# 1. The work-in-process inventory account of a manufacturingcompany

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1. The work-in-process inventory account of a manufacturing
company shows a balance of $3,000 at the end of an
accounting period. The job-cost sheets of the two incomplete
jobs show charges of $500 and $300 for direct
materials, and charges of $400 and $600 for direct labor.
From this information, it appears that the company is
using a predetermined overhead rate as a percentage of
direct labor costs. What percentage is the rate?
3,000 - (500+300) - (400+600) = 1,200 of overhead
1,200 overhead divided by the 1000 (400+600) of labor is 1.20. So the overhead rate is 120% of direct labor.
2. The break-even point in dollar sales for Rice Company is
$480,000 and the company’s contribution margin ratio
is 40 percent. If Rice Company desires a profit of
$84,000, how much would sales have to total?
contribution margin 40% / variable costs are 60% / break-even point $480,000
480,000 x 60% = $288,000 variable costs at break-even point
480,000 - 288,000 = $192,000 fixed costs
192,000 + 84,000 + 0.60x = x
276,000 = 0.40x
x = $690,000 sales needed
This means fixed costs are $288,000 and variable are 192,000.
Each marginal dollar in sales costs $.40 variable and 0 fixed, so MS=(84,000/.6)=140,000.
break even sales of 480,000 + marginal sales of 140,000 = 620,000.
Fixed costs are 288,000.
Variable costs are 620000*.4=248000.
Total costs are 536,000.
Profits are 620,000-536,000=84,000.
3. Williams Company’s direct labor cost is 25 percent of its
conversion cost. If the manufacturing overhead for the
last period was $45,000 and the direct material cost was
$25,000, how much is the direct labor cost?
60000 + 30000 = 90000 = 60% / 60 = 1500 = 1% x 100 = 150000 = 100% X .4 = 60000
The above solution is incorrect.
By definition, the conversion cost is the sum of the direct labor cost and the overhead.
Therefore, if we assume x is the conversion cost, then x = 0.4x + 60,000. The solution is conversion cost = 100,000. Hence, the direct labor cost = 40,000.
Note that the knowing the direct material cost is not necessary for the computation of the labor cost.I am really bad at math so i just have to think you are right on this one
4. Grading Company’s cash and cash equivalents consist of
cash and marketable securities. Last year the company’s
cash account decreased by $16,000 and its marketable
securities account increased by $22,000. Cash provided
by operating activities was $24,000. Net cash used for
financing activities was $20,000. Based on this information,
was the net cash flow from investing activities on
the statement of cash flows a net increase or decrease?
By how much?
Cash provided by operating activities = 24000
Cash used by financing activities = (20000)
Cash and cash equivalents net increase = 4000
Net increase/(decrease) in cash flow of investing activities = 21000 (because dollar difference between (10000) and 4000 is that of 21000 dollars, i.e., travelling from (10000) to 0 is first 10000 then from 1 to 11000, hence it makes up total of 21000.
5. Gladstone Footwear Corporation’s flexible budget cost
formula for supplies, a variable cost, is $2.82 per unit of
output. The company’s flexible budget performance report
for last month showed an $8,140 unfavorable spending
variance for supplies. During that month, 21,250 units
were produced. Budgeted activity for the month had
been 20,900 units. What is the actual cost per unit for
indirect materials?
Spending variance = (AP - SP) x AQ
Since the spending variance was $8,140 unfavorable we know that the actual price was more than the standard. We also have 3 known, spending variance, standard price, and actual quantity.
$8,140 U = (AP - 2.82) x 21,250 units.
Rearrange the formula, solve for AP to get 3.20305 or $3.20305 / unit.
6. Lyons Company consists of two divisions, A and B. Lyons
Company reported a contribution margin of $60,000 for
Division A, and had a contribution margin ratio of 30
percent in Division B, when sales in Division B were
$240,000. Net operating income for the company was
$22,000 and traceable fixed expenses were $45,000. How
much were Lyons Company’s common fixed expenses?
Divisions
Total A% B
Company
Sales $240,000*
Variable expenses $
Contribution margin $
Traceable fixed expenses $
Segment Margin $
Common fixed expenses $
Net operating income $
7. Atlantic Company produces a single product. For the most
recent year, the company’s net operating income computed
by the absorption costing method was $7,800, and its net
operating income computed by the variable costing method
was $10,500. The company’s unit product cost was $15
under variable costing and $24 under absorption costing.
If the ending inventory consisted of 1,460 units, how
many units must have been in the beginning inventory?
Difference in Operating Income of 2,700 unfavorable under Absorption, with fixed cost per unit of $9, means a 300 unit decrease in Ending Inventory. Beginning Inventory then was 1760 units.
8. Black Company uses the weighted-average method in its
process costing system. The company’s ending work-inprocess
inventory consists of 6,000 units, 75 percent
complete with respect to materials and 50 percent complete
with respect to labor and overhead. If the total
dollar value of the inventory is $80,000 and the cost per
equivalent unit for labor and overhead is $6.00, what is
the cost per equivalent unit for materials?
EU in Ending Work in Process - DM 6,000 x 75% = 4,500 / CC 6,000 x 50% = 3,000
Total WiP $80,000
CC 3,000 x $6 = $8,000
DM per EU = $62,000 / 4,500 = $13.7778 per EU
9. At Overland Company, maintenance cost is exclusively a
variable cost that varies directly with machine-hours. The
performance report for July showed that actual maintenance
costs totaled $11,315 and that the associated rate
variance was $146 unfavorable. If 7,300 machine-hours
were actually worked during July, what is the budgeted
maintenance cost per machine-hour?
10. The cost of goods sold in a retail store totaled $650,000.
Fixed selling and administrative expenses totaled $115,000
and variable selling and administrative expenses were
$420,000. If the store’s contribution margin totaled
$590,000, how much were the sales?
• The cost of goods sold in a retail store totaled $650,000. Fixed selling and administrative expenses totaled $115,000 and variable selling and administrative expenses were $420,000. If the store's contribution margin totaled $590,000, how much were the sales
Sales - Variable Costs = Contribution Marginsales=1,010,000+650000+115000=$1,190,000
11. Denny Corporation is considering replacing a technologically
obsolete machine with a new state-of-the-art
numerically controlled machine. The new machine would
cost $600,000 and would have a 10-year useful life.
Unfortunately, the new machine would have no salvage
value. The new machine would cost $20,000 per year to
operate and maintain, but would save $125,000 per year
in labor and other costs. The old machine can be sold
now for scrap for $50,000. What percentage is the simple
rate of return on the new machine rounded to the nearest
tenth of a percent? (Ignore income taxes in this problem.)
• Total Income gained = 50000 - 600000 + (125000 - 20000) * SPW = 0=>105000*SPW = 550000=>SPW = 5.2381=>((1+x)^10-1)/(1+x)^10x = 5.2381=>(1+x)^10 - 1 = 5.2381x(1+x)^10=>x = 0.139 = 13.9% approximately
take the units of the nos. as dollarssavings = $125,000maintenance per year = $20,000depreciation = 600000/100net profit = $45,000therefore investment = (600000+0)/2 = 300000rate of return = (45000/300000) * 100 =15%
12. Lounsberry Inc. regularly uses material O55P and currently
has in stock 375 liters of the material, for which it paid
$2,700 several weeks ago. If this were to be sold as is on
the open market as surplus material, it would fetch $6.35
per liter. New stocks of the material can be purchased
on the open market for $7.20 per liter, but it must be
purchased in lots of 1,000 liters. You’ve been asked to
determine the relevant cost of 900 liters of the material
to be used in a job for a customer. What is the relevant
cost of the 900 liters of material O55P?
cost if it is purchased new = 1000*6.90 =6900 surplus = 360+1000-800=560 surplus sold = 560*6.35= 3556 bought 360 lt cost =2484 total cost = 6900+2484-3556= 5828
13. Harwichport Company has a current ratio of 3.0 and
an acid-test ratio of 2.8. Current assets equal $210,000,
of which $5,000 consists of prepaid expenses. The
remainder of current assets consists of cash, accounts
receivable, marketable securities, and inventory. What
is the amount of Harwichport Company’s inventory?
• 210000/current liabilties = 3=> current liabilties = $70,000current ratio - acid ratio = inventories/current liabilities=> 3-2.8 = inventories/70,000=> inventories = $14,000
14. Tolla Company is estimating the following sales for the
first six months of next year:
January $350,000
February $300,000
March $320,000
April $410,000
May $450,000
June $470,000
Sales at Tolla are normally collected as 70 percent in the
month of sale, 25 percent in the month following the sale,
and the remaining 5 percent being uncollectible. Also, customers
paying in the month of sale are given a 2 percent
discount. Based on this information, how much cash
should Tolla expect to collect during the month of April?
• Tolla Company is estimating the following sales for the first six months of next year: January $350,000 February $300,000 March $320,000 April $410,000 May $450,000 June $470,000 Sales at Tolla are normally collected as 70 percent in the month of sale, 25 percent in the month following the sale, and remaining 5 percent being uncollectible. Also, customers paying in the month, of sale are given a 2 percent discount. Based on this information, how many cash should Tolla expect to co
Tolla expect to collect during the month of AprilCash collection in April = 410000*70%*98% + 320000*25% =$361260
15. Trauscht Corporation has provided the following data
from its activity-based costing system:
The company makes 360 units of product P23F a year,
requiring a total of 725 machine-hours, 85 orders, and 45
inspection-hours per year. The product’s direct materials
cost is $42.30 per unit and its direct labor cost is $14.55
per unit. The product sells for $132.10 per unit. According
to the activity-based costing system, what is the product
margin for product P23F?
16. Williams Company’s direct labor cost is 30 percent of its
conversion cost. If the manufacturing overhead for the
last period was $59,500 and the direct materials cost
was $37,000, what is the direct labor cost?
17. In a recent period, 13,000 units were produced, and there
was a favorable labor efficiency variance of $23,000.
If 40,000 labor-hours were worked and the standard
wage rate was $13 per labor-hour, what would be the
standard hours allowed per unit of output?
18. The balance in White Company’s work-in-process inventory
account was $15,000 on August 1 and $18,000 on
August 31. The company incurred $30,000 in direct labor
cost during August and requisitioned $25,000 in raw
materials (all direct material). If the sum of the debits to
the manufacturing overhead account total $28,000 for the
month, and if the sum of the credits totaled $30,000, then
was Finished Goods debited or credited? By how much?
19. A company has provided the following data:
Sales 4,000 units
Sales price $80 per unit
Variable cost $50 per unit
Fixed cost $30,000
If the dollar contribution margin per unit is increased
by 10 percent, total fixed cost is decreased by 15 percent,
and all other factors remain the same, will net operating
income increase or decrease? By how much?
20. For the current year, Paxman Company incurred
$175,000 in actual manufacturing overhead cost. The
manufacturing overhead account showed that overhead
was overapplied in the amount of $9,000 for the year.
If the predetermined overhead rate was $8.00 per
direct labor-hour, how many hours were worked
during the year?

- 11 years ago

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