Question 3 (5 marks)
Tony’s Textile Company sells shirts for men and boys. The average selling price and variable cost for each product are as follows:
Mens Boys
Selling Price $28.80 Selling Price $24.00
Variable Cost $20.40 Variable Cost $16.80
Fixed costs are $38,400.
Required:
What is the breakeven point in units for each type of shirt, assuming the sales mix is 2:1 in favor of mens shirts? (1.5 marks)
What is the operating income, assuming the sales mix is 2:1 in favor of mens shirts, and sales total 9,000 shirts? (1.5 marks)
What is meant by a product’s contribution margin ratio and how is this ratio useful in the planning of business operations? (2 marks)
Question 4 (5 marks)
Byron Sports is a manufacturer of sportswear. It produces all of its products in one department
using a process costing system.
The information for the current month is as follows:
Beginning work in process (30% complete as to conversion cost) 12,000 units
Units started 90,000 units
Units completed and transferred out ?
Ending work in process (70% complete as to conversion) 8,000 units
Costs:
Beginning work-in-process direct materials $28,800
Beginning work-in-process conversion $5,040
Direct materials added during month $216,000
Conversion costs incurred during the month $139,200
Direct materials are added at the beginning of the process. Conversion costs are incurred uniformly
throughout the production process. Costing is handled on a FIFO basis
Required:
a. Prepare a production cost worksheet using 5 steps approach. (3 marks)
b.Under what conditions would a process costing system be more appropriate than a job order costing system? Explain. (2 marks)