Reference no: EM133064907

Question - John's Autoworks (JA) manufactures three models of cars - a Sedan, an SUV and a truck. The budgeted revenues and costs of the three products are as follows:

Product	Sedan	SUV	Truck
Sales	$5,000,000	$4,000,000	$6,000,000
Variable Cost
Direct Material	1,500,000	1,500,000	2,500,000
Direct Labor	500,000	1,000,000	1,000,000
Variable Overhead (VOH) is allocated at 50% of Direct Labor costs.

Total fixed expenses (unavoidable) by function for the entire company:

Salaries of executive staff $1,200,000

Selling Expenses $1,000,000

Administrative Expenses $1,800,000

The fixed expenses are allocated to the three products using budgeted revenues.

Required -

1. What are the Variable Overhead costs allocated to the three products? Please show calculations for partial credit.

2. Does the Variable Overhead Rate change with changes in volume?

3. What are the Fixed Overhead costs allocated to the three products? Please show calculations for partial credit.

4. Is the cost driver Budgeted Revenue dollars for fixed expenses an insulating or non[1]insulating cost driver? Explain the reason for your answer

5. Calculate the Gross Margin for the SUV division. Should JC drop the SUV product? Explain your answer with supporting calculations.

6. John's Autoworks is considering eliminating SUVs and adding Minivans. Minivans will have the same variable costs as the SUVs (both materials, direct labor and variable overhead). Minivans though need an additional $2,000,000 of incremental fixed costs. What must be the minimum incremental dollars that Minivans should bring in so that John's Autoworks is indifferent between producing SUVs and Minivans? Note: This is not a break-even question but an incremental question.