1. Logan Products, a small manufacturer, has submitted the items below concerning last year's operations. The president's secretary, trying to be helpful, has alphabetized the list.
Administrative salaries $ 2,400
Advertising expense 1,200
Depreciation -- factory building 800
Depreciation -- factory equipment 1,600
Depreciation -- office equipment 180
Direct labor cost 21,900
Raw materials inventory, beginning 2,100
Raw materials inventory, ending 3,200
Finished goods inventory, beginning 46,980
Finished goods inventory, ending 44,410
General liability insurance expense 240
Indirect labor cost 11,800
Insurance on factory 1,400
Purchases of raw materials 14,600
Repairs and maintenance of factory 900
Sales salaries 2,000
Taxes on factory 450
Travel and entertainment expense 1,410
Work in process inventory, beginning 1,670
Work in process inventory, ending 1,110
Required:
a.) Prepare a schedule of Cost of Goods Manufactured in good form for the year.
b.) Determine the Cost of Goods Sold for the year.
2. Bakerston Company is a manufacturing firm that uses job-order costing. The company's inventory balances were as follows at the beginning and end of the year:
Beginning Ending
Balance Balance
Raw materials $14,000 $22,000
Work in process 27,000 9,000
Finished goods 62,000 77,000
The company applies overhead to jobs using a predetermined overhead rate based on machine-hours. At the beginning of the year, the company estimated that it would work 33,000 machine-hours and incur $231,000 in manufacturing overhead cost.
The following transactions were recorded for the year:
Raw materials were purchased, $315,000.
Raw materials were requisitioned for used in production, $307,000 ($281,000 direct and $26,000 indirect).
The following employee costs were incurred:
Direct labor, $377,000
Indirect labor, $96,000
Administrative salaries, $172,000.
Selling costs, $147,000.
Factory utility costs, $10,000.
Depreciation for the year was $127,000 of which $120,000 is related to factory operations and $7,000 is related to selling and administrative activities.
Manufacturing overhead was applied to jobs. The actual level of activity for the year was 34,000 machine-hours.
Sales for the year totaled $1,253,000 .
Required:
a. Prepare a schedule of cost of goods manufactured in good form.
b. Was the overhead under- or overapplied? By how much?
c. Prepare an income statement for the year in good form. The company closes any under- or overapplied overhead to Cost of Goods Sold.
3. ABC Company's total overhead costs at various levels of activity are presented below:
Month Machine Hours Total Overhead Costs
March 60,000 $216,800
April 50,000 194,000
May 70,000 239,600
June 80,000 262,400
Assume that the overhead costs above consist of utilities, supervisory salaries, and maintenance. At the 50,000 machine-hour level of activity these costs are:
Utilities (V) $ 54,000
Supervisory salaries (F) 62,000
Maintenance (M) 78,000
Total overhead costs $194,000
V = Variable; F = Fixed; M = Mixed.
The company wants to break down the maintenance cost into its basic variable and fixed cost elements.
Required:
a.) Estimate the maintenance cost for June.
b.) Use the high-low method to estimate the cost formula for maintenance cost.
c.) Estimate the total overhead cost at an activity level of 55,000 machine hours.
4. Belli-Pitt, Inc., produces a single product. The results of the company's operations for a typical month are summarized in contribution format as follows:
Sales $540,000
Variable expenses 360,000
Contribution margin 180,000
Fixed expenses 120,000
Net income $ 60,000
The company produced and sold 120,000 kilograms of product during the month. There were no beginning or ending inventories.
Required:
a. Given the present situation, compute
1. The break-even sales in kilograms.
2. The break-even sales in dollars.
3. The sales in kilograms that would be required to produce net income of $90,000.
4. The margin of safety in dollars.
b. An important part of processing is performed by a machine which is currently being leased for $20,000 per month. Belli-Pitt has been offered an arrangement whereby it would pay $0.10 royalty per kilogram processed by the machine rather than the monthly lease.
1. Should the company choose the lease or the royalty plan?
2. Under the royalty plan compute break-even point in kilograms.
3. Under the royalty plan compute break-even point in dollars.
4. Under the royalty plan determine the sales in kilograms that would be required to produce net income of $90,000.
5. Tanner Company's most recent contribution format income statement is presented below:
Sales $75,000
Less variable expenses 45,000
Contribution margin 30,000
Less fixed expenses 36,000
Net loss $ (6,000)
The company sells its only product for $15 per unit. There were no beginning or ending inventories.
Required:
a. Compute the company's break-even point in units sold.
b. Compute the total variable expenses at the break-even point.
c. How many units would have to be sold to earn a target profit of $9,000?
d. The sales manager is convinced that a $6,000 increase in the advertising budget would increase total sales by $25,000. Would you advise the increased advertising outlay?