COURSE APPLICATION 1

1. In the month of June, Doe Company sold 400 widgets. The average sales price was $24. During the month,
fixed costs were $4,320 and variable costs were 40% of sales.

Instructions
A. Determine the contribution margin in dollars, per unit, and as a ratio.
B. Compute the break-even point in units and dollars.
C. How much are total variable costs at breakeven?

2. In 2015, Karly Company had a break-even point of $800,000 based on a selling price of $10 per unit and
fixed costs of $320,000. In 2016, the selling price and variable costs per unit did not change, but the break-even
point increased to $920,000.

Instructions
A. Compute the variable cost per unit.
B. Calculate the contribution margin ratio for 2015.
C. Calculate the amount of total fixed costs for 2016.

3. The income statement for Raple Stark Company for 2015 appears below.
Raple Stark Company
Income Statement
For the Year Ended December 31, 2015
———————————————————————————————————————————
Sales (25,000 units) .................................................................................. $650,000
Variable expenses .................................................................................... 227,500
Contribution margin .................................................................................. 422,500
Fixed expenses ........................................................................................ 439,400
Net income (loss) ...................................................................................... $( 16,900)

Instructions
Answer the following independent questions and show computations to support your answers:
A. How much additional sales revenue does the company need to break-even in 2015?
B. If the company is able to reduce variable costs by $1.25 per unit in 2016 and other costs and unit revenues
remain unchanged, how many units will the company have to sell in order to earn a net income of $50,650?

4. ABC COSTING

Holiday Favorites manufactures a wide variety of holiday and seasonal decorative items. Holiday’s activity-based
costing overhead rates are:
Purchasing $350 per order
Storing $2 per square foot/days
Machining $100 per machine hour
Supervision $5 per direct labor hour

The Haunted House project involved three purchase orders, 4,000 square feet/days, 60 machine hours, and 30
direct labor hours. The cost of direct materials on the job was $19,000 and the direct labor rate is $30 per hour.

Instructions
Determine the total cost of the Haunted House project.
5. PRODUCT MIX

Smythe Manufacturing has 27,000 labor hours available for producing X and Y. Consider the following
information:
Product X Product Y
Required labor time per unit 2 hours 3 hours
Maximum demand 6,000 8,000
Contribution margin per unit 2.5 2
A. What is the optimum mix? _________________
B. What is the benefit in pesos in prioritizing one from the other? _______________

6. DROP A PRODUCT LINE/DEPARTMENT

Klein Enterprises, which has three departments, recently reported the following results:

The company incurred variable operating costs as well as $25,000 of fixed operating costs. The $25,000 amount
was allocated to A, B, and C on the basis of sales revenue and is included in the cost figures noted above.

Which department(s), if any, should be closed if fixed operating costs remain the same? _____________