Explore BrainMass

Break-Even Analysis/Variances/Conversion Costs

I need help with the following problems. Please explain how you arrived at each calculation so I have a better chance of understanding the process.

Carlton Corporation manufactures paper shredding equipment. You are requested to "audit" a sampling of computations made by Carlton's internal accountants via your independent recalculation of the information.

Instructions: Compute the requested information for each of the following independent situations (present supporting calculations).

(a) Each paper shredder has a standard material cost of 20 pounds at $6.50 per pound or $130 in total. 60,000 pounds of material were purchased for $420,000 during the period and 39,000 pounds were used in the production of 2,000 good units. Compute the direct materials price and quantity variances, and label them as favorable or unfavorable.

(b) Carlton uses a process costing system. 2,000 units were in process at the beginning of the period, 60% complete. 20,000 units were started into production during the period; 1,000 were in process at the end of the period, 60% complete. Compute equivalent units for conversion costs.

(c) Carlton sells each unit for $500. Variable costs per unit equal $350. Total fixed costs equal $600,000. Carlton is currently selling 5,000 units per period and would like to earn net income of $300,000. Compute: (1) break-even point in dollars; (2) sales units necessary to attain desired income

(1) Break-even = $_________________________________________.

(2) Desired sales = ____________________________________ units.

Solution Preview

(a) Material Price Variance = (Actual Price - Standard Price) Actual Quantity Purchased
Actual Price = 420,000/60,000 = 7.00
Material Price Variance = (7-6.50) 60,000 = $30,000 U as the actual price is higher
Material quantity variance = (Actual quantity used - Standard Quantity) Standard Price
Actual quantity used = 39,000 ...

Solution Summary

In about 210 words, this solution explains the concepts of a break-even analysis, variance and conversion costs. All calculations required are included and the response is organized in chart format.