35.00
|
$10.00
|
$30.00
|
|
Direct labor hours per unit
|
1.5
|
3
|
2
|
a. What is the contribution margin per unit for each product?
b. What is the contribution margin per direct labor hour for each product?
c. Assume Hanson has unlimited demand for each product. Which product should Hanson focus on producing?
Q5. Walnut Systems produces two different products, Product A, which sells for $120 per unit, and Product B, which sells for $180 per unit, using three different activities: Design, which uses Engineering Hours as an activity driver; Machining, which uses machine hours as an activity driver; and Inspection, which uses number of batches as an activity driver. The cost of each activity and usage of the activity drivers are as follows:
|
Cost
|
Usage by
Product A
|
Usage by
Product B
|
|
Design (Engineering Hours)
|
$150,000
|
200
|
300
|
|
Machining (Machine Hours)
|
$500,000
|
1,000
|
3,000
|
|
Inspection (Batches)
|
$30,000
|
45
|
15
|
Walnut manufactures 10,000 units of Product A and 7,500 units of Product B per month. Each unit of Product A uses $50 of direct materials and $20 of direct labor, while each unit of Product B uses $75 of direct materials and $35 of direct labor.
Required:
a. Calculate the activity rate for design.
b. Calculate the activity rate for machining.
c. Calculate the activity rate for inspection.
d. Determine the indirect costs assigned to Product A.
e. Determine the indirect costs assigned to Product B.
f. Determine the manufacturing cost per unit for Product A
g. Determine the manufacturing cost per unit for Product B.
h. Determine the gross profit per unit for Product A.
i. Determine the gross profit per unit for Product B.
Q6. Chilton, Inc. sold 11,000 units last year for $20 each. Variable costs per unit were $4 for direct materials, $1.50 for direct labor, and $2.50 for variable overhead. Fixed costs were $60,000 in manufacturing overhead and $40,000 in nonmanufacturing costs.
a. What is the total contribution margin?
b. What is the unit contribution margin?
c. What is the contribution margin ratio?
d. If sales increase by 2,000 units, by how much will profits increase?
Q7. Raven Inc. sells a single product for $45. Variable costs include $26 for each unit plus a $10 selling expense per unit. Fixed costs are $200,000 per month.
a. What is the contribution margin percentage?
b. What is the break-even sales revenue?
c. What sales revenue is needed to achieve a $175,000 per month profit?
Q8. Poppy has received a special order for 1,000 units of its product at a special price of $125. The product currently sells 18,000 units for $150 and has the following manufacturing costs:
|
Per unit
|
|
Direct materials
|
$45
|
|
Direct labor
|
30
|
|
Variable manufacturing overhead
|
35
|
|
Fixed manufacturing overhead
|
25
|
|
Unit cost
|
135
|
Assume that Poppy has sufficient capacity to fill the order without harming normal production and sales.
a. If Poppy accepts the order, what effect will the order have on the company's short-term profit?
Now assume that Poppy has sufficient capacity to fill 500 units of the order without harming normal sales.
b. If Poppy accepts the order and fills it completely, what effect will the order have on the company's short-term profit?
c. If Poppy accepts the special order, what average price should Poppy charge to make a $10,000 incremental profit?