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Problem 2-14

Product Cost
Period
Direct (selling and
Name of the Variabl Fixed Material
Direct Manufacturi administrativ Opportuni
Sunk
cost e Cost Cost s Labor ng overhead e) cost ty cost Cost
Rental
income             30000 / yr  
80/uni 80/un
Material cost t   it          
WH rental
cost   500/mth       500/mth    
4000/mt
EQ rental cost   h     4000/mth      
60/uni 60/un
Direct labor t     it        
8000/
Depreciation   8000/yr     8000/yr     yr
Advertising 50000/
cost   yr       50000/yr    
Supervisor 1500/mt
salary   h     1500/mth      
1.2/un
Electricity it       1.2/unit      
Shipping cost 9/unit       9/unit      
Return on
temp inv             3000/yr  

Problem 2-17

Selling expenses would be the correct viewpoint, since product cost will only be considered a
Cost after the completed product is sold. However, for salary, it will be considered expense irrespective
of the product is sold or not, which is the same approach as selling expenses

From the point of view of the reported net operating income for the year, the president's view
point would be slightly incorrect. The coordinator's salary would not be based on how many
completed product is sold to the customer; therefore, there will be a slight difference between
operating expenses using the product cost and selling expenses. In this case, selling expenses
would most probably be slightly higher than the product cost
Problem 2-24

Direct materials

Raw materials inventory, beginning 20,000


Add : Purchases of raw
materials 480,000

Raw materials available for use 500,000

Deduct :ending Raw materials inventory 30,000

Raw materials used in production 470,000

Direct labor 90,000

Manufacturing overhead 300,000


Total manufacturing
costs 860,000

Add : work in process inventory, beginning 50,000

910,000
Deduct : work in process inventory,
ending 40,000

Cost of goods manufactured 870,000

Number of units in the finished goods inventory at the end of the year :
Units sold during the = Total sales / Unit selling price = 1,300,000 / $50 = 26,000 units
year sold

Units in the finished goods inventory, ending = 29,000 units - 26,000 units sold = 3000 units
Cost of the units in the finished goods inventory at the end of the year :
Average cost = Cost of goods manufactured / Number of units produced = 870,000 / 29,000 = $30/unit
Cost of the units in the finished goods inventory, ending = $30 x 3,000 unit = $90,000
Income
Statement
1300
Sales ,000
Cost of goods sold:
Beginning finished goods
inventory 0
Add:Cost of good 870
manufactured 000
goods available for 870
sale 000
Deduct:Ending finished 900 7800
goods inventory 00 00

5200
Gross margin 00
Selling and administrative 380
expenses: 000

140,
Net operating income 000

E3-6

1.

Unit
Month Shipped Total Shipping Expense
High level ( June) 8 2700
Low level ( July ) 2 1200
Change 6 1500

Variable cost = Change in cost/Change in activity

=1500/6 = 250

Fixed cost = total cost- variable cost

=2700-250*8 = 700

The cost formula = 700+250X


2.

Months
3000

2500 f(x) = 217.86 x + 910.71


2000

1500

1000

500

0
1 2 3 4 5 6 7 8 9

Fixed cost = $910

Variable cost = $217

The cost formula = 910+217X

E4-7.

1. Profit = Unit CM *Q – Fixed expense


1 = (Selling price – variable cost)*Q-fixed expense
= 3*Q-4200

Q = 4200/3

= 1400 Units

Hence, Break even = 1400 Units

2. Break even in sells dollar = Break even in units*selling price


= 1400*15
= 21000
3. Break even in unit sales = Fixed expense/Unit CM
= Fixed expense/(Selling price – variable cost)
= 4200/ (15-12)
= 1400
4. CM ratio = Unit contribution margin/unit selling price
= (15-12)/15
=3/15
Break even in sells dollar = Fixed expense / CM ratio
=4200*15/3
=$21000

E4-10 .

Game type Claim jumper Makeover Total


Amoun
% % %
Particulars Amount t Amount
Sales 30000 100 70000 100 100000 100
Variable expense 20000 66.666667 50000 71.42857 70000 70
Contribution margin 10000 33.333333 20000 28.57143 30000 30
Fixed expense         24000  
Net operating Income         6000  
Overall CM Ratio = 30%

Overall Breakeven Point =Fixed expense/Overall CM ratio

=24000/0.3 = $ 80,000.00

Verification of breakeven point


Particulars Claimjumper Makeover Total
Current Dollar sells 30000 70000 100000
Percentage of total dollar
sell 30 70 100
Sells at breakeven point 24000.00 56000.00 80,000.00

Game type Claim jumper Makeover Total


Particulars   %   %   %
Sales 24000 100 56000 80000 100
Variable expense 16000 66.66666667 50000 71.42857 56000 70
Contribution margin 8000 33.33333333 16000 28.57143 24000 30
Fixed expence         24000  
Net operating Income         0  
P4-23

A.

Game type Hawaiian Fantasy Thaitian Joy Total


Particulars Amount % Amount % Amount %
Sales 300000 100 500000 100 800000 100
Variable expense 180000 60 100000 20 280000 35
Contribution margin 120000 40 400000 80 520000 65
Fixed expense         475800  
Net operating Income         44200  
B. Overall Breakeven Point =475800/0.65 = $ 732,000.00

2.A.

Game type Hawaiian Fantasy Thaitian Joy Samon Delight Total


Particulars Amount % Amount % Amount % Amount %
Sales 300000 100 500000 100 450000 100 1250000 100
Variable
180000 60 100000 20 360000 80 640000
expense 51.2
Contribution
120000 40 400000 80 90000 20 610000 48.8
margin
Fixed expense             475800  
Net operating
134200
Income              

B.

Overall Breakeven Point = 475800/.488 = $975,000.00

3.

P4-26

1.

Present Scenario

Product type New product


Particulars Amount %
Sales 1050000 100
Variable 57.1428
600000
expense 6
42.8571
Contribution margin 450000
4
Fixed expense 540000  
Net operating Loss 90000  
2.

Breakeven point = 540000/.4285 = $1,260,000.00


= $ 1,260,000.00 /70 = 18,000.00

3.
After increment in
production Scenario
Product type New product
Particulars Amount %
Sales 1360000 100
Variable
800000 58.82353
expense
Contribution margin 560000 41.17647
Fixed expense 540000  
Net operating Profit 20000  
Selling Price = $68

Unit Sold = 20000

Max Profit = 20000

4.

Breakeven point = 540000/.4117 = $ 1,311,428.57

= $ 1,311,428.57/68 =19,285.71 = 19286 units

Because of the decrease in selling price will result in the breakeven point to increase.

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