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