A+ Work

E20.7

MURDER TO GO! writes and manufactures murder mystery parlor games that it sells to retail stores. The following is per-unit information relating to the manufacture and sale of this product:

Unit sales price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 30

Variable cost per unit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Fixed costs per year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 360,000

Determine the following, showing as part of your answer the formula that you used in your computation.

For example, the formula used to determine the contribution margin ratio (part a ) is:

Contribution Margin Ratio = Unit sales price – Variable costs per unit

Unit Sales Price

a. Contribution margin ratio.

4

b. Sales volume (in dollars) required to break even.

c. Sales volume (in dollars) required to earn an annual operating income of $440,000.

d. The margin of safety (in dollars) if annual sales total 60,000 units.

e. Operating income if annual sales total 60,000 units.

E21.6

The cost to Swank Company of manufacturing 15,000 units of a particular part is $135,000, of

which $60,000 is fixed and $75,000 is variable. The company can buy the part from an outside

supplier for $6 per unit. Fixed costs will remain the same regardless of Swank’s decision. Should

the company buy the part or continue to manufacture it? Prepare a comparative schedule in the

format illustrated in Exhibit 21–6 .

            Exhibit 21-6

P22.1A

Chocolatiers Company produces two products: Solid chocolate and powdered chocolate. Cost and revenue data for each product line for the current month are as follows:

In addition, fixed costs that are common to both product lines amount to $125,000.

Instructions

a. Prepare Chocolatiers’s responsibility income statement for the current month. Report the

responsibility margin for each product line and income from operations for the company as a

whole. Also include columns showing all dollar amounts as percentages of sales.

b. According to the analysis performed in part a, which product line is more profitable? Should

the common fixed costs be considered when determining the profitability of individual product

lines? Why or why not?

c. Chocolatiers has $15,000 to be used in advertising for one of the two product lines and expects

that this expenditure will result in additional sales of $50,000. How should the company

decide which product line to advertise?