Louisville Jar Co. has processing plants in Kentucky and Pennsylvania. Both plan
ID: 2584088 • Letter: L
Question
Louisville Jar Co. has processing plants in Kentucky and Pennsylvania. Both plants use recycled glass to produce jars that a variety of food processors use in food canning. The jars sell for $10 per hundred units. Budgeted revenues and costs for the year ending December 31, 2014, in thousands of dollars, are:
Kentucky
Pennsylvania
Total
Sales
$1,100
$2,000
$3,100
Variable production costs
Direct material
275
500
775
Direct labor
330
500
830
Factory overhead
220
350
570
Fixed factory overhead
350
450
800
Fixed regional promotional costs
50
50
100
Allocated home office costs
55
100
155
Total costs
1280
1950
3230
Operating income (loss) before tax
($180)
$50
($130)
Home office costs are fixed and are allocated to manufacturing plants on the basis of relative sales levels. Fixed regional promotional costs are discretionary advertising costs needed to obtain budgeted sales levels.
Because of the budgeted operating loss, Louisville Jar Co. is considering ceasing operations at its Kentucky plant. If it does so, proceeds from the sale of plant assets will exceed asset book values and exactly cover all termination costs; fixed factory overhead costs of $25,000 would not be eliminated. Louisville Jar Co. is considering the following three alternative plans:
PLAN A: Expand Kentucky's operations from its budgeted 11,000,000 units to a budgeted 17,000,000 units. It is believed that this can be accomplished by increasing Kentucky's fixed regional promotional expenditures by $120,000.
1. What is the unit contribution margin for the Kentucky Plant? (carry out to three decimal places)
$__.__ __ __ per unit
2. Compute the number of units that the Kentucky plant must produce and sell to cover all of the fixed cost (traceable and allocated). __________units (do not include words in your answer)
3. Compute the number of units that the Kentucky plant must produce and sell to cover all of the fixed cost (traceable and allocated) and generate a before tax profit of $140,000.? __________units
4. Compute the number of units that the Kentucky plant must produce and sell to cover all of the fixed cost (traceable and allocated) and generate an after tax profit of $140,000? (Assume a 30% tax rate for this company) __________units
Answer the following regarding Plan A
Prepare the segmented income statement for Louisville Jar Co. using the assumptions provided in Plan A.
5. What is the new contribution margin for the Kentucky processing plant?
6. What is the new segment margin for the Kentucky processing plant?
7. How much of the $155,000 in allocated fixed costs will be allocated to the Kentucky plant? (round to the nearest dollar)
8. What is Kentucky's estimated operating income (loss) if plan A is employed? (rounded to the nearest dollar) If a loss, include a negative sign before the number.
9. What is Pennsylvania's estimated operating income (loss) if plan A is employed? (rounded to the nearest dollar) If a loss, include a negative sign before the number.
10. What is Louisville Jar Co's total operating income (loss)? If a loss, include a negative sign before the number.
11. What is the overall impact to Louisville Jar Co's operating income if they implement Plan A. If it decreases operating income, include a negative sign before the number.
Kentucky
Pennsylvania
Total
Sales
$1,100
$2,000
$3,100
Variable production costs
Direct material
275
500
775
Direct labor
330
500
830
Factory overhead
220
350
570
Fixed factory overhead
350
450
800
Fixed regional promotional costs
50
50
100
Allocated home office costs
55
100
155
Total costs
1280
1950
3230
Operating income (loss) before tax
($180)
$50
($130)
Explanation / Answer
As per chegg policy maximum four sub parts of a question can be answered, if you want answer of more sub parts pl. ask it separately on Chegg website
1. What is the unit contribution margin for the Kentucky Plant?
$__0.025__ __ __ per unit
2. Compute the number of units that the Kentucky plant must produce and sell to cover all of the fixed cost (traceable and allocated). _18,200,000_________units (do not include words in your answer)
3. Compute the number of units that the Kentucky plant must produce and sell to cover all of the fixed cost (traceable and allocated) and generate a before tax profit of $140,000.? _23,800,000____units
4. Compute the number of units that the Kentucky plant must produce and sell to cover all of the fixed cost (traceable and allocated) and generate an after tax profit of $140,000? (Assume a 30% tax rate for this company) _26,200,000_________units
Working Note:
Kentucky Pennsylvania Total Sales 1,100 2,000 3,100 Variable production costs Kentucky Pennsylvania Total Direct material 275 500 775 Direct labor 330 500 830 Factory overhead 220 350 570 Total 825 1350 2175 Contribution (Sales-Varaible Cost) 275 650 925 No of units sold 1,10,00,000 2,00,00,000 3,10,00,000 Contribution per unit 0.0250 0.0325 0.0298 Fixed Costs Kentucky Pennsylvania Total Fixed factory overhead 350 450 800 Fixed regional promotional costs 50 50 100 Total 400 500 900 Kentucky Pennsylvania Total Allocated home office costs 55 100 155 Total Fixed cost included allocated 455 600 1055 BEP=Total fixed cost/cont per unit 1,82,00,000 18,462 35,357 Profit required berfore tax 140,000 140 Total Fixed cost + profit 595 Sales Required =(FC+profit)/Cont p.u 2,38,00,000 Profit required after tax 140,000 140 Profit before tax=140/(1-30%) 200 Total Fixed cost + profit bef. Tax 655 Sales Required =(FC+profit)/Cont p.u 2,62,00,000Related Questions
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