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Worksheet For the Course Cost and Management Accounting II
1. A firm has the following income statement for a month.
Sales: 3,000 units at $80/unit $240,000 Less: Cost of Goods Sold: Variable Production Cost 180,000 Fixed Production Cost 19,800 Gross Margin 40,200 Less: Selling and Administrative Expenses Variable Selling Cost 21,000 Fixed Selling Expenses 7,500 Net Income before Taxes $ 11,700 Required: i. Find the firm’s breakeven output. ii. If it wishes to have a monthly net income before taxes of $18,000 and its cost structure remains as above, what quantity of output will it need to sell? iii. If its variable production costs increase by $4 per unit, what will be its breakeven output? iv. After the increase in costs in (iii), what output will it need to sell if it wishes to have the $18,000 monthly pretax profit stated earlier? v. Given the variable production cost increase but no change in fixed costs, what will be the firm’s monthly profit if it sells 4,000 units of output per month? 2. Suppose that Magik Bicycles wants to produce a new mountain bike called Magik bike III and has forecast the following information. Price per bike $800 Variable cost per bike $300 Fixed costs related to bike production $5,500,000 Target profit $200,000 Estimated sales in units 12,000 bikes Required: i. Find the total contribution margin. ii. Find the breakeven quantity and revenue by using equation method. iii. Find the breakeven quantity and revenue by using contribution margin method. iv. Find the breakeven quantity and revenue by using graphic method. v. Compute the margin of safety in units and in dollar and explain the result. vi. Calculate the degree of operating leverage and explain the result. vii. How many magik bikes should magic bicycles sell to reach target operating income of $200,000? viii. Suppose that Magik Bicycles plans for an after-tax profit of $180,000 and its tax rate is 40%. How many magik bikes should magic bicycles sell to reach the target net income? 3. The variable cost per gift basket is $2, fixed costs are $5,000 per month, and the selling price of a basket is $7. How many baskets must be produced and sold in a month to earn a pretax profit of $1,000?
Page 1 of 3 4. The Community Clinic (a not-for-profit medical clinic) received a lump-sum grant from the City of Tucson of $460,000 this year. The fixed costs of the clinic are expected to be$236,000. The average variable cost per patient visit is expected to be $7.64 and the average fee collected per patient visit is $4.64. What is the breakeven volume in patient visits? 5. Sparkle Car Wash Supplier sells a hose washer for $0.25 that it buys from the manufacturer for $0.12. Variable selling costs are $0.02 per house washer. Breakeven is currently at a sales volume of $10,600 per month. What are the monthly fixed costs associated with the washer? 6. Monthly fixed costs are $24,000 when volume is at or below 200 units and $36,000 when monthly volume is above 200 units. The variable cost per unit is $200 and the selling price is $300 per unit. What is the breakeven quantity? 7. The Martell Company has recently established operations in a competitive market. Management has been aggressive in its attempt to establish a market share. The price of the product was set at $5 per unit, well below that of the company’s major competitor. Variable costs were $4.50 per unit, and total fixed costs were $600,000 during the first year. Required: i. Assume that the firm was able to sell 1 million units in the first year. What was the pretax profit (loss) for the year? ii. Assume that the variable cost per unit and total fixed costs do not increase in the second year. Management has been successful in establishing its position in the market. What price must be set to achieve a pretax profit of $25,000? Assume that sales remain at1 million units. 8. Madden Company projected its income before taxes for next year as shown here. Madden is subject to a 40% income tax rate. Sales (160,000 units) $8,000,000 Cost of sales: Variable costs 2,000,000 Fixed costs 3,000,000 Pretax profit $3,000,000 i. What is Madden’s breakeven point in units sold for the next year? ii. If Madden wants $4.5 million in pretax profit, what is the required level of sales in dollar? iii. If Madden’s net assets are $36 million, what amount of revenue must be achieved for Madden to earn a 10% after-tax return on assets? 9. Louisville Corporation produces baseball bats for kids that it sells for $32 each. At capacity, the company can produce 50,000 bats a year. The costs of producing and selling 50,000 bats are as follows: Cost per Bat Total Costs Direct materials $12 $600,000 Direct manufacturing labor 3 150,000 Variable manufacturing overhead 1 50,000 Fixed manufacturing overhead 5 250,000 Variable selling expenses 2 100,000 Page 2 of 3 Fixed selling expenses 4 200,000 Total costs $27 $1,350,000 Required: Suppose Louisville is currently producing and selling 40,000 bats. At this level of production and sales, its fixed costs are the same as given in the preceding table. Ripkin Corporation wants to place a one-time special order for 10,000 bats at $25 each. Louisville will incur no variable selling costs for this special order. Should Louisville accept this one-time special order? Show your calculations. 10. Benjamin Company produces products A, B, and C from a joint production process. Each product may be sold at the split-off point or processed further. Joint production costs of $95,000 per year are allocated to the products based on the relative number of units produced. Data for Benjamin's operations for last year follow: Additional sales values and costs if pr ocessed further Product Units Sales values at Produced split-off Sales values Added costs A 6,000 $75,000 $100,000 $20,000 B 9,000 $70,000 $115,000 $36,000 C 4,000 $46,500 $55,000 $10,000 Required: Which products should be processed beyond the split-off point?
