5. Pizza Pizazz is a local restaurant (A+)

Pizza Pizazz is a local restaurant. Price and cost information follows:

Price per pizza $14.41

Variable cost per pizza:

Ingredients 2.21

Direct labor 1.04

Overhead (box, etc.) .21

Fixed cost per month $4,599.00

Required

1 Calculate Pizza Pizzazz’s new break-even point under each of the following independent scenarios

a. Sales price increases by $1.20 per pizza.

b. Fixed costs increase by $525.00 per month.

c. Variable costs decrease by $.30 per pizza.

d. Sales price decreases by $.30 per pizza.

2 Assume that Pizza Pizzazz sold 450 pizzas last month. Calculate the company’s degree of operating leverage.

3 Using the degree of operating leverage calculate the impact on profit caused by a 7.00 percent increase in sales revenue.

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Nova Company’s total overhead costs at various levels of activity are presented below (A+)

Nova Company’s total overhead costs at various levels of activity are presented below:

Month Machine Hours Total Overhead Cost

April 80,000 $197,900

May 70,000 $189,200

June 90,000 $222,000

July 100,000 $253,100

Assume that the total overhead cost above consists of utilities, supervisory salaries, and maintenance. The breakdown of these costs at the 70,000 machine-hour level of activity is:

Utilities (variable) $48,300

Supervisory salaries (fixed) 20,400

Maintenance (mixed) 120,500

Total overhead cost $189,200

Nova Company’s management wants to break down the maintenance cost into its variable and fixed cost elements.

Required:

1) Estimate how much of the $253,100 of overhead cost in July was maintenance cost.

2) Using the high-low method, estimate a cost formula for maintenance.

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Amfac Company manufactures a single product (A+)

Amfac Company manufactures a single product. The company keeps careful records of manufacturing activities from which the following information has been extracted:

Level of Activity

March−Low June−High

Number of units produced 10,800 14,400

Cost of goods manufactured $411,400 $558,700

Work in process inventory, beginning $14,200 $22,200

Work in process inventory, ending $25,200 $15,500

Direct materials cost per unit $20 $20

Direct labor cost per unit $8 $8

Manufacturing overhead cost, total ? ?

The company\’s manufacturing overhead cost consists of both variable and fixed cost elements. To have data available for planning, management wants to determine how much of the overhead cost is variable with units produced and how much of it is fixed per month.

Required:

1) For both March and June, estimate the amount of manufacturing overhead cost added to production. The company had no underapplied or overapplied overhead in either month.

2) Using the high-low method, estimate a cost formula for manufacturing overhead where X represents the number of units produced.

3) If 11,300 units are produced during a month, what would be the cost of goods manufactured?

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Morrisey & Brown, Ltd., of Sydney is a merchandising company that is the sole distributor of a product that is increasing in popularity among Australian consumers (A+)

Morrisey & Brown, Ltd., of Sydney is a merchandising company that is the sole distributor of a product that is increasing in popularity among Australian consumers. The company\’s income statements for the three most recent months follow:

Morrisey & Brown, Ltd.

Income Statements

For the Three Months Ended September 30

July August September

Sales in units 2,000 3,100 4,650

Sales revenue $ 360,000 $ 558,000 $ 837,000

Cost of goods sold 140,000 217,000 325,500

Gross margin 220,000 341,000 511,500

Selling and administrative expenses:

Advertising expense 70,600 70,600 70,600

Shipping expense 43,400 56,600 75,200

Salaries and commissions 110,600 152,400 211,300

Insurance expense 8,700 8,700 8,700

Depreciation expense 41,600 41,600 41,600

Total selling and administrative expenses 274,900 329,900 407,400

Net operating income (loss) $ (54,900) $ 11,100 $ 104,100

(Note: Morrisey & Brown, Ltd.\’s Australian-formatted income statement has been recast in the format common in the United States.

Required:

1) Identify each of the company\’s expenses (including cost of goods sold) as either variable, fixed, or mixed.

2)

(a) Using the high-low method, separate each mixed expense into variable and fixed elements.

(b) State the cost formula for each mixed expense. (X represents sales in units)

3) Redo the company\’s income statement at the 4,650-unit level of activity using the contribution format.

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Marwick’s Pianos, Inc., purchases pianos from a large manufacturer and sells them at the retail level (A+)

Marwick\’s Pianos, Inc., purchases pianos from a large manufacturer and sells them at the retail level. The pianos cost, on the average, $1,502 each from the manufacturer. Marwick\’s Pianos, Inc., sells the pianos to its customers at an average price of $3,400 each. The selling and administrative costs that the company incurs in a typical month are presented below:

Selling:

Advertising $955 per month

Sales salaries and commissions $4,775 per month, plus 5% of sales

Delivery of pianos to customers $61 per piano sold

Utilities $641 per month

Depreciation of sales facilities $5,073 per month

Administrative:

Executive salaries $13,453 per month

Insurance $689 per month

Clerical $2,503 per month, plus $36 per piano sold

Depreciation of office equipment $908 per month

Required:

1) Prepare an income statement for Marwick\’s Pianos, Inc., for August. Use the traditional format, with costs organized by function. (Input all amounts as positive values except net operating loss which should be indicated by a minus sign.

2) Redo (1) above, this time using the contribution format, with costs organized by behavior. Show costs and revenues on both a total and a per unit basis down through contribution margin.

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The following is a partial list of the account balances, after adjustments, of Silvoso Company (A+ Guaranteed)

Comprehensive: Income Statement and Supporting Schedules.The following is a partial list of the account balances, after adjustments, of Silvoso Company on December 31, 2013:

Depreciation Expense: Buildings and Offïce Equipment $ 14,500

Sales Commissions and Salaries ……………………………………….18,200

Inventory, January 1, 2013 …………………………………………………….37,800

Sales Supplies Used…………………………………………………………….. 5,600

Retained Earnings, January 1, 2013 ……………………………………83,700

Purchases Returns and Allowances……………………………………. 6,200

Bad Debts Expense……………………………………………………………… 2,700

Transportation-in …………………………………………………………………13,500

Sales Discounts Taken ………………………………………………………..4,900

Purchases 173,000 Delivery Expense …………………………………7,700

Office Supplies Expense ………………………………………………..1,400

Common Stock, $10 par ……………………………………………………80,000

Loss on Sale of Office Equipment (pretax) …………………….5,000

Insurance and Property Tax Expense………………………………… 8,500

Sales ………………………………………………………………………………340,700

Rent Revenue …………………………………………………………………….6,900

Office and Administrative Salaries Expense………………. 32,000

Promotion and Advertising Expense ……………………………….17,000

Sales Returns and Allowances ……………………………………….12,100

Purchases Discounts Taken…………………………………………… 4,100

Depreciation Expense: Sales Equipment……………………….. 9,600

Interest Expense……………………………………………………………… 3,700

The following information is also available:

1. The company declared and paid a $0.60 per share cash dividend on its common stock. The stock was outstand-ing the entire year.

2. A physical count determined that the December 31, 2013, ending inventory is $34,100.

3. A tornado destroyed a warehouse, resulting in a pretax loss of $12,000. The last tornado in this area had occurred 20 years earlier.

4. On May 1, 2013, the company sold an unprofitable division (R). From January through April, Division R (a component of the company) had incurred a pretax operating loss of $8,700. Division R was sold at a pretax gain of $10,000.

5. The company is subject to a 30% income tax rate. Its income tax expense for 2013 totals $4,230.

The break-down is as follows: Income

Tax Expense (Credit) Related to Amount Continuing income $ 7,440

Operating loss of Division R (2,610)

Gain on sale of Division R 3,000

Loss from tornado (3,600) $ 4,230

6. The company had average shareholders’ equity of $150,000 during 2013.

Required: 

1. As supporting documents for Requirement 2, prepare separate supporting schedules for cost of goods sold, sell-ing expenses, general and administrative expenses, and depreciation expense.

2. Prepare a 2013 multiple-step income statement for Silvoso. Include any related note to the financial statements.

3. Prepare a 2013 retained earnings statement.

4. Next Level What was Silvosos return on shareholders’ equity for 2013? What is your evaluation of Silvosos return on shareholders’ equity if last year it was 10%

 

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St. Mark’s Hospital contains 450 beds (A+)

St. Mark\’s Hospital contains 450 beds. The average occupancy rate is 68% per month. In other words, on average, 68% of the hospital\’s beds are occupied by patients. At this level of occupancy, the hospital\’s operating costs are $20.50 per occupied bed per day, assuming a 30-day month. This $20.50 figure contains both variable and fixed cost elements.

During June, the hospital\’s occupancy rate was only 52%. A total of $175,230 in operating cost was incurred during the month.

Required:

1)

(a) Estimate the variable cost per occupied bed on a daily basis using high-low method.

(b) Estimate the total fixed operating costs per month using high-low method.

2) Assume an occupancy rate of 56% per month. What amount of total operating cost would you expect the hospital to incur?

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The Lakeshore Hotel’s guest-days of occupancy and custodial supplies expense over the last seven months were (A+)

The Lakeshore Hotel\’s guest-days of occupancy and custodial supplies expense over the last seven months were:

Month Guest-Days of Occupancy Custodial Supplies Expense

March 2,820 $17,500

April 4,460 $21,700

May 5,030 $23,100

June 4,250 $19,900

July 7,050 $27,500

August 7,060 $28,948

September 3,120 $17,800

Guest-days is a measure of the overall activity at the hotel. For example, a guest who stays at the hotel for three days is counted as three guest-days.

Required:

1) Using the high-low method, estimate a cost formula for custodial supplies expense where X is the number of guest-days

2) Using the cost formula you derived above, what amount of custodial supplies expense would you expect to be incurred at an occupancy level of 4,590 guest-days?

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A partially completed schedule of the company\’s total and per unit costs over the relevant range of 58,000 to 98,000 units produced and sold annually is given (A+)

A partially completed schedule of the company\’s total and per unit costs over the relevant range of 58,000 to 98,000 units produced and sold annually is given. Complete the schedule of the company\’s total and unit costs below

Units Produced and Sold

58,000 78,000 98,000

Total costs:

Variable costs $145,000

Fixed costs 390,000

Total costs $535,000

Cost per unit:

Variable cost

Fixed cost

Total cost per unit

Required:

1) A partially completed schedule of the company\’s total and per unit costs over the relevant range of 58,000 to 98,000 units produced and sold annually is given. Complete the schedule of the company\’s total and unit costs below

2) Assume that the company produces and sells 88,000 units during the year at a selling price of $8.9 per unit. Prepare a contribution format income statement for the year.

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The Alpine House, Inc., is a large retailer of winter sports equipment (A+)

The Alpine House, Inc., is a large retailer of winter sports equipment. An income statement for the company\’s Ski Department for a recent quarter is presented below:

The Alpine House, Inc.

Income Statement—Ski Department

For the Quarter Ended March 31

Sales $150,000

Cost of goods sold 90,000

Gross margin 60,000

Selling and administrative expenses:

Selling expenses $30,000

Administrative expenses 10,000 40,000

Net operating income $20,000

Skis sell, on the average, for $750 per pair. Variable selling expenses are $50 per pair of skis sold. The remaining selling expenses are fixed. The administrative expenses are 20% variable and 80% fixed. The company does not manufacture its own skis; it purchases them from a supplier for $450 per pair.

Required:

1) Prepare a contribution format income statement for the quarter.

2) For every pair of skis sold during the quarter, what was the contribution toward covering fixed expenses and toward earning profits?

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