Porter Corporation has fixed costs of $\$ 660,000$, variable costs of $\$ 24$ per unit, and a contribution margin ratio of 40 percent.

Compute the following:

a. Unit sales price and unit contribution margin for the above product.

Integrative: Multiple leverage measures Play-More Toys produces inflatable beach balls, selling 400,000 balls per year. Each ball produced has a variable operating cost of $0.84 and sells for$1.00. Fixed operating costs are $28,000. The firm has annual interest charges of$6,000, preferred dividends of $2,000, and a 40% tax rate. b. Use the degree of operating leverage (DOL) formula to calculate DOL.

Management of Great Springs Bottled Water Company has asked you, the controller, to develop a transfer pricing system for the company. The Transportation Department of the company sells all of its product to the Bottling Department of the company. Thus the Transportation Department’s sales become the Bottling Department’s cost of goods sold. In order to determine an optimal transfer pricing system, management would like you to demonstrate what an income statement would look like under a cost, market, and negotiated transfer pricing structure. These various transfer prices are listed as follows. Prepare an income statement for each of the transfer prices by filling in the missing numbers in the provided income statement based on each transfer price (thus four different income statements) and calculate the operating income/loss percentage. Prepare a brief summary of the results.

$$\begin{array}{lcr} \text { Cost-based } & \$ & 0.62 \\ \text { Market-based } & \$ & 0.74 \\ \text { Negotiated } & \$ & 0.70 \\ \text { Gallons transferred } & 278,000 \end{array}$$

GREAT SPRINGS BOTTLED WATER Income Statement Month Ending August 31, 2018

$$\begin{array}{lrr} & \text { Transportation } & \text { Bottling } \\ \text { Sales } & ? & \$ 286,000 \\ \text { Cost of goods sold } & \$ 89,627 & ? \\ \text { Gross profit } & ? & ? \\ \text { Fuel/utility expense } & \$ 15,000 & 57,200 \\ \text { Wages expense } & 43,090 & 15,000 \\ \text { Costs allocated from corporate } & 17,236 & \$ 75,400 \\ \text { Total expenses } & \$ 75,326 & ? \\ \text { Operating income/(loss) } \$ & ? & ? \\ \text { Operating income/(loss) } \% & ? & ?\end{array}$$

There are 100 households in the economy of Equalor. Initially, 99 of them have an income of $10,000 each, and one household has an income of$1,010,000.

What is the median income in this economy? What is the mean income? Through its antipoverty programs, the government of Equalor now redistributes income: it collects $990,000 from the richest household and distributes it equally among the remaining 99 households.

If an economy that produces bowling balls and plastic tables is operating at a point inside its PPF, how efficiently is it using its resources?

Dixon Robotics manufactures three robot models: the A3B4, the BC11, and the C3PO. Dixon allocates manufacturing overhead to each model based on machine hours. A large portion of the company's manufacturing overhead costs is incurred by the Maintenance Department. This year, the department anticipates that it will incur $\$ 100,000$ in total costs. The following estimates pertain to the upcoming year:

Ed Smith, Dixon's cost accountant, suspects that unit costs are being distorted by using a single activity base to allocate Maintenance Department costs to products. Thus, he is considering the implementation of activity-based costing (ABC).

Under the proposed ABC method, the costs of the Maintenance Department would be allocated to the following activity cost pools using the number of work orders as an activity base: (1) the repairs pool and (2) the janitorial pool. Of the 2,000 work orders filed with the Maintenance Department each year, approximately 400 relate to repair activities, and 1,600 relate to janitorial activities.

Machinery repairs correlate with the number of production runs of each robot model. Thus, the repairs pool would be allocated to robots based on each model's corresponding number of production runs. Janitorial services correlate with square feet of production space. Thus, the janitorial pool would be allocated to products based on the square feet of production space devoted to each robot model. The following table provides a summary of annual production run activity and square footage requirements:

a. Calculate the amount of Maintenance Department costs that would be allocated to each robot model (on a per-unit basis) using machine-hours as a single activity base.

Sven Enterprises is a large producer of gourmet pet food. During April, it produced 147 batches of puppy meal. Each batch weighs 1,000 pounds. To produce this quantity of output, the company purchased and used 148,450 pounds of direct materials at a cost of $\$ 593,800$. It also incurred direct labor costs of $\$ 17,600$ for the 2,200 hours worked by employees on the puppy meal crew. Manufacturing overhead incurred at the puppy meal plant during April totaled $\$ 3,625$, of which $\$ 2,450$ was considered fixed. Sven's standard cost information for 1,000-pound batches of puppy meal is as follows:

Direct materials standard price = $\$4.20$per pound

Standard quantity allowed per batch = 1,020 pounds

Direct labor standard rate =$\$8.50$ per hour

Standard hours allowed per batch = 14 direct labor hours

Fixed overhead budgeted = $\$2,800$ per month

Normal level of production = 140 batches per month

Variable overhead application rate = $\$9.00$ per batch

Fixed overhead application rate ($\$2,800$ : 140 batches) = 20.00 per batch

Total overhead application rate = $\$29.00$ per batch

Instructions

a. Compute the materials price and quantity variances.

Sven Enterprises is a large producer of gourmet pet food. During April, it produced 147 batches of puppy meal. Each batch weighs 1,000 pounds. To produce this quantity of output, the company purchased and used 148,450 pounds of direct materials at a cost of $\$ 593,800$. It also incurred direct labor costs of $\$ 17,600$ for the 2,200 hours worked by employees on the puppy meal crew. Manufacturing overhead incurred at the puppy meal plant during April totaled $\$ 3,625$, of which $\$ 2,450$ was considered fixed. Sven's standard cost information for 1,000-pound batches of puppy meal is as follows:

Direct materials standard price = $\$4.20$per pound

Standard quantity allowed per batch = 1,020 pounds

Direct labor standard rate =$\$8.50$ per hour

Standard hours allowed per batch = 14 direct labor hours

Fixed overhead budgeted = $\$2,800$ per month

Normal level of production = 140 batches per month

Variable overhead application rate = $\$9.00$ per batch

Fixed overhead application rate ($\$2,800$ : 140 batches) = 20.00 per batch

Total overhead application rate = $\$29.00$ per batch

Instructions

h. Record the journal entry to close any over- or underapplied overhead to Cost of Goods Sold.

Sven Enterprises is a large producer of gourmet pet food. During April, it produced 147 batches of puppy meal. Each batch weighs 1,000 pounds. To produce this quantity of output, the company purchased and used 148,450 pounds of direct materials at a cost of $\$ 593,800$. It also incurred direct labor costs of $\$ 17,600$ for the 2,200 hours worked by employees on the puppy meal crew. Manufacturing overhead incurred at the puppy meal plant during April totaled $\$ 3,625$, of which $\$ 2,450$ was considered fixed. Sven's standard cost information for 1,000-pound batches of puppy meal is as follows:

Direct materials standard price = $\$4.20$per pound

Standard quantity allowed per batch = 1,020 pounds

Direct labor standard rate =$\$8.50$ per hour

Standard hours allowed per batch = 14 direct labor hours

Fixed overhead budgeted = $\$2,800$ per month

Normal level of production = 140 batches per month

Variable overhead application rate = $\$9.00$ per batch

Fixed overhead application rate ($\$2,800$ : 140 batches) = 20.00 per batch

Total overhead application rate = $\$29.00$ per batch

Instructions

e. Record the journal entry to charge direct labor (at standard) to Work in Process.

Sven Enterprises is a large producer of gourmet pet food. During April, it produced 147 batches of puppy meal. Each batch weighs 1,000 pounds. To produce this quantity of output, the company purchased and used 148,450 pounds of direct materials at a cost of $\$ 593,800$. It also incurred direct labor costs of $\$ 17,600$ for the 2,200 hours worked by employees on the puppy meal crew. Manufacturing overhead incurred at the puppy meal plant during April totaled $\$ 3,625$, of which $\$ 2,450$ was considered fixed. Sven's standard cost information for 1,000-pound batches of puppy meal is as follows:

Direct materials standard price = $\$4.20$per pound

Standard quantity allowed per batch = 1,020 pounds

Direct labor standard rate =$\$8.50$ per hour

Standard hours allowed per batch = 14 direct labor hours

Fixed overhead budgeted = $\$2,800$ per month

Normal level of production = 140 batches per month

Variable overhead application rate = $\$9.00$ per batch

Fixed overhead application rate ($\$2,800$ : 140 batches) = 20.00 per batch

Total overhead application rate = $\$29.00$ per batch

Instructions

d. Record the journal entry to charge materials (at standard) to Work in Process.

Sven Enterprises is a large producer of gourmet pet food. During April, it produced 147 batches of puppy meal. Each batch weighs 1,000 pounds. To produce this quantity of output, the company purchased and used 148,450 pounds of direct materials at a cost of $\$ 593,800$. It also incurred direct labor costs of $\$ 17,600$ for the 2,200 hours worked by employees on the puppy meal crew. Manufacturing overhead incurred at the puppy meal plant during April totaled $\$ 3,625$, of which $\$ 2,450$ was considered fixed. Sven's standard cost information for 1,000-pound batches of puppy meal is as follows:

Direct materials standard price = $\$4.20$per pound

Standard quantity allowed per batch = 1,020 pounds

Direct labor standard rate =$\$8.50$ per hour

Standard hours allowed per batch = 14 direct labor hours

Fixed overhead budgeted = $\$2,800$ per month

Normal level of production = 140 batches per month

Variable overhead application rate = $\$9.00$ per batch

Fixed overhead application rate ($\$2,800$ : 140 batches) = 20.00 per batch

Total overhead application rate = $\$29.00$ per batch

Instructions

g. Record the journal entry to transfer the 147 batches of puppy meal produced in April to Finished Goods.

Sven Enterprises is a large producer of gourmet pet food. During April, it produced 147 batches of puppy meal. Each batch weighs 1,000 pounds. To produce this quantity of output, the company purchased and used 148,450 pounds of direct materials at a cost of $\$ 593,800$. It also incurred direct labor costs of $\$ 17,600$ for the 2,200 hours worked by employees on the puppy meal crew. Manufacturing overhead incurred at the puppy meal plant during April totaled $\$ 3,625$, of which $\$ 2,450$ was considered fixed. Sven's standard cost information for 1,000-pound batches of puppy meal is as follows:

Direct materials standard price = $\$4.20$per pound

Standard quantity allowed per batch = 1,020 pounds

Direct labor standard rate =$\$8.50$ per hour

Standard hours allowed per batch = 14 direct labor hours

Fixed overhead budgeted = $\$2,800$ per month

Normal level of production = 140 batches per month

Variable overhead application rate = $\$9.00$ per batch

Fixed overhead application rate ($\$2,800$ : 140 batches) = 20.00 per batch

Total overhead application rate = $\$29.00$ per batch

Instructions

f. Record the journal entry to charge manufacturing overhead (at standard) to Work in Process.

McGill's overhead spending variance is unfavorable by $\$ 600$. The company's accountant credited the Cost of Goods Sold account for $\$ 4,200$ to close out any over- or underapplied overhead at the end of the current period.

Compute McGill's overhead volume variance.

Zeta, Inc., produces handwoven rugs. Budgeted production is 5,000 rugs per month and the standard direct labor required to make each rug is 2 hours. All overhead is allocated based on direct labor hours. Zeta's manager is interested in what caused the recent month's $\$ 3,000$ unfavorable overhead variance. The following information was available to aid in the analysis:

b. What was the overhead volume variance?