Problem 1:
Mason Company has a product that sells for $20 per unit. The variable expenses are $12 per unit, and fixed expenses total $30,000 per year.
Required to do:
(a). What is the total contribution margin at the break-even point?
(b). What is the contribution margin ratio for the product?
(c). If total sales increase by $20,000 and fixed expenses remain unchanged, by how much would net operating income be expected to increase?
(d). The marketing manager wants to increase advertising by $6,000 per year. How many additional units would have to be sold to increase overall net operating income by $2,000?
Problem 2:
Zoran Company offers two products. At present, the following represents the usual results of a month’s operations:
|
|
Product K
|
Product L
|
|
|
Amount
|
Per Unit
|
Amount
|
Per Unit
|
Combined Amount
|
|
Sales revenue.....................
|
$120,000
|
$1.20
|
$80,000
|
$0.80
|
$200,000
|
|
Variable expenses...............
|
60,000
|
0.60
|
60,000
|
0.60
|
120,000
|
|
Contribution margin..............
|
$ 60,000
|
$0.60
|
$20,000
|
$0.20
|
$80,000
|
|
Fixed expenses...................
|
|
|
|
|
50,000
|
|
Net operating income............
|
|
|
|
|
$30,000
|
Required:
(a). Find the break-even point in terms of dollars.
(b). Find the margin of safety in terms of dollars.
(c). The company is considering decreasing product K’s unit sales to 80,000 and increasing product L’s unit sales to 180,000, leaving unchanged the selling price per unit, variable expense per unit, and total fixed expenses. Would you advise adopting this plan?
(d). Refer to (c) above. Under the new plan, find the break-even point in terms of dollars.
(e). Under the new plan in (c) above, find the margin of safety in terms of dollars.
Problem 3:
Parkins Company produces a single product. Operating date for the company and its absorption costing income statements for the last two years are presented below:
|
|
Year 1
|
Year 2
|
|
Units in beginning inventory....................................
|
0
|
1,000
|
|
Units produced....................................................
|
9,000
|
9,000
|
|
Units sold...........................................................
|
8,000
|
10,000
|
|
|
|
|
|
|
Year 1
|
Year 2
|
|
Sales..................................................................
|
$80,000
|
$100,000
|
|
Less cost of goods sold:
|
|
|
|
Beginning inventory.........................................
|
0
|
6,000
|
|
Add cost of goods manufactured.........................
|
54,000
|
54,000
|
|
Goods available for sale....................................
|
54,000
|
60,000
|
|
Less ending inventory.......................................
|
6,000
|
0
|
|
Cost of goods sold.................................................
|
48,000
|
60,000
|
|
Gross margin.......................................................
|
32,000
|
40,000
|
|
Less selling & administrative expenses.......................
|
28,000
|
30,000
|
|
Net operating income.............................................
|
$ 4,000
|
$ 10,000
|
Variable manufacturing costs are $4 per unit. Fixed factory overhead totals $18,000 in each year. This overhead was applied at a rate of $2 per unit. Variable selling and administrative expenses were $1 per unit sold.
(a). What was the unit product cost in each year under variable costing?
(b). Prepare new income statement for each year using variable costing.
(c). Reconcile the absorption costing and variable costing net operating income for each year.