Assignment:Ch 16 HW

1.

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Cornerstone Exercise 16.1 (Algorithmic) Variable Costs, Contribution Margin, Contribution Margin Ratio

Super-Tees Company plans to sell 17,000 T-shirts at $24 each in the coming year. Product costsinclude:

Direct materials per T-shirt	$8.40
Direct labor per T-shirt	$1.68
Variable overhead per T-shirt	$0.72
Total fixed factory overhead	$39,000

Variable selling expense is the redemption of a coupon, which averages $1.20 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).

a. Variable product cost per unit	$ _________________
b. Total variable cost per unit	$ _________________
c. Contribution margin per unit	$ _________________
d. Contribution margin ratio	_________________
e. Total fixed expense for the year	$ _________________

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.

Super-Tees Company

Contribution-Margin-Based Operating Income Statement

For the Coming Year

Total

Per Unit

$

$

$

$

$

3.What ifthe per unit selling expense increased from $1.20 to $2.55? 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):

a. Variable product cost per unit	$ _________________
b. Total variable cost per unit	$ _________________
c. Contribution margin per unit	$ _________________
d. Contribution margin ratio	_________________
e. Total fixed expense for the year	$ _________________

2.

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Cornerstone Exercise 16.2 (Algorithmic) Break-Even Units: Units for Target Profit

Jay-Zee Company makes an in-car navigation system. Next year, Jay-Zee plans to sell 19,000units at a price of $330 each. Product costs include:

Direct materials	$69.00
Direct labor	$40.00
Variable overhead	$10.00
Total fixed factory overhead	$523,800

Variable selling expense is a commission of 4 percent of price; fixed selling and administrativeexpenses total $90,000.

Required:

1.Calculate the sales commission per unit sold. If required, round your answers to the nearest dollar. Use rounded answers in subsequent computations. $ _________________ per unit

Calculate the contribution margin per unit. $ _________________ per unit

2.How many units must Jay-Zee Company sell to break even? Round your answer to the nearest whole number. _________________ units

Prepare an income statement for the calculated number of units. If an amount is zero, enter "0". Do NOT round Break-even units and, if required, round your answer to the nearest dollar.

Jay-Zee Company

Income Statement

$

$

$

3.Calculate the number of units Jay-Zee Company must sell to achieve target operating income (profit) of $358,776. Round your answer to the nearest whole number. _________________ units

4.What ifthe Jay-Zee Company wanted to achieve a target operating income of $346,500? Would the number of units needed increase or decrease compared to your answer inRequirement 3? Round your answer to the nearest whole number. _________________

Compute the number of units needed for the new target operating income. _________________ units

3.

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Cornerstone Exercise 16.3 (Algorithmic) Break-Even Sales: Sales for Target Profit

Health-Temp Company is a placement agency for temporary nurses. It serves hospitals and clinicsthroughout the metropolitan area. Health-Temp Company believes it will place temporarynurses for a total of 21,500 hours next year. Health-Temp charges the hospitals and clinics $90per hour and has variable costs of $76.50 per hour (this includes the payment to the nurse). Totalfixed costs equal $281,475.

Required:

1.Calculate the contribution margin per unit and the contribution margin ratio (express the ratio as a decimal rather than a percentage). If required, round your answers to two decimal places.

Contribution margin per unit	$ _________________
Contribution margin ratio	_________________

2.Calculate the sales revenue needed to break even. $ _________________

3.Calculate the sales revenue needed to achieve a target profit of $83,700. $ _________________

4.What ifHealth-Temp had target operating income (profit) of $102,600? Would sales revenue be larger or smaller than the one calculated in Requirement 3? _________________

By how much? $ _________________

4.

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Cornerstone Exercise 16.4 (Algorithmic) After-Tax Profit Targets

Olivian Company wants to earn $300,000 in net (after-tax) income next year. Its product ispriced at $250 per unit. Product costs include:

Direct materials	$75.00
Direct labor	$55.00
Variable overhead	$12.50
Total fixed factory overhead	$440,000

Variable selling expense is $10 per unit; fixed selling and administrative expense totals $290,000.Olivian has a tax rate of 40 percent.

Required:

1.Calculate the before-tax profit needed to achieve an after-tax target of $300,000. $ _________________

2.Calculate the number of units that will yield operating income calculated in Requirement 1 above. If required, round your answer to the nearest whole unit. _________________ units

3.Prepare an income statement for Olivian Company for the coming year based on the number of units computed in Requirement 2. Do NOT round interim calculations and, if required, round your answer to the nearest dollar.

Olivian Company

Income Statement

For the Coming Year

Total

$

$

$

$

4.What ifOlivian had a 35 percent tax rate? Would the units sold to reach a $300,000 target net income be higher or lower than the units calculated in Requirement 2? _________________

Calculate the number of units needed at the new tax rate. In your calculations, round before-tax income to the nearest dollar. Round your answer to the nearest whole unit. _________________ units

5.

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Cornerstone Exercise 16.5 (Algorithmic) Multiple-Product Break-Even and Target Profit

Vandenberg, Inc., produces and sells two products: a ceiling fan and a table fan. Vandenberg plans to sell 30,000 ceiling fans and 70,000 table fans in the coming year. Product price and cost information includes:

Ceiling Fan	Table Fan
Price	$54	$14
Unit variable cost	$16	$10
Direct fixed cost	$23,800	$49,000

Common fixed selling and administrative expenses total $98,000.

Required:

1.What is the sales mix estimated for next year (calculated to the lowest whole number for each product)? Sales mix of ceiling fans to table fans = _________________ : _________________

2.Using the sales mix from Requirement 1, form a package of ceiling fans and table fans. How many ceiling fans and table fans are sold at break-even? Do not round intermediate calculations. If required, round your final answers to the nearest whole number.

Break-even ceiling fans	_________________
Break-even table fans	_________________

3.Prepare a contribution-margin-based income statement for Vandenberg, Inc., based on the unit sales calculated in Requirement 2. If an amount is zero, enter "0". Enter any negative product margin and losses with a minus sign. Do not round intermediate calculations. Round your final answers to nearest dollar.

Vandenberg, Inc.

Contribution-Margin-Income Statement

For the Coming Year

Ceiling Fans

Table Fans

Total

$

$

$

$

$

$

$

$

$

$

4.What ifVandenberg, Inc., wanted to earn operating income equal to $16,000? Calculate the number of ceiling fans and table fans that must be sold to earn this level of operating income. (Hint: Remember to form a package of ceiling fans and table fans based on the sales mix and to first calculate the number of packages to earn an operating income of $16,000.) Round your intermediate calculations and final answers to nearest number.

Break-even ceiling fans	_________________
Break-even table fans	_________________

6.

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Cornerstone Exercise 16.6 (Algorithmic) Break-Even Units and Sales Revenue: Margin of Safety

Dupli-Pro Copy Shop provides photocopying service. Next year, Dupli-Pro estimates it willcopy 3,110,000 pages at a price of $0.08 each in the coming year. Product costs include:

Direct materials	$0.012
Direct labor	$0.004
Variable overhead	$0.002
Total fixed overhead	$142,940

There is no variable selling expense; fixed selling and administrative expenses total $35,000.

Required:

In your computations that involve the contribution margin ratio, do not round the ratio.

1.Calculate the break-even point in units. _________________ units

2.Calculate the break-even point in sales revenue. $ _________________

3.Calculate the margin of safety in units for the coming year. _________________ units

4.Calculate the margin of safety in sales revenue for the coming year. $ _________________

5.What if the total selling and administrative expenses are reduced to $13,920? Recalculate the following:

a. Break-even point in units	_________________	units
b. Break-even point in sales revenue	$ _________________
c. Margin of safety in units for the coming year	_________________	units
d. Margin of safety in sales revenue for the coming year	$ _________________