Managerial Accounting_problem

Managerial Accounting_problem

Part A: Fixed and Variable Cost

Stuart Manufacturing produces metal picture frames. The company’s income statements for the last two years are given below:

Last year

This year

Units sold ……………………………………………

50,000

70,000

Sales …………………………………………………..

$800,000

$1,120,000

Cost of goods sold ……………………………….

550,000

710,000

Gross margin ………………………………………

250,000

410,000

Selling and administrative expense ………..

150,000

190,000

Net operating income …………………………..

$100,000

$ 220,000

The company has no beginning or ending inventories.

Required:

a. Estimate the company’s total variable cost per unit and its total fixed costs per year. (Remember that this is a manufacturing firm.)

b. Compute the company’s contribution margin for this year.

Part B: Cost-Volume-Profit Analysis

Belli-Pitt, Inc, produces a single product. The results of the company’s operations for a typical month are summarized in contribution format as follows:

Sales ……………………………..

$540,000

Variable expenses …………..

360,000

Contribution margin ……….

180,000

Fixed expenses ………………

120,000

Net operating income ……..

$ 60,000

The company produced and sold 120,000 kilograms of product during the month. There were no beginning or ending inventories.

Required:

a. Given the present situation, compute

1. The break-even sales in kilograms.

2. The break-even sales in dollars.

3. The sales in kilograms that would be required to produce net operating income of $90,000.

4. The margin of safety in dollars.

b. An important part of processing is performed by a machine that is currently being leased for $20,000 per month. Belli-Pitt has been offered an arrangement whereby it would pay $0.10 royalty per kilogram processed by the machine rather than the monthly lease.

1. Should the company choose the lease or the royalty plan?

2. Under the royalty plan compute break-even point in kilograms.

3. Under the royalty plan compute break-even point in dollars.

4. Under the royalty plan determine the sales in kilograms that would be required to produce net operating income of $90,000.

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