Waltham Motors Division

2929 Words Apr 26th, 2009 12 Pages
Q1. Using budget data, how many motors would have to be sold for Waltham Motors Division to break even?

Answer Q1:

Breakeven Fixed costs $260,000.00 = ---------------------------------- = ---------------------- = 13,326 units number of units Unit contribution margin $19.51

UCM (Unit Contribution margin) = USP (Unit Selling Price) UVC (Unit Variable Costs) = = $48.00 - $28.49 = $19.51

USP = Sales / Units sold = $864,000.00/18,000 = $48.00
UVC = Total variable costs / Units produced = $512,800.00/18,000 =$28.49

Conclusion: The company should produce, based on the budget data, at least 13,326 units in order to cover all its costs.

Q2. Using budget data, what was the
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The difference is not due only to the fixed costs applied to a smaller production, but also to an increase in Direct Materials Costs and Direct Labor Costs, as well as an increase in Overhead Variable Costs and moreover in Overhead Fixed Costs.
Regarding the Direct Labor Costs an increase was expected, but only by 2.50% not by almost 10%. Additionally the Direct Materials Costs were expected to decrease by 5%, but instead we are facing an increase of almost 2%.

Q3. Comment on the performance report and the plan accountant’s analysis of results. How, if at all, would you suggest the performance report be changed before sending it on to the division manager and Marco Corporation headquarters?

Q4. Prepare your own analysis of the Waltham Division’s operations in May. Explain in as much detail as possible why income differed from what you would have expected.

Answers Q3 & Q4:

The main issue that can be implied from the accountant’s letter to Sharon is the fact that he is making comparisons at different levels of production. He is not taking into consideration that all variable costs should

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