Question 1:
Low company
produces four types of products using the same production process. Each product
can be process further. The common costs of these four product, up to the split
of point are, $200,000, and these costs are allocated based on the quantity
produced. Following its information regarding production, prices, and costs for
each product:
products
number of units produced
selling price at split off point
Selling price after further processing
Additional costs for further processing
A
500,000
$1.99
$2.95
$350,000
B
250,000
3.99
5.25
300,000
C
125,000
3.50
4.99
200,000
D
50,000
2.99
4.50
100,000
Required:
1. if only one product can be processed further, which product should
Low process?
2. If common costs up to the split off point were allocated on the basis
of the market would your decision in part (1) be different? briefly explain why
or why not.
Question 2: You work as an analyst for a bulletproof glass manufacturer
. one of your duty is to study the
quality costs of the company. The following is the information for the year
ended December 31, 2012:
2012
Disposal
of defective products
$110,000
Warranty
replacement
256,000
Warranty
repairs
825,000
Training
521,000
Cost
incurred to test production equipment
590,000
Amortization
of testing equipment
89,000
Inspection
485,000
Statistical
process control
59,000
Supplies
used in testing
87,000
Product
testing
283,000
Systems
development
68,000
Quality
engineering
145,000
Rework
labour
522,000
Total
$
4,090,000
Sales
$25,300,000
1. Repair the quality cost report with the information collected by the
accounting.
Question 3:
GR is the manufacturer of umbrellas.
After three years of research and development. The company recently
developed a new umbrella for golfers. The unit production costs of that
umbrella are as follow:
Raw
material $8.50
Direct labour 6.00
Overhead costs—variable 2.00
Overhead costs—fixed 1.00
Selling and administrative expenses—variable 0.50
Selling and administrative expenses—fixed 1.00
All costs are based on an expected level of
production and sales of 1,000,000 umbrellas.
Required:
Answer the following independent questions:
1. Calculate the break even price of the new
umbrella. Show all your calculations.
2. If GR requires a minimum contribution margin
of 25% for all its products, calculate the minimum selling price for the new
umbrella. Show all your calculations.
3. If the selling price of the new umbrella is
set at $30, calculate the number of umbrellas that must be sold to generate an
income of $8,000,000. Show all your calculation, rounding to the nearest whole
unit.
4. If
the selling price of the new umbrella is set at $25, calculate the number of
umbrellas that must be sold to generate an income of 20% on sales. Show all
your calculation, rounding to the nearest whole unit.
Question
4:
A
company plans to market a new product. It has received a order of 5,000 units
from a client. The client is willing to pay $75 per unit. The estimated costs
of producing each unit of the new product are:
Direct
materials $24
Direct
labour 14
Variable
overhead 12
Fixed overhead 10
Total $60
The company usually has rate of return on sales of 15%.
Required:
1. In this situation, calculate the target cost for this product.
2. Calculate the target profit.
3. Based on the current cost structure, calculate the total profit.
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