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Review Session 2024 Solutions

The document provides financial information for a florist business with retail and institutional divisions. It includes revenues, variable costs, contribution margins, traceable fixed costs, segment margins, and common fixed costs for each division and in total. Required calculations include the weighted average contribution margin ratio and break-even revenue for the retail division.

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Hitesh Mehta
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83 views3 pages

Review Session 2024 Solutions

The document provides financial information for a florist business with retail and institutional divisions. It includes revenues, variable costs, contribution margins, traceable fixed costs, segment margins, and common fixed costs for each division and in total. Required calculations include the weighted average contribution margin ratio and break-even revenue for the retail division.

Uploaded by

Hitesh Mehta
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Problem 1 McMaster Fabrication

McMaster Fabrication has two manufacturing departments: machining and assembly.


McMaster projected the following numbers for the most recent year.
Machining
Assembly
Machine hours 7,500 1,500
Direct labor hours 10,000 20,000
Overhead $600,000 $300,000

McMaster applies machining overhead based on machine hours and assembly overhead
based on direct labor hours. The following information reflects the actual results for the
most recent year.
Machining
Assembly
Machine hours 12,000 1,700
Direct labor hours 11,000 22,000
Overhead $650,000 $275,000

At the end of the year, (before any adjustments for over- or underapplied overhead) the
balance in the finished goods account was $150,000, and the balance in cost of goods
sold was $750,000. Finally, there was only one job in process at the end of the year—Job
#C252. Its job sheet revealed the following cost numbers: direct materials = $2,000;
direct labor = $6,000; direct labor hours in assembly = 250; machine hours in machining
= 40.

Required:
a) Compute the overhead rate for each of McMaster’s production departments
POHR = 600,000/7500 = $80 Machining
300,000/20,000 - $15 Assembly
b) Compute the under- or overapplied overhead for each department.
Applied OH = POHR * Actual Cost Driver
Machining - $80 *12,000 = $960,000 - $650,000 = $310,000
OVERAPPLIED
Assembly $15 *22,000 = 330,000 -275,000 = $55,000
c) McMaster prorates any underapplied or overapplied overhead among the work-in-
process, finished goods, and cost of goods sold accounts. Compute the ending
balance in each of these accounts after proration. By how much will the net
income rise or fall for the year?
Problem 2
Maintenance Information
System Shampoo Soap

Initial Cost
in Pool $800,000 $500,000 $2,000,000 $1,500,000
1
Maintenance 20% 40% 40%
Services
Provided by Information
Systems2 20% 50% 30%

Consider the following data for two of Cardinal’s production departments, Shampoo and
Soap, and two of its support departments, Maintenance and Information Systems.

Maintenance Information
System Shampoo Soap

Initial Cost
in Pool $800,000 $500,000 $2,000,000 $1,500,000
Maintenance1 50% 50%
Services 50%/(50% 30/(30%
Provided by Information +30%)\ +50%)
Systems2 62.5% 37.5%

Required:Allocate support department costs (maintenance and information


systems to the production departments using the direct method. Provide the
support department rates and the total costs in the Shampoo and Soap
departments.

Maintenanc Information
e Systems Shampoo Soap
Traced costs $800,000 $500,000 $2,000,000 $1,500,000
Costs Maintenance1 (800,000) 400,000 400,000
allocated Information
from Systems2 (500,000) 312,500 187,500
Total $0 $0 $2,712,500 $2,087,500
1
400,000 = 0.50 × $800,000.
2
$312,500 = 0.675 × $500,000.

After the allocation, we have $2,712,500 in Shampoo, and $2,087,500 in Soap. The total amount
in these two pools is $4,800,000 the total that we began with for the four cost pools.

Problem 3
Jan Van Voorhis is a florist in Boulder, Colorado. Dividing his clients into two major
categories, he provides you with the following income statement. He stresses that, for
most florists (including himself), each segment accounts for 50% of total revenues.

Retail Institutional Total


Revenues 450,000 450,000 900,000
Variable Costs 162,000 270,000 432,000
Contribution Margin 288,000 180,000 468,000
Traceable Fixed Costs 175,000 80,000 255,000
Segment Margin 113,000 100,000 213,000
Common Fixed Costs 200,000
Profit before taxes 13,000

CMR 288,000/450,000 = .64 180,000/450,000 = .4


Sales mix in Dollars 50% 50%
WACMR .52
Fixed Costs/WACMR = Break-even in Sales Dollars
Fixed Costs/WAUCM

What is the Weighted Average Contribution Margin Ratio? (round to two decimal
places)

What is the break-even revenue for the Retail division?

Break even dollars in total = ($200,000+255,000) / .52 = 875,000 * 50% = 437,500

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