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Concept explainers
Lorge Corporation has collected the following information after its first year of sales. Sales were $1,500,000 on 100,000 units; selling expenses $250,000 (40% variable and 60% fixed); direct materials $511,000; direct labor $290,000; administrative expenses $270,000 (20% variable and 80% fixed); and manufacturing overhead $350,000 (70% variable and 30% fixed). Top management has asked you to do a CVP analysis so that it can make plans for the coming year. It has projected that unit sales will increase by 10% next year.
Instructions
(a) Compute (1) the contribution margin for the current year and the projected year, and (2) the fixed costs for the current year. (Assume that fixed costs will remain the same in the projected year.)
(b) Compute the break-even point in units and sales dollars for the first year.
(c) The company has a target net income of $200,000. What is the required sales in dollars for the company to meet its target?
(d) If the company meets its target net income number, by what percentage could its sales fall before it is operating at a loss? That is, what is its margin of safety ratio?
(e) The company is considering a purchase of equipment that would reduce its direct labor costs by $104,000 and would change its
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Chapter 6 Solutions
Managerial Accounting, Binder Ready Version: Tools for Business Decision Making
- Corazon Manufacturing Company has a purchasing department staffed by five purchasing agents. Each agent is paid 28,000 per year and is able to process 4,000 purchase orders. Last year, 17,800 purchase orders were processed by the five agents. Required: 1. Calculate the activity rate per purchase order. 2. Calculate, in terms of purchase orders, the: a. total activity availability b. unused capacity 3. Calculate the dollar cost of: a. total activity availability b. unused capacity 4. Express total activity availability in terms of activity capacity used and unused capacity. 5. What if one of the purchasing agents agreed to work half time for 14,000? How many purchase orders could be processed by four and a half purchasing agents? What would unused capacity be in purchase orders?arrow_forwardDuring the current year, Sokowski Manufacturing earned income of $350,000 from total sales of $5,500,000 and average capital assets of $12,000, 000. What is the sales margin?arrow_forwardLast year, Orsen Company produced 25,000 juicers and sold 26,500 juicers for 60 each. The actual variable unit cost is as follows: Fixed overhead was 320,000. Fixed selling expenses consisted of advertising copayments totaling 110,000. Fixed administrative expenses were 236,000. There were no beginning and ending work-in-process inventories. Beginning finished goods inventory was 148,000 for 4,000 juicers. The value of ending inventory reported on the financial statements was a. 55,500 b. 92,500 c. 66,500 d. 39,900arrow_forward
- Last year, Orsen Company produced 25,000 juicers and sold 26,500 juicers for 60 each. The actual variable unit cost is as follows: Fixed overhead was 320,000. Fixed selling expenses consisted of advertising copayments totaling 110,000. Fixed administrative expenses were 236,000. There were no beginning and ending work-in-process inventories. Beginning finished goods inventory was 148,000 for 4,000 juicers. The value of ending inventory reported on the financial statements was Refer to the information in 2.24. The gross margin percentage for last year was a. 12.57% b. 55.67% c. 28.95% d. 38.33%arrow_forwardPoole Corporation has collected the following information after its first year of sales. Net sales were $1,600,000 on 100,000 units; selling expenses $250,000 (35% variable and 65% fixed); direct materials $511,000; direct labor $285,000; administrative expenses $280,000 (30% variable and 70% fixed); manufacturing overhead $380,000 (70% variable and 30% fixed). Top management has asked you to do a CVP analysis so that it can make plans for the coming year. It has projected that unit sales will increase by 10% next year. Required (a) Compute 1) the contribution margin for the current year and the projected year, and 2) the fixed costs for the current year. (b) Compute the break-even point in units and sales dollars for the current year. (c) The company has a target net income of $310,000. What is the required sales in dollars for the company to meet its target? (d) If the company meets its target net income number, by what percentage could its sales fall before it is operating at a…arrow_forwardIvanhoe Corporation has collected the following information after its first year of sales. Sales were $1,620,000 on 108,000 units; selling expenses $270,000 (40% variable and 60% fixed); direct materials $551,880; direct labor $313,200; administrative expenses $291,600 (20% variable and 80% fixed); and manufacturing overhead $378,000 (70% variable and 30% fixed). Top management has asked you to do a CVP analysis so that it can make plans for the coming year. It has projected that unit sales will increase by 10% next year. Compute the contribution margin for the current year, contribution margin for the projected year and fixed costs for current yeararrow_forward
- Cullumber Corporation has collected the following information after its first year of sales. Sales were $1,440,000 on 120,000 units, selling expenses $210,000 (40% variable and 60% fixed), direct materials $504,000, direct labor $169,400, administrative expenses $276,000 (20% variable and 80% fixed), and manufacturing overhead $382.000 ( 70% variable and 30% fixed). Top management has asked you to do a CVP analysis so that it can make plans for the coming year. It has projected that unit sales will increase by 10% next year. (a) Compute (1) the contribution margin for the current year and the projected year, and (2) the fixed costs for the current year. (Assume that fixed costs will remain the same in the projected year.) (1) (2) Contribution margin for current year Contribution margin for projected year Fixed Costs $ I $arrow_forwardAN Vieiol Group has collected the following information after its first year of sales. Sales were €1,600,000 on 100,000 units, selling expenses €250,000 (40% variable and 60% fixed), direct materials €490,000, direct labor €290,000, administrative expenses €270,000 (20% variable and 80% fixed), and manufacturing overhead €380,000 (70% variable and 30% fixed). Top management has asked you to do a CVP analysis so that it can make plans for the coming year. It has projected that unit sales will increase by 10% next year. Required 1. Prepare the CVP income statement for the current year and projected year. 2. Explain the change in net income between current and projected year in terms of revenue and costs change. 3. Compute the break-even point in units and sales for current year. 4. The company has a target net income of €200,000. What are the required sales for the company to meet its target? 5. If the company meets its target net income number, by what percentage could its sales fall…arrow_forwardChillingsworth Industries Inc., operating at full capacity, sold 35,000 units at a price of $90 per unit during the current year. Its income statement is as follows: Sales $3,150,000 Cost of goods sold 1,280,000 Gross profit $1,870,000 Expenses: Selling expenses $320,000 Administrative expenses 620,000 Total expenses 940,000 Income from operations $930,000 The division of costs between variable and fixed is as follows: Variable Fixed Cost of goods sold 75% 25% Selling expenses 60% 40% Administrative expenses 40% 60% Management is considering a plant expansion program for the following year that will permit an increase of $720,000 in yearly sales. The expansion will increase fixed costs by $270,000 but will not affect the relationship between sales and variable costs. Required: 1. Determine the total fixed costs and the total variable costs for the current year. Total variable costs $ Total fixed costs…arrow_forward
- Chillingsworth Industries Inc., operating at full capacity, sold 35,000 units at a price of $90 per unit during the current year. Its income statement is as follows: Sales $3,150,000 Cost of goods sold 1,280,000 Gross profit $1,870,000 Expenses: Selling expenses $320,000 Administrative expenses 620,000 Total expenses 940,000 Income from operations $930,000 The division of costs between variable and fixed is as follows: Variable Fixed Cost of goods sold 75% 25% Selling expenses 60% 40% Administrative expenses 40% 60% Management is considering a plant expansion program for the following year that will permit an increase of $720,000 in yearly sales. The expansion will increase fixed costs by $270,000 but will not affect the relationship between sales and variable costs. 4. Compute the break-even sales (units) under the proposed program for the following year. units 5. Determine the amount of sales (units) that…arrow_forwardDuring the coming accounting year, Baker Manufacturing, Inc., anticipates the following costs, expenses, and operating data Direct material (16,000 lb.) $ 200,000 Direct labor (@ $35.00/hr.) 490,000 Indirect material 30,000 Indirect labor 55,000 Sales commissions 85,000 Factory administration 40,000 Non factory administrative expenses 50,000 Other manufacturing overhead* 120,000 *Provides for operating 122,500 machine hours. a. Calculate the predetermined manufacturing overhead rate for the coming year for each of the following application bases: (1) direct labor hours, (2) direct labor costs, and (3) machine hours. Round direct labor hours and machine hours answers to two decimal places, when applicable. Round direct labor costs to the nearest one decimal place percentage, when applicable (example: 76.4%). Application base Manufacturingoverhead rate Direct labor hours Answer Direct labor costs Answer Machine hours Answer b. For…arrow_forwardCorbel Corporation has two divisions: Division A and Division B. Last month, the company reported a contribution margin of $43,000 for Division A. Division B had a contribution margin ratio of 30% and its sales were $240,000. Net operating income for the company was $35,200 and traceable fixed expenses were $50,400. Corbel Corporation's common fixed expenses were:arrow_forward
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