Saturday 20 July 2013

Super Sales Company is the exclusive distributor for a revolutionary bookbag. The product sells for $43 per unit



Exercise 5-16 Break-Even and Target Profit Analysis [LO3, LO4, LO5,LO6]
Super Sales Company is the exclusive distributor for a revolutionary bookbag. The product sells for $43 per unit and has a CM ratio of 38%. The company’s fixed expenses are $245,100 per year. The company plans to sell 16,000 bookbags this year.

Required:
1.
What are the variable expenses per unit? (Round your answer to 2 decimal places.)

  Variable expenses
$    
            Variable expense = 26.66
2.
Use the equation method:

a.
What is the break-even point in units and in sales dollars? (Do not round intermediate calculations. Round your answers to the nearest whole number.)

  Break-even point in units
   
  Break-even point in sales dollars
$     
            Break-even point in units                            = 15,000 units
           Break-even point in sales dollars                     = 645,000

b.
What sales level in units and in sales dollars is required to earn an annual profit of $81,700? (Do not round intermediate calculations. Round your answers to the nearest whole number.)

  Sales level in units
   
  Sales level in dollars
$     
  Sales level in units                       = 20,000
  Sales level in dollars       = 860,000

c.
Assume that through negotiation with the manufacturer the Super Sales Company is able to reduce its variable expenses by $4.10 per unit. What is the company’s new break-even point in units and in sales dollars? (Do not round intermediate calculations. Round your final answers to the nearest whole number.)

  New break-even point in units
   
  New break-even point in sales dollars
$     

  New break-even point in units                          = 11991
  New break-even point in sales dollars           = 510625
3.
Repeat (2) above using formula method. 
   
a.
What is the break-even point in units and in sales dollars? (Do not round intermediate calculations. Round your answers to the nearest whole number.)
  
  Break-even point in units
  
  Break-even point in sales dollars
$   
            Break-even point in units                           = 15,000 units
           Break-even point in sales dollars                     = 645,000

b.
What sales level in units and in sales dollars is required to earn an annual profit of $81,700? (Do not round intermediate calculations. Round your answers to the nearest whole number.)
  
  Sales level in units
  
  Sales level in dollars
$   
  Sales level in units                       = 20,000
  Sales level in dollars       = 860,000
  

c.
Assume that through negotiation with the manufacturer the Super Sales Company is able to reduce its variable expenses by $3.60 per unit. What is the company’s new break-even point in units and in sales dollars? (Round your answers to the nearest whole number.)
  
  New break-even point in units
  
  New break-even point in sales dollars
$   
  New break-even point in units                              = 12292
  New break-even point in sales dollars                  =532826

Rocky Mountain Corporation makes two types of hiking boots—Xactive and the Pathbreaker. Data concerning these two product lines appear below:



Exercise 3-10 Contrasting ABC and Conventional Product Costs [LO2, LO3, LO4]
Rocky Mountain Corporation makes two types of hiking boots—Xactive and the Pathbreaker. Data concerning these two product lines appear below:


Xactive
Pathbreaker
  Direct materials per unit
$
65.50

$
51.70

  Direct labor cost per unit
$
18.90

$
13.70

  Direct labor-hours per unit

1.4
 DLHs

1
 DLHs
  Estimated annual production and sales

32,000
 units

82,000
 units


The company has a conventional costing system in which manufacturing overhead is applied to units based on direct labor-hours. Data concerning manufacturing overhead and direct labor-hours for the upcoming year appear below:




  Estimated total manufacturing overhead
$2,624,760

  Estimated total direct labor-hours
126,800
 DLHs


Required:
1-a.
Compute the predetermined overhead rate based on direct labor-hours. (Round the intermediate calculations and final answer to two decimal places.)

  Predetermined overhead rate
  $  per DLH
                                                                                    20.70

1-b.
Using the predetermined overhead rate and other data from the problem, determine the unit product cost of each product. (Round the intermediate calculations and final answer to two decimal places.)


Xactive
Pathbreaker
  Unit product cost
$  
$  

                                                            113.38                        86.10
2.
The company is considering replacing its conventional costing system with an activity-based costing system that would assign its manufacturing overhead to the following four activity cost pools:
  

Estimated Overhead Cost
Expected Activity




Activities and Activity Measures
Xactive
Pathbreaker
Total

  Supporting direct labor (direct labor-hours)
$
963,680   
44,800  
82,000  
126,800  
  Batch setups (setups)

963,500   
285  
185  
470  
  Product sustaining (number of products)

610,940   
1  
1  
2  
  General factory (machine-hours)

86,640   
3,200  
8,200  
11,400  






  Total manufacturing overhead cost
$
2,624,760   














Determine the activity rate for each of the four activity cost pools. (Round your final answers to 2 decimal places.)

  Activity Cost Pools
Activity Rate
  Supporting direct labor
$
 per DLH
   Batch setups
$
 per setup
  Product sustaining
$
 per product
  General factory
$
 per MH

7.60, 2050, 305470, 7.60

3.
Using the activity rates and other data from the problem, determine the unit product cost of each product. (Round the intermediate calculations and final answer to two decimal places.)


Xactive
Pathbreaker
  Unit product cost
$  
$  

                                                            123.60                         82.11