Unit 4 Exercise Assignment
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Feb 20, 2024
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Unit 4 Exercise Assignment
Jacky Siu Ming Luk
Yorkville University
BUSI2083-24W-O-C
Mohammed Nurul Alam
Jan 30, 2024
The following information summarizes the company's cost structure
Assume that all of the activity levels mentioned in this problem are within the relevant range.
Prepare a schedule showing predictions for the following items at the 50,000 unit level of activity:
Variable cost per unit
$2.20
Fixed cost per unit
6.1
Total cost per unit
8.3
Units produced and sold
58,000
1. Total variable cost.
Variable cost per unit
*unit level of activity
2.20*50000
110000
2. Total fixed cost.
Units produced and sold*Fixed cost per unit
Does not charge regardless act level
58000*6.1
353800
3. Variable cost per unit.
Total variable cost/ 50,000 unit level of activity
110000/50000
2.2
4. Fixed cost per unit.
Total fix cost/50000 unit level
353800/50000
7.076
The following is Starfish Corporation's contribution format income statement for December 2023:
Sales
$1,000,000
Less: Variable expenses
300,000
Contribution margin
700,000
Less: Fixed expenses
400,000
Before-tax profits
$300,000
The company had no beginning or ending inventories. The company produced and sold 10,000 units in December 2023.
1. Assuming no change in either the cost structure or the average selling price, prepare a contribution format income statement for January, 2024 assuming production and sales of 7,500 units for Starfish
Corporation.
new unit sold 7500
selling price per unit
1000000/10000
100
new sales
750000
Variable expenses per unit
300000/10000
30
new variable expenses
225000
Sales
$750,000
Less: Variable expenses
225,000
Contribution margin
525,000
Less: Fixed expenses
400,000
Before-tax profits
$125,000
Diamond Company's total overhead costs at various levels of activity are presented below:
Machine hours
Total overhead costs
MAINTENANCE COST
March
60,000
$216,800
90000
April
50,000
194,000
78000
May
70,000
239,600
102000
June
80,000
262,400
114000
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Assume that the overhead costs above consist of utilities, supervisory salaries, and maintenance. At
the 50,000-machine-hour level of activity, these costs are presented below
Utilities (V)
$54,000
Supervisory salaries (F)
62,000
Maintenance (M)
78,000
Total overhead costs
$194,000
V = Variable, F = Fixed, M = Mixed
V PER MACHINE HOUR
1.08
54000/50000
The company wants to break down the maintenance cost into its basic variable and fixed cost elements.
1. Estimate the maintenance cost for June.
262400-62000-1.08*80000
114000
M=TOTAL -F-VX
2. Use the high-low method to estimate the cost formula for maintenance cost.
The first step is to choose the data points pertaining to the highest and lowest activity levels high
80,000
low
50,000
The second step is to determine the total costs associated with the two chosen points high
114,000
low
78,000
The third step is to calculate the change in cost between the two data points and divide it by the change in activity level between the two data points.
change in cost
36,000
change in activity
30,000
1.2
PER MACHINE HR
variable cost component 1.2*50000
60000
FIX COST COMPONENT
18000
18000
TOTAL MAINTANCE
78000
FOR JUNE
variable cost component 1.2*80000
96000
FIX COST COMPONENT
18000
TOTAL MAINTANCE
114000
3. Estimate the total overhead cost at an activity level of 55,000 machine hours, using the separate estimates you obtained for its components.
1.2
PER MACHINE HR
55000
MACHINE HR
TOTAL VARIABLE COST COMPONENT 66000
FIX COST COMPONENT
18000
TOTAL MAINTANCE
84000
The following is Silver Corporation's contribution format income statement for last month:
Sales
$1,400,000
TR
Less: variable expenses
800,000
VC
Contribution margin
600,000
CM
Less: fixed expenses
400,000
FC
Operating income
$200,000
PROFI
T
The company has no beginning or ending inventories and produced and sold 20,000 units during the month.
TOTAL UNIT SOLD
20000
SALES PER UNIT $70
TOTAL COST
$1,200,000
TC
VARIABLE EXPENSES PER UNIT
$ 40.00 1. What is the company's contribution margin ratio?
CM RATIO
CM/TR*100%
43%
2. What is the company's break-even in units?
BREAK-EVEN POINT (BEP)
Break-even point in units sold = Fixed expenses/CM PER UNIT
CM PER UNIT
30
13333.33333
UNITS
Break-even point in sales dollars = Fixed expenses/CM RATIO
$ 933,333.33 3. If sales increase by 100 units, by how much should operating income increase?
NEW UNIT SOLD
20100
NEW Sales
$1,407,000
LESS OLD SALES
$1,400,000
$7,000
*CM RATIO
$3,000
4. How many units would the company have to sell to attain target operating income of
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$225,000?
SALES=VAR EXP+FIXED EXP+TARGET PROFITS
X=UNIT SOLD
SALES PER UNIT *UNIT SOLD=VAR EXP PER UNIT *UNIT SOLD+FIXED EXP +TARGET PROFITS
70*x=40*X+400000+225000
30*X=625000
X
20833.33333
20844
UNITS
FIXED EXP
400,000
TARGET PROFIT
225000
CM PER UNTI
30
20833.33333
20844
UNITS
5. What is the company's margin of safety in dollars?
margin of safety=TOTAL SALES - BREAK EVEN SALES
TOTAL SALES
$1,400,000
BREAK-EVEN SALES
$ 933,333.33 $ 466,666.67 margin of safety%
33%
% OF SALES
33%
IN UNITE
6666.666667
6667
6. What is the company's degree of operating leverage?
degree of operating leverage=CM/NET OPERATING INCOME
CM
$ 600,000 NET OP INCOME
$200,000
operating leverage
3
PRECENT INCREASE IN SALES 0.50%
operating leverage
3
% INCREASE IN PROFIT
2%
$ 3,000.00