Where do you get the allocated overhead in part 4 requirement 2

Requirement 1 Units Price Sales Variable Costs Fixed Costs Net Income Totals 60,000 60,000 $12.50 $6.00 Variable Cost Direct Materials per unit direct labor per unit variable manufacturing overhead variable selling expense Total $750,000 $360,000 $295,525.00 $94,475.00 3 1.5 0.4 1.1 6 Requirement 2 Fixed Cost Contribution Margin per Unit in Dollars = Selling Price - Variable Costs Selling Price Variable Costs manufacturing cost administration Total Contribution Margin per Unit $6.00 $6.50 $12.50 216000 79525 295525 Contribution Margin Ratio = Contribution Margin/Selling Price Contribution Margin Selling Price Contribution Margin Ratio $12.50 52% $6.50 Requirement 3 Break-Even Point = Fixed Costs / Contribution Margin Fixed Costs Contribution Margin $295,525 $6.50 Break-Even Point in Units (Rounded) 45,465 Break-Even Point in Units X Selling Price per Unit = Break-Even Point Sales Break-Even Point in Units Selling Price per Unit Break-Even Point in Sales (Rounded) $12.50 $568,317 45,465 Requirement 4A Margin of Safety in Units = Current Unit Sales - Break-Even Point in Unit Sales Current Unit Sales Break-Even Point in Sales 60,000 45,465 Margin of Safety in Units 14,535 Requirement 4B Margin of Safety in Dollars = Current Sales in Dollars - Break-Even Point Sales in Dollars Current Sales in Dollars $750,000 Break-Even Point in Dollars Margin of Safety in Dollars $568,317 $181,683 Requirement 4C Margin of Safety as a Percentage = Margin of Sales in Units / Current Unit Sales Margin of Safety in Units Current Unit Sales Margin of Safety Percentage 60,000 24% 14,535 Requirement 5 Degree of Operating Leverage = Contribution Margin / Operating Income Contribution Margin $390,000.00 Operating Income Operating Leverage $94,475.00 4.1281 Requirement 6 Units Sales Variable Costs Fixed Costs Net Income $ Per Unit 72,000 72,000 Operating Leverage Totals $12.50 $6.00 Times % Increase 4.1281 Prior Income Increase Total Requirement 7 Targeted Income = (Fixed Costs + Target Income) / Contribution Margin Increase would be XX% 183% $94,475.00 From Part 1 $172,475.00 Prior Income X XX% Above $266,950.00 $900,000 $432,000 $295,525 $172,475 -56% 1.2 Net Income Percent Increase 183% Speciality 3 1.5 0.4 1.3 6.2 Fixed Costs + Target Income Fixed Costs Target Income Total Proof Divided by Contribution Margin $295,525 $6.50 $150,000 $6.50 $445,525 $6.50 # of Units (Rounded) 45,465 23077 68,542 # of Units Above X $ Per Unit 68,542*12.50 68,542*6 Revenue Variable Costs Contribution Margin Fixed Costs Net Income $856,779 $411,254 $445,525 $295,525 $150,000 Requirement 8 Sales Mix Current Expected Sales Units Revenue = Sales X Price Variable Costs X Units Contribution Margin Fixed Costs Operating Income Specialty 60,000 $750,000 $360,000 $390,000 $295,525 Prior Net Income From Requirement 1 Additional Operating Income (Operating Income Above Less Prior Income) Total 5,000 $55,000 $31,000 $24,000 $15,000 65,000 805,000 391,000 414,000 310,525 $103,475 $94,475.00 $9,000.00 Decision With Explanation The company should move forward with the sell of umprellas to the England company. By moving forward with this decision the company will increase their operating income by $9,000. We calculated this by finding the operating income from selling them to the England company and then subtracting it from the previous operating income without the sale to land at the $9,000. Requirement 1 Hampshire Company Variable Costing Income Statement Units Sales Variable Cost of Goods Sold: Beginning Inventory Direct Materials Direct Labor Manufacturing Overhead Total Variable Costs 60,000 $ $12.50 $0 $3.00 $180,000.00 $1.50 $90,000.00 $0.40 $24,000.00 $294,000.00 60,000 60,000 60,000 Cost of Good Available for Sale Deduct Ending Inventory Variable Costs of Goods Sold Variable Selling Costs Contribution Margin Fixed Costs: Fixed Manufacturing Costs Fixed Administrative Costs Operating Income $750,000.00 $294,000.00 $4.90 $98,000.00 20,000 60,000 $1.10 $196,000.00 $66,000.00 $66,000.00 $488,000.00 $216,000 $79,525 $192,475.00 Requirement 2 Hampshire Company Absorption Costing Income Statement Sales Variable Cost of Goods Sold: Beginning Inventory Direct Materials Direct Labor Manufacturing Overhead Total Variable Costs Allocated Fixed Manufacturing Costs Cost of Good Available for Sale Deduct Ending Inventory Costs of Goods Sold Gross Margin Fixed Costs: Variable Selling Costs Fixed Administrative Costs Operating Income Units 60,000 60,000 60,000 60,000 80,000 20,000 $ 13 $750,000.00 Budgeted fixed manufacturing cost Budgeted production Budgeted fixed mgf cost per unit $216,000 80000 $2.70 $0 $3.00 $180,000.00 $1.50 $90,000.00 $0.40 $24,000.00 $294,000.00 $2.70 $216,000.00 $510,000.00 $7.60 $152,000.00 $358,000.00 $392,000.00 60,000 $1.10 $66,000 $79,525 $246,475.00 Requirement 1 Price Variances: (Actual Price - Standard Price) X Actual Quantity Cloth Actual $1.25 Standard Actual Quantity Variance Favorable or Unfavorable $1.15 128,000 $12,800 unfavorable Handle Assembly $0.99 $1.05 80,808 Labor Price Variance $7.62 $7.50 15,748 -$4,848 favorable $1,890 unfavorable Requirement 2 Efficiency Variances: (Actual Quantity of Input Used - Standard Quantity of Input Allowed for Actual Output) X Budgeted Price of Input Cloth (1.5 Yards per Unit) Handle Assembly (1 per Unit) Labor (.20 per Unit) Actual 128,000.0 Standard Standard Price Variance Favorable or Unfavorable 120,000.0 $1.15 $9,200 unfavorable 80,808 80,000 $1.05 15,748 16,000 $7.50 $848 unfavorable -$1,890 favorable Cost Information From Instructions Stick Units Sold Selling Price Direct Material Cost Per Unit Direct Labor Cost Per Hour Variable MO Variable Selling Costs Labor Hours Per Unit Sales Orders Purchase Orders Production Runs Material Moves Machine Setups Machine Hours Inspections Shipments Collapsible 60,000 $12.50 $3.00 $7.50 $0.40 $1.10 0.2 120 50 45 86 130 525 200 60 Activity Information from Instructions Activity Order Processing Purchasing Material Handing Machine Setup Production Assembly Inspecting Shipping Activity Cost $35,000 $36,000 $28,000 $14,000 $99,000 $80,000 $11,000 $7,500 3,000 $14.00 $3.10 $8.00 $0.40 $1.10 0.2 1 3 6 10 6 32 10 3 Activity Cost Driver Number of Sales Orders Number of Purchase Orders Material Moves Machine Setups Production Runs Machine Hours Number of Inspections Number of Shipments Requirement 1 Activity Order Processing Purchasing Material Handing Machine Setup Production Assembly Inspecting Shipping Quantity of Cost Allocation Overhead Allocation Base Rate X$ X$ X$ X$ X$ X$ X$ X$ Total Costs $ $ $ $ $ $ $ $ Requirement 2 Traditional Costing Stick Umbrella Revenues Direct Materials Direct Labor Variable Overhead Variable Selling Costs Allocated Fixed Overhead Total Costs Operating Income Operating Income % Per Unit Operating Income Collapsible Umbrella $ $ $ $ $ $ $ $ Total $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ % $ % $ Requirement 3 Activity-Based Costing Stick Umbrella Revenues Direct Materials Direct Labor Variable Overhead Variable Selling Costs Order Processing Costs Purchasing Costs Material Handing Costs Machine Setup Costs Production Costs Assembly Costs Inspecting Costs Shipping Costs Total Costs Operating Income Operating Income % Per Unit Operating Income Requirement 4 Costs per Unit Traditional ABC Difference Collapsible Umbrella $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ % $ % $ Stick Umbrella $ $ $ Total Collapsible Umbrella $ $ $ Requirement 5 ACC 550 Hampshire Company Case Study Section I: Cost-Volume-Profit Analysis The Hampshire Company manufactures umbrellas that sell for $12.50 each. In 2014, the company made and sold 60,000 umbrellas. The company had fixed manufacturing costs of $216,000. It also had fixed costs for administration of $79,525. The per-unit costs of each umbrella are as follows: Direct Materials: $3.00 Direct Labor: $1.50 Variable Manufacturing Overhead: $0.40 Variable Selling Expenses: $1.10 Using the information above, perform a cost-volume-profit (CVP) analysis by completing the steps below. All CVP calculations should be completed in the Hampshire Company Spreadsheet. Note: The CVP analysis satisfies Part A of Section I. 1. Compute net income before tax. 2. Compute the unit contribution margin in dollars and the contribution margin ratio for one umbrella. 3. Calculate the break-even point in units and dollars of revenue. Note: This is a required part of the CVP analysis and satisfies Part C of Section I. 4. Calculate the margin of safety: a. In units b. In sales dollars c. As a percentage 5. Calculate the degree of operating leverage. 6. Assume that sales will increase by 20% in 2015. Calculate the percentage of before-tax income for this increase. Provide calculations to prove that your percentage increase is correct based on the operating leverage calculated in step 5. 7. Compute the number of umbrellas that Hampshire is required to sell if it plans to earn $120,000 in income before taxes by using the target income formula. Proof your calculation. 8. A company that specializes in tours in England has offered to purchase 5,000 umbrellas at $11 each from Hampshire. The variable selling costs of these additional units will be $1.30 as opposed to $1.10 per unit. Also, this production activity will incur another $15,000 of fixed administrative costs. Should Hampshire agree to sell these additional 5,000 umbrellas to the touring business? Provide calculations to support your decision. Additionally, complete Parts B and D of Section I as outlined in the Final Project Guidelines and Rubric document. Section II: Inventory Management The information below represents the beginning and ending inventory amounts along with the production and sales for the month in umbrella units. Beginning Inventory: 0 Umbrellas Production: 80,000 Umbrellas Sales: 60,000 Umbrellas Ending Inventory: 20,000 Umbrellas Using the information provided above and the costs and sales information provided in Section I, complete the following in the Hampshire Company Spreadsheet in order to assist you in responding to all components of Section II: Prepare a variable costing income statement. Prepare an absorption costing income statement. Additionally, complete Parts A through E of Section II as outlined in the Final Project Guidelines and Rubric document. Section III: Benchmarking The management of the Hampshire Company would like to implement benchmarking. Standard costs have been established and are presented below. You will want to complete a variance analysis to include efficiency and price variances for materials (cloth and handle assemblies) and labor based on the following data: Units Produced = 80,000 Units Sold = 60,000 Direct Materials Purchased and Used Actual square yards of cloth purchased and used: 128,000 Actual price incurred per yard: $1.25 Actual handles purchased and used: 80,808 Actual price per handle/rib/stretcher assembly: $0.99 Direct Manufacturing Labor Used Actual direct labor hours used: 15,748 Actual price per hour: $7.62 Direct labor costs: $120,000 Standard Rates Standard labor hours per unit: 0.20 Standard labor price per hour: $7.50 Square yards material per unit: 1.50 Standard price per yard: $1.15 Handle/rib/stretcher assembly per unit: 1 Standard price per handle assembly: $1.05 Companies can use variance analysis and benchmarking to measure performance within their own company and against competitors. This can be done by setting standards/budgets and comparing a completed variance analysis to results from prior periods or comparing them to competitors' results. Using the information provided above, complete the following calculations (steps 1 and 2) in the Hampshire Company Spreadsheet. This will assist you in responding to all components of Section III. 1. Calculate price variances for material and labor and denote whether they are favorable or unfavorable. 2. Calculate efficiency variances for material and labor and denote whether they are favorable or unfavorable. In order to measure performance and make use of the variance analysis completed, management understands the need to compare results with their competitors. Following the steps outlined below, you will research benchmarking and propose the most effective approach for your company. Respond to Parts A through C of Section III as outlined in the Final Project Guidelines and Rubric document. Section IV: Alternative Costing Method Hampshire has always produced stick umbrellas. However, it is considering expanding its production to include collapsible umbrellas. This consideration has been spurred by Tours Today, a touring company that is interested in providing its customers with collapsible umbrellas imprinted with its logo. The management at Hampshire is currently working out a deal with the touring company to produce 3,000 collapsible umbrellas and believes it can sell those umbrellas for $14.00 each. Here are the costs that can be directly traced to this special order: Direct Materials: $9,300 Direct Labor Hours: 600 Hourly Rate of Direct labor: $8.00 In the traditional costing approach, overhead is applied at the rate of $24.60 per labor hour. This expansion in production will add additional overhead costs. The total overhead costs (assuming production of the stick and collapsible umbrellas) to include the cost pools and cost drivers are provided in Table 2. An alternative costing method that might benefit Hampshire is the implementation of activity-based costing (ABC). Hampshire would like to implement an ABC approach to analyze the production of this special order of collapsible umbrellas. The controller has assembled the following information: Stick Units Sold 60,000 Selling Price $12.50 Direct Material Cost per Unit $3 Direct Labor Cost per Hour $7.50 Variable Manufacturing Overhead $0.40 Variable Selling Costs $1.10 Labor Hours per Unit 0.2 Sales Orders 120 Purchase Orders 50 Production Runs 45 Material Moves 86 Machine Setups 130 Machine Hours 525 Inspections 200 Shipments 60 Table 1: Direct Cost Information and Activities Activity Order Processing Purchasing Material Handing Machine Setup Production Assembly Inspecting Shipping Collapsible 3,000 $14.00 $3.10 $8.00 $0.40 $1.10 0.2 1 3 6 10 6 32 10 3 Activity Cost Activity Cost Driver $35,000 Number of Sales Orders $36,000 Number of Purchase Orders $28,000 Material Moves $14,000 Machine Setups $99,000 Production Runs $80,000 Machine Hours $11,000 Number of Inspections $7,500 Number of Shipments Table 2: Activity Cost Pools and Cost Drivers Another alternative to traditional costing and ABC is time-driven activity-based costing (TDABC). You will need to determine which of these three methods would be the best approach for the Hampshire Company. The following article may assist you in your analysis: Time-Driven Activity-Based Costing. Additionally, you may want to use the Shapiro Library to conduct further research on the three methods. You will need to defend your position when answering the prompts for the written portion of this section. Using the information provided above, complete the following in the Hampshire Company Spreadsheet in order to assist you in responding to all components of Section IV: 1. Calculate the allocation rates for each cost driver using ABC. 2. Use the traditional costing approach to calculate the total cost and the unit cost of the stick and collapsible umbrellas. 3. Use ABC to compute the total costs and the unit cost for the stick and collapsible umbrellas. 4. Compute the difference between the product cost per stick and collapsible umbrellas using the unit cost that you computed with the traditional approach and the one that you computed using ABC. Based on your calculations from steps 1-4, respond to Parts A through C in Section IV as outlined in the Final Project Guidelines and Rubric document. Section V: Memo to Management The management of the Hampshire Company is very interested in measuring performance. They would like you to recommend a strategy to increase business performance. They are not sure whether they should focus on product differentiation or cost leadership. Research additional performance tools to include the balanced scorecard. During your research, consider what performance measurements you would use based on the four perspectives. Provide examples. In your recommendation, you will want to include the outcome of your previous quantitative analysis and research performed related to cost-volume-profit (CVP), variable and absorption costing, just-in-time (JIT), standard costs, variances, and benchmarking. You will want to review key points and make recommendations based on your current research and prior analysis completed and research performed. Your two- to three-page memo to management must be submitted as a Word document and must include your responses to Parts A through C of Section V as outlined in the Final Project Guidelines and Rubric document