Match the following terms or phrases (A through J) with the definitions below (1 through 10) by placing the appropriate letter in the space beside the matching definition.
A Contribution margin per unit
B Fixed cost
C Mixed cost
D Curvilinear cost
E Variable cost
F Step-wise cost
G Relevant range of operations
H Estimated line of cost behavior
I Least-squares regression
J Cost-volume-profit analysis
2. Burien, Inc., operates a retail store with two departments, A and B. Its departmental income statement for the current year follows:
Departmental Income Statement
For Year Ended December 31
Dept. A Dept. B Combined
Sales $180,000 $200,000 $380,000
Direct expenses 129,900 142,870 272,770
Contributions to overhead $50,100 $57,130 $107,230
Depreciation–Building 10,000 11,760 21,760
Maintenance 1,600 1,700 3,300
Utilities 6,200 6,320 12,520
Office expenses 1,800 2,000 3,800
Total indirect expenses $19,600 $21,780 $41,380
Net income $30,500 $35,350 $65,850
Burien allocates building depreciation, maintenance, and utilities on the basis of square footage. Office expenses are allocated on the basis of sales.
Management is considering an expansion to a three-department operation. The proposed Department C would generate $120,000 in additional sales and have a 17.5% contribution to overhead. The company owns its building. Opening Department C would redistribute the square footage to each department as follows: A, 19,040; B, 21,760 sq. ft.; C, 13,600. Increases in indirect expenses would include: maintenance, $500; utilities, $3,800; and office expenses, $1,200.
Complete the following departmental income statements, showing projected results of operations for the three sales departments. (Round amounts to the nearest whole dollar.) Also show your calculations for the allocation of indirect expenses in the tables below the Departmental Income Statement.
3. Hess Co. manufactures a product that sells for $12 per unit. Total fixed costs are $96,000 and variable costs are $7 per unit. Hess can buy a newer production machine that will increase total fixed costs by $22,800 but variable costs will be decreased by $0.40 per unit.
REQUIRED: Calculate the current break-even point in units and the break-even point in units if the new production machine is purchased. Show your answers in the spaces provided and use the space below the answer blocks to show your calculations.
4. Slim Corp. requires a minimum $8,000 cash balance. If necessary, loans are taken to meet this requirement at a cost of 1% interest per month (paid monthly on the loan balance at the end of the previous month). Loans are repaid at month’s end from any excess cash. The cash balance on July 1 is $8,400. Cash receipts other than for loans received for July, August, September are forecasted as $24,000, $32,000, and $40,000, respectively. Payments other than for loan or interest payments for the same period are planned at $28,000, $30,000, and $32,000, respectively. At July 1, there are no outstanding loans.
REQUIRED: Prepare a cash budget for July, August, and September. Use the template below for your answer.
5. Thomas Co. provides the following fixed budget data for 2009:
Sales (20,000 units) $600,000 30
Cost of goods sold:
Direct materials $200,000 10
Direct labor 160,000 8
Variable overhead 60,000 3
Fixed overhead 80,000 500,000
Gross profit $100,000
Variable 40,000 52,000 2
Income from operations $48,000
The company’s actual activity for 2009 follows:
Sales (21,000 units) $651,000
Cost of goods sold:
Direct materials $231,000
Direct labor 168,000
Variable overhead 73,500
Fixed overhead 77,500 550,000
Gross profit $101,000
Variable 39,500 51,500
Income from operations $49,500
REQUIRED: Prepare a flexible budget performance report for the year using the contribution margin format. Use the template at the right for your answer.