Question 2 (30 marks)

A- AAA Manufacturing Company has the following information about its product:

Selling price per unit	$50
Fixed costs	$200,000
CM Ratio	30%

Required:

1. Calculate the variable cost per unit.

2. Assume that the company plans to sell 15,000 units this year. In your opinion, did you think the Company would be better off with this plan? Support your answer with necessary calculations

3. How many units the company needs to sell to reach a break-even? Proof your answer.

(10 Marks)

B- The AAA Company, is a large retailer of snow skis. The company assembled the information shown below for the quarter ended March 31:

		Amount
Sales	$	1,176,000
Selling price per pair of skis	$	420
Variable selling expense per pair of skis	$	46
Variable administrative expense per pair of skis	$	15
Total fixed selling expense	$	145,000
Total fixed administrative expense	$	105,000
Beginning merchandise inventory	$	65,000
Ending merchandise inventory	$	115,000
Merchandise purchases	$	320,000

Required:

1. Prepare a traditional income statement for the quarter ended March 31.

2. Prepare a contribution format income statement for the quarter ended March 31.

3. What was the contribution margin per unit?

4. Which income statement format would be more useful in estimating how net operating income will change in responses to changes in unit sales? Why? (10 Marks)

C- Management of Farah Corporation has asked your help as an intern in preparing some key reports for April. Direct materials cost was $30,000, manufacturing overhead costs for the month was $54,000, and direct labor was 60% of conversion cost.

Required: Calculate direct labor cost and prime cost. (5 Marks)

D- ABC Company gathered the following information for the last six months:

Month Electricity Cost Machine Hours

January $48,800 27,800

February 60,600 35,200

March 58,000 33,600

April 44,680 26,400

May 39,800 23,200

June 29,800 13,200

Required:

Using the high-low method, answer the following questions (show computations to support your answers).

(1) Calculate the estimated variable portion of electricity costs per machine hour?

(2) Calculate the estimated fixed Electricity cost each month?

(3) If it is estimated that 10,000 machine hours will be run in July, what is the expected total Electricity cost for July? (5 marks)