Problems Section –

 

Problem

 

            1.   The following is a list of various costs of producing sweatshirts. Classify each cost as either a variable, fixed, or mixed cost for units produced and sold.

 

(a)	Lubricants used to oil machinery.
(b)	Warehouse rent of $6,000 per month plus $.50 per square foot of storage used.
(c)	Thread.
(d)	Electricity costs of $.025 per kilowatt-hour.
(e)	Janitorial costs of $2,000 per month.
(f)	Advertising costs of $10,000 per month.
(g)	Sales salaries.
(h)	Color dyes for producing different colors of sweatshirts.
(i)	Salary of the production supervisor.
(j)	Straight-line depreciation on sewing machines.
(k)	Patterns for different designs. Patterns typically last many years before being replaced.
(l)	Hourly wages of sewing machine operators.
(m)	Property taxes on factory, building, and equipment.
(n)	Cotton and polyester cloth.
(o)	Maintenance costs with sewing machine company. The cost is $2,000 per year plus $.001 for each machine hour of use.

 

 

            2.   On October 31, the end of the first month of operations, Morristown & Co. prepared the following income statement based on absorption costing:

 

Morristown & Co. Income Statement For Month Ended October 31, 20-
Sales (2,600 units)		$104,000
Cost of goods sold:
Cost of goods manufactured	$85,500
Less ending inventory (400 units)	11,400
Cost of goods sold		74,100
Gross profit		$ 29,900
Selling and administrative expenses		21,500
Income from operations		$  8,400
		========

 

If the fixed manufacturing costs were $42,900 and the variable selling and administrative expenses were $14,600, prepare an income statement in accordance with the variable costing concept.

 

            3.   Based on the following production and sales data of Shingle Co. for March of the current year, prepare (a) a sales budget and (b) a production budget.

 

	Product T	Product X
Estimated inventory, March 1	28,000 units	20,000 units
Desired inventory, March 31	32,000 units	15,000 units
Expected sales volume:
Area I	320,000 units	260,000 units
Area II	190,000 units	130,000 units
Unit sales price	$6	$14

 

 

            4.   Door & Window Co. was organized on August 1 of the current year. Projected sales for the next three months are as follows:

 

August	$120,000
September	200,000
October	230,000

 

The company expects to sell 40% of its merchandise for cash. Of the sales on account, 25% are expected to be collected in the month of the sale and the remainder in the following month.

 

Prepare a schedule indicating total cash collections for August, September, and October.

 

            5.   For the current year ending April 30, Hal Company expects fixed costs of $60,000, a unit variable cost of $70, and a unit selling price of $105.

 

(a)	Compute the anticipated break-even sales (units).
(b)	Compute the sales (units) required to realize an operating profit of $8,000.

 

 

            6.   The Filling Department of Rose Petal Lotion Company had 2,300 ounces in beginning work in process inventory (70% complete). During the period 46,500 ounces were completed. The ending work in process inventory was 1,800 ounces (25% complete). What are the equivalent units for both direct materials and conversion costs (if materials are added at the beginning of the process)?

 

            7.   Give me examples of the following costs for an automobile manufacturer (fill in the appropriate blanks).

 

Direct Materials

1.______________________________________________________________

2.______________________________________________________________

 

Direct Labor

1. _____________________________________________________________

 

Factory Overhead

1. Indirect Materials ________________________________________________

2. Indirect Labor __________________________________________________

3. Other _________________________________________________________

 

Period Costs

1. ______________________________________________________________

2. ______________________________________________________________

 

 

 

 

 

 

Question 1

For which of the following businesses would a process cost system be appropriate?

            An oil refinery

            Custom electronics manufacturer

            Yacht builder

            Specialty furniture company

 

Question 2

Department A had 4,000 units in work in process that were 60% completed as to labor and overhead at the beginning of the period, 29,000 units of direct materials were added during the period, 31,000 units were completed during the period, and 2,000 units were 80% completed as to labor and overhead at the end of the period. All materials are added at the beginning of the process. The first-in, first-out method is used to cost inventories.

 

The number of equivalent units of production for conversion costs for the period was:

            33,000

            33,800

            29,800

            30,200

 

Question 3

Department A had 4,000 units in work in process that were 60% completed as to labor and overhead at the beginning of the period, 29,000 units of direct materials were added during the period, 31,000 units were completed during the period, and 2,000 units were 80% completed as to labor and overhead at the end of the period. All materials are added at the beginning of the process. The first-in, first-out method is used to cost inventories.

 

The number of equivalent units of production for material costs for the period was:

            32,000

            33,000

            29,800

            29,000

 

Question 4

Which of the following costs is an example of a cost that remains the same in total as the number of units produced changes?

            Salary of a factory supervisor

            Direct materials

            Units of production depreciation on factory equipment

            Direct labor

 

Question 5

Which of the following describes the behavior of the fixed cost per unit?

            Decreases with decreasing production

            Remains constant with changes in production

            Increases with increasing production

            Decreases with increasing production

 

 

 

 

 

Question 6

If sales are $820,000, variable costs are 58% of sales, and operating income is $260,000, what is the contribution margin ratio?

            62%

            42%

            53.1%

            32%

 

Question 7

If fixed costs are $250,000, the unit selling price is $125, and the unit variable costs are $73, what is the break-even sales (units)?

            4,808 units

            3,425 units

            2,000 units

            2,381 units

 

Question 8

If fixed costs are $1,400,000, the unit selling price is $240, and the unit variable costs are $110, what is the amount of sales required to realize an operating income of $200,000?

            12,308 units

            10,769 units

            12,000 units

            1,538 units

 

Question 9

If fixed costs are $500,000, the unit selling price is $55, and the unit variable costs are $30, what is the break-even sales (units) if fixed costs are increased by $80,000?

            25,000 units

            23,200 units

            10,545 units

            19,333 units

 

Question 10

Which of the following conditions would cause the break-even point to decrease?

            Total fixed costs increase

            Unit selling price decreases

            Unit variable cost decreases

            Unit variable cost increases

 

Question 11

Which of the following conditions would cause the break-even point to increase?

            Total fixed costs decrease

            Unit selling price increases

            Total fixed costs increase

            Unit variable cost decreases

 

 

 

 

 

 

Question 12

The amount of income under absorption costing will be more than the amount of income under variable costing when units manufactured:

            are equal to or greater than units sold

            are less than units sold

            exceed units sold

            equal units sold

 

Question 13

A business operated at 100% of capacity during its first month and incurred the following costs:

 

Production costs (10,000 units):                       

Direct materials                        $140,000

Direct labor                              $40,000

Variable factory overhead       $20,000

Fixed factory overhead                         $4,000

                                                                        $204,000

Operating expenses:                  

Variable operating expenses    $ 34,000

Fixed operating expenses            2,000

                                                                          $36,000

                         

If 2,000 units remain unsold at the end of the month and sales total $300,000 for the month, what would be the amount of income from operations reported on the variable costing income statement?

            $114,800

            $100,800

            $100,000 -??????

            $140,000

 

Question 14

A business operated at 100% of capacity during its first month and incurred the following costs:

 

Production costs (10,000 units):                       

Direct materials                        $140,000

Direct labor                              $40,000

Variable factory overhead       $20,000

Fixed factory overhead                         $4,000

                                                                        $204,000

Operating expenses:                  

Variable operating expenses    $ 34,000

Fixed operating expenses            2,000

                                                                          $36,000

 

If 2,000 units remain unsold at the end of the month and sales total $300,000 for the month, what is the amount of the manufacturing margin that would be reported on the variable costing income statement?

            $140,000

            $106,000

            $104,000

            $114,800

 

 

Question 15.

 

A business operated at 100% of capacity during its first month and incurred the following costs:

 

Production costs (5,000 units):                         

Direct materials                                    $70,000

Direct labor                                          $20,000

Variable factory overhead                   $10,000

Fixed factory overhead                                    $ 2,000

                                                                                    $102,000

                         

Operating expenses:                  

Variable operating expenses                $17,000

Fixed operating expenses                  $1,000

                                                                                      $18,000                      

 

 

If 1,000 units remain unsold at the end of the month and sales total $150,000 for the month, what is the amount of the contribution margin that would be reported on the variable costing income statement?

            $53,000

            $51,400

            $54,000

            $52,000

 

 

Question 16

For March, sales revenue is $1,000,000; sales commissions are 4% of sales; the sales manager’s salary is $80,000; advertising expenses are $75,000; shipping expenses total 1% of sales; and miscellaneous selling expenses are $2,100 plus 1% of sales. Total selling expenses for the month of March are:

            $187,550

            $217,100

            $194,100

            $192,100

 

 

 

 

Question 17

Nuthatch Corporation began its operations on September 1 of the current year. Budgeted sales for the first three months of business are $260,000, $350,000, and $400,000, respectively, for September, October, and November. The company expects to sell 30% of its merchandise for cash. Of sales on account, 80% are expected to be collected in the month of the sale and 20% in the month following the sale.

 

The cash collections in October from accounts receivable are:

            $337,400

            $210,000

            $232,400

            $240,000

 

 

Question 18

Finch Company began its operations on March 31 of the current year.  Finch Co. has the following projected costs:

 

           

April                                        May                             June

Manufacturing costs (1)           $156,800                                 $195,200                     $217,600

Insurance expense (2)                 1,000                                       1,000                           1,000

Depreciation expense                 2,000                                       2,000                           2,000

Property tax expense (3)                500                                          500                              500

 

(1)      3/4 of the manufacturing costs are paid for in the month they are incurred.  1/4 is paid in the following month.

(2)      Insurance expense is $1,000 a month, however, the insurance is paid four times yearly in the first month of the quarter, i.e. January, April, July, and October.

(3)      Property tax is paid once a year in November.

 

The cash payments for Finch Company in the month of April are:

            $123,100

            $120,600

            $121,100

            $122,600

 

Question 19

Which of the following is false in regards to direct materials for an auto manufacturer?

            Oil to lubricate factory machines would not be a direct material.

            Upholstery fabric would probably be a direct material

            Steel would probably be a direct material.

            Small plastic clips to hold on door panels, that become part of the auto, must be accounted for as     direct materials.

 

Question 20

Which of the following is an example of direct labor cost for an airplane manufacturer?

            Cost of jet engines

            Cost of wages of assembly worker

            Cost of oil lubricants for factory machinery

            Salary of plant supervisor

 

 

Question 21

Prime costs are

            period costs and factory overhead

            direct labor and factory overhead

            direct materials and factory overhead

            direct materials and direct labor

 

Question 22

Product costs

            are expensed as costs are incurred for direct labor, direct material and factory overhead

            appear on both the income statement and balance sheet

            appear only on the balance sheet

            appear only on the income statement

 

Question 23

A plant manager’s salary may be referred to as:

            an indirect cost

            a direct cost

            either a direct cost or an indirect cost since managerial accounting is not restricted by GAAP

            a period cost

 

Question 24

An example of a period cost is:

            advertising expense

            depreciation on factory equipment

            indirect materials

 

            property taxes on plant facilities