Accounting Three Problems

1. Best Client Company has sales of 1,300 units at $60 a unit. Variable expenses are 45% of the selling price and total fixed expenses are $37,180. If Cartel Company expects next year’s total sales could increase 14%, they want to know how this change affects their profit. Calculate DOL and then, using DOL, calculate next year’s net income in dollar.

2. Notterdam Corporation manufactures laser printers. Rowell currently manufactures the 32,000 imaging drums that it uses in its printers. The annual costs to manufacture these 32,000 drums are as follows:

Cost of drum Total cost
Variable manufacturing cost …………… $23 $736,000
Fixed manufacturing cost ……………….. $65 $2,080,000
Total cost $88 $2,816,000

Hardware Solutions Inc. has offered to provide Rowell with all of its imaging drum needs for $72 per drum. If Rowell accepts this offer, 70% of the fixed manufacturing cost above could be totally eliminated. Also, Rowell will be able to use the freed up space to generate $240,000 of income each year in the production of alternative products.

Based on the information presented, would Rowell be better off to make the drums or buy the drums and by how much?

3. Houseman Corporation bases its budget on machine-hours. The company’s static planning budget for November appears below:
Budgeted number of machine-hours ------------------------- 9,550
Budgeted variable costs:
Supplies (@$3.70 per machine-hour) ---------- $35,335
Power (@$2.40 per machine-hour) ----------------22,920
Budgeted fixed costs:
Salaries ----------------------------------------------- 46,850
Equipment depreciation ---------------------------- 31,250
Total cost ----------------------------------------------------- $136,355

Required: Prepare a flexible budget and total overhead cost at an activity level of 9,850 machine-hours per month.