Problem I Rokarie Company gathered the following information on power costs and factory machine usage for the last six months: Month January February March April May June Power Cost $24.400 $34.400 $29.000 $22.340 $19,900 $18,890 Factory Machine Hours 13.900 18.700 16.800 13.200 11,600 7,700 Instructions Using the high-low method of analyzing costs, answer the following questions and show computations to support your answers. (a) What is the estimated variable portion of power costs per factory machine hour? 6) What is the estimated fixed power cost each month? (c) If it is estimated that 10,000 factory machine hours will be run in August, what is the expected total power cost for August? Solution Problem I a) Variable power cost per factory machine hour: High Volume Total Costs Variable Cost High Volume Total Fixed Costs Monthly Fixed Power Cost Low Volume Total Costs Variable Cost Low Volume Total Fixed Costs Estimated Total Power cost for August Variable Cost Fixed Cost Total Estimated Power Cost Problem 11 Veronica Prez operates a bed and breakfast hotel in a resort area in La Guancha Mountains. Depreciation on the hotel is $60,000 per year. Veronica employs a maintenance person at an annual salary of $34,000 and a cleaning person at an annual salary of $26,000. Real estate taxes are $10,000 per year. The rooms' rental income is $65 per person per night including breakfast. Other costs are laundry and cleaning service at a cost of $8.00 per person per night and the cost of food, which is $7.00 per person per night. Instructions (a) Determine the number of rentals and the sales revenue Veronica needs to break even using the contribution margin technique. (b) If the current level of rentals is 3,000, by what percentage can rentals decrease before Vernica has to worry about having a net loss (Margin of Safety Rate)? (c) Veronica is considering offer a continental the breakfast service to attract more business and decrease prices. This will reduce the food costs by $3.00 (per person per night). Vernica feels she can decrease the room rate to $60 per person per night. If Vernica made the changes, determine the number of rentals and the sales revenue Vernica needs to break even. Solution Problem II Variable Costs per Person per Night Fixed Costs: Total Variable Costs per Person Total Foxed Costs $ Break-even in units Break-even number of persons per night rentals Per unit information Sales price per unit Variable cost per unit Contribution Margin per unit $ Break-even sales in dollars: Break-even sales in dollars Contribution Margin Ratio (b) Margin of Safety Ratio: Variable Costs per Person per Night Fixed Costs $ Break-even in units Break-even number of persons per night rentals Per unit information Sales price per unit Variable cost per unit Contribution Margin per unit Break-even sales in dollars: Break-even sales in dollars Contribution Margin Ratio Problem III The income statement for Roprin Company for 2019 appears below. Roprin COMPANY Income Statement For the Year Ended December 31, 2019 Sales (40,000 units). Variable expenses. Contribution margin..... Fixed expenses...... Net income (1055)..... $1.000.000 700,000 300,000 330.000 $120.000) Instructions Answer the following independent questions and show computations using the contribution margin technique to support your answers: 1. What was the company's break-even point in sales dollars in 2019? 2. How many additional units would the company have had to sell in 2019 in order to earn net income of $30,0007 3. If the company is able to reduce variable costs by $2.50 per unit in 2020 and other costs and unit revenues remain unchanged, how many units will the company have to sell in order to eam a net income of $35,000? Solution Problem III Break-even point in sales dollars in 2019 Contribution Margin Ratio Additional units would Roprin have had to sell in 2019 3. Units will Roprin have to sell in order to earn a net income of $35,000 in 2020 2019 Variable cost per unit Variable cost reduction 2020 Variable cost per unit $ Expected Contribution margin for 2020: Necessary Sales Units in order to earn a net income of $35,000 in 2020. Problem IV Jokarie Company developed the following unit information for January 2019. its first month of operations: Per Unit Total Costs Sales price $20 Variable costs Direct materials Direct labor Variable manufacturing overhead Selling and administrative expenses Ficed selling and administrative expenses $22.000 Ficed manufacturing overhead 36.000 12,000 units were produced, and 9.000 units were sold during January 2019 Instructions (a) Prepare an income statement under the variable costing approach using the CVP format. (b) Prepare an income statement under the absorption costing approach. (c) Prepare a reconciliation schedule of both. Solution Problem IV (a) Variable Costing Income Statement Income Statement (Variable Costing) Sales Variable costs: Total Variable costs Contribution Margin Fixed Costs Total Fixed Costs Net Income (Loss) or Income (loss) from operation (b) Absorption Costing Income Statement Income Statement Sasst of GaGoods Big (Absorption Costing Sales Cost of Goods Sold: Finished Goods Beg. Inventory Cost of Goods Manufactured = Cost of Goods Available for Sale Finished Goods Ending Inventory Cost of Goods Sold Gross Profit Operating Expenses Total Operating Expenses Net Income (loss) or Income (loss from operating (e) The variable costing and the absorption costing income from operations reconciliation: January 2019 Variable costing income (loss) Fixed MOH expensed with variable costing Less: Fixed MOH expensed with absorption costing Difference Absorption costing income IS