Problem #1: Single Product Cost-Volume-Profit Analysis

Marino Company is considering adding a new product. The cost accountant has provided the following data:

Expected variable cost of manufacturing$42 per unit

Expected annual fixed manufacturing costs$49,000

The administrative vice president has provided the following estimates:

Expected sales commissions$5 per unit

Expected annual fixed administrative costs$32,000

The company believes that any new product must at least break even in the first year.

REQUIRED:

  1. If the sales price is set at $60.50, how many units must Marino sell to break even? How many must they sell to earn a $100,000 profit?
  2. Marino estimates that sales will probably be 8,000 units. What sales price per unit will allow the company to break even? What sales price will allow the company to earn a $100,000 profit?
  3. Marino has decided to advertise the product heavily and has set the sales price at $64.00. If sales are 7,000 units, how much can the company spend on advertising and still break even?

Problem #2: Contribution Margin and CVP with no per unit data

Use the following Contribution Margin Income Statement to answer the following questions:

Sales / $1,000,000
Less: Variable Costs / ($600,000)
Contribution Margin / $400,000
Less: Fixed Costs / ($250,000)
Net Income / $150,000
  1. What is operating leverage for this company?
  2. What would total Sales Dollars be at the breakeven point?
  3. At the breakeven point, what will total variable costs be?

Problem #3: Sales Mix

  1. Calculate the weighted average contribution margin.
  2. At the breakeven point, what will total Sales Dollars be?
  3. What will total sales dollars be if the company desires to earn a $100,000 profit?
  4. Assume the company wants to earn a $100,000 profit, what will Sales dollars of Power and Lite be at this level of sales?

Problem #4: Performance Analysis (Variances)

Guy Corporation uses customers served as its measure of activity. During January, the company budgeted for 32,000 customers, but actually served 35,000 customers. The company uses the following revenue and cost formulas in its budgeting, where q is the number of customers served:
Revenue: $4.20q
Wages and salaries: $33,900 + $1.40q
Supplies: $0.60q
Insurance: $10,000
Miscellaneous: $7,000 + $0.40q
The company reported the following actual results for January:

REQUIRED:

  1. Prepare the Planning budget (based on 32,000 customers)
  2. Prepare the Flexible budget (based on 35,000 customers)
  3. Calculate the Activity Variances
  4. Calculate the Revenue and Spending Variances.

Account / Planning Budget / Flexible Budget / Actual Results
Revenue
Wages and Salaries
Supplies
Insurance
Miscellaneous
Net Income

Problem #5: Standard Costing and Variance Analysis

Claro Company produces plastic bottles. The unit for costing purposes is a case of 18 bottles. The following standards for producing one case of bottles have been established:

Direct materials: 5 lbs. @ $0.90 per lb.

Direct labor: 1.5 hours @ $14 per hour.

During December 15,000 cases of bottles were produced. In addition, 78,000 pounds of material were purchased for $71,760 and 76,000 pounds of material were used in production. Workers were paid a total of $319,000 on 22,000 total hours worked.

REQUIRED:

Calculate the following variances:

  1. Direct Materials Price Variance
  2. Direct Materials Quantity (Usage) Variance
  3. Direct Labor Rate Variance
  4. Direct Labor Efficiency Variance