10 questions

Variable manufacturing overhead                                                                        

Detienne Company manufactures and sells one product for $10 per unit. The unit contribution margin is 40% of the sales price, and fixed costs total $105,000.

1. Using the equation approach, compute: 
   
   
   1. The break-even point in sales dollars and units.
      
      
         
      
      
   2. The sales volume (in units) needed to generate a profit of $30,000
      
      
   3. The break-even point (in units) if variable costs increase to 80% of the sales price and fixed costs increase to $125,000. 
      
      
      
      
2. See if you can recompute the solutions to 1(a), 1(b), and 1(c) in one equation step using either the contribution margin ratio or the contribution margin dollars per unit. 
   
   
   1. The break-even point in sales dollars and units.
      
      

      Fixed costs:
      CMR:
      Break-even point in sales dollars:
      Selling price per unit:
      Break-even point in units:

   2. The sales volume (in units) needed to generate a profit of $30,000.
      
      

      Fixed costs:
      Target income:
      Total:
      Contribution margin per unit:
      Sales volume in units:

   3. The break-even point (in units) if variable costs increase to 80% of the sales price and fixed costs increase to $125,000. 
      
      

      Fixed costs:
      Contribution margin per unit:
      Break-even point in units:

The Last Outpost is a tourist stop in a western resort community. Kerry Yost, the owner of the shop, sells hand-woven blankets for an average price of $30 per blanket. Kerry buys the blankets from weavers at an average cost of $21. In addition, he has selling expenses of $3 per blanket. Kerry rents the building for $300 per month and pays one employee a fixed salary of $500 per month.

1. Determine the number of blankets Kerry must sell to break even. Round your answer up to the nearest whole number.
   
   
   
2. Determine the number of blankets Kerry must sell to generate a profit of $$1,000 per month. 
   
   
   
3. Assume that Kerry can produce and sell his own blankets at a total variable cost of $16 per blanket, but that he would need to hire one additional employee at a monthly salary of $600.
1. Determine the number of blankets Kerry must sell to break even.
   
   
   
2. Determine the number of blankets Kerry must sell to generate a profit of $1,000 per month. Round your answer up to the nearest whole number.
   
   

Woodfield Company makes bed linens. During the first six months of 2012, Woodfield had the following production costs:

1. Use the high-low method to compute the monthly fixed cost and the variable cost rate.
   

   Variable cost:	$  [removed] per unit
   Fixed cost:	$  [removed]

2. Plot the costs on a scattergraph.

Based on your scattergraph, do you think the fixed costs and the variable cost rate determined in part (1) are accurate?

Early in 2013, Lily Company (a retailing firm) sent the following income statement to its stockholders:

The following information is available for Dabney Company for 2012:

Contribution margin and functional income statements

Jane Tamlyn paid $225 to rent a carnival booth for four days. She has to decide whether to sell doughnuts or popcorn. Doughnuts cost $1.50 per dozen and can be sold for $3.00 per dozen. Popcorn will require a $115 rental fee for the popcorn maker and $0.15 per bag of popcorn for the popcorn, butter, salt, and bags; a bag of popcorn could sell for $0.65.

1. Compute the break-even point in dozens of doughnuts if Jane decides to sell doughnuts exclusively and the break-even point in bags of popcorn if she decides to sell popcorn exclusively. Round you answers to the nearest whole dollar.
   
   
   
2. Jane estimates that she can sell either 75 doughnuts or 45 bags of popcorn every hour the carnival is open (10 hours a day for four days). Calculate the profit she would earn with each product. Round your answers to the nearest dollar. 
   
   

   Profit from doughnuts:
   Profit from popcorn:

   
   Which product should she sell?
   
   
3. Jane can sell back to the baker at half cost any doughnuts she fails to sell at the carnival. Unused popcorn must be thrown away. If Jane sells only 70% of her original estimate, how much profit will she earn from each of the products? (Assume that she bought or produced just enough to satisfy the demands she originally estimated.) Round your answers to the nearest cent.
   

   Profit from doughnuts:	$
   Profit from popcorn:

   
   Which product should she sell?
   

The 2012 pro-forma income statement for Grover Company is as follows (ignore taxes):

1. Compute how many units must be sold to break even. Round your answer to the nearest tens
   
   
2. Compute the increase (decrease) in profit under the following independent situations:
   
   1. Sales increase 25%.
      
      
   2. Fixed selling and administrative expenses decrease 5%.
      
      
   3. Contribution margin decreases 20%.
      
      
3. Compute sales in units and dollars at the break-even point if fixed costs increase from $79,000 to $85,000. Round your answer to the nearest whole.
   

   sales in units		u
   sales in dollars

   
   
   
4. Compute the number of units that must be sold if expected profit is $1 million. Round your answer to the nearest whole

37