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    Various Problems:Cost-Volume-Profit Analysis and more

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    I. Classifications

    Part A: Classifications Determine the classification for each cost item based on 2 different schemes. First, determine cost behavior: whether the cost is variable or fixed (relative to the number of units produced); check the appropriate space. Then, determine whether the cost is a product or a period cost; check the appropriate space. Be sure your final answers are lined up under the right column before submitting your quiz.

    Behavior Functional Area
    Cost Item Variable Fixed Product Period

    Paper towels used in the office building restrooms _____ _____ _____ _____

    Cost of natural gas to run the manufacturing equipment _____ _____ _____ _____

    Salaries of the sales managers _____ _____ _____ _____

    Insurance paid on the headquarters building _____ _____ _____ _____

    Hourly wages of the assembly workers _____ _____ _____ _____

    Cost of fabric to make polo shirts _____ _____ _____ _____

    Commissions paid to salespeople at $4 per unit _____ _____ _____ _____

    Production supervisors' salaries _____ _____ _____ _____

    Cost of newspaper advertising _____ _____ _____ _____

    Property taxes paid on the factory building _____ _____ _____ _____

    Cost of forms for ordering raw materials _____ _____ _____ _____
    (purchase orders)

    Part B: Identification of cost types Select from the list above (in Part A) and list below two items that would be classified as:

    1. Manufacturing overhead costs

    2. Selling (or marketing) costs

    II. Solving for Unknowns For each case solve for the unknown amounts. Use the space below each set of information to show your calculations.

    Units Selling Variable Total Contrib. Fixed Operating
    Sold Price Costs / Unit Margin Costs Income (Loss)

    3,000 $ 25.00 (a)_________ $ 57,000 $ 45,000 (b)__________

    Unit Selling Variable Total Contrib. Fixed Operating
    Sold Price Costs / Unit Margin Costs Income (Loss)

    (c)_________ $ 10.00 $ 7.50 $ 20,500 (d)__________ ($ 4,750)

    Units Selling Variable Total Contrib. Fixed Operating
    Sold Price Costs / Unit Margin Costs Income (Loss)

    4,280 (e)___________ $ 9.20 $ 33,384 $ 44,500 (f)___________

    Units Selling Variable Total Contrib. Fixed Operating
    Sold Price Costs / Unit Margin Costs Income (Loss)

    2,100 $ 20.00 (g)_________ (h)___________ $ 12,300 $ 4,500

    III. Cost-Volume-Profit Analysis Problems The following cost information is available for a single product manufactured and sold by Dreamer Corp.:

    Variable costs: Direct materials $ 10 Fixed costs (in total):
    (Per unit) Direct labor 12 Fixed overhead $ 540,000
    Variable overhead 3 Fixed selling 360,000
    Variable selling 2

    Units sell for $36 each, and the firm is currently manufacturing and selling 120,000 units.

    1. Determine the contribution margin per unit and the contribution margin ratio (percentage).

    2. Calculate the firm's breakeven point in units.

    3. Calculate the firm's breakeven point in sales dollars (revenues).

    4. Calculate income at their current operating level of 120,000 units.

    5. Suppose a change in manufacturing technology would allow the firm to reduce direct labor costs to $6 per unit, but would increase fixed overhead costs by $150,000. Compute the breakeven point (in units) considering these changes to the cost structure.

    6. Return to the original information (ignore changes in part 5). Suppose the firm can add a second product that would sell for $20 per unit, have unit variable costs of $13, and would increase total fixed costs by $320,000. Determine the firm's total income if they continue making and selling 120,000 units of the original product and make and sell 80,000 units of the second product.

    7. Continuing with the 2 products, suppose the sales mix changes so they make and sell 100,000 units of each product (making the same total of 200,000 units). Determine the firm's total income with this mix of the two products.

    IV. Applying Overhead Dane Co. applies manufacturing overhead to jobs based on machine hours used. At the beginning of the year, the company estimated that overhead costs would total $86,000 for the year, and that the machine would run for 4,000 hours during the year.

    1. Determine the pre-determined overhead rate for the year. (This will be used to assign overhead to the jobs in parts 2 and 3.)

    2. One job that ran during the month of March used 120 machine hours. The job also incurred materials costs of $750 and direct labor cost of $300 (20 hours at a labor rate of $15 per hour). The job consisted of 120 units. Determine the total manufacturing cost for the job, and the total cost per unit for items produced in this job.

    3. A second job that ran during the month used 180 machine hours, incurred $980 of direct materials cost, and direct labor cost of $540 (36 hours at $15 per labor hour). The job consisted of 175 units. Determine the total manufacturing cost for the job, and the total cost per unit for items produced in this job.

    4. Assume the jobs described in parts 2 and 3 were the only jobs worked on during the entire month of March. (The overhead was applied to these 2 jobs is the only applied overhead for the month.) Actual overhead costs for the month totaled $8,000. Determine the amount of under- or over-applied overhead for the month AND label it as over- or under-applied.

    V. Activity-Based Costing The purchasing department of a manufacturing firm has decided to apply its costs to jobs using an activity based costing system. Its costs of $490,000 are split among the three major activities:

    Activity Cost Allocation Measure Total Activity
    Finding suppliers $ 300,000 Number of telephone calls 200,000 calls
    Issuing purchase orders $ 100,000 Number of purchase orders 25,000 orders
    Reviewing receiving reports $ 90,000 Number of receiving reports 20,000 reports

    1. From the information provided, determine the three allocation rates (one for each cost pool) to be used by an activity based costing system.

    2. For one job that was produced by the firm, the following purchasing department activities were completed: 200 phone calls were made, 50 purchase orders were issued, and 40 separate incoming orders (receiving reports) were received. What amount of purchasing department cost would be assigned to this job?

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    https://brainmass.com/business/cost-volume-profit-analysis/296940

    Solution Preview

    Thank you for using BrainMass!

    ---------------
    I. Classifications

    Part A: Classifications Determine the classification for each cost item based on 2 different schemes. First, determine cost behavior: whether the cost is variable or fixed (relative to the number of units produced); check the appropriate space. Then, determine whether the cost is a product or a period cost; check the appropriate space. Be sure your final answers are lined up under the right column before submitting your quiz.

    Behavior Functional Area
    Cost Item Variable Fixed Product Period

    Paper towels used in the office building restrooms Variable Product

    Cost of natural gas to run the manufacturing equipment Variable Product

    Salaries of the sales managers Fixed Period

    Insurance paid on the headquarters building Fixed Period

    Hourly wages of the assembly workers Variable Period

    Cost of fabric to make polo shirts Variable Product

    Commissions paid to salespeople at $4 per unit Fixed Product

    Production supervisors' salaries Fixed Period

    Cost of newspaper advertising Variable Period

    Property taxes paid on the factory building Fixed Period

    Cost of forms for ordering raw materials Variable Product
    (purchase orders)

    Part B: Identification of cost types Select from the list above (in Part A) and list below two items that would be classified as:

    1. Manufacturing overhead costs
    ? Cost of natural gas to run the manufacturing equipment
    ? Production supervisors' salaries

    2. Selling (or marketing) costs
    ? Cost of newspaper advertising
    ? Commissions paid to salespeople at $4 per unit

    II. Solving for Unknowns For each case solve for the unknown amounts. Use the space below each set of information to show your calculations.

    Units Selling Variable Total Contrib. Fixed Operating
    Sold Price Costs / Unit Margin Costs Income (Loss)

    3,000 $ 25.00 (a) $18,000 $ 57,000 $ 45,000 (b) $12,000

    Sales = 3000*25 = 75000
    Contribution = Sales - Variable cost

    ...

    Solution Summary

    The solution answers Various Problems: Classifications, solving for unknowns, Cost-Volume-Profit Analysis and more.

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