QUESTION1

Denton Company manufactures and sells a single product. Cost data for the product are given below:

Variable costs per unit:
Direct materials	$	5
Direct labor		11
Variable manufacturing overhead		3
Variable selling and administrative		2
Total variable cost per unit	$	21
Fixed costs per month:
Fixed manufacturing overhead	$	105,000
Fixed selling and administrative		172,000
Total fixed cost per month	$	277,000

The product sells for $45 per unit. Production and sales data for July and August, the first two months of operations, are as follows:

	Units Produced				Units Sold
July		21,000				17,000
August		21,000				25,000

The companys Accounting Department has prepared absorption costing income statements for July and August as presented below:

	July				August
Sales	$	765,000			$	1,125,000
Cost of goods sold		408,000				600,000
Gross margin	$	357,000			$	525,000
Selling and administrative expenses		206,000				222,000
Net operating income	$	151,000			$	303,000

Required:

1. Determine the unit product cost under absorption costing and variable costing.

2. Prepare contribution format variable costing income statements for July and August.

3. Reconcile the variable costing and absorption costing net operating income (loss) figures.

QUESTION 2

[The following information applies to the questions displayed below.]

Raner, Harris, & Chan is a consulting firm that specializes in information systems for medical and dental clinics. The firm has two officesone in Chicago and one in Minneapolis. The firm classifies the direct costs of consulting jobs as variable costs. A contribution format segmented income statement for the companys most recent year is given below:

					Office
	Total Company				Chicago				Minneapolis
Sales	$	675,000	100.0	%	$	135,000	100	%	$	540,000	100	%
Variable expenses		364,500	54.0	%		40,500	30	%		324,000	60	%
Contribution margin		310,500	46.0	%		94,500	70	%		216,000	40	%
Traceable fixed expenses		151,200	22.4	%		70,200	52	%		81,000	15	%
Office segment margin		159,300	23.6	%	$	24,300	18	%	$	135,000	25	%
Common fixed expenses not traceable to offices		108,000	16.0	%
Net operating income	$	51,300	7.6	%

1.

value: 2.00 points

Required information

Required:

1-a. Compute the companywide break-even point in dollar sales. (Round "CM ratio" to 2 decimal places and final answer to the nearest whole dollar amount.)

1-b. Compute the break-even point in sales dollars for the Chicago office and for the Minneapolis office. (Round "CM ratio" to 2 decimal places and final answers to the nearest whole dollar amount.)

1-c. Is the companywide break-even point greater than, less than, or equal to the sum of the Chicago and Minneapolis break-even points?

	Greater than
	Less than
	Equal to

References

eBook & Resources

WorksheetLearning Objective: 05-04 Prepare a segmented income statement that differentiates traceable fixed costs from common fixed costs and use it to make decisions.

Difficulty: 1 EasyLearning Objective: 05-05 Compute companywide and segment break-even points for a company with traceable fixed costs.

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2.

value: 2.00 points

Required information

2. By how much would the companys net operating income increase if Minneapolis increased its sales by $67,500 per year? Assume no change in cost behavior patterns.