What is the optimal product mix - how much profit must

Question

Problem 1:

The roofing company manufactures shingles.

Standard Cost Sheet per shingle
Direct materials	Asphalt	1.5	pounds	$0.07	per pound
Direct labor		0.01	direct labor hour	$11	per hour
Variable Manufacturing overhead		0.01	direct labor hour	$2	per hour
Fixed Manufacturing overhead		0.01	direct labor hour	$10	per hour
	Total standard cost per shingle

Budgeted fixed manufacturing overhead for the period is							$60,000
Budgeted units to be produced							600,000
Standard fixed manufacturing overhead based on expected capacity of							6000
	The following information is available regarding the company's actual operations for the period.
	Shingles produced						530,000
	Materials purchased:
		Asphalt			752,000	pounds	$0.08
	Materials used
		Asphalt			748,000	pounds
	Direct labor				4,990	hours	$12.25
	Manufacturing overhead incurred:
		Variable					$10,978.0
							$2.20
		Fixed					$59,000

Required: Make sure you do not forget to label the variances U or F. You need to show your work either by cell reference or showing your calculation to the side.

1. Calculate the direct materials price and quantity variance.

Direct-material purchase price variance should be based on material purchased, since you want to isolate the variance as soon as possible.

Direct-material Quantity variance should be based on materials used, since this is monitoring the production efficiency.

Direct-material purchase price variance

Direct Material Quantity variance

2. Calculate the direct labor rate and efficiency variances.

Labor rate variance

Labor Efficiency variance

3. Variable manufacturing overhead spending and efficiency variances.

Variable overhead spending variance

Variable overhead efficiency variance

4. Fixed manufacturing overhead budget and volume variances.

Fixed Manufacturing overhead budget variance

Fixed overhead volume variance

5. Pick out the two variances that you computed above that you think should be further investigated. Explain why you picked these 2 variances and what might be the possible cause of the variances.

Problem 2:

Bubble company produces shampoo--Plain Bubble shampoo

The company expects to produce and sell 100,000

The following are the related budgeted prime costs of making a bottle
Variable rate per each unit
Direct material $1.25
Direct Labor $0.98

The following budgeted variable and fixed cost pertain to the production of the bottles of shampoo.

Overhead item Fixed Cost Variable rate per each unit
Maintenance $8,000 $0.20
Utilities 0.10
Indirect Labor 5,000 1.00
Rent 10,000

Required: Using the template I have set up for you on the worksheet entitled Report complete the following.

1. Prepare a flexible production conceptually like exhibit 11-3 on page 458.

Set up the range with 100,000 bottles in the middle and the lower range being a decrease of 2% and the upper range being an increase of 2%.

2. Prepare a performance report if the company actually produced 102,000 bottled and had actual costs of the following:

		Fixed Cost	Variable rate per each unit
Direct material			$1.22
Direct Labor			0.99
Overhead:
Maintenance		$7,500	0.19
Utilities			0.11
Indirect Labor		5,400	0.96
Rent		10,500

Problem 3:

Utility Inc., is organized in 3 segments: Metro, Suburban, and Outlying. Data for the company and for these segments follow:

		Utility Inc.		Metro	Suburban	Outlying
Service revenue		?		$     500	$      400	$   200
Less:  Variable costs		225		?	?	?
Segment contribution margin		?		?	?	?
Less:  Controllable Fixed costs		435		200	160	75
Controllable profit margin		$       440		$     200	?	$     75
Less: noncontrollable fixed costs		?		?	100	?
Segment profit margin		180		$        85	?	$     30
Less: Common fixed costs		?
Income before taxes		?
Less income tax expense		75
Net income		55
Variable costs as a percentage of service revenue are:
Metro	20%
Suburban	18.75%
Outlying	25%

Required:

A. Complete the segmented income statement above. You should replace every question mark with a number.

B. Evaluate the 3 segment managers for consideration of a pay raise and include at least 2 quanitfiable measures.

Explain why you used these measures. Your response should be supported with an analysis of the segmented income statement.

Problem 4:

Short question #1

Snider, Inc., which has excess capacity, received a special order for 3,000 units at a price of $12 per unit which it could produce with the excess capacity.

Currently, production and sales are anticipated to be 10,000 units without considering the special order. Budget information for the current year sales of 10,000 units follows.

Sales	$190,000
Less: cost of goods sold	145,000
Gross Margin	$45,000

Cost of goods sold includes $45,000 of fixed manufacturing cost that will be incurred no matter what the decision on the special order is.

Required:

If the special order is accepted, calculate how much the company's gross margin will change. Make sure you show your work and explain if you would accept or not accept this special order and why?

Short question #2

Song, a division of Carolina Enterprises, currently makes 100,000 units of a part that could be purchased from an outsider for $7 a unit. Song's costs follow.

Variable Manufacturing costs	$500,000
Fixed manufacturing costs	$200,000
Allocated Corporate Administrative costs	$60,000

If Song were to discontinue production, fixed manufacturing costs would be reduced by 60%.

Required:
From only a financial point of view, should the company make or buy the units? Explain what the impact on net income would be and

what are the relevant costs of deciding whether the division should purchase the product from an outside supplier or not? 

Short question #3

Lido manufactures A and B from a joint process cost = $70,000. Five thousand pounds of A can be sold at split-off for $20 per pound or processed further at an additional cost of $10,000 and then sold for $23. Ten thousand pounds of B can be sold at split-off for $15 per pound or processed further at an additional cost of $23,000 and later sold for $17.

Required:

Which products should be processed further or not and Why? Give the dollar impact to income based on your recommendation.

Short question #4--you do not need to use linear programming for this question see pages 609-610 since there is only one scarce resource.

Bush Manufacturing has 28,000 labor hours available for producing M and N. Consider the following information:

		M	N
Required Labor per unit in hours		4	3
Maximum demand in units		7,000	6,000
Contribution Margin per unit		8	7.5

Required:

What is the optimal product mix(how many M and N should be produced)? Explain your answer and show computations.Problem 5 Worth 4 pts. And covers chapter 15 material-1 pt. each

Problem 5:

Argosy, Inc., uses target costing and will soon enter a very competitive marketplace in which it will have limited influence over the prices that are charged.

Management and consultants are working to fine-tune the company's sole service, which hopefully will generate a 12% return (profit) on the firm's $24,000,000 asset investment.

The following information is available:

Required:

A. How much profit must Argosy produce to achieve a 12% return?

B. Calculate the revenue per hour that Argosy must generate to achieve a 12% return.

C. Assume that prior to entering the marketplace, management conducted a planning exercise to determine whether a 14% return could be attained in year Two.

Can the company achieve this return if (a) competitive pressures dictate a maximum selling price of $195 per hour and (b) service hours, variable cost per service hour, and fixed costs are the same as the amounts anticipated in year no. 1? Show calculations.

D. Describe a procedure that Argosy might use to achieve a 14% rate of return with a $195 selling price in year 2.  Explain how that procedure will allow them to achieve their goal.