Linda's Foods produces frozen meals that it sells for $7 each. The company computes a new monthly fixed manufacturing overhead allocation rate based on the planned number of meals to be produced that month. Assume all costs and production levels are exactly as planned. The following data are from Linda's Foods' first month in business:

$$\begin{array}{lc} \hline \textbf{}&\textbf{January 2018}\\ \hline\\ \text{Units produced and sold:}\\ \hspace{10pt}\text{Sales}&\text{1,000 meals}\\ \hspace{10pt}\text{Production}&\text{1,200 meals}\\ \\\hline\\ \text{Variable manufacturing cost per meal}&\text{\$\hspace{15pt}3}\\ \text{Sales commission cost per meal}&\text{\hspace{20pt}1}\\ \text{Total fixed manufacturing overhead}&\text{\hspace{10pt}660}\\ \text{Total fixed selling and administrative costs}&\text{\hspace{10pt}500}\\ \\\hline \end{array}$$

Requirements

1. Compute the product cost per meal produced under absorption costing and under variable costing.
2. Prepare income statements for January 2018 using:

• a. absorption costing.
• b. variable costing.

3. Is operating income higher under absorption costing or variable costing in January?

The Oakman Company manufactures products in two departments: Mixing and Packaging. The company allocates manufacturing overhead using a single plantwide rate with direct labor hours as the allocation base. Estimated overhead costs for the year are $810,000, and estimated direct labor hours are 360,000. In October, the company incurred 20,000 direct labor hours.

Requirements

1. Compute the predetermined overhead allocation rate. Round to two decimal places.
2. Determine the amount of overhead allocated in October.

The Oakman Company manufactures products in two departments: Mixing and Packaging. The company allocates manufacturing overhead using a single plantwide rate with direct labor hours as the allocation base. Estimated overhead costs for the year are $920,000, and estimated direct labor hours are 400,000. In October, the company incurred 55,000 direct labor hours.

Requirements

1. Compute the predetermined overhead allocation rate. Round to two decimal places.
2. Determine the amount of overhead allocated in October.

Refer to the information presented in the preceding exercise. The commercial business segment provided services to 200 customers. The residential business segment provided services to 400 customers. Determine the average amount Sherman Company charged each type of customer for services, the average variable cost per customer, and the average contribution margin per customer, rounded to two decimal places. What caused the difference in contribution margin in the two segments?

Sherman Company provides carpet cleaning services to commercial and residential customers. Using the data below, determine the contribution margin ratio for each business segment, rounded to two decimal places:

$$\begin{array}{lccc} \hline &\textbf{Commercial}&\textbf{Residential}&\textbf{Total}\\ \hline\\ \text{Service Revenue}&\text{\$\hspace{5pt}140,000}&\text{\$\hspace{5pt}240,000}&\text{\$\hspace{5pt}380,000}\\ \text{Variable Costs}&\underline{\text{\hspace{15pt}63,000}}&\underline{\text{\hspace{15pt}57,600}}&\underline{\text{\hspace{10pt}120,600}}\\ \text{Contribution Margin}&\text{\hspace{15pt}77,000}&\text{\hspace{10pt}182,400}&\text{\hspace{10pt}259,400}\\ \text{Fixed Costs}&&&\underline{\text{\hspace{15pt}15,000}}\\ \text{Operating Income}&&&\text{\underline{\underline{\$\hspace{5pt}244,400}}}\\ \\\hline \end{array}$$

Henry's Helpers provides locksmith services. One type of service call is to evaluate private residences for security concerns and make recommendations for a safety plan. Use the data below to determine the company's total contribution margin, contribution margin per service call, and contribution margin ratio when 220 service calls are made in the month of June.

$$\begin{array}{lrr} \hline\\ \text{Service Revenue}\hspace{20pt}&\text{\$\hspace{20pt}170 per service call}\\ \text{Variable Costs}&\text{68 per service call}\\ \text{Fixed Costs}&\text{21,040 per month}\hspace{19pt}\\ \\\hline \end{array}$$

Refer to the information presented in the preceding exercise. Assume the sales mix shifted to 50% for each product. Calculate the total amount each product contributed to the coverage of fixed costs and the total contribution margin for the company.

Sampler Company sells two products, Sigma and Zeta, with a sales mix of 70% and 30%, respectively. Sigma has a contribution margin per unit of $26, and Zeta has a contribution margin per unit of$21. The company sold 700 total units in September. Calculate the total amount each product contributed to the coverage of fixed costs and the total contribution margin for the company.

The contribution margin income statement of Krazy Kustard Donuts for August 2016 follows:

$$\begin{array}{c} \textbf{KRAZY KUSTARD DONUTS}\\ \textbf{Contribtion Margin Income Statement}\\ \textbf{Month Ended August 31, 2016}\\ \hline \end{array}$$

$$\begin{array}{lrr} \text{Sales Revenue}&&\$ 125,000\\ \text{Variable Costs:}\\ \hspace{20pt}\text{Cost of Goods Sold}&\underline{\$32,100}\\ \hspace{20pt}\text{Selling Costs}&17,100\\ \hspace{20pt}\text{Administrative Costs}&\underline{800}&\underline{50,000}\\ \text{Contribution Margin}&&75,000\\ \text{Fixed Costs:}\\ \hspace{20pt}\text{Selling Costs}&32,400\\ \hspace{20pt}\text{Adiministrative Costs}&\underline{10,800}&\underline{43,200}\\ \text{Operative Income}&&\$31,800\\ \hline \hline \end{array}$$

Krazy Kusrard sells four dozen plain donuts for every dozen custard-filled donuts. A dozen plain donuts sells for $4.00, wirh total variable cost of$1.60 per dozen. A dozen custard-filled donuts sells for $8.00, wirh total variable cost of$3.20 per dozen. Requirements

1. Calculate the weighted-average contribution margin.
2. Determine Krazy Kusrard's monrhly break.even point in dozens of plain donuts and custard-filled donuts. Prove your answer by preparing a summary contribution margin income statement at the break.even level of sales. Show only two categories of costs: variable and fixed.
3. Compute Krazy Kustard's margin of safety in dollars for August 2016.
4. Compute the degree of operating leverage for Krazy Kustard Donuts. Estimate the new operating income if total sales increase by 40%. (Round the degree of operating leverage to four decimal places and the final answer to the nearest dollar. Assume the sales mix remains unchanged.)
5. Prove your answer to Requirement 4 by preparing a.contribution margin income statement with a 40% increase in to tal sales. (The sales mix remains unchanged.)

The Sweet Treats Company manufactures candy that is sold to food distributors. The company produces at full capacity for six months each year to meet peak demand during the "candy season" from Halloween through Valentine's Day. During the other six months of the year, the manufacturing facility operates at 75% of capacity. The Sweet Treats Company provides the following data for the year:

$$\begin{array}{lrr} \hline \textbf{Cases of candy produced and sold}&\textbf{1,800,000 cases}\hspace{5pt}\\ \hline\\ \text{Sales price}&\text{\$\hspace{22pt}37.00 per case}\\ \text{Variable manufacturing costs}&\text{20.00 per case}\\ \text{Fixed manufacturing costs}&\text{6,400,000 per year}\\ \text{Variable selling and administrative costs}\hspace{10pt}&\text{2.00 per case}\\ \text{Fixed selling and administrative costs}&\text{3,500,000 per year}\\ \\\hline \end{array}$$

The Sweet Treats Company receives an offer to produce 13,000 cases of candy for a special event. This is a one-time opportunity during a period when the company has excess capacity. What is the minimum sales price The Sweet Treats Company should accept for the order? Explain why.

Martin Company had the following costs:

$$\begin{array}{lrr} \hline \textbf{\hspace{45pt}Units produced}&\textbf{320 units}\hspace{10pt}\\ \hline\\ \text{Direct materials}&\text{\$\hspace{17pt}71 per unit}\\ \text{Direct labor}&\text{40 per unit}\\ \text{Variable manufacturing overhead}&\text{13 per unit}\\ \text{Fixed manufacturing overhead}&\text{7,360 per year}\\ \text{Variable selling and administrative costs}\hspace{10pt}&\text{22 per unit}\\ \text{Fixed selling and administrative costs}&\text{1,920 per year}\\ \\\hline \end{array}$$

Calculate the unit product cost using absorption costing. Round your answer to the nearest cent.

Define variable costing.

Refer to the information related to CF Industries Holdings, Inc. Prepare the income statement for the quarter using absorption costing.

Winters, Inc. is preparing financial statements to be distributed to investors and creditors. The company should prepare the income statement using

• a. variable costing because it is better for planning purposes.
• b. variable costing because it follows GAAP.
• c. absorption costing because it is better for controlling purposes.
• d. absorption costing because it follows GAAP.