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Annie Kavitha
Annie Kavitha, Master's Degree
Category: Business and Finance Homework
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The following budget info for the yr ending Dec 31, 2006, pertains

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The following budget info for the yr ending Dec 31, 2006, pertains to Rust Co. operations:
Budget Item ACE BELL Total Costs
Budgeted sales in units 200,000 100,000
Selling price per unit 40 20
Dir materials cost per unit 8 3
Dir labor hrs per unit 2 1
Depreciation 200,000
Rent 130,000
Other manufacturing costs 500,000
Selling costs 180,000
General and admin costs 40,000
The following information is also provided:
1. Rust has no beginning inventory. Production is planned so that it will equal the # XXXXX units sold.
2. The cost of direct labor is $5per hr. / 3.) Depreciation & rent are fixed costs w/in the relevant range of production. Add'tl cost would be incurred for extra machinery. 4.) Rust allocates depreciation proportional to machinery use & rent proportional to factory space. Budgeted usage is as follows:
Depreciation ACE BELL
Machinery 70% 30%
Factory space 60% 40%

5.) Other manufacturing costs include variable costs equal to 10% of direct labor cost and also include various fixed costs. None of the misc capacity-related fixed manufacturing support costs depend on the level of activity, although support costs attributable to a specific product are avoidable if that product's production ceases. Other manufacturing support costs are allocated btwn Ace & Bell on the basis of a percentage of budgeted direct labor costs.
6.) Rust's selling and gen admin costs are committed in the intermediate term.
7.) Rust allocates selling costs on the basis of a # XXXXX units sold at Ace & Bell.
8.) Rust allocates gen and admin costs on the basis of sales revenue.

a) Prepare a schedule, using seperate columns for Ace and Bell, showing budgeted sales, variable costs, contribution margin, fixed costs, and pretax operating profit for the yr ending Dec 31, 2006.
b)Calculate the contribution margin per unit and the pretax operating profit per unit for Ace and for Bell.
c) Calculate the effect on pretax operating profit resulting form a 10% decrease in sales and production of each product.
d) What may be a problem with the above analysis?
Submitted: 6 years ago.
Category: Business and Finance Homework
Expert:  Annie Kavitha replied 6 years ago.



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