Exercises Questions

Question 9.1 (Total: 20 marks)

1When Rosana, CFO of Hydie Inc., first evaluated the segmented income statement below, he flew into his usual rage: "When are we having losses in our product lines, I would rather eliminate them."

	Product Lines
	Total	U	V	W
Sales	$250,000	$100,000	$75,000	$75,000
Variable expenses	$119,000	$37,500	$35,000	$47,000
Contribution margin	$130,500	$62,500	$40,000	$28,000
Traceable fixed expenses*	$98,000	$31,000	$37,000	$30,000
Common expenses, allocated	$32,900	$18,000	$10,500	$4,400
Operating income (loss)	-$400	$13,500	$(7,500)	$(6,400)

*These traceable expenses could be eliminated if the product lines to which they are traced were discontinued. Required: Recommend which segments, if any, should be eliminated. Prepare report in good form to support your answer.Show all the necessary calculations.

Question 9.2 (Total:20 marks)

Vision Limited manufactures a product that has the following costs:

	Per unit	Per year
Direct materials	$6.00
Direct labour	5.00
Variable manufacturing overhead	4.00
Fixed manufacturing overhead		$360,000
Variable SG&A expenses	5.00
Fixed SG&A expenses		120,000

The company applies the absorption costing approach to cost-plus pricing. The calculations are based on budgeted production and sales of 30,000 units per year. The company has spent $600,000 on this product and expects a return on investment of 15%. Required: a) Calculate the markup on absorption cost. b) Compute the target selling price of the product using the absorption costing approach.

Question 9.3 (Total:24 marks)

Burnaby traders makes four products in a single facility. Following information regarding products is given:

	Product
	A	B	C	D
Selling Price per Unit	$35.30	$30.20	$20.80	$26.00
Variable Manufacturing Cost per Unit	$16.50	$15.80	$7.90	$8.50
Variable Selling Cost per Unit	$3.80	$1.60	$1.90	$3.30
Milling Machine Minutes per Unit	3.20	1.80	2.20	2.50
Monthly Deman in Units	4,000	1,000	3,000	1,000
Maximum minutes on all machines (22,600)

Required:

1) How many minutes of milling machine time would be required to satisfy demand for all four products?

2) Which product makes the LEAST profitable use of the milling machines?

3) Which product makes the MOST profitable use of the milling machines?

Question 9.4 (Total: 26 marks)

Cavendish Cheese Company makes three products within their single facility. Data concerning these products follow:

	Products
	A	B	C
Selling price per unit	$67.90	$57.70	$43.90
Direct materials	$12.10	$10.30	$8.60
Direct labour	$14.10	$8.00	$6.80
Variable manufacturing overhead	$2.60	$2.20	$1.80
Variable selling cost per unit	$2.50	$2.20	$2.50
Mixing minutes per unit	2.70	3.30	4.70
Monthly demand in units	1,000	3,000	3,000

The mixing machines are potentially a constraint in the production facility. A total of 25,800 minutes are available per month on these machines.

Direct labour is a variable cost in this company.

Submission Instructions:

1. How many minutes of mixing machine time would be required to satisfy the demand for all three products?
2. How much of each product should be produced, rounded to the nearest whole unit, to maximize operating income?
3. Up to how much should the company be willing to pay, rounded to the nearest whole cent, for one additional minute of mixing machine time if the company has made the best use of the existing mixing machine capacity?

Question 9.5 (Total: 10 marks)

When analyzing the total variable overhead cost variance into both spending and efficiency variances, it is often assumed that direct labour hours is the sole cost driver.

Submission Instructions:

1. Explain if direct labour costs could ever be a better cost driver of variable overhead costs than direct labour hours.
2. How would ABC system affect the overhead variances?