1. Sweet Sue, Inc. produces particularly rich praline fudge. Each ten-ounce box
ID: 2448106 • Letter: 1
Question
1. Sweet Sue, Inc. produces particularly rich praline fudge. Each ten-ounce box sells for 5530. Variable costs arc as follows: Pecans SO 75 Sugar 0 35 Butter I 75 Other ingredients 0,24 13ox, packing ?Tomlin' 0.76 Selling commission 0.55 Fixed overhead cost is $24,000 per year. Fixed selling and administrative costs arc $9,000 per year. Sweet Sue, Inc. sold 35,000 boxes lust year. Required a. What is the contribution margin per box of praline Ridge? What is the contribution margin ratio? b. How many boxes most be sold to breakeven? What are the breakeven sales revenues? c. What was Sweet Sue, Inc.'s income before taxes last year'? d. What was the margin of safety? e. Suppose that Sweet Suc, Inc. raises the price to $6.00 per box, but anticipated sales will drop to 31.500 boxes. What will be the new breakeven point in units? Should Sweet Sue raise the price? Explain! 2. Alpha Company and Beta Inc. both use normal costing overhead rates to apply factor overhead to production. Alpha's is based on direct labor hours and Beta's is based on materials cost. Budgeted production and cost data for Alpha and Beta are as follows: Alpha Beta Manufacturing overhead S240,000 S300,000 Units 10.000 20,000 Direct labor costs 50,000 35,000 Direct labor hours 6,000 7,500 Material cost SI50,000 $400,000 At the end of the year, Alpha Company had incurred overhead of $221,000 and had produced 9,800 units using 6,100 direct labor hours and materials costing $147,000. Beta Inc. had incurred overhead of $316,500 and had produced 20,500 units using 7,550 Direct labor hours and materials costing $411,000. Job ZR100 incurred material cost of $50,000, direct labor cost of $10,000 (500 direct labor hours). Required a. Compute the (a) budgeted and (b) actual manufacturing overhead cost rates. b. What is the cost of Job ZR 100 using (a) normal and (b) actual job costing?Explanation / Answer
Particulars Amount (in $) Amount (in $) Selling Price per box 5.50 6.00 Less: Variable Costs Pecans 0.75 0.75 Sugar 0.35 0.35 Butter 1.75 1.75 Other Ingredients 0.24 0.24 Box, Packing Material 0.76 0.76 Selling commission 0.55 0.55 Total Variable Costs per box 4.40 4.40 Contribution per box 1.10 1.60 Total Contribution 38500.00 50400.00 Less: Fixed Costs 33000.00 33000.00 Profit 5500.00 17400.00 a) Contribution margin per box of praline fudge is $1.10. The contribution margin ratio is $1.10/$5.50 or 1/5 or 0.20. b) Break-even point (units) = Fixed Cost/Contribution per box 30000.00 Thus Break-even point is 30000 boxes. Break-even point(in $) = Fixed Cost/ P/V Ratio 165000.00 c) Sweet Sue Inc profit before tax last year was $5,500.00 d) Margin of Safety = Actual Sales - Break-even Sales 27500 e) Break-even point (units) = Fixed Cost/Contribution per box 20625.00 Thus Break-even point is 20625 boxes. Sweet Sue Inc should raise the price since alongwith the increase in price the profit and contribution also increases eventhough the sales decrease.
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