ACC 230 Outcome 2 Measurement Instrument Cost Accounting I

1. (Chapter 5, LO 1) At an activity level of 20,000 units produced, fixed costs total $30,000 and variable costs total $67,000. Assuming this activity is within the relavent range, if 25,000 units are produced, then:

a. total fixed costs are expected to be $37,500.

b. total cost per unit is expected to be $3.88.

c. fixed cost per unit is expected to be $1.20.

d. variable cost per unit is expected to be $2.68.

Solution: At 25,000 units, total fixed costs would remain $30,000, variable costs per unit would remain at $67,000 / 20,000 = $3.35, fixed costs per unit would be $30,000 / 25,000 = $1.20, and total per unit costs would be $3.35 + $1.20 = $4.55. ans. c 2. (Chapter 5, LO 4)Bee Company is a honey wholesaler. An income statement and other data for the second quarter of the year are given below:

Bee Company Income Statement

For the Quarter Ended June 30 Sales $960,000Cost of Goods Sold 420,000Gross Margin 540,000Less operating expenses: Selling $200,000 Administrative 75,000 275,000Net operating income $265,000 Other data; Average selling price: $60 per unit Sales expenses: base salaries plus 8% of sales Administrative expenses: base salaries plus $2 per unit What is Bee Company's net operating income for the second quarter using the contribution approach?

a. $431,200

b. $685,000

c. $265,000

d. $156,200

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ACC 230 Outcome 2 Measurement Instrument Cost Accounting I

Net operating income will be the same whether the GAAP or contribution margin approach is used. Therefore, NOI = $265,000 ans. c 3. (Chapter 6, LO 6) A company has the following cost structure: For sales of $5,000,000: - total variable costs are $3,000,000 - total fixed costs are $1,500,000 What sales would be required to realize a net operating income of $300,000? Solution: Sales = VC + FC + Profit Sales = 0.6 sales + 1,500,000 + 300,000 Sales = $4,500,000 4. (Chapter 6, LO 6) Buteco Corporation has provided the following cost data for last year when 100,000 units were produced and sold:

Raw Materials $200,000Direct Labor 100,000Manufacturing overhead 200,000Selling and administrative expenses 150,000 All costs are variable except for $100,000 of manufacturing overhead and $100,000 of selling and administrative expense. There are no beginning or ending inventories. If the selling price is $10 per unit, find the net operating income from producing and selling 110,000.

a. $450,000

b. $405,000

c. $385,000

d. $560,000

Solution: Q x USP = Q x UVC + FC + NOI UVC = (200,000 + 100,000 + 100,000 + 50,000)/100,000 = $4.50 per unit 110,000 x 10 = 110,000 x 4.50 + 200,000 + NOI NOI = 405,000 ans. b

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ACC 230 Outcome 2 Measurement Instrument Cost Accounting I

5. (Chapter 5, LO 5) A company has the following data for the month of June: Sales $220,000 Variable Cost $80,000 Fixed Cost $35,000 Determine the contribution margin and net operating income. Solution: Contribution margin = 220,000 - 80,000 = 140,000 NOI = 140,000 - 35,000 = 105,000 6. (Chapter 5, LO 4) Unix, Inc.'s accounting records show the following information for the month of June: Units sold 150 Selling price per unit $3,000 each Direct materials used per unit $350 each Direct labor per unit $75 each Variable manufacturing overhead rate $2.50 per direct labor dollar. Fixed manufacturing overhead $25,000 per month Advertising $5,000 per month Sales Compensation $7,500 per month plus 12% of gross sales. Utilities on office building $2,500 per month Liability insurance $3,500 per month Clerical wages $1,000 per month plus $50 per unit sold Depreciation of office equipment $3,000 per month Executive and office salaries $30,000 per month Construct a Contribution Margin income statement for the month of June.

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ACC 230 Outcome 2 Measurement Instrument Cost Accounting I

Solution: Sales (150 x $3,000) $ 450,000Variable Expenses: Direct Materials (150x$350) $ 52,500 Direct Labor (150 x $75) 11,250 Variable MOH (11,250 x $2.50) 28,125 Variable Selling (0.12 x 450,000) 54,000 Variable Clerical (150 x $50) 7.500 Total Variable Expenses 153,375Contribution Margin 296,625Fixed Expenses Fixed MOH 25,000 Advertising 5,000 Fixed Selling 7,500 Utilities 2,500 Liability Insurance 3,500 Fixed Clerical Wages 1,000 Depreciation on office equipment 3,000 Executive and office salaries 30,000 Total Fixed Expenses 77,500Net Operating Income $ 219,125 7. (Chapter 6, LO 4) Data for Hermann Corporation are shown below:

Per Unit Percentof Sales

Selling Price $90 100%Less: Variable Expenses $63 70%Contribution Margin $27 30% Fixed expenses are $30,000 per month and the company is selling 2,000 units per month. The marketing manager argues that a $5,000 increase in the monthly advertising budget would increase monthly sales by $9,000. Should the advertising budget be increased? Solution: $9,000 in sales is a 100 unit increase (90,000/90) 100 units x 27 contribution margin per unit = $2,700 addition contribution. Since the $2,700 is $2,300 short of covering the addition $5,000 spent on advertising, the additional advertising would result in a reduced net income. Therefore, do not increase the advertising budget.

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ACC 230 Outcome 2 Measurement Instrument Cost Accounting I

8. (Chapter 6, LO 4) Miller Company's most recent contribution format income statement is shown below:

Total Perunit

Sales (20,000 units) $300,000 $15.00Less: Variable expenses 180,000 9.00Contribution margin 120,000 $6.00Less: Fixed expenses 70,000 Net operating income $50,000 Prepare a new contribution format income statement under the assumption that the selling price decreases by $1.50 per unit and the sales volume increases by 25%. Solution:

Total Perunit

Sales (25,000 units) $ 337,500 $13.50Less: Variable expenses 225,000 9.00Contribution margin 112,500 $4.50Less: Fixed expenses 70,000 Net operating income $ 42,500 9. (Chapter 6, LO 5) Menlo company manufactures and sells a single product. The company's sales and expenses for the last quarter follow: Total Per unitSales $450,000 $30.00Less: Variable expenses 180,000 12.00Contribution margin 270,000 $18.00Less: Fixed expenses 216,000 Net operating income $54,000 What is the quarterly break-even in units sold AND in sales dollars? Solution: BE in units = Fixed Expenses / Unit Contribution Margin BE in units = 216,000 / 18 = 12,000 units BE in sales $ = 12,000 units x $30/unit = $360,000

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