Chapter 7 Accounting - good PDF

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1. Ida Sidha Karya Company is a family-owned company located on the island of Bali in Indonesia. The company produces a handcrafted Balinese musical instrument called a gamelan that is similar to a xylophone. The gamelans are sold for $818. Selected data for the company’s operations last year follow: Units in beginning inventory Units produced Units sold Units in ending inventory Variable costs per unit: Direct materials Direct labor Variable manufacturing overhead Variable selling and administrative Fixed costs: Fixed manufacturing overhead Fixed selling and administrative

0 16,000 14,000 2,000 $ $ $

110 450 65

$

24

$850,000 $420,000

Required: 1. Assume that the company uses absorption costing. Compute the unit product cost for one gamelan. (Round your intermediate calculations and final answer to the nearest whole dollar amount.) 2. Assume that the company uses variable costing. Compute the unit product cost for one gamelan. Brewer 8e Rechecks 2018-08-21 Explanation 1. Under absorption costing, all manufacturing costs (variable and fixed) are included in product costs.

Direct materials $110 Direct labor 450 Variable manufacturing overhead 65 Fixed manufacturing overhead ($850,000 ÷ 16,000 53

units) Absorption costing unit product cost

$678

2. Under variable costing, only the variable manufacturing costs are included in product costs.

Direct materials Direct labor Variable manufacturing overhead Variable costing unit product cost

$110 450 65 $625

Note that selling and administrative expenses are not treated as product costs under either absorption or variable costing. These expenses are always treated as period costs and are charged against the current period’s revenue.

2. Ida Sidha Karya Company is a family-owned company located on the island of Bali in Indonesia. The company produces a handcrafted Balinese musical instrument called a gamelan that is similar to a xylophone. The gamelans are sold for $950. Selected data for the company’s operations last year follow: Units in beginning inventory Units produced Units sold Units in ending inventory Variable costs per unit: Direct materials Direct labor Variable manufacturing overhead Variable selling and administrative Fixed costs: Fixed manufacturing overhead Fixed selling and administrative

0 250 230 20 $ $ $

125 335 55

$

30

$75,000 $15,000

The absorption costing income statement prepared by the company’s accountant for last year appears below: Sales Cost of goods sold Gross margin Selling and administrative expense Net operating income

$218,500 187,450 31,050 21,900 $

9,150

Required: 1. Under absorption costing, how much fixed manufacturing overhead cost is included in the company's inventory at the end of last year? 2. Prepare an income statement for last year using variable costing. What is the amount of the difference in net operating income between the two costing methods? Brewer 8e Rechecks 2018-08-21 Explanation 1. Fixed manufacturing overhead cost deferred in inventory = 20 units in ending inventory × $300 per unit* = $6,000

* $75,000 ÷ 250 units = $300 per unit

2a. Variable cost of goods sold (230 units sold × $515 per unit) = $118,450 Variable selling and administrative expenses (230 units × $30 per unit) = $6,900

*Variable cost of goods sold per unit:

Direct materials $125 Direct labor 335 Variable manufacturing overhead 55 Variable costing unit product cost $515

2b. The amount of the difference in net operating income between absorption and variable costing is $6,000, which equals the amount of fixed manufacturing overhead deferred in ending inventory under absorption costing.

3. Royal Lawncare Company produces and sells two packaged products— Weedban and Greengrow. Revenue and cost information relating to the products follow:

Selling price per unit Variable expenses per unit Traceable fixed expenses per year

Product Weedban Greengrow $ 8.00 $ 34.00 $ 2.30 $ 12.00 $128,000 $39,000

Common fixed expenses in the company total $112,000 annually. Last year the company produced and sold 42,000 units of Weedban and 15,000 units of Greengrow. Required: Prepare a contribution format income statement segmented by product lines. Explanation Sales: Weedban: 42,000 units × $8.00 per unit = $336,000. Greengrow: 15,000 units × $34.00 per unit = $510,000.

Variable expenses: Weedban: 42,000 units × $2.30 per unit = $96,600. Greengrow: 15,000 units × $12.00 per unit = $180,000.

4. Piedmont Company segments its business into two regions—North and South. The company prepared the contribution format segmented income statement as shown: Total Company Sales $675,000 Variable expenses 405,000 Contribution 270,000 margin Traceable fixed 150,000 expenses Segment margin 120,000 Common fixed 65,000 expenses Net operating $ 55,000 income

North $450,000 315,000

South $225,000 90,000

135,000

135,000

75,000

75,000

$ 60,000

$ 60,000

Required: 1. Compute the companywide break-even point in dollar sales. 2. Compute the break-even point in dollar sales for the North region. 3. Compute the break-even point in dollar sales for the South region. (For all requirements, round your intermediate calculations to 2 decimal places. Round your final answers to the nearest dollar.)

rev: 02_08_2018_QC_CS-117419 Explanation 1. The companywide break-even point is computed as follows:

Traceable fixed expenses + Common expenses Overall CM ratio

Dollar sales for company to break = even

=

$150,000 + $65,000 $270,000 ÷ $675,000

$215,000

=

0.40

= $537,500 2. The break-even point for the North region is computed as follows:

Dollar sales for a segment to break = even

=

Segment traceable fixed expenses Segment CM ratio

$75,000 $135,000 ÷ $450,000

$75,000

=

0.30

= $250,000

3. The break-even point for the South region is computed as follows:

Segment traceable fixed expenses Segment CM ratio

Dollar sales for a segment to break = even

=

$75,000 $135,000 ÷ $225,000

$75,000

=

0.60

= $125,000

5. Lynch Company manufactures and sells a single product. The following costs were incurred during the company’s first year of operations: Variable costs per unit: Manufacturing: Direct materials $ 14 Direct labor $ 8 Variable manufacturing overhead $ 2 Variable selling and administrative$ 2 Fixed costs per year: Fixed manufacturing overhead $250,000 Fixed selling and administrative $160,000

During the year, the company produced 25,000 units and sold 21,000 units. The selling price of the company’s product is $47 per unit. Required:

1. Assume that the company uses absorption costing: a. Compute the unit product cost. b. Prepare an income statement for the year. 2. Assume that the company uses variable costing: a. Compute the unit product cost. b. Prepare an income statement for the year. Brewer 8e Rechecks 2018-08-21 Explanation 1. a. The unit product cost under absorption costing would be:

Direct materials $14 Direct labor 8 Variable manufacturing overhead 2 Total variable costs 24 Fixed manufacturing overhead ($250,000 ÷ 25,000 units) 10 Absorption costing unit product cost $34

b. Sales (21,000 units × $47 per unit) = $987,000 Cost of goods sold (21,000 units × $34 per unit) = $714,000 Selling and administrative expenses [(21,000 units × $2 per unit) + $160,000] = $202,000

2. a. The unit product cost under variable costing would be:

Direct materials

$14

Direct labor 8 Variable manufacturing overhead 2 Variable costing unit product cost$24

b. Sales (21,000 units × $47 per unit) = $987,000 Variable cost of goods sold (21,000 units × $24 per unit) = $504,000 Variable selling expense (21,000 units × $2 per unit) = $42,000...