Question

Problem 1:

West Coast Board Manufacturing Inc. produces and sells surf boards in Southern California. The company expected the following revenues and costs in 2018 for its Premium surf boards:

Revenue (750 boards @ $300 per board) $225,000

Variable costs 105,000

Fixed costs 60,000

a) How many sets of clubs must be sold for Tee Times, Inc. to reach their breakeven point? (show your calculation)

b) How many boards must be sold to earn a target operating income of $100,000? (show your calculation)

c) What amount of sales must the company have to earn a target net income of $100,000 if they have a tax rate of 30%? (show your calculation)

Problem 2:

Donna Corporation manufactures custom cabinets for kitchens. It uses a normal-costing system with two direct-cost categories-direct materials and direct manufacturing labor-and one indirect-cost pool, manufacturing overhead costs. It provides the following information for 2017.

Budgeted manufacturing overhead costs $960,000

Budgeted direct manufacturing labor-hours 32,000 hours

Actual manufacturing overhead costs $992,000

Actual direct manufacturing labor-hours 31,000 hours

Calculate: a) the Budgeted indirect cost rate (show your calculation) and b) the total manufacturing costs (show your calculation) of job 102 using normal costing based on the following information:

Actual direct material costs $3,500

Actual direct manufacturing labor 160 hours

Actual direct manufacturing labor rate $ 20 per hour

Answer 1

• All working forms part of the answer
• Problem #1

--Working

A	Revenue	$225,000
B	Variable cost	$105,000
C = A - B	Contribuiton margin	$120,000
D = C/750 board	Contribution margin per board	$160

--Answer ‘a’

A	Fixed Cost	$60,000
B	Contribution margin per board	$160
C = A/B	No. of sets required to Break Even	375

--Answer ‘b’

A	Target Operating Income	$100,000
B	Fixed Cost	$60,000
C = A+B	Total Contribution margin required	$160,000
D	Contribution margin per board	$160
E = C/D	No. of boards to earn target income	1000

--Answer ‘c’

A	Target Net Income after tax	$100,000
B = A/70%	Target Net Income before tax	$142,857
C	Fixed Cost	$60,000
D = B+C	Total Contribution margin required	$202,857
E	Contribution margin per board	$160
F = D/E	No. of boards required to be sold	1268
G	Sale price per board	$300
H = F x G	Sales required to earn Net Income of $ 100000	$380,400

• Problem #2

--Answer ‘a’

A	Budgeted Manufacturing Overhead cost	$960,000
B	Budgetd Direct Manufacturing Labor Hours	32000
C = A/B	Budgeted indirect cost rate	$30

--Answer ‘b’

Actual Direct Material cost	$3,500
Actual direct material labor cost [160 x 20]	$3,200
Applied manufacturing overhead [160 hours x $30 rate]	$4,800
Total Manufacturing Cost	$11,500