Question

In: Accounting

Mersey Company's industrial photofinishing division, Vale, incurred the following costs and expenses in the last period....

Mersey Company's industrial photofinishing division, Vale, incurred the following costs and expenses in the last period.

Variable Fixed
Direct materials $228,000
Direct labour 171,000
Factory overhead 79,800 $47,880
General, selling, and administrative

34,200

54,720
Totals     

$513,000

$102,600

During the period, Vale produced 342,000 units of industrial photo prints, which were sold for $2 each. Mersey's investment in Vale was $570,000 and $798,000 at the beginning and ending of the year, respectively. Mersey's weighted average cost of capital is 15%.

Determine Vale's return on investment for the year. (Round answer to 0 decimal places.): ______%

Calculate Vale's residual income (loss) for the year. (If answer is negative, please use parenthesis. Round answer to 0 decimal places.): $______

How many industrial photo print units did Vale have to sell during the year to break even? (Round answer to 0 decimal places.): ______units

What was Vale's contribution margin for the year? (Round answer to 0 decimal places.): $______

Solutions

Expert Solution

1) vale return of Investment = 15%

= Investment made during the year * 15%

= 912000 * 15%

= $136800

Total Sales= opening Investment + Investment During the year - Closing Investment
684000 = 570000 + Investment during the year -798000
Investment During the year =684000 + 798000 - 570000 = 912000

2)

Statement of contribution
Sale ( 342000 Units * $2 per unit) 684000
Less: Variable cost
Direct Material -228000
Direct labour -171000
Factory Overhead -79800
General selling and admin -34200
Contribution margin 171000
Less : Fixed Cost 102600
operating Profit 68400

Residual Income = Operating Profit - return on investment

= 68400 - 136800

= $ 68400 (Loss)

3)

Statement of contribution
Sale ( 342000 Units * $2 per unit) 684000
Less: Variable cost
Direct Material -228000
Direct labour -171000
Factory Overhead -79800
General selling and admin -34200
Contribution margin 171000
Contribution margin per unit 0.5

Breakeven point in units = Total Fixed cost / contribution margin per unit

= 102600 / 0.5

= 205200 units

4)

Statement of contribution
Sale ( 342000 Units * $2 per unit) 684000
Less: Variable cost
Direct Material -228000
Direct labour -171000
Factory Overhead -79800
General selling and admin -34200
Contribution margin 171000

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ekkarill92 answered 2 years ago
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