Break-Even Sales Under Present and Proposed Conditions

Portmann Company, operating at full capacity, sold 1,000,000 units at a price of $187 per unit during the current year. Its income statement is as follows:

The division of costs between variable and fixed is as follows:

Management is considering a plant expansion program for the following year that will permit an increase of $13,090,000 in yearly sales. The expansion will increase fixed costs by $3,500,000 but will not affect the relationship between sales and variable costs.

Required:

1. Determine the total variable costs and the total fixed costs for the current year.

2. Determine (a) the unit variable cost and (b) the unit contribution margin for the current year.

3. Compute the break-even sales (units) for the current year.
units

4. Compute the break-even sales (units) under the proposed program for the following year.
units

5. Determine the amount of sales (units) that would be necessary under the proposed program to realize the $59,200,000 of operating income that was earned in the current year.
units

6. Determine the maximum operating income possible with the expanded plant.
$

7. If the proposal is accepted and sales remain at the current level, what will the operating income or loss be for the following year?
$  

Suppose the government wants to reduce the total pollution emitted by three firms. Currently, each firm is creating 4 tons of pollution, for a total of 12 tons. The government is considering the following two methods to reduce total pollution to 6 tons:

The following table shows the cost each firm faces to eliminate each unit of pollution.

Suppose the owners of the three firms get together and agree on a trading price of $800 per permit.

Complete the following table with the action each firm will take at this permit price and the amount of pollution each firm will eliminate.

Determine the total cost of eliminating 6 tons of pollution under each method, and enter the amounts in the following table.

In this case, using tradable pollution permits reduces 6 tons of pollution at   using regulation.

Break-Even Sales Under Present and Proposed Conditions Portmann Company, operating at full capacity, sold 1,000,000 units at a price of $190 per unit during the current year. Its income statement is as follows: Sales $190,000,000 Cost of goods sold (101,000,000) Gross profit $89,000,000 Expenses: Selling expenses $14,000,000 Administrative expenses 17,600,000 Total expenses (31,600,000) Operating income $57,400,000 The division of costs between variable and fixed is as follows: Variable Fixed Cost of goods sold 70% 30% Selling expenses 75% 25% Administrative expenses 50% 50% Management is considering a plant expansion program for the following year that will permit an increase of $9,500,000 in yearly sales. The expansion will increase fixed costs by $5,000,000 but will not affect the relationship between sales and variable costs. Required:

1. Determine the total variable costs and the total fixed costs for the current year. Total variable costs $ Total fixed costs $

2. Determine (a) the unit variable cost and (b) the unit contribution margin for the current year. Unit variable cost $ Unit contribution margin $ ?

3. Compute the break-even sales (units) for the current year. units ?

4. Compute the break-even sales (units) under the proposed program for the following year. units ?

5. Determine the amount of sales (units) that would be necessary under the proposed program to realize the $57,400,000 of operating income that was earned in the current year. units ?

6. Determine the maximum operating income possible with the expanded plant. $ ?

7. If the proposal is accepted and sales remain at the current level, what will the operating income or loss be for the following year? $ ?

Monticello Company uses a perpetual inventory system and has a highly labour intensive production process, so it assigns manufacturing overhead based on direct labour cost. Monticello’s predetermined overhead application rate for 2017 was computed from the following data: Total estimated factory overhead $1,232,500 Total estimated direct labour cost $850,000 The following activities took place in the work in process inventory during June: WIP Inventory A/C June 1 Bal. 25,625 Direct Materials Used 127,400 Other transactions incurred:  Indirect material issued to production was $19,000  Total manufacturing labour incurred in June was $172,500, 80% of this amount represented direct labour.  Other manufacturing overhead costs incurred for June amounted to $170,375.  Two jobs were completed with total costs of $160,000 & $105,000 respectively. They were sold on account at a mark-up of 75% on cost. Required: i) ii) Compute Monticello’s predetermined manufacturing overhead rate for 2017. State the journal entries necessary to record the above transactions in the general journal: For direct materials used in June For indirect material issued to production in June For total manufacturing labour incurred in June To assign manufacturing labour to the appropriate accounts For other manufacturing overhead incurred For manufacturing overhead applied for June To move the completed jobs into finished goods inventory To sell the two completed jobs on account Calculate the manufacturing overhead variance for Monticello and state the journal entries necessary to dispose of the variance. What is balance on the Cost of Goods Sold account after the adjustment Determine the balance in work in process inventory on June 30.

Monticello Company uses a perpetual inventory system and has a highly labour intensive

production process, so it assigns manufacturing overhead based on direct labour cost.

Monticello’s predetermined overhead application rate for 2017 was computed from the

following data:

Total estimated factory overhead $1,232,500

Total estimated direct labour cost $850,000

The following activities took place in the work in process inventory during June:

     Dr                                      WIP Inventory A/C                                              Cr.

June 1 Bal. 25,625                                          

Direct Materials Used 127,400

Other transactions incurred:

§ Indirect material issued to production was $19,000

§ Total manufacturing labour incurred in June was $172,500, 80% of this amount

represented direct labour.

§ Other manufacturing overhead costs incurred for June amounted to $170,375.

§ Two jobs were completed with total costs of $160,000 & $105,000 respectively. They

were sold on account at a mark-up of 75% on cost.

Required:

i) Compute Monticello’s predetermined manufacturing overhead rate for 2017.

ii) State the journal entries necessary to record the above transactions in the general

journal:

a) For direct materials used in June

b) For indirect material issued to production in June

c) For total manufacturing labour incurred in June

d) To assign manufacturing labour to the appropriate accounts

e) For other manufacturing overhead incurred

f) For manufacturing overhead applied for June

g) To move the completed jobs into finished goods inventory

h) To sell the two completed jobs on account

iii) Calculate the manufacturing overhead variance for Monticello and state the journal

entries necessary to dispose of the variance.

iv) What is balance on the Cost of Goods Sold account after the adjustment

v) Determine the balance in work in process inventory on June 30.

1. A job cost sheet of Vaughn Company is given below.

Answer the following questions.

(a) What are the source documents for direct materials, direct labor, and manufacturing overhead costs assigned to this job?

(b) What is the predetermined manufacturing overhead rate? (Round answer to 0 decimal places, e.g 135.)

(c) What are the total cost and the unit cost of the completed job? (Round unit cost to 2 decimal places, e.g. 1.25.)

2. Kevin Hall and Associates, a CPA firm, uses job order costing to capture the costs of its audit jobs. There were no audit jobs in process at the beginning of November. Listed below are data concerning the three audit jobs conducted during November.

Overhead costs are applied to jobs on the basis of auditor hours, and the predetermined overhead rate is $54 per auditor hour. The Wildhorse Inc. job is the only incomplete job at the end of November. Actual overhead for the month was $12,100.

(a) Determine the cost of each job.

(b) Indicate the balance of the Service Contracts in Process account at the end of November.

(c) Calculate the ending balance of the Operating Overhead account for November.

What can be said about the short run cost structure of a film production company like Clint Eastwood's company Malpaso if it follows the theory of the firm?

A. The marginal cost curve will always intersect the average and average variable cost curves at their lowest point (minimum)

B. The total cost curve reflects the productivity of labor, but the short run cost structure does not.

C. The long run cost structure gets it shape from the efficiency of labor (the three kinds of efficiency).

D. The “U-shape” of the long run cost curves reflects the shape of the average product curve of labor.

Soto Inc. had the following utility cost with the related activity levels for the previous months. The company thinks that the utility cost is related to the activity level.

Use the high-low method to separte the cost into its fixed and variable components and answer the following questions.

A) What is the variable cost per unit? $

B) What is the total fixed cost? $

C) At an activity level of 29 what would be the expected cost? $

A company started the year with $185,000 of goods finished and ready for sale. During the year, a total of $700,000 of goods were started in production. Of the goods started, $550,000 were finished during the year.

If total cost of goods sold for the year equals $625,000, the company's ending finished goods inventory equals $