Question

INTEGRATION EXERCISE 2 Different Costs for Different Purposes, Cost-Volume-Profit-Relationships LO1-1, L01-2, LO1-3, LO1-4, LO1-5, LO1-6, LO5-1, LO5-3, LO5-5, LO5-7, LO5-8 Hixson Company manufactures and sells one product for S34 per unit. The company maintains no beginning or ending inventories and its relevant range of production is 20,000 units to 30,000 units. When Hixson produces and sells 25,000 units, its unit costs are as follows Amount per Unit Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Fixed selling expense Fixed administrative expense . . . . Sales commissions Variable administrative expense $8.00 $5.00 $1.00 $6.00 $3.50 $2.50 $4.00 $1.00 . . .. Required . For financial accounting purposes, what is the total amount of product costs incurred to make 25,000 units? What is the total amount of period costs incurred to sell 25,000 units? If 24,000 units are produced, what is the variable manufacturing cost per unit produced? What is the average fixed manufacturing cost per unit produced? 2. Integration Exercises 3. 4. If 27,000 units are produced, what are the total amounts of direct and indirect manufacturing 5. What total incremental manufacturing cost will Hixson incur if it increases production from 6. What is Hixson's contribution mar 7. What is Hixson's break-even point in unit sales? What is its break-even point in dollar 8. How much will Hixson's net operating income increase if it can grow production and sales 9. 10. If 26,000 units are produced, what is the variable manufacturing cost per unit produced? What is the average fixed manufacturing cost per unit produced? costs incurred to support this level of production? 25,000 to 25,001 units? gin per unit? What is its contribution margin ratio? sales? from 25,000 units to 26,500 units? What is Hixson's margin of safety at a sales volume of 25,000 units? What is Hixson degree of operating leverage at a sales volume of 25,000 units? INTEGRATION EXERCISE 3 Absorption Costing, Variable Costing, Cost-Volume-Profit-Relationships

Answer 1

Requirement 1: Calculate Total product cost incurred: Α Particulars 3 Direct materials 4 Direct labor 5 Variable manufacturing overhead 6 Fixed manufacturing overhead 7 Total product costs BC Per 25000 Unit Units $200,000 $125,000 $25,000 $150,000 $20 $500.000 Calculations are shown below: Per 25000 Particulars Unit Units 3 Direct materials =SC$1*B3 4 Direct labor =SC$1*B4 5 Variable manufacturing overhead 1 =SC$1*B5 6 Fixed manufacturing overhead =SC$1*B6 7 Total product costs =SUM(B3:B6) I=SUM(C3:C6) Calculate Total period costs incurred: Particulars 3 Fixed selling expense 4 Fixed administrative expense 5 Sales commissions 6 Variable administrative expense 7 Total period costs Bc Per 25000 Unit Units $3.50 $87,500 $2.50 $62,500 S4 $100,000 $25,000 11 $275,000 Calculations are shown below: Particulars 3 Fixed selling expense 4 Fixed administrative expense 5 Sales commissions 6 Variable administrative expense 7 Total period costs B Per 25000 Unit Units =SC$1*B3 2.5 =SC$1*B4 =SC$1*B5 =SC$1*B6 =SUM(B3:B6 =SUM(C3:CO

Requirement 2: Calculate Variable manufacturing cost per unit produced: $8 $5 1 Direct materials 2 Direct labor 3 Variable manufacturing overhead 4 Variable manufacturing cost per unit $14 Calculations are shown below: 1 Direct materials 2 Direct labor 3 Variable manufacturing overhead 4 Variable manufacturing cost per unit =B1+B2+B3 Calculate Average fixed manufacturing cost per unit produced: B A 1 Fixed manufacturing overhead 2 Number of units produced 3 Average fixed manufacturing cost per unit $150,000 24000 $6.25 Calculations are shown below: A B 1 Fixed manufacturing overhead =25000*6 2 Number of units produced 24000 3 Average fixed manufacturing cost per unit =B1/B2 Requirement 3: Calculate Variable manufacturing cost per unit produced:

Α 1 Direct materials 2 Direct labor 3 Variable manufacturing overhead 4 Variable manufacturing cost per unit) $1 $14 Calculations are shown below: Α 1 Direct materials 2 Direct labor 3 Variable manufacturing overhead 4 Variable manufacturing cost per unit =B1+B2+B3 Calculate Average fixed manufacturing cost per unit produced: 1 Fixed manufacturing overhead 2 Number of units produced 3 Average fixed manufacturing cost per unit $150,000 26000 $5.77 A B 1 Fixed manufacturing overhead = 25000*6 2 Number of units produced 26000 3 Average fixed manufacturing cost per unit =B1/B2 Requirement 4: Calculate Total direct manufacturing costs incurred: B A 1 Direct materials 2 Direct labor 3 Total direct manufacturing costs incurred $216,000 $135.000 $351,000 Calculations are shown below: A 1 Direct materials 2 Direct labor 3 Total direct manufacturing costs incurred B =27000*8 =27000*5 =B1+B2 Calculate Total indirect manufacturing costs incurred:

А 1 Variable manufacturing overhead 2 Fixed manufacturing overhead 3 Total indirect manufacturing costs incurred $27,000 $150.000 $177,000 Calculations are shown below: А 1 Variable manufacturing overhead 2 Fixed manufacturing overhead 3 Total indirect manufacturing costs incurred =27000*1 = 25000*6 =B1+B2 Requirement 5: Calculate Total Incremental manufacturing costs: А Incremental manufacturing costs $8 Units 2 Direct materials 3 Direct labor 4 Variable manufacturing overhead 5 Total 25000 $200,000 $125,000 $25,000 $350.000 25001 $200,008 $125,005 $25,001 $350.014 $5 $14 Calculations are shown below: в с Incremental manufacturing Units 25000 25001 costs 2 Direct materials =8*SBS1 I=8*$C$1 =C2-B2 3 Direct labor =5*$B$1 1=5*$C$1 =C3-B3 4 Variable manufacturing overhead =1*$B$1 I=1*$C$i C4-B4 5 Total =SUMB2:B4) ESUM(C2C4) =SUMD2:04) Requirement :

Calculate Contribution margin per unit: $34 A 1 Selling price per unit 2 Less: Variable costs per unit Direct materials Direct labor Variable manufacturing overhead Sales commissions Variable administrative expense 8 Total variable costs per unit 9 Contribution margin per unit S1 Calculations are shown below: C 1 Selling price per unit 2 Less: Variable costs per unit Direct materials Direct labor Variable manufacturing overhead Sales commissions Variable administrative expense 8 Total variable costs per unit 9 Contribution margin per unit =SUMB3-B7) =C1-CS Calculate Contribution margin ratio: B А 1 Contribution margin per unit 2 Selling price per unit 3 Contribution margin ratio $15 $34 44.1% Calculations are shown below: B 1 Contribution margin per unit 15 2 Selling price per unit 3 Contribution margin ratio =B1/B2 Requirement 7: Calculate Break-even point in units:

I 1 Fixed manufacturing overhead 2 Fixed selling expense 3 Fixed administrative expense 4 Total fixed costs 5 Contribution margin per unit 6 Break-even point in units $150,000 $87,500 $62.500 $300,000 $15 20000 Calculations are shown below: 1 Fixed manufacturing overhead 2 Fixed selling expense 3 Fixed administrative expense 4 Total fixed costs 5 Contribution margin per unit 6 Break-even point in units =25000*6 =25000*3.5 =25000*2.5 =B1+B2+B3 15 =B4/B5 Calculate Break-even point in dollars: 1 Break-even point in units 2 Selling price per unit 3 Break-even point in dollars B 20000 $34 $680.000 Calculations are shown below: Α B 1 Break-even point in units 20000 2 Selling price per unit 3 Break-even point in dollars =B1*B2 Requirement 8: Calculate Increase in net operating income:

Increase in net operaing income 25000 $15 $375,000 26500 $15 $397,500 Units 2 Contribution margin per unit) 3 Total contribution margin Total fixed costs( calculated 4 in requirement 7) 5 Net operating income $300,000 $75,000 $300,000 $97.500 $22.500 Calculations are shown below: А в с Increase in net operaing Units 25000 26500 income 2 Contribution margin per unit 15 3 Total contribution margin =B1 B2 =C1*C2 Total fixed costs( calculated in requirement 7) 300000 300000 5 Net operating income =B3-B4 =C3-C4 =C5-B5 Requirement 9: Calculate Margin of safety as follows: B $34 25000 $850,000 1 Selling price per unit 2 Number of units 3 Total sales Less: Breakeven sales in dollars 4 (calculated in requirement 7) 5 Margin of safety S680.000 $170.000 Calculations are shown below: B 34 25000 =B1*B2 1 Selling price per unit 2 Number of units 3 Total sales Less: Breakeven sales in dollars 4 (calculated in requirement 7) 5 Margin of safety 680000 =B3-B4 Requirement 10:

Calculate Degree of operating leverage as follows: B 25000 $15 $375,000 Α Units 2 Contribution margin per unit 1 3 Total contribution margin Total fixed costs( calculated in 4 requirement 7) 5 Net operating income 6 Degree of operating leverage $300,000 $75,000 Calculations are shown below: B Α Units 25000 2 Contribution margin per unit 15 3 Total contribution margin =B1*B2 Total fixed costs( calculated in 4 requirement 7) 300000 5 Net operating income =B3-B4 6 Degree of operating leverage =B3/B5 The results of the requirements are summarized below:

| | 1 Total prouct cost incurred Total period costs incurred 2 Variable manufacturing cost per unit produced Average fixed manufacturing cost per unit produced 3 Variable manufacturing cost per unit produced Average fixed manufacturing cost per unit produced 4 Total direct manufacturing costs incurred Total indirect manufacturing costs incurred 5 Total Incremental manufacturing costs 6 Contribution margin per unit Contribution margin ratio 7 Break-even point in units Break-even point in dollars 8 Increase in net operaing income 9 Margin of safety 10 Degree of operating leverage $275,000 $14.00 $6.25 $14.00 $5.77 $351,000 $177,000 $14 $15 44.10% 20000 units S680.000 $22,500 $170,000