1.

Delphi Company has developed a new product that will be marketed for the first time during the next fiscal year. Although the Marketing Department estimates that 35,000 units could be sold at $36 per unit, Delphi's management has allocated only enough manufacturing capacity to produce a maximum of 25,000 units of the new product annually. The fixed expenses associated with the new product are budgeted at $450,000 for the year. The variable expenses of the new product are $16 per unit.

 

Required:

a. How many units of the new product must Delphi sell during the next fiscal year in order to break even on the product?

b. What is the profit Delphi would earn on the new product if all of the manufacturing capacity allocated by management is used and the product is sold for $36 per unit?

c. What is the degree of operating leverage for the new product if 25,000 units are sold for $36 per unit?

d. The Marketing Department would like more manufacturing capacity to be devoted to the new product. What would be the percentage increase in net operating income for the new product if its unit sales could be expanded by 10% without any increase in fixed expenses and without any change in the unit selling price and unit variable expense?

e. Delphi's management has stipulated that the new product must earn a profit of at least $125,000 in the next fiscal year. What unit selling price would achieve this target profit if all of the manufacturing capacity allocated by management is used and all of the output can be sold at that selling price?

 

 

2.

Parkins Company produces and sells a single product. The company's income statement for the most recent month is given below:

 

 

There are no beginning or ending inventories.

 

Required:

a. Compute the company's monthly break-even point in units of product.

b. What would the company's monthly net operating income be if sales increased by 25% and there is no change in total fixed expenses?

c. What dollar sales must the company achieve in order to earn a net operating income of $50,000 per month?

d. The company has decided to automate a portion of its operations. The change will reduce direct labor costs per unit by 40 percent, but it will double the costs for fixed factory overhead. Compute the new break-even point in units.

 

 

3.

Fields & Maaner PLC, a consulting firm, uses an activity-based costing in which there are three activity cost pools. The company has provided the following data concerning its costs and its activity based costing system:

 

 

Required:

a. How much cost, in total, would be allocated to the Working On Engagements activity cost pool?

b. How much cost, in total, would be allocated to the Business Development activity cost pool?

c. How much cost, in total, would be allocated to the Other activity cost pool?

 

 

4.

All sales at Meeks Company, a wholesaler, are made on credit. Experience has shown that 70% of the accounts receivable are collected in the month of the sale, 26% are collected in the month following the sale, and the remaining 4% are uncollectible. Actual sales for March and budgeted sales for the following four months are given below:

 

 

The company's cost of goods sold is equal to 60% of sales. All purchases of inventory are made on credit. Meeks Company pays for one half of a month's purchases in the month of purchase, and the other half in the month following purchase. The company requires that end-of-month inventories be equal to 25% of the cost of goods sold for the next month.

 

Required:

a. Compute the amount of cash, in total, which the company can expect to collect in May.

b. Compute the budgeted dollar amount of inventory which the company should have on hand at the end of April.

c. Compute the amount of inventory that the company should purchase during the months of May and June.

d. Compute the amount of cash payments that will be made to suppliers during June for purchases of inventory.

 

 

5. The TS Company has budgeted sales for the year as follows:

 

 

The ending inventory of finished goods for each quarter should equal 25% of the next quarter's budgeted sales in units. The finished goods inventory at the start of the year is 2,500 units. Four pounds of raw materials are required for each unit produced. Raw materials on hand at the start of the year total 4,200 pounds. The raw materials inventory at the end of each quarter should equal 10% of the next quarter's production needs in material.

 

Compute raw material purchases for the second quarter.