manufacturing companies have gross margin goals, and Concord's is no differen are suitable for a number of purposes Management at the company has dictated a st een able to achieve it. Some of the company's financial information is as follows Sales Variable selling expenses Fixed selling general, and administrative expenses D $650,000 $2.00/unit $123,000

manufacturing companies have gross margin goals, and Concord's is no differen are suitable for a number of purposes Management at the company has dictated a st een able to achieve it. Some of the company's financial information is as follows Sales Variable selling expenses Fixed selling general, and administrative expenses D $650,000 $2.00/unit $123,000

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter3: Cost Behavior

Section: Chapter Questions

Problem 34P: Kimball Company has developed the following cost formulas:...

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Kimball Company has developed the following cost formulas: Materialusage:Ym=80X;r=0.95Laborusage(direct):Yl=20X;r=0.96Overheadactivity:Yo=350,000+100X;r=0.75Sellingactivity:Ys=50,000+10X;r=0.93 where X=Directlaborhours The company has a policy of producing on demand and keeps very little, if any, finished goods inventory (thus, units produced equals units sold). Each unit uses one direct labor hour for production. The president of Kimball Company has recently implemented a policy that any special orders will be accepted if they cover the costs that the orders cause. This policy was implemented because Kimballs industry is in a recession and the company is producing well below capacity (and expects to continue doing so for the coming year). The president is willing to accept orders that minimally cover their variable costs so that the company can keep its employees and avoid layoffs. Also, any orders above variable costs will increase overall profitability of the company. Required: 1. Compute the total unit variable cost. Suppose that Kimball has an opportunity to accept an order for 20,000 units at 220 per unit. Should Kimball accept the order? (The order would not displace any of Kimballs regular orders.) 2. Explain the significance of the coefficient of correlation measures for the cost formulas. Did these measures have a bearing on your answer in Requirement 1? Should they have a bearing? Why or why not? 3. Suppose that a multiple regression equation is developed for overhead costs: Y = 100,000 + 100X1 + 5,000X2 + 300X3, where X1 = direct labor hours, X2 = number of setups, and X3 = engineering hours. The coefficient of determination for the equation is 0.94. Assume that the order of 20,000 units requires 12 setups and 600 engineering hours. Given this new information, should the company accept the special order referred to in Requirement 1? Is there any other information about cost behavior that you would like to have? Explain.
The Chocolate Baker specializes in chocolate baked goods. The firm has long assessed the profitability of a product line by comparing revenues to the cost of goods sold. However, Barry White, the firms new accountant, wants to use an activity-based costing system that takes into consideration the cost of the delivery person. Following are activity and cost information relating to two of Chocolate Bakers major products: Using activity-based costing, which of the following statements is correct? a. The muffins are 2,000 more profitable. b. The cheesecakes are 75 more profitable. c. The muffins are 1,925 more profitable. d. The muffins have a higher profitability as a percentage of sales and, therefore, are more advantageous.
Shannon, Inc., has two divisions. One produces and sells paper party supplies (napkins, paper plates, invitations); the other produces and sells cookware. A segmented income statement for the most recent quarter is given below: On seeing the quarterly statement, Madge Shannon, president of Shannon, Inc., was distressed and discussed her disappointment with Bob Ferguson, the companys vice president of finance. MADGE: The Party Supplies Division is killing us. Its not even covering its own fixed costs. Im beginning to believe that we should shut down that division. This is the seventh consecutive quarter it has failed to provide a positive segment margin. I was certain that Paula Kelly could turn it around. But this is her third quarter, and she hasnt done much better than the previous divisional manager. BOB: Well, before you get too excited about the situation, perhaps you should evaluate Paulas most recent proposals. She wants to spend 10,000 per quarter for the right to use familiar cartoon figures on a new series of invitations, plates, and napkins and at the same time increase the advertising budget by 25,000 per quarter to let the public know about them. According to her marketing people, sales should increase by 10 percent if the right advertising is doneand done quickly. In addition, Paula wants to lease some new production machinery that will increase the rate of production, lower labor costs, and result in less waste of materials. Paula claims that variable costs will be reduced by 30 percent. The cost of the lease is 95,000 per quarter. Upon hearing this news, Madge calmed considerably and, in fact, was somewhat pleased. After all, she was the one who had selected Paula and had a great deal of confidence in Paulas judgment and abilities. Required: 1. Assuming that Paulas proposals are sound, should Madge Shannon be pleased with the prospects for the Party Supplies Division? Prepare a segmented income statement for the next quarter that reflects the implementation of Paulas proposals. Assume that the Cookware Divisions sales increase by 5 percent for the next quarter and that the same cost relationships hold. 2. Suppose that everything materializes as Paula projected except for the 10 percent increase in salesno change in sales revenues takes place. Are the proposals still sound? What if the variable costs are reduced by 40 percent instead of 30 percent with no change in sales?
Most manufacturing companies have gross margin goals, and Murphy's is no different. Murphy's makes lightweight backpacks that are suitable for a number of purposes. Management at the company has dictated a strict 60% gross margin goal, and, to date, it has been able to achieve it. Some of the company's financial information is as follows. Sales $ 625,000 Variable selling expenses $ 2.50/unit Fixed selling, general, and administrative expenses $ 120,000 Questions: a. Given the above information, what is the most Murphy's can incur in manufacturing costs and still meet its gross margin goal? b. If the fixed portion of Murphy's manufacturing cost is $87,500, what combination of selling price and variable manufacturing costs would fit the corporate gross margin percentage goal, assuming sales volume is 25,000 units? c. Assume now that instead of having a corporate margin goal, the company switches to a contribution margin goal. If this new contribution margin goal…
Milden Company is a distributor who wants to start using a contribution format income statement for planning purposes. The company has analyzed its expenses and developed the following cost formulas: Cost Cost Formula Cost of good sold $28 per unit sold Advertising expense $178,000 per quarter Sales commissions 6% of sales Shipping expense ? Administrative salaries $88,000 per quarter Insurance expense $9,800 per quarter Depreciation expense $58,000 per quarter Because shipping expense is a mixed cost, the company needs to estimate the variable shipping expense per unit sold and the fixed shipping expense per quarter using the following data: Quarter Units Sold ShippingExpense Year 1: First 24,000 $ 168,000 Second 26,000 $ 183,000 Third 31,000 $ 225,000 Fourth 27,000 $ 188,000 Year 2: First 25,000 $ 178,000 Second 28,000 $ 193,000 Third 38,400 $ 240,000 Fourth 35,400 $ 216,000 Required: 1.…
Compare the following two companies: Company A is a retail merchandise firm with current sales of $4,000,000 and a 45% contribution margin. Company A's fixed costs are $600,000. Company B is a service firm with current service revenue of $2,800,000 and a 15% contribution margin. Company B’s fixed costs are $375,000. The following names are to be considered when completing this problem: Operating Income Variable Costs Sales Fixed Costs per Unit Selling Price per Unit Variable Cost per Unit Contribution Margin Fixed Costs Operating Loss 1. Based on the information given, prepare a complete contribution margin income statement for Company A: Company AContribution Margin Income StatementProjected 2. Based on the information given, prepare a complete contribution margin income statement for Company B: Company BContribution Margin Income StatementProjected 3.Compute the degree of operating leverage for…
Mr.Godfroy,the owner of the store, is unhappy with the operating results. An analysis of other operating costs reveals that it includes $45,000 variable costs, which vary with sales volume, and $20,000 (fixed) costs. 1. Compute the contribution margin of Godfroy Men's Clothing. 2. Compute the contribution margin percentage. 3. Mr. Godfroy estimates that he can increase units sold and, hence, revenues by 20% by incurring additional advertising costs of $12,000. Calculate the impact of the additional advertising costs on operating income. 4. What other actions can Mr. Godfroy take to improve operating income?
Sherpa Manufacturing has the following income statement for 6,000 units:Sales $600,000Variable costs 360,000Contribution margin 240,000Fixed costs 80,000Net income $160,000 Using the information above: a. At what sales volume (in sales dollars) does Sherpa break even?b. At what sales volume (in units) does Sherpa break even?c. Given the income statement above, compute the margin of safety.d. What level of sales volume must be attained to reach net income of $200,000?e. What level of sales volume must be attained to reach net income of $180,000, assuming Sherpa had to pay income taxes at a rate of 40%?You may attach your workbook(s) to this answer and/or use the textbox below
The company would like to develop a unified approach to pricing its product line for next year using cost-plus pricing but does not know what cost base should be used. Last year, ONEC earned $150,000 of profit from sales of its products and would like to earn $225,000 next year. Last year, the company incurred the following costs: Manufacturing Costs: Variable 260,000.00 Fixed 160,000.00 Selling and Administraitve: Variable 90,000.00 Fixed 180,000.00 Calculate the Markup Percentage based on a cost basis of Variable Manufacturing Costs. (provide your answer in % form to two decimal places, i.e. 37.428% = 37.43)
As manager of the St. Cloud Theatre Company, you have decided that concession sales will support themselves. The following table provides the information you have been able to put together thus far: Item Selling Price Variable Cost % of Revenue Soft Drink $1.25 $0.65 26 Wine $2.00 $0.90 24 Coffee $1.50 $0.40 30 Candy $1.20 $0.25 20 Last year's manager, Scott Ellis, has advised you to be sure to add 10% of variable cost as a waste allowance for all categories. You estimate labor cost to be $250.00 (5 booths with 2 people each). Even if nothing is sold, your labor cost will be $250.00, so you decide to consider this a fixed cost. Booth rental, which is a contractual cost at $60.00 for each booth per night, is also a fixed cost. a) Based on the information available, the per night break-even point in…
Meargia Plastics is evaluating its plastic bottles division. The accounting manager has come up with the following data for the year: contribution margin of $570,000, controllable fixed of $228,000, and noncontrollable fixed costs of $57,000. Required: 1. What is the controllable margin? Controllable Margin 2. What is the total contribution by profit center (CPC)?
Old Jeans, Incorporated, has two divisions or profit centers, one makes regular fit jeans and the other makes relaxed fit jeans. The information for the two centers for the month of May follows: Regular fit Relaxed fit Sales $ 400,000 $ 175,000 Variable cost (as a % of Sales) 40% 50% Traceable fixed costs $ 40,000 $ 70,000 There are also common fixed costs of $27,500. Required: Prepare a responsibility income statement by profit center and in total.