I am having problems with this question from my Textbook. Managerial Accounting by Needles and Crosson.
Here it is:
Hans Echt is the president of the Ivers Plastics Division of Treat Industries. Management is considering a new product featuring a dashing medieval knight posed on a beautiful horse. Called Chargin' Knight, this product is expected to have global market appeal and become the mascot for many high school and university athletic teams. Expected variable unit costs are: direct materials, $18.50; direct labor, $4.25; production supplies, $1.10; selling costs, $2.80; and other, $1.95. Annual fixed costs are: depreciation, building and equipment, $36,000; advertising, $45,000; and other, $11,400. Treat Industries plans to sell the product for $55.00.
1. Using the contribution margin approach, compute the number of products the company must sell to (a) break even and (b) earn a target profit of $70,224.
2. Using the same data, compute the number of products that must be sold to earn a target profit of $139,520 if advertising costs rise by $40,000.
3. Using the original information and sales of 10,000 units, compute the new selling price the company must use to make a target profit of $131,600. (Hint: Calculate contribution margin per unit first.)
4. According to the vice president of marketing, Stanley Mendoza, the most optimistic annual sales estimate for the product would be 15,000 units, and the highest competitive selling price the company can charge is $52.00 per unit. How much more can be spent on fixed advertising costs if the selling price is $52.00, if the variable costs cannot be reduced, and if the target profit for 15,000 unit sales is $251,000?
The Weavers Packaging Company makes plastic baskets for food wholesalers. Each Type R basket is made of .8 gram of liquid plastic and .6 gram of an additive that includes color and hardening agents. The standard prices are $.15 per gram of liquid plastic and $.09 per gram of additive.
Two kinds of direct labor are required: molding and trimming/packing. The direct labor time and rate standards per 100-basket batch are as follows: molding, 1.0 hour per batch at an hourly rate of $12; trimming/packing, 1.2 hours per batch at $10 per hour.
During 20x9, the company produced 48,000 Type R baskets. Actual materials used were 38,600 grams of liquid plastic at a total cost of $5,404 and 28,950 grams of additive at a cost of $2,895. Actual direct labor included 480 hours for molding at a total cost of $5,664, and 560 hours for trimming/packing at $5,656.
1. Compute the direct materials price and quantity variances for both the liquid plastic and the additive.
2. Compute the direct labor rate and efficiency variances for the molding and trimming/packing processes.