Problem 1) Income statements for three companies are provided below:
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Anders Co.
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Burton Co.
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Coley Co,
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Sales (10 units)
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$400
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$400
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$400
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Less Variable Costs
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200
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100
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0
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Less Fixed Costs
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100
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700
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300
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Net Income
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$ 100
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$ 100
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$ 100
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a. Prepare new income statements for the firms assuming each sells one additional unit (i.e. each firm sells 11 units).
b. Briefly describe the effect of cost structure on profitability.
Problem 2) William Samson Co. produces two products. The products' identified costs and production information are as follows:
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Product A
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Product B
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Direct Materials
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$18,000
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$12,000
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Direct Labor
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$ 6,000
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$12,000
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Units Produced
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4,000
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5,000
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The company's overhead costs are $54,000.
a. Assuming the company allocates overhead on the basis of labor cost, compute the overhead and total production cost for both products.
b. Assuming the company allocates overhead on the basis of units produced, compute the overhead and total production cost for both products.