Acct225 Integrative Case #1 Operational information Part 2 The owners of Dynamadics were reviewing the financial information for one of its product lines produced and sold from its Penticton region. The revenues and expenses for the last four months for this product line in the Penticton Region is presented below. Dynamadics - Penticton Region Comparative Monthly Income Statements March April May June Sales in units 5,900 5,400 6,150 6,800 Sales Revenue $755,200 $691,200 $787,200 $870,400 Less: Cost of Goods sold 386,400 359,400 394.900 435,000 Gross Margin 368,800 331,800 392,300 435,400 Less: Operating Expenses Shipping 68,800 64,300 71,800 75,500 Advertising 79,000 79,000 79,000 79,000 Salaries/Commissions 174,100 157,300 174,800 189,500 Insurance 9,900 9,900 9,900 9,900 Depreciation 48,000 48,000 48,000 48,000 Total operating expenses 379,800 358,500 383,500 401,900 Net income $(11,000) $26,700 $8,800 $33,500 Requirement #2 (19 marks) The owners are concerned about the profit levels for the Penticton region. They would like to understand more about the cost behaviours and have asked you to prepare some analysis based on the information presented in Operational Information Part 2. Specifically, they would like to know the following: 1. Of the costs incurred, which are variable, fixed or a combination of variable and fixed (mixed)? (1.5 marks) 2. What is the cost equation for each of the mixed costs? (tip: use the high-low method) (7.5 marks) 3. Sales demand in the August is expected to be 6,300 units. Prepare a contribution margin income statement (in good form) for the month of August. (10 marks)Operational information - Part 1 Dynamadics uses a job-order costing system in all of its operations. Manufacturing overhead costs (MOH) are applied to the manufacturing costs for all product lines using predetermined overhead rates. The following estimates were established at the beginning of the year for one specific product line - Specialized purses. Division Moulding Detailing Cost Driver (for PDOHR) Machine hours Direct labour cost Direct labour hours 12,750 61,500 Machine hours 73,000 8,300 Direct materials cost $513,000 $653,000 Direct labour cost $127,500 $430,500 Manufacturing overhead cost $649,700 $731,850 A recent order was started on August 1 and completed on August 10"h. This order was assigned job order number 220 and included 50 specialized purses made from high quality leather requiring hand-crafted detailing which is unique to each purse. The company's cost records are presented below for this job order. Division Moulding Detailing Direct labour hours 20 110 Machine hours 120 15 Materials placed into production $500 $362 Direct labour cost $320 $710 Page 2 of 6 Acct225 Integrative Case #1 At the end of the year, Dynamadics recorded the following actual costs and operating data for all jobs that were completed in each of these two divisions during the year. Division Moulding Detailing Direct labour hours 10,300 62,300 Machine hours 65,300 9,300 Direct materials cost 433,000 683,000 Direct labour cost 111,000 439,000 Manufacturing overhead cost 592,470 722,625 Requirement #1 (14 marks) You have been asked to provide the following: 1. Total cost for Job 220. (6 marks) 2. Cost per unit. (1 mark) 3. The journal entry to close out the overhead account in each division at the end of the year. (7 marks)Acct225 Integrative Case #1 Operational information Part 3 The owners continued their review of operations, focusing next on the Calgary Region which was organized similarly to the Penticton Region and produced and sold the same product line as the Penticton Region. The revenues and expenses for the last four months for this product line in the Calgary Region are presented below. Dynamadics - Calgary Region Comparative Monthly Income Statements March April May June Sales in units 5,900 5,400 6,600 7,80 Sales Revenue $743,400 $680,400 $831,600 $982,800 Less: Cost of Goods sold 394.850 367.416 432,432 501.228 Gross Margin 348,550 312,984 399,168 481,572 Less: Operating Expenses Shipping 63,300 54,200 66,800 66,500 Advertising 83,500 83,500 83,500 83,500 Salaries/Commissions 163,500 138,500 166,000 176,000 Insurance 13,500 13,500 13,500 13,500 Depreciation 46,500 46.500 46.500 46,500 Total operating expenses 370,300 336,200 376,300 386,000 Net income $(21,750) $(23,216) $22,868 $95,572 The manager of operations at the Calgary region provided the following cost information for each of the mixed costs: Fixed Costs Variable Costs Cost of goods sold $66,300 $55.76 Shipping $26,486 $5.13 Salaries/Commissions $54,086 $15.63 Page 5 of 6 Acct225 Integrative Case #1 Requirement #3 (17 marks) The owners are grateful for the information provided by the Calgary region respecting the cost behaviours for this product line. Their focus now is on understanding the impact of a change in any of the factors that impact profits. They would like you to complete some cost-volume-profit (CVP) analysis. Note: Use 2 decimal places for contribution margin (CM) and CM ratios. 1. What is the annual total fixed cost based on the information provided? (1 mark) 2. What is the annual break-even sales in units (assume that fixed costs are incurred uniformly throughout the year). (2 marks) 3. What Sales Revenues are required annually to break-even? (2 marks) 4. How many units need to be sold to achieve a target monthly profit of $85,000? (1 mark) 5. What profit will be realized if 75,000 units are sold during the year? (2 marks) 6. Create a CM income statement at 75,000 units annually including both total and per unit data. (3 marks) 7. The owners asked the Calgary Region to consider options to improve profitability based on the calculations from #5 above (at 75,000 units annually). Two proposals were submitted to the owner. They would like you to analyze each option and provide a recommendation with an explanation on which (if any) option should be implemented to improve profitability. Based on your calculations in #5 above, prepare a comparative CM income statement to demonstrate the change and impact to profits for both of the options. a) The operations manager has proposed that a reduction of $8.50 in the selling price per unit would increase sales by 6,800 units. (3 marks) b) The sales manager has also considered options to improve profitability. She has proposed that an increase in advertising of $109,000 annually would increase sales by 6,800 units