ACCT 321
Homework Week 7
Question #1 Traditional Income
Statement
Sales (9,000 x $4)
$36,000
Cost of Goods Sold:
Direct Materials
9,000
Direct Labor
9,000
Manuf. Overhead:
Variable
1,800
Fixed
8,000
9,800
Cost of Goods
Sold
27,800
Gross Margin
8,200
Operating Costs
Variable:
Commissions
1,800
Packaging and Postage
360
2,160
Fixed:
Advertising
2,000
Salaries
2,000
4,000
6,160
Administrative Costs:
Variable
450
Fixed
2,040
2,490
Total
Operating Costs
8,650
Operating Income (Loss)
(450)
a.
Reformat
the above Traditional Income Statement into a Contribution Margin method Income
Statement.
b.
What
is the difference, and the purpose a manager would choose to prepare a
Contribution Margin Income Statement?
Question
#2. Make or Buy
Camping Company estimates that it would incur the following
costs to produce 6,000 tent lanterns:
Per Unit
Direct Material
$10.00
Direct Labor
8.50
Variable Factory Overhead
9.00
Fixed Factory Overhead
15.00
Outdoor Accessories has offered to
sell Camping Company tent lanterns for $59 per unit. If the lanterns are purchased
from Outdoor Accessories, Camping Company can reduce its fixed factory overhead
by 28%.
a.
What is the total cost Camping
Company will incur if it makes the lanterns?
b.
What is the total cost Camping
Company will incur if it buys the lanterns?
c.
Should Camping Company purchase the
lanterns or buy the lanterns?
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