ALASKA MANUFACTURING   ……

ALASKA MANUFACTURING

……. began its first year of operations on January 1, 2016.  Costs incurred for 2016 were as follows:

Variable manufacturing costs are variable with respect to units produced, while variable marketing, distribution and customer-service costs are variable with respect to units sold.

Inventory data is as follows:

In 2016, the company produced 123,000 units.  Company standards require 2 pounds of direct material per unit.

Revenues for 2016 were $594,000.  The selling price per unit and the purchase price per pound of direct materials were constant throughout the year.  Finished-goods inventory at December 31, 2016 was $26,000.

Required:

1. What’s a variable cost?  What’s a fixed cost?  Give an example of each.  WHY is this an important distinction to make?

2. Calculate the ending direct materials inventory (in $$) at December 31, 2016.

3. Calculate the ending finished-goods inventory (in units) at December 31, 2016.

4. Determine the selling price in 2016.

5. Compute the operating income for 2016.
6. What was the contribution margin per unit?  What was the contribution margin ratio?

7. What is the cost function (formula) that the company could use to estimate total costs for any level of production?

8. The company is interested in putting together a budget for 2017. Using their figures from 2016 as a guide, what would the budgeted pretax profits be for activity levels of 120,000 and 140,000 units?  Assume there will be no change in work-in-process or finished-goods inventories.