Exam 3 - Practice Problems.pdf

# Using the current allocation bases for fixed

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Using the current allocation bases for fixed manufacturing costs and for fixed selling and administrative costs, complete the table below to compute Ritchie's expected net profit if sales change to 60,000 Deluxe Juicers and 40,000 Premium Juicers. (If necessary, round all amounts to zero decimals.) Revenue 4,200,000 3,600,000 7,800,000 Materials Labor Contribution margin Allocated fixed manufacturing costs Allocated fixed selling and administrative expenses Net profit Deluxe Total Units 60,000 100,000 Premium 40,000

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Exam 3 – Practice Problems Page 14 2. Ritchie is pleased to discover that, based on the existing cost estimates, the new sales mix is expected to significantly increase his profit. When Ritchie shares his insight with his staff, they express some reservations. His production manager, Debra, indicates that \$1.1 million of the \$3.8 million in fixed manufacturing costs, in fact, are not fixed but, instead, pertain to batchrelated activities such as scheduling production runs and production set-ups. Because the Premium Juicer is run in smaller batches (250 units per batch rather than 500 units per batch for the Deluxe model), she conjectures that “fixed” manufacturing costs are not likely to remain at \$3.8 million if the sales mix changes as proposed. Likewise, Brett, the marketing manager, indicates that, while the selling and administrative expenses are fixed with respect to the number of units sold, they vary with respect to the number of sales visits required to make a sale. He reported that it takes 10 sales visits to sell 1,000 units of the Deluxe Juicer and 25 visits to sell 1,000 Premium juicers. a) (4 points) Using the information provided by the production manager, estimate the cost allocation rate per batch for the fixed manufacturing costs that relate to batch-level activities. Estimated cost allocation rate for manufacturing costs related to batch-level activities \$ /batch b) (3 points) Using the information provided by the production manager, estimate the cost allocation rate per direct labor hour (DLH) for the fixed manufacturing costs that are not related to batch-level activities. Estimated cost allocation rate for fixed manufacturing costs that are not related to batch-level activities \$ /DLH
Exam 3 – Practice Problems Page 15 c) (4 points) Using the information provided by the marketing manager, estimate the cost allocation rate per sales visit for selling and administrative costs (expenses). Estimated cost allocation rate for selling and administrative costs \$ /sales visit 3. (2 points) Assume that Ritchie maintains the original product mix (i.e., 90,000 Deluxe Juicers and 10,000 Premium Juicers) but uses the three cost pools and cost drivers you derived in question 2 to determine the company’s net profit. How will the company’s total net profit compare to the original total net profit of \$182,500? (Circle the letter corresponding to the best answer.) a) Greater b) Less c) No change d) None of the above

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Exam 3 – Practice Problems Page 16 4. (7 points) Using the proposed product mix (i.e., 60,000 Deluxe and 40,000 Premium
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