Exam #2 Review Session Problems
Problem #1: Single Product Cost-Volume-Profit Analysis
Marino Company is considering adding a new product. The cost accountant has provided the following
data:
Expected variable cost of manufacturing
$42 per unit
Expected annual fixed manufacturing costs
$49,000
The administrative vice president has provided the following estimates:
Expected sales commissions
$5 per unit
Expected annual fixed administrative costs
$32,000
The company believes that any new product must at least break even in the first year.
REQUIRED:
1.
If the sales price is set at $60.50, how many units must Marino sell to break even? How many
must they sell to earn a $100,000 profit?
2. Marino estimates that sales will probably be 8,000 units. What sales price per unit will allow the
company to break even? What sales price will allow the company to earn a $100,000 profit?
3. Marino has decided to advertise the product heavily and has set the sales price at $64.00. If
sales are 7,000 units, how much can the company spend on advertising and still break even?
Exam #2 Review Session Problems
Problem #2: Contribution Margin and CVP with no per unit data
Use the following Contribution Margin Income Statement to answer the following questions:
Sales
Less: Variable Costs
Contribution Margin
Less: Fixed Costs
Net Income
$1,000,000
($600,000)
$400,000
($250,000)
$150,000
1. What is operating leverage for this company?
2. What would total Sales Dollars be at the breakeven point?
3. At the breakeven point, what will total variable costs be?
Exam #2 Review Session Problems
Problem #3: Sales Mix
1. Calculate the weighted average contribution margin.
2. At the breakeven point, what will total Sales Dollars be?
3. What will total sales dollars be if the company desires to earn a $100,000 profit?
4. Assume the company wants to earn a $100,000 profit, what will Sales dollars of Power and Lite
be at this level of sales?
Exam #2 Review Session Problems
Problem #4: Performance Analysis (Variances)
Guy Corporation uses customers served as its measure of activity. During January, the company
budgeted for 32,000 customers, but actually served 35,000 customers. The company uses the following
revenue and cost formulas in its budgeting, where q is the number of customers served:
Revenue: $4.20q
Wages and salaries: $33,900 + $1.40q
Supplies: $0.60q
Insurance: $10,000
Miscellaneous: $7,000 + $0.40q
The company reported the following actual results for January:
REQUIRED:
1.
2.
3.
4.
Prepare the Planning budget (based on 32,000 customers)
Prepare the Flexible budget (based on 35,000 customers)
Calculate the Activity Variances
Calculate the Revenue and Spending Variances.
Account
Revenue
Wages and
Salaries
Supplies
Insurance
Miscellaneous
Net Income
Planning
Budget
Activity
Var
Flexible Budget
Rev/Spending
Variances
Actual Results
Exam #2 Review Session Problems
Problem #5: Standard Costing and Variance Analysis
Claro Company produces plastic bottles. The unit for costing purposes is a case of 18 bottles. The
following standards for producing one case of bottles have been established:
Direct materials: 5 lbs. @ $0.90 per lb.
Direct labor: 1.5 hours @ $14 per hour.
During December 15,000 cases of bottles were produced. In addition, 78,000 pounds of material were
purchased for $71,760 and 76,000 pounds of material were used in production. Workers were paid a
total of $319,000 on 22,000 total hours worked.
REQUIRED:
Calculate the following variances:
1.
2.
3.
4.
Direct Materials Price Variance
Direct Materials Quantity (Usage) Variance
Direct Labor Rate Variance
Direct Labor Efficiency Variance
Direct Materials Price Variance
Direct Materials Quantity (Usage) Variance
Direct Labor Rate Variance
Direct Labor Efficiency Variance