Reference no: EM132509647

Long Ave Inc. manufactures two products, Standard and Deluxe. Manufacturing overhead costs consist of:

Activity Overhead           Cost

Setting Up Machines       $240,000

Machine Fabrication       $545,000

Inspecting                   $470,000

Shipping                   $770,000

Purchasing                  $335,000

Information on the two products is as follows:

Cost Driver                           Standard                    Deluxe

Direct Labour Hours            345,000                 145,000

Machine Setups                     275                      460

Machine Hours                        33,750               44,300

Inspections                               450                  285

Parts Shipped                             6,800              8,500

Purchasing Orders                             400                300

Currently, the controller uses a plant-wide overhead rate based on direct labour hours to assign overhead to the Standard and Deluxe products. The president has heard of activity-based costing and wants to see how the results would differ if this system were used.

Required:

Question 1. Assign the total manufacturing overhead costs to the two products using the current plantwide method.

Question 2. Assign the total manufacturing overhead costs to the two products using activity-based costing (ABC).

Ventana Inc. sells a single product for $48. Its management estimates the following revenues and costs for the year 2019:

Net Sales $620,000 Selling expenses - Variable $18,500

Direct Materials 85,000 Selling expenses - Fixed 21,500

Direct Labour 78,000 Admin expenses - Variable 3,500

Mfg Overhead - Variable 32,000 Admin expenses - Fixed 2,500

Mfg Overhead - Fixed 25,000

Required:

Question 3: Assuming fixed costs and net sales are spread evenly throughout the year, determine Ventana's monthly break-even point in (a) units and (b) dollars.

Question 4: Calculate the contribution margin ratio, the annual margin of safety ratio, and the annual profit

Question 5: Determine the percentage increase of annual profits if Ventana Inc. increases its selling price by 25% and all other factors (including demand) remain constant.

Question 6: Assume the price remains at $48 per unit and variable costs remain the same per unit, but fixed costs increase by 15% annually. Calculate the percentage increase in unit sales required to achieve the same level of annual profit calculated in required # 2

Question 7: Determine the sales required to earn an operating income of $375,000 after tax. Ventana Inc.'s income tax is 28%.