Select Page

HOMEWORK 1 (Total Possible Points: 100)

Problem 1: CVP analysis(30 points total)

The owners of Cobb’s Gym currently are working on
their operating plan for the coming year, and they have provided you with the
following average membership and cost data for the previous year:

Annual
membership fee
\$400 per member

Number
of members 6,000

Variable
cost (supplies, instructors, etc.)
\$130 per member

Fixed
costs (equipment, salaries, etc.)
\$945,000

The owners anticipate that, for the coming year, both
total fixed costs and the variable cost per member will remain unchanged from
the previous year.

a. Assuming the same number of members as last year,
what is Cobb’s expected profit for the coming year? (10 points)

b.How many members must Cobb’s Gym have to
break even? (10 points)

c.The owners of Cobb’s Gym are considering
reducing the annual membership fee by 10%.
They believe this will increase membership to 7,500 members for the
coming year. What will profit be if the
owner’s adopt this strategy (note: the
membership fee for all members will be reduced by 10%)?

Does this seem like a good option? Support your answer with calculations. (10 points)

Problem 2: CVP analysis(10 points total)

DeKalb Corporation produces three products, A, B and C. The normal volume is 350 units of A, 140
units of B and 210 units of C. The price
per unit is \$5, \$7, \$10, for products A, B, and C, respectively. The variable cost per unit is \$2, \$3, \$4, for
products A, B, and C. respectively. The
total fixed costs are \$2,400.

What is the weighted average
contribution margin per unit?

Problem
3: Job costing and overhead allocation methods
(30 points total)

Fulton Company’s actual manufacturing
overhead cost for the month of July was \$90,000. The company’s predetermined
overhead rate was 40% of direct labor cost. Other information pertaining to
Fulton’s inventories and production for the month of July is as follows:

 Beginning inventories, July 1: Direct materials \$13,000 Work in process \$40,000 Finished goods \$80,000 Purchases of direct materials during July \$110,000 Direct labor cost \$180,000 Ending inventories, July 31 Direct materials \$16,000 Work in process \$26,000 Finished goods \$75,000

a. Determine the
amount of direct materials used during July. (10 points)

b. Determine the
underallocated or overallocated overhead for the month. (10 points)

c. Determine the
Cost of Goods Manufactured for the month. (10 points)

Problem
4: Activity-based costing
(30 points total)

Rome, Inc., produces two
products, Product A and Product B. If currently allocates overhead costs using
direct-labor hours, but the controller has recommended an activity-based
costing (ABC) system using the following data:

 Activity Level Activity Cost-Driver Base Cost Product A Product B Production setup Number of setups \$ 90,000 11 19 Materials handling & requisition Number of parts per unit \$ 15,000 6 18 Packaging & shipping Number of units shipped \$ 45,000 30,000 60,000 Total overhead \$150,000

a. Compute the amount of overhead to be allocated to each product
using direct-labor hours as the allocation base. Assume that the number of
direct-labor hours required to assemble each unit is 0.5 per unit for Product A
and 1.0 per unit for Product B. The company produces 30,000 units of Product A
and 60,000 units of Product B. (
10 points)

b. Compute the amount of overhead to be allocated to each product
under ABC. (
10 points)

c. Should the company follow the controller’s recommendation?