CVP Analysis of Multiple Products

Steinberg Company produces commercial printers. One is the regular model, a basic model that is designed to copy and print in black and white. Another model, the deluxe model, is a color printer-scanner-copier. For the coming year, Steinberg expects to sell 100,000 regular models and 20,000 deluxe models. A segmented income statement for the two products is as follows:

Required:

1. Compute the number of regular models and deluxe models that must be sold to break even. Round your answers to the nearest whole unit.

2. Using information only from the total column of the income statement, compute the sales revenue that must be generated for the company to break even. Round the contribution margin ratio to four decimal places. Use the rounded value in the subsequent computation. (Express as a decimal-based amount rather than a whole percentage.) Round the amount of revenue to the nearest dollar.

Several items are omitted from the income statement and cost of goods manufactured statement data for two different companies for the month of May.

. Critical Accounting Estimates: Select any industry, such as construction, retail, drug manufacturers, financials, capital goods, energy, utilities, services, computer software, computer hardware, Internet, and so forth. What do you think would be the critical accounting estimates of companies in this industry and why?. Critical Accounting Estimates: Select any industry, such as construction, retail, drug manufacturers, financials, capital goods, energy, utilities, services, computer software, computer hardware, Internet, and so forth. What do you think would be the critical accounting estimates of companies in this industry and why?

3. Your company wishes to determine which inventory items generate the most revenue. How could you use QuickBooks to develop this information?

4. At year-end, you wish to confirm the quantity on hand for each inventory item. How would you use QuickBooks to determine the quantity and value of the ending inventory?

5. Your company wishes to view the profitability of each inventory item. How could you use QuickBooks to develop this information?

On January 1, 2018, the general ledger of ACME Fireworks includes the following account balances:
  

  
During January 2018, the following transactions occur:

January 2. Sold gift cards totaling $12,000. The cards are redeemable for merchandise within one year of the purchase date.
January 6. Purchase additional inventory on account, $167,000.
January 15. Firework sales for the first half of the month total $155,000. All of these sales are on account. The cost of the units sold is $83,800.
January 23. Receive $127,400 from customers on accounts receivable.
January 25. Pay $110,000 to inventory suppliers on accounts payable.
January 28. Write off accounts receivable as uncollectible, $6,800.
January 30. Firework sales for the second half of the month total $163,000. Sales include $17,000 for cash and $146,000 on account. The cost of the units sold is $89,500.
January 31. Pay cash for monthly salaries, $54,000.

I need help to ...

3. Prepare an adjusted trial balance as of January 31, 2018.

4. Prepare a multiple-step income statement for the period ended January 31, 2018.

5. Prepare a classified balance sheet as of January 31, 2018.

6. Record closing entries.

7. Calculate the current ratio at the end of January.

8. If the average current ratio for the industry is 1.80, is ACME Fireworks more or less liquid than the industry average?

9. Calculate the acid-test ratio at the end of January.

Lubricants, Inc., produces a special kind of grease that is widely used by race car drivers. The grease is produced in two processing departments—Refining and Blending. Raw materials are introduced at various points in the Refining Department.

The following incomplete Work in Process account is available for the Refining Department for March:

The March 1 work in process inventory in the Refining Department consists of the following elements: materials, $7,200; direct labor, $3,800; and overhead, $20,800.

Costs incurred during March in the Blending Department were: materials used, $45,000; direct labor, $16,400; and overhead cost applied to production, $104,000.

Required:

1. Prepare journal entries to record the costs incurred in both the Refining Department and Blending Department during March. Key your entries to the items (a) through (g) below.

1. Raw materials used in production.
2. Direct labor costs incurred.
3. Manufacturing overhead costs incurred for the entire factory, $666,000. (Credit Accounts Payable.)
4. Manufacturing overhead was applied to production using a predetermined overhead rate.
5. Units that were complete with respect to processing in the Refining Department were transferred to the Blending Department, $692,000.
6. Units that were complete with respect to processing in the Blending Department were transferred to Finished Goods, $780,000.
7. Completed units were sold on account, $1,380,000. The Cost of Goods Sold was $630,000.

2. Post the journal entries from (1) above to T-accounts. The following account balances existed at the beginning of March. (The beginning balance in the Refining Department’s Work in Process is given in the T-account shown above.)

Describe two real life companies that you believe has a "High Fixed Cost Structure" and one that you believe has a "Low Fixed Cost Structure". Explain why you came to this conclusion. Then describe what would happen to your companies' net income if

a) in one year they were able to double their sales

b) in one year their sales would drop by 50%.

Write two paragraphs that briefly define effective writing in your own words and identify your writing strengths and weaknesses

he following items were selected from among the transactions completed by O’Donnel Co. during the current year:

Andretti Company has a single product called a Dak. The company normally produces and sells 82,000 Daks each year at a selling price of $48 per unit. The company’s unit costs at this level of activity are given below:

A number of questions relating to the production and sale of Daks follow. Each question is independent.

Required:

1-a. Assume that Andretti Company has sufficient capacity to produce 98,400 Daks each year without any increase in fixed manufacturing overhead costs. The company could increase its sales by 20% above the present 82,000 units each year if it were willing to increase the fixed selling expenses by $120,000. Calculate the incremental net operating income. (Round your answers to the nearest whole number.)

1-b. Would the increased fixed selling expenses be justified?

2. Assume again that Andretti Company has sufficient capacity to produce 98,400 Daks each year. A customer in a foreign market wants to purchase 16,400 Daks. Import duties on the Daks would be $1.70 per unit, and costs for permits and licenses would be $9,840. The only selling costs that would be associated with the order would be $1.60 per unit shipping cost. Compute the per unit break-even price on this order. (Round your answers to 2 decimal places.)

3. The company has 900 Daks on hand that have some irregularities and are therefore considered to be "seconds." Due to the irregularities, it will be impossible to sell these units at the normal price through regular distribution channels. What unit cost figure is relevant for setting a minimum selling price? (Round your answer to 2 decimal places.)

Relevant cost per unit= $ ? Per unit

4. Due to a strike in its supplier’s plant, Andretti Company is unable to purchase more material for the production of Daks. The strike is expected to last for two months. Andretti Company has enough material on hand to operate at 25% of normal levels for the two-month period. As an alternative, Andretti could close its plant down entirely for the two months. If the plant were closed, fixed manufacturing overhead costs would continue at 35% of their normal level during the two-month period and the fixed selling expenses would be reduced by 20%. What would be the impact on profits of closing the plant for the two-month period? (Any losses should be indicated by a minus sign. Round all calculations (intermediate and final) to whole numbers. Round unit calculations to whole numbers.)

5. An outside manufacturer has offered to produce Daks and ship them directly to Andretti’s customers. If Andretti Company accepts this offer, the facilities that it uses to produce Daks would be idle; however, fixed manufacturing overhead costs would be reduced by 30%. Because the outside manufacturer would pay for all shipping costs, the variable selling expenses would be only two-thirds of their present amount. Compute the unit cost that can be avoided if purchased from the outside manufacturer. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Polaski Company manufactures and sells a single product called a Ret. Operating at capacity, the company can produce and sell 40,000 Rets per year. Costs associated with this level of production and sales are given below:

The Rets normally sell for $46 each. Fixed manufacturing overhead is $200,000 per year within the range of 35,000 through 40,000 Rets per year.

Required:

1. Assume that due to a recession, Polaski Company expects to sell only 35,000 Rets through regular channels next year. A large retail chain has offered to purchase 5,000 Rets if Polaski is willing to accept a 16% discount off the regular price. There would be no sales commissions on this order; thus, variable selling expenses would be slashed by 75%. However, Polaski Company would have to purchase a special machine to engrave the retail chain’s name on the 5,000 units. This machine would cost $10,000. Polaski Company has no assurance that the retail chain will purchase additional units in the future. What is the financial advantage (disadvantage) of accepting the special order? (Round your intermediate calculations to 2 decimal places.)

2. Refer to the original data. Assume again that Polaski Company expects to sell only 35,000 Rets through regular channels next year. The U.S. Army would like to make a one-time-only purchase of 5,000 Rets. The Army would pay a fixed fee of $1.80 per Ret, and it would reimburse Polaski Company for all costs of production (variable and fixed) associated with the units. Because the army would pick up the Rets with its own trucks, there would be no variable selling expenses associated with this order. What is the financial advantage (disadvantage) of accepting the U.S. Army's special order?

3. Assume the same situation as described in (2) above, except that the company expects to sell 40,000 Rets through regular channels next year. Thus, accepting the U.S. Army’s order would require giving up regular sales of 5,000 Rets. Given this new information, what is the financial advantage (disadvantage) of accepting the U.S. Army's special order?

Problem 4-34 Multiple Products, Break-Even Analysis, Operating Leverage Carlyle Lighting Products produces two different types of lamps: a floor lamp and a desk lamp. Floor lamps sell for $30, and desk lamps sell for $20. The projected income statement for the coming year follows: Check figures: 2. $277,778 4. Break-even revenue = $294,118 OBJECTIVE 0 0 Sales Less: Variable costs Contribution margin Less: Fixed costs Operatingincome $600 ,000 400,000 200,000 150,000 $ 50,000 The owner of Carlyle estimates that 60 percent of the sales revenues will be produced by floor lamps and the remaining 40 percent by desk lamps. Floor lamps are also responsible for 60 per- cent of the variable expenses. Of the fixed expenses, one-third are common to both products, and one-half are directly traceable to the floor lamp product line. Required: I. Compute the sales revenue that must be earned for Carlyle to break even. 2. Compute the number of floor lamps and desk lamps that must be sold for Carlyle to break even . 3. Compute the degree of operating leverage for Carlyle Lighting Products. Now assume that the actual revenues will be 40 percent higher than the projected revenues. By what percentage will profits increase with this change in sales volume? 4. CONCEPTUAL CONNECTION What is the theory behind the operating leverage concept?

Smith's Inc, Inc., produces widgets for the wind chime industry. The company sells all products on accounts with net 30 day terms. The company has been without someone to assess the financial condition for some time (using only a bookkeeper to post activity to the general ledger accounts) and, therefore, is asking you to help with a more current assessment of the company’s position.

Part A: Below you will find a series of accounts that represent the trial balance of the business firm. These accounts encompass both income statement and balance sheet accounts.

2009   2010   2011

Accumulated depreciation 176,580 209,050 242,275

Retained earnings     337,602   510,731 648,528

Sales 3,702,480   3,961,654   3,981,462

Cash 35,750    62,635 86,595

Bonds payable 421,000 334,000   325,000

Accounts receivable   246,580   293,430   349,182

Depreciation expense 31,265 32,470 33,675

Common stock shares outstanding 80,000   80,000 80,000

Plant and equipment, at cost   984,021 1,026,880 1,151,210

Taxes 79,484   93,223   74,198

Accounts payable 62,685 116,696 188,569

Common stock, $1 par 75,000 75,000 75,000

Inventory   185,652 243,117 312,622

Prepaid expenses 6,575 21,525   26,325

Cost of goods sold 2,665,786   2,879,049   2,936,630

Interest expense 12,532 10,325 10,235

Selling and administrative expenses   765,800 773,458 788,927

Marketable securities 12,545 23,564 24,153

Other current liabilities   123,256   150,674   195,265

Capital paid in excess of par (common) 275,000 275,000   275,000

Part B: Based on the financial statements that were prepared with this data, complete the following financial ratio calculations and provide a narrative discussion of these results as compared to industry averages (provided.)

Ratios required:

Ratio Industry Average

1. Profit margin 3.2%

2. Return on assets (use ending assets) 6.0%

3. Return on common equity (use ending common equity) 15.6%

4. Receivable turnover (use ending receivables) 8.5 x

5. Inventory turnover (use ending inventory) 12.0 x

6.Fixed asset turnover (use ending fixed asset balance) 5.75 x

7. Total asset turnover (use ending assets) 1.89 x

8. Current ratio 3.10

9. Quick ratio 1.40

10. Debt to total assets (use ending assets) 37.0%

Your solution should include the required ratios for each year and then provide a narrative discussion regarding the results as they compare to the industry averages. This analysis should discuss whether or not Smith's Inc. is better or worse than the industry average but it should not stop there. You should also include a discussion as to why or how the difference can be explained, i.e., the reason for the variance. The final solution is to be provided in the Word document, with the module and part clearly identified. The narrative discussion will reference the appropriate ratio and the comparison to the appropriate industry average.

Smith's Inc.., produces wind chimes for the wind chime industry. The company sells all products on accounts with net 30 day terms. The company has been without someone to assess the financial condition and, therefore, is asking you to help.

Part A: Below you will find the trial balance of the business firm and need to be placed into the correct statement.

Required: Prepare a Income Statement and Balance Sheet for the company.

Part B: Based on the financial statements that were prepared with data above, complete the following financial ratio calculations and provide a narrative discussion of these results as compared to industry averages (provided.)

Direct Materials, Direct Labor, and Factory Overhead Cost Variance Analysis Mackinaw Inc. processes a base chemical into plastic. Standard costs and actual costs for direct materials, direct labor, and factory overhead incurred for the manufacture of 78,000 units of product were as follows: Standard Costs Actual Costs Direct materials 265,200 lbs. at $5.80 262,500 lbs. at $5.70 Direct labor 19,500 hrs. at $16.20 19,950 hrs. at $16.50 Factory overhead Rates per direct labor hr., based on 100% of normal capacity of 20,350 direct labor hrs.: Variable cost, $4.70 $90,730 variable cost Fixed cost, $7.40 $150,590 fixed cost Each unit requires 0.25 hour of direct labor. Required: a. Determine the direct materials price variance, direct materials quantity variance, and total direct materials cost variance. Enter a favorable variance as a negative number using a minus sign and an unfavorable variance as a positive number. Direct Material Price Variance $ Direct Materials Quantity Variance $ Total Direct Materials Cost Variance $ b. Determine the direct labor rate variance, direct labor time variance, and total direct labor cost variance. Enter a favorable variance as a negative number using a minus sign and an unfavorable variance as a positive number. Direct Labor Rate Variance $ Direct Labor Time Variance $ Total Direct Labor Cost Variance $ c. Determine variable factory overhead controllable variance, the fixed factory overhead volume variance, and total factory overhead cost variance. Enter a favorable variance as a negative number using a minus sign and an unfavorable variance as a positive number. Variable factory overhead controllable variance $ Fixed factory overhead volume variance $ Total factory overhead cost variance $

Western State University (WSU) is preparing its master budget for the upcoming academic year. Currently, 12,000 students are enrolled on campus; however, the admissions office is forecasting a 7 percent growth in the student body despite a tuition hike to $80 per credit hour. The following additional information has been gathered from an examination of university records and conversations with university officials:

• WSU is planning to award 160 tuition-free scholarships.
• The average class has 20 students, and the typical student takes 20 credit hours each semester. Each class is four credit hours.
• WSU’s faculty members are evaluated on the basis of teaching, research, and university and community service. Each faculty member teaches five classes during the academic year.

Required:
1. Prepare a tuition revenue budget for the upcoming academic year.
2. Determine the number of faculty members needed to cover classes.
3. Assume there is a shortage of full-time faculty members. Select at least five actions that WSU might take to accommodate the growing student body by selecting an "X" next to the action.
4. You have been requested by the university’s administrative vice president (AVP) to construct budgets for other areas of operation (e.g., the library, grounds, dormitories, and maintenance). The AVP noted: “The most important resource of the university is its faculty. Now that you know the number of faculty needed, you can prepare the other budgets. Faculty members are indeed the key driver—without them we don’t operate.” Are faculty members a key driver in preparing budgets?