Group Case Assignment

3239 WordsMay 8, 201213 Pages
Cass00uiu@yahoo.com Group Assignments Week #2 (Case 34pg 139-140 inside the ref) Complete Group Case 3-33 on page 138. Make sure to answer the questions completely and show all computations with proper labeling if required. Explain how shaving 5% off the estimated direct labor-hours in the base for the predetermined overhead rate usually results in a big boost in net operating income at the end of the fiscal year. Should Terri Ronsin go along with the general manager’s request to reduce the direct labor-hours in the predetermined overhead rate computation to 420,000 direct labor-hours? Shaving 5% off the estimated direct labor-hours in the predetermined overhead rate will result in an artificially high overhead rate. The…show more content…
a. What is the break-even point in units for each product? b. If the company sells exactly the break-even quantity of each product, what will be the overall profit of the company? Explain this result. Case 6-32 (Case 6-35 pg 333-341) 1. The overall break-even sales can be determined using the CM ratio. | | Velcro | Metal | Nylon | Total | | Sales | $165,000 | $300,000 | $340,000 | $805,000 | | Variable expenses | 125,000 | 140,000 | 100,000 | 365,000 | | Contribution margin | $ 40,000 | $160,000 | $240,000 | 440,000 | | Fixed expenses | | | | 400,000 | | Net operating income | | | | $ 40,000 | 2. The issue is what to do with the common fixed cost when computing the break-evens for the individual products. The correct approach is to ignore the common fixed costs. If the common fixed costs are included in the computations, the break-even points will be overstated for individual products and managers may drop products that in fact are profitable. a. The break-even points for each product can be computed using the contribution margin approach as follows: | | Velcro | Metal | Nylon | | Unit selling price | $1.65 | $1.50 | $0.85 | | Variable cost per unit | 1.25 | 0.70 | 0.25 | | Unit contribution margin (a) | $0.40 | $0.80 | $0.60 | |

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