Problem 1: Top Hat Sports manufactures baseball caps. The following information is available for 2008, the company's first year in business when it produced 150,000 caps. Revenue of 240,000 was generated by sale of 90,000 caps.
Production Variable Fixed
Direct material 75,000
Direct labor 50,000
Overhead 37,500 56,250
Selling administrative 45,000 50,000
a. What is the variable production cost per unit?
b. What is the total contribution margin per unit?
c. Prepare a variable costing income statement.
Problem 2: Reno Corp. sells a product for 180 per unit. The company's variable costs per unit are $30 for direct material, $25 per unit for direct labor and $17 per unit for overhead. Annual fixed production overhead is 37,400, and fixed selling and administrative overhead is $25,240.
a. What is the contribution margin per unit?
b. What is the contribution margin per unit?
c. What is the breakeven point in units?
Problem 3: Your roommate Jackson Robards purchased a new portable DBD player just before this term for $90.Shortly after the semester began, Jackson's DVD player crushed by errant flying plant during a party at his apartment. Returning the equipment to the retailer, Jackson was informed that the estimated cost of repairs was $65 because, of the damage was not covered by manufacturer's warranty. Pondering the figures, Jackson was ready to decide to make the repairs after all he recently had paid 90 for the equipment. However before making the decision, he asked for your advice.
a. Using the concept prepare a brief presentation outlining factors that Jackson should consider in making the decision.
b. Discuss the options Jackson should consider in making his decision.
Problem 4: Because, the employees of one of the company's plants are on strike, the Dallas Digital Plant is operating at peak capacity. It makes two electronic products: MP3 players and PDA's. Presently , the company can sell as many of each product as can be made, but making a PDA takes twice as long in production labor time as an MP3 player. The company production capacity is 100,000 labor hours per month. Data as follow:
Sales Mp3 PDA
$ 72 $128
Variable cost (60) (108)
Contribution margin 12 $20
Labor hours required 1 2
Fixed costs are 240,000 per month.
a. How many of each product should Dallas Digital Make? Explain
b. What qualitative factors would you consider in making this product mix decision?
Problem 5: Great Plains Wire Co. Produces 12.5 gauge barbed wire that is retailed through farm supply companies. Presently, the company has the capacity to produce 100,000 tons of wire per year. It is operating 80 percent of annual capacity and at these level operations, cost per ton of wire as follows:
Direct material 540
Direct labor 50
Variable overhead 60
Fix overhead 150
Total $800
The average sales price for the output produced by the form is $900 per ton. The State of Texas has approached the firm to supply 200 tons of wire for the state's prison for $620 per ton. No production modification would be necessary to fulfill the order from the State of Texas.
a. What costs are relevant to the decision to accept this special order?
b. What would be the dollar effect on pre-tax income if this order were accepted?