Cost-volume-profit relationships (15 points) The following data are available for a product manufactured and sold by Logan Company

1. Cost-volume-profit relationships(15 points)

The following data are available for a product manufactured and sold by Logan Company:

Compute the following:

(a) Contribution margin per unit: $_______________

(b) Number of units that must be sold to break-even: _______________ units

(c) Dollar sales volume to produce income of $864,000 before taxes: $_______________


2. Incremental analysis(20 points)

Information regarding current operations of the Farrell Corporation is given below:

A proposed addition to Farrell’s factory is estimated by the sales manager to increase sales by a maximum of $750,000. The company’s accountants have determined that the proposed addition will add $320,000 to fixed costs each year. Variable costs are expected to be at the same percentage as they currently are before the proposed addition.

(a) Explain why the existing $310,000 of fixed costs is a sunk cost while the $320,000 of fixed costs associated with the proposed addition is an out-of-pocket cost.

(b) Calculate by how much the proposed addition will either increase or reduce operating income. Show all work.

3. Responsibility income statement-preparation (20 points)

Gameland Village is segmented into two sales departments: software and video games. During April, these two departments reported the following operating results:

In addition, fixed costs common to both departments amounted to $42,000.

Complete the following segmented income statement for Gameland Village. Follow the contribution margin approach, and show percentages as well as dollar amounts. Conclude your income statement with the company’s income from operations.

Income Statement by Product Lines
For the Month Ended April 30, 20__

Gameland VillageSoftwareVideo Games
Dollars %Dollars %Dollars %
Sales$ $400,000 100$200,000 100
Variable Costs  65 56
$ $ $

4. Standard cost system labor variance(25 points)

The following computations of March labor variances for Sam’s Supply Company are incomplete. The missing items are labeled (a) through (d).

Labor rate variance = 4,800 hours ´ [(a) – $8.50] = $350 favorable
Labor efficiency variance = (b) ´ [(c) – 5,000 hours] = $(d)

On the appropriately labeled line, identify each missing item by name (a through c) and show the missing value (a through d). Show supporting computations in the space provided.

(a) _________________________ $_______________

(b) _________________________ $_______________

(c) _________________________ ____________________ hours

(d) $______________ F or U [Choose the correct term.]

(e) During March, the supervisor left for vacation without arranging for a replacement. Which variances would have been most affected by this situation? _________________________


5. Capital budgeting(20 points)

Flynn Corporation is debating whether to purchase a new computerized production system. The system will cost $450,000, and have an estimated 10-year life with a salvage value of $70,000. The estimated operating results from the new production system are as follows:

All revenue and expenses other than depreciation will be received and paid in cash. Compute the following for this proposal:

(a) Annual net cash flow: $__________

(b) Payback period: __________ years

(c) Return on average investment: __________%

(d) Net present value, discounted at an annual rate of 6% (present value of $1 due in 10 years, discounted at 6%, is 0.558; present value of $1 received annually for 10 years, discounted at 6%, is 7.360): $__________

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