Reference no: EM132500432

Part 1:

Florida Favorites Company produces toy alligators and toy dolphins. Fixed costs are $1,290,000 per year. Sales revenue and variable costs per unit are as follow:

Alligators Dolphins

Sales price $20 $25

Variable costs $8 $10

Required

Question a. Suppose the company currently sells 140,000 alligators per year and 60,000 dolphins per year. Assuming the sales mix stays constant, how many alligators and dolphins must the company sell to break even per year?

Question b. Suppose the company currently sells 60,000 alligators per year and 140,000 dolphins per year. Assuming the sales mix stays constant, how many alligators and dolphins must the company sell to break even per year?

Question c. Explain why the total number of toys needed to break even in (a) is the same as or different from the number in (b).

Part 2:

Single rate versus departmental rates

Bravo Steel Company supplies structural steel products to the construction industry. Its plant has three production departments: cutting, grinding, and drilling.

The estimated support activity cost, estimated direct labor hours, and estimated machine hours for each department for 2006 follow:

                            CUTTING GRINDING DRILLING

Support activity cost $504,000 $2,304,000 $2,736,000

Estimated direct labor hours 60,000 96,000 144,000

Estimated machine hours 960,000 480,000 360,000

The direct labor and machine hours consumed by job ST101 are as follows:

CUTTING GRINDING DRILLING

Direct labor hours 2,000. 2,500 3,000

Machine hours 20,000 3,000 2,000

Required

Question a. Assume that a single, plantwide, predetermined support cost driver rate is computed by dividing plantwide support costs by plantwide direct labor hours. Determine the support cost applied to job ST101.

Question b. Determine the departmental support cost driver rates and support costs applied to job ST101, assuming that machine hours are used as the cost driver in the cutting department and that direct labor hours are used as the cost driver for the grinding and drilling departments.

Question c. Explain why Bravo Steel might prefer a plantwide rate or departmental support cost driver rates.