Accounting 221
1. Joe’s Tuxedos has monthly fixed costs of $27,750. The variable costs of sales are 65%.
What is the break-even monthly sales revenue?
2. Delta Manufacturing has sales of $2,275,000 with direct materials cost of $243,500
direct labor of $372,000, variable overhead of $117,000, and fixed costs of $309,100.
What is Delta’s contribution margin rate?
direct labor of $372,000, variable overhead of $117,000, and fixed costs of $309,100.
What is Delta’s contribution margin rate?
3. If a company has a 57% contribution margin ratio and has fixed costs of $263,000, how
much sales does it need to earn a gross profit of $231,000?
much sales does it need to earn a gross profit of $231,000?
4. Leisure Products management wants to ensure that each product makes a profit. The
company produced a hammock that sold 3,800 units at $75 per unit. The variable cost of
production was $32 per unit. The fixed costs were $120,000. What was the margin of
safety?
5. Sports Specialty Inc. produces a bicycle that it normally sells wholesale for $275 per
bike. The variable costs of production are $188 and the fixed cost for this product line is
$185,000 per month. The company has been selling this product at a rate of 2,400 units
per month. The company has received an order for 1,250 bikes at a price of $210 per
bike. The order is to ship to a market where the company has no business, so it is
believed it will not adversely affect existing business. The company has the capacity to
produce the special order. How much will operating profit increase if Sports Specialty
accepts this order?
6. Premier Manufacturing makes and distributes a wall clock that is popular with schools
and other institutions. Normal monthly sales are 2,750 clocks at an average sale price of
$45 per clock. Production of each clock takes 15 minutes of direct labor and has material
costs of $17. The direct labor rate is $17 per hour, and overhead is applied at a rate of $32
per direct labor hour. The overhead spending is 55% fixed and 45% variable costs.
Premier has been approached by a supplier offering to supply all of the clocks at a
finished cost of $28 per clock. Assume that all fixed overhead would remain, but the
variable overhead would be eliminated. What would be the change in monthly operating
income if Premier buys the clocks instead of making them?
7. Roscoe Enterprises has sales for a three-month period as follows: May, $255,000; June,
$265,000; July, $270,000. All sales are on account, and history has shown that accounts
receivable are typically collected 15% in the month of the sale, 55% in the month after
the sale, and 30% two months after the sale. What are Roscoe’s expected cash collections
in the month of July?
8. Mega Manufacturing has a budget to sell 120,000 units of a certain product at a selling
price of $36 per unit. Variable costs for materials, labor, and overhead are $17 per unit.
Fixed cost is $815,000. Actual sales were 130,000 units, and management would like to
see actual manufacturing performance compared to a budget adjusted for volume
(flexible budget). What would be the adjusted budgeted operating profit? Accounting 221
9. A company president wants the chief financial officer to tell him how many sales are
required to make a $1,375,000 operating profit. Variable production costs are 65% of
sales, and fixed costs are $3,125,000. What are the required sales, rounded to the closest
dollar?
10. Top Dog Company has a budget with sales of 7,500 units and $3,400,000. Variable costs
are budgeted at $1,850,000, and fixed overhead is budgeted at $970,000. What is the
budgeted manufacturing cost per unit?
company produced a hammock that sold 3,800 units at $75 per unit. The variable cost of
production was $32 per unit. The fixed costs were $120,000. What was the margin of
safety?
5. Sports Specialty Inc. produces a bicycle that it normally sells wholesale for $275 per
bike. The variable costs of production are $188 and the fixed cost for this product line is
$185,000 per month. The company has been selling this product at a rate of 2,400 units
per month. The company has received an order for 1,250 bikes at a price of $210 per
bike. The order is to ship to a market where the company has no business, so it is
believed it will not adversely affect existing business. The company has the capacity to
produce the special order. How much will operating profit increase if Sports Specialty
accepts this order?
6. Premier Manufacturing makes and distributes a wall clock that is popular with schools
and other institutions. Normal monthly sales are 2,750 clocks at an average sale price of
$45 per clock. Production of each clock takes 15 minutes of direct labor and has material
costs of $17. The direct labor rate is $17 per hour, and overhead is applied at a rate of $32
per direct labor hour. The overhead spending is 55% fixed and 45% variable costs.
Premier has been approached by a supplier offering to supply all of the clocks at a
finished cost of $28 per clock. Assume that all fixed overhead would remain, but the
variable overhead would be eliminated. What would be the change in monthly operating
income if Premier buys the clocks instead of making them?
7. Roscoe Enterprises has sales for a three-month period as follows: May, $255,000; June,
$265,000; July, $270,000. All sales are on account, and history has shown that accounts
receivable are typically collected 15% in the month of the sale, 55% in the month after
the sale, and 30% two months after the sale. What are Roscoe’s expected cash collections
in the month of July?
8. Mega Manufacturing has a budget to sell 120,000 units of a certain product at a selling
price of $36 per unit. Variable costs for materials, labor, and overhead are $17 per unit.
Fixed cost is $815,000. Actual sales were 130,000 units, and management would like to
see actual manufacturing performance compared to a budget adjusted for volume
(flexible budget). What would be the adjusted budgeted operating profit? Accounting 221
9. A company president wants the chief financial officer to tell him how many sales are
required to make a $1,375,000 operating profit. Variable production costs are 65% of
sales, and fixed costs are $3,125,000. What are the required sales, rounded to the closest
dollar?
10. Top Dog Company has a budget with sales of 7,500 units and $3,400,000. Variable costs
are budgeted at $1,850,000, and fixed overhead is budgeted at $970,000. What is the
budgeted manufacturing cost per unit?
