Exam 3 - Practice Problems.pdf

# Juicers and the three cost pools and cost drivers you

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Juicers) and the three cost pools and cost drivers you derived in question 2, complete the table below to compute Ritchie's expected net profit. Revenue 4,200,000 3,600,000 7,800,000 Materials Labor Contribution margin Batch-level manufacturing costs Non batch-level fixed manufacturing costs Selling and administrative expenses Net profit Deluxe Premium Total Units 60 ,000 40 ,000 100,000

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Exam 3 – Practice Problems Page 17 5. (2 points) Why would you not expect the new product mix (i.e., 60,000 Deluxe and 40,000 Premium Juicers) to significantly increase the company’s net profit as Ritchie had expected? a) Because the new cost allocation method reflects the fact that overhead costs will increase. b) Because the contribution margins determined using the old and the new cost allocation methods are the same. c) Because the new product mixed only increased revenues by 8.3%. d) Because the new cost allocation method uses volume related cost drivers.
Exam 3 – Practice Problems Page 18 SOLUTION 1. (6 points) administrative expenses 154,807 Net profit 85,193 2. 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. Cost per batch = 1,100,000 (90,000/500) + (10,000/250) = 1,100,000 180 + 40 = 5,000 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. Cost per DLH = 3,800,000 – 1,100,000 100,000 Deluxe Premium Total Units 60,000 40,000 100,000 Revenue 4,200,000 3,600,000 7,800,000 Materials 720,000 1,000,000 1,720,000 Labor 960,000 640,000 1,600,000 Contribution margin 2,520,000 1,960,000 4,480,000 Allocated fixed manufacturing costs 2,280,000 1,520,000 3,800,000 Allocated fixed selling and 132,693 287,500 307,307 392,500

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Exam 3 – Practice Problems Page 19 = 27.00 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). Cost per sales visit = 287,500 [(90,000/1,000) x 10] + [(10,000/1,000) x 25] = 287,500 900 + 250 = 250 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.
Exam 3 – Practice Problems Page 20 4. (7 points) Using the proposed product mix (i.e., 60,000 Deluxe and 40,000 Premium Juicers) and the three cost pools and cost drivers you derived in question 2, complete the table below to compute Ritchie's expected net profit. Selling and administrative expenses Net profit 5. (2 points) Why would you not expect the new product mix (i.e., 60,000 Deluxe and 40,000 Premium Juicers) to significantly increase the company’s net profit as Ritchie had expected?

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