COST ACCOUNTING HOMEWORK 12 QUESTIONS IF (YOU DONT KNOW HOW TO DO IT THAN DONT ACCEPT IT.)

Pringle Company distributes a single product. The company’s sales and expenses for a recent month follow:

Total   

Per Unit

  Sales

$

300,000

$

20     

  Variable expenses

210,000

14     

  Contribution margin

90,000

$

6     

  Fixed expenses

78,000

  Net operating income

$

  12,000

Required:

1.

What is the monthly break-even point in units sold and in sales dollars? (Omit the "$" sign in your response.)

  Break-even point in unit sales

units  

  Break-even point in sales dollars

$          

2.

Without resorting to computations, what is the total contribution margin at the break-even point? (Omit the "$" sign in your response.)

  Total contribution margin

$  

3.

How many units would have to be sold each month to earn a target profit of $31,200? Use the formula method.

  Units sold

4.

Refer to the original data. Compute the company's margin of safety in both dollar and percentage terms. (Round your percentage answer to 2 decimal places. Omit the "$" and "%" signs in your response.)

      Dollars

  Percentage   

  Margin of safety

$  

%  

5.

What is the company’s CM ratio? If monthly sales increase by $61,000 and there is no change in fixed expenses, by how much would you expect monthly net operating income to increase? (Omit the "$" and "%" signs in your response.)

  CM ratio

%  

  Net operating income increases by

$      

Reveen Products sells camping equipment. One of the company’s products, a camp lantern, sells for $130 per unit. Variable expenses are $91 per lantern, and fixed expenses associated with the lantern total $179,400 per month.

Required:

1.

Compute the company’s break-even point in number of lanterns and in total sales dollars. (Omit the "$" sign in your response.)

  Number of lanterns

  Total sales dollars

$  

2.

If the variable expenses per lantern increase as a percentage of the selling price, will it result in a higher or a lower break-even point? (Assume that the fixed expenses remain unchanged.)

3.

At present, the company is selling 16,000 lanterns per month. The sales manager is convinced that a 10% reduction in the selling price will result in a 25% increase in the number of lanterns sold each month. Prepare two contribution format income statements, one under present operating conditions, and one as operations would appear after the proposed changes. (Input all amounts as positive values except losses which should be indicated by a minus sign.Omit the "$" sign in your response.)

Present 16,000 lanterns

Proposed lanterns

    Total

    Per Unit

    Total

    Per Unit

$  

$  

$  

$  

$  

$  

$  

$  

4.

Refer to the data in (3) above. How many lanterns would have to be sold at the new selling price to yield a minimum net operating income of $80,000 per month? (Round your answer to the nearest whole number.)

  Number of lanterns to be sold

Memofax, Inc., produces memory enhancement kits for fax machines. Sales have been very erratic, with some months showing a profit and some months showing a loss. The company's contribution format income statement for the most recent month is given below:

  Sales (12,700 units at $20 per unit)

$

254,000   

  Variable expenses

152,400   

  Contribution margin

101,600   

  Fixed expenses

113,600   

  Net operating loss

$

(12,000)  

Required:

1.

Compute the company's CM ratio and its break-even point in both units and dollars. (Omit the "%" and "$" signs in your response.)

  CM ratio

%  

  Break-even point in units

  Break-even point in dollars

$      

2.

The sales manager feels that an $6,800 increase in the monthly advertising budget, combined with an intensified effort by the sales staff, will result in a $85,000 increase in monthly sales. If the sales manager is right, what will the revised net operating income or loss? (Use the incremental approach in preparing your answer.) (Omit the "$" sign in your response.)

is

$  

3.

Refer to the original data. The president is convinced that a 10% reduction in the selling price, combined with an increase of $40,000 in the monthly advertising budget, will double unit sales. What will the new contribution format income statement look like if these changes are adopted? (Input all amounts as positive values except losses which should be indicated by minus sign. Omit the "$" sign in your response.)

Contribution Income Statement

$  

$  

4.

Refer to the original data. The company’s advertising agency thinks that a new package would help sales. The new package being proposed would increase packaging costs by $0.70 per unit. Assuming no other changes, how many units would have to be sold each month to earn a profit of $4,700? (Round your intermediate calculations to 2 decimal places and final answer to the nearest whole number.)

  Sales units  

5.

Refer to the original data. By automating, the company could slash its variable expenses in half. However, fixed costs would increase by $125,000 per month.

a.

Compute the new CM ratio and the new break-even point in both units and dollars. (Do not round intermediate calculations. Round your final answers to the nearest whole number. Omit the "%" and "$" signs in your response.)

  CM ratio

%  

  Break-even point in units

  Break-even point in dollars

 $      

b.

Assume that the company expects to sell 20,900 units next month. Prepare two contribution format income statements, one assuming that operations are not automated and one assuming that they are. (Omit the "$" and "%" signs in your response.)

Not Automated

Automated

         Total

        Per Unit

    %

         Total

        Per Unit

    %

$  

$

$  

$

$

$

$  

$  

Shastri Bicycle of Bombay, India, produces an inexpensive, yet rugged, bicycle for use on the city’s crowded streets that it sells for 983 rupees. (Indian currency is denominated in rupees, denoted by .) Selected data for the company’s operations last year follow:

  Units in beginning inventory

0  

  Units produced

19,000  

  Units sold

16,000  

  Units in ending inventory

3,000  

  Variable costs per unit:

       Direct materials

270  

       Direct labor

490  

       Variable manufacturing overhead

47  

       Variable selling and administrative

18  

  Fixed costs:

       Fixed manufacturing overhead

870,000  

       Fixed selling and administrative

760,000  

Required:

1.

Assume that the company uses absorption costing. Compute the unit product cost for one bicycle. (Round your intermediate and final answers to the nearest whole number. Omit the "" sign in your response.)

  Unit product cost

2.

Assume that the company uses variable costing. Compute the unit product cost for one bicycle. (Omit the "" sign in your response.)

  Unit product cost

Fletcher Company manufactures and sells one product. The following information pertains to each of the company’s first two years of operations:

  Variable costs per unit:

    Manufacturing:

        Direct materials

$ 26  

        Direct labor

$ 11  

        Variable manufacturing overhead

$ 3  

    Variable selling and administrative

$ 2  

  Fixed costs per year:

    Fixed manufacturing overhead

$

240,000  

    Fixed selling and administrative expenses

$

90,000  

During its first year of operations, Fletcher produced 50,000 units and sold 40,000 units. During its second year of operations, it produced 40,000 units and sold 50,000 units. The selling price of the company’s product is $59 per unit.

1.

Assume the company uses variable costing:

a.

Compute the unit product cost for year 1 and year 2. (Omit the "$" sign in your response.)

          Year 1

           Year 2

  Unit product cost

$  

$  

b.

Prepare an income statement for year 1 and year 2. (Input all amounts as positive values except losses which should be indicated by a minus sign. Omit the "$" sign in your response.)

        Year 1

        Year 2

$  

$  

  Variable expenses:

  Total variable expenses

  Fixed expenses:

  Total fixed expenses

$  

$  

2.

Assume the company uses absorption costing:

a.

Compute the unit product cost for year 1 and year 2. (Round your answers to 2 decimal places. Omit the "$" sign in your response.)

          Year 1

           Year 2

  Unit product cost

$  

$  

b.

Prepare an income statement for year 1 and year 2. (Input all amounts as positive values except losses which should be indicated by a minus sign. Omit the "$" sign in your response.)

        Year 1

       Year 2

$  

$  

$  

$  

3.

Reconcile the difference between variable costing and absorption costing net operating income in year 1 and year 2. (Input Income and anything that you add as positive numbers. Input losses and anything that you deduct as negative. Omit the "$" sign in your response.)

               Year 1

                 Year 2

  Variable costing net operating income (loss)

$  

$  

  Absorption costing net operating income

$  

$  

[The following information applies to the questions displayed below.]

Shastri Bicycle of Bombay, India, produces an inexpensive, yet rugged, bicycle for use on the city’s crowded streets that it sells for 940 rupees. (Indian currency is denominated in rupees, denoted by .) Selected data for the company’s operations last year follow:

  Units in beginning inventory

0  

  Units produced

18,000  

  Units sold

3,000  

  Units in ending inventory

15,000  

  Variable costs per unit:

       Direct materials

87  

       Direct labor

318  

       Variable manufacturing overhead

 35  

       Variable selling and administrative

 10  

  Fixed costs:

       Fixed manufacturing overhead

810,000  

       Fixed selling and administrative

471,000  

The absorption costing income statement prepared by the company’s accountant for last year appears below:

  Sales

2,820,000  

  Cost of goods sold

1,455,000  

  Gross margin

1,365,000  

  Selling and administrative expense

501,000  

  Net operating income

864,000  

Required:

1.

Determine how much of the ending inventory consists of fixed manufacturing overhead cost deferred in inventory to the next period. (Omit the "" sign in your response.)

  Total fixed manufacturing overhead in ending inventory

2.

Prepare an income statement for the year using variable costing. (Input all amounts as positive values except losses which should be indicated by a minus sign. Omit the "" sign in your response.)

Variable Costing Income Statement

  Variable expenses:

  Fixed expenses:

Caltec, Inc., produces and sells recordable CD and DVD packs. Revenue and cost information relating to the products follow:

Product

CD

DVD

  Selling price per pack

$

9.00  

$

35.00  

  Variable expenses per pack

$

2.40  

$

14.00  

  Traceable fixed expenses per year

$

133,000  

$

38,000  

Common fixed expenses in the company total $109,000 annually. Last year the company produced and sold 38,000 CD packs and 22,000 DVD packs.

Required:

Prepare a contribution format income statement for the year segmented by product lines. (Input all amounts as positive values except losses which should be indicated by a minus sign. Omit the "$" sign in your response.)

Product Line

        Total

        CD

        DVD

$  

$   

$   

$   

$   

$  

Silicon Optics has supplied the following data for use in its activity-based costing system:

  Overhead Costs

  Wages and salaries

$

354,000  

  Other overhead costs

192,000  

  Total overhead costs

$

546,000  

  Activity Cost Pool

Activity Measure

Total Activity

  Direct labor support

 Number of direct labor-hours

10,000

 DLHs

  Order processing

 Number of orders

490

 orders

  Customer support

 Number of customers

95

 customers

  Other

 This is an organization-sustaining activity

Not applicable

Distribution of Resource Consumption Across Activities

Direct Labor Support

Order Processing

Customer Support

Other

    Total

  Wages and salaries

10

%

30

%

25

%

35

%

100

%

  Other overhead costs

20

%

10

%

20

%

50

%

100

%

During the year, Silicon Optics completed an order for a special optical switch for a new customer, Indus Telecom. This customer did not order any other products during the year. Data concerning that order follow:

 Data Concerning the Indus Telecom Order

  Selling price

$

305

 per unit

  Units ordered

100

 units

  Direct materials

$

260

 per unit

  Direct labor-hours

0.5

 DLH per unit

  Direct labor rate

$

26

 per DLH

Required:

1.

Prepare a report showing the first-stage allocations of overhead costs to the activity cost pools. (Omit the "$" sign in your response.)

           Direct Labor               Support

       Order         Processing

       Customer       Support

      Other

      Totals

  Wages and salaries

$  

$  

$  

$  

$  

  Other overhead costs

  Total cost

$  

$  

$  

$  

$  

2.

Compute the activity rates for the activity cost pools. (Round your answers to 2 decimal places. Omit the "$" sign in your response.)

  Activity Cost Pools

Activity Rate         

  Direct labor support

$

 per DLH

  Order processing

$

 per order

  Customer support

$

 per customer

3.

Compute the overhead costs for the order from Indus Telecom, including customer support costs. (Round your intermediate calculations and final answers to 2 decimal places. Omit the "$" sign in your response.)

  Activity Cost Pool

              ABC Cost

  Direct labor support

$  

  Order processing

  Customer support

  Total

$  

4.

Prepare a report showing the customer margin for Indus Telecom. (Input all amounts as positive values except losses which should be indicated by a minus sign. Round your intermediate calculations and final answers to 2 decimal places. Omit the "$" sign in your response.)

Indus Telecom Customer Margin—ABC Analysis

$  

  Costs:

$  

  Customer margin

$  

As You Like It Gardening is a small gardening service that uses activity-based costing to estimate costs for pricing and other purposes. The proprietor of the company believes that costs are driven primarily by the size of customer lawns, the size of customer garden beds, the distance to travel to customers, and the number of customers. In addition, the costs of maintaining garden beds depends on whether the beds are low-maintenance beds (mainly ordinary trees and shrubs) or high-maintenance beds (mainly flowers and exotic plants). Accordingly, the company uses the five activity cost pools listed below:

  Activity Cost Pool

Activity Measure                        

  Caring for lawn

  Square feet of lawn

  Caring for garden beds—low maintenance

  Square feet of low-maintenance beds

  Caring for garden beds—high maintenance

  Square feet of high-maintenance beds

  Travel to jobs

  Miles

  Customer billing and service

  Number of customers

     The company has already completed its first-stage allocations of costs. The company’s annual costs and activities are summarized as follows:

  Activity Cost Pool

Estimated Overhead Cost

Expected Activity                          

  Caring for lawn

$

78,600    

170,000

 square feet of lawn

  Caring for garden beds—low maintenance

$

31,200    

28,000

 square feet of low-maintenance beds

  Caring for garden beds—high maintenance

$

60,720    

22,000

 square feet of high-maintenance beds

  Travel to jobs

$

4,400    

19,000

 miles

  Customer billing and service

$

9,100    

20

 customers

Required:

Compute the activity rate for each of the activity cost pools. (Round your answers to 2 decimal places. Omit the "$" sign in your response.)

  Activity Cost Pool

       Activity Rate                                                           

  Caring for lawn

$

 per square foot of lawn

  Caring for garden beds—low maintenance

$

 per square foot of low maintenance beds

  Caring for garden beds—high maintenance

$

 per square foot of high maintenance beds

  Travel to jobs

$

 per mile

  Customer billing and service

$

 per customer

Performance Products Corporation makes two products, titanium Rims and Posts. Data regarding the two products follow:

Direct Labor-Hours per Unit

Annual   Production  

  Rims

0.50

11,000

units  

  Posts

0.10

52,000

units  

Additional information about the company follows:

a.

Rims require $34 in direct materials per unit, and Posts require $16.

b.

The direct labor wage rate is $16 per hour.

c.

Rims are more complex to manufacture than Posts, and they require special equipment.

d.

The ABC system has the following activity cost pools:

Estimated

Activity

  Activity Cost Pool (and activity measure)

Overhead Cost

     Rims

     Posts

     Total

  Machine setups (number of setups)

$

22,680     

90    

72    

162    

  Special processing (machine-hours)

$

112,500     

4,500    

0    

4,500    

  General factory (direct labor-hours)

$

192,600     

5,500    

5,200    

10,700    

Required:

1.

Compute the activity rate for each activity cost pool. (Omit the "$" sign in your response.)

  Activity Cost Pool

Activity Rate             

  Machine setups

$

 per setup

  Special processing

$

 per MH

  General factory

$

 per DLH

2.

Determine the unit cost of each product according to the ABC system. (Do not round intermediate calculations. Round your answers to 2 decimal places. Omit the "$" sign in your response.)

                  Rims

                 Posts

  Direct materials

$  

$  

  Direct labor

  Overhead

  Unit cost

$  

$  

Sven’s Cookhouse is a popular restaurant located on Lake Union in Seattle. The owner of the restaurant has been trying to better understand costs at the restaurant and has hired a student intern to conduct an activity-based costing study. The intern, in consultation with the owner, identified three major activities. She then completed the first-stage allocations of costs to the activity cost pools, using data from last month’s operations. The results appear below:

  Activity Cost Pool

Activity Measure

Total Cost  

Total Activity  

  Serving a party of diners

Number of parties served

$

15,120    

5,600

 parties

  Serving a diner

Number of diners served

$

115,620    

12,300

 diners

  Serving a drink

Number of drinks ordered

$

30,740    

10,600

 drinks 

The above costs include all of the costs of the restaurant except for organization-sustaining costs such as rent, property taxes, and top-management salaries. A group of diners who ask to sit at the same table are counted as a party. Some costs, such as the costs of cleaning linen, are the same whether one person is at a table or the table is full. Other costs, such as washing dishes, depend on the number of diners served.

     Prior to the activity-based costing study, the owner knew very little about the costs of the restaurant. He knew that the total cost for the month (including organization-sustaining costs) was $180,000 and that 12,000 diners had been served. Therefore, the average cost per diner was $15.

Required:

1.

According to the activity-based costing system, what is the total cost of serving each of the following parties of diners? (Round your intermediate calculations and final answers to 2 decimal places. Omit the "$" sign in your response.)

                 Total Cost

a.

A party of five diners who order three drinks in total.

$  

b.

A party of three diners who do not order any drinks.

$  

c.

A lone diner who orders three drinks.

$  

2.

Convert the total costs you computed in (1) above to costs per diner. In other words, what is the average cost per diner for serving each of the following parties? (Round your intermediate calculations and final answers to 2 decimal places. Omit the "$" sign in your response.)

Average Cost      

a.

A party of five diners who order three drinks in total.

$

 per diner

b.

A party of three diners who do not order any drinks.

$

 per diner

c.

A lone diner who orders three drinks.

$

 per diner