1. In the month of September, Nixon Company sold 800 units of product. The average sales price was $30. During the month, fixed costs were $7,200 and variable costs were 60% of sales. (25 points)
(a)Determine the contribution margin in dollars, per unit, and as a ratio.
(b)Using the contribution margin technique, compute the break-even point in dollars and in units.
2. It takes 3 pounds of direct materials to produce the Regular product and 5 pounds of direct materials to produce the Deluxe product. It is the company’s policy to maintain an inventory of direct materials on hand at the end of each month equal to 30% of the next month’s production needs for the Regular product and 20% of the next month’s production needs for the Deluxe product. Direct materials inventory on hand at June 30 were 9,000 pounds for the Regular product and 15,000 pounds for the Deluxe product. The cost per pound of materials is $5 Regular and $7 Deluxe. (25 points)
Prepare separate direct materials budgets for each product for the third quarter of 2010.
3. Coyle Company manufactured 6,000 units of a component part that is used in its product and incurred the following costs: (25 points)
Variable manufacturing overhead10,000
Fixed manufacturing overhead 20,000
Another company has offered to sell the same component part to the company for $12 per unit. The fixed manufacturing overhead consists mainly of depreciation on the equipment used to manufacture the part and would not be reduced if the component part was purchased from the outside firm. If the component part is purchased from the outside firm, Coyle Company has the opportunity to use the factory equipment to produce another product which is estimated to have a contribution margin of $14,000.
Prepare an incremental analysis report for Coyle Company which can serve as informational input into this make or buy decision.
4. Mercer has three product lines in its retail stores: books, videos, and music. Results of the fourth quarter are presented below: (25 points)
Books Music Videos Total
Units sold 1,000 2,000 2,000 5,000
Revenue $22,000 $40,000 $23,000 $85,000
Variable Dept costs 17,000 22,000 12,000 51,000
Direct fixed costs 1,000 3,000 2,000 6,000
Allocated fixed costs 7,000 7,000 7,000 21,000
Net income (loss) $ (3,000) $ 8,000 $2,000 $ 7,000
The allocated fixed costs are unavoidable. Demand of individual products are not affected by changes in other product lines.
What will happen to profits if Mercer discontinues the Books product line?
5. Martinez Company has money available for investment and is considering two projects each costing $70,000. Each project has a useful life of 3 years and no salvage value. The investment cash flows follow:
Project A Project B
Year 1$ 8,000$28,000
If 8% is an acceptable earnings rate, which project should be selected? Justify your response. (25 points)
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