Question : 1.
The subsequent information relates to Vice Versa Ventures for calendar year 20XX, the company's first year of operations.
Units produced 20,000
Units sold 17,000
Selling price per unit $35
Direct material per unit $5
Direct labor per unit $5
Variable manufacturing overhead per unit $2
Variable selling cost per unit $3
Annual fixed manufacturing overhead $160,000
Annual fixed selling and administrative expense $80,000
(a) Make an income statement using full costing.
(b) Create an income statement using variable costing.
Question : 2.
Leekee Shipyards has a new barnacle-removing product for ocean-going vessels. The company invests $1,000,000 in operating assets and strategies to produce and sell 200,000 units per year. Leekee needs to make a return on investment of 20% each year. Leekee requires to know what price to charge for this product.
Use the absorption costing approach to evaluate the markup required to make the desired return on investment based on the subsequent information.
Per Unit Total
Direct Materials $2.00
Direct Labor $1.50
Variable Manufacturing Overhead
$1.00
Fixed Manufacturing Overhead $100,000
Variable Selling and Administrative Expense $0.10
Fixed Selling and Administrative Expense $100,000
Question : 3
Elliot's Escargots sells commercial and home snail extraction tools and serving pieces. Presently, the snail extraction line of products takes up approximately 50 percent of the company's retail floor space. The CEO of Elliot's wants to decide if the company could continue offering snail extraction tools or focus only on serving pieces. If the snail extraction tools are dropped, salaries and other direct fixed costs will be avoided and serving piece sales would increase by 13 percent. Allocated fixed costs are assigned based on relative sales.
Snail Extraction Serving
Tools Pieces Total
Sales $1,200,000 $800,000 $2,000,000
Less cost of goods sold 1,000,000 700,000 1,700,000
Contribution margin 200,000 100,000 300,000
Less direct fixed costs:
Salaries 175,000 175,000 350,000
Other 60,000 60,000 120,000
Less allocated fixed costs:
Rent 14,118 9,882 24,000
Insurance 3,529 2,471 6,000
Cleaning 4,117 2,883 7,000
Executive salary 76,470 53,530 130,000
Other 7,058 4,942 12,000
Total costs 340,292 308,708 649,000
Net income ($140,292) ($208,708) $349,000
Prepare an incremental analysis in good form to evaluate the incremental effect on profit of discontinuing the snail extraction tool line.