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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.
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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 |
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$ |
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| Contribution margin per unit |
|
$ |
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| Contribution margin ratio |
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% |
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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 |
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$ |
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| Break-even point |
|
|
units |
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Compute the margin of safety in dollars and as a ratio.
(Round answers to 0 decimal places, e.g.
1,225.)
| Margin of safety |
|
$ |
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| Margin of safety ratio |
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% |
| 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) |
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$4,373,000 |
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| Cost of goods sold |
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2,602,000 |
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| Gross profit |
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1,771,000 |
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| Operating expenses |
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839,800 |
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| Net income |
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$931,200 |
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Reject
Order |
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Accept
Order |
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Net Income
Increase
(Decrease) |
|
| Revenues |
|
$ |
|
$ |
|
$ |
|
| Cost of goods sold |
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| Operating expenses |
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| Net income |
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$ |
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$ |
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$ |
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| Moonbeam Company
should reject should accept
the special order. |
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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).)
|
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Make |
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Buy |
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Net Income
Increase (Decrease) |
|
| Direct materials |
|
$ |
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$ |
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$ |
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| Direct labor |
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| Variable overhead costs |
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| Fixed manufacturing costs |
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| Purchase price |
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| Total annual cost |
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$ |
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$ |
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$ |
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(b)
Should Pottery Ranch buy the finials?
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YesNo
, Pottery Ranch should
buynot 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?
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YesNo
, income would
increasedecrease
by $ |