Reference no: EM132478910

Check figures:

1.

a. 100,000 total units, consisting of 70,000 alligators and 30,000 dolphins

b. 91,490 total units (rounded), consisting of 27,447 alligators and 64,043 dolphins

2.

a. Cost driver rate = $18.48 per DL; support cost assigned to ST101 = $138,600

b. Cutting cost driver rate = $0.525 per machine hour; support cost assigned =$10,500

Grinding cost driver rate = $24 per DL hour; support cost assigned = $60,000

Drilling cost driver rate = $19 per DL hour; support cost assigned = $57,000

Problem 1.

Multiple-product breakeven analysis

Florida Favorites Company produces toy alligators and toy dolphins. Fixed costs are $1,290,000 per year. Sales revenue and variable costs per unit are as follow:

                   Alligators              Dolphins

Sales price      $20                     $25

Variable costs       $8                $10

Required

Question a. Suppose the company currently sells 140,000 alligators per year and 60,000 dolphins per year. Assuming the sales mix stays constant, how many alligators and dolphins must the company sell to break even per year?

Question b. Suppose the company currently sells 60,000 alligators per year and 140,000 dolphins per year. Assuming the sales mix stays constant, how many alligators and dolphins must the company sell to break even per year?

Question c. Explain why the total number of toys needed to break even in (a) is the same as or different from the number in (b).

Problem 2.

Single rate versus departmental rates

Bravo Steel Company supplies structural steel products to the construction industry. Its plant has three production departments: cutting, grinding, and drilling. The estimated support activity cost, estimated direct labor hours, and estimated machine hours for each department for 2006 follow:

                                         CUTTING         GRINDING                   DRILLING

Support activity cost            $504,000          $2,304,000               $2,736,000

Estimated direct labor hours     60,000           96,000                     144,000

Estimated machine hours         960,000           480,000                  360,000

The direct labor and machine hours consumed by job ST101 are as follows:

                                        CUTTING          GRINDING                   DRILLING

Direct labor hours                   2,000.           2,500                        3,000

Machine hours                      20,000              3,000                     2,000

Required

Question a. Assume that a single, plantwide, predetermined support cost driver rate is computed by dividing plantwide support costs by plantwide direct labor hours. Determine the support cost applied to job ST101.

Question b. Determine the departmental support cost driver rates and support costs applied to job ST101, assuming that machine hours are used as the cost driver in the cutting department and that direct labor hours are used as the cost driver for the grinding and drilling departments.

Question c. Explain why Bravo Steel might prefer a plantwide rate or departmental support cost driver rates.