Question

# Exercise 20-2 In the month of June, Jose Hebert’s Beauty Salon gave 3,500 haircuts, shampoos, and...

Exercise 20-2

In the month of June, Jose Hebert’s Beauty Salon gave 3,500 haircuts, shampoos, and permanents at an average price of \$ 40 . During the month, fixed costs were \$ 16,800 and variable costs were 75% of sales.

Determine the contribution margin in dollars, per unit and as a ratio. (Round contribution margin per unit and contribution margin ratio to 2 decimal places, e.g. 5.25 & 10.50.)
 Contribution margin \$ Contribution margin per unit \$ Contribution margin ratio %
Using the contribution margin technique, compute the break-even point in dollars and in units. (Round answers to 0 decimal places, e.g. 1,225.)
 Break-even point \$ Break-even point units
Compute the margin of safety in dollars and as a ratio. (Round answers to 0 decimal places, e.g. 1,225.)
 Margin of safety \$ Margin of safety ratio %
 Exercise 21-3 Moonbeam Company manufactures toasters. For the first 8 months of 2017, the company reported the following operating results while operating at 75% of plant capacity: Cost of goods sold was 74% variable and 26% fixed; operating expenses were 84% variable and 16% fixed. In September, Moonbeam Company receives a special order for 20,800 toasters at \$8.48 each from Luna Company of Ciudad Juarez. Acceptance of the order would result in an additional \$3,000 of shipping costs but no increase in fixed costs. (a) Prepare an incremental analysis for the special order. (Round computations for per unit cost to 4 decimal places, e.g. 15.2567 and all other computations and final answers to the nearest whole dollar, e.g. 5,725. Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) (b) Should Moonbeam Company accept the special order? Sales (349,900 units) \$4,373,000 Cost of goods sold 2,602,000 Gross profit 1,771,000 Operating expenses 839,800 Net income \$931,200 Reject Order Accept Order Net Income Increase (Decrease) Revenues \$ \$ \$ Cost of goods sold Operating expenses Net income \$ \$ \$ Moonbeam Company should reject should accept the special order.

Exercise 21-5

Pottery Ranch Inc. has been manufacturing its own finials for its curtain rods. The company is currently operating at 100% of capacity, and variable manufacturing overhead is charged to production at the rate of 54% of direct labor cost. The direct materials and direct labor cost per unit to make a pair of finials are \$3.81 and \$4.77, respectively. Normal production is 25,100 curtain rods per year.

A supplier offers to make a pair of finials at a price of \$12.75 per unit. If Pottery Ranch accepts the supplier’s offer, all variable manufacturing costs will be eliminated, but the \$44,800 of fixed manufacturing overhead currently being charged to the finials will have to be absorbed by other products.

(a)

Prepare an incremental analysis to decide if Pottery Ranch should buy the finials. (Round answers to 0 decimal places, e.g. 1,225. Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

 Make Buy Net Income Increase (Decrease) Direct materials \$ \$ \$ Direct labor Variable overhead costs Fixed manufacturing costs Purchase price Total annual cost \$ \$ \$

(b)

Should Pottery Ranch buy the finials?

(c)

Would your answer be different in (b) if the productive capacity released by not making the finials could be used to produce income of \$48,014?

 YesNo , income would increasedecrease by \$

 Exercise 20-2: Contribution margin: \$ Sales revenue (3500*40) 140000 Less: variable cost at 75% 105000 Contribution margin: 35000 Contribution margin per unit=Contribution margin/Number of haircuts=35000/3500=\$ 10 per haircut Contribution margin ratio=Contribution margin per unit/Average price=10/40=0.25=25% Break-even point in \$=Fixed cost/Contribution margin ratio=16800/0.25=\$ 67200 Break-even point in units=Fixed cost/Contribution margin per unit=16800/10=1680 haircuts Margin of safety in \$=Actual sales revenue-Breakeven point in \$=140000-67200=\$ 72800 Margin of safety ratio=Margin of safety in \$/Actual sales revenue=72800/140000=0.52=52%

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