Question No. 1 (20 minutes)

Oak, Inc. had the following income statement for last period:

Sales (unit sales price $100)	$40,000
Cost of Sales (manufacturing)	24,000
Selling and General Administrative	6,000
Net Income	$10,000

Assume cost of sales was 75% variable and 25% fixed, and Selling and General Expense was 60% variable and 40% fixed.

Required:

a. calculates its contribution margin percentage

b. calculate the break-even sales level in dollars (round to nearest whole dollar)

c. calculate the break-even level in units (round to nearest whole unit)

d. prepare a contribution format income statement

Question No. 2 (15 minutes)

Cutler Company currently buys 30,000 units of a part used to manufacture its product at a cost of $76 per unit. The supplier recently informed Cutler Company that a 20 percent price increase will take effect next year. Cutler has some additional space and could produce the units for the following per-unit costs (based on 30,000 units):

Direct materials	$32
Direct labor	$24
Variable manufacturing overhead	$24

If Cutler purchases the units from the supplier, Cutler can rent out the plant for $40,000 per year.

Required:

a) Using differential/incremental analysis, calculate whether Should Cutler Company buy the part externally or make it internally.

b) State your conclusion as to whether Cutler should purchase the part externally or produce the part internally.

Question No. 3 (20 minutes)

Gleason manufactures a single product with the following full unit costs for 6,000 units:

Direct materials	$160
Direct labor	80
Manufacturing overhead (40% variable)	240
Selling expenses (60% variable)	80
Administrative expenses (10% variable)	40
Total per unit	$600

A company recently approached Gleason with a special order to purchase 1,000 units for $550. Gleason currently sells the models to dealers for $1,100 per unit. Capacity is sufficient to produce the extra 1,000 units. No selling expenses would be incurred on the special order.

a) Calculate Gleason's existing contribution margin on production and sales of 6,000 units

b) Calculate the impact on contribution margin of accepting the order and conclude if the order should be accepted to maximize short term profit?

c. Calculate the minimum price Gleason would want in order to increase pre-tax profit by

$ 60,000 if this special order was accepted.

Question No. 4 (25 minutes)

The following information applies to the General Lawnmower Company for the year ended December 31, 2019.

Factory Rent S 80.000 Direct Materials Inventory, Beginning 50.000 Direct Materials Inventory, Ending 45.000 Direct Materials Purchases 325.000 Direct Labor--Wages 550.000 Indirect Labor-Wages 25.000 Finished Goods Inventory, Beginning 50.000 Finished Goods Inventory, Ending 75.000 Indirect Materials 50.000 Plant Utilities 25.000 General and Administrative 130.000 Work-in-Process Inventory, Beginning 50.000 Work-in-Process Inventory, Ending 55.000 Marketing Expenses 180.000 Sales Revenue 1.825.000