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ACCT 6273

Formulas and work, appropriately labeled, must be shown.

1. Lincoln Company manufactures and sells small electric heaters for homes and offices. The company's income statement for the FY2014 is given below:

Total Per unit

Sales (30,000 units) $1,800,000 $60

Less variable expenses 1,440,000 48

Contribution margin 360,000 $12

Less fixed expenses 264,000

Net income $ 96,000

a. Compute the company's break-even point in units.

Answer____________________

b. If Lincoln Company increases its price to $100, do you expect the breakeven point in units to be more or less than the number you calculated in question 1a above? Why?

Circle (or highlight) one: More than question 1a Less than question 1a

Explain why, but do not use calculations.

c. Confirm your answer to question 1a above by preparing a contribution margin income statement.

d. Assume that next year management wants the company to earn a minimum profit of $162,000. How many units be sold to meet this target profit figure? [3 points]

Answer: ____________________

The following information pertains to the next three questions 2-4.

Fifer Company produces two types of entry doors: the Hollow Core and the Solid Door models. The Company has used direct labor dollars to allocate the overhead cost of $47,450,000.

The company's CFO, Brian Smythe, has offered the following information regarding the two products:

Hollow Core Solid Door

Sales in units 400,000 50,000

Sales price per unit $475.00 $650.00

Direct materials per unit 55.00 130.00

Direct labor cost per unit 75.00 50.00

The company has hired you as an outside consultant to review the cost system and make recommendations. You decide that an Activity Based Cost system should be considered and compile the following information based on conversations with the production manager:

Activity Cost Driver Cost

Order Taking Number of orders $ 500,000

Setups Number of setups 5,000,000

Machine cost Number of machine hours 41,950,000

The number of transactions for each cost driver is as follows:

Cost Driver Total Hollow Solid

Number of orders 500 100 400

Number of setups 2,500 2,000 500

Number of machine hours 600,000 300,000 300,000

2. Compute the product cost per door (i.e., per unit) using the traditional allocation system based on direct labor dollars

Hollow Core Solid Door

Product Cost per door ____________ ____________

3. Compute the product cost per door (per unit) using activity based costing for each product.

Hollow Core Solid Door

Product Cost per door ____________ ____________

4. How should Mr. Smythe explain the reasons for any differences observed in your analysis above?

5. Barker Company produces a single product. The standard direct costs for the product are as follows:

Direct materials (4 yds.@ $5/yd.) $20

Direct labor (1.5 hrs.@ $10/hr.) $15

During a recent period the company produced 1,200 units of product. Various costs associated with the production of these units are given below:

Direct materials purchased (5,000 yds.) $24,500

Direct materials used in production 4,700 yds.

Direct labor cost incurred (1,900 hours) $18,297

a. The materials price variance for the period is:

Answer: _______________

b. The materials quantity (or usage) variance for the period is:

Answer: ______________

c. The labor rate variance for the period is:

Answer: ______________

d. The labor efficiency variance for the period is:

Answer: ______________

6. Youngstown Company provides the following standard cost data:

Direct Material (3 gallons @ $5 per gallon) $15.00

Direct Labor (2 hours @ $12 per hour) $24.00

During the period, Youngstown Company produced and sold 24,000 units. Following are the amounts of material and labor used to produce the 24,000 units, and their respective actual costs:

Direct Material: 73,100 gallons at $5.05 per gallon

Direct Labor: 48,000 hours at $12.08 per hour

Circle (or highlight) the correct answer.

a. The Direct Material price variance was:

A) F

B) U

C) 0

b. The Direct Material usage variance was:

A) F

B) U

C) 0

c. The Direct Labor rate variance was:

A) F

B) U

C) 0

d. The Direct Labor efficiency variance was:

A) F

B) U

C) 0

7. Following is Perry Corporation's original budget for 2013, and their actual results for 2013.

Original Budget

(100,000 units)

Materials

Fabric 100,000 yds @ $5.40/yd $540,000

Steel tubing 25,000 lbs @ $12.10/lb 302,500

Padding 50,000 lbs @ $.50/lb 25,000

Direct Labor

Machining 30,000 hrs @ $19/hr 570,000

Assembly 10,000 hrs @ $11.80/hr 118,000

Overhead

Rent 100,000

Property taxes 10,000

Other Overhead

(25% variable) 200,000

Total $1,865,500

Actual Results

(120,000 units)

Materials

Fabric 125,000 yds @ $5.50/yd $687,500

Steel tubing 32,000 lbs @ $12.20/lb 390,400

Padding 65,000lbs @ .49/lb 31,850

Direct Labor

Machining 35,000 hrs @ $18/hr 630,000

Assembly 11,000 hrs @ $11.50/hr 126,500

Overhead

Rent 96,000

Property taxes 10,000

Other Overhead

210,000

Total $2,182,250

Using the format on the following page, prepare the flexible budget needed to evaluate Perry Corporation's performance for 2013, and compute the Flex-Actual Variances. Show your calculations.

Put your answers to Question 7 here:

Calculations Flexible Budget Actual

(120,000 units) Flex - Actual

Variances

Materials

Fabric

$687,500

Steel tubing

390,400

Padding

31,850

Direct Labor

Machining

630,000

Assembly

126,500

Overhead

Rent

96,000

Property taxes

10,000

Other Overhead

(25% variable) 210,000

Total

$2,182,250