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acct 210-Assignment 5b-WIGGINS PROCESSING COMPANY

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acct 210-Assignment 5b-WIGGINS PROCESSING COMPANY

Assignment 5bQuestion 1Not completePoints out of 16.00Flag questionQuestion textMultiple Product Planning with TaxesIn the year 2008, Wiggins Processing Company had the following contribution incomestatement:WIGGINS PROCESSING COMPANYContribution Income StatementFor the Year 2008Sales$1,000,000Variable costsCost of goods sold$460,000Selling and administrative 200,000(660,000)Contribution margin340,000Fixed CostsFactory overhead192,000Selling and administrative 80,000(272,000)Before-tax profit68,000Income taxes (38%)(25,840)Assignment 5bWIGGINS PROCESSING COMPANYContribution Income StatementFor the Year 2008After-tax profit$42,160HINT: Round the contribution margin ratio to two decimal places for your calculations below.(a) Determine the annual break-even point in sales dollars.$Answer0(b) Determine the annual margin of safety in sales dollars.$Answer0(c) What is the break-even point in sales dollars if management makes a decision that increasesfixed costs by $34,000?Answer0(d) With the current cost structure, including fixed costs of $272,000, what dollar sales volume isrequired to provide an after-tax net income of $160,000?Do not round until your final answer. Round your answer to the nearest dollar.$Answer0Assignment 5b(e) Prepare an abbreviated contribution income statement to verify that the solution to part (d)will provide the desired after-tax income.Round your answers to the nearest dollar. Use rounded answers for subsequent calculations. Donot use negative signs with any of your answers.WIGGINS PROCESSING COMPANYIncome StatementFor the Year 2008Sales$Answer0Answer0Variable costs (66% of sales)Contribution marginFixed costsNet income before taxesIncome taxes (38%)Net income after taxesCheckNextAnswer0Answer0Answer0Answer0$Answer0Assignment 5bQuestion 2Not completePoints out of 8.00Flag questionQuestion textAlternative Production Procedures and Operating LeverageAssume Paper Mate is planning to introduce a new executive pen that can be manufactured usingeither a capital­intensive method or a labor­intensive method. The predicted manufacturing costs foreach method are as follows:Capital Intensive Labor IntensiveDirect materials per unit$5.00$6.00Direct labor per unit$5.00$13.00Variable manufacturing overhead per unit$5.00$2.00$2,580,000.00$780,000.00Fixed manufacturing overhead per yearPaper Mate’s market research department has recommended an introductory unit sales price of $31.The incremental selling costs are predicted to be $500,000 per year, plus $2 per unit sold.(a) Determine the annual break­even point in units if Paper Mate uses the:1. Capital­intensive manufacturing method.Answer0units2. Labor­intensive manufacturing method.Answer0units(b) Determine the annual unit volume at which Paper Mate is indifferent between the twomanufacturing methods.Answer0Assignment 5bunits(c) Management wants to know more about the effect of each alternative on operating leverage.1. Explain operating leverage and the relationship between operating leverage and the volatility ofearnings.They are positively correlated, with increases in operating leverage accompanied by increasesin the volatility of earnings.They have little or no correlation because they are unrelated.They are negatively correlated, with increases in operating leverage accompanied by decreasesin the volatility of earnings.2. Compute operating leverage for each alternative at a volume of 260,000 units. Round youranswers two decimal places.Capital­Intensive operating leverage AnswerLabor­Intensive operating leverage Answer003. Which alternative has the higher operating leverage? Why?The capital intensive method has a higher operating leverage because of the greater use offixed assets.The labor intensive method has a higher operating leverage because of higher variableconversion costs.The labor intensive method has a higher operating leverage because of lower variablemanufacturing overhead.The capital intensive method has a higher operating leverage because of the higher variablemanufacturing overhead.CheckAssignment 5bQuestion 3Not completePoints out of 10.00Flag questionQuestion textContribution Income Statement and Operating LeverageFlorida Berry Basket harvests early­season strawberries for shipment throughout the eastern UnitedStates in March. The strawberry farm is maintained by a permanent staff of 10 employees andseasonal workers who pick and pack the strawberries. The strawberries are sold in crates containing100 individually packaged one­quart containers. Affixed to each one­quart container is the distinctiveFlorida Berry Basket logo inviting buyers to "Enjoy the berry best strawberries in the world!" Theselling price is $100 per crate, variable costs are $85 per crate, and fixed costs are $275,000 peryear. In the year 2013, Florida Berry Basket sold 50,000 crates.(a) Prepare a contribution income statement for the year ended December 31, 2013. HINT: Use anegative sign with both "costs" answers.FLORIDA BERRY BASKETIncome StatementFor the Year Ended December 31, 2013SalesVariable costs$Answer0Answer0Answer0Contribution marginAnswer0Fixed costs$AnswerNet income0Assignment 5b(b) Determine the company’s 2013 operating leverage. (Round your answer to two decimal places.)Answer0(c) Calculate the percentage change in profits if sales decrease by 10 percent. (Round your answerto one decimal place.)Answer0% decrease(d) Management is considering the purchase of several berry­picking machines. This will increaseannual fixed costs to $375,000 and reduce variable costs to $81.50 per crate. Calculate the effect ofthis acquisition on operating leverage and explain any change. (Round your answers two decimalplaces.)Answer0The acquisition of the berry­picking machines will decrease variable costs, thereby increasingthe contribution margin. It will also increase fixed costs, thereby increasing the difference betweenthe contribution margin and net income. The net effect would be an increase in operating leverage.The acquisition of the berry­picking machines will increase variable costs, thereby increasing thecontribution margin. It will also increase fixed costs, thereby decreasing the difference between thecontribution margin and net income. The net effect would be an increase in operating leverage.The acquisition of the berry­picking machines will increase variable costs, thereby increasing thecontribution margin. It will also decrease fixed costs, thereby decreasing the difference between thecontribution margin and net income. The net effect would be a decrease in operating leverage.The acquisition of the berry­picking machines will reduce variable costs, thereby increasing thecontribution margin. It will also reduce fixed costs, thereby increasing the difference between thecontribution margin and net income. The net effect would be a decrease in operating leverage.CheckNextQuestion 4Assignment 5bNot completePoints out of 22.00Flag questionQuestion textCost­Volume­Profit Relations: Missing DataFollowing are data from 4 separate companies. Supply the missing data in each independent caseCase AUnit SalesCase B1,000Sales revenue$20,000Variable cost per unitContribution marginUnit contribution marginBreak-even point (units)Margin of safety (units)CheckQuestion 5Not complete800$Answer$600$Answer0AnswerAnswer$60,000$Answer0$Answer00$60,000$Answer$Answer0$Answer000$1304,0002,00001001,000Answer0$Answer$Answer00Answer$1000$Answer$Answer$Answer$Answer00$8000$8,100Answer0$2$AnswerCase DAnswer0$10Fixed CostsNet incomeCase CAssignment 5bPoints out of 3.00Flag questionQuestion textHigh­Low Cost Estimation and Profit PlanningComparative 2007 and 2008 income statements for Dakota Products Inc. follow:DAKOTA PRODUCTS INC.Comparative Income StatementsFor Years Ending December 31, 2007 and 2008200720085,0008,000Sales revenue$60,000$96,000Expenses(64,000)(76,000)Profit (loss)$(4,000)$20,000Unit sales(a) Determine the break­even point in units.Answer0units(b) Determine the unit sales volume required to earn a profit of $5,000.Answer0CheckQuestion 6Not completePoints out of 6.00Assignment 5bFlag questionQuestion textCVP Analysis and Special DecisionsSweet Grove Citrus Company buys a variety of citrus fruit from growers and then processes the fruitinto a product line of fresh fruit, juices, and fruit flavorings. The most recent year’s sales revenue was$4,200,000. Variable costs were 60 percent of sales and fixed costs totaled $1,300,000. SweetGrove is evaluating two alternatives designed to enhance profitability.One staff member has proposed that Sweet Grove purchase more automated processingequipment. This strategy would increase fixed costs by $200,000 but decrease variable costs to54 percent of sales.Another staff member has suggested that Sweet Grove rely more on outsourcing for fruitprocessing. This would reduce fixed costs by $200,000 but increase variable costs to 65 percentof sales.Round your answers to the nearest whole number.(a) What is the current break­even point in sales dollars?$Answer0(b) Assuming an income tax rate of 36 percent, what dollar sales volume is currently required toobtain an after­tax profit of $700,000?$Answer0(c) In the absence of income taxes, at what sales volume will both alternatives (automation andoutsourcing) provide the same profit?$Answer0Assignment 5b(d) Briefly describe one strength and one weakness of both the automation and the outsourcingalternatives.Automation has less risk and a lower break­even point. Outsourcing has higher profits if salesincrease.Automation has higher profits if sales increase and a lower break­even point. Outsourcing hasless risk.Automation has less risk. Outsourcing has higher profits if sales increase and a lower break­even point.Automation has higher profits if sales increase. Outsourcing has less risk and a lower break­even point.CheckNextQuestion 7Not completePoints out of 2.00Flag questionQuestion textMultiple Product Break­Even AnalysisPresented is information for Stafford Company’s three products.Assignment 5bAUnit selling priceBC$6 $8 $7(4) (5) (3)Unit variable costs$2 $3 $4Unit contribution marginWith monthly fixed costs of $112,500, the company sells two units of A for each unit of B and threeunits of B for each unit of C.Determine the unit sales of product A at the monthly break­even point.Answer0unitsCheckQuestion 8Not completePoints out of 22.00Flag questionQuestion textCost­Volume­Profit Relations: Missing DataFollowing are data from 4 separate companies. Supply the missing data in each independent case.Assignment 5bCase 1Case 2Case 3Case 4$AnswerSales revenue$120,000$Answer0$80,0000$AnswerContribution marginFixed costs$Answer0$60,000$30,000$Answer$Answer$Answer000$Answer$Answer0Net income$5,000AnswerAnswerQuestion 9Not completePoints out of 6.0000.400$Answer0$Answer00.20Answer$Answer0$AnswerNext0Answer$AnswerCheck0.500Contribution margin ratioMargin of safety (dollars)0$10,000Answer0Variable cost ratioBreak-even point (dollars)0$20,0000$25,0000$20,000$Answer0Assignment 5bFlag questionQuestion textMultiple­Level Break­Even AnalysisJensen Associates provides marketing services for a number of small manufacturing firms.Jensen receives a commission of 10 percent of sales. Operating costs are as follows:Unit-level costs$ 0.04 per sales dollarSales-level costs$ 300 per sales orderCustomer-level costs $ 900 per customer per yearFacility-level costs$ 60,000 per year(a) Determine the minimum order size in sales dollars for Jensen to break even on an order.$Answer0(b) Assuming an average customer places four orders per year, determine the minimum annualsales required to break even on a customer.$Answer0(c) What is the average order size in (b)?$Answer0(d) Assuming Jensen currently serves 100 customers, with each placing an average of four ordersAssignment 5bper year, determine the minimum annual sales required to break even.$Answer0(e) What is the average order size in (d)?$Answer0(f) Explain the differences in the answers to (a), (c), and (e).In the long­run the most important costs are facility level costs.The most important costs to cover are unit level costs.In multiple customer firms the break­even point decreases as the number of customersincreases.Even if individual orders have a positive contribution, some customers may be unprofitable.CheckQuestion 10Not completePoints out of 5.00Flag questionAssignment 5bQuestion textProfitability AnalysisAssume a local Cost Cutters provides cuts, perms, and hairstyling services. Annual fixed costs are$120,000, and variable costs are 40 percent of sales revenue. Last year’s revenues totaled$250,000.(a) Determine its break­even point in sales dollars.$Answer0(b) Determine last year’s margin of safety in sales dollars.$Answer0(c) Determine the sales volume required for an annual profit of $80,000.Round your answers to the nearest dollar.$Answer0CheckNextAssignment 5b



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