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1. The company sells a large variety of tee
shirts and sweatshirts. The owner, is thinking of expanding his sales by hiring
local high school students, on a commission basis, to sell sweatshirts bearing
the name and mascot of the local high school.
These sweatshirts would have to be ordered from the manufacturer six
weeks in advance, and they could not be returned because of the unique printing
required. The sweatshirts would cost He owner $10 each with a minimum order of
80 sweatshirts. Any additional sweatshirts would have to be ordered in
increments of 80.
Since the owner’s plan would not require any additional facilities, the
only costs associated with the project would be the costs of the sweatshirts
and the costs of the sales commissions. The selling price of the sweatshirts
would be $15.00 each. The owner would pay the students a commission
of $2.00 for each shirt sold.
Assume left over shirts have no value.
Required:
A.
Assume
that the venture is undertaken and an order is placed for 80 sweat shirts (at a
cost of $10 per shirt). What would be he owner’s break-even point in units and
in sales dollars? Show computations and explain the reasoning behind your
answer.
B.
What
level of sales in units and in dollars would be required to reach the target net
income of $1,200? Show all computations.
C.
Assume that the purchase cost of each
sweatshirt increases to $11.00 while other conditions remain the same. What level of sales in units and in dollars
would now be required to reach a target net income of $1,200? Show all
computations.
2. A
Theater is interested in estimating fixed and variable costs. The following
data are available:
Total Cost No.
of Tickets Sold
January $172,000 20,000
February $176,000 19,500
March $180,500 25,500
April $170,500 21,500
May $190,000 25,000
June $188,000 26,500
Use regression analysis to estimate
fixed cost per month and variable costs per ticket sold, show your output and answer the following questions:
REQUIRED:
a.
How much is the
variable cost per ticket?
b.
How much is total
fixed cost?
c.
What percentage of
variance in Total Cost is explained by the number of tickets sold ?
d.
Write the total cost
equation in good form.
e. MovieTown
Theater is considering an advertising campaign that is expected to increase
annual sales by 7,000 tickets. Assume that the ticket selling price is $9. What
is the expected increase in profit associated with the advertising campaign?
3. A firm allocates factory overhead using one cost pool with direct labor hours as the allocation base. The firm has two production departments (A1 and A2). The new accountant at the firm estimates that next year the total factory overhead costs will be $4,000,000 and approximately 500,000 direct labor hours will be worked. The accountant also estimates that A1 will use 150,000 direct labor hours and there will be about $2,000,000 in overhead costs in A1. A2 will use 350,000 direct labor hours and there will be $2,000,000 in overhead costs in A2. The firm has two products: R4 and R5. It takes two direct labor hours in A1 and three direct labor hours in A2 to complete one unit of R4. It takes one direct labor hour in A1 and four direct labor hours in A2 to complete one unit of R5.
REQUIRED:
What overhead cost per unit will you get
using (a) plant-wide and (b) departmental pools? Which method is better and
why? Support your answer with appropriate calculations.
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