1. Root's Exteriors produces exterior siding for homes. The Preparation Department begins with wood, which is chopped into small bits. At the end of the process, an adhesive is added. Then the wood/adhesive mixture goes on to the Compression Department, where the wood is compressed into sheets. Conversion costs are added evenly throughout the preparation process. March data for the Preparation Dept. are as follows (in millions):
Sheets:
Begining work in process inventory - 0 sheets
Started production - 3,300 sheets
Completed and transferred out to Compression in March - 1,900 sheets
ENding work in process inventory (45%of the way through the preparation process)-1400 sheets
Costs:
Beginning work in process inventory- $0
Costs adding during March:
Wood - 2,600
Adhesives-1365
Direct Labor-640
Manufacturing overhead-2,445
Total costs: $7,050
REQUIREMENTS:
• Draw a time line for the Preparation Department
• Use the time line to help you compute the equivalent. (HINT: Each direct material added at a different point in the production process requires its own equivalent-unit computation)
• Compute the total costs of the units (sheets) -( a.) Completed and transferred out to the Compression Department. (b.) In the Preparation Departments Ending work in process inventory.
• Prepare the journal entry to record the cost of the sheets completed and transferred out to the compression Dept.
• Post the journal entries to the Work in process inventory-Preparation T-account. What is the ending balance?
2. British Productions performs London shows. The average show sells 1,200 tickets at $50 per ticket. There are 120 shows a year. The average show has a cast of 70, each earning an average of $300 per show. The cast is paid after each show. The other variable cost is a program-printing cost of $7 per gues. Annual fixed costs total $459,000.
REQUIREMENTS:
• Compute revenue and variable costs for each show
• Use the income statement equation approach to compute the number of shows British Productions must perform each year to break even.
• Use the contribution margin approach to compute the number of shows needed each year to earn a profit of $3,825,000. Is this profit goal realistic? Give your reasoning.
• Prepare British Productions contribution margin income statement for 120 shows for 2011. Report only two categories of costs: variable and fixed.
3. Big Time Investor Group is opening an office in Dallas. Fixed montly costs are office rent ($8,200), depreciation on office furniture ($1,500), utilities ($2,300), special telephone lines ($1,300), a connection with an online brokerage service ($2,900), and the salary of a financial planner ($11,800). Variable costs include payments to the financial planner (9% of revenue), advertising (12% of revenue), supplies and postage (4% of revenue), and usage fees for the telephone lines and computerzied brokerage service (5% of revenue).
REQUIREMENTS:
• Use the contribution margin ration CVP formula to compute Big Time's breakeven revenue in dollars. If the average trade leads to $800 in revenue for Big Time, how many trades must be made to break even?
• Use the income statement equation approach to compute the dollar revenues needed to earn a target monthly operating income of $11,200.
• Graph big Time's CVP relationships. Assume that an average trade leads to $800 in revenue for Big Time. Show the breakeven point, the sales revenue line, the fixed clst line, the total cost line, the operating loss area, the operating income area, and the sales in units (trades) and dollars when monthly operating income of $11,200 is earned. The graph should range from 0 to 80 units.
• Suppose that the average revnue Big Time earns increases to $900 per trade. Compute the new breakeven point in trades. How doe sthis affect the breakeven point?