Barlow company manufactures three products

1. Walsh Company manufactures and sells one product. The following information pertains to each of the company’s first two years of operations:

  Variable costs per unit:

    Manufacturing:

        Direct materials

$ 26

        Direct labor

$ 17

        Variable manufacturing overhead

$ 3

    Variable selling and administrative

$ 2

  Fixed costs per year:

    Fixed manufacturing overhead

$

320,000

    Fixed selling and administrative expenses

$

70,000

During its first year of operations, Walsh produced 50,000 units and sold 40,000 units. During its second year of operations, it produced 40,000 units and sold 50,000 units. The selling price of the company’s product is $56 per unit.

Required:

1.

Assume the company uses variable costing:

a.

Compute the unit product cost for year 1 and year 2.

Year 1

Year 2

Unit Production Cost

b.

Prepare an income statement for year 1 and year 2.

Year 1

Year 2

Variable Expenses

Total Variable Expenses

Fixed expenses

Total Fixed Expenses

Net Operating Income (loss)

2.

Assume the company uses absorption costing:

a.

Compute the unit product cost for year 1 and year 2. (Round your answer to 2 decimal places.)

Year 1

Year 2

Unit Production Cost

b.

Prepare an income statement for year 1 and year 2. (Round your intermediate calculations to 2 decimal places)

Year 1

Year 2

Net Operating Income (loss)

3.

Reconcile the difference between variable costing and absorption costing net operating income in year 1 and year 2.

Year 1

Year 2

Variable costing net operating income (loss)

Absorption costing net operating income (loss

2. Barlow Company manufactures three products: A, B, and C. The selling price, variable costs, and contribution margin for one unit of each product follow:

The same raw material is used in all three products. Barlow Company has only 5,400 pounds of raw material on hand and will not be able to obtain any more of it for several weeks due to a strike in its supplier’s plant. Management is trying to decide which product(s) to concentrate on next week in filling its backlog of orders. The material costs $9 per pound.

Required:

1.

Compute the amount of contribution margin that will be obtained per pound of material used in each product.

A

B

C

Contribution margin per unit

Direct material cost per unit

Direct material cost per pound

Pounds of material required per unit

Contribution margin per pound

2a.

Compute the amount of contribution margin on each product.

A

B

C

Contribution Margin Per pound

Pound of Material Available

Total Contribution margin

2b.

Which orders would you recommend that the company work on next week—the orders for product A, product B, or product C?

Answer:

3.

A foreign supplier could furnish Barlow with additional stocks of the raw material at a substantial premium over the usual price. If there is unfilled demand for all three products, what is the highest price that Barlow Company should be willing to pay for an additional pound of materials?

Maximum amount

Per pound

3.The Hartford Symphony Guild is planning its annual dinner-dance. The dinner-dance committee has assembled the following expected costs for the event:

The committee members would like to charge $61 per person for the evening’s activities.

Required:

1. Compute the break-even point for the dinner-dance (in terms of the number of persons who must attend).

Break-even point

persons

2. Assume that last year only 250 persons attended the dinner-dance. If the same number attend this year, what price per ticket must be charged in order to break even? (Round your answer to 2 decimal places.)

Ticket price per person to break even

4.Imperial Jewelers is considering a special order for 19 handcrafted gold bracelets to be given as gifts to members of a wedding party. The normal selling price of a gold bracelet is $403.00 and its unit product cost is $252.00 as shown below:

Most of the manufacturing overhead is fixed and unaffected by variations in how much jewelry is produced in any given period. However, $8 of the overhead is variable with respect to the number of bracelets produced. The customer who is interested in the special bracelet order would like special filigree applied to the bracelets. This filigree would require additional materials costing $7 per bracelet and would also require acquisition of a special tool costing $458 that would have no other use once the special order is completed. This order would have no effect on the company’s regular sales and the order could be fulfilled using the company’s existing capacity without affecting any other order.

Required:

What effect would accepting this order have on the company’s net operating income if a special price of $363.00 per bracelet is offered for this order? (Enter all amounts as positive values.)

Per Unit

Total 19 bracelets

Incremental Revenue

Incremental costs:

Variable Costs

Direct Materials

Direct Labor

Variable Manufacturing overhead

Special filigree

Total Variable Cost

Fixed Costs:

Purchase of special tool

Total Incremental Cost

Incremental Net operating income (loss)

Should the special order be accepted at this price?

Yes/No?

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