Brandon Company

1.Brandon Company manufactures a single product. Each unit sells for $15. The firm's projected costs
are listed below:
Variable costs per unit:
Production $5
SG&A $1
Fixed costs:
Production $40,000
SG&A $60,000
Estimated volume 20,000 units
1. Refer to Brandon Company. What is Brandon's projected margin of safety for the current year?

Solution:
Sales $300,000
Variable Expenses $120,000
Contribution Margin $0.60

Fixed Expenses $100,000

Break Even Point $166,667
Margin of Safety is 44.4%

2. Refer to Brandon Company. What is Brandon's projected degree of operating leverage for the
current year?

Solution :
= 300,000 - 120,000
300,000 - 120,000 - 100,000
= 180,000
80,000
= 2.25

Information concerning Averie Corporation's Product A follows:

Sales $300,000
Variable costs 240,000
Fixed costs 40,000
3. Assuming that Averie increased sales of Product A by 20 percent, what should the profit from Product
A be?
Solution :
Sales (300,000X1.2) 360,000
Variable Cost (240,000X1.2) (288,000)
Fixed Cost (40,000 )
Profit 32,000

Information relating to the current operations of Bradley Corporation follows:

 Sales $120,000 
Variable costs  (36,000)
Contribution margin $ 84,000 
Fixed costs  (70,000)
Profit before taxes $ 14,000 

4. Refer to Bradley Corporation. Bradley's break-even point was 1,000 units. Compute Bradley's sales price
per unit.
Solution :
The CM ratio is:
84,000/120,000 = 70%. Breakeven would then be:
70,000/.70 = 100,000.
unit sales price is 100,000/1,000 = 100

McKinney Corporation
McKinney Corporation manufactures and sells two products: A and B. The projected information on
these two products for the coming year is presented below:
Product A Product B
Sales in units 4,000 1,000
Sales price per unit   $12    $8
Variable costs per unit     8     4
Total fixed costs for the company are projected at $10,000.

5. Refer to McKinney Corporation. Compute McKinney Corporation's projected break-even point in total
units.

Solution :
10,000 / 20 = 500 units
500 units X 5 units = 2,500 Units
where, 2000 is product A and 500 is Product B

Gyro Gear Company produces a single product, a special gear used in automatic
transmissions. Each gear sells for $28, and the company sells 500,000 gears each year.
Unit cost data are presented below:
Variable Fixed
Direct material ........................... $6.00
Direct labor ................................ $5.00
Manufacturing overhead ............ $2.00 $7.00
Selling & administrative ............ $4.00 $3.00
6. The unit product cost of gears under variable costing is:
Solution :
Direct material ........................... $6.00
Direct labor ................................ $5.00
Selling & administrative ............ $4.00
Manufacturing overhead ............ $2.00
 Unit Product cost $17.00

7. A company produces a single product. Variable production costs are $12 per unit and
variable selling and administrative expenses are $3 per unit. Fixed manufacturing
overhead totals $36,000 and fixed selling and administration expenses total $40,000.
Assuming a beginning inventory of zero, production of 4,000 units and sales of 3,600
units, the dollar value of the ending inventory under variable costing would be:
Solution:
Enit inventory in unit 400
X cost per unit 15
Ending inventory in dollar $6,000

8. A manufacturing company that produces a single product has provided the following
data concerning its most recent month of operations:
Selling price ............................................... $102
Units in beginning inventory ..................... 0
Units produced .......................................... 8,700
Units sold ................................................... 8,300
Units in ending inventory .......................... 400
Variable costs per unit:
Direct materials ...................................... $29
Direct labor ............................................. $31
Variable manufacturing overhead .......... $2
Variable selling and administrative ........ $6
Fixed costs:
Fixed manufacturing overhead ............... $269,700
Fixed selling and administrative ............ $8,300

The total contribution margin for the month under the variable costing approach is:
Solution:
Sales 846,600
Direct Materials (240,000)
Direct Labor (257,300)
Factory OH (Variable) (16,600)
Selling and Administrative (Variable) (49,800_
Contribution Margin 282,900

9. A manufacturing company that produces a single product has provided the following
data concerning its most recent month of operations:
Selling price ............................................... $123
Units in beginning inventory ..................... 0
Units produced .......................................... 5,900
Units sold ................................................... 5,700
Units in ending inventory .......................... 200
Variable costs per unit:
Direct materials ...................................... $40
Direct labor ............................................. $32
Variable manufacturing overhead .......... $3
Variable selling and administrative ........ $5
Fixed costs:
Fixed manufacturing overhead ............... $135,700
Fixed selling and administrative ............ $108,300
The total gross margin for the month under the absorption costing approach is:
Fixed selling and administrative ............ $8,400
What is the net operating income for the month under absorption costing?

Solution :
Sales 701,100
Direct Material (228,000)
Direct Labor (182,400)
Manufacturing OH (variable) (17,100)
Manufacturing OH (FIXED) (135,700)
Gross Profit 137,900
Selling and administrative (Var and Fixed ) (136,800)
Net Income 1,100