Questions attached in word document 1. Koufax Company had sales in 2010 of $1,500,000 on 60,000 units. Variable costs totaled $720,000, and fixed costs totaled $550,000. A new raw material is available that will decrease the variable costs per unit by 20% (or $2.40). However, to process the new raw material, fixed operating costs will increase by $50,000. Management feels that one-half of the decline in the variable costs per unit should be passed on to customers in the form of a sales price reduction. The marketing department expects that this sales price reduction will result in a 10% increase in the number of units sold. Instructions Prepare a CVP income statement for 2010, assuming the changes are made as described. 2. City Electronix sells television sets and DVD players. The business is divided into two divisions along product lines. CVP income statements for a recent quarter?s activity are presented below. TV Division DVD Division Total Sales $700,000 $300,000 $1,000,000 Variable costs 490,000 240,000 730,000 Contribution margin $210,000 $ 60,000 270,000 Fixed costs 135,000 Net income $135,000 Instructions (a) Determine sales mix percentage and contribution margin ratio for each division. (b) Calculate the company?s weighted-average contribution margin ratio. (c) Calculate the company?s break-even point in dollars. (d) Determine the sales level in dollars for each division at the break-even point. 3. Jennet Company manufactures and sells three products. Relevant per unit data concerning each product are given below. Product A B C Selling price $12 $13 $15 Variable costs and expenses $4 $8 $8 Machine hours to produce 2 1 2 Instructions (a) Compute the contribution margin per unit of the limited resource (machine hour) for each product. (b) Assuming 4,500 additional machine hours are available, which product should be manufactured? (c) Prepare an analysis showing the total contribution margin if the additional hours are (1) divided equally among the products, and (2) allocated entirely to the product identified in (b) above. 4. An investment banker is analyzing two companies that specialize in the production and sale of candied apples. Old-Time Apples uses a labor-intensive approach, and Mod-Apple uses a mechanized system. CVP income statements for the two companies are shown below. Old-Time Apples Mod-Apple Sales $400,000 $400,000 Variable costs 280,000 140,000 Contribution margin 120,000 260,000 Fixed costs 40,000 180,000 Net income $ 80,000 $ 80,000 The investment banker is interested in acquiring one of these companies. However, she is con- cerned about the impact that each company?s cost structure might have on its profitability. Instructions (a) Calculate each company?s degree of operating leverage. Determine which company?s cost structure makes it more sensitive to changes in sales volume. (b) Determine the effect on each company?s net income if sales decrease by 10% and if sales increase by 5%. Do not prepare income statements. (c) Which company should the investment banker acquire? Discuss. 5. Sele Company builds custom fishing lures for sporting goods stores. In its first year of operations, 2010, the company incurred the following costs. Variable Cost per Unit Direct materials $6.50 Direct labor $2.45 Variable manufacturing overhead $5.75 Variable selling and administrative expenses $3.90 Fixed Costs per Year Fixed manufacturing overhead $282,150 Fixed selling and administrative expenses $240,100 Sele Company sells the fishing lures for $25. During 2010, the company sold 80,000 lures and produced 95,000 lures. Instructions (a) Assuming the company uses variable costing, calculate Sele?s manufacturing cost per unit for 2010. (b) Prepare a variable costing income statement for 2010. (c) Assuming the company uses absorption costing, calculate Sele?s manufacturing cost per unit for 2010. (d) Prepare an absorption costing income statement for 2010.
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