Questions -

Q1. Success Manufacturing sold 540,000 units of its product for $72 per unit in 2011. Variable cost per unit is $54 and total fixed costs are $2,140,000.

a. Prepare the following:

i. Contribution margin income statement

ii. Income statement

b. If a new piece of machinery increases the fixed costs to $6,330,000 annually, but reduces the variable costs to $48 per unit, should the new piece of equipment be purchased? Why or why not? Show your work by preparing a new contribution margin income statement and income statement.

Q2. Consider the following selected cost data for the Herbivore Manufacturing Company for 2011:

Budgeted manufacturing overhead costs $8,500,000

Budgeted machine hours 350,000

Actual manufacturing overhead costs $8,100,000

Actual machine-hours 335,000

The company uses normal costing. Its job-costing system has a single manufacturing overhead cost pool. Costs are allocated to jobs using a budgeted machine hour rate. Any amount of under- or overallocation is written off to Cost of Goods Sold.

a. Compute the budgeted manufacturing overhead rate.

b. Prepare the journal entries to record the allocation of manufacturing overhead.

c. Compute the amount of under- or overallocation of manufacturing overhead. Is this amount material?

d. Prepare the journal entry to record the disposal of the under- or overallocated manufacturing overhead.