Variable Costs, Contribution Margin, Contribution Margin Ratio

Super-Tees Company plans to sell 19,000 T-shirts at $25 each in the coming year. Product costs include:

Variable selling expense is the redemption of a coupon, which averages $1.25 per T-shirt; fixed selling and administrative expenses total $12,000.

Required:

1. Calculate the following values:
Round dollar amounts to the nearest cent and round ratio values to three decimal places (express the ratio as a decimal rather than a percentage).

2. Prepare a contribution-margin-based income statement for Super-Tees Company for the coming year. If required, round your per unit answers to the nearest cent.

3. What if the per unit selling expense increased from $1.25 to $2.65? Calculate new values for the following:
Round dollar amounts to the nearest cent and round ratio values to four decimal places (express the ratio as a decimal rather than a percentage):

The debits to Work in Process—Roasting Department for Morning Brew Coffee Company for August, together with information concerning production, are as follows:

All direct materials are placed in process at the beginning of production.

a. Prepare a cost of production report, presenting the following computations:

Direct materials and conversion equivalent units of production for August.

Direct materials and conversion costs per equivalent unit for August.

Cost of goods finished during August.

Cost of work in process at August 31.

If an amount is zero, enter in "0". For the cost per equivalent unit, round your answer to two decimal places.

1) Paula Corporation owns all of the voting common stock of Sally Company. Sally manufactures toys and sells
them to Paula. In turn, Paula sells them to customers. Neither of these companies do anything else. At the
beginning of 2012 neither company had any inventory. During 2012 Sally manufactured 120,000 toys and
sold 100,000 of them to Paula for $10 each and Paula sold 90,000 of these toys to customers for $16 each.
These toys had cost Sally only $7 each to produce. During 2013 Sally manufactured 115,000 toys and sold
98,000 to Paula for $10 each. Paula sold 100,000 toys to customers during 2013 for $16 each. (The
manufacturing cost for Sally was still $7 per toy.) Please determine each of the following:
A. Total Consolidated Sales Revenue for 2013

B. Total Consolidated Cost of Goods Sold for 2013

C. Consolidated Ending Inventory for December 31, 2013

2) During 2014 Sally produced 200,000 toys at a cost of $7 each. Paula produced 30,000 books at a cost of $12
each. Sally sold 120,000 toys to Paula for $10 each and 50,000 toys to customers for $15 each. Paula sold
110,000 of the toys to customers for $16 each and 20,000 books to customers for $20 each. Please
determine each of the following:
A. Total Consolidated Sales Revenue for 2014

B. Total Consolidated Cost of Goods Sold for 2014

C. Consolidated Ending Inventory for December 31, 2014

Part II
t the beginning of 2014 Peri Co. created a wholly owned subsidiary, Speri Co., to handle the marketing and sales of its
products. During 2014 Peri manufactured goods for a total cost of $1,000,000. It sold 80% of these items to Speri for
$1,200,000. Speri sold 75% of what it purchased from Peri to customers for $1,500,000. (Peri only sold to Speri and
Speri only purchased from Peri.) In the 2014 annual consolidated financial statements for Peri and Speri, what should
be reported for each of the following:
A. Total Consolidated Sales Revenue for 2014

B. Total Consolidated Cost of Goods Sold for 2014

C. Consolidated Ending Inventory for December 31, 2014

This question 22 a

Comprehensive Problem 5
Part A:

Note: You must complete part A before completing parts B and C.

Genuine Spice Inc. began operations on January 1 of the current year. The company produces 8-ounce bottles of hand and body lotion called Eternal Beauty. The lotion is sold wholesale in 12-bottle cases for $100 per case. There is a selling commission of $20 per case. The January direct materials, direct labor, and factory overhead costs are as follows:

Part A—Break-Even Analysis

The management of Genuine Spice Inc. wishes to determine the number of cases required to break even per month. The utilities cost, which is part of factory overhead, is a mixed cost. The following information was gathered from the first six months of operation regarding this cost:

Required:

1. Determine the fixed and variable portions of the utility cost using the high-low method. Round the per unit cost to the nearest cent.

2. Determine the contribution margin per case. Enter your answer to the nearest cent.

Contribution margin per case $

3. Determine the fixed costs per month, including the utility fixed cost from part (1).

4. Determine the break-even number of cases per month.
cases

Comprehensive Problem 5 Part A: Note: You must complete part A before completing parts B and C. Genuine Spice Inc. began operations on January 1, 2016. The company produces a hand and body lotion in an eight-ounce bottle called Eternal Beauty. The lotion is sold wholesale in 12-bottle cases for $100 per case. There is a selling commission of $20 per case. The January direct materials, direct labor, and factory overhead costs are as follows: DIRECT MATERIALS Cost Behavior Units per Case Cost per Unit Direct Materials Cost per Case Cream base Variable 100 ozs. $0.02 $2.00 Natural oils Variable 30 ozs. 0.30 9.00 Bottle (8-oz.) Variable 12 bottles 0.50 6.00 $17.00 DIRECT LABOR Department Cost Behavior Time per Case Labor Rate per Hour Direct Labor Cost per Case Mixing Variable 20 min. $18.00 $6.00 Filling Variable 5 14.40 1.20 25 min. $7.20 FACTORY OVERHEAD Cost Behavior Total Cost Utilities Mixed $600 Facility lease Fixed 14,000 Equipment depreciation Fixed 4,300 Supplies Fixed 660 $19,560 Part A—Break-Even Analysis The management of Genuine Spice Inc. wishes to determine the number of cases required to break even per month. The utilities cost, which is part of factory overhead, is a mixed cost. The following information was gathered from the first six months of operation regarding this cost: 2016 Case Production Utility Total Cost January 500 $600 February 800 660 March 1,200 740 April 1,100 720 May 950 690 June 1,025 705 Required: 1. Determine the fixed and variable portion of the utility cost using the high-low method. Round the per unit cost to the nearest cent. At High Point At Low Point Variable cost per unit $ $ Total fixed cost $ $ Total cost $ $ 2. Determine the contribution margin per case. Enter your answer to the nearest cent. Contribution margin per case $ 3. Determine the fixed costs per month, including the utility fixed cost from part (1). Utilities cost (from part 1) $ Facility lease $ Equipment depreciation $ Supplies $ Total fixed costs $ 4. Determine the break-even number of cases per month. cases

Cortez Company is planning to introduce a new product that will sell for $106 per unit. The following manufacturing cost estimates have been made on 20,000 units to be produced the first year:

Manufacturing overhead costs have not yet been estimated for the new product, but monthly data on total production and overhead costs for the past 24 months have been analyzed using simple linear regression. The following results were derived from the simple regression and provide the basis for overhead cost estimates for the new product.

Required:

a. What percentage of the variation in overhead costs is explained by the independent variable?

• 85.70%

• 94.30%

• 102.80%

• 77.10%

• None of the above

b. What is the total overhead cost for an estimated activity level of 70,000 direct labor-hours?

• $550,000

• $560,000

• $540,000

• $570,000

• None of the above

c. How much is the variable manufacturing cost per unit, using the variable overhead estimated by the regression (assuming that direct materials and direct labor are variable costs)?

• $73.00

• $80.00

• $88.00

• $66.00

• None of the above

d. What is the expected contribution margin per unit to be earned during the first year on 20,000 units of the new product? (Assume that all marketing and administrative costs are fixed.)

• $33.00

• $36.00

• $40.00

• $30.00

• None of the above

e. What is the manufacturing cost equation implied by these results?

• Total cost = $480,000 + ($6.00 × Number of units)

• Total cost = $130,000 + ($106.00 × Number of units)

• Total cost = $130,000 + ($16.00 × Number of units)

• None of the above

1. ABC Company has produced a higher level of production in May than it produced in April, but had the same variable costs per unit and the same total fixed costs. Which of the following is true about May’s reported costs?

A. Total variable cost is less in May

B. Total cost per unit is less in May

C. Total cost per unit is more in May

D. Total fixed costs are more in May

2. Depreciation on sewing machines used in apparel manufacturing is classified as

A. Variable, selling & administrative cost

B. Variable manufacturing overhead

C. Fixed, selling & administrative cost

D. Fixed manufacturing overhead

3. ABC Company finds that its utility costs increase as its production goes up, but the costs also include a baseline amount that doesn’t vary with production. The following information is gathered.

Using the High-low method and the information above, what is the variable cost of utilities per production unit being used in the factory, rounded to the nearest penny?

A. $4.35

B. $10.36

C. $11.59

D. $12.47

4.     Using the High-low method XYZ Company analyzed its manufacturing overhead that was a mixed cost. It identified the following points as its HIGH and LOW points and calculated the variable component of the cost as $3 per unit:

Manufacturing Overhead                        Production in Units

HIGH                $580,000                                   160,000 units

LOW                 $310,000                                   70,000 units

What is the fixed component of manufacturing overhead?

A. $ 90,000

B. $100,000

C. $210,000

D. $270,000

Delph Company uses a job-order costing system and has two manufacturing departments—Molding and Fabrication. The company provided the following estimates at the beginning of the year:

During the year, the company had no beginning or ending inventories and it started, completed, and sold only two jobs—Job D-70 and Job C-200. It provided the following information related to those two jobs:

Delph had no underapplied or overapplied manufacturing overhead during the year.

QUESTIONS:

1: Assume Delph uses a plantwide predetermined overhead rate based on machine-hours. Compute the total manufacturing cost assigned to Job D-70 and Job C-200. (Round your intermediate calculations to 2 decimal places.)

2. Assume Delph uses a plantwide predetermined overhead rate based on machine-hours. If Delph establishes bid prices that are 130% of total manufacturing cost, what bid prices would it have established for Job D-70 and Job C-200? (Round your intermediate calculations to 2 decimal places.)

3.Assume Delph uses a plantwide predetermined overhead rate based on machine-hours. What is Delph’s cost of goods sold for the year? (Round your intermediate calculations to 2 decimal places.)

Income Statements under Absorption Costing and Variable Costing

Joplin Industries Inc. manufactures and sells high-quality sporting goods equipment under its highly recognizable J-Sports logo. The company began operations on May 1 and operated at 100% of capacity (55,000 units) during the first month, creating an ending inventory of 5,000 units. During June, the company produced 50,000 garments during the month but sold 55,000 units at $90 per unit. The June manufacturing costs and selling and administrative expenses were as follows:

a. Prepare an income statement according to the absorption costing concept for June.

b. Prepare an income statement according to the variable costing concept for June.

c. What is the reason for the difference in the amount of income from operations reported in (a) and (b)?

Under the method, the fixed manufacturing cost included in the cost of goods sold is matched with the revenues. Under , all of the fixed manufacturing cost is deducted in the period in which it is incurred, regardless of the amount of inventory change. Thus, when inventory decreases, the income statement will have a lower income from operations.

Cost Behavior Analysis in a Restaurant: High-Low Cost Estimation
Assume a Papa John's restaurant has the following information available regarding costs at representative levels of monthly sales:

(a) Identify each cost as being variable, fixed, or mixed.

Cost of food sold
AnswerVariableFixedMixed

Wages and fringe benefits
AnswerVariableFixedMixed

Fees paid delivery help
AnswerVariableFixedMixed

Rent on building
AnswerVariableFixedMixed

Depreciation on equipment
AnswerVariableFixedMixed

Utilities
AnswerVariableFixedMixed

Supplies (soap, floor wax, etc.)
AnswerVariableFixedMixed

Administrative costs
AnswerVariableFixedMixed

(b) Use the high-low method to develop a schedule identifying the amount of each cost that is fixed per month or variable per unit. Total the amounts under each category to develop an equation for total monthly costs.

Round variable cost answers to two decimal places.

(c) Predict total costs for a monthly sales volume of 9,800 units.
$Answer