Question

Little League, Inc. makes two kinds of baseball gloves - the Beginner and the Pro. Below is some relevant information for the past year (unit means one baseball glove):

			Beginner	Pro
Number of units sold			65,000	10,000
Sales price per unit			$65	$100
Direct materials per unit			$10	$20
Direct labor dollars per unit			$30	$45
Cutting machine-hours per unit			0.50	1.00
Direct labor-hours per unit			2.00	3.00

Little League is considering the use of activity-based costing, although it currently uses traditional (simple) costing, (meaning it uses just one pool of overhead costs and one allocation base). Little League is doing some analysis at year-end to see which costing method is best. Little League incurred total overhead costs for the year of $615,000, with direct labor-hours as the only allocation base.

Using traditional costing, what are the total indirect costs allocated to each Beginner baseball glove?

	a.	$16.40
	b.	$3.84
	c.	$7.68
	d.	$8.20

Lopez Corp started business operations in 2019 and the following information was collected:

units sales	12,000 units
selling price	$25 per unit
contribution margin ratio	40%
Margin of Safety percentage	30%

Allen Inc produces a single product that sells for $100. Variable costs per unit equal $45. The company’s total fixed costs are $78,000 at the sales level of 3,000 units. Suppose management believes that a $15,000 increase in the monthly advertising expense and a 14% reduction in the selling price will result in a 14% increase in sales. If this proposed reduction in selling price is implemented ________.

		operating income will decrease by $39,780
		operating income will decrease by $87,000
		operating income will increase by $7,370
		operating income will increase by $23,990

The break-even level in sales dollars is:

		$180,000
		$84,000
		$120,000
		$210,000

Answer 1

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Little League, Inc.	Beginner	Pro	Total
Number of units sold	65,000.00	10,000.00
Direct labor-hours per unit	2.00	3.00
Total Direct labor-hours	130,000.00	30,000.00	160,000.00
Overhead costs			615,000.00
Predetermined overhead rate			3.84
Cost allocated per unit	7.68	11.52
So answer is option C.
Lopez Corp	Amount $
Number of units sold	12,000.00
Sell price	25.00
Sales value	300,000.00
Less: Variable costs	180,000.00
Contribution margin	120,000.00
Less: Fixed costs	84,000.00
Operating Income	36,000.00
Allen Inc.	Amount $
Sell price	100.00
Reduction by 14%	14.00
Revised Sell price	86.00
Number of units sold	3,000.00
Increase by 14%	420.00
Revised units	3,420.00
Income Statement	Current	Proposed
Number of units sold	3,000.00	3,420.00
Sell price	100.00	86.00
Sales value	300,000.00	294,120.00
Less: Variable costs	135,000.00	153,900.00
Contribution margin	165,000.00	140,220.00
Less: Fixed costs	78,000.00	78,000.00
Less: Advertising costs		15,000.00
Operating Income	87,000.00	47,220.00
Decrease by		39,780.00
So operating income will decrease by $39,780.