FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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Strategic initiatives and CSR
Quicksaw Inc. is a production company that is in the process of testing a strategic initiative aimed at increasing gross profit. The company’s current sales revenue is $1,200,000. Currently, the company’s gross profit is 35% of sales, but the company’s target gross profit percentage is 40%. The company’s current monthly cost of production is $780,000. Of this cost, 50% is for labor, 20% is for materials, and 30% is for
The strategic initiative being tested at Quicksaw is a redesign of its production process that splits the process into two sequential procedures. The makeup of the costs of production for Procedure 1 is currently 50% direct labor, 45% direct materials, and 5% overhead. The makeup of the costs of production for Procedure 2 is currently 50% direct labor, 20% direct materials, and 30% overhead. Company management estimates that Procedure 1 costs twice as much as Procedure 2.
Required:
1. Determine what the cost of labor, materials, and overhead for both Procedures 1 and 2 would need to be for the company to meet its target gross profit at the current level of sales.
| Line Item Description | Amount | ||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Direct Labor | $fill in the blank 1 | ||||||||||||||||||||||||||||||
| Direct Materials | fill in the blank 2 | ||||||||||||||||||||||||||||||
| Overhead | fill in the blank 3 | ||||||||||||||||||||||||||||||
| Total | $fill in the blank 4
|
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VIEW Step 2: (1) Determine the cost of labor, materials, and overhead for both Procedures 1 and 2:
VIEW Step 3: (2) Determine the actual cost of direct labor, direct materials, and overhead for each procedure:
VIEW Step 4: (3) Determine what the maximum new cost of these indirect materials could be for Procedure 2:
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