PLEASE SHOW ALL WORK

Project #1:

Laredo Co. manufactures two types of bookshelves: plain and hand-carved. The

following information about the production process is available:

............................................................................Plain.....................Hand-Carved

Number produced--------------------------------------------------120,000------------------- 75,000

Machine hours -------------------------------------------------------95,000------------------- 25,000

Inspection hours------------------------------------------------------ 7,000 -------------------35,000

Revenues --------------------------------------------------------$4,800,000 -------------$4,400,000

Direct costs----------------------------------------------------- $3,800,000------------- $3,100,000

Total factory overhead is $1,200,000. Of this overhead, $500,000 is related to utilities and the remainder

is related to quality control.

a. Determine the total overhead cost assigned to each type of bookshelf using machine hours as the

allocation base. Calculate the gross profit per unit for each product.

b. Determine the total overhead cost assigned to each type of bookshelf if overhead is assigned using

allocation bases appropriate to the overhead costs. Calculate the gross profit per unit of each product.

c. Explain why the unit cost for each model is different between the two methods of allocation.

Project #2:

The ABC Company sells two products, A and B, with contribution margin ratios of 40 and 30 percent

and selling prices of $5 and $2.50 a unit. Fixed costs amount to $72,000 a month. Monthly sales average

30,000 units of product A and 40,000 units of product B.

Required:

a. Assuming that three units of product A are sold for every four units of product B, calculate the dollar

sales volume necessary to break-even.

b. As part of its cost accounting routine, ABC Company assigns $36,000 in fixed costs to each product

each month. Calculate the break-even dollar sales volume for each product.

c. ABC Company is considering spending an additional $9,700 a month on advertising, giving more

emphasis to product A and less emphasis to product B. If its analysis is correct, sales of product A

will increase to 40,000 units a month, but sales of product B will fall to 32,000 units a month.

Recalculate the break-even sales volume, in dollars, at this new product mix. Should the proposal

to spend the additional $9,700 a month be accepted? Explain

d. What major assumption do multi-product firms need to make in using CVP analysis that single-product

firms need not make?