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# CVP analysis

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The owners of LAâ€™s Gym currently are working on their operating plan for the coming year, and they have provided you with the following average membership and cost data for the previous year: Annual membership fee \$500 per member

Number of members 6,000
Variable cost (supplies, instructors, etc.) \$160 per member
Fixed costs (equipment, salaries, etc.) \$1,224,000
The owners anticipate that, for the coming year, both total fixed costs and the variable cost per member will remain unchanged from the previous year. Assuming the same number of members as last year, what is LAâ€™s expected profit for the coming year? (10 points) How many members must LAâ€™s Gym have to break even? (10 points) The owners of LAâ€™s Gym are considering reducing the annual membership fee by 10%. They believe this will increase membership to 7,500 members for the coming year. What will profit be if the ownerâ€™s adopt this strategy (note: the membership fee for all members will be reduced by 10%)? Does this seem like a good option? Support your answer with calculations. (10 points) Problem 2: CVP analysis (10 points total)

Cobb Corporation produces three products, A, B and C. The normal volume is 900 units of A, 120 units of B and 180 units of C. The price per unit is \$5, \$7, \$10, for products A, B, and C, respectively. The variable cost per unit is \$2, \$3, \$4, for products A, B, and C. respectively. The total fixed costs are \$5,800. What is the weighted average contribution margin per unit?

Problem 3: Job costing and overhead allocation methods (30 points total) DeKalb Company’s actual manufacturing overhead cost for the month of September was \$80,000. The company’s predetermined overhead rate was 50% of direct labor cost. Other information pertaining to DeKalb’s inventories and production for the month of September is as follows:

Beginning inventories, September 1:
Direct materials \$17,000
Work in process \$50,000
Finished goods \$80,000
Purchases of direct materials during
September \$110,000
Direct labor cost \$180,000
Ending inventories, September 30
Direct materials \$26,000
Work in process \$31,000
Finished goods \$85,000

Determine the amount of direct materials used during September. (10 points) Determine the underallocated or overallocated overhead for the month. (10 points)

Determine the Cost of Goods Manufactured for the month. (10 points) Problem 4: Activity-based costing (30 points total)
Paris, Inc., produces two products, Product A and Product B. If currently allocates overhead costs using direct-labor hours, but the controller has recommended an activity-based costing (ABC) system using the following data: Activity Level

Activity Cost-Driver Base Cost Product A Product B
Production setup Number of setups \$ 90,000 11 19
Materials handling & requisition Number of parts per unit \$ 15,000 6 18 Packaging & shipping Number of units shipped \$ 45,000 60,000 120,000 Total overhead \$150,000 Compute the amount of overhead to be allocated to each product using direct-labor hours as the allocation base. Assume that the number of direct-labor hours required to assemble each unit is 0.5 per unit for Product A and 1.0 per unit for Product B. The company produces 60,000 units of Product A and 120,000 units of Product B. (10 points) Compute the amount of overhead to be allocated to each product under ABC. (10 points) Should the company follow the controllerâ€™s recommendation? Explain your answer.

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