On your own exercises | Managerial Accounting

Worley Company buys surgical supplies from a variety of manufacturers and then resells and delivers these supplies to hundreds of hospitals. Worley sets its prices for all hospitals by marking up its cost of goods sold to those hospitals by 5%. For example, if a hospital buys supplies from Worley that cost Worley $100 to buy from manufacturers, Worley would charge the hospital $105 to purchase these supplies. For years, Worley believed that the 5% markup covered its selling and administrative expenses and provided a reasonable profit. However, in the face of declining profits Worley decided to implement an activity-based costing system to help improve its understanding of customer profitability. The company broke its selling and administrative expenses into five activities as shown: Activity Cost Pool (Activity Measure) | Total Cost | Total Activity Customer deliveries (Number of deliveries) . . . . . . . . . . . . . . $ 500,000 | 5,000 deliveries Manual order processing (Number of manual orders) . . . . . 248,000 | 4,000 orders Electronic order processing (Number of electronic orders) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200,000 | 12,500 orders Line item picking (Number of line items picked) . . . . . . . . . . 450,000 | 450,000 line items Other organization-sustaining costs (None) . . . . . . . . . . . . . . 602,000 Total selling and administrative expenses . . . . . . . . . . . . . . . $2,000,000 Worley gathered the data below for two of the many hospitals that it serves—University and Memorial (each hospital purchased medical supplies that had cost Worley $30,000 to buy from manufacturers): Activity Activity Measure | University Memorial Number of deliveries . . . . . . . . . . . . . . . . . . . . 10 | 25 Number of manual orders . . . . . . . . . . . . . . . . 0 | 30 Number of electronic orders . . . . . . . . . . . . . . 15 | 0 Number of line items picked . . . . . . . . . . . . . . 120 | 250 1. Compute the total revenue that Worley would receive from University and Memorial.

1. Cost of Goods Sold= $30,000 × 2 = $60,000 Percentage of Markup dollars: 5% Step 2: Revenue Received: ​Cost of Goods Sold +(Percentage of Markup Dollars × Cost of Goods Sold) =($60,000 + (5% × $60,000)) =$60,000 + $3,000= $63,000​​ --------------------- 2.

Speedy Auto Repairs uses a job-order costing system. The company's direct materials consist of replacement parts installed in customer vehicles, and its direct labor consists of the mechanics' hourly wages. Speedy's overhead costs include various items, such as the shop manager's salary, depreciation of equipment, utilities, insurance, and magazine subscriptions and refreshments for the waiting room. The company applies all of its overhead costs to jobs based on direct labor-hours. At the beginning of the year, it made the following estimates: Direct labor-hours required to support estimated output . . . . . 20,000 Fixed overhead cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $350,000 Variable overhead cost per direct labor-hour . . . . . . . . . . . . . . . $1.00 Required: 1. Compute the predetermined overhead rate. 2. During the year, Mr. Wilkes brought in his vehicle to replace his brakes, spark plugs, and tires. The following information was available with respect to his job: Direct materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $590 Direct labor cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $109 Direct labor-hours used . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Compute Mr. Wilkes' total job cost. 3. If Speedy establishes its selling prices using a markup percentage of 40% of its total job cost, then how much would it have charged Mr. Wilkes?

1. EMOC​= EFOC + EVOC =$350,000+(20,000×$1) =$350,000+$20,000 =$370,000 ​Step 2: POR = EMOC / Estimated Allocation Base =$370,000 / 20,000 =$18.5 direct labor hours ------------------- 2. OH Applied =Predetermined Overhead Rate × Actual Direct Labor Hours =$18.5 × 6 =$111 Step 2: Total Job Cost for Individual W = Direct Materials + Direct Labor + OH Applied =$590+$109+$111 =$810 ---------------------- 3. Total Manufacturing Cost =$810 ​Markup Percentage = 40% Step 2 Selling price =(1+Markup Percentage)×Cost =(1+(100/ 40))×$810 =1.4 × $810 =$1,134 ​​​

Wilmington Company has two manufacturing departments—Assembly and Fabrication. It considers all of its manufacturing overhead costs to be fixed costs. The first set of data that is shown Estimated Data | Assembly | Fabrication | Total Manufacturing overhead costs . . . . . . . . . . . . . $600,000 | $800,000 | $1,400,000 Direct labor-hours . . . . . . . . . . . . . . . . . . . . . . . . 50,000 | 30,000 | 80,000 Machine-hours . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,000 | 100,000 | 120,000 Job Bravo | Assembly | Fabrication | Total Direct labor-hours . . . . . . . . . . . . . . . . . . . . . . . . 11 | 3 | 14 Machine-hours . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 | 6 | 9 1. If Wilmington used a plantwide predetermined overhead rate based on direct labor-hours, how much manufacturing overhead would be applied to Job Bravo? 2. If Wilmington uses departmental predetermined overhead rates with direct labor-hours as the allocation base in Assembly and machine-hours as the allocation base in Fabrication, how much manufacturing overhead would be applied to Job Bravo?

1. Predetermined Overhead rate = Estimated Total Manufacturing Overhead / Estimated Total Allocation Base ​ = $1,400,000 / 80,000 =$17.5 direct labor hours Step 2 Overhead Applied =Predetermined Overhead Rate × Actual Direct Labor Hours =$17.5 × 14= $245​​ ----------------- 2. POR for Department A = EMOC for Department A / Estimated Allocation Base for Department A = $600,000 / $50,000 =$12 per direct labor hour Step 2: MOC for Department A = POR for Department A × ADLH for Department A = $12 × 11= $132 Step 3: POR for Department F​= ​EMOC for Department F / Estimated Allocation Base for Department F = $800,000 / 100,000 =$8 per machine hour Step 4: (AMH is actual machine hours) MOC for Department F​= POR for Department F × AMH for Department F =$8 * 6 =48 Step 5 AMOH for Job B​= MOC for Department A + MOC for Department F = $132 + $48 = $180

Oslo Company prepared the following contribution format income statement based on a sales volume of 1,000 units (the relevant range of production is 500 units to 1,500 units): Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $20,000 Variable expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,000 Contribution margin . . . . . . . . . . . . . . . . . . . . . . . . . . 8,000 Fixed expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000 Net operating income. . . . . . . . . . . . . . . . . . . . . . . . . $ 2,000 (Answer each question independently and always refer to the original data unless instructed otherwise.) 1. What is the contribution margin per unit? 2. What is the contribution margin ratio? 3. What is the variable expense ratio?

1. Step 1 of 2 Contribution margin is $8,000 and sales volume is 1,000 units. Contribution Margin= $8,000 Sales Volume= 1,000 Step 2 of 2 Contribution Margin per Unit = Contribution Margin / Sales Volume =$8,000 / 1,000=$8 per unit ------------------ 2. Step 1 of 2 Selling Price per Unit = Sales / Sales Volume =$20,000 / 1,000 =$20 per unit ​ Step 2 of 2 Contribution Margin Ratio = Contribution Margin / Selling Price= $8 / 20=0.4 or 40% ----------------------- 3. For company O, variable expenses are $12,000 and sales are $20,000. Variable Expenses= $12,000 Sales=$20,000 ​ Step 2 of 2 Variable Expense Ratio = Variable Expense / Sales =$12,000 / $20,000 = 0.6 or 60% -----------------------

Wollogong Group Ltd. of New South Wales, Australia, acquired its factory building 10 years ago. For several years, the company has rented out a small annex attached to the rear of the building for $30,000 per year. The renter's lease will expire soon, and rather than renewing the lease, the company has decided to use the annex to manufacture a new product. Direct materials cost for the new product will total $80 per unit. To have a place to store its finished goods, the company will rent a small warehouse for $500 per month. In addition, the company must rent equipment for $4,000 per month to produce the new product. Direct laborers will be hired and paid $60 per unit to manufacture the new product. As in prior years, the space in the annex will continue to be depreciated at $8,000 per year. The annual advertising cost for the new product will be $50,000. A supervisor will be hired and paid $3,500 per month to oversee production. Electricity for operating machines will be $1.20 per unit. The cost of shipping the new product to customers will be $9 per unit. To provide funds to purchase materials, meet payrolls, and so forth, the company will have to liquidate some temporary investments. These investments are presently yielding a return of $3,000 per year Using the table shown below, describe each of the costs associated with the new product decision in four ways. In terms of cost classifications for predicting cost behavior (column 1), indicate whether the cost is fixed or variable. With respect to cost classifications for manufacturers (column 2), if the item is a manufacturing cost, indicate whether it is direct materials, direct labor, or manufacturing overhead. If it is a nonmanufacturing cost, then select "none" as your answer. With respect to cost classifications for preparing financial statements (column 3), indicate whether the item is a product cost or period cost. Finally, in terms of cost classifications for decision making (column 4), identify any items that are sunk costs or opportunity costs. If you identify an item as an opportunity cost, then select "none" as your answer in columns 1-3 Cost Classifications for: Cost Item (1) Predicting Cost Behavior (2) Manufacturers (3) Preparing Financial Statements (4) Decision Making

1. Rental revenue forgone, $30,000 per year none none none Opportunity cost 2. Direct material cost, $80 per unit Variable Direct material Product cost None 3. Rental cost of warehouse, $500 per month Fixed none Period cost None 4. Rental cost of equipment, $4,000 per month Fixed Manufacturing overhead Product cost None 5. Direct labor cost, $60 per unit Variable Direct labor Product cost None 6. Depreciation of the annex space, $8,000 per year Fixed Manufacturing overhead Product cost Sunk Cost 7. Advertising cost, $50,000 per year Fixed none Period cost None 8. Supervisor's Salary, $3,500 per month Fixed Manufacturing overhead Product cost None 9. Electricity for machines, $1.20 per unit Variable Manufacturing overhead Product cost None 10. Shipping cost, $9 per unit Variable none Period cost None 11. Return earned on investment, $3,000 per year none none none opportunity cost

Oslo Company prepared the following contribution format income statement based on a sales volume of 1,000 units (the relevant range of production is 500 units to 1,500 units): Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $20,000 Variable expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,000 Contribution margin . . . . . . . . . . . . . . . . . . . . . . . . . . 8,000 Fixed expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000 Net operating income. . . . . . . . . . . . . . . . . . . . . . . . . $ 2,000 10. How many units must be sold to achieve a target profit of $5,000?

10. Variable Expense per Unit= Total Variable Expense / Units Sold ​=$12,000 / 1,000 ​=$12 Selling price per unit= Sales / Sales Volume ​= 1,000/ $20,000 ​=$20 per unit​ -------------------- Step 2 Contribution per Unit​ = Selling Price per Unit − Variable Expense per Unit = $20 − $12 =$8 -------------------- Step 3 USTP​= Target Profit + Fixed Expense / Contribution Margin per Unit ​= $5,000 + $6,000 / $8​= $11,000 / $8 ​=1,375 units​​

Oslo Company prepared the following contribution format income statement based on a sales volume of 1,000 units (the relevant range of production is 500 units to 1,500 units): Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $20,000 Variable expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,000 Contribution margin . . . . . . . . . . . . . . . . . . . . . . . . . . 8,000 Fixed expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000 Net operating income. . . . . . . . . . . . . . . . . . . . . . . . . $ 2,000 11. What is the margin of safety in dollars? What is the margin of safety percentage?

11. Variable Expense per Unit= Total Variable Expense / Units Sold = $12,000 / 1,000 ​=$12 Selling Price per Unit =Sales / Sales Volume ​=$20,000 / 1,000​= $20 per unit​ ----------------- Step 2 Contribution per Unit ​= Selling Price per Unit − Variable Expense per Unit = $20 − $12 =$8 ----------------- Step 3 Contribution Margin Ratio​= Contribution Margin / Selling Price ​=$8​ / 20 =0.4 or 40%​ ------------------ Step 4 Break-even Point in Dollar Sales= Fixed Expenses / Contribution Margin Ratio ​=$6,000 / 0.4 ​=$15,000 -------------------- Step 5 Margin of Safety Percentage= Actual Sales - Breakeven Sales = 20,000 - 15,000= 5,000 ---------------------- Step 6 Margin of Safety Percentage ​= Margin of Safety in $ / Actual Sales​ =$5,000 / $20,000​= 0.25 or 25%​

Oslo Company prepared the following contribution format income statement based on a sales volume of 1,000 units (the relevant range of production is 500 units to 1,500 units): Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $20,000 Variable expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,000 Contribution margin . . . . . . . . . . . . . . . . . . . . . . . . . . 8,000 Fixed expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000 Net operating income. . . . . . . . . . . . . . . . . . . . . . . . . $ 2,000 12. What is the degree of operating leverage? 13. Using the degree of operating leverage, what is the estimated percent increase in net operating income that would result from a 5% increase in unit sales?

12. Contribution Margin= $8,000 Net Operating Income= $2,000​ --------------------- Step 2 Degree of Operating Leverage​ = Contribution Margin / Net Operating Income ​=$8,000 / $2,000​= 4​ ----------------- 13. Percentage Increase Sales= 5% Degree of Operating Leverage= 4 Step 2: Percentage Increase in Net Operating Income ​= DOL× Percentage Increase in Sales = 4 × 5% =20% ------------------ ​​

Oslo Company prepared the following contribution format income statement based on a sales volume of 1,000 units (the relevant range of production is 500 units to 1,500 units): Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $20,000 Variable expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,000 Contribution margin . . . . . . . . . . . . . . . . . . . . . . . . . . 8,000 Fixed expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000 Net operating income. . . . . . . . . . . . . . . . . . . . . . . . . $ 2,000 14. Assume that the amounts of the company's total variable expenses and total fixed expenses were reversed. In other words, assume that the total variable expenses are $6,000 and the total fixed expenses are $12,000. Under this scenario and assuming that total sales remain the same, what is the degree of operating leverage? 15. Using the degree of operating leverage that you computed in the previous question, what is the estimated percent increase in net operating income that would result from a 5% increase in unit sales?

14. Contribution Margin​= Sales − Total Variable Expenses = $20,000 − $6,000 =$14,000​ --------------- Step 2 Net Operating Income ​= Contribution Margin − Total Fixed Expenses =$14,000 − $12,000 =$2,000​ ----------------- Step 3 Degree of Operating Leverage​ = Contribution Margin​ / Net Operating Income =$14,000 / $2,000​= 7​ --------------- 15. Percentage Increase Sales = 5% Degree of Operating Leverage= 7​ --------------- Step 2 Percentage Increase in Net Operating Income​=DOL × Percentage Increase in Sales = 7 × 5% =35%​

Neptune Company has developed a small inflatable toy that it is anxious to introduce to its customers. The company's Marketing Department estimates that demand for the new toy will range between 15,000 units and 35,000 units per month. The new toy will sell for $10.00 per unit. Enough capacity exists in the company's plant to produce 20,000 units of the toy each month. Variable expenses to manufacture and sell one unit would be $6.00 , and incremental fixed expenses associated with the toy would total $30,000 per month. Neptune has also identified an outside supplier who could produce the toy for a price of $5.00 per unit plus a fixed fee of $51,000 per month for any production volume up to 20,000 units. For a production volume between 20,001 and 45,000 units the fixed fee would increase to a total of $102,000 per month. 3. Calculate the break-even point in unit sales assuming that Neptune plans to use all of its production capacity to produce the first 20,000 units that it sells and that it also commits to hiring the outside supplier to produce up to 15,000 additional units. 4. Assume that Neptune plans to use all of its production capacity to produce the first 20,000 units that it sells and that it also commits to hiring the outside supplier to produce up to 15,000 additional units. a. What total unit sales would Neptune need to achieve in order to equal the profit earned in requirement 2a? b. What total unit sales would Neptune need to achieve in order to attain a target profit of $52,500 per month?

3. Total Fixed expenses (own + Fixed fee): 81000 Less: contribution from own production: 80000 Contribution required from outside suppliers: 1000 / Contribution margin per unit from outside supplier ($10 -$5): 5.00 Units required to buy from outside supplier: 200 Add: Units from own production: 20000 Break-even point in unit sales: 20200 ------------------- 4a: Desired profit (as per requirement 2a): 50000 Add: Total Fixed expenses (own + fixed fee): 81000 Total contribution required: 131000 Less: contribution from own production: 80000 Contribution required from outside suppliers: 51000 / Contribution margin per unit from outside supplier ($10 -$5): 5.00 Units required to buy from outside supplier: 10200 Add: Units from own production: 20000 Unit sales required: 30200 -------------------- 4b: Desired profit: 52500 Add: Fixed expenses: 81000 Total contribution required: 133500 Less: contribution from own production: 80000 Contribution required from outside suppliers: 53500 / Contribution margin per unit from outside supplier ($10 -$5): 5.00 Units required to buy from outside supplier: 10700 Add: Units from own production: 20000 Unit sales required: 30700

Worley Company buys surgical supplies from a variety of manufacturers and then resells and delivers these supplies to hundreds of hospitals. Worley sets its prices for all hospitals by marking up its cost of goods sold to those hospitals by 5%. For example, if a hospital buys supplies from Worley that cost Worley $100 to buy from manufacturers, Worley would charge the hospital $105 to purchase these supplies. For years, Worley believed that the 5% markup covered its selling and administrative expenses and provided a reasonable profit. However, in the face of declining profits Worley decided to implement an activity-based costing system to help improve its understanding of customer profitability. The company broke its selling and administrative expenses into five activities as shown: Activity Cost Pool (Activity Measure) | Total Cost | Total Activity Customer deliveries (Number of deliveries) . . . . . . . . . . . . . . $ 500,000 | 5,000 deliveries Manual order processing (Number of manual orders) . . . . . 248,000 | 4,000 orders Electronic order processing (Number of electronic orders) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200,000 | 12,500 orders Line item picking (Number of line items picked) . . . . . . . . . . 450,000 | 450,000 line items Other organization-sustaining costs (None) . . . . . . . . . . . . . . 602,000 Total selling and administrative expenses . . . . . . . . . . . . . . . $2,000,000 Worley gathered the data below for two of the many hospitals that it serves—University and Memorial (each hospital purchased medical supplies that had cost Worley $30,000 to buy from manufacturers): Activity Activity Measure | University Memorial Number of deliveries . . . . . . . . . . . . . . . . . . . . 10 | 25 Number of manual orders . . . . . . . . . . . . . . . . 0 | 30 Number of electronic orders . . . . . . . . . . . . . . 15 | 0 Number of line items picked . . . . . . . . . . . . . . 120 | 250 4. Compute Worley's customer margin for University and Memorial. (Hint: Do not overlook the $30,000 cost of goods sold that Worley incurred serving each hospital.) 5. Describe the purchasing behaviors that are likely to characterize Worley's least profitable customers.

4. Gross Margin for U​= Revenue Received − Cost of Goods Sold =$31,500 − $30,000 = $1,500 ​ Gross Margin for M = Revenue Received − Cost of Goods Sold =$31,500 − $30,000 = $1,500 Step 2: Customer Margin: Gross Margin - Total Activity Costs Customer Margin for U: $1,500 - $1,360 =$140 Customer Margin for M: 1,500 - $4,610 = $ (3,110) ---------------- 5. Customers frequently who place high volumes of MO than EO produce the least profit for Company W.

Oslo Company prepared the following contribution format income statement based on a sales volume of 1,000 units (the relevant range of production is 500 units to 1,500 units): Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $20,000 Variable expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,000 Contribution margin . . . . . . . . . . . . . . . . . . . . . . . . . . 8,000 Fixed expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000 Net operating income. . . . . . . . . . . . . . . . . . . . . . . . . $ 2,000 (Answer each question independently and always refer to the original data unless instructed otherwise.) 4. If sales increase to 1,001 units, what would be the increase in net operating income?

4. Variable Expense per Unit = Total Variable Expense / Units Sold =$12,000 / 1,000= $12 Selling Price per Unit= Sales / Sales Volume =$20,000 / 1,000 =$20 per unit ---------------- Step 2. Sales = Units × Selling Price per Unit = 1,001 × $20 = $20,020 Variable Expense per Unit = 1,001 × $12 =$12,012​ --------------------- Step 3. Contribution Margin = Sales − Variable Expenses =$20,020 − $12,012 = $8,008 ---------------------- Step 4. Net Operating Income​ = Contribution Margin − Fixed Expenses =$8,008 − $6,000: $2,008​ ---------------------- Step 5: Increase in net operating income is the difference between the new net operating income (NNOI) when units are 1,001 and the old net operating income (ONOI) when units were 1,000. Increase in Net Operating Income = NNOI − ONOI =$2,008 −$2,000 =$8

Neptune Company has developed a small inflatable toy that it is anxious to introduce to its customers. The company's Marketing Department estimates that demand for the new toy will range between 15,000 units and 35,000 units per month. The new toy will sell for $10.00 per unit. Enough capacity exists in the company's plant to produce 20,000 units of the toy each month. Variable expenses to manufacture and sell one unit would be $6.00 , and incremental fixed expenses associated with the toy would total $30,000 per month. Neptune has also identified an outside supplier who could produce the toy for a price of $5.00 per unit plus a fixed fee of $51,000 per month for any production volume up to 20,000 units. For a production volume between 20,001 and 45,000 units the fixed fee would increase to a total of $102,000 per month. 4. Assume that Neptune plans to use all of its production capacity to produce the first 20,000 units that it sells and that it also commits to hiring the outside supplier to produce up to 15,000 additional units. c. How much profit will Neptune earn if it sells 35,000 units per month? d. How much profit will Neptune earn if it sells 35,000 units per month and agrees to pay its marketing manager a bonus of 20 cents for each unit sold above the break-even point from requirement 3? 5. If Neptune outsources all production to the outside supplier, how much profit will the company earn if it sells 35,000 units?

4c: Contribution from own production: 80000 Contribution margin from outside suppliers (15000*5): 75000 Total contribution: 155000 Less: fixed costs: 81000 profit will Neptune earn if it sells 35,000 units per month: 74000 -------------------- 4d: profit will Neptune earn if it sells 35,000 units per month : 74000 Less: commission paid to marketing manager [(35000-20200)*0.20]: 2960 Net profit after commission paid: 71040 --------------------- 5: Sales units: 35000 / Contribution margin per unit from outside supplier ($10 -$5): 5.00 Contribution margin: 175000 Less: Fixed expenses: 102000 Net profit: 73000

Oslo Company prepared the following contribution format income statement based on a sales volume of 1,000 units (the relevant range of production is 500 units to 1,500 units): Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $20,000 Variable expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,000 Contribution margin . . . . . . . . . . . . . . . . . . . . . . . . . . 8,000 Fixed expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000 Net operating income. . . . . . . . . . . . . . . . . . . . . . . . . $ 2,000 5. If sales decline to 900 units, what would be the net operating income?

5. Variable Expense per Unit: Total Variable Expense / Units Sold ​=$12,000 / 1,000 ​=$12 Selling Price per unit: Sales / Sales volume = 20,000 / 1,000 $20 per unit ----------------- Step 2 Sales​= Units Sold × Selling Price per Unit =900 × $20 =$18,000 Variable Expense per Unit= 900 × $12 = $10,800​ ------------------ Contribution Margin​= Sales − Variable Expenses =$18,000 − $10,080 = $7,200​ -------------------- Step 4: Net Operating Income​ = Contribution Margin − Fixed Expenses =$7,200 − $6,000 = $1,200​

Oslo Company prepared the following contribution format income statement based on a sales volume of 1,000 units (the relevant range of production is 500 units to 1,500 units): Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $20,000 Variable expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,000 Contribution margin . . . . . . . . . . . . . . . . . . . . . . . . . . 8,000 Fixed expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000 Net operating income. . . . . . . . . . . . . . . . . . . . . . . . . $ 2,000 6. If the selling price increases by $2 per unit and the sales volume decreases by 100 units, what would be the net operating income?

6. Selling Price Per Unit​= Increase in Selling Price + Existing Selling Price =$2 + $20 =$22 --------------- Step 2 Sales Volume​= Existing Unit Sales + Decrease in Units =1,000−100=900 ------------------ Step 3 Variable Expense per Unit​ = Total Variable Expense / Units Sold ​=1,000 / $12,000​=$12​ Sales= Units Sold × Selling Price per Unit =900 × $22 = $19,800 Variable Expenses = Units Sold × Variable Expense per Unit =900 × $12 =$10,800 ------------------ Step 4 Contribution Margin ​= Sales − Variable Expenses =$19,800 − $10,800 =$9,000​ ------------------ Step 5 Net Operating Income​ = Contribution Margin − Fixed Expenses =$9,000 − $6,000 =$3,000​

Oslo Company prepared the following contribution format income statement based on a sales volume of 1,000 units (the relevant range of production is 500 units to 1,500 units): Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $20,000 Variable expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,000 Contribution margin . . . . . . . . . . . . . . . . . . . . . . . . . . 8,000 Fixed expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000 Net operating income. . . . . . . . . . . . . . . . . . . . . . . . . $ 2,000 8. What is the break-even point in unit sales?

8. Variable Expense per Unit= Total Variable Expense / Units sold ​=$12,000 / 1,000​=$12 Selling price per Unit: Sales / Sales Volume ​=$20,000 / 1,000​= $20 per unit ----------------------- Step 2 Contribution per Unit​ = Selling Price per Unit − Variable Expense per Unit =$20 − $12 =$8​​ ------------------------ Step 3 Break-even Point in Units​ = Fixed Expenses / Contribution Margin per Unit ​=$6,000 / 8​= 750 units​

Oslo Company prepared the following contribution format income statement based on a sales volume of 1,000 units (the relevant range of production is 500 units to 1,500 units): Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $20,000 Variable expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,000 Contribution margin . . . . . . . . . . . . . . . . . . . . . . . . . . 8,000 Fixed expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000 Net operating income. . . . . . . . . . . . . . . . . . . . . . . . . $ 2,000 9. What is the break-even point in dollar sales?

9. Variable Expense per Unit = Total Variable Expense / Units Sold =1,000 / $12,000 ​=$12 Selling price per unit= Sales / Sales Volume ​=$20,000 / $1,000 ​= $20 per unit​ ------------------- Step 2 Contribution per Unit​ = Selling Price per Unit − Variable Expense per Unit =$20 − $12 =$8 ---------------------- Step 3​ Contribution Margin Ratio​ = Contribution Margin / Selling Price​ =$8 / 20 ​= 0.4 or 40%​ --------------------- Step 4 Break Even Point in Dollar Sales ​= Fixed Expenses​ / Contribution Margin Ratio =0.4 / $6,000 ​= $15,000​

The Devon Motor Company produces automobiles. On April 1st the company had no beginning inventories and it purchased 8,000 batteries at a cost of $80 per battery. It withdrew 7,600 batteries from the storeroom during the month. Of these, 100 were used to replace batteries in cars being used by the company's traveling sales staff. The remaining 7,500 batteries withdrawn from the storeroom were placed in cars being produced by the company. Of the cars in production during April, 90% were completed and transferred from work in process to finished goods. Of the cars completed during the month, 30% were unsold at April 30th. 2. Specify whether each of the above accounts would appear on the balance sheet or on the income statement at the end of the month.

Balance sheet: Inventory of raw material, finished goods. work in process The balance sheet reports assets owned by a company, equity stock, and liabilities outstanding at a particular date. Inventories will be classified as current assets in the balance sheet. Income statement: Cost of goods sold and selling expense Selling expense The income statement shows the financial performance of the company. Cost of goods sold and other expenses are deducted from the sales revenue to arrive at the net income.

White Company has two departments, Cutting and Finishing. The company uses a job-order costing system and computes a predetermined overhead rate in each department. The Cutting Department bases its rate on machine-hours, and the Finishing Department bases its rate on direct labor-hours. At the beginning of the year, the company made the following estimates: Department Cutting | Finishing Direct labor-hours: 6,800 | 65,000 Machine-hours: 56,100 | 2,100 Total fixed manufacturing overhead cost: $370,000 | $483,000 Variable manufacturing overhead per machine-hour: $3.00 | — Variable manufacturing overhead per direct labor-hour: — | $3.7 1. Compute the predetermined overhead rate for each department. 2. The job cost sheet for Job 203, which was started and completed during the year, showed the following: Department Cutting | Finishing Direct labor-hours: 4 | 16 Machine-hours: 82 | 3 Direct materials: $790 | $380 Direct labor cost: $80 | $320 3. Would you expect substantially different amounts of overhead cost to be assigned to some jobs if the company used a plantwide predetermined overhead rate based on direct labor-hours, rather than using departmental rates? Explain. No computations are necessary.

Cutting Department: POHR = Total fixed manufacturing overhead / Total machine hours + variable manufacturing overhead rate per hour =370,000 / 56,100 + 3 =$9.59 per machine hour Finishing Department: POHR = Total fixed manufacturing overhead / Total machine hours + variable manufacturing overhead rate per hour =483,000 / 65,000 + 3.75 =$11.18 per machine hour --------------- 2. Total Cost = Direct materials + direct labor cost + MOH = (790 +380) + (80 + 320) + (82 * 9.59 + 16 * 11.18) = $2535.26 3. Yes

The Alpine House, Inc., is a large retailer of snow skis. The company assembled the information shown below for the quarter ended March 31: Amount Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $150,000 Selling price per pair of skis . . . . . . . . . . . . . . . . . . . . $750 Variable selling expense per pair of skis. . . . . . . . . . $50 Variable administrative expense per pair of skis. . . $10 Total fixed selling expense . . . . . . . . . . . . . . . . . . . . . $20,000 Total fixed administrative expense. . . . . . . . . . . . . . . $20,000 Beginning merchandise inventory . . . . . . . . . . . . . . . $30,000 Ending merchandise inventory. . . . . . . . . . . . . . . . . . $40,000 Merchandise purchases. . . . . . . . . . . . . . . . . . . . . . . . $100,000 Prepare a traditional income statement for the quarter ended March 31. Global Explanation:

Global Explanation: The net operating income is the net revenue earned by the business organization from its operational activities after deducting all fixed and variable expenses incurred. Step 1: Cost of goods sold is calculated by adding opening inventory and purchases and deducting closing inventory from the sum. Cost of Goods Sold = (Opening Inventory + Purchases)−Closing Inventory =($30,000 + $100,000) − $40,000 =$90,000 Step 2 of 3 Total selling expenses are calculated by adding fixed selling expenses and variable selling expenses. Total Selling Expenses = Fixed Selling Expenses + Variable Selling Expenses= $20,000+($50 × 200) = $20,000 + $10,000 = $30,000 Step 3 of 3 Total administrative expenses are calculated by adding fixed administrative expenses and variable administrative expenses Total Administrative Expenses = (Variable Administrative Expenses + Fixed Administrative Expenses) =($10×200 units) + $20,000 = $22,000 ----------- Sales: $150,000 (rhs) COGS: $90,000 (rhs) Gross Margin: $60,000 (rhs) Expenses: Selling Expenses: $30,000 (lhs) Administrative Expenses: $22,000 (lhs) NOI: $8,000 (rhs)

Neptune Company has developed a small inflatable toy that it is anxious to introduce to its customers. The company's Marketing Department estimates that demand for the new toy will range between 15,000 units and 35,000 units per month. The new toy will sell for $10.00 per unit. Enough capacity exists in the company's plant to produce 20,000 units of the toy each month. Variable expenses to manufacture and sell one unit would be $6.00 , and incremental fixed expenses associated with the toy would total $30,000 per month. Neptune has also identified an outside supplier who could produce the toy for a price of $5.00 per unit plus a fixed fee of $51,000 per month for any production volume up to 20,000 units. For a production volume between 20,001 and 45,000 units the fixed fee would increase to a total of $102,000 per month. 1. Calculate the break-even point in unit sales assuming that Neptune does not hire the outside supplier. 2. How much profit with Neptune earn assuming: a. It produces and sells 20,000 units. b. It does not produce any units and instead outsources the production of 20,000 units to the outside supplier and then sells those units to its customers.

Solution 1: Unit selling price: 10.00 Less: Unit variable cost: 6.00 Contribution margin per unit: 4.00 Fixed expenses: 30000 Divided by: Contribution margin per unit: 4.00 Break-even point in unit sales: 7500 ---------------- 2a: Units produced and sold: 20000 Contribution margin (units * Contribution margin per unit) : 80000 Less: Fixed expenses: 30000 Net profit: 50000 ------------------ 2b: Units purchased from outside supplier: 20000 *Purchase price: 5 Variable Purchase cost from outside supplier: 100000 Sales revenue (units* sales price): 200000 Less: Variable Purchase cost: 100000 Less: Fixed Fee: 51000 Net profit: 49000

The Devon Motor Company produces automobiles. On April 1st the company had no beginning inventories and it purchased 8,000 batteries at a cost of $80 per battery. It withdrew 7,600 batteries from the storeroom during the month. Of these, 100 were used to replace batteries in cars being used by the company's traveling sales staff. The remaining 7,500 batteries withdrawn from the storeroom were placed in cars being produced by the company. Of the cars in production during April, 90% were completed and transferred from work in process to finished goods. Of the cars completed during the month, 30% were unsold at April 30th. Determine the cost of batteries that would appear in each of the following accounts on April 30th. C). COGS

Step 1 of 2 To calculate cost of goods sold, items that need to be identified are motorcycles sold and cost per battery. Motorcycles Sold = 4,725 Cost per Battery=$80 Step 2 of 2 Cost of goods sold on April 30 is calculated by multiplying motorcycles sold and cost per battery. Cost of Goods Sold = Motorcycles Sold × Cost per Battery = 4,725 × $80 = $378,000

The Devon Motor Company produces automobiles. On April 1st the company had no beginning inventories and it purchased 8,000 batteries at a cost of $80 per battery. It withdrew 7,600 batteries from the storeroom during the month. Of these, 100 were used to replace batteries in cars being used by the company's traveling sales staff. The remaining 7,500 batteries withdrawn from the storeroom were placed in cars being produced by the company. Of the cars in production during April, 90% were completed and transferred from work in process to finished goods. Of the cars completed during the month, 30% were unsold at April 30th. Determine the cost of batteries that would appear in each of the following accounts on April 30th. C). Selling Expense

Step 1 of 2 To calculate selling expense, items that need to be determined are batteries used by salesperson and cost per battery. Batteries Used = 100 Cost per Battery= $80 Step 2 of 2 Selling expense on April 30 is calculated by multiplying batteries used and cost per battery Selling Expense = Batteries Used × Cost per Battery =100 × $80 =$8,000

The Devon Motor Company produces automobiles. On April 1st the company had no beginning inventories and it purchased 8,000 batteries at a cost of $80 per battery. It withdrew 7,600 batteries from the storeroom during the month. Of these, 100 were used to replace batteries in cars being used by the company's traveling sales staff. The remaining 7,500 batteries withdrawn from the storeroom were placed in cars being produced by the company. Of the cars in production during April, 90% were completed and transferred from work in process to finished goods. Of the cars completed during the month, 30% were unsold at April 30th. Determine the cost of batteries that would appear in each of the following accounts on April 30th. B). Work in Process

Step 1 of 3 Batteries used in production are calculated by deducting the number of batteries replaced from batteries drawn from inventory. Batteries Used in Production = Batteries Drawn form Inventories − Batteries Replaced =7,600 − 100= 7,500 Batteries Used in Production Step 2 of 3 Work in process is calculated by multiplying material used in production and the non-competition rate. Work in Process = Materials Used in Production × Noncompetition Rate = 7,500 × (100−90)% = 750 Step 3 of 3 Cost of work in process is calculated by multiplying inventory in work in process and cost per battery. Cost of Work in Process = Inventory in Work in Process × Cost per Battery = 750 × $80 = $60,000

The Devon Motor Company produces automobiles. On April 1st the company had no beginning inventories and it purchased 8,000 batteries at a cost of $80 per battery. It withdrew 7,600 batteries from the storeroom during the month. Of these, 100 were used to replace batteries in cars being used by the company's traveling sales staff. The remaining 7,500 batteries withdrawn from the storeroom were placed in cars being produced by the company. Of the cars in production during April, 90% were completed and transferred from work in process to finished goods. Of the cars completed during the month, 30% were unsold at April 30th. Determine the cost of batteries that would appear in each of the following accounts on April 30th. C). Finished Goods

Step 1 of 3 The number of motorcycles unsold is calculated by multiplying finished goods and the rate of goods not sold. Motorcycle Sold = Finished Goods × Rate of Sales =6,750 ×70% =4,725 Step 2 of 3 Unsold goods are calculated by multiplying the number of finished goods and goods sold. Unsold Goods= Finished Goods − Sold Goods = 6,750−4,725 = 2,025 Step 3 of 3 Cost of finished goods inventory at April 30 is calculated by multiplying the number of unsold goods and cost per battery. Cost of Finished Goods Inventory = Unsold Goods × Cost per Battery = 2,025 × $80= $162,000

The Devon Motor Company produces automobiles. On April 1st the company had no beginning inventories and it purchased 8,000 batteries at a cost of $80 per battery. It withdrew 7,600 batteries from the storeroom during the month. Of these, 100 were used to replace batteries in cars being used by the company's traveling sales staff. The remaining 7,500 batteries withdrawn from the storeroom were placed in cars being produced by the company. Of the cars in production during April, 90% were completed and transferred from work in process to finished goods. Of the cars completed during the month, 30% were unsold at April 30th. Determine the cost of batteries that would appear in each of the following accounts on April 30th. A). Raw Materials

Step 1 of 3 To calculate the number of batteries remaining in the inventory, items that need to be identified are batteries purchased and batteries drawn from inventory. Batteries Purchased=8,000 Batteries Drawn from Inventory=7,600 Step 2 of 3 Batteries remaining in inventory are calculated by deducting batteries drawn from inventory from batteries purchased. Batteries Remaining in Inventory = Batteries Purchased − Batteries Drawn from Inventory =8,000 − 7,600 = 400 Batteries Remaining in Inventory Step 3 of 3 Cost of raw material inventory is calculated by multiplying batteries remaining in inventory and per battery cost. Cost in Raw Material Inventory = Batteries Remaining in Inventory × Cost per Battery = 400 × $80=$32,00

Munchak Company's relevant range of production is between 9,000 and 11,000 units. Last month the company produced 10,000 units. Its total manufacturing cost per unit produced was $70. At this level of activity the company's variable manufacturing costs are 40% of its total manufacturing costs. Assume that next month Munchak produces 10,050 units and that its cost behavior patterns remain unchanged. Label each of the following statements as true or false with respect to next month. Do not use a calculator to answer items 1 through 6. You can use a calculator to answer items 7 through 12. Record your answers by placing an X under the appropriate heading. True | False 1. The variable manufacturing cost per unit will remain the same as last month. 2. The total fixed manufacturing cost will be greater than last month. 3. The total manufacturing cost will be greater than last month. 4. The average fixed manufacturing cost per unit will be less than last month. 5. The total variable manufacturing cost will be less than last month. 6. The total manufacturing cost per unit will be greater than last month. 7. The variable manufacturing cost per unit will equal $28. 8. The total fixed manufacturing cost will equal $422,100. 9. The total manufacturing cost will equal $701,400. 10. The average fixed manufacturing cost per unit (rounded to the nearest cent) will equal $41.79. 11. The total variable manufacturing cost will equal $280,000. 12. The total manufacturing cost per unit (rounded to the nearest cent) will equal $69.79.

Step 1 of 6 Global explanation: The variable manufacturing cost per unit is constant for all levels of output. Total fixed cost remains the same for a specified period up to a specified production limit. Total manufacturing cost is increased because of an increase in production. The average fixed manufacturing cost per unit decreases with an increase in production. Total variable manufacturing cost is more than that of last month because of the production increase. Total variable manufacturing cost per unit remains constant for all levels of output, but average fixed manufacturing cost per unit decreases with an increase in the level of activity. Step 1: Variable manufacturing overhead cost per unit is calculated as follows: Variable Manufacturing Overhead Cost per Unit = Total Manufacturing Cost × Variable Percentage = $70 × 40% = $28Variable Manufacturing Overhead Cost per Unit​=Total Manufacturing Cost × Variable Percentage=$70×40%=$28​ Step 2 of 6 The total fixed manufacturing cost is calculated as follows: Fixed Cost per Unit = (Total Manufacturing Cost − Variable Manufacturing Cost) = $70 − $28 = $42 Total Fixed Manufacturing Cost = Number of Units × Per Unit Cost =10,000 × $42 = $420,000 Step 3 of 6 The total manufacturing cost is calculated as follows: Total Variable Manufacturing Cost =(Number of Units × Variable Cost per Unit) =10,050 × $28 =$ 281,400 Total Manufacturing Cost =(Total Variable Cost + Total Fixed Cost) =$281,400 + $420,000 =$701,400 Step 4 of 6 The average fixed manufacturing cost per unit is calculated as follows: (Average Fixed Manufacturing Cost per Unit) =Total Fixed Cost / Number of Units =420,000 / 10,050 =$41.79 Step 5 of 6 The total variable manufacturing overhead cost is calculated as follows: Total Variable Manufacturing Cost =(Variable Manufacturing Cost per Unit × Number of Units) =$28 × 10,050 = $281,400 ​ Step 6 of 6 The total manufacturing cost per unit is calculated as follows Total Manufacturing Cost per Unit =(Variable Cost per Unit + Average Fixed Cost) = $28 + $41.79 =$69.79 1. True 2. False 3. True 4. True 5. False 6. False 7. True 8. False 9. True 10. True 11. False 12. True

Worley Company buys surgical supplies from a variety of manufacturers and then resells and delivers these supplies to hundreds of hospitals. Worley sets its prices for all hospitals by marking up its cost of goods sold to those hospitals by 5%. For example, if a hospital buys supplies from Worley that cost Worley $100 to buy from manufacturers, Worley would charge the hospital $105 to purchase these supplies. For years, Worley believed that the 5% markup covered its selling and administrative expenses and provided a reasonable profit. However, in the face of declining profits Worley decided to implement an activity-based costing system to help improve its understanding of customer profitability. The company broke its selling and administrative expenses into five activities as shown: Activity Cost Pool (Activity Measure) | Total Cost | Total Activity Customer deliveries (Number of deliveries) . . . . . . . . . . . . . . $ 500,000 | 5,000 deliveries Manual order processing (Number of manual orders) . . . . . 248,000 | 4,000 orders Electronic order processing (Number of electronic orders) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200,000 | 12,500 orders Line item picking (Number of line items picked) . . . . . . . . . . 450,000 | 450,000 line items Other organization-sustaining costs (None) . . . . . . . . . . . . . . 602,000 Total selling and administrative expenses . . . . . . . . . . . . . . . $2,000,000 Worley gathered the data below for two of the many hospitals that it serves—University and Memorial (each hospital purchased medical supplies that had cost Worley $30,000 to buy from manufacturers): Activity Activity Measure | University Memorial Number of deliveries . . . . . . . . . . . . . . . . . . . . 10 | 25 Number of manual orders . . . . . . . . . . . . . . . . 0 | 30 Number of electronic orders . . . . . . . . . . . . . . 15 | 0 Number of line items picked . . . . . . . . . . . . . . 120 | 250 3. Compute the total activity costs that would be assigned to University and Memorial

Step 1: Activity Cost for Customer Deliveries: Activity rate * Activity Units Activity Cost Assigned to U: $100 per delivery × 10 deliveries = $1,000 Activity Cost Assigned to M: $100 per delivery × 25 deliveries = $2,500 ------------- Step 2: Activity Cost for Manual Order Processing: Activity rate * Activity Units Activity Cost for U: $62 per order × 0 orders = $0 Activity Cost for M: $62 per delivery × 30 orders = $1,860 -------------- Step 3: Activity Cost for Electronic Order Processing: Activity rate * Activity Units Activity Cost for U: $16 per order × 15 orders = $240 Activity Cost for M: $16 per delivery × 0 orders = $0 ----------------- Step 4: Activity Cost for Line Item Picking: Activity rate * Activity Units Activity Cost for U: $1 per line item × 120 line items= $120 Activity Cost for M: $1 per line item × 250 line items = $250 ------------------ Step 5: Total Activity Cost = Activity Cost for Customer Deliveries + Activity Cost for Manual Order Processing + Activity Cost for Electronic Order Processing + Activity Cost for Line Item Picking​) Total Activity Cost for U: $1,000 + $0 + $240 + $120 = $1,360 Total Activity Cost for M: $2,500 + $1,860 + $0 + $250 =$4,610​

Worley Company buys surgical supplies from a variety of manufacturers and then resells and delivers these supplies to hundreds of hospitals. Worley sets its prices for all hospitals by marking up its cost of goods sold to those hospitals by 5%. For example, if a hospital buys supplies from Worley that cost Worley $100 to buy from manufacturers, Worley would charge the hospital $105 to purchase these supplies. For years, Worley believed that the 5% markup covered its selling and administrative expenses and provided a reasonable profit. However, in the face of declining profits Worley decided to implement an activity-based costing system to help improve its understanding of customer profitability. The company broke its selling and administrative expenses into five activities as shown: Activity Cost Pool (Activity Measure) | Total Cost | Total Activity Customer deliveries (Number of deliveries) . . . . . . . . . . . . . . $ 500,000 | 5,000 deliveries Manual order processing (Number of manual orders) . . . . . 248,000 | 4,000 orders Electronic order processing (Number of electronic orders) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200,000 | 12,500 orders Line item picking (Number of line items picked) . . . . . . . . . . 450,000 | 450,000 line items Other organization-sustaining costs (None) . . . . . . . . . . . . . . 602,000 Total selling and administrative expenses . . . . . . . . . . . . . . . $2,000,000 Worley gathered the data below for two of the many hospitals that it serves—University and Memorial (each hospital purchased medical supplies that had cost Worley $30,000 to buy from manufacturers): Activity Activity Measure | University Memorial Number of deliveries . . . . . . . . . . . . . . . . . . . . 10 | 25 Number of manual orders . . . . . . . . . . . . . . . . 0 | 30 Number of electronic orders . . . . . . . . . . . . . . 15 | 0 Number of line items picked . . . . . . . . . . . . . . 120 | 250 2. Compute the activity rate for each activity cost pool.

Step 1: Activity Rate for CD: Total Overheads / Overhead Activity = 500,000 / 5,000 deliveries = $100 per delivery ------------ Step 2: Activity Rate for MO Processing = Total Overheads / Overhead Activity =$248,000 / 4,000 orders =$62 per order ------------ Step 3: Activity Rate for EO Processing: Total Overheads / Overhead Activity = $200,000 / 12,500 orders =$16 per order ------------ Step 4: Activity Rate for LI Picking​: Total Overheads / Overhead activity =$450,000 / 450,000 line items = $1 per line -------------- Final Answer: CD: $100 per delivery MO processing: $62 per order EO processing: $16 per order LI picking: $1 per line item

Thermal Rising, Inc., makes paragliders for sale through specialty sporting goods stores. The company has a standard paraglider model, but also makes custom-designed paragliders. Management has designed an activity-based costing system with the following activity cost pools and activity rates: Activity Cost Pool | Activity Rate Supporting direct labor . . . . . . . . . . . . . . . . . . . $26 per direct labor-hour Order processing . . . . . . . . . . . . . . . . . . . . . . . . $284 per order Custom design processing . . . . . . . . . . . . . . . . $186 per custom design Customer service . . . . . . . . . . . . . . . . . . . . . . . . $379 per customer Management would like an analysis of the profitability of a particular customer, Big Sky Outfitters, which has ordered the following products over the last 12 months Standard Model | Custom Design Number of gliders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 | 3 Number of orders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 | 3 Number of custom designs . . . . . . . . . . . . . . . . . . . . . . . 0 | 3 Direct labor-hours per glider . . . . . . . . . . . . . . . . . . . . . . 26.35 | 28.00 Selling price per glider . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,850 | $2,400 Direct materials cost per glider . . . . . . . . . . . . . . . . . . . . $564 | $634 The company's direct labor rate is $19.50 per hour Using the company's activity-based costing system, compute the customer margin of Big Sky Outfitters.

Step 1: Total Sales​= ((Sales Price per Standard Glider × Number of Units) + (Sales Price per Custom Glider × Number of Units)​) = (($1,850 per unit × 20units) + ($2,400 per unit × 3)) = $37,000 +$7,200 = $44,200 ------------- Step 2: Total Direct Material Cost​= (Direct Material Cost per Standard Glider × Number of Units​) + (Direct Material Cost per Custom Glider × Number of Units​)​​ =(($564 per unit × 20units) ($634 per unit×3)) =$11,280 + $1,902= $13,182 ----------- Step 3: Total Direct Labor​= ​(Direct Labor per Hour for Standard Gliders × Direct Labor Hours × Number of Units​) + (Direct Labor per Hour for Custom Gliders × Direct Labor Hours × Number of Units​) ​=(($19.50 per direct labor hour × 26.35 hours × 20 units) +($19.50 per direct labor hours × 28hours × 3 units)​) =$10,276.50 + $1,638 =$11,914.50 ----------- Step 4: Overhead Costs= Activity Rate × Number of Units Supporting Direct Labor​​​: ($26 per direct labor hour × 26.35 hours × 20 units) + ($26 per direct labor hour × 28 hours × 3 units) =$13,702 + $2,184 = $15,886 Order Processing Costs= ($284 per order × 4 orders) =$1,136​ Custom Design Processing =$186 per custom design × 3 designs =$558 Customer Service= $379 per customer × 1 customer =$379​ ------------- Step 5: Total Costs = (Total Direct Material + Total Direct Labor Cost + Supporting Direct Labor + Order Processing Costs + Custom Design Processing + Customer Service​)​​ ​=($13,182 + $11914.50 + $15,886 + $1,136 + $558 + $379) =$43,055.50​ ------------------ Step 6: Customer Margin of the Company​= Total Sales − Total Costs =$44,200 − $43,055.50 = $1,144.50​

Oslo Company prepared the following contribution format income statement based on a sales volume of 1,000 units (the relevant range of production is 500 units to 1,500 units): Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $20,000 Variable expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,000 Contribution margin . . . . . . . . . . . . . . . . . . . . . . . . . . 8,000 Fixed expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000 Net operating income. . . . . . . . . . . . . . . . . . . . . . . . . $ 2,000 7. If the variable cost per unit increases by $1, spending on advertising increases by $1,500, and unit sales increase by 250 units, what would be the net operating income?

Variable Expense per Unit ​= Units Sold / Total Variable Expense ​=1,000 / $12,000​=$12​ Variable Expense per Unit = Existing Variable Expense + Increase in Variable expense =$12 + $1 =$13 Units Sold = Existing Units Sold + Increase in Number of Units =1,000 + 250 =1,250 ------------------ Step 2 Selling Price per Unit ​= Sales Volume / Sales ​=1,000 / $20,000 ​=$20 per unit​ Sales = Units Sold × Selling Price per Unit =1,250 × $20 =$25,000 Variable Expenses = Units Sold × Variable Expense per Unit =1,250 × $13 =$16,250 -------------------- Step 3 Contribution Margin ​= Sales − Variable Expenses =$25,000 − $16,250 =$8,750​ ------------------- Step 4 Net Operating Income ​= Contribution Margin −Revised Fixed Expenses =$8,750 − ($6,000 + $1,500)= $1,250​