Office One Super Store sells office furniture, equipment, supplies and business technology for small businesses and home offices. The company sells 5600 file cabinets per year, 60% of which are imported from Canada. All the imported file cabinets are purchased from a single supplier at a cost of $40 each. The shop calculates annual holding cost as 20% of unit cost per year. The set up cost for placing an order is estimated to be $350.

a) Determine the optimal number of file cabinets to order (EOQ) each time an order is placed. When EOQ is implemented, determine the time between placement of orders and the annual total cost incurred by the store for the imported cabinets.

b) If store has to order the imported file cabinets in multiples of 40, what order size should it choose? What is the percentage increase in the annual total cost from using this new order quantity compared to the original EOQ?

c) If the replenishment lead time for the imported file cabinets is three weeks, what is the reorder point based on the level of on-hand inventory?

d) The current reorder policy is to buy the imported file cabinets only once every four months. What is the additional annual total cost incurred by this policy compared to using the original EOQ?

Step 5: Manufacturing Overhead Budget

Buff Company expects variable overhead costs to fluctuate with production volume according to the following rates:

Indirect materials: $0.90 per direct labor

Indirect labor: $1.70 per direct labor

Utilities: $0.30 per direct labor

Maintenance: $0.10 per direct labor

Buff Company also incurs fixed overhead costs. The amounts of fixed overhead costs are already provided in the budget below. Use this information to complete the manufacturing overhead budget.

Buff Company Manufacturing Overhead Sales Budget

For the year ending December 31, 2017

Variable costs Indirect materials ($0.90/hour) Q1_________ Q2_________ Q3_________ Q4_________

Indirect labor ($1.70/hour) Q1_________ Q2_________ Q3_________ Q4_________

Utilities ($0.30/hour) Q1_________ Q2_________ Q3_________ Q4_________

Maintenance ($0.10/hour) Q1_________ Q2_________ Q3_________ Q4_________

Total variable costs Q1_________ Q2_________ Q3_________ Q4_________

Fixed costs

Supervisory salaries Q1 $37,600 Q2 $37,600 Q3 $37,600 Q4 $37,600 Total in a year $150400

Depreciation Q1 $2,900 Q2 $2,900 Q3 $2,900 Q4 $2,900 Total in a year $11600

Property taxes and insurance Q1 $1,600 Q2 $1,600 Q3 $1,600 Q4 $1,600 Total in a year $6,400

Maintenance Q1 $3,400 Q2 $3,400 Q3 $3,400 Q4 $3,400Total in a year $13,600

Total fixed costs Q1_________ Q2_________ Q3_________ Q4_________

Total manufacturing overhead Q1_________ Q2_________ Q3_________ Q4_________

Direct labor hours Q1_________ Q2_________ Q3_________ Q4_________

Using the yearly amounts, what is the annual budgeted overhead rate per direct labor hour?

Step 6: Selling and Administrative Expense Budget

Buff Company expects variable selling and administrative expenses to fluctuate with unit sales volume according to the following rates:

Sales commission $3.60 per unit sold

Freight-out: $2.80 per unit sold

Buff Company also incurs fixed selling and administrative expenses. The amounts of fixed selling and administrative expenses are already provided in the budget below. Use this information to complete the selling and admin. expense budget

Buff Company Selling and Admi Sales Budget For the year ending December 31, 2017

Budgeted sales in units Q1 1,800 Q2 1,700 Q3 2,300 Q4 2,800 Total in a year 8,600

Variable expenses

Sales commissions ($3.60 per unit) Q1_________ Q2_________ Q3_________ Q4_________

Freight-out ($2.80 per unit) Q1_________ Q2_________ Q3_________ Q4_________

Total variable expenses Q1_________ Q2_________ Q3_________ Q4_________

Fixed expenses Advertising Q1 $3,200 Q2 $3,200 Q3 $3,200 Q4 $3,200 Total in a year $12,800

Sales salaries Q1 $13,600 Q2 $13,600 Q3 $13,600 Q4 $13,600 Total in a year $54,400

Office salaries Q1 $7,000 Q2 $7,000 Q3 $7,000 Q4 $7,000 Total in a year $28,000

Depreciation Q1 $800 Q2 $800 Q3 $800 Q4 $800 Total in a year $3,200

Property taxes and insurance Q1 $1,000 Q2 $1,000 Q3 $1,000 Q4 $1,000 Total in a year $4,000

Total fixed expenses Q1_________ Q2_________ Q3_________ Q4_________

Total selling and administrative expenses Q1_________ Q2_________ Q3_________ Q4_________

Step 7: Budgeted Income Statement

Complete the following schedule to determine the cost of goods sold:

Cost to produce one product

Direct materials Quantity 1.50 Unit cost $1.00

Direct labor Quantity 2.50 Unit cost $12.00

Manufacturing overhead Quantity 2.50

Total unit cost _________

Cost of goods sold

Total Unit cost × Number of units budgeted to be sold during 2017 = Budgeted Cost of Goods Sold________

Additional information:

Interest expense for 2017: $1,000

Income tax expense for 2017: $16,500

Use the information above as well as data from the other operating budgets to complete the Budgeted Income Statement

Buff Company Budgeted Income Statement For the Year Ending December 31, 2017

Sales________

Cost of goods sold_______

Gross profit_______

Selling and administrative expenses______

Income from operations________

Interest expense______

Income before income taxes______

Income tax expense_______

Net income_______

Green T-Shirt Processing has a unit sales price of $20 for their t-shirt. The contribution margin percentage is 70%.

Green T-Shirt Processing incurs only fixed and variable costs in its operations. When 10,000 T-shirts are produced, the company’s managerial accountant noted a fixed cost per shirt of $1.00 and a variable cost per pot of $6.00.

If production is expected to increase, which of the following statements is true?

Select one:

a. The fixed cost per T-shirt will not change; the variable cost per T-shirt will decrease.

b. Total fixed costs will decrease; the variable cost per T-shirt will not change.

c. The fixed cost per T-shirt will decrease; the variable cost per T-shirt will increase.

d. Total fixed costs will remain unchanged; total variable costs will increase.

Desired sales ($) = (Total Fixed Costs + Net Income) / Contribution margin ratio

Assume that a company is using the CVP formula to calculate sales needed to achieve a desired net income. If the company first calculates the breakeven point, what is true of desired net income (profit)?

Select one:

a. It will be equal to fixed costs

b. It will be equal to variable costs

c. It will be equal to unit contribution

d. It is equal to 0

Desired sales ($) = (Total Fixed Costs + Net Income) / Contribution margin ratio

Tony’s Pizzeria is estimated to have fixed costs of $30,000 and they want to achieve a profit of $120,000 before taxes. How many pizzas must they sell to achieve a before tax profit of $120,000 if they have a current contribution margin of $3 per unit?

Select one:

a. 125,000 pizzas

b. 60,000 pizzas

c. 50,000 pizzas

d. 120,000 pizzas

Desired sales ($) = (Total Fixed Costs + Net Income) / Contribution margin ratio

Using the same information from Question 7, what is the selling price per pizza?

Select one:

a. $4

b. $5

c. $7

d. We don’t have enough information to determine selling price

Contribution Margin, Break-Even Sales, Cost-Volume-Profit Chart, Margin of Safety, and Operating Leverage

Belmain Co. expects to maintain the same inventories at the end of 20Y7 as at the beginning of the year. The total of all production costs for the year is therefore assumed to be equal to the cost of goods sold. With this in mind, the various department heads were asked to submit estimates of the costs for their departments during the year. A summary report of these estimates is as follows:

It is expected that 7,200 units will be sold at a price of $120 a unit. Maximum sales within the relevant range are 9,000 units.

Required:

1. Prepare an estimated income statement for 20Y7.

2. What is the expected contribution margin ratio? Round to the nearest whole percent.
%

3. Determine the break-even sales in units and dollars.

4. Construct a cost-volume-profit chart on your own paper. What is the break-even sales?
$

5. What is the expected margin of safety in dollars and as a percentage of sales?

6. Determine the operating leverage. Round to one decimal place.

Woh Che Co. has four departments: Materials, Personnel, Manufacturing, and Packaging. In a recent month, the four departments incurred three shared indirect expenses. The amounts of these indirect expenses and the bases used to allocate them follow.

Departmental data for the company’s recent reporting period follow.

1. Use this information to allocate each of the three indirect expenses across the four departments.
2. Prepare a summary table that reports the indirect expenses assigned to each of the four departments.
  

Complete this question by entering your answers in the tabs below.

• Required 1
• Required 2

Prepare a summary table that reports the indirect expenses assigned to each of the four departments.

Complete this question by entering your answers in the tabs below.

• Required 1
• Required 2

Use this information to allocate each of the three indirect expenses across the four departments.

4. Worley Company buys surgical supplies from a variety of manufacturers and then resells and delivers these supplies to hundreds of hospitals. Worley sets its prices for all hospitals by marking up its cost of goods sold to those hospitals by 5%. For example, if a hospital buys supplies from Worley that had cost Worley $ 100 to buy from manufacturers, Worley would charge the hospital $ 105 to purchase these supplies. For years, Worley believed that the 5% markup covered its selling and administrative expenses and provided a reasonable profit. However, in the face of declining profits Worley decided to implement an activity- based costing system to help improve its understanding of customer profitability. The company broke its selling and administrative expenses into five activities as shown below: Activity Cost Pool ( Activity Measure) Total Cost Total Activity Customer deliveries ( Number of deliveries) . . . . . . . . . . $ 500,000 5,000 deliveries Manual order processing ( Number of manual orders) . . . 248,000 4,000 orders Electronic order processing ( Number of electronic orders) . . . . . . 200,000 12,500 orders Line item picking ( Number of line items picked) . . . . . . 450,000 450,000 line items Other organization- sustaining costs ( None) . . . . . . . . . 602,000 Total selling and administrative expenses . . . . . . . . . . . $ 2,000,000 Worley gathered the data below for two of the many hospitals that it serves— University and Memorial ( both hospitals purchased a total quantity of medical supplies that had cost Worley $ 30,000 to buy from its manufacturers): Activity Activity Measure University Memorial Number of deliveries . . . . . . . . . . . . . . . . . . 10 25 Number of manual orders . . . . . . . . . . . . . . 0 30 Number of electronic orders . . . . . . . . . . . . 15 0 Number of line items picked . . . . . . . . . . . . 120 250

1. Compute the total revenue that Worley would receive from University and Memorial.

2. Compute the activity rate for each activity cost pool.

3. Compute the total activity costs that would be assigned to University and Memorial .

4. Compute Worley’s customer margin for University and Memorial. ( Hint: Do not overlook the $ 30,000 cost of goods sold that Worley incurred serving each hospital.)

Cost Control 2: The Apex Corporation wants to improve its cost control program. Build a regression model to predict the total manufacturing cost per month (COST, measured in thousands of dollars) from the total production of paper per month in tons (PAPER), total machine hours used per month (MACHINE), total variable overhead costs per month in thousands of dollars (OVERHEAD), and the total direct labor hours used each month (LABOR). The data are contained in the worksheet named COST,HW8.  

(a) What is the sample-based model coefficient for machine hours? Hint: Be mindful of the measurement units. (Enter your answers to two decimal places.)

$ ___

(b) State the appropriate test statistic name, degrees of freedom, test statistic value, and the associated p-value (Enter your degrees of freedom as a whole number, the test statistic value to three decimal places, and the p-value to four decimal places).

t (15) = ___ , p = ___

(c) Construct a 95% confidence interval estimate of the true marginal cost associated with total machine hours. (Round your answers to three decimal places.)

( $ ___ , $ ___ )

Worley Company buys surgical supplies from a variety of manufacturers and then resells and delivers these supplies to hundreds of hospitals. Worley sets its prices for all hospitals by marking up its cost of goods sold to those hospitals by 5%. For example, if a hospital buys supplies from Worley that had cost Worley $100 to buy from manufacturers, Worley would charge the hospital $105 to purchase these supplies.

For years, Worley believed that the 5% markup covered its selling and administrative expenses and provided a reasonable profit. However, in the face of declining profits Worley decided to implement an activity-based costing system to help improve its understanding of customer profitability. The company broke its selling and administrative expenses into five activities as shown below:

Worley gathered the data below for two of the many hospitals that it serves—University and Memorial (both hospitals purchased a total quantity of medical supplies that had cost Worley $30,000 to buy from its manufacturers):

Required:

1. Compute the total revenue that Worley would receive from University and Memorial.

2. Compute the activity rate for each activity cost pool.

3. Compute the total activity costs that would be assigned to University and Memorial.

4. Compute Worley’s customer margin for University and Memorial. (Hint: Do not overlook the $30,000 cost of goods sold that Worley incurred serving each hospital.) (Loss amount should be indicated with a minus sign.)

Contribution Margin, Break-Even Sales, Cost-Volume-Profit Chart, Margin of Safety, and Operating Leverage

Belmain Co. expects to maintain the same inventories at the end of 20Y7 as at the beginning of the year. The total of all production costs for the year is therefore assumed to be equal to the cost of goods sold. With this in mind, the various department heads were asked to submit estimates of the costs for their departments during the year. A summary report of these estimates is as follows:

It is expected that 6,480 units will be sold at a price of $360 a unit. Maximum sales within the relevant range are 8,000 units.

Required:

1. Prepare an estimated income statement for 20Y7.

2. What is the expected contribution margin ratio? Round to the nearest whole percent.
%

3. Determine the break-even sales in units and dollars.

4. Construct a cost-volume-profit chart on your own paper. What is the break-even sales?
$

5. What is the expected margin of safety in dollars and as a percentage of sales?

6. Determine the operating leverage. Round to one decimal place.

Dalahla Company Limited, focusing on producing tooth paste (in units) has a demand function 4? = 35 − 0.5? . If total fixed cost is GH¢80 and average variable cost function is                           3? − 51 + 320 ? , where Q is number of tooth paste produced and P is the price per tooth paste (in GH¢). What is the total profit at the profit maximizing level of output, and what is the best pricing policy option?