Question 1: Blue Ridge Company manufactures a product that sells for $60 per unit. Blue Ridge incurs a variable cost per unit of $38 and $4,128,000 in total fixed costs to produce this product. It is currently selling 240,000 units.
Instructions: Complete each of the following requirements, presenting labeled supporting computations.
a) Compute and label the contribution margin per unit and contribution margin ratio.
b) Using the contribution margin per unit, compute the break-even point in units.
c) Using the contribution margin ratio, compute the break-even point in dollars.
d) Compute the margin of safety and margin of safety ratio.
e) Compute the number of units that must be sold in order to generate net income of $600,000 using the contribution margin per unit.
f) Blue Ridge is considering reducing the salary of the sales staff and paying a commission to its salesmen equal to 10% of sales. Reducing the salaries will decrease fixed costs by $400,000 and management believes the commission incentive to the sales group will increase sales volume 30%. Should Blue Ridge implement this plan? Support your answer with computations.
Question 2 : Flake Inc. uses a process cost system and the weighted average cost flow assumption. Production begins in the Cutting Department where materials are added at the beginning of the process and conversion costs are incurred uniformly throughout the process.
On November 1, 2012 the beginning work in process inventory consisted of 16,000 units which were 40% complete and had costs of $100,000 for materials and $90000 for conversion costs.
During November, the following occurred:
Materials added $323,980
Conversion costs incurred $240,000
Units completed and transferred out in November 24,000
Units in ending work in process November 30 (60% complete) 10,000
Compute the following and show the computations that support your answers.
1. Equivalent units of production for materials and conversion costs in the Cutting Department for the month of November.
2. Cost per equivalent unit for materials and conversion costs for November.
3. Costs assigned to the ending work in process inventory on November 30.
4. Costs assigned to units completed and transferred out during November.