P18-26A (L. OBJ. 2, 3, 4) Computing breakeven sales and sales needed to earn a target operating income; graphing CVP relationships; sensitivity analysis (30-45 min) 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), spe- cial 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 pay- ments to the financial planner (9% of revenue), advertising (12% of revenue), sup- plies and postage (4% of revenue), and usage fees for the telephone lines and computerized brokerage service (5% of revenue). Requirements 1. Use the contribution margin ratio CVP formula to compute Big Time's breakeven 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 loss 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 0 to 80 units. 4. Suppose that the average revenue Big Time earns increases to $900 per trade. Compute the new breakeven point in trades. How does this affect the breakeven point? P16A-19B Computing equivalent units and assigning costs to completed units and ending WIP inventory; two materials, added at different points; no beginning inventory or cost transferred in [30-45 min] Root's Exteriors produces exterior siding for homes. The Preparation Department begins with wood, which is chopped into small bits. At the end of the process, an 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 Department are as follows (in millions): S 0 Sheets Costs Beginning work in process inventory 0 sheets Beginning work in process inventory Started production 3,300 sheets Costs adding during March: Completed and transferred out to Wood Compression in March 1,900 sheets Adhesives Direct labor Ending work in process inventory (45% Manufacturing overhead of the way through the preparation process) | 1,400 sheets Total costs 2,600 1,365 640 2,445 $ 7,050 Requirements 1. Draw a time line for the Preparation Department. 2. Use the time line to help you compute the equivalent. (Hint: Each direct material added at a different point in the production process requires its own equivalent- unit computation.) 3. Compute the total costs of the units (sheets) a. Completed and transferred out to the Compression Department. b. In the Preparation Department's Ending work in process inventory. 4. Prepare the journal entry to record the cost of the sheets completed and trans- ferred out to the Compression Department. 5. Post the journal entries to the Work in process inventory- Preparation T-account. What is the ending balance?