Cost and management accounting II worksheet
1. Max Company produces a single product that it sells wholesale for $100 per unit. Variable
costs per unit amount to $80 and total fixed costs are $100,000. Assume the applicable
tax rate is 40%.
Required:
a) Find the break-even point in sales dollars.
b) Find the sales dollars needed to generate $20,000 operating income.
c) Find the sales dollars needed to generate $24,000 net income.
2. Belt and Braces Ltd makes a single product which sells for Br 20. It has a full cost of Br
15 which is made up as follows:
Direct Material Br 4
Direct Labor 6
Variable Overhead 2
General Fixed Overhead 3
The labor force is currently working at 90% of capacity and so there is a spare capacity
for 2,000 units. A customer has approached the company with a request for the
manufacture of a special order of 2,000 units for which he is willing to pay Br. 25,000.
Assess whether the contract should be accepted or not.
3. Great Company manufacturers 60,000 units of part XL – 40:
Item Cost per unit Total costs
Direct material Br 8 Br 480,000
Direct labor 6 360,000
Variable factory overhead (FOH) 3 180,000
Fixed FOH 6 360,000
Total manufacturing costs Br 23 Br 1,380,000
Another manufacturer has offered to sell the same part to Great for Br 21 each. The fixed
overhead consists of depreciation, property taxes, insurance, and supervisory salaries. The
entire fixed overhead would continue if the Great Company bought the component except
that the cost of Br 120,000 pertaining to some supervisory and custodial personnel could be
avoided.
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Cost and management accounting II worksheet
Required:
A. Should the parts be made or bought? Assume that the capacity now used to make
parts internally will become idle if the pats are purchased?
B. Assume that the capacity now used to make parts will be either (i) be rented to
nearby manufacturer for Br 60,000 for the year or (ii) be used to make another
product that will yield a profit contribution of Br 250,000 per year. Should the
company purchase them from the outside supplier?
4. The Express Banquet has two restaurants that are open 24-hours a day. Fixed costs for
the two restaurants together total $459,000 per year. Service varies from a cup of coffee
to full meals. The average sales check per customer is $8.50. The average cost of food and
other variable costs for each customer is $3.40. The income tax rate is 30%. Target net
income is $107,100.
Required
a. Compute the revenues needed to earn the target net income.
b. How many customers are needed to break even?
c. Compute net income if the number of customers is 170,000.
5. Suppose Doral Corp.’s breakeven point is revenues of $1,100,000.Fixed costs are $660,000.
a. Compute the contribution margin percentage. Required
b. Compute the selling price if variable costs are $16 per unit.
c. Suppose 95,000 units are sold. Compute the margin of safety in units and dollars.
6. Boa Mining Company currently is operating at less than 50% of practical capacity. The
management of the company expects sales to drop below the present level of 10,000 tons
of ore per month very soon. The sales price per ton is $3 and the variable cost per ton is
$2. Fixed costs per month total $10,000. Management is concerned that a further drop in
sales volume will generate a loss and accordingly is considering temporarily suspending
operations until demand in the metals markets rebounds and prices once again rise.
Management has implemented a cost reduction program over the past year, but at this
point suspension of operations appears to be the only viable alternative. Management
estimates that suspension of operations would reduce fixed costs from $10,000 to $4,000
per month.
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Cost and management accounting II worksheet
Required:
a) Why does management believe that the fixed costs will persist at $4,000 even though
the mine is temporarily closed?
b) At what sales volume per month will the company be indifferent between continuing
to operate the mine and closing it?
7. Future Company makes 40,000 units per year of a part it uses in the products it
manufactures. The unit product cost of this part is computed as follows:
Direct materials......................................... $23.40
Direct labor ................................................ 22.30
Variable manufacturing overhead ............. 1.40
Fixed manufacturing overhead .................. 24.60
Unit product cost ....................................... $71.70
An outside supplier has offered to sell the company all of these parts it needs for $59.20 a
unit. If the company accepts this offer, the facilities now being used to make the part could
be used to make more units of a product that is in high demand. The additional contribution
margin on this other product would be $352,000 per year. If the part were purchased from
the outside supplier, all of the direct labor cost of the part would be avoided. However,
$21.90 of the fixed manufacturing overhead cost being applied to the part would continue
even if the part were purchased from the outside supplier. This fixed manufacturing
overhead cost would be applied to the company's remaining products.
Required:
a. How much of the unit product cost of $71.70 is relevant in the decision of whether to
make or buy the part?
b. What is the net total dollar advantage (disadvantage) of purchasing the part rather
than making it?
c. What is the maximum amount the company should be willing to pay an outside
supplier per unit for the part if the supplier commits to supplying all 40,000 units
required each year?
Hit the books!!!!!!
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