The following chart shows how costs flow through a business as a product is manufactured. Some boxes in the flowchart show cost amounts. Compute the cost amounts for the input boxes.

The following chart shows how costs flow through a business as a product is manufactured. Some boxes in the flowchart show cost amounts. Compute the cost amounts for the input boxes.

Compute cost of goods sold for each of these two companies for the year ended December 31, 2015.

	Unimart				Precision Manufacturing
Beginning inventory
Merchandise		$	275,000
Finished goods						$	450,000
Cost of purchases			500,000
Cost of goods manufactured							900,000
Ending inventory
Merchandise			115,000
Finished goods							375,000

    

Compute cost of goods sold for each of these two companies for the year ended December 31, 2015.

 

Merchandising Business:

Complete the table to find the cost of goods manufactured for both Garcon Company and Pepper Company.

Using the following data,

 

	Garcon Company					Pepper Company
Beginning finished goods inventory		$	12,000			$	16,450
Beginning work in process inventory			14,500				19,950
Beginning raw materials inventory			7,250				9,000
Rental cost on factory equipment			27,000				22,750
Direct labor			19,000				35,000
Ending finished goods inventory			17,650				13,300
Ending work in process inventory			22,000				16,000
Ending raw materials inventory			5,300				7,200
Factory utilities			9,000				12,000
Factory supplies used			8,200				3,200
General and administrative expenses			21,000				43,000
Indirect labor			1,250				7,660
Repairs—Factory equipment			4,780				1,500
Raw materials purchases			33,000				52,000
Selling expenses			50,000				46,000
Sales			195,030				290,010
Cash			20,000				15,700
Factory equipment, net			212,500				115,825
Accounts receivable, net			13,200				19,450

1.	Complete the table to find the cost of goods manufactured for both Garcon Company and Pepper Company. 2. Complete the table to calculate the cost of goods sold for both Garcon Company and Pepper Company.

Due to erratic sales of its sole product—a high-capacity battery for laptop computers—PEM, Inc., has been experiencing difficulty for some time. The company’s contribution format income statement for the most recent month is given below:

Due to erratic sales of its sole product—a high-capacity battery for laptop computers—PEM, Inc., has been experiencing difficulty for some time. The company’s contribution format income statement for the most recent month is given below:

  

Sales (19,500 units × $30 per unit)	$	585,000
Variable expenses		409,500
Contribution margin		175,500
Fixed expenses		180,000
Net operating loss	$	(4,500)

  

Required:
1.	Compute the company’s CM ratio and its break-even point in both unit sales and dollar sales.

2.

The president believes that a $16,000 increase in the monthly advertising budget, combined with an intensified effort by the sales staff, will result in an $80,000 increase in monthly sales. If the president is right, what will be the effect on the company’s monthly net operating income or loss? (Use the incremental approach in preparing your answer.)

3.	Refer to the original data. The sales manager is convinced that a 10% reduction in the selling price, combined with an increase of $60,000 in the monthly advertising budget, will double unit sales. What will the new contribution format income statement look like if these changes are adopted?

4.

Refer to the original data. The Marketing Department thinks that a fancy new package for the laptop computer battery would help sales. The new package would increase packaging costs by 75 cents per unit. Assuming no other changes, how many units would have to be sold each month to earn a profit of $9,750? (Do not round intermediate calculations.)

5.	Refer to the original data. By automating, the company could reduce variable expenses by $3 per unit. However, fixed expenses would increase by $72,000 each month.

 
 

a.	Compute the new CM ratio and the new break-even point in both unit sales and dollar sales. (Use the CM ratio to calculate your break-even point in dollars.)

b.	Assume that the company expects to sell 26,000 units next month. Prepare two contribution format income statements, one assuming that operations are not automated and one assuming that they are.

c.	Would you recommend that the company automate its operations?

Yes

Menlo Company distributes a single product. The company’s sales and expenses for last month follow:

Menlo Company distributes a single product. The company’s sales and expenses for last month follow:

 

	Total			Per Unit
Sales	$	608,000		$	40
Variable expenses		425,600			28
Contribution margin		182,400		$	12
Fixed expenses		145,200
Net operating income	$	37,200

 

Required:
1.	What is the monthly break-even point in unit sales and in dollar sales?

2.	Without resorting to computations, what is the total contribution margin at the break-even point?

3-a.	How many units would have to be sold each month to earn a target profit of $66,000? Use the formula method.

3-b.	Verify your answer by preparing a contribution format income statement at the target sales level.

4.	Refer to the original data. Compute the company's margin of safety in both dollar and percentage terms. Round your percentage answer to 2 decimal places (i.e .1234 should be entered as 12.34).

5.	What is the company’s CM ratio? If monthly sales increase by $59,000 and there is no change in fixed expenses, by how much would you expect monthly net operating income to increase?