Question

Good Scent, Inc., produces two colognes: Rose and violet. Of the two, Rose is more popular. Data concerning the two products follow Violet Rose Expected sales (in cases) 10,900 54,500 Selling price per case $100 $80 33,450 Direct labor hours 5,800 Machine hours 2,850 10,500 Receiving ord ers 48 22 Packing orders 105 54 Material cost per case $53 $45 Direct labor cost per case $10 $6 The company uses a conventional costing system and assigns overhead costs to products using direct labor hours. Annual overhead costs follow. They are classified as fixed or variable with respect to direct labor hours. Fixed Variable Direct labor benefits $ $192,325 189,000 Machine costs 278,675 Receiving department 209,000 Packing department 138,000 Total costs $536,000 $471,000 All depreciation Required: 1. Using the conventional approach, compute the number of cases of Rose and the number of cases of Violet that must be sold for the company to break even. In your computations, round variable unit cost to the nearest cent and round number. Break-even cases of Rose 15,723 х Break-even cases of Viol et

Answer 1

1) conventional
	Price	Variable cost	Contribution margin	Sales mix	Total Contribution margin
Rose	100	$       70.37	$       29.63	5	$148.17
Violet	80	$       57.39	$       22.61	1	$22.61
Total					$170.79
Rose variable cost = $53 + $10 + [$12* × (33450/54,500)]	$       70.37
Violet variable cost = $45 + $6 + [$12* × (5800/10,900)]	$       57.39
*$471,000/(33450 +5800)  DLH =	$       12.00	per direct labour hour
Break-even packages =  Fixed Cost/Total contribution margin
Break-even packages =  536,000/$170.79	3138.38	Packages
Break-even Cases of Rose = 5 x 3138.38	15,691.88
Break-even Cases of violet =  1 x 3138.38	3,138.38
2) Activity Based
Unit-based variable costs:
	Rose	Violet	Total
Prime costs	$       63.00	$       51.00
Benefits (a)	$         3.01	$         2.61
Machine costs (b)	$         4.02	$         5.46
Total	$       70.03	$       59.07
× Units in mix	5	1
Total variable cost	$     350.15	$       59.07	$     409.21
a)
$192325/(33450+5800)=	$         4.90	per hour
Per unit of Rose: $4.90 x (33,450/54,500) =	$         3.01
Per unit of Violet:$4.90 x (5,800/10,900) =	$         2.61
b)
$278,675/(10,500  + 2850)=	$       20.87	Per Machine Hour
Per unit of Rose: $20.87 x (10,500/54,500) =	$         4.02
Per unit of Violet: $20.87 x (2850/10,900) =	$         5.46
Break-even packages =  Fixed Cost/Total contribution margin
Total Contribution Margin =Sales revenue per package [($100 × 5) + ($80 × 1)] – Variable cost per package ($408.91).	$     170.79
Break-even packages =  536,000/$170.79	3138.38	Packages
Break-even Cases of Rose = 5 x 3138.38	15,691.88
Break-even Cases of violet =  1 x 3138.38	3,138.38