ACCT202 â Principles of Accounting II
Problem #1
Hear Right Company has identified certain variable and fixed costsin the production of its hearing aid components. Management wantsyou to divide its mixed costs into its fixed and variable portions.Here are the high and low cost data for the firm:
Total
Month Units Costs ($âs)
February 20,000 54,000
October 40,000 77,400
Using the high-low method, determine the total amount of fixedcosts and the amount of variable cost per unit. Show yourwork.
Assume the firm sells their hearing aid components at a sales priceof $3.17 per unit. How many units must be sold for Hear Right tobreak even on its hearing components? Show your work.
Problem #2
You examine the financial statements of a firm and find that forevery unit of Product Y sold, the firm sells 1.5 units of productX. The sales price and variable cost per unit for Product X are$100 and $70, respectively; the sales price and variable cost perunit for Product Y are $80 and $60, respectively. Assuming aconstant product mix and fixed costs of $260,000, how many of eachproduct line must be sold to break even? What is total salesrevenue(in dollars) at the break-even point? Show your work.
Problem #3
West Star Company manufactures and sells computer monitors at $200each. The following is the cost information for the manufacture andsale of one monitor, given the normal manufacture and sales levelof 5000 is:
Direct materials $48 per unit
Direct labor 64 per unit
Variable overhead 36 per unit
Variable selling and admin. expenses 12 per unit
Fixed manufacturing overhead $125,000, in total
West Star actually has the capacity to produce 7000 monitors, butdemand has not been high enough to do so. West Star received aspecial order for 1500 monitors at a sales price of $175 per unit.West Star will pay a reduced sales commission on the special order,reducing variable selling and administrative expenses from $12 perunit to $8 per unit. What is the net effect of the special order onthe companyâs profit? Show your work.
Problem #4
Swanton Company currently sells 3 products and details of revenuesand costs are given below. The company is thinking of discontinuingthe production of paper clip holders. However, because manycustomers buy the products as a set, Swanton estimates that thesales of the other two products will decrease by 20%.#
Desk
Calendars Pen sets Paper-clip
Holders
Sales $280,000 $240,000 $24,000
Variable costs 160,000 160,000 26,000
Direct fixed costs 40,000 20,000 5,000
Indirect fixed costs 30,000 40,000 6,000
What is the net benefit or net loss of dropping the production andsale of paper clip holders? Show your work.
Problem #5
Nowadays Manufacturing is considering an investment proposal withthe following information:
Cost $900,000
Useful life 8 years (straight-line depreciation)
Annual Cash inflows $200,000 (estimated per year for 8 years)
Residual value $ 60,000
Required rate of return 12%
Answer the following questions concerning this proposal. Show yourwork.
a. What is the payback period of this project?
b. What is the NPV of this project?
c. Is the IRR greater or less than 12%?
d. Should the project be accepted based on NPV?
Problem #1
Hear Right Company has identified certain variable and fixed costsin the production of its hearing aid components. Management wantsyou to divide its mixed costs into its fixed and variable portions.Here are the high and low cost data for the firm:
Total
Month Units Costs ($âs)
February 20,000 54,000
October 40,000 77,400
Using the high-low method, determine the total amount of fixedcosts and the amount of variable cost per unit. Show yourwork.
Assume the firm sells their hearing aid components at a sales priceof $3.17 per unit. How many units must be sold for Hear Right tobreak even on its hearing components? Show your work.
Problem #2
You examine the financial statements of a firm and find that forevery unit of Product Y sold, the firm sells 1.5 units of productX. The sales price and variable cost per unit for Product X are$100 and $70, respectively; the sales price and variable cost perunit for Product Y are $80 and $60, respectively. Assuming aconstant product mix and fixed costs of $260,000, how many of eachproduct line must be sold to break even? What is total salesrevenue(in dollars) at the break-even point? Show your work.
Problem #3
West Star Company manufactures and sells computer monitors at $200each. The following is the cost information for the manufacture andsale of one monitor, given the normal manufacture and sales levelof 5000 is:
Direct materials $48 per unit
Direct labor 64 per unit
Variable overhead 36 per unit
Variable selling and admin. expenses 12 per unit
Fixed manufacturing overhead $125,000, in total
West Star actually has the capacity to produce 7000 monitors, butdemand has not been high enough to do so. West Star received aspecial order for 1500 monitors at a sales price of $175 per unit.West Star will pay a reduced sales commission on the special order,reducing variable selling and administrative expenses from $12 perunit to $8 per unit. What is the net effect of the special order onthe companyâs profit? Show your work.
Problem #4
Swanton Company currently sells 3 products and details of revenuesand costs are given below. The company is thinking of discontinuingthe production of paper clip holders. However, because manycustomers buy the products as a set, Swanton estimates that thesales of the other two products will decrease by 20%.#
Desk
Calendars Pen sets Paper-clip
Holders
Sales $280,000 $240,000 $24,000
Variable costs 160,000 160,000 26,000
Direct fixed costs 40,000 20,000 5,000
Indirect fixed costs 30,000 40,000 6,000
What is the net benefit or net loss of dropping the production andsale of paper clip holders? Show your work.
Problem #5
Nowadays Manufacturing is considering an investment proposal withthe following information:
Cost $900,000
Useful life 8 years (straight-line depreciation)
Annual Cash inflows $200,000 (estimated per year for 8 years)
Residual value $ 60,000
Required rate of return 12%
Answer the following questions concerning this proposal. Show yourwork.
a. What is the payback period of this project?
b. What is the NPV of this project?
c. Is the IRR greater or less than 12%?
d. Should the project be accepted based on NPV?
Related questions
Alden Co.âs monthly unit sales and total cost data for its operating activities of the past year follow. Management wants to use these data to predict future fixed and variable costs.
| Month | Units Sold | Total Cost | Month | Units Sold | Total Cost | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 1 | 318,000 | $ | 155,500 | 7 | 362,000 | $ | 292,624 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2 | 163,000 | 99,250 | 8 | 268,000 | 149,750 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 3 | 263,000 | 203,600 | 9 | 76,400 | 67,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 4 | 203,000 | 98,000 | 10 | 148,000 | 128,625 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 5 | 288,000 | 199,500 | 11 | 92,000 | 92,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 6 | 188,000 | 110,000 | 12 | 98,000 | 83,650 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Estimate both the variable costs per unit and the total monthly fixed costs using the high-low method. (Do not round intermediate calculations.)
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Predict future total costs when sales volume is (a) 376,000 units and (b) 416,000 units.
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Palladium Company is a merchandiser that sells its only productfor $128 per unit. The company |
Sales in units | 4,000 | 5,000 |
Cost of goods sold | $280,000 | $350,000 |
Selling and administrative expenses | $240,000 | $270,000 |
Required: | |
1. | Is cost of goods sold a variable, fixed, or mixed cost? |
Variable cost | |
2. | Are the selling and administrative expenses a variable, fixed,or mixed cost? |
Mixed cost |
3. | Using the high-low method, what would be the estimated totalcontribution margin when 4,600 units are sold? |
128,800?
4. | Using the high-low method, what would be the estimated netoperating income when 4,600 units are sold? |
