1. PROBLEM 3 – 22 – MARLIN COMPANY
The answer to this problem has been handwritten and scan (see the attached)
2. PROBLEM 3 – 25 – DETMER HOLDINGS AG
Required 1. Present yearly net operating income or loss:
According to the given data,
Selling price per unit = SFr90
Variable expenses per unit = SFr60
Fixed expenses per year = SFr840,000
Annual sales volume = 25,000 units
NET OPERATING INCOME OR LOSS
Sales…………… 25,000units*SFr90 SFr2,250,000
Less Variable cost…… 25,000units*SFr60 SFr1,500,000
Contribution margin…………………… SFr750,00
Less Fixed cost…………………………………. SFr840000
Net operating loss………………. (SFr90,000)
Present breakeven point = Fixed cost/ selling price -VC
Therefore selling price per unit –VC per unit = SFr90per unit-SFr60 = SFr30 per unit
= SFr840000/SFr30 per unit = 28000 units
Break-even point in Swiss franc = 28000 units*SFr90 per unit = SFr2,520,000
1. Company can earn the maximum profit at 50000 units at which point the sale price will be SFr80 per unit.
NET OPERATING INCOME OR LOSS
Sales 50000units*SFr80 per unit SFr4,000,000
Less Variable cost …………50000units*SFr60 SFr3,000,000
Contribution margin SFr1000,000
Less Fixed cost SFr840,000
Net operating income SFr160,000
2. Break even point at selling price of SFr80 per unit
Breakeven point = Fixed cost/ selling price – VC
Therefore selling price per unit-VC per unit=SFr80 per unit-SFr60 per unit
= SFr840,000/SFr20 per unit = 42,000 units
Break-even point in Swiss franc = 42,000 units* SFr80 per unit = SFr3,360,000
This break-even point is changed from the one calculated in above. Selling price per unit– variable cost per unit has decreased from SFr30 per unit to SFr20 per unit and therefore the company has to create more sales to cover fixed cost incurred.
3. PROBLEM 3-26 – FRIEDEN COMPANY
SOLUTION
REQUIRED 1
CONTRIBUTION FORMAT INCOME STATEMENT
PRESENT OPERATIONS
Amount Per Unit Percentage
Sales…………………$800,000 $20 100%
Less VC………………$560,000 $14 70%
Contribution Margin…$240,000 $6 30%
Less fixed cost………..$192,000
Net Operating Loss….($48,000)
PROPOSED OPERATIONS
Amount Per Unit Percentage
Sales…………………$800,000 $20 100%
Less VC………………$320,000 $8 40%
Contribution Margin…$480,000 $12 60%
Less fixed cost………..$432,000
Net Operating Loss….($48,000)
REQUIRED 2
Refer to the contribution format income statements in (Required 1) above
a) The degree of operating leverage = Contribution margin/Net operating income
Therefore, Present operation = $240,000/$48,000 = 5
Proposed Operations = $480,000/$48,000 = 10
b) Break-even point in dollars = Fixed cost/ CM ratio
Therefore, Present Operations = $192,000/0.30 = $640,000
Proposed Operations = $432,000/0.60 =$720,000
c) Margin of safety in dollars = Actual sales – Break-even sales
Therefore, Present Operations = $80,000 – $640,000 = $160,000
Proposed Operations = $800,000 – $720,000 = $80,000
Margin of safety in percentage = Margin of safety in dollars/Actual sales * 100%
Therefore, Present Operations = $160,000/$800,000 * 100% = 20%
Proposed Operation = $80,000/$800,000 * 100% = 10%
Required 3.
Cyclical Movement in economy. For the reason that the new equipment will increase the CM ratio, in years of sturdy economic operation, the Frieden Company will be in good standing with the new equipment. Nevertheless, the company will be out of shape with the new equipment in years in which sales fall. The fixed costs of the new equipment will consequence in losses being spent more rapidly and they will be unfathomable. Therefore, management team should make decision as to the possible for maximum profits in worthy years is worth the threat of unfathomable losses in unscrupulous years
Required 4.
New variable expenses:
Profit = (Sales – Variable expenses) – Fixed expenses
$60,000 = ($1,200,000 – Variable expenses) – $240,000
Variable expenses = $1,200,000 – $240,000 – $60,000
= $900,000
New level of sales:
$1,200,000/$800,000 = $ 1.5
$800,000 *1.5 = $1,200,000
New level of net operating income:
$60,000/$48,000 = $1.25
$48,000 *1.25 = $60,000
New CM ratio
Sales $1,200,000 100 %
Less Variable expenses $900,000 75 %
Contribution margin $ 300,000 25 %
With the above data, the new break-even point can be calculated as:
Break-even point in sales dollars = fixed cost/CM ration
Therefore, $240,000/25%
$240,000/0.25 = $960,000
4. PROBLEM 4-17- DURHAM COMPANY
Solution
Required 1. Calculation of under over absorption of overhead:
A. Actual Factory Overhead Amount
$ Amount
$
1. Indirect material (20% of $40,000) 8,000
2. Factory utility cost 14,600
3. Depreciation (75% of $28,000) 21,000
4. Indirect labor 18,000
5. Insurance (80% of $3,000) 2,400
Total factory overhead (actual)
( 1+2+3+4+5 ) 64,000
B. Overhead recovered
150% of direct labor
($40,000*150/100) 60,000
Under absorption of overhead 4,000
Required 2.
INCOME STATEMENT OF THE YEAR
Total sales value………………………………………$200,000
Less Cost of goods sold……………………………… $120,000
$80,000
Less: Administration and selling costs:
Depreciation…………………………$7,000
Sales commission ……………………$10,000
Administration salaries………………$25,000
Insurance……………………………..$600
Miscellaneous…………………………$18,000 $60,600
NET INCOME $19,400
6. PROBLEM 4 – 18 – HERITAGE GARDEN
The answer to this problem has been handwritten and scan (see the attached)
7. PROBLEM 4-22- WINKLE, KOTTER, ZALE
Required 1.
Predetermined rate for R&D Department = Dept. OH cost/No of Research hours
= $700,000/20,000 hours = $35 per hour
Predetermined rate for Litigation Department = Dept. OH cost/Direct Attorney hours
= $320000/16000 hours = $20 per hour
Required 2.
OH based on R&D Department = 18*$35 = $630
OH Based on Litigation Department = 42*$20 = $840
Required 3.
R&D Department cost:
Materials and supplies $50
Direct attorney cost $410
Overheads:
Research-hours =18*$35 = $630
Total Cost charged to R&D Department = ($50+$410+$630) = $1,090
Litigation Department cost:
Materials and supplies $30
Direct attorney cost $2100
Overheads
Research-hours = Not Applicable
Direct attorney-hours=42*$20 = $840
Total Cost charged to Litigation Department = ($30+$2100+$840) = $2,970
Therefore, the total cost charged to case = $1090 + $2970 = $4,060
Required 4.
R&D Department:
Overheads:
Estimated Research-hours OH =23000*$35 = $805,000
Actual R&D OH charged = $770,000
Under applied overhead of $35,000
Litigation Department:
Overhead:
Estimated Litigation department overhead =15000*$20 = $300,000
Actual Litigation department overhead: $300,000
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