The Bags and Luggage Company had the following account balances as of January 1:
ID: 2356590 • Letter: T
Question
The Bags and Luggage Company had the following account balances as of January 1: Direct Materials Inventory $ 9,200 Work in Process Inventory 78,400 Finished Goods Inventory 53,600 Manufacturing Overhead -0- During the month of January, all of the following occurred: 1. Direct labor costs were $42,000 for 1,800 hours worked. 2. Direct materials costing $35,750 and indirect materials costing $3,500 were purchased. 3. Sales commissions of $16,500 were earned by the sales force. 4. $26,000 worth of direct materials were used in production. 5. Advertising costs of $6,300 were incurred. 6. Factory supervisors earned salaries of $12,000. 7. Indirect labor costs for the month were $3,000. 8. Monthly depreciation on factory equipment was $4,500. 9. Utilities expense of $7,800 was incurred in the factory. 10. Luggage with manufacturing costs of $70,100 were transferred to finished goods. 11. Monthly insurance costs for the factory were $4,200. 12. $5,000 in property taxes on the factory were incurred and paid. 13. Luggage with manufacturing costs of $89,000 were sold for $145,000. a. Assume If Bags and Luggage assigns manufacturing overhead of $34,400, what will be the balances in the Direct Materials, Work in Process, and Finished Goods Inventory accounts at the end of January? (Input all amounts as positive values. Omit the "$" sign in your response.) Direct materials inventory $ Work in process inventory $ Finished goods inventory $ b. As of January 31, what will be the balance in the Manufacturing Overhead account? (Input all amounts as positive values.Omit the "$" sign in your response.) Manufacturing overhead $ c. What was Bags and Luggage's operating income for January? (Input all amounts as positive values. Omit the "$" sign in your response.) Operating income $Explanation / Answer
This is an algebraic equation with 2 variables, let's call them (S)tandard and (D)eluxe. The break even point is where your total contribution margins equal fixed costs. We know fixed cost=$1,200,000, and the planned mix is 3 standard to 1 deluxe. (Units Sold 150,000 to 50,000) We can now make 2 equations: S*6 + D*12=1,200,000 and S=D*3 Substitute and solve for D D*18+D*12=1,200,000 If you're good with logic, there's a faster way: since reducing our current income by 20% gets us to breakeven (from the current $1,500,000 to the fixed $1,200,000), just reduce the current output of units by 20%.
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