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    Enterprises Manufacturing New Products

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    E5-2 (b-d)

    Kozy Enterprises is considering manufacturing a new product. It projects the cost of direct materials and rent for a range of output as shown below.
    Output
    in Units Rent
    Expense Direct
    Materials
    1,000 $5,000 $4,000
    2,000 5,000 6,000
    3,000 5,000 7,800
    4,000 7,000 8,000
    5,000 7,000 10,000
    6,000 7,000 12,000
    7,000 7,000 14,000
    8,000 7,000 16,000
    9,000 7,000 18,000
    10,000 10,000 23,000
    11,000 10,000 28,000
    12,000 10,000 36,000

    Determine the relevant range of activity for this product.

    Calculate the variable cost per unit within the relevant range.
    $

    Indicate the fixed cost within the relevant range.
    $

    E5-6

    Mozena Corporation manufactures a single product. Monthly production costs incurred in the manufacturing process are shown below for the production of 3,000 units. The utilities and maintenance costs are mixed costs.The fixed portions of these costs are $300 and $200, respectively.
    Production in Units 3,000
    Production Costs
    Direct Materials $7,500
    Direct labor 15,000
    Utilities 1,800
    Property taxes 1,000
    Indirect labor 4,500
    Supervisory salaries 1,800
    Maintenance 1,100
    Depreciation 2,400

    Identify the above costs as variable, fixed, or mixed. Put an "X" in the column which applies and the letter "O" if it does not. (Please put an answer in each field. Do not leave any fields blank.)
    Fixed Variable Mixed
    Direct Materials

    Direct labor

    Utilities

    Property taxes

    Indirect labor

    Supervisory salaries

    Maintenance

    Depreciation

    Calculate the expected costs when production is 5,000 units.
    $

    E5-11

    Airport Connection provides shuttle service between four hotels near a medical center and an international airport. Airport Connection uses two 10 passenger vans to offer 12 round trips per day. A recent month's activity in the form of a cost-volume-profit income statement is shown below.
    Fare revenues (1,440 fares) $36,000
    Variable costs
    Fuel $5,040
    Tolls and Parking 3,100
    Maintenance 500 8,640
    Contribution margin 27,360
    Fixed costs
    Salaries 13,000
    Depreciation 1,300
    Insurance 1,128 15,428
    Net income $11,932

    Calculate the break-even point in (1) dollars and (2) number of fares.
    Break-even point in dollars; $

    Break-even point in fares

    Without calculations, determine the contribution margin at the break-even point.
    $

    E5-15

    Moran Company reports the following operating results for the month of August: Sales $350,000 (units 5,000); variable costs $210,000; and fixed costs $90,000. Management is considering the following independent courses of action to increase net income.
    1. Increase selling price by 10% with no change in total variable costs.
    2. Reduce variable costs to 55% of sales.
    Compute the net income to be earned under each alternative.
    1. $

    2. $

    Which course of action will produce the highest net income?

    P5-2A

    Utech Company bottles and distributes Livit, a diet soft drink. The beverage is sold for 50 cents per 16-ounce bottle to retailers, who charge customers 75 cents per bottle. For the year 2008, management estimates the following revenues and costs.
    Net sales $1,800,000 Selling expenses-variable $70,000
    Direct materials 430,000 Selling expenses-fixed 65,000
    Direct labor 352,000 Administrative expenses-variable 20,000
    Manufacturing overhead-variable 316,000 Administrative expenses-fixed 60,000
    Manufacturing overhead-fixed 283,000

    Prepare a CVP income statement for 2008 based on management's estimates. (List amounts from largest to smallest eg 10, 5, 3, 2.)
    UTECH COMPANY
    CVP Income Statement (Estimated)
    For the Year Ending December 31, 2008

    $

    Variable expenses

    $

    Total variable expenses

    Contribution margin

    Fixed expenses

    Total fixed expenses

    Net income $

    Compute the break-even point in (1) units and (2) dollars.
    Breakeven point in units units

    Breakeven point in dollars $

    Compute the contribution margin ratio and the margin of safety ratio. (Round answers to 0 decimal places, e.g. 125.)
    Contribution margin ratio %

    Margin of safety ratio %

    Determine the sales dollars required to earn net income of $238,000.
    $

    P5-4A

    Alice Shoemaker is the advertising manager for Value Shoe Store. She is currently working on a major promotional campaign. Her ideas include the installation of a new lighting system and increased display space that will add $34,000 in fixed costs to the $270,000 currently spent. In addition, Alice is proposing that a 5% price decrease ($40 to $38) will produce a 20% increase in sales volume (20,000 to 24,000). Variable costs will remain at $22 per pair of shoes. Management is impressed with Alice's ideas but concerned about the effects that these changes will have on the break-even point and the margin of safety.

    Compute the current break-even point in units, and compare it to the break-even point in units if Alice's ideas are used.
    Current breakeven point pairs of shoes

    New breakeven point pairs of shoes

    Compute the margin of safety ratio for current operations and after Alice's changes are introduced. (Round answers to 0 decimal places, e.g. 125.)
    Current percentage %

    New percentage %

    Prepare a CVP income statement for current operations and after Alice's changes are introduced.
    VALUE SHOE STORE
    CVP Income Statement
    Current New
    Sales $
    $

    Variable expenses

    Contribution margin

    Fixed expenses

    Net income $
    $

    Would you make the changes suggested?

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    https://brainmass.com/business/accounting/enterprises-manufacturing-new-products-396274

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    E5-2 (b-d)
    Kozy Enterprises is considering manufacturing a new product. It projects the cost of direct materials and rent for a range of output as shown below.
    Output in units Rent expense Direct material
    1,000 $5,000 $4,000
    2,000 5,000 6,000
    3,000 5,000 7,800
    4,000 7,000 8,000
    5,000 7,000 10,000
    6,000 7,000 12,000
    7,000 7,000 14,000
    8,000 7,000 16,000
    9,000 7,000 18,000
    10,000 10,000 23,000
    11,000 10,000 28,000
    12,000 10,000 36,000

    Determine the relevant range of activity for this product.
    Highest output 12,000
    Lowest output 1,000
    Relevant range of output 11,000 =difference

    Calculate the variable cost per unit within the relevant range.
    Total cost Quantity
    Highest level $46,000 12,000
    Lowest level $9,000 1,000
    Difference $37,000 =46,000 - 9,000 11,000
    Variable cost $3.36 =37,000/11.000

    Indicate the fixed cost within the relevant range.
    Fixed cost $5,636 =46,000 - (3.36 * 1,000)

    E5-6
    Mozena Corporation manufactures a single product. Monthly production costs incurred in the manufacturing process are shown below for the production of 3,000 units. The utilities and maintenance costs are mixed costs. The fixed portions of these costs are $300 and $200, respectively.

    Production in Units 3,000
    Production Costs
    Direct Materials $7,500
    Direct labor 15,000
    Utilities 1,800
    Property taxes 1,000
    Indirect labor 4,500
    Supervisory salaries 1,800
    Maintenance 1,100
    Depreciation 2,400

    Identify the above costs as variable, ...

    Solution Summary

    The expert examines enterprises manufacturing of a new product. The relevant range of activity for this product is determined.

    $2.19