Question
Question 1: In 2016, the 4 x 4 Shop is a large retailer of pickup trucks. An income statement for the company's Seat Liner Department
Question 1:
In 2016, the 4 x 4 Shop is a large retailer of pickup trucks. An income statement for the company's Seat Liner Department for the most recent quarter is presented below:
The 4x4 Shop | ||
Income Statement Seat Liner Department | ||
For the First Quarter of 2016 | ||
Sales | $700,000 | |
Less: Cost of goods sold | 250,000 | |
Gross margin | 450,000 | |
Less: Operating expenses: | ||
Selling expenses | $195,000 | |
Administrative expenses | 145,000 | 340,000 |
Net income | $110,000 |
The liners sell, on average, for $350 each. The department's variable selling expenses are $35 per liner sold. The remaining selling expenses are fixed. The administrative expenses are 25% variable and 75% fixed. The company purchases its liners from a supplier at a cost of $125 per liner. Required:
- Prepare an income statement for the quarter, using the contribution approach.
Question 2:
ABC Company's total overhead costs at various levels of activity are presented below:
Machine Hours | Total Overhead Costs | |
March | 60,000 | $216,800 |
April | 50,000 | 194,000 |
May | 70,000 | 239,600 |
June | 80,000 | 262,400 |
Assume that the overhead costs above consist of utilities, supervisory salaries, and maintenance. At the 50,000-machine-hour level of activity, these costs are presented below:
Utilities (V) | $54,000 |
Supervisory salaries (F) | 62,000 |
Maintenance (M) | 78,000 |
Total overhead costs | $194,000 |
Legend: V=Variable, F=Fixed, M=Mixed The company wants to break down the maintenance cost into its basic variable and fixed cost elements. Required:
- Estimate the maintenance cost for June.
- Use the high-low method to estimate the cost formula for maintenance cost.
- Estimate the total overhead cost at an activity level of 55,000 machine hours, using the separate estimates you obtained for its components.
Question 3:
The following is Arkadia Corporation's contribution format income statement for last month:
Sales | $1,200,000 |
Less: Variable expenses | 800,000 |
Contribution margin | 400,000 |
Less: Fixed expenses | 300,000 |
Operating income | $100,000 |
The company has no beginning or ending inventories and produced and sold 20,000 units during the month.
Required:
- What is the company's contribution margin ratio?
- What is the company's break-even in units?
- If sales increase by 100 units, by how much should operating income increase?
- How many units would the company have to sell to attain target operating income of $125,000?
- What is the company's margin of safety in dollars?
- What is the company's degree of operating leverage?
- If the tax rate is 30%, how many units must be sold to attain an after tax profit of $84,000?
Question 4:
Fill in the missing amounts in each of the eight case situations below. Each case is independent of the others. (Hint: One way to find the missing amounts would be to prepare a contribution-format income statement for each case, enter the known data, and then compute the missing items.)
- Assume that only one product is being sold in each of the following four case situations:
Case | Units Sold | Sales | Variable Expenses | Contribution Margin Per Unit | Fixed Expenses | Operating Income (Loss) |
1 | 9,000 | $270,000 | $162,000 | A | $90,000 | B |
2 | C | $350,000 | D | $15 | $170,000 | $40,000 |
3 | 20,000 | E | $280,000 | $16 | F | $35,000 |
4 | 5,000 | $160,000 | G | H | $82,000 | ($12,000) |
- Assume that more than one product is being sold in each of the following four case situations:
Case | Sales | Variable Expenses | Ave Contribution Margin % | Fixed Expenses | Operating Income (Loss) |
1 | $450,000 | A | 40% | B | $65,000 |
2 | $200,000 | $130,000 | C | $60,000 | D |
3 | E | F | 80% | $470,000 | $90,000 |
4 | $300,000 | $90,000 | G | H | ($15,000) |
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