Chapter 19: Q7QS (page 868)
Refer to the information about Ramort Company in QS 19-5. Compute contribution margin under variable costing.
The gross margin of the company is$780,000.
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D’Souza Company sold 10,000 units of its product at a price of \(80 per unit. Total variable cost is \)50 per unit, consisting of \(40 in variable production cost and \)10 in variable selling and administrative cost. Compute the manufacturing (production) margin for the company under variable costing.
Refer to the information in QS 19-16. The company sells its product for \(50 per unit. Due to new regulations, the company must now incur \)2 per unit of hazardous waste disposal costs and $8,500 per year of fixed hazardous waste disposal costs. Compute the company’s break-even point (in units), including hazardous waste disposal costs.
MidCoast Airlines provides charter airplane services. In October of this year, the company is operating at 60% of its capacity when it receives a bid from the local community college. The college is organizing a Washington, D.C., trip for its international student group. The college budgeted only \(30,000 for roundtrip airfare. MidCoast Airlines normally charges between \)50,000 and \(60,000 for such service. MidCoast determines its cost for the round-trip flight to Washington to be \)44,000, which consists of the following:
Variable cost | \(15,000 |
Fixed cost (allocated) | 29,000 |
Total cost | \)44,000 |
Although the manager at MidCoast supports the college’s educational efforts, she cannot justify accepting the \(30,000 bid for the trip given the projected \)14,000 loss. Still, she decides to consult with you, an independent financial consultant. Do you believe the airline should accept the bid from the college? Prepare a memorandum, with supporting computations, explaining why or why not.
Trio Company reports the following information for the current year, which is its first year of operations.
Direct materials | \(15 per unit |
Direct labor | \)16 per unit |
Overhead costs for the year | |
Variable overhead | \(80,000 per year |
Fixed overhead | \)160,000 per year |
Units produced this year | 20,000 units |
Units sold this year | 14,000 units |
Ending finished goods inventory in units | 6,000 units |
1. Compute the product cost per unit using absorption costing.
2. Determine the cost of ending finished goods inventory using absorption costing.
3. Determine the cost of goods sold using absorption costing.
Grand Garden is a luxury hotel with 150 suites. Its regular suite rate is \(250 per night per suite. The hotel’s cost per night is \)140 per suite and consists of the following.
Variable direct labor and material cost | \(30 |
Fixed cost | 110 |
Total cost per night per suite | \)140 |
The hotel manager received an offer to hold the local Bikers’ Club annual meeting at the hotel in March, which is the hotel’s low season with an occupancy rate of under 50%. The Bikers’ Club would reserve 50 suites for three nights if the hotel could offer a 50% discount, or a rate of \(125 per night. The hotel manager is inclined to reject the offer because the cost per suite per night is \)140. Prepare an analysis of this offer for the hotel manager. Explain (with supporting computations) whether the offer from the Bikers’ Club should be accepted or rejected.
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