Assignment: 1. DragNet Manufacturing sold 72,000 units of its product for $95 per unit in 2014. Variable cost per unit is $51.30 and total fixed costs are $5,350,000.
Required: a. Compute the company's CM ratio and its break-even point in both units and dollars.
b. Assume that the company increased its monthly advertising budget by $66,000,which would result in a $5,500,000 increase in monthly sales. What would be the effect on the company's monthly net operating income or loss? (Use the incremental approach in preparing your answer.)
c. Refer to the original data. The CEO proposes a reduction in the selling price to $75, which would increase the monthly advertising budget by $102,200, and double unit sales. Prepare the new contribution format income statement.
2. Trendy Manufacturing uses normal costing based on a job-order costing system. Indirect costs are allocated to jobs using a plantwide overhead rate based on machine hours. At the beginning of 2014, the company made the following estimates:
Machine-hours required to support estimated production 200,000
Fixed manufacturing overhead cost $950,000
Variable manufacturing overhead cost per machine-hour $7.00
Required: a. Compute the predetermined overhead rate.
b. During 2014, Job 450 was started and completed. The following information was available with respect to this job:
Direct materials requisitioned $400
Direct labor cost $270
Machine-hours used 45
Compute the total manufacturing cost assigned to Job 450.
c. During the year, the company worked a total of 189,000 machine-hours on all jobs and incurred actual manufacturing overhead costs of $2,200,750. What is the amount of underapplied or overapplied overhead for the year? If this amount were closed out entirely to Cost of Goods Sold, would the journal entry increase or decrease net operating income?