ACCT. 3304 Exam One

A single plant-wide overhead rate generally provides more accurate product costs than multiple departmental overhead rates.

False

In Year 4, the company's variable costing net operating income was $240,700 and its absorption costing net operating income was $266,700. Did inventories increase or decrease during Year 4? (based on data in #66)

Increase

The job cost sheet:

summarizes all costs charged to a particular job.

When closing overapplied manufacturing overhead to cost of goods sold, which of the following would be true?

Gross margin will be increased.

Manage parts inventories. (based on #79)

product-level

customer-level activities

relate to specific customers and include activities such as sales calls, catalog mailings, and general technical support that are not tied to any specific product.

Product-level activities

relate to specific products and typically must be carried out regardless of how many batches are run or units of product are produced or sold. For example, activities such as designing a product, advertising a product, and maintaining a product manager and staff are all product-level activities.

Compute the overhead costs for the order from Shenzhen Enterprises, including customer support costs. (based on data from #89)

Activity Cost Pool and ABC Cost: Supporting Direct Labor: $150 Order Processing: $250 Customer Support: $400 Total: $800 Solution: Activity Cost Pool(a) Activity Rate(b) Activity(a) × (b) ABC Cost Supporting direct labor ($7.50per DLH-A) (20DLHs*-B) ($150-AB) Order processing $250per order 1 order 250 Customer support ($400per customer-A) (1 customer-B) ($400-AB) Total $800 *2 DLHs per unit × 10 units = 20 DLHs

Using the degree of operating leverage, estimate the impact on net operating income of a 26% increase in sales. (based on the data in #41)

Net Operating Income increases by 34.58% Solution: A 26% increase in sales should result in a 34.58% increase in net operating income, computed as follows: Degree of operating leverage (a): 1.33 Percent increased in sales (b): 26% Estimated percent increase in net operating income (a) x (b) 34.58%

Ravsten Company uses a job-order costing system. The company applies overhead cost to jobs on the basis of machine-hours. For the current year, the company estimated that it would work 39,000 machine-hours and incur $171,600 in manufacturing overhead cost. The following transactions occurred during the year: a. Raw materials requisitioned for use in production, $193,000 (75% direct and 25% indirect). b. The following costs were incurred for employee services: Direct Labor: $163,000 Indirect Labor: $21,000 Sales Commissions: $13,000 Administrative Salaries: $28,000 c. Heat, power, and water costs incurred in the factory, $45,000. d. Insurance costs, $13,000 (85% relates to factory operations, and 15% relates to selling and administrative activities). e. Advertising costs incurred, $53,000. f. Depreciation recorded for the year, $63,000 (80% relates to factory operations, and 20% relates to selling and administrative activities). g. The company used 43,000 machine-hours during the year. h. Goods that cost $483,000 to manufacture according to their job cost sheets were transferred to the finished goods warehouse. i. Sales for the year totaled $706,000. The total cost to manufacture these goods according to their job cost sheets was $478,000. Determine the underapplied or overapplied overhead for the year.

Over Applied Overhead $13,500 Solution: (a) Indirect materials:$48,250 (b) Indirect labor: $21,000 (c) Factory heat, power, and water: $45,000 (d) Factory insurance: $11,050 (e) Factory depreciation: $50,400 Total manufacturing overhead incurred: $175,700 In contrast, $189,200 in manufacturing overhead cost was applied to jobs: ($171,600/39,000)=4.40 per MH 43,000 MHs x 4.40 per MH = $189,200 Therefore, the overhead was over applied by $13,500 Manufacturing overhead incurred: $175,700 Manufacturing overhead applied ($43,000 MHs × $4.40 per MH): $189,200 Overhead overapplied (difference): $13,500

An example of a discretionary fixed cost would be:

Research and Development (R&D)

Under variable costing, fixed manufacturing overhead cost is not treated as a product cost.

True

Prepare an income statement for the year. (based on data in #69):

Variable Costing Income Statement: Sales: (-----)($680,000) Variable Expenses: Variable cost of goods sold: ($255,000)(-----) Variable Selling and Administrative Expenses: ($17,000)(-----) Contribution margin: (-----)($408,000) Fixed Expenses: Fixed Manufacturing Overhead: ($231,000)(-----) Fixed Selling and Administrative expense: ($141,000)(-----) Net Operating Income: (-----)(36,000) Solution: Sales (17,000 units × $40 per unit) = $680,000 Variable cost of goods sold (17,000 units × $15 per unit) = $255,000 Variable selling expense (17,000 units × $1 per unit) = $17,000

Assume that the company uses variable costing: Compute the unit product cost. (based on data in #69)

unit product cost: $15 Solution: The unit product cost under variable costing would be: Direct materials $ 10 Direct labor 4 Variable manufacturing overhead 1 Variable costing unit product cost $ 15

The following data pertains to activity and utility costs for two recent years: Activity Level in Units: (year 2: 10,000)(year 1: 6,000) Utilities Cost Observed: (year 2: $12,000)(year 1: $9,000) Using the high-low method, the cost formula for utilities is:

$4,500 plus $0.75 per unit Solution: Variable cost per unit = Change in cost ÷ Change in activity = $3,000 ÷ 4,000 units = $0.75 per unit Fixed cost = Total cost - Variable cost element = $12,000 - ($0.75 per unit × 10,000 units) = $12,000 - $7,500 = $4,500

Your favorite local retailer, Sly Stallone Inc., has provided the following data for the month of February: Merchandise Inventory, beginning balance: $42,000 Merchandise Inventory, ending balance: $41,000 Sales: $260,000 Purchases of Merchandise Inventory: $133,000 Selling Expenses: $15,000 Administrative Expense: $52,000

$59,000 Solution: Net operating income = Sales - Cost of goods sold - Selling and administrative expenses = $260,000 - $134,000 - ($15,000 + $52,000) = $59,000

Gabat Inc. is a merchandising company. Last month the company's merchandise purchases totaled $67,000. The company's beginning merchandise inventory was $19,000 and its ending merchandise inventory was $22,000. What was the company's cost of goods sold for the month?

$64,000

Wally Mart Inc. is a merchandising company which had merchandise purchases of $88,000 last month. The company's beginning merchandise inventory was $15,000 and its ending merchandise inventory was $13,000. What was the company's cost of goods sold for the month?

$90,000 Solution: Cost of goods sold = Beginning merchandise inventory + purchases - Ending merchandise inventory = $15,000 + $88,000 - $13,000 = $90,000

Common Cost

A cost that is incurred to support a number of cost objectives but that cannot be traced to them individually.

Activity Base

A measure of whatever causes the incurrence of a variable cost. For Example, the total cost x-ray film in a hospital will increase as the number of x-ray taken increases. Therefore, the number of x-rays is the activity base that explains the cost of the x-rays

Account Analysis

A method for analyzing cost behavior in which an account is classified as either variable or fixed on the analyst's prior knowledge of how the cost in the account behaves.

Prepare an income statement for the year. (based on the data in #69)

Absorption Costing Income Statement: Sales: $680,000 Cost of Goods Sold: $442,000 Gross Margin: $238,000 Total Selling and Administrative Expense: $158.000 Net operating income: $80,000 Solution: Sales (17,000 units × $40 per unit) = $680,000 Cost of goods sold (17,000 units × $26 per unit) = $442,000 Selling and administrative expenses [(17,000 units × $1 per unit) + $141,000] = $158,000

Fogerty Company makes two products, titanium Hubs and Sprockets. Data regarding the two products follow: Labor-Hours per Unit Hubs (0.80 Direct) (20,000 units AnnualProduction) Sprockets (0.40 Direct) (57,000 units AnnualProduction) Additional information about the company follows: a. Hubs require $31 in direct materials per unit, and Sprockets require $13. b. The direct labor wage rate is $14 per hour. c. Hubs are more complex to manufacture than Sprockets and they require special equipment. d. The ABC system has the following activity cost pools: Activity Cost Pool (Activity Measure) Overhead Cost Hubs Sprockets Total Machine setups (number of setups);($30,240 OC)(120 H)(96 S)(216 T) Special processing (machine-hours):($211,500 OC)(4,700 H)(0 S)(4,700 T) General factory (organization-sustaining):($380,800 OC)(NA)(NA)(NA) Compute the activity rate for each activity cost pool.

Activity Cost Pool & Activity Rate Machine Setups $140 per setup Special Processing $45 per MH Solution: Activity rates are computed as follows: Activity Cost Pool (a) Estimated Overhead Cost (b) Expected Activity(a) ÷ (b) Activity Rate Machine setups $ 30,240 216 setups $ 140 per setup Special processing $ 211,500 4,700 MHs $ 45 per MH

Compute the activity rates for the activity cost pools (based on data from #89)

Activity Cost Pool and Activity Rate: Supporting Direct Labor: $7.50 per DHL Order Processing: $250 per order Customer Support: $400 per customer Solution: Computation of activity rates: Activity Cost Pool (a)Total Cost (b)Total Act. (a) ÷ (b) ActivityRate Supporting direct labor ($150,000-A)(20,000 DLHs-B)($7.50per DLH-AB) Order processing ($100,000-A)(400orders-B)($ 250per order-AB) Customer support ($80,000-A)(200 customers-B)($400 per customer-AB)

Administrative Costs

All executive, organizational, and clerical costs associated with the general management of an organization rather than with manufacturing or selling.

Contribution Approach

An income statement format that organizes costs bu their behavior. Costs are separated into variable and fixed categories rather than being separated into product and period costs for external reporting purposes.

Compute the average product cost of one patio set. (of data in #16)

Average Product Cost: $201 per set Solution: Direct: $514,000 Indirect: $288,000 Total: $802,000 $802,000 ÷ 4,000 sets = $201 per set

Issue purchase orders for a job.(based on #79)

Batch-level

Mauro Products distributes a single product, a woven basket whose selling price is $10 and whose variable expense is $7.8 per unit. The company's monthly fixed expense is $4,620. Solve for the company's break-even point in unit sales using the equation method.

Break-even point in unit sales: 2,100 baskets Solution: The equation method yields the break-even point in unit sales, Q, as follows: Profit = (Unit CM × Q) − Fixed expenses $0 = (($10 − $7.8) × Q) − $4,620 $0 = ($2.20 × Q) − $4,620 $2.20Q = $4,620 Q = $4,620 ÷ $2.2 Q = 2,100 baskets

Solve for the company's break-even point in unit sales using the formula method. (using data in #36)

Break-even point in unit sales: 2,100 baskets Solution: The formula method gives an answer that is identical to the equation method for the break-even point in unit sales: Unit sales to break even: (fixed expenses/unit CM)=($4,620/$2.2)=2,100 baskets

Solve for the company's break-even point in dollar sales using the equation method and the CM ratio. (using data in #36)

CM Ratio: 22% Break Even Point in dollar sales: 21,000 Solution: The equation method can be used to compute the break-even point in dollar sales as follows: CM Ratio: (unit contribution margin/unit selling price)=($2.2/$10)=(.22)=22% Profit = (CM ratio × Sales) − Fixed expenses $0 = (0.22 × Sales) − $4,620 0.22 × Sales = $4,620 Sales = $4,620 ÷ 0.22 Sales = $21,000

Solve for the company's break-even point in dollar sales using the formula method and the CM ratio. (based on data in #36)

CM Ratio: 22% Break-even point in dollar sales: $21,000 Solution: The formula method also gives an answer that is identical to the equation method for the break-even point in dollar sales:. Dollar sales to break even: (fixed expenses)/(CM Ratio)=($4,620/.22)-$21,000

Last month when Holiday Creations, Inc., sold 43,000 units, total sales were $293,000, total variable expenses were $210,960, and fixed expenses were $37,600. What is the company's contribution margin (CM) ratio?

Contribution Margin Ratio: 28% Solution: Total Sales: 293,000 Total Variable Expenses: 210,960 Contibution Margin (difference): 82,040 (divided by) Total Sales: 293,000 CM Ratio: (82,040/293,000)=.28=28%

Prepare a report showing the customer margin for Shenzhen Enterprises. (based on the data in #89)

Customer Margin-ABC Analysis: Sales: (-----)($3,000) Costs: Direct Materials:($1,800)(-----) Direct Labor: ($500)(-----) Support Direct Labor Overboard: ($150)(-----) Order Processing Overhead: ($250)(-----) Customer Support Overhead: ($400)(-----) Customer Margin: (-----)(-100) Solution: Sales (10 units × $300 per unit) = $3,000 Direct materials ($180 per unit × 10 units) = $1,800 Direct labor ($50 per unit × 10 units) = $500

Engberg Company installs lawn sod in home yards. The company's most recent monthly contribution format income statement follows: Sales: ($148,000 amount)(100% of sales) Variable Expenses: (59,200 amount)(40% of sales) Fixed Expenses: (22,000 amount) Net Operating Income: (66,800 amount) Compute the company's degree of operating leverage.

Degree of operating leverage: 1.33 Solution: The company's degree of operating leverage would be computed as follows: Contribution Margin (a): $88,800 Net Operating Income (b): $66,800 Degree of operating leverage (a)/(b)= 1.33

Jorgansen Lighting, Inc., manufactures heavy-duty street lighting systems for municipalities. The company uses variable costing for internal management reports and absorption costing for external reports to shareholders, creditors, and the government. The company has provided the following data: Inventories: Beginning (units): (205 year 1)(156 year 2)(185 year 3) Ending (units): (156 year 1)(185 year 2)(224 year 3) Variable Costing Net Operating Income: ($299,900 year 1)($271,600 year 2)($256,000 year 3) The company's fixed manufacturing overhead per unit was constant at $555 for all three years.

Determine each year's absorption costing net operating income. Variable costing net operating income: ($299,900 year 1)($271,600 year 2)($256,000 year 3) Add (deduct) fixed manufacturing overhead deferred in (released from) inventory under absorption costing: (-27,195 year 1)($16,095 year 2)($21,645 year 3) Absorption costing net operating income: ($272,705 year 1)($287,695 year 2)($277,645 year 3) Solution: Beginning inventories 205 156 185 Ending inventories 156 185 224 Change in inventories (49) 29 39 Fixed manufacturing overhead in beginning inventories (@$555 per unit) $ 113,775 $ 86,580 $ 102,675 Fixed manufacturing overhead in ending inventories (@$555 per unit) 86,580 102,675 124,320 Fixed manufacturing overhead deferred in (released from) inventories (@$555 per unit) $ (27,195) $ 16,095 $ 21,645 Variable costing net operating income $ 299,900 $ 271,600 $ 256,000 Add (deduct) fixed manufacturing overhead cost deferred in (released from) inventory under absorption costing (27,195) 16,095 21,645 Absorption costing net operating income $ 272,705 $ 287,695 $ 277,645

The Dorilane Company specializes in producing a set of wood patio furniture consisting of a table and four chairs. The set enjoys great popularity, and the company has ample orders to keep production going at its full capacity of 4,000 sets per year. Annual cost data at full capacity follow: Direct labor:$88,000 Advertising:$98,000 Factory supervision:$71,000 Property taxes, factory building:$23,000 Sales commissions:$59,000 Insurance, factory:$8,000 Depreciation, administrative office equipment:$1,000 Lease cost, factory equipment:$16,000 Indirect materials, factory:$21,000 Depreciation, factory building:$106,000 Administrative office supplies (billing):$5,000 Administrative office salaries:$112,000 Direct materials used (wood, bolts, etc.):$426,000 Utilities, factory:$43,000

Direct Labor: (88,000 Variable)(88,000 Direct) Advertising: (98,000 FIxed)(98,000 Period [Selling or Admin.]) Factory Supervision: (71,000 Fixed)(71,000 Indirect) Property Taxes, factory building: (23,000 Fixed)(23,000 Indirect) Sales commissions: (59,000 Variable)(Period 59,000) Insurance, factory: (8,000 Fixed)(8,000 Indirect) Depreciation, administrative office equipment: (1,000 Fixed)(Period 1,000) Lease cost, factory equipment: (16,000 Fixed)(16,000 Indirect) Indirect materials, factory: (21,000 Variable)(21,000 Indirect) Depreciation, factory building: (106,000 Fixed)(106,000 Indirect) Administrative office supplies (billing): (5,000 Variable)(5,000 Period) Administrative office salaries: (112,000 Fixed)(112,000 Period) Direct materials used (wood, bolts, etc.): (426,000 Variable)(426,000 Direct) Utilities, factory: (43,000 Variable)(43,000 Product Cost) Total Costs: (642,000 Variable)(435,000 Fixed)(275,000 Period)(514,000 Direct)(288,000 Indirect)

Determine the unit product cost of each product according to the ABC system. (Based on #87)

Direct Materials: ($31 Hubs)($13 Sprockets) Direct Labor: (11.20 H)(5.60 S) Overhead: (11.42 H)(.24 S) Unit Cost: ($53.61 H)($18.84 S) Solution: Activity rates are computed as follows: Activity Cost Pool (a) Estimated Overhead Cost (b) Expected Activity (a) ÷ (b) Activity Rate Machine setups $ 30,240 216 setups $ 140 per setup Special processing $ 211,500 4,700 MHs $ 45 per MH 2. Overhead is assigned to the two products as follows: Hubs: Activity Cost Pool (a) Activity Rate (b) Activity (a) × (b) ABC Cost Machine setups $ 140 per setup 120 setups $ 16,800 Special processing $ 45 per MH 4,700 MHs 211,500 Total $ 228,300 Sprockets: Activity Cost Pool (a) Activity Rate (b) Activity (a) × (b) ABC Cost Machine setups:$140per setup (a) 96 (setups b)$13,440( Special processing $ 45 per MH 0 MHs 0 Total $ 13,440 Direct materials $ 31.00 H $ 13.00 S Direct labor: $14.00 per DLH × 0.80 DLHs per unit: 11.20 Hubs $14.00 per DLH × 0.40 DLHs per unit: 5.60 Sprockets Overhead: $228,300 ÷ 20,000 units: 11.42 Hubs $13,440 ÷ 57,000 units: .24 Sprockets Unit cost $ 53.62 $ 18.84

Conversion Cost

Direct labor cost plus manufacturing overhead cost.

Which of the following is an example of a cost that is variable with respect to the number of units produced?

Direct labor cost, where the direct labor workforce is adjusted to the actual production of the period.

Estimate the change in the company's net operating income if it were to increase its total sales by $1,400. (use data from #32)

Estimated Change in Net Operating Income: $392 Solution: Change in total sales: 1,400 (multiplied by) CM Ratio: 28% =estimated change in net operating income= (1,400 x .28)= $392

A common fixed cost is a fixed cost that is incurred because of the existence of a particular business segment and that would be eliminated if the segment were eliminated.

False

A contribution format income statement for a merchandising company organizes costs into two categories—cost of goods sold and selling and administrative expenses.

False

All other things the same, if the fixed expenses increase in a company then one would expect the margin of safety to increase.

False

Assuming the LIFO inventory flow assumption, if production is less than sales for the period, absorption costing net operating income will generally be greater than variable costing net operating income.

False

Because absorption costing emphasizes costs by behavior, it works well with cost-volume-profit analysis.

False

On a cost-volume-profit graph, the revenue line will be shown below the total expense line for any activity level above the break-even point.

False

One way to compute the total contribution margin is to deduct total fixed expenses from net operating income.

False

The cost categories that appear on a job cost sheet include selling expense, manufacturing expense, and administrative expense.

False

The cost of goods sold in a single product company is equal to the number of units sold multiplied by their unit product cost, plus any overapplied overhead or less any underapplied overhead.

False

How much fixed manufacturing overhead cost was deferred in or released from inventory during Year 4? (based on data in #66)

Fixed manufacturing overhead cost deferred in inventory during year 4 $26,000

Milden Company has an exclusive franchise to purchase a product from the manufacturer and distribute it on the retail level. As an aid in planning, the company has decided to start using a contribution format income statement. To have data to prepare such a statement, the company has analyzed its expenses and has developed the following cost formulas: Cost of good sold: $33 per unit sold Advertising Expenses: $189,000 per quarter Sales Commissions: 8% of sales Shipping Expense: ? Administrative Salaries: $99,000 per quarter Insurance Expense: $10,900 per quarter Depreciation Expense: $69,000 per quarter Management has concluded that shipping expense is a mixed cost, containing both variable and fixed cost elements. Units sold and the related shipping expense over the last eight quarters follow: Year One First Quarter: (35,000 units sold)($179,000 Shipping Expense) Second:(37,000 U.S.)($194,000 S.E.) Third:(42,000 U.S.)($236,000 S.E.) Fourth:(38,000 U.S.)($199,000 S.E.) Year Two First: (36,000 U.S.)($189,000 S.E.) Second:(39,000 U.S.)($204,000 S.E.) Third:(53,000 U.S.)($251,000 S.E.) Fourth:(50,000 U.S.)($227,000 S.E.) Milden Company's president would like a cost formula derived for shipping expense so that a budgeted contribution format income statement can be prepared for the next quarter. 1. Using the high-low method, estimate a cost formula for shipping expense based on the data for the last eight quarters above.

High Activity Level: (53,000 units sold)($251,000 shipping expense) Low Activity Level:(35,000 U.S.)($179,000 S.E.) Change: (18,000 U.S.)($72,000 S.E) Variable Cost Per Unit: $4 per unit Fixed Cost Element: $39,000 Y=$39,000+$4X Solution: Variable Cost per Units=(change in cost/change in activity)= (72,000/18,000)=4

Committed Fixed Costs

Investments in facilities, equipment, and basic organizational structure that can't be significantly reduced even for short periods of time without making fundamental changes.

Data for Hermann Corporation are shown below: Selling Price: (85 per unit)(100% of sales) Variable Expenses: (51 per unit)(60% of sales) Contribution Margin: (34 per unit)(40% of sales) Fixed expenses are $77,000 per month and the company is selling 2,600 units per month. The marketing manager argues that a $8,200 increase in the monthly advertising budget would increase monthly sales by $16,000. Calculate the increase or decrease in net operating income.

Net Operating Income decreases by $1,800 Solution: Sales: (221,000 current sales)(237,000 sales with additional advertising budget)(16,000 difference) Variable Expenses: (132,600 cs)(142,200 swaab)(9,600 d) Contribution Margin: (88,400 cs)(94,800 swaab)(6,400 d) Fixed Expenses: (77,000 cs)(85,200 swaab)(8,200 d) Net Operating Income: (11,400 cs)(9,600 swaab)(-1,800 d)

Should the advertising budget be increased? (based on data in # 34)

No Solution: Assuming no other important factors need to be considered, the increase in the advertising budget should not be approved because it would lead to a decrease in net operating income of $1,800.

In a job-order cost system, which of the following events would trigger recording data on a job cost sheet?

None of the above The above choices being: the purchase of direct materials the payment of fire insurance on the factory building the payment for product advertising

All of the following costs would be found in a company's accounting records except:

Opportunity cost

Design new products. (based on #79)

Product-level

Within the relevant range, variable cost per unit will:

Remain constant

Prepare an income statement for the year. (Hint: No calculations are required to determine the cost of goods sold before any adjustment for underapplied or overapplied overhead.) (based on the data in #58)

Sales: $706,000 Cost of Goods Sold: $464,500 Gross Margin: $241,500 Selling and Administrative Expenses: $108,550 Net Operating Income: $132,950 Solution: The cost of goods sold for the year (before adjustment for underapplied or overapplied overhead) is $478,000—the total cost to manufacture the goods that were sold according to their job cost sheets. The adjusted cost of goods sold is computed as follows: Unadjusted cost of goods sold: $478,000 Deduct: Overapplied overhead: $13,500 Cost of goods sold: $464,500 The selling and administrative expenses for the year were: b) Sales commissions:$13,000 (b) Administrative salaries:$28,000 (d) Insurance:$1,950 (e) Advertising:$53,000 (f) Depreciation:$12,600 Total selling and administrative expense:$108,550 Income Statement Sales:$706,000 Cost of goods sold:$464,500 Gross margin:$241,500 Selling and administrative expenses:$108,550 Net operating income $132,950

Royal Lawncare Company produces and sells two packaged products, Weedban and Greengrow. Revenue and cost information relating to the products follow: Selling price per unit ($11 weedban)($32 greengrow) Variable expenses per unit($3.10 wb)($12 gg) Traceable fixed expenses per year($135,000 wb)($43,000 gg) Common fixed expenses in the company total $101,000 annually. Last year the company produced and sold 43,000 units of Weedban and 23,500 units of Greengrow. Prepare a contribution format income statement segmented by product lines.

Sales: ($1,225,000 total)($473,000 wb)($752,000 gg) Variable expenses:($415,300 total)($133,300wb)($282,000gg) Contribution margin($809,700 total)($339,700wb)($470,000gg) Traceable fixed expenses:($178,000 total)($135,000wb)($43,000gg) Product line segment margin:($631,700 total)($204,700wb)($427,000gg) Common fixed expenses not traceable to products:($101,000 total) Net operating income ($530,700 total) Solution: Sales: Weedban: 43,000 units × $11.00 per unit = $473,000. Greengrow: 23,500 units × $32.00 per unit = $752,000. Variable expenses: Weedban: 43,000 units × $3.10 per unit = $133,300. Greengrow: 23,500 units × $12.00 per unit = $282,000.

3.The sales volume is 7,900 units. (use data from #29)

Sales: (260,700 total)(33 per unit) Variable Expenses: (150,100 total)(19 per unit) Contribution Margin: (110,600 total)(14 per unit) Fixed Expenses: (56,000 total) Net Operating Income: (54,600 total) Solution: Sales (7,900 × $33.00) = $260,700

2. The sales volume decreases by 70 units. (use data from #29)

Sales: (291,390 total)(33 per unit) Variable Expenses: (167,770 total)(19 per unit) Contribution Margin: (123,620)(14 per unit) Fixed Expenses: (56,000 total) Net Operating Income: (67,620 total) Solution: Sales (8,830 × $33.00) = $291,390

Whirly Corporation's most recent income statement is shown below: Sales (8,900 units) : (293,700 Total)(33 per unit) Variable Expenses: (169,100 total)(19 per unit) Contribution Margin: (124,600 total)(14 per unit) Fixed Expenses:(56,000 total) Net Operating Income: (68,600) Prepare a new contribution format income statement under each of the following conditions (consider each case independently): 1. The sales volume increases by 70 units.

Sales: (296,010 total)(33 per unit) Variable Expenses: (170,430 total)(19 per unit) Contribution Margin: (125,580 total)(14 per unit) Fixed Expenses: (56,000 total) Net Operating Income: (69,580 total ) Solution: Sales (8,970 × $33.00) = $296,010

2. In the first quarter of Year 3, the company plans to sell 41,000 units at a selling price of $66 per unit. Prepare a contribution format income statement for the quarter. (based on the data in #19)

Sales:(-------)(2,706,000) Variable Expense Cost of Goods Sold: ($1,353,000)(-------) Sales Commissions:($216,000)(-------) Shipping Expense: ($164,000)(-------) Total Variable Expense: (-------)($1,733,480) Contribution Margin: (-------)($972,000) Fixed Expenses: Advertising Expense:($189,000)(-------) Shipping Expenses:($39,000)(-------) Administrative Salaries: ($99,000)(-------) Insurance Expense: ($10,900)(-------) Depreciation Expense: ($69,000)(-------) Total Fixed Expenses:(-------)($406,900) Net Operating Income:(-------)($565,620) (-------) : column placeholder Solution: Sales (41,000 units × $66 per unit) = $2,706,000 Cost of goods sold (41,000 units × $33 unit) = $1,353,000 Sales commission (8% × $2,706,000) = $216,480 Shipping expense (41,000 units × $4 per unit) = $164,000

Contribution Margin

The amount remaining from sales revenue after all variable expenses have been deducted.

The average product cost for one patio set would be (data found in #16):

The average product cost per set would increase if the production drops. This is because the fixed costs would be spread over fewer units, causing the average cost per unit to rise.

All other things the same, a reduction in the variable expense per unit will decrease the break-even point.

True

Commissions paid to salespersons are a variable selling expense.

True

Cost behavior is considered linear whenever a straight line is a reasonable approximation for the relation between cost and activity.

True

Cost of goods sold equals beginning finished goods inventory, plus cost of goods manufactured, less ending finished goods inventory.

True

Even though a job is not completed at year end, manufacturing overhead cost may be applied to that job when a predetermined overhead rate is used.

True

If the actual manufacturing overhead cost for a period exceeds the manufacturing overhead cost applied, then manufacturing overhead would be considered to be underapplied.

True

Reynold Enterprises sells a single product for $25. The variable expense per unit is $15 and the fixed expense per unit is $5 at the current level of sales. The company's net operating income will increase by $10 if one more unit is sold.

True

The cost of a completed job in a job-order costing system typically consists of the actual direct materials cost of the job, the actual direct labor cost of the job, and the manufacturing overhead cost applied to the job.

True

The cost of goods manufactured for a period includes only the costs of units that are completed during the period.

True

The high-low method uses cost and activity data from just two periods to establish the formula for a mixed cost.

True

The labor time ticket contains a detailed summary of the direct and the indirect labor hours of an employee.

True

The unit sales volume necessary to reach a target profit is determined by dividing the sum of the fixed expenses and the target profit by the contribution margin per unit.

True

Thread that is used in the production of mattresses is an indirect material that is therefore classified as manufacturing overhead.

True

Under absorption costing, it is possible to defer a portion of the fixed manufacturing overhead costs of the current period to future periods through the inventory account.

True

Lynch Company manufactures and sells a single product. The following costs were incurred during the company's first year of operations: Variable costs per unit: Manufacturing: Direct materials $ 10 Direct labor $ 4 Variable manufacturing overhead $ 1 Variable selling and administrative $ 1 Fixed costs per year: Fixed manufacturing overhead $ 231,000 Fixed selling and administrative $ 141,000 During the year, the company produced 21,000 units and sold 17,000 units. The selling price of the company's product is $40 per unit. Assume that the company uses absorption costing: Compute the unit product cost.

Unit Product cost $26 Solution: The unit product cost under absorption costing would be: Direct materials $ 10 Direct labor 4 Variable manufacturing overhead 1 Total variable costs 15 Fixed manufacturing overhead ($231,000 ÷ 21,000 units) 11 Absorption costing unit product cost $ 26

Lin Corporation has a single product whose selling price is $135 and whose variable expense is $54 per unit. The company's monthly fixed expense is $40,000. Using the equation method, determine for the unit sales that are required to earn a target profit of $8,600.

Unit Sales: 600 Solution: The equation method yields the required unit sales, Q, as follows: Profit = (Unit CM × Q) − Fixed expenses $8,600 = (($135 − $54) × Q) − $40,000 $8,600 = ($81 × Q) − $40,000 $81 × Q = $8,600 + $40,000 Q = $48,600 ÷ $81 Q = 600 units

Advanced Products Corporation has supplied the following data from its activity-based costing system: Overhead Costs Wages and salaries: $300,000 Other overhead costs: $100,000 Total overhead costs: $400,000 Activity Cost Pool Activity Measure Total Activity (Supporting direct labor ACP) (Number of direct labor-hours AM)(20,000 DLHs Total Activity) (Order processing ACP) (Number of customer orders AM)(400 orders TA)(Customer support ACP) (Number of customers AM)(200 customers TA) (Other ACP)(This is an organization-sustaining activity AM)(Not applicable TA) Distribution of Resource Consumption Across Activities Wages and salaries (40%Direct Labor Support) (30%Order Processing)(20%Customer Support)(10%Other) (100%Total) Other overhead costs (30 %Direct Labor Support)(10%Order Processing)(20%Customer Support)(40%Other) (100%Total) During the year, Advanced Products completed one order for a new customer, Shenzhen Enterprises. This customer did not order any other products during the year. Data concerning that order follow: Data Concerning the Shenzhen Enterprises Order Units ordered:10 units Direct labor-hours: 2 DLHs per unit Selling price:$300 per unit Direct materials:$180 per unit Direct labor:$50 per unit Required: 1. Prepare a report showing the first-stage allocations of overhead costs to the activity cost pools.

Wages and Salaries: (Direct Labor Support: $120,000) (Order Processing: $90,000)(Customer Support:$60,000)(Other:$30,000)(Total:$300,000) Other Overhead Costs: (Direct Labor Support: $30,000) (Order Processing: $10,000)(Customer Support $20,000)(Other: $40,000)(Total:$100,000) Total Cost: (Direct Labor: $150,000) (Order Processing:$100,000) (Customer Support:$80,000) (Other:$70,000) (Total:$400,000) Solution: First-stage allocations of overhead costs to the activity cost pools: Wages and salaries: Direct labor support: $300,000 × 40% = $120,000. Order processing: $300,000 × 30% = $90,000. Customer support: $300,000 × 20% = $60,000. Other: $300,000 × 10% = $30,000. Other overhead costs: Direct labor support: $100,000 × 30% = $30,000. Order processing: $100,000 × 10% = $10,000. Customer support: $100,000 × 20% = $20,000. Other: $100,000 × $40% = $40,000.

organizing-sustaining activities

are carried out regardless of which customers are served, which products are produced, how many batches are run, or how many units are made. This category includes activities such as heating the factory, cleaning executive offices, providing a computer network, arranging for loans, preparing annual reports to shareholders, and so on.

batch-level activities

are performed each time a batch is handled or processed, regardless of how many units are in the batch. For example, tasks such as placing purchase orders, setting up equipment, and arranging for shipments to customers are batch-level activities. They are incurred once for each batch (or customer order). Costs at the batch level depend on the number of batches processed rather than on the number of units produced, the number of units sold, or other measures of volume. For example, the cost of setting up a machine for batch processing is the same regardless of whether the batch contains one or thousands of items.

unit-level activities

are performed each time a unit is produced. The costs of unit-level activities should be proportional to the number of units produced. For example, providing power to run processing equipment would be a unit-level activity because power tends to be consumed in proportion to the number of units produced.

The following activities occur at Greenwich Corporation, a company that manufactures a variety of products. Receive raw materials from suppliers.

batch-level

What document is used to determine the actual amount of direct materials to record on a job cost sheet?

materials requisition form

Discretionary fixed costs:

may be reduced for short periods of time with minimal damage to the long-run goals of the organization.

Interview and process new employees in the personnel department. (based on #79)

organization-level

Use the general factory building.(based on #79)

organization-level

Perform periodic preventive maintenance on general-use equipment. (based on #79)

organization-sustaining

In a manufacturing company, direct labor costs combined with direct materials costs are known as:

prime costs.

Departmental overhead rates are generally preferred to plant-wide overhead rates when:

the activities of the various departments in the plant are not homogeneous.

Overapplied manufacturing overhead means that:

the applied manufacturing overhead cost was greater than the actual manufacturing overhead cost.

Which of the following is NOT a correct definition of the break-even point?

the point where total profit equals total fixed expenses.

Do rough milling work on products. (based on #79)

unit-level

Contribution margin is the amount remaining after:

variable expenses have been deducted from sales revenue.

The principal difference between variable costing and absorption costing centers on:

whether fixed manufacturing costs should be included in product costs.