# Ans Doc 130

All the solutions for the problems that require calculations are on the attached excel sheet. When entering your answers, please check the requirements in the question, some of them ask you to round to 2 or 3 decimal place, some ask you to omit the dollar sign..etc
1.
The following monthly budgeted data are available for the International Company:
Product C Product J Product R
Sales \$ 508,000 \$ 308,000 \$ 904,000
Variable expenses 296,000 204,000 714,000
Contribution margin \$ 212,000 \$ 104,000 \$ 190,000
Budgeted net operating income for the month is \$215,000.
Required:
Dollar sales to break even \$
Margin of safety \$
c. Calculate the operating leverage. (Round your answer to 2 decimal places.)
Operating leverage
2.
Sawaya Co., Ltd., of Japan is a manufacturing company whose total factory overhead costs fluctuate considerably from year to year according to increases and decreases in the number of direct labor-hours worked in the factory. Total factory overhead costs (in Japanese yen, denoted ¥) at high and low levels of activity for recent years are given below:
Level of Activity
Low High
Direct labor-hours 52,800 70,400
Total factory overhead costs ¥233,040 ¥255,920
The factory overhead costs above consist of indirect materials, rent, and maintenance. The company has analyzed these costs at the 52,800-hour level of activity as follows:
Indirect materials (variable) ¥58,080
Rent (fixed) 136,000
Maintenance (mixed) 38,960
To have data available for planning, the company wants to break down the maintenance cost into its variable and fixed cost elements.
Requirement 1:
Estimate how much of the ¥255,920 factory overhead cost at the high level of activity consists of maintenance cost. (Hint: To do this, it may be helpful to first determine how much of the ¥255,920 consists of indirect materials and rent. Think about the behavior of variable and fixed costs!) (Omit the “¥” sign in your response.)
Maintenance cost ¥
Requirement 2:
Using the high-low method, estimate a cost formula for maintenance where X represents the number of direct-labor hours. (Round variable cost per unit to 1 decimal place. Omit the “¥” sign in your response.)
Y = ¥ + ¥ X
Requirement 3:
What total factory overhead costs would you expect the company to incur at an operating level of 58,080 direct labor-hours? (Omit the “¥” sign in your response.)
Indirect materials ¥
Rent
Maintenance:
Variable cost element ¥
Fixed cost element
3.
Deavila Inc. produces and sells two products. Data concerning those products for the most recent month appear below:
Product Q91I Product J53Z
Sales \$ 16,100 \$ 11,400
Variable expenses \$ 5,720 \$ 4,940
Fixed expenses for the entire company were \$13,920.
Required:
a. Determine the overall contribution margin ratio for the company. (Round your answer to 2 decimal places.)
Contribution margin ratio
b. Determine the overall break-even point in total sales dollars for the company. (Round your intermediate calculation to 2 decimal places and final answer to the nearest dollar amount. Omit the “\$” sign in your response.)
Break-even point \$
c. If the sales mix shifts toward Product Q91I with no change in total sales, what will happen to the break-even point for the company?
It will result in a decrease in the company’s overall break-even point.
It will result in a increase in the company’s overall break-even point.
4
The Central Valley Company is a merchandising firm that sells a single product. The company’s revenues and expenses for the last three months are given below:
Central Valley Company
Comparative Income Statement
For the Second Quarter
April May June
Sales in units 4,400 5,050 6,400
Sales revenue \$ 616,000 \$ 707,000 \$ 896,000
Cost of goods sold 220,000 252,500 320,000

Gross margin 396,000 454,500 576,000

Shipping expense 52,000 57,980 70,400
Salaries and commissions 134,000 149,600 182,000
Insurance expense 10,000 10,000 10,000
Depreciation expense 38,000 38,000 38,000

Total selling and administrative expense 302,000 323,580 368,400

Net operating income \$ 94,000 \$ 130,920 \$ 207,600

Required:
a. Determine which expenses are mixed and, by use of the high-low method, separate each mixed expense into its variable and fixed components. State the cost formula for each mixed expense. (Round “per unit” answers to 2 decimal places. Omit the “\$” sign in your response.)
Cost formula
\$ + \$ per unit
\$ + \$ per unit
b.
Contribution margin \$
5.
The management of Harlow Corporation, a manufacturing company, would like your help in contrasting
the traditional and contribution approaches to the income statement.
The company has provided the following financial data for January:
Sales \$231,000
Variable production expense \$22,000
Fixed production expense \$38,000
Variable selling expense \$15,000
Fixed selling expense \$27,000
The company had no beginning or ending inventories.
The contribution margin for January was:
\$156,000
\$180,500
\$184,000
\$66,500
= \$231,000 – (\$22,000 + \$15,000 + \$13,500)
6.
Boening Enterprises, Inc., produces and sells a single product whose selling price is \$148 per unit and whose variable expense is \$48 per unit. The company’s monthly fixed expense is \$510,500. Assume the company’s monthly target profit is \$11,900. The unit sales to attain that target profit is closest to:
7,195
5,224
10,883
3,530
=
7.
Ringstaff Corporation produces and sells a single product. Data concerning that product appear below:
Per Unit Percent of Sales
Selling price \$141 100%
Variable expenses 28.2 20%
Contribution margin \$112.8 80%
The company is currently selling 7,800 units per month. Fixed expenses are \$609,000 per month. The marketing manager believes that a \$26,072 increase in the monthly advertising budget would result in a 240 unit increase in monthly sales. What should be the overall effect on the company’s monthly net operating income of this change?
Decrease of \$26,072
Increase of \$1,000
Increase of \$27,072
Decrease of \$1,000
8.
The management of Harlow Corporation, a manufacturing company, would like your help in contrasting the traditional and contribution approaches to the income statement. The company has provided the following financial data for January:
Sales \$232,000
Variable production expense \$31,000
Fixed production expense \$25,000
Variable selling expense \$18,000
Fixed selling expense \$33,000
The company had no beginning or ending inventories.
The gross margin for January was:
\$125,000
\$76,500
\$188,500
\$176,000
9.
The management of Archie Corporation would like to better understand the behavior of the company’s warranty costs. Those costs are listed below for a number of recent months:
Product Returns Warranty Cost
May 34 \$ 3,869
June 37 \$ 3,915
July 30 \$ 3,799
August 40 \$ 3,936
September 46 \$ 4,012
October 38 \$ 3,903
November 39 \$ 3,916
December 43 \$ 3,962
Management believes that warranty cost is a mixed cost that depends on the number of product returns.
Required:
Estimate the variable cost per product return and the fixed cost per month using the least-squares regression method. (Do not round intermediate calculations. Round your fixed cost to the nearest dollar amount and the variable cost to 2 decimal places. Omit the “\$” sign in your response.)

Variable cost \$ per product return
Fixed cost \$ per month
y = 12.43x + 3858
Variable Cost = \$12.43
Fixed Cost = \$3,858
10.
Riven Corporation has a single product whose selling price is \$17. At an expected sales level of \$1,938,000, the company’s variable expenses are \$684,000 and its fixed expenses are \$283,000. The marketing manager has recommended that the selling price be increased by 25%, with an expected decrease of only 8% in unit sales. What would be the company’s net operating income if the marketing manager’s recommendation is adopted?
\$971,000
\$1,945,700
\$1,316,420
\$1,261,700
11.
Wertman Corporation produces and sells a single product with the following characteristics:
Per unit Percent of Sales
Selling price \$152.00 100%
Variable expenses 103.36 68%
Contribution margin \$48.64 32%
The company is currently selling 3,800 units per month. Fixed expenses are \$215,800 per month.
Management is considering using a new component that would increase the unit variable cost by \$3. Since the new component would increase the features of the company’s product, the marketing manager predicts that monthly sales would increase by 300 units. What should be the overall effect on the company’s monthly net operating income of this change?
increase of \$13,692
increase of \$2,292
decrease of \$13,692
decrease of \$2,292
12.
Monsky Corporation produces and sells a single product whose contribution margin ratio is 65%. The company’s monthly fixed expense is \$416,000 and the company’s monthly target profit is \$63,050. The dollar sales to attain that target profit is closest to:
\$270,400
\$311,382
\$640,000
\$737,000
13.
When the level of activity increases within the relevant range, how does each of the following change?
Choice C
Choice B
Choice A
Choice D
14.
What is the cause of the difference between absorption costing net operating income and variable costing net operating income?
Absorption costing includes variable manufacturing costs in product costs; variable costing considers variable manufacturing costs to be period costs.
Absorption costing deducts all manufacturing costs from net operating income; variable costing deducts only prime costs.
Absorption costing includes fixed administrative costs in product costs; variable costing considers fixed administrative costs to be period costs.
Absorption costing allocates fixed manufacturing costs between cost of goods sold and inventories; variable costing considers all fixed manufacturing costs to be period costs.
15.
On a cost-volume-profit graph, the break-even point is located:
where the total revenue line intersects the volume axis.
where the total expenses line intersects the dollars axis.
at the origin. where the total revenue line intersects the total expenses line.
16.
The margin of safety is equal to:
Sales – (Variable expenses/Contribution margin).
Sales – Net operating income.
Sales – (Variable expenses + Fixed expenses).
Sales – (Fixed expenses/Contribution margin ratio).
17.
Net operating income computed using variable costing would exceed net operating income computed using absorption costing if:
the average fixed cost per unit is zero.
units sold are less than units produced.
units sold exceed units produced.
units sold equal units produced.
18.
Witczak Company has a single product and currently has a degree of operating leverage of 5. Which of the following will increase Witczak’s degree of operating leverage?
Choice C
Choice A
Choice B
Choice D
19.
A disadvantage of the high-low method of cost analysis is that:
It relies totally on the judgment of the person performing the cost analysis.
It uses two extreme data points, which may not be representative of normal conditions.
It is too time consuming to apply.
It cannot be used when there are a very large number of observations.
20.
Assuming that direct labor is a variable cost, product costs under variable costing include only:
direct materials and direct labor.
direct materials, direct labor, variable manufacturing overhead, and variable selling and administrative expenses.
direct materials, direct labor, and variable manufacturing overhead.
21. Denton Company manufactures and sells a single product. Cost data for the product are given below:

Variable costs per unit:
Direct materials \$7
Direct labor 12
Total variable cost per unit \$27
Fixed costs per month:
Total fixed cost per month \$483,000
The product sells for \$40 per unit. Production and sales data for July and August, the first two months of operations, follows:
Units
Produced Units
Sold
July 33,000 29,000
August 33,000 37,000
The company’s Accounting Department has prepared absorption costing income statements for July and August as presented below:
July August
Sales \$1,160,000 \$1,480,000
Cost of goods sold 899,000 1,147,000
Gross margin 261,000 333,000
Selling and administrative expenses 331,000 371,000
Net operating income \$-70,000 \$-38,000
Requirement 1:
Determine the unit product cost under Absorption costing and Variable costing. (Omit the “\$” sign in your response.)
Unit product cost
Absorption costing \$
Variable costing \$
Requirement 2:
Prepare contribution format variable costing income statements for July and August. (Input all amount as positive value except net loss which should be indicated with a minus sign. Omit the “\$” sign in your response.)
July August
\$ \$
Variable expenses:

Total variable expenses

Fixed expenses:

Total fixed expenses
Net operating income (loss) \$ \$
Requirement 3:
Reconcile the variable costing and absorption costing net operating income figures. (Input all amount as positive value except net loss which should be indicated with a minus sign. Leave no cells blank – be certain to enter “0” wherever required. Omit the “\$” sign in your response.)
July August
Variable costing net operating income (loss) \$ \$
fixed manufacturing overhead cost deferred in inventory under absorption costing fixed manufacturing overhead cost released from inventory under absorption costing
Absorption costing net operating income \$ \$
Requirement 4:
Which is the most appropriate method of costing?
22.
“This makes no sense at all,” said Bill Sharp, president of Essex Company. “We sold the same number of units this year as we did last year, yet our profits have more than doubled. Who made the goof—the computer or the people who operate it?”
The statements to which Mr. Sharp was referring are shown below (absorption costing basis):
Year 1 Year 2
Sales (34,000 units each year) \$1,267,000 \$1,267,000
Cost of goods sold 680,000 578,000
Gross margin 587,000 689,000
Selling and administrative expenses 334,000 334,000
Net operating income \$253,000 \$355,000
The statements above show the results of the first two years of operation. In the first year, the company produced and sold 34,000 units; in the second year, the company again sold 34,000 units, but it increased production as shown below:
Year 1 Year 2
Production in units 34,000 44,000
Sales in units 34,000 34,000
Variable manufacturing cost per unit produced \$5 \$5
Variable selling and administrative expense per unit sold \$1 \$1
Fixed manufacturing overhead costs (total) \$510,000 \$510,000
Essex Company applies fixed manufacturing overhead costs to its only product on the basis of each year’s production. Thus, a new fixed manufacturing overhead rate is computed each year.
Requirement 1:
Compute the unit product cost for each year under (Round fixed manufacturing overhead cost per unit and final answers to the nearest whole dollar. Omit the “\$” sign in your response.)
Unit product cost
Year 1 Year 2
a. Absorption costing \$ \$
b. Variable costing \$ \$
Requirement 2:
Prepare a contribution format variable costing income statement for each year. (Input all amounts as positive values. Omit the “\$” sign in your response.)
Year 1 Year 2
\$ \$
Variable expenses:

Fixed expenses:

\$ \$
Requirement 3:
Reconcile the variable costing and absorption costing net operating income figures for each year. (Leave no cells blank – be certain to enter “0” wherever required. Round fixed manufacturing overhead cost per unit and final answers to the nearest whole dollar. Omit the “\$” sign in your response.)
Year 1 Year 2
Variable costing net operating income \$ \$
: Fixed manufacturing overhead cost deferred in
inventory under absorption costing
Absorption costing net operating income \$ \$
Requirement 4:
The net operating income for Year 2 was higher than for Year 1 under absorption costing, although the same number of units was sold in each year. This is because by increasing production and building up inventory, profits increased without any increase in sales or reduction in costs. Is the above reason true or false?
23.
The following is Alsatia Corporation’s contribution format income statement for last month:

Sales \$ 1,547,600
Variable expenses 943,400
Contribution margin 604,200
Fixed expenses 302,100
Net operating income \$ 302,100
The company has no beginning or ending inventories and produced and sold 10,600 units during the month.
Required:
a. What is the company’s contribution margin ratio? (Round your answer to 3 decimal places.)
Contribution margin ratio
b. What is the company’s break-even in units?
Break-even units
c. If sales increase by 140 units, by how much should net operating income increase? (Omit the “\$” sign in your response.)
Increase in net operating income \$
d. How many units would the company have to sell to attain target profits of \$330,600?
Sales to attain target profit units
e. What is the company’s margin of safety in dollars? (Omit the “\$” sign in your response.)
Margin of safety in dollars \$
f. What is the company’s degree of operating leverage? (Round your answer to 1 decimal place.)
Degree of operating leverage