Tigger shoe company makes and sells a variety of leather

Question

Problem 1 - Record Players have variety of costs are incurred in production.

Cost Description	Variable	Fixed	Period	Product	DM	DL	MOH
Wood used for the base where the turntable sits
Fire insurance on the factory building
Depreciation on office equipment in the marketing department
Wages of factory security guards
Freight costs to customers
Utility costs incurred in factory
Tung oil used to finish wood for base
Wages of employees who apply tung oil to base
Wages of workers who perform quality control inspections
Travel expenses for sales staff to attend South by Southwest (SXSW) in Austin, TX
Maintenance costs of factory machines
Cost accountant's salary
Property taxes paid on corporate headquarters
Depreciation on factory machinery
Diamond-tipped stylus (the needle)
Salary of factory assembly supervisor

Required:

1. Identify each cost as fixed or variable in relation to each record player produced.

2. Identify each cost as a period or product (table) cost.

3. For product costs only, identify each cost as DM, DL, or MOH.

Problem 2 - Regency is a cruise ship company. It currently has six ships and plans to add two more. It offers luxury passenger cruises in the Caribbean, Alaska, and the Far East. Management is currently addressing what to do with an existing ship, the S.S. Princess, when she is replaced by a new ship.

The S.S. Princess is now sailing the Caribbean and will be replaced next year. The S.S. Princess might be moved to the Mediterranean for a new 7-day Greek island tour. A 7-day cruise would depart Athens Sunday night, stop at four ports before returning to Athens Sunday morning, and prepare for a new cruise that afternoon. The S.S. Princess can carry as many as 1,000 passengers. The data below summarize the operating costs for this 7-day cruise.

Estimated Operating Costs for 7-day Greek Island Cruise
Description	Variable Costs*	Fixed Costs**
Labor	75,000	100,000
Food	236,000	45,200
Fuel		180,000
Port fees and services		103,000
Marketing, advertising, promotion		255,000
Supplies	31,000	65,000
Totals	342,000	748,200

REQUIRED:

1. Assuming the seven-day Greek cruise can be priced at an average of $1,520, calculate the break-even number of passengers per cruise using the data provided.

2. Passengers purchase beverages, souvenirs, and services while on the ship. The ship makes money on the purchases. If the ship line has a margin of 50% on all such onboard purchases, how much would the average passenger have to purchase for the break-even point to be 900 passengers?

Problem 3 - Moana Nursery is a mail-order nursery dedicated to growing, selling, and shipping beautiful cherry trees. Moana offers two distinctive types of cherry trees: Yoshino and Kwanzan. Revenue and cost data for each tree type (for the most recent year) are as follows:

	Yoshino	Kwanzan
Quantity sold	800	1,600
Selling price per tree	$90	$100
Variable cost per tree	$50	$50

Moana's fixed costs for the most recent year were $75,600.

REQUIRED:

1. How many cherry trees must Moana Nursery sell in a year to break even?

2. As the current product mix, how many Yoshino trees must Moana sell in a year to earn a profit of $50,000?

3. Assume that Moana Nursery's product mix changes to 50% Yoshino and 50% Kwanzan. How does this information change your answer to (1)?

Problem 4 - Tigger Shoe Company makes and sells a variety of leather shoes for children. For its current mix of different models and sizes, the average selling price and costs per pair of shoes are as follows:

Item	Amount
Price	$20
Costs:
Direct materials	$6
Direct labor	4
Variable manufacturing overhead	2
Variable selling costs	2
Fixed overhead	3
Total costs	$17

Shoes are manufactured in batch sizes of 100 pairs. Each batch requires 5 machine hours to manufacture. The plant has a total capacity of 4,000 machine hours per month, but the current monthly production consumes only about 80% of capacity.

A discount store has approached Tigger Shoe to buy 10,000 pairs of shoes next month. It has requested that the shoes bear its own private label. Embossing the private label will cost Tigger an additional $1 per pair. However, no variable selling costs will be incurred for fulfilling this special order.

REQUIRED:

Determine the minimum (floor) price that Tigger Shoes should charge for this order.

What other considerations are relevant in this decision? Hint: Think about capacity.

Problem 5 - The Children's Store is on Fifth Avenue in Chicago. It has a magic department near the main door. Management is considering dropping the magic department, which has consistently shown an operating loss. The predicted income statements, in thousands of dollars, are shown below.

The $300,000 of magic department fixed expenses include the compensation of employees of $120,000. These employees will be terminated if the magic department is abandoned. All of the magic department's equipment is fully depreciated, so none of the $300,000 pertains to such items. Furthermore, disposal values of equipment will be exactly offset by the costs of removal and remodeling.

If the magic department is dropped, the manager will use the vacated space for either more general merchandise or more electronic products. The expansion of general merchandise would not entail hiring any additional salaried help, but more electronic products would require an additional person at an annual cost of $30,000. The manager thinks that sales of general merchandise would increase by $250,000; electronic products by $200,000. The manager's modest predictions are partially based on the fact that she thinks the magic department has helped lure customers to the store and, thus, improved overall sales. If the magic department is closed, that lure would be gone.

	Total	General Merchandise	Electronic Products	Magic Department
Sales	$6,000	$5,000	$400	$600
Variable expenses	4,090	3,500	200	390
Contribution margin	$1,910	$1,500	$200	$210
Fixed expenses*	1,100	750	50	300
Operating income (loss)	$810	$750	$150	($90)

* Includes compensation, depreciation, property taxes, insurance, etc.

REQUIRED: Should the magic department be closed? Explain, showing computations.

Problem 6 - Clean and Brite manufactures three different models of swimming pool cleaners (AR1, AR2, and BR1). These are sophisticated computer-controlled, programmed cleaners that scrub and vacuum the pool's bottom, and steps and provide supplemental filtration of pool water. The three models differ in their capacity and programmability.

Clean and Brite uses an absorption costing system that absorbs manufacturing overhead to the three models based on direct labor hours. The single plantwide manufacturing overhead rate is predetermined before the beginning of the fiscal year using a flexible manufacturing overhead budget. Variable manufacturing overhead is budgeted to be $3.00 per direct labor hour, and fixed manufacturing overhead is budgeted to be $1,397,500. Direct labor is budgeted at $25 per DLH. The following table summarizes the budgeted and actual results of operation for the year:

	Models
	AR1	AR2	BR1
Actual  number of units produced	5,100	3,900	2,200
Actual DL hours per unit	3.1	4.2	5.9
Budgeted wholesale price	$550	$750	$1,050
Budgeted DL hours per scrubber	3	4	6
Budgeted direct materials	$95	$125	$175
Budgeted production (units)	5,000	4,000	2,000
Budgeted DL cost (@$25  per DL hour)	$75	$100	$150

REQUIRED:

1. Calculate the firmwide overhead rate at the beginning of the year (round to two decimals).

2. A batch of 100 units of model AR2 is produced using 405 direct labor hours. How much overhead is absorbed by this batch of 100 model AR2s?

3. Actual overhead incurred during the year was $1,520,500. Calculate the amount of over- or underabsorbed overhead for the year.

4. Clean and Brite writes off any over/underabsorbed to cost of good sold. What is the effect of writing off the over/underabsorbed overhead calculated in (3) on net income? In other words, does net income increase or decrease after the writeoff?