Chapter 22 Assignment Instructions: Complete The Problems Be

Chapter 22 Assignmentinstructionscomplete The Problems Below This A

Complete the problems below. This assignment can be completed in either: Microsoft Excel, Word, or hand-written and scanned in PDF format. I prefer Microsoft Excel or Word but will not dock points for PDF format. SHOW YOUR WORK AND GET PARTIAL CREDIT FOR WRONG ANSWERS!

Paper For Above instruction

Part A:

Use the provided information for two levels of production — 5,000 units and 10,000 units — to classify each cost as variable, fixed, or mixed:

  • Direct Materials: $50,000 and $100,000
  • Direct Labor: $10,000 and $20,000
  • Indirect Labor: $8,000 and $10,000
  • Indirect Materials: $500 and $1,000
  • Utilities: $2,000 and $3,000
  • Rent: $8,000 and $8,000
  • Depreciation: $10,000 and $10,000
  • Factory Overhead: $12,000 and $16,000

Part B:

Using data for the fourth quarter, calculate the variable cost component, fixed cost component, estimate total costs at 10,000 units, and determine units produced if total costs are $37,125:

  • October: 6,300 units, total cost $24,300
  • November: 8,300 units, total cost $28,800
  • December: 7,500 units, total cost $27,000

Part C:

With each unit selling for $500, variable cost per unit at $200, and total fixed costs of $120,000:

  1. Compute the break-even point in units using a mathematical equation.
  2. Calculate the break-even point in dollars.

Part D:

Given selling price per unit $25, fixed costs $275,000, variable costs $10 per unit:

  1. Compute the break-even point in units using a mathematical equation.
  2. Calculate contribution margin per unit.
  3. Calculate contribution margin ratio.
  4. Compute break-even point in dollars using the contribution margin ratio.
  5. Determine the margin of safety percentage if actual sales are $600,000.
  6. Calculate sales needed to earn a net income of $200,000 using a mathematical equation.

Analysis and Calculations

Part A: Cost Classification

Classifying costs as variable, fixed, or mixed involves analyzing how each cost changes with production levels. For example, direct materials and direct labor typically vary directly with units produced, indicating variable costs. Indirect labor, utilities, and factory overhead often have both fixed and variable components, classifying them as mixed costs. Rent and depreciation are generally fixed costs. Based on the data, the classification is as follows:

  • Direct Materials: Variable
  • Direct Labor: Variable
  • Indirect Labor: Mixed
  • Indirect Materials: Variable
  • Utilities: Mixed
  • Rent: Fixed
  • Depreciation: Fixed
  • Factory Overhead: Mixed

Part B: High-Low Method Calculations

The high-low method estimates variable and fixed costs by analyzing the periods with the highest and lowest activity levels. The high activity level occurs in November with 8,300 units and costs $28,800; the low occurs in October with 6,300 units and costs $24,300.

To find the variable cost per unit:

Variable Cost per Unit = (Cost at High - Cost at Low) / (Units at High - Units at Low) = ($28,800 - $24,300) / (8,300 - 6,300) = $4,500 / 2,000 = $2.25

Fixed Cost component is then calculated using either high or low activity data:

Fixed Costs = Total Cost - (Variable Cost per Unit × Number of Units) at either level

Using October data:

Fixed Costs = $24,300 - ($2.25 × 6,300) = $24,300 - $14,175 = $10,125

Estimate the total cost at 10,000 units:

Total Cost = Fixed Costs + (Variable Cost per Unit × Number of Units) = $10,125 + ($2.25 × 10,000) = $10,125 + $22,500 = $32,625

If total cost is $37,125, the number of units produced is:

Units = (Total Cost - Fixed Costs) / Variable Cost per Unit = ($37,125 - $10,125) / $2.25 = $27,000 / $2.25 = 12,000 units

Part C: Break-even Analysis

The contribution margin per unit is:

Contribution Margin per Unit = Selling Price - Variable Cost = $500 - $200 = $300

The break-even point in units is calculated by:

Break-even units = Fixed Costs / Contribution Margin per Unit = $120,000 / $300 = 400 units

The break-even point in dollars is:

Break-even dollars = Break-even units × Selling Price = 400 × $500 = $200,000

Part D: Profitability and Sales Targets

The contribution margin per unit is:

$25 - $10 = $15

The contribution margin ratio is:

Contribution Margin Ratio = Contribution Margin per Unit / Selling Price = $15 / $25 = 0.6

Break-even in dollars using the contribution margin ratio:

Break-even Sales ($) = Fixed Costs / Contribution Margin Ratio = $275,000 / 0.6 ≈ $458,333.33

The margin of safety percentage if actual sales are $600,000:

Margin of Safety = (Actual Sales - Break-even Sales) / Actual Sales = ($600,000 - $458,333.33) / $600,000 ≈ 23.61%

Sales required to earn a net income of $200,000:

Required Sales ($) = (Fixed Costs + Desired Profit) / Contribution Margin Ratio = ($275,000 + $200,000) / 0.6 ≈ $858,333.33

References

  • Horngren, C. T., Sundem, G. L., Stratton, W. O., & Foster, G. (2013). Management accounting. Pearson.
  • Garrison, R. H., Noreen, E. W., & Brewer, P. C. (2014). Managerial accounting. McGraw-Hill Education.
  • Hilton, R. W., & Platten, P. (2013). Managerial accounting: Creating value in a dynamic business environment. McGraw-Hill Irwin.
  • Drury, C. (2013). Management and cost accounting. Cengage Learning.
  • Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2015). Managerial accounting: Tools for business decision making. Wiley.
  • Anthony, R. N., & Govindarajan, V. (2013). Management control systems. McGraw-Hill Education.
  • Kaplan, R. S., & Atkinson, A. A. (2015). Advanced management accounting. Pearson.
  • Blocher, E., Stout, D., Juras, P., & Cokins, G. (2019). Cost management: A strategic emphasis. McGraw-Hill Education.
  • Langfield-Smith, K., Thorne, H., & Vernon, J. (2018). Management accounting: Information for creating and managing value. McGraw-Hill Education.
  • Skousen, C. J. (2014). Fundamentals of cost accounting. Cengage Learning.

Related Assignments