Managerial Accounting Homework  

Q1. Das Doors Inc. has recorded the following costs at various volumes of production:

Determine the fixed cost and per-unit variable cost using High-Low method.

Q2. Adams Company sells a single product. The product sells for $100 per unit. The company's variable expenses are 80% of sales and its fixed expenses total $150,000 per year.

a. What is the company's contribution margin ratio?

b. What is the company's break-even point? (Give answer in dollars and in units.)

Q3. Jefferson Company reported $4,000,000 of sales during the month and incurred variable expenses totaling $2,800,000 and fixed expenses totaling $720,000. A total of 80,000 units were produced and sold last month. The company has no beginning or ending inventories.

a. What is the company's total contribution margin and contribution margin per unit?

b. How many units would the company have to sell to achieve a desired target profit of $600,000?

c. What is the company's break-even point in sales dollars?

d. What is the company's margin of safety?

e. What is the company's degree of operating leverage?

Q4. Parker and Spitzer Manufacturing is approached by a European customer to fulfill a one-time-only special order for a product similar to one offered to domestic customers. The following per unit data apply for sales to regular customers:

Parker and Spitzer Manufacturing has excess capacity.

a. What is the full cost of the product per unit?

b. What is the contribution margin per unit?

c. Which costs are relevant for making the decision regarding this one-time-only special order? Why?

d. For Parker and Spitzer Manufacturing, what is the minimum acceptable price of this one-time-only special order?

e. For this one-time-only special order, should Parker and Spitzer Manufacturing consider a price of $200 per unit? Why or why not?

Q5. Pendleton Engineering makes cutting tools for metalworking operations. It makes two types of tools: R3, a regular cutting tool, and HP6, a high-precision cutting tool. R3 is manufactured on a regular machine, but HP6 must be manufactured on both the regular machine and a high-precision machine. The following information is available.

Additional information includes the following:

• Pendleton faces a capacity constraint on the regular machine of 50,000 hours per year. Notice that both products need some regular machine time.
• The capacity of the high-precision machine is not a constraint.
• Of the $550,000 budgeted fixed overhead costs of HP6, $300,000 are lease payments for the high precision machine. This cost is charged entirely to HP6 because Pendleton uses the machine exclusively to produce HP6. The lease agreement for the high-precision machine can be canceled at any time without penalties.
• All other overhead costs are fixed and cannot be changed.

a. What product mix-that is, how many units of R3 and HP6-will maximize Pendleton's operating income? Show your calculations.

b. Suppose Pendleton can increase the annual capacity of its regular machines by 15,000 machine hours by leasing more machines at a cost of $150,000. Should Pendleton increase the capacity of the regular machines by 15,000 machine hours? By how much will Pendleton's operating income increase? Show your calculations.

c. Suppose that the capacity of the regular machines has been increased to 65,000 hours. Pendleton has been approached by Carter Corporation to supply 20,000 units of another cutting tool, S3, for $120 per unit. Pendleton must either accept the order for all 20,000 units or reject it totally. S3 is exactly like R3 except that its variable manufacturing cost is $70 per unit. (It takes one hour to produce one unit of S3 on the regular machine, and variable marketing cost equals $15 per unit.) What product mix should Pendleton choose to maximize operating income? Show your calculations.