Q1. The following data have been extracted from the records of Puzzle, Inc.:
|
|
February
|
August
|
|
Production level, in units
|
10,400
|
22,880
|
|
Variable costs
|
$24,960
|
$ ?
|
|
Fixed costs
|
?
|
33,400
|
|
Mixed costs
|
21,912
|
?
|
|
Total costs
|
$80,272
|
$129,318
|
Required:
a. Calculate the missing costs.
b. Calculate the cost formula for mixed cost using the high-low method.
c. Calculate the total cost that would be incurred for the production of 16,640 units.
d. Identify the two key cost behavior assumptions made in the calculation of your answer to part c.
Q2. Presented here is the income statement for Fairchild Co. for March:
|
Sales
|
$82,000
|
|
Cost of goods sold
|
42,000
|
|
Gross profit
|
$40,000
|
|
Operating expenses
|
31,000
|
|
Operating income
|
$9,000
|
Based on an analysis of cost behavior patterns, it has been determined that the company's contribution margin ratio is 31%.
Required:
a. Re-arrange the preceding income statement to the contribution margin format.
b. Calculate operating income if sales volume increases by 7%.
c. Calculate the amount of revenue required for Fairchild to break-even.
Q3. Muscle Beach, Inc., makes three models of high-performance weight-training benches. Current operating data are summarized here:
|
|
MegaMuscle
|
PowerGym
|
ProFoece
|
|
Selling price per unit
|
$147
|
$200
|
$291
|
|
Contribution margin per unit
|
40
|
77
|
255
|
|
Monthly sales volume - units
|
2,990
|
1,950
|
990
|
|
Fixed expenses per month
|
|
Total of $321,700
|
|
a. Calculate the contribution margin ratio of each product.
b. Calculate the firm's overall contribution margin ratio.
c. Calculate the firm's monthly break-even point in sales dollars.
d. Calculate the firm's monthly operating income.
e-1. Management is considering the elimination of the ProForce model due to its low sales volume and low contribution margin ratio. As a result, total fixed expenses can be reduced to $276,930 per month. Assuming that this change would not affect the other models, what would be the effect on net operating income.
e-2. Would you recommend the elimination of the ProForce model?
f-1. Assume the same facts as in requirement e-1. Assume also that the sales volume for the PowerGym model will increase by 508 units per month if the ProForce model is eliminated. What would be the effect on operating income?
f-2. Would you recommend eliminating the ProForce model?