Reference no: EM131824122
Question 1 - Thomas Corporation developed the following income statement using a contribution margin approach:
Thomas Corporation Projected Income Statement For the Current Year Ending December 31
Sales $750,000
Less variable costs:
Variable manufacturing costs $280,000
Variable selling costs 120,000
Total variable costs $400,000
Contribution margin $350,000
Less fixed costs:
Fixed manufacturing costs $130,000
Fixed selling and administrative costs 80,000
Total fixed costs $210,000
Operating income $140,000
The projected income statement was based on sales of 100,000 units. Thomas has the capacity to produce 120,000 units during the year.
Required:
a. Calculate the contribution margin per unit and contribution margin ratio.
b. Determine the break-even point in units and sales revenue.
c. What was the margin of safety in sales unit and sales revenue?
d. The sales manager believes the company could increase sales by 8,000 units if advertising expenditures were increased by $22,000. By how much will income increase or decrease if this plan is put into effect?
e. What is the maximum amount the company could pay for advertising if the sales would really increase by 8,000 units?
f. Determine the company's degree of operating leverage. Thomas Corporation is confident that with a more intense sales effort and with a more creative advertising program, it can increase sales by 50% next year. What would be the expected percentage increase in net operating income and the expected operating income figure?
Question 2 - Cabio Company manufactures two products, Product C and Product D. The company estimated it would incur $119,100 in manufacturing overhead costs during the current period. Overhead currently is applied to the products on the basis of direct labor hours. Data concerning the current period's operations appear below:
Product C Product D
Estimated volume 400 units 3,000 units
Direct labor hours per unit 1.20 hours 1.30 hour
Direct materials cost per unit $4.00 $22.80
Direct labor cost per unit $12.00 $13.00
The company is considering using an activity-based costing system to compute unit product costs instead of its traditional system based on direct labor hours. The activity-based costing system would use three activity cost pools. Data relating to these activities for the current period are given below:
Expected Activity
Activity Cost Pool Estimated Overhead Costs Product C Product D Total
Machine setups $ 10,440 60 120 180
Purchase orders 78,000 820 1,180 2,000
General factory 30,660 480 3,900 4,380
Total $119,100
Required:
a. Compute the predetermined overhead rate under the traditional method.
b. Determine the unit product cost of each product for the current year using traditional allocation method.
c. Compute the activity rates under the activity-based costing approach.
d. Determine the unit product cost of each product for the current period using the activity-based costing approach.
e. Which method produces the more accurate cost assignment? Why?
Question 3 - Lido Company's standard and actual costs per unit for the most recent period, during which 500 units were actually produced, are given below:
Standard Actual
Materials:
Standard: 2 feet at $1.50 per foot $ 3.00
Actual: 1.9 feet at $1.60 per foot $ 3.04
Direct labor:
Standard: 1.5 hours at $6.00 per hour 9.00
Actual: 1.7 hours at $6.30 per hour 10.71
All of the material purchased during the period was used in production during the period.
Required:
a. From the foregoing information, compute the following variances. Indicate whether the variance is favorable (F) or unfavorable (U):
i. The material price and quantity variances.
ii. The labor rate and efficiency variances.
b. State two (2) possible causes of each variance that you have computed.