Precision Lens Company manufactures sophisticated lenses and mirrors used in large optical telescopes. The company is now preparing its annual profit plan. As part of its analysis of the profitability of individual products, the controller estimates the amount of overhead that should be allocated to the individual product lines from the following information.
The total budgeted material-handling cost is $90,000.
Required:
1.
Under a costing system that allocates overhead on the basis of direct-labor hours, the material-handling costs allocated to one mirror would be what amount?
2.
Under a costing system that allocates overhead on the basis of direct-labor hours, the material-handling costs allocated to one lens would be what amount?
3.
Under activity-based costing (ABC), the material-handling costs allocated to one mirror would be what amount? The cost driver for the material-handling activity is the number of material moves.
4.
Under activity-based costing (ABC), the material-handling costs allocated to one lens would be what amount? The cost driver for the material-handling activity is the number of material moves.Explanation:
1. Material-handling cost per mirror:
$90,000
× 250 = $1,500
[(30)(250) + (30)(250)]*
*The total number of direct-labor hours.
An alternative calculation, since both types of product use the same amount of the cost driver, is the following:
$90,000
=
$1,500
60*
*The total number of units (of both types) produced.
2. Material-handling cost per lens:
$90,000
× 250 = $1,500
[(30)(250) + (30)(250)]*
*The total number of direct-labor hours.
3. Material-handling cost per mirror:
$90,000
× 4†
(4 + 16)*
= $600
30
*The total number of material moves.
†The number of material moves for the mirror product line.
4. Material-handling cost per lens:
$90,000
× 16*
(4 + 16)
= $2,400
30
*The number of material moves for the lens product line.
2. Write a cost formula to express the cost behavior of the firm's production costs. (Use the formula Y = a+ bX, where Y denotes production cost and X denotes quantity of sausage produced.) (Round coefficient of X to 2 decimal places.)
Production cost per month =
2. value:
Brazilia Bus Tours has incurred the following bus maintenance costs during the recent tourist season. (Thereal is Brazil's national monetary unit. On the day this exercise was written, the real was equivalent in value to .5092 U.S. dollar.)
Month
Miles Traveled
by Tour Buses
Maintenance
Cost
November
12,750
17,100 real
December
15,900
17,400
January
19,050
17,550
February
22,500
18,000
March
30,000
18,750
April
12,000
16,500
1. value:
University Pizza delivers pizzas to the dormitories and apartments near a major state university. The company's annual fixed expenses are $54,000. The sales price of a pizza is $10, and it costs the company $6 to make and deliver each pizza. (In the following requirements, ignore income taxes.)
Required:
1. Using the contribution-margin approach, compute the company's break-even point in units (pizzas).
2. What is the contribution-margin ratio? (Round your answer to 1 decimal place.)
3. Compute the break-even sales revenue. Use the contribution-margin ratio in your calculation.
4. How many pizzas must the company sell to earn a target net profit of $60,000? Use the equation method.
3. value:
Rosario Company, which is located in Buenos Aires, Argentina, manufactures a component used in farm machinery. The firm's fixed costs are 2,000,000 p per year. The variable cost of each component is 1,000p, and the components are sold for 1,500 p each. The company sold 7,000 components during the prior year. (p denotes the peso, Argentina's national currency. Several countries use the peso as their monetary unit. On the day this exercise was written, Argentina's peso was worth .192 U.S. dollars. In the following requirements, ignore income taxes.)
Required:
1. Compute the break-even point in units.
2. What will the new break-even point be if fixed costs increase by 5 percent?
3. What was the company's net income for the prior year?
4. The sales manager believes that a reduction in the sales price to 1,400 p will result in orders for 1,000 more components each year. What will the break-even point be if the price is changed?
5. Should the price change discussed in requirement (4) be made?
4. value:
Pacific Rim Publications, Inc., specializes in reference books that keep abreast of political and economic issues in the Pacific Rim countries. The results of the company's operations during the prior year are given in the following table. All units produced during the year were sold. (Ignore income taxes.)
Sales revenue
$
1,000,000
Manufacturing costs:
Fixed
250,000
Variable
500,000
Selling costs:
Fixed
25,000
Variable
50,000
Administrative costs:
Fixed
60,000
Variable
15,000
Required:
1-a. Prepare a traditional income statement for the company.
1-b. Prepare a contribution income statement for the company.
2. What is the firm's operating leverage for the sales volume generated during the prior year? (Round your answer to 2 decimal places.)
3. Suppose sales revenue increases by 12 percent. What will be the percentage increase in net income?(Do not round intermediate calculations and round your final answer to 1 decimal place.)
4. Which income statement would an operating manager use to answer part (3)?
Traditional income statement
Contribution income statement
1. value:
Dolphin Company manufactures two-person sailboats with a variable cost of $1,000. The sailboats sell for $1,750 each. Budgeted fixed manufacturing overhead for the most recent year was $11,000,000. Planned and actual production for the year were the same.
Required:
State whether income is higher under variable or absorption costing and the amount of the difference in reported opearting income under the two methods. Treat each condition as an independent case.
1. Production
22,000
units
Sales
25,000
units
2. Production
10,600
units
Sales
10,600
units
3. Production
11,000
units
Sales
9,800
units
2. value:
Dolphin Company manufactures two-person sailboats with a variable cost of $1,000. The sailboats sell for $1,750 each. Budgeted fixed manufacturing overhead for the most recent year was $11,000,000. Planned and actual production for the year were the same.
Required:
2. Calculate Dolphin Company's break-even point in units. (Round your answer to the nearest whole number.)
3. value:
Altoona Valve Company's planned production for the year just ended was 20,000 units. This production level was achieved, and 21,000 units were sold. Other data follow:
Direct material used
$
300,000
Direct labor incurred
150,000
Fixed manufacturing overhead
210,000
Variable manufacturing overhead
100,000
Fixed selling and administrative expenses
175,000
Variable selling and administrative expenses
52,500
Finished-goods inventory, January 1
2,000
units
The cost per unit remained the same in the current year as in the previous year. There were no work-in-process inventories at the beginning or end of the year.
Required:
1. What would be Altoona Valve Company's finished-goods inventory cost on December 31 under the variable-costing method? (Do not round your intermediate calculations.)
2-a. Which costing method, absorption or variable costing, would show a higher operating income for the year?
Absorption costing
Variable costing
2-b.
By what amount? (Do not round your intermediate calculations.)
Calculate the difference in reported income
4. value: Sea Star Company manufactures diving masks with a variable cost of $12.50. The masks sell for $17.00. Budgeted fixed manufacturing overhead for the most recent year was $396,000. Actual production was equal to planned production.
Required: State whether operating income is higher under variable or absorption costing and the amount of the difference in reported operating income under the two methods. Treat each condition as an independent case.
1. Production
110,000
units
Sales
107,000
units
2. Production
88,000
units
Sales
93,000
units
3.
Production
80,100
units
Sales
80,100
units