Big Time Investor Group is opening an office in Dallas. Fixed monthly costs are office rent ($8,200)

| February 25, 2017

Question
1. Big Time Investor Group is opening an office in Dallas. Fixed monthly costs are
office rent ($8,200), depreciation on office furniture ($1,500), utilities ($2,300), special
telephone lines ($1,300), a connection with an online brokerage service ($2,900) and the
salary of a financial planner ($11,800). Variable costs include payment to the financial
planner (9% of revenue), advertising (12% of revenue), supplies and postage (4% of
revenue) and usage fees for telephone lines and computerized brokerage service (5% of
revenue).

Requirements

1. Use the contribution margin ratio CVP formula to compute Big Time’s break­
even revenue in dollars. If the average trade leads to $800 in revenue for Big
Time how many trades must be made to break even?
2. Use the income statement equation approach to compute the dollar revenues
needed to earn a target monthly operating income of $11,200.
3. Graph Big Time’s CVP relationships. Assume that an average trade leads to $800
in revenue for Big Time. Show the breakeven point, the sales revenue line, the
fixed cost line, the total cost line, the operating lost area, the operating income
area and the sales in units (trades) and dollars when monthly operating income of
$11,200 is earned. The graph should range from 0­80 units.
4. Suppose that the average revenue that Big Time earns increases to $900 per trade.
Compute the new breakeven point in trades. How does this effect the new
breakeven point?

2. Roots Exteriors produces exterior sidings for homes. The preparation department
begins with wood, which is chopped into small bits. At the end of the process and
adhesive is added. Then the wood/adhesive mixture goes on to the compression
department where the wood is compressed into sheets. Conversion costs are added evenly
throughout the preparation process. March Data for the preparation process is as follows:

Sheets

Costs

Beginning work in
process inventory
Started Production

Ending Work in
Process inventory
(45% of the way
through the
preparation process)

3,300 sheets

Beginning work in $0
process inventory
Costs adding during
March:
Wood
2,600

1,900 sheets

Adhesives

1,365

Direct Labor
Manufacturing
Overhead

640
2,445

Total Costs

Completed and
transferred out to
Compression in
March

0 sheets

$7,050

______________
1,400 sheets

1. Draw a time line for the preparation department
2. Use the timeline to help you compute the equivalent. ( Hint: Each direct material
added at a different point in the production process requires it’s own equivalent
unit computation.
3. Compute the total cost’s of the units (sheets)
a. Completed and transferred out to the Preparation Department
b. In the Preparation Departments ending work and process inventory
4. Prepare the journal entry to record the cost of the sheets completed and
transferred out to the Compression Department
5. Post the journal entries to the work in process inventory ­­­­­Preparation T­
Account. What is the ending balance?

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