Neptune Company produces toys and other items for use in beach and resort areas. A small, inflatable toy has come onto the market that the company is anxious to produce and sell. The new toy will sell for $3.20 per unit. Enough capacity exists in the company's plant to produce 30,800 units of the toy each month. Variable costs to manufacture and sell one unit would be $2.02, and fixed costs associated with the toy would total $54,016 per month. The company's Marketing Department predicts that demand for the new toy will exceed the 30,800 units that the company is able to produce. Additional manufacturing space can be rented from another company at a fixed cost of $2,701 per month. Variable costs in the rented facility would total $2.24 per unit, due to somewhat less efficient operations than in the main plant. Requirement 1: (a) Calculate the contribution margin per unit on anything over 30,800 units. (Round your answer to 2 decimal places. Omit the "$" sign in your response.) Contribution margin $ (b) Compute the total fixed costs to be covered if more than 30,800 units are produced. (Omit the "$" sign in your response) Total fixed costs to be covered by remaining sales $ (c) Compute the monthly break-even point for the new toy in units and in total sales dollars. (Round your answers to the nearest whole number. Omit the "$" sign in your response.) Monthly break-even point in unit sales units Monthly break-even point in dollar sales $ Requirement 2: How many units in total must be sold each month to make a monthly profit of $12,384? Total units to be sold units Requirement 3: If the sales manager receives a bonus of 15 cents for each unit sold in excess of the break-even point, how many units in total must be sold each month to earn a return of 28% on the monthly investment in fixed costs? (Round your answer to the nearest whole number.) Total units to be sold units Feather Friends, Inc., distributes a high-quality wooden birdhouse that sells for $24 per unit. Variable costs are $10.80 per unit, and fixed costs total $163,000 per year. 2. Requirement 1: What is the product's CM ratio? (Omit the "%" sign in your response.) CM ratio % 3. Requirement 2: Use the CM ratio to determine the break-even point in sales dollars. (Round your answer to the nearest whole dollar amount. Omit the "$" sign in your response.) Break-even point in sales $ 4. Requirement 3: Due to an increase in demand, the company estimates that sales will increase by $55,000 during the next year. By how much should net operating income increase (or net loss decrease) assuming that fixed costs do not change? (Omit the "$" sign in your response.) Increased net operating income $ 5. Requirement 4: Assume that the operating results for last year were: Sales $600,000 Variable expenses 270,000 Contribution margin 330,000 Fixed expenses 163,000 Net operating income $167,000 (a) Compute the degree of operating leverage at the current level of sales. (Round your answer to 2 decimal places.) Degree of operating leverage (b) The president expects sales to increase by 15% next year. By what percentage should net operating income increase? (Round your answer to 2 decimal places. Omit the "%" sign in your response.) Increase in net operating income % 6. Requirement 5: Refer to the original data. Assume that the company sold 34,000 units last year. The sales manager is convinced that a 11% reduction in the selling price, combined with a $65,000 increase in advertising, would cause annual sales in units to increase by one-third. (a) Prepare two contribution format income statements, one showing the results of last year's operations and one showing the results of operations if these changes are made. Show both total and per unit data on your statements.(Round your per unit values to 2 decimal places and other answers to the nearest dollar amount. Input all amounts as positive values. Omit the "$" sign in your response.) Last Year: 34,000 units Proposed: 45,333 units Amount Per Unit Amount Per Unit Sales $ $ $ $ Variable expenses Contribution margin $ $ Fixed expenses Net operating income $ $ (b) Would you recommend that the company do as the sales manager suggests? 7. Requirement 6: Refer to the original data. Assume again that the company sold 34,000 units last year. The president does not want to change the selling price. Instead, he wants to increase the sales commission by $1.70 per unit. He thinks that this move, combined with some increase in advertising, would increase annual sales by 35%. By how much could advertising be increased with profits remaining unchanged? (Do not prepare an income statement; use the incremental analysis approach.) (Omit the "$" sign in your response.) The amount by which advertising can be increased $ Scotia Companys total overhead costs at various levels of activity are presented below: Month Machine Hours Total Overhead Cost April 56,000 $ 237,600 May 48,000 $ 208,800 June 64,000 $ 266,400 July 72,000 $ 295,200 Assume that the total overhead costs above consist of utilities, supervisory salaries, and maintenance. The breakdown of these costs at the 48,000 machine-hour level of activity is: Utilities (variable) $ 57,600 Supervisory salaries (fixed) 25,200 Maintenance (mixed) 126,000 Total overhead costs $ 208,800 Scotia Companys management wants to break down the maintenance cost into its variable and fixed cost elements. 8. Requirement 1: Estimate how much of the $295,200 of overhead cost in July was maintenance cost. (Hint: to do this, it may be helpful to first determine how much of the $295,200 consisted of utilities and supervisory salaries. Think about the behavior of variable and fixed costs!) (Omit the "$" sign in your response.) Maintenance cost $ 9. Requirement 2: Using the high-low method, estimate a cost formula for maintenance. (Round your answer to 2 decimal places. Omit the "$" sign in your response.) Y = $ + $ X 10. Requirement 3: Express the companys total overhead costs in the linear equation form Y = a + bX.(Round your answer to 2 decimal places. Omit the "$" sign in your response.) Y = $ + $ X 11. Requirement 4: What total overhead costs would you expect to be incurred at an operating activity level of 55,000 machine-hours?(Omit the "$" sign in your response.) Overhead cost $ Kangaroo Company of Sydney is a merchandising company that is the sole distributor of a product that is increasing in popularity among Australian consumers. The companys income statements for the three most recent months follow: Income Statements For the Three Months Ending April 30 February March April Sales in units 8000 10,000 12,000 Sales revenue A$ 280,000 A$ 350,000 A$ 420,000 Cost of goods sold 144,000 180,000 216,000 Gross margin 136,000 170,000 204,000 Selling and administrative expenses: Advertising expense 7,000 7,000 7,000 Shipping expense 26,000 30,000 34,000 Salaries and commissions 78,000 92,000 106,000 Insurance expense 2,800 2,800 2,800 Depreciation expense 5,200 5,200 5,200 Total selling and administrative expenses 119,000 137,000 155,000 Net operating income A$ 17,000 A$ 33,000 A$ 49,000 (Note: Kangaroo Companys Australian-formatted income statement has been recast in the format common in the United States. The Australian dollar is denoted by A$.) 12. Requirement 1: Identify each of the company's expenses (including cost of goods sold) as either variable, fixed, or mixed. Expenses Classification Cost of goods sold Advertising expense Shipping expense Salaries and commissions Insurance expense Depreciation expense 13. Requirement 2: (a) Using the high-low method, separate each mixed expense into variable and fixed elements. (Omit the "A$" sign in your response.) Variable cost A$ per unit A$ per unit Fixed cost A$ A$ (b) State the cost formula for each mixed expense. (Omit the "A$" sign in your response.) Y = A$ + A$ X Y = A$ + A$ X 14. Requirement 3: Redo the companys income statement at the 12,000-unit level of activity using the contribution format. (Input all amounts as positive values except net operating loss which should be indicated by a minus sign. Omit the "A$" sign in your response.) Kangaroo Company Income Statement For the Month Ended April 30 A$ Less variable expenses: A$ Contribution margin Less fixed expenses: A$ The following data relate to the operations of Shilow Company, a wholesale distributor of consumer goods: Current assets as of March 31: Cash $6,000 Accounts receivable $20,000 Inventory $31,500 Buildings and equipment, net $125,000 Accounts payable $24,000 Capital stock $150,000 Retained earnings $8,500 a. The gross margin is 25% of sales. b. Actual and budgeted sales data: March (actual) $80,000 April $60,000 May $76,000 June $96,000 July $48,000 c. Sales are 75% for cash and 25% on credit. Credit sales are collected in the month following sale. The accounts receivable at March 31 are a result of March credit sales. d. Each month's ending inventory should equal 70% of the following month's budgeted cost of goods sold. e. One-half of a month's inventory purchases is paid for in the month of purchase; the other half is paid for in the following month. The accounts payable at March 31 are the result of March purchases of inventory. f. Monthly expenses are as follows: commissions, 10% of sales; rent, $1,000 per month; other expenses (excluding depreciation), 6% of sales. Assume that these expenses are paid monthly. Depreciation is $1,000 per month (includes depreciation on new assets.) g. Equipment costing $2,500 will be purchased for cash in April. h. Management would like to maintain a minimum cash balance of at least $3,000 at the end of each month. The company has an agreement with a local bank that allows the company to borrow in increments of $1,000 at the beginning of each month, up to a total loan balance of $20,000. The interest rate on these loans is 1% per month, and for simplicity, we will assume that interest is not compounded. The company would, as far as it is able, repay the loan plus accumulated interest at the end of the quarter. Requirement 1: Complete the following schedule using the above data. (Omit the "$" sign in your response.) Schedule of Expected Cash Collections April May June Quarter Cash sales $45,000 $ $ $ Credit sales 20,000 Total collections $65,000 $ $ $ Requirement 2: Complete the following using the above data. (Leave no cells blank - be certain to enter "0" wherever required. Omit the "$" sign in your response.) Merchandise Purchases Budget April May June Quarter Budgeted cost of goods sold $45,000 $57,000 $ $ Add desired ending inventory 39,900 Total needs 84,900 Less beginning inventory 31,500 Required purchases $53,400 $ $ $ Schedule of Expected Cash DisbursementsMerchandise Purchases April May June Quarter March purchases $24,000 $ $ $24,000 April purchases 26,700 26,700 53,400 May purchases June purchases Total disbursements $50,700 $ $ $ Requirement 3: Complete the following using the above data. (Omit the "$" sign in your response.) Schedule of Expected Cash DisbursementsSelling and Administrative Expenses April May June Quarter Commissions $6,000 $ $ $ Rent 1,000 Other expenses 3,600 Total disbursements $10,600 $ $ Requirement 4: Complete the following cash budget using the above data.(Deficiencies and Total financing should be preceded by a minus sign when appropriate. Enter all other amounts as positive values. Leave no cells blank - be certain to enter "0" wherever required. Omit the "$" sign in your response.) Cash Budget April May June Quarter Cash balance, beginning $6,000 $ $ $ Add cash collections 65,000 Total cash available 71,000 Less cash disbursements: For inventory 50,700 For expenses 10,600 For equipment 2,500 Total cash disbursements 63,800 Excess (deficiency) of cash 7,200 Financing: Borrowings Repayments Interest Total financing Cash balance, ending $ $ $ $ Requirement 5: Prepare an absorption costing income statement, for the quarter ended June 30.(Leave no cells blank - be certain to enter "0" wherever required.Input all amounts as positive values. Omit the "$" sign in your response.) Shilow Company Income Statement For the Quarter Ended June 30 $ Cost of goods sold: $ : : Selling and administrative expenses: : $ Requirement 6: Prepare a balance sheet as of June 30. (Omit the "$" sign in your response.) Shilow Company Balance Sheet June 30 Assets Liabilities and Equity Current assets: $ $ Stockholders' equity: Total current assets $ Total assets $ Total liabilities and equity $