Direct materials. $ 800,000 Direct labor... 640,000 Overhead . 960,000 Selling expenses.. 560,000 Administrative expenses 480,000 Total costs and expenses. $3,440,000 A new retail store has offered to buy 10,000 of its skateboards for $45 per unit. The store is in a different market from Calla's regular customers and would not affect regular sales. A study of its costs in anticipa- tion of this additional business reveals the following: • Direct materials and direct labor are 100% variable. • Thirty percent of overhead is fixed at any production level from 80,000 units to 90,000 units; the remaining 70% of annual overhead costs are variable with respect to volume. • Selling ex penses are 60% variable with respect to number of units sold, and the other 40% of selling expenses are fixed. • There will be an additional $2 per unit selling expense for this order. • Administrative expenses would increase by a $1,000 fixed amount. Required 1. Prepare a three-column comparative income statement that reports the following: a. Annual income without the special order. b. Annual income from the special order. c. Combined annual income from normal business and the new business. 2. Should Calla accept this order?

Direct materials. $ 800,000 Direct labor... 640,000 Overhead . 960,000 Selling expenses.. 560,000 Administrative expenses 480,000 Total costs and expenses. $3,440,000 A new retail store has offered to buy 10,000 of its skateboards for $45 per unit. The store is in a different market from Calla's regular customers and would not affect regular sales. A study of its costs in anticipa- tion of this additional business reveals the following: • Direct materials and direct labor are 100% variable. • Thirty percent of overhead is fixed at any production level from 80,000 units to 90,000 units; the remaining 70% of annual overhead costs are variable with respect to volume. • Selling ex penses are 60% variable with respect to number of units sold, and the other 40% of selling expenses are fixed. • There will be an additional $2 per unit selling expense for this order. • Administrative expenses would increase by a $1,000 fixed amount. Required 1. Prepare a three-column comparative income statement that reports the following: a. Annual income without the special order. b. Annual income from the special order. c. Combined annual income from normal business and the new business. 2. Should Calla accept this order?

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter2: Basic Cost Management Concepts

Section: Chapter Questions

Problem 8CE: Jean and Tom Perritz own and manage Happy Home Helpers, Inc. (HHH), a house-cleaning service. Each...

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Jean and Tom Perritz own and manage Happy Home Helpers, Inc. (HHH), a house-cleaning service. Each cleaning (cleaning one house one time) takes a team of three house cleaners about 1.5 hours. On average, HHH completes about 15,000 cleanings per year. The following total costs are associated with the total cleanings: Next year, HHH expects to purchase 25,600 of direct materials. Projected beginning and ending inventories for direct materials are as follows: There is no work-in-process inventory; in other words, a cleaning is started and completed on the same day. Required: 1. Prepare a statement of services produced in good form. 2. What if HHH planned to purchase 30,000 of direct materials? Assume there would be no change in beginning and ending inventories of materials. Explain which line items on the statement of services produced would be affected and how (increase or decrease).
Jean and Tom Perritz own and manage Happy Home Helpers, Inc. (HHH), a house-cleaning service. Each cleaning (cleaning one house one time) takes a team of three house cleaners about 1.5 hours. On average, HHH completes about 15,000 cleanings per year. The following total costs are associated with the total cleanings: Next year, HHH expects to purchase 25,600 of direct materials. Projected beginning and ending inventories for direct materials are as follows: There is no work-in-process inventory and no finished goods inventory; in other words, a cleaning is started and completed on the same day. HHH expects to sell 15,000 cleanings at a price of 45 each next year. Total selling expense is projected at 22,000, and total administrative expense is projected at 53,000. Required: 1. Prepare an income statement in good form. 2. What if Jean and Tom increased the price to 50 per cleaning and no other information was affected? Explain which line items in the income statement would be affected and how.
Jean and Tom Perritz own and manage Happy Home Helpers. Inc. (HHH), a house-cleaning service. Each cleaning (cleaning one house one time) takes a team of three house cleaners about 1.5 hours. On average, HHH completes about 15,000 cleanings per year. The following total costs are associated with the total cleanings: Next year, HHH expects to purchase 25,600 of direct materials. Projected beginning and ending inventories for direct materials are as follows: There is no work-in-process inventory and no finished goods inventory; in other words, a cleaning is started and completed on the same day. Required: 1. Prepare a statement of cost of services sold in good form. 2. How does this cost of services sold statement differ from the cost of goods sold statement for a manufacturing firm?
Ottis, Inc., uses 640,000 plastic housing units each year in its production of paper shredders. The cost of placing an order is 30. The cost of holding one unit of inventory for one year is 15.00. Currently, Ottis places 160 orders of 4,000 plastic housing units per year. Required: 1. Compute the economic order quantity. 2. Compute the ordering, carrying, and total costs for the EOQ. 3. How much money does using the EOQ policy save the company over the policy of purchasing 4,000 plastic housing units per order?
Assume that Cold Rock sells ice cream for $4.80 per gallon. The cost of each gallon follows: Materials . . . . . . . . . . . . .$1.80 Labor. . . . . . . . . . . . . . 0.60 Variable overhead . . . . . . . . . . . . . .0.30 Fixed overhead ($24,000 per month, 20,000 gallons per month) . . . ............... 1.20 Total costs per gallon . . . . . . . . . . . . . . . . $3.90 One of Cold Rock’s regular customers asked the company to fi ll a special order of 400 gallons at a selling price of $3.60 per gallon for a fund-raising picnic for a local charity. Cold Rock has capacity to fi ll it without affecting total fi xed costs for the month. Cold Rock’s general manager was concerned about selling the ice cream below the cost of $3.90 per gallon and has asked for your advice. Required a. Prepare a schedule to show the impact on Cold Rock’s profi ts of providing 400 gallons of ice cream in addition to the regular production and sales of 20,000 gallons per month. b. Based…
Calla Company produces skateboards that sell for $55 per unit. The company currently has the capacity to produce 95,000 skateboards per year, but is selling 81,800 skateboards per year. Annual costs for 81,800 skateboards follow. Direct materials $ 948,880 Direct labor 597,140 Overhead 952,000 Selling expenses 542,000 Administrative expenses 480,000 Total costs and expenses $ 3,520,020 A new retail store has offered to buy 13,200 of its skateboards for $50 per unit. The store is in a different market from Calla's regular customers and would not affect regular sales. A study of its costs in anticipation of this additional business reveals the following: Direct materials and direct labor are 100% variable. 40 percent of overhead is fixed at any production level from 81,800 units to 95,000 units; the remaining 60% of annual overhead costs are variable with respect to volume. Selling expenses are 60% variable with respect to number of…
Tyrene Products manufactures recreational equipment. One of the company’s products, a skate-board, sells for $37.50. The skateboards are manufactured in an antiquated plant that relies heavily on direct labor workers. Thus, variable costs are high, totaling $22.50 per skateboard of which60% is direct labor cost.Over the past year the company sold 40,000 skateboards, with the following operating results: Sales (40,000 skateboards) $1,500,000 Variable expenses 900,000 Contribution margin 600,000 Fixed expenses 480,000 Net operating income $ 120,000 Management is anxious to maintain and perhaps even improve its present level of income from theskateboards. Required: 1. Refer again to the data in (2) above. The president has decided that the company may haveto raise the selling price of its skateboards. If Tyrene Products wants to maintain the sameCM ratio as last year, what selling price per skateboard must it charge next year to cover theincreased labor costs?2. Refer to the…
Assume Rajan Manufacturing Ltd makes sports vest for local soccer, baseball, basketball, and other sports teams. Rajan, the owner, purchases the vests and prints graphics on the vests for each team. The graphics were designed several years ago, so design costs are no longer incurred. On average, Rajan sells 1,000 vests each month. Typical monthly financial data is shown below: Per Unit Total Monthly Data at 1,000 VestsSales revenue $20 $20 000Variable costs: Direct materials $8 $8 000 Direct labour 2 2 000 Manufacturing overhead 3 13 3 000 13 000Contribution margin $ 7 $ 7 000Fixed costs (rent, salaries, etc.) 4 000Profit $ 3 000 The monthly information provided relates to the company’s routine monthly operations. A representative of the local university recently approached Rajan to ask about a one-time special order. The university will be…
You are the Chief Financial Officer of Max Gifts Company. A small company that sells Italian Memorabilia which are (1) snow globes with boats and (2) snow globes with buildings inside. The company's August 2021 sales and expenses are provided below: Boats Globe Building Globe Sales $20,000 $80,000 Variable Cost $15,000 $40,000 No. Momorabilia sold 200 1000 Sales Mix 20% 80% Monthly Fixed costs are $37,000. Required: b. Compute the weighted average contribution margin per unit.
Assume Rajan Manufacturing Ltd makes sports vest for local soccer, baseball, basketball, and other sports teams. Rajan, the owner, purchases the vests and prints graphics on the vests for each team. The graphics were designed several years ago, so design costs are no longer incurred. On average, Rajan sells 1,000 vests each month. Typical monthly financial data is shown below: Per Unit Total Monthly Data at 1,000 Vests Sales revenue $20 $20 000 Variable costs: Direct materials $8 $8 000 Direct labour 2 2 000 Manufacturing overhead 3 13 3 000 13 000 Contribution margin $ 7 $ 7 000 Fixed costs (rent, salaries, etc.) 4 000 Profit $ 3 000 The monthly information provided relates to the company’s routine monthly operations. A representative of the local university recently approached Rajan to ask about a one-time special order. The university will be hosting a state-wide soccer event and is willing to pay Rajan’s Manufacturing $17 per shirt to make 200 custom vests for…
Assume Rajan Manufacturing Ltd makes sports vest for local soccer, baseball, basketball, and other sports teams. Rajan, the owner, purchases the vests and prints graphics on the vests for each team. The graphics were designed several years ago, so design costs are no longer incurred. On average, Rajan sells 1,000 vests each month. Typical monthly financial data is shown below: Per Unit Total Monthly Data at 1,000 Vests Sales revenue $20 $20 000 Variable costs: Direct materials $8 $8 000 Direct labour 2 2 000 Manufacturing overhead 3 13 3 000 13 000 Contribution margin $ 7 $ 7 000 Fixed costs (rent, salaries, etc.) 4 000 Profit $ 3 000 The monthly information provided relates to the company’s routine monthly operations. A representative of the local university recently approached Rajan to ask about a one-time special…
Feather Friends, Incorporated, distributes a high-quality wooden birdhouse that sells for $120 per unit. Variable expenses are $60.00 per unit, and fixed expenses total $180,000 per year. Its operating results for last year were as follows: Sales $ 3,240,000 Variable expenses 1,620,000 Contribution margin 1,620,000 Fixed expenses 180,000 Net operating income $ 1,440,000 Required: Answer each question independently based on the original data: 1. The sales manager is convinced that a 12% reduction in the selling price, combined with a $71,000 increase in advertising, would increase this year's unit sales by 25%. a. If the sales manager is right, what would be this year's net operating income if his ideas are implemented? b. If the sales manager's ideas are implemented, how much will net operating income increase or decrease over last year? 2. The president does not want to change the selling price. Instead, he wants to increase the sales commission by $2.20 per unit. He…