Buggs-Off Corporation produces and sells a line of mosquito repellants that are sold usually all year round. The product sells at $100 per box. The following cost data has been prepared for its estimated upper and lower limits of activity for the year ended December 31, 2020. Lower Limit Upper Limit 4,000 Production (# of boxes) Production Costs: Direct Materials. Direct Labour ... Overhead: 6,000 $60,000 $90,000 80,000 120,000 Indirect Materials. 25,000 37,500 50,000 20,000 Indirect Labour 40,000 Depreciation .. Selling & Administrative Expenses: Sales Salaries . Office Salaries .. Advertising .. Other. Total 20,000 50,000 30,000 65,000 30,000 45,000 45,000 15.000 $365.000 20.000 $477,500 Required: a) Classify each cost element as either fixed, variable, or mixed b) Calculate: ) the variable production cost per unit and the total fixed production overhead. i) The total variable cost per unit and the total fixed costs Hint: Use the high-low method to separate mixed costs into their fixed and variable components Assuming sales of 5,000 units, prepare a contribution margin income statement for the year ended c) December 31, 2020, detailing the components of total variable costs and total fixed costs, and clearly showing contribution and net income. Assuming sales of 5,000 units, calculate Buggs-Off break-even point and margin of safety in units and sales dollars. d) e) Recompute the break-even point in units, assuming that variable costs increased by 20% and fixed costs are reduced by $50,625. How will this impact the margin of safety ratio? The President of Buggs-Off is under pressure from shareholders to increase operating incohe by 20% in 2021. Management expects per unit data and total fixed costs to remain the same in 2021. Using the equation method, compute the number of units that would have to be sold in 2021 to reach the shareholders desired profit level. Is this a realistic goal? Briefly explain the impact of each of the following scenarios on the contribution per and the break-even point: () Sales volume increases (i) Total fixed cost decreases (i) Selling price per unit increases (iv) Variable cost per unit increases 9)
Buggs-Off Corporation produces and sells a line of mosquito repellants that are sold usually all year round. The product sells at $100 per box. The following cost data has been prepared for its estimated upper and lower limits of activity for the year ended December 31, 2020. Lower Limit Upper Limit 4,000 Production (# of boxes) Production Costs: Direct Materials. Direct Labour ... Overhead: 6,000 $60,000 $90,000 80,000 120,000 Indirect Materials. 25,000 37,500 50,000 20,000 Indirect Labour 40,000 Depreciation .. Selling & Administrative Expenses: Sales Salaries . Office Salaries .. Advertising .. Other. Total 20,000 50,000 30,000 65,000 30,000 45,000 45,000 15.000 $365.000 20.000 $477,500 Required: a) Classify each cost element as either fixed, variable, or mixed b) Calculate: ) the variable production cost per unit and the total fixed production overhead. i) The total variable cost per unit and the total fixed costs Hint: Use the high-low method to separate mixed costs into their fixed and variable components Assuming sales of 5,000 units, prepare a contribution margin income statement for the year ended c) December 31, 2020, detailing the components of total variable costs and total fixed costs, and clearly showing contribution and net income. Assuming sales of 5,000 units, calculate Buggs-Off break-even point and margin of safety in units and sales dollars. d) e) Recompute the break-even point in units, assuming that variable costs increased by 20% and fixed costs are reduced by $50,625. How will this impact the margin of safety ratio? The President of Buggs-Off is under pressure from shareholders to increase operating incohe by 20% in 2021. Management expects per unit data and total fixed costs to remain the same in 2021. Using the equation method, compute the number of units that would have to be sold in 2021 to reach the shareholders desired profit level. Is this a realistic goal? Briefly explain the impact of each of the following scenarios on the contribution per and the break-even point: () Sales volume increases (i) Total fixed cost decreases (i) Selling price per unit increases (iv) Variable cost per unit increases 9)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
A) b and C
Need the correct answer
![Buggs-Off Corporation produces and sells a line of mosquito repellants that are sold usually all year round.
The product sells at $100 per box. The following cost data has been prepared for its estimated upper and lower
limits of activity for the year ended December 31, 2020.
Lower Limit Upper Limit
Production (# of boxes)
4,000
6,000
Production Costs:
Direct Materials.
Direct Labour
...................
$60,000
$90,000
....
80,000
120,000
Overhead:
Indirect Materials..
25,000
37,500
......
Indirect Labour ............
40,000
50,000
Depreciation ..
20,000
20,000
Selling & Administrative Expenses:
Sales Salaries ..
50,000
65,000
Office Salaries ...............*
30,000
30,000
Advertising
45,000
45,000
............
Other ...
15.000
$365,000
_20.000
$477,500
Total
Required:
a)
Classify each cost element as either fixed, variable, or mixed
b)
Calculate:
i) the variable production cost per unit and the total fixed production overhead.
ii) The total variable cost per unit and the total fixed costs
Hint: Use the high-low method to separate mixed costs into their fixed and variable components.
Assuming sales of 5,000 units, prepare a contribution margin income statement for the year ended
December 31, 2020, detailing the components of total variable costs and total fixed costs, and clearly
showing contribution and net income.
c)
d)
Assuming sales of 5,000 units, calculate Buggs-Off break-even point and margin of safety in units and
sales dollars.
Recompute the break-even point in units, assuming that variable costs increased by 20% and fixed
costs are reduced by $50,625. How will this impact the margin of safety ratio?
e)
The President of Buggs-Off is under pressure from shareholders to increase operating incohe by 20%
f)
in 2021. Management expects per unit data and total fixed costs to remain the same in 2021. Using the
equation method, compute the number of units that would have to be sold in 2021 to reach the
shareholders desired profit level. Is this a realistic goal?
Briefly explain the impact of each of the following scenarios on the contribution rgper umt and the
break-even point:
(i) Sales volume increases
(ii) Total fixed cost decreases
(iii) Selling price per unit increases
(iv) Variable cost per unit increases
g)](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fcf35951d-b484-46bb-ac46-25fb67c2f562%2F62c67e0c-70ab-4cff-ac1c-9b9bc57c9e11%2F4jujvkxr_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Buggs-Off Corporation produces and sells a line of mosquito repellants that are sold usually all year round.
The product sells at $100 per box. The following cost data has been prepared for its estimated upper and lower
limits of activity for the year ended December 31, 2020.
Lower Limit Upper Limit
Production (# of boxes)
4,000
6,000
Production Costs:
Direct Materials.
Direct Labour
...................
$60,000
$90,000
....
80,000
120,000
Overhead:
Indirect Materials..
25,000
37,500
......
Indirect Labour ............
40,000
50,000
Depreciation ..
20,000
20,000
Selling & Administrative Expenses:
Sales Salaries ..
50,000
65,000
Office Salaries ...............*
30,000
30,000
Advertising
45,000
45,000
............
Other ...
15.000
$365,000
_20.000
$477,500
Total
Required:
a)
Classify each cost element as either fixed, variable, or mixed
b)
Calculate:
i) the variable production cost per unit and the total fixed production overhead.
ii) The total variable cost per unit and the total fixed costs
Hint: Use the high-low method to separate mixed costs into their fixed and variable components.
Assuming sales of 5,000 units, prepare a contribution margin income statement for the year ended
December 31, 2020, detailing the components of total variable costs and total fixed costs, and clearly
showing contribution and net income.
c)
d)
Assuming sales of 5,000 units, calculate Buggs-Off break-even point and margin of safety in units and
sales dollars.
Recompute the break-even point in units, assuming that variable costs increased by 20% and fixed
costs are reduced by $50,625. How will this impact the margin of safety ratio?
e)
The President of Buggs-Off is under pressure from shareholders to increase operating incohe by 20%
f)
in 2021. Management expects per unit data and total fixed costs to remain the same in 2021. Using the
equation method, compute the number of units that would have to be sold in 2021 to reach the
shareholders desired profit level. Is this a realistic goal?
Briefly explain the impact of each of the following scenarios on the contribution rgper umt and the
break-even point:
(i) Sales volume increases
(ii) Total fixed cost decreases
(iii) Selling price per unit increases
(iv) Variable cost per unit increases
g)
Expert Solution
![](/static/compass_v2/shared-icons/check-mark.png)
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 2 steps
![Blurred answer](/static/compass_v2/solution-images/blurred-answer.jpg)
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
![FINANCIAL ACCOUNTING](https://compass-isbn-assets.s3.amazonaws.com/isbn_cover_images/9781259964947/9781259964947_smallCoverImage.jpg)
![Accounting](https://www.bartleby.com/isbn_cover_images/9781337272094/9781337272094_smallCoverImage.gif)
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
![Accounting Information Systems](https://www.bartleby.com/isbn_cover_images/9781337619202/9781337619202_smallCoverImage.gif)
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
![FINANCIAL ACCOUNTING](https://compass-isbn-assets.s3.amazonaws.com/isbn_cover_images/9781259964947/9781259964947_smallCoverImage.jpg)
![Accounting](https://www.bartleby.com/isbn_cover_images/9781337272094/9781337272094_smallCoverImage.gif)
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
![Accounting Information Systems](https://www.bartleby.com/isbn_cover_images/9781337619202/9781337619202_smallCoverImage.gif)
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
![Horngren's Cost Accounting: A Managerial Emphasis…](https://www.bartleby.com/isbn_cover_images/9780134475585/9780134475585_smallCoverImage.gif)
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
![Intermediate Accounting](https://www.bartleby.com/isbn_cover_images/9781259722660/9781259722660_smallCoverImage.gif)
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
![Financial and Managerial Accounting](https://www.bartleby.com/isbn_cover_images/9781259726705/9781259726705_smallCoverImage.gif)
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education