Problem 1. A finance company charges a $400 processing for each loan it processes. Their costs over the past year associated with processing loans is as follows:
|
Loans
|
|
|
Processed
|
Cost
|
|
January
|
160
|
$47,000
|
|
February
|
180
|
47,900
|
|
March
|
190
|
48,500
|
|
April
|
201
|
48,600
|
|
May
|
225
|
49,900
|
|
June
|
300
|
54,100
|
|
July
|
275
|
51,300
|
|
August
|
230
|
50,450
|
|
September
|
209
|
49,400
|
|
October
|
175
|
47,500
|
|
November
|
165
|
47,200
|
|
December
|
150
|
47,100
|
a. Use the high-low method to estimate fixed and variable costs.
b. Based on these estimates, calculate the number of loans that must be made to break even.
c. Estimate total profit in a month when 250 loans are processed.
Problem 2. A bike company produces and sells three models:
|
|
Model #1
|
Model #2
|
Model #3
|
Total
|
|
Units sold
|
1,000
|
2,000
|
2,000
|
5,000
|
|
Sales
|
$100,000
|
$120,000
|
$80,000
|
$300,000
|
|
Less variable costs
|
50,000
|
48,000
|
24,000
|
122,000
|
|
Contribution margin
|
$50,000
|
$72,000
|
$56,000
|
178,000
|
|
Less common fixed costs
|
|
|
|
103,000
|
|
Profit
|
|
|
|
$75,000
|
a. What is the weighted average contribution margin per unit?
b. Calculate the break-even point in units assuming the current mix.
Problem 3. A syrup company produces special syrup used by ice cream companies. Recently, the company has had excess capacity due to a foreign supplier entering its market. The syrup company is currently bidding on a potential order from Minnie Moos Ice cream for 5,000 cases of syrup. The estimated cost of each case is $18, as follows:
|
Direct material
|
$6
|
|
Direct labor
|
4
|
|
Overhead
|
8
|
|
Total
|
$18
|
Problem 4. An electronics manufacturer of data storage devices consists of two service departments, maintenance and computing, and two production departments, assembly and testing. Maintenance costs are allocated on the basis of squire footage occupied, and computing costs are allocated on the basis of the number of computer terminals. The following data relate to allocations of service department costs:
|
|
Maintenance
|
Computing
|
Assembly
|
Testing
|
|
Service department costs
|
$600,000
|
$800,000
|
|
|
|
Square footage
|
|
|
90,000
|
45,000
|
|
Terminals
|
|
|
15
|
30
|
Allocate the service department costs to production departments using the direct method.
Problem 5. A company produces orange juice and candied orange peels. A 1,000-pound batch of oranges, costing $400, is transformed using labor of $40 into 100 pounds of orange peels and 300 pints of juice. The company has determined that the sales value of 100 pounds of peels at the slit-off point is $300 and the value of a pint of juice (not pasteurized or bottled) is $0.30. Beyond the slip-too point, the cost of sugar-coating and packaging the 100 pounds of peels is $50. The cost of pasteurizing and packaging the 300 pints of juice is $150. A 100 pound box of candied peels is sold to commercial baking companies for $500. Each pint of juice is sold for $1.
a. Allocate joint costs using the relative sales values at the split-off point and calculate the project per 100 pound box of sugar-coated peels and the profit per pint of juice.
b. What is the incremental benefit (cost) to the company of sugar-coating the peels rather than selling them in their condition at the split-off point?
c. What is the incremental benefit (cost) to the company of pasteurizing and packaging a pint of juice rather than selling the juice at the split-off point?
Problem 6. A company is designing a portable recording studio to be sold to consumers. The team developing the product includes representatives from marketing, engineering, and cost accounting. The recording studio set will include sound-canceling monitor headphones, audio recording and enhancement software, several instrumental and vocal microphones, and portable folding acoustic panels. With this set of features, the team believes that a price of $4,000 will be attractive in the marketplace. The company seeks to earn a per unit profit of 20 percent of selling price.
a. Calculate the target cost per unit.
b. The team has estimated that the fixed production costs associated with the project will be $1,860,000 and variable costs to produce and sell the item will be $2,500 per unit. In light of this, how many units must be produced and sold to meet the target cost per unit?
c. Suppose the company decides that only 2,000 units can be sold at a price of $4,000 and, therefore, the target cost cannot be reached. The company is considering dropping the folding acoustic panels, which add $750 of variable cost per unit. With this feature dropped, the company believes it can sell 2,700 units at $3,200 per unit. Will the company be able to produce the time at the new target cost or less?