Exam 2 Practice Questions - Solution - Exam 2 Practice Questions by Chapter SOLUTION Chapter 6 Seaver Corporation manufactures mountain bikes It has

# Exam 2 Practice Questions - Solution - Exam 2 Practice...

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Exam 2 Practice Questions by Chapter - SOLUTION Chapter 6 Seaver Corporation manufactures mountain bikes. It has fixed costs of \$4,140,000. Seaver’s sales mix and contribution margin per unit is shown as follows: Sales Mix Contribution Margin Green 25% \$120 Brown 45% \$ 60 Blue 30% \$ 40 Instructions What is the weighted average Contribution Margin? 120*.25 + 60*.45 + 40*.30 = 30+27+12 = 69 weighted average contribution margin What is the number of each type of bike that the company would need to sell in order to break even under this product mix? 4140000/69 = 60000 units to break even 60000*.25 = 15000 green units 60000*.45 = 27000 brown units 60000*.30 = 18000 blue units Oscar Corporation produces and sells three products. Unit data concerning each product is shown below. Product X Y Z Selling price \$200 \$300 \$250 Direct labor costs 45 75 60 Other variable costs 110 130 106 Contribution Margin 45 95 84 The company has 2,000 hours of labor available to build inventory in anticipation of the company's peak season. Management is trying to decide which product should be produced. The direct labor hourly rate is \$15. Instructions (a) Determine the number of direct labor hours per unit . X=45/15 = 3, Y=75/15=5, Z=60/15=4 (b) Determine the contribution margin per direct labor hour. X: 45/3 = 15 y:95/5=19 z:84/4=21 (c) Determine which product should be produced and the total contribution margin for that product. Product Z should be produced because it generates the highest contribution margin per direct labor hour. Product Z Total direct labor hours available 2,000 Contribution margin per direct labor hour 21 Total contribution margin \$42,000
Blue Chance Co. sells computers and video game systems. The business is divided into two divisions along product lines. Variable costing income statements for the current year are presented below: Computers VG Systems Total Sales \$700,000 \$300,000 \$1,000,000 Variable costs 420,000 210,000 630,000 Contribution margin \$280,000 \$ 90,000 370,000 Fixed costs 296,000 Net income \$ 74,000 Instructions (a) Determine the sales mix and contribution margin ratio for each division. Computers 70%, .40 CM ratio and VG systems 30%, .30 CM ratio (b) Calculate the company’s weighted-average contribution margin ratio. .70*.40 + .30*.30 = .28+.09 = .37 (c) Calculate the company’s break-even point in dollars. \$ 296000/.37 = \$800,000 sales (d) Determine the sales level, in dollars, for each division at the break-even point. \$ 800,000*.70 = \$560,000 for computers and \$800,000*.30 = \$240,000 for VG systems On-Road Wheels, Inc. manufactures a basic road bicycle. Production and sales data for the most recent year are as follows (no beginning inventory): Variable production costs \$90 per bike Fixed production costs \$400,000 Variable selling and administrative costs \$22 per bike sold Fixed selling and administrative costs \$550,000 Selling price \$200 per bike Production 20,000 bikes Sales 18,000 bikes Instructions (a) What is the Cost per unit under absorption and variable costing? Absorp: \$110 (90+20) Variable Costing: \$90 (b) What is the difference in net income between the 2 methods?

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• Spring '08
• Blanchard
• Net Income, Freberg

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