Question 1: Tony's Textile Company sells shirts for men and boys. The average selling price and variable cost for each product are as follows:
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Men's
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Boy's
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Selling Price
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$28.80
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Selling Price
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$24.00
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Variable Cost
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$20.40
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Variable Cost
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$16.80
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Fixed costs are $38,400.
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Required:
a. What is the breakeven point in units for each type of shirt, assuming the sales mix is 2:1 in favor of men's shirts?
b. What is the operating income, assuming the sales mix is 2:1 in favor of men's shirts, and sales total 9,000 shirts?
c. What is meant by a product's contribution margin ratio and how is this ratio useful in the planning of business operations?
Question 2: Byron Sports is a manufacturer of sportswear. It produces all of its products in one department using a process costing system.
The information for the current month is as follows:
Beginning work in process (30% complete as to conversion cost) - 12,000 units
Units started - 90,000 units
Units completed and transferred out - ?
Ending work in process (70% complete as to conversion) - 8,000 units
Costs:
Beginning work-in-process direct materials - $28,800
Beginning work-in-process conversion - $5,040
Direct materials added during month - $216,000
Conversion costs incurred during the month - $139,200
Direct materials are added at the beginning of the process. Conversion costs are incurred uniformly throughout the production process. Costing is handled on a FIFO basis.
Required:
a. Prepare a production cost worksheet using 5 steps approach.
b. Under what conditions would a process costing system be more appropriate than a job order costing system? Explain.