Acct Chapter 18 PDF

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Accounting 002...

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Accounting 002 Summer SEMTER 2021 INSTRUCTOR: Kevin Farmer LA Trade Tech

Chapter 18 Question 1: A manufacturing company incurs rent costs of $12,500 per month. The company manufactured 250,000 units in May and 300,000 units in June. $12, 500 ÷ 250, 000 = $0. 05 $12, 500 ÷ 300, 000 = $0. 04 The cost per unit in May and June, respectively, is: $0.05 and $0.04

Question 2: A company incurs $12,000 in direct labor costs when they produce 480 units and $12,500 in direct labor costs when they produce 500 units. $12, 000 ÷ 480 = $25 $12, 500 ÷ 500 = $25 The direct labor cost per unit is: $25

Question 3: A manufacturing company incurs depreciation costs of $6,000 per month on manufacturing machinery. $6, 000 ÷ 2, 000 = $3

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The depreciation cost per unit is: $3: when the company manufactures 2,000 units.

Question 4: A manufacturing company incurs direct materials costs of $6 per unit. $6 × 2000 = $12, 000 The total direct materials cost is: $12,000: when the company manufactures 2,000 units.

Question 5: The ABC Company had its highest level of production in May when they produced 4,000 units at a total cost of $110,000 and its lowest level of production in November when they produced 2,500 units at a total cost of $87,500. Using the high-low method. $110,000−$87,500 4,000−2,500

=

$22,500 1,500

= $15

The estimated variable cost per unit is: $15

Question 6: The ACC Tutoring Service provides tutoring to accounting students. The volume of tutoring is low at the beginning of the semester and increases before exams. ACC had its highest level of service in May when they provided 4,300 hours of tutoring at a total cost of $125,000 and its lowest level of service in January when they provided 1,500 hours of tutoring at a total cost of $55,000. Using the high-low method. Variable cost:

$125,000−$55,000 4,300−1,500

=

$70,000 2,800

= $2. 5

Fixed cost: (𝑣𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝑐𝑜𝑠𝑡 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡 × 𝑈𝑛𝑖𝑡𝑠) → 2. 5 × 4, 300 = $10, 750 (125, 000 − 55, 000) ÷ (4, 300 − 1, 500) = $70, 000 ÷ 2, 800 = 25ℎ𝑟 125, 000 − (25ℎ𝑟 × 4, 300ℎ𝑟𝑠) = $17, 500 The estimated fixed costs are: $17,500

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Question 7: The cost accountant at Company C used the high-low method to determine a cost equation of $14,000 plus $1.50 per unit. If the company plans to produce 200,500 units next month. $1. 50 × 200, 500 = $300, 750 + $14, 000 = $314, 750 Then the total estimated cost will be: $314,750

Question 8: The ACC Tutoring Service provides tutoring to accounting students. The volume of tutoring is low at the beginning of the semester and increases before exams. ACC had its highest level of service in May when they provided 4,300 hours of tutoring at a total cost of $125,000 and its lowest level of service in January when they provided 1,500 hours of tutoring at a total cost of $55,000. Using the high-low method. $125,000−$55,000 4,300−1,500

=

$70,000 2,800

= $25

The estimated variable cost per hour is $25

Question 9: The ABC Company had its highest level of production in May when they produced 4,000 units at a total cost of $110,000 and its lowest level of production in November when they produced 2,500 units at a total cost of $87,500. Using the high-low method. Variable cost:

$110,000−$87,500 4,000−2,500

=

$22,500 1,500

= $15

Fixed cost: $87, 500 − ($15 × 2, 500) = $50, 000 The estimated fixed costs are $50,000

Question 10: LMN Company produces a product that sells for $1. The company has production costs of $600,000, half of which are fixed costs. Assuming production and sales of 750,000 units.

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$600, 000 ÷ 2 = $300, 000 ÷ 750, 000 = $0. 4 $1 − $0. 4 = $0. 6 The contribution margin per unit is: $0.6

Question 11: RST Company produces a product that has a variable cost of $6 per unit. The company's fixed costs are $30,000. The product sells for $10 per unit. RST desires to earn a profit of $20,000. $10 − $6 = $4 The contribution margin per unit is: $4

Question 12: A company has sales of $125,000, variable costs of $45,000 and fixed costs of $30,000. $125, 000 − $45, 000 = $80, 000 ÷ 125, 000 = 0. 64 The contribution margin ratio is: 64%

Question 13: A company has fixed costs of $50,000 while manufacturing a product that has variable costs of $4 per unit and sells for $14 per unit. $50, 000 ÷ (14 − 4) = 5, 000 The break-even point is: 5,000 Units

Question 14: RST Company produces a product that has a variable cost of $6 per unit. The company's fixed costs are $30,000. The product sells for $10 per unit.

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Contribution margin per unit: $10 − $6 = $4 Contribution margin ratio: $4 ÷ $10 =. 40 Break-even-point: $30, 000 ÷ 40% = $75, 000 The break-even point in sales dollars is: $75,000

Question 15: RST Company produces a product that has a variable cost of $6 per unit. The company's fixed costs are $30,000. The product sells for $10 per unit. RST desires to earn a profit of $20,000. Contribution margin per unit: $10 − $6 = $4 Contribution margin ratio: $4 ÷ $10 =. 40 The contribution margin ratio is: 40%

Question 16: RST Company produces a product that has a variable cost of $6 per unit. The company's fixed costs are $30,000. The product sells for $10 per unit. How many units must be produced to break-even? $30, 000 ÷ ($10 − $6) = 7, 500 Units produced to break-even: 7,500 units

Question 17: A company has a margin of safety of 20%. If expected sales are $50,000. ($50, 000 − 𝑥) ÷ $50, 000 =. 20 → $50, 000 × 20% = $10, 000 → $50, 000 − $10, 000 = $40, 000 Break-even sales are: $40,000

Question 18:

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A company has sales of $125,000, variable costs of $45,000 and fixed costs of $30,000. $30, 000 ÷ (($125, 000 − $45, 000 ÷ $125, 000) =. 64 $30, 000 ÷ 64% = $46, 875 The break-even point in sales dollars is: $46,875

Question 19: A company sells 800 units at $16 each, has variable costs of $12 per unit, fixed costs of $1,200, and a 40% tax rate. (800 × $16) − (800 × $12) = $2, 000 The pre-tax income is: $2,000

Question 20: A company sells 800 units at $16 each, has variable costs of $12 per unit, fixed costs of $1,200, and a 40% tax rate. (800 × $16) − (800 × $12) − $1, 200 × (1 − 40%) = $1, 200 The after-tax income is: $1,200

Question 22: A company produces a product with a contribution margin per unit of $36. If the company incurs $62,000 in total fixed costs, expects to sell 2,500 units, and has a tax rate of 35% (2, 500 × $36) − $62, 000 = $28, 000 The pre-tax income is: $28,000

Question 23: A company has break-even sales of $200,000. If the company expects sales of $500,000

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($500, 000 − $200, 000) ÷ $500, 000 =. 60 The margin of safety is: 60%

Question 24: A company has pre-tax income of $125,000 and an income tax rate of 35%. $125, 000 × (1 − 35%) = $81, 250 The after-tax income is: $81,250

Question 26: RST Company produces a product that has a variable cost of $6 per unit. The company's fixed costs are $30,000. The product sells for $10 per unit. The company is considering purchasing a new manufacturing machine which would improve efficiency. The new machine would decrease the variable cost to $4, but increase fixed costs by $15,000. ($30, 000 + $15, 000) ÷ ($10 − $4) ÷ $10 = $45, 000 ÷ 60% = $75, 000 The revised break-even point in dollars is: $75,000

Question 27: A company produces a product with variable costs of $2.50 per unit. The product sells for $5.00 per unit. The company has fixed costs of $3,000 and desires a profit of $10,000. $3, 000 + $10, 000 = $13, 000 ÷ 50% = $26, 000 The sales level in dollars to achieve the desired profit is $26,000

Question 28: RST Company produces a product that has expected sales of $75,000 and break-even sales of $50,000.

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($75, 000 − $50, 000) ÷ $75, 000 =

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× $75, 000 = $25, 000

The margin of safety is: $25,000

Question 29: A company sells two models of a product—basic and premium. If the company sells 5,000 basic models and 2,500 premium models. $5, 000 ÷ 2, 500 = 2: 1 Then the sales mix can be expressed as: 2:1

Question 30: A company produces a product with variable costs of $2.50 per unit. The product sells for $5.00 per unit. The company has fixed costs of $3,000 and desires a profit of $10,000. ($30, 000 + $10, 000) ÷ ($5 − $2. 50) = 5, 200 The sales level in units to achieve the desired profit is: 5,200 units

Question 31: Maker's Company produces a product that has a variable cost of $4 per unit. The company's fixed costs are $40,000. The product sells for $12 per unit. The company is considering purchasing a new manufacturing machine which would improve efficiency. The new machine would decrease the variable cost to $3, but increase fixed costs by $5,000. 40, 000 + 50, 000 = 90, 000 ÷ [(12 − 3) ÷ 12] = 60, 000 The revised break-even point in dollars is: $60,000

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