Foxboro Company manufactures and sells specialty items.
The following representative direct labor-hours and production costs are provided for a four-month
Month Hrs. Direct Labor Production Costs
January 3,000 $ 45,000
February 4,000 52,500
March 5,000 60,000
April 3,500 45,000
Total 16,000 $202,500
a = fixed production costs per month
b = variable production costs per direct labor hour
n = number of months
X = direct labor-hours per month
Y = total monthly production costs
Using the symbols above, indicate the cost estimation equation based on number of direct labor
hours per month, and calculate total monthly production costs for May using the high-low method,
during which hours of direct labor are expected to be 4,500 hours.
The Hall Company had the following functional income statement for the month of January 2011:
Sales ($10 x 20,000 units) $200,000
Cost of goods sold:
Direct materials $50,000
Direct labor 20,000
Variable factory overhead 60,000
Fixed factory overhead 26,000 - 156,000
Gross profit $ 44,000
Selling and administrative expenses:
Fixed 24,000 - 36,000
Net income $ 8,000
There were no beginning and ending inventories.
a. Prepare a contribution income statement.
b. Calculate the contribution margin per unit.
c. Calculate the contribution margin ratio.
Ozark Outdoors is a manufacturer of outdoor items.
The company is considering the possibility of offering a new sleeping bag that would sell for $125
Cost to manufacture these sleeping bags includes $35 in materials and $25 in direct labor for each
Variable marketing and selling costs would be $15 each.
In order to manufacture these sleeping bags, the company would need to incur $120,000 in fixed
costs for new equipment.
a. Compute the break-even point of the sleeping bag in units sold.
b. What would be the total revenue at the break even point?
c. How many units would Ozark need to sell to earn a profit of $21,000?
d. If fixed costs in fact are $150,000 rather than $120,000, how many units would need to be sold in
order to earn $21,000?
Matino manufactures 10,000 telephones per year.
The full manufacturing costs per telephone are as follows:
Direct materials $ 4
Direct labor 16
Variable manufacturing overhead 10
Average fixed manufacturing overhead 10
The Telecom USA has offered to sell Martino 10,000 telephones for $34 per unit.
If Martino accepts the offer, $20,000 of fixed overhead will be eliminated.
Applying differential analysis to the situation, should Martino make or buy the phones?
Canada Production Company has 200 labor-hours available.
There is no limit on machine-hours.
Canada can sell all of Y it wants, but it can only sell 40 units and 30 units of X and Z, respectively.
Product X Product Y Product Z
Contribution margin per unit $30 $15 $24
Labor-hours per unit 4 5 4
Machine-hours per unit 10 8 2
What is the contribution margin per labor-hour for product Y?
The Kristen Company uses a joint process to produce products A, B, C, and D.
Each product may be sold at its split-off point or processed further.
Joint processing costs for a single batch of joint products are $60,000.
Other relevant data are as follows:
of Final Product
A $15,000 $18,000 $ 40,000
B 27,000 15,000 40,000
C 20,000 25,000 40,000
D 13,000 11,000 25,000
$75,000 $69,000 $145,000
Calculate the effect on profits of processing Product A further beyond the split-off point.
Royalty produces a single product.
The company’s March 2012 income statement is as follows:
Cost of goods sold - 108,000
Gross profit $ 36,000
Selling and administrative 10,000
Net income $ 26,000
There were no beginning or ending inventories of work-in-process or finished goods.
Royalty's full manufacturing costs were as follows:
Direct materials (1,200 units x $20) $ 24,000
Direct labor (1,200 units x $32) 38,400
Variable manufacturing overhead (1,200 units x $18) 21,600
Fixed manufacturing overhead 24,000
Average cost per unit $90
Selling and administrative expenses are all fixed.
Royalty just received a special order from a firm in Mexico to purchase 900 units at $100 each.
The order will not affect the selling price to regular customers.
a. Prepare a differential analysis of the relevant costs and revenues associated with the decision to
accept or reject the special order, assuming Royalty has excess capacity.
Presented below is selected information from the Kinderhook Company’s current period accounting
records (in $000s):
Raw Materials Used 5,000
Direct Labor Costs 2,000
Period Costs (Selling and Administrative) 5,000
Beginning Raw Material Inventory 600
Ending Raw Material Inventory 2,000
Net Income 400
Beginning Work-in-Process Inventory 0
Ending Work-in-Process Inventory 600
Beginning Finished Goods Inventory 1400
Ending Finished Goods Inventory 800
* NOTE: All raw materials used were direct materials.
Required: Determine the following (in dollars):
a. Raw Material Purchases
b. Gross Profit
c. Cost of Goods Manufactured
d. Manufacturing Overhead
Classify the total costs of each of the following as variable, fixed, mixed, or step.
Sales volume is the cost driver.
a. Salary of machine operator who is paid based on number of units produced on the
b. Keyboards purchased from a subcontract supplier in a computer assembly plant
c. Property taxes
d. Salaries of quality inspectors when each inspector can evaluate a maximum of 500
units per day
e. Annual salary for the vice president of manufacturing
f. Electric power in a factory
g. Raw materials used in production
h. Water consumed by the plant, which is based on a flat fee plus actual consumption
i. Overhead costs in the factory for incidental components such as small screws and
j. Fire insurance on factory building
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