Question : 1.

The subsequent information relates to Vice Versa Ventures for calendar year 20XX, the company's first year of operations.

Units produced 20,000

Units sold 17,000

Selling price per unit $35

Direct material per unit $5

Direct labor per unit $5

Variable manufacturing overhead per unit $2

Variable selling cost per unit $3

Annual fixed manufacturing overhead $160,000

Annual fixed selling and administrative expense $80,000

(a) Make an income statement using full costing.

(b) Create an income statement using variable costing.

Question : 2.

Leekee Shipyards has a new barnacle-removing product for ocean-going vessels. The company invests $1,000,000 in operating assets and strategies to produce and sell 200,000 units per year. Leekee needs to make a return on investment of 20% each year. Leekee requires to know what price to charge for this product.

Use the absorption costing approach to evaluate the markup required to make the desired return on investment based on the subsequent information.

Per Unit Total

Direct Materials $2.00

Direct Labor $1.50

Variable Manufacturing Overhead

$1.00

Fixed Manufacturing Overhead $100,000

Variable Selling and Administrative Expense $0.10

Fixed Selling and Administrative Expense $100,000

Question : 3

Elliot's Escargots sells commercial and home snail extraction tools and serving pieces. Presently, the snail extraction line of products takes up approximately 50 percent of the company's retail floor space. The CEO of Elliot's wants to decide if the company could continue offering snail extraction tools or focus only on serving pieces. If the snail extraction tools are dropped, salaries and other direct fixed costs will be avoided and serving piece sales would increase by 13 percent. Allocated fixed costs are assigned based on relative sales.

Snail Extraction Serving

Tools Pieces Total

Sales $1,200,000 $800,000 $2,000,000

Less cost of goods sold 1,000,000 700,000 1,700,000

Contribution margin 200,000 100,000 300,000

Less direct fixed costs:

Salaries 175,000 175,000 350,000

Other 60,000 60,000 120,000

Less allocated fixed costs:

Rent 14,118 9,882 24,000

Insurance 3,529 2,471 6,000

Cleaning 4,117 2,883 7,000

Executive salary 76,470 53,530 130,000

Other 7,058 4,942 12,000

Total costs 340,292 308,708 649,000

Net income ($140,292) ($208,708) $349,000

Prepare an incremental analysis in good form to evaluate the incremental effect on profit of discontinuing the snail extraction tool line.