exam 1 practice problems - suggested solutions.pdf -...

Suggested Solutions:
1.a. CM% = (80 – 35)/85 = 56.25%; [800,000 + 500,000] / [0.5625] = $2,311,111
1.b. 3,600,000 – 2,311,111 = 1,288,889; 1,288,889 / 3,600,000 = 36%
1.c. CY Proposed
Price 80 80
Units sold (3,600,000 / 80) 45,000 45,000
Variable costs per unit 35 -20% 28
Contribution margin per unit 45 52
Contribution margin $ 2,025,000 2,340,000
Fixed costs 1,300,000 + 300,000 1,600,000
Operating income 725,000 740,000
Yes, it increases operating income
2.a. CM = (150 – 60) = 90; [1,200,000 + 200,000 + 600,000] / 90 = 22,222
2.b. First, determine breakeven
CM% = 90/150 = 60%; [1,200,000 + 200,000] / [0.60] = $2,333,333
8,200,000 – 2,333,333 = $5,866,667
2.c. CY Proposed
Price 150 +10% 165
Units sold (8,200,000 / 150) 54,667 -10% 49,200
Variable costs per unit 60 60
Contribution margin per unit 90 105
Contribution margin $ 4,920,030 5,166,000
Fixed costs 1,400,000 + 100,000 1,500,000
Operating income 3,520,030 3,666,000
Yes, it increases operating income
3.a. [1,246,000] /14,000 = $89.00 per DL hour
3.b. Order 1 Order 2
Factory-wide rate
DM 8,050 / 100 80.50 11,900 / 150 79.33
DL 3,500 / 100 35.00 4,200 / 150 28.00
OH [210X89.00] / 100 186.90 [280x89.00] / 150 166.13
302.40 273.46
3.c. Order 1 is likely over-costed using a factory wide rate and appears less profitable

4.a. 6,960,000 / 240,000 = 29.00
4.b.
Activity Overhead Budgeted $ Driver (Budgeted volume) ABC Rate
Design 560,000 12,500 design hours 44.80
Set-up 180,000 9,000 set-up hours 20.00
Materials 420,000 200,000 material moves 2.10
Manufacturing 3,600,000 240,000 DLH 15.00
Sales 1,200,000 400 stables sold 3000.00
Total 6,960,000
4.c.