# 1. the work-in-process inventory account of a manufacturing company

1. The work-in-process inventory account of a manufacturingcompany shows a balance of \$3,000 at the end of anaccounting period. The job-cost sheets of the two incompletejobs show charges of \$500 and \$300 for directmaterials, and charges of \$400 and \$600 for direct labor.From this information, it appears that the company isusing a predetermined overhead rate as a percentage ofdirect labor costs. What percentage is the rate?
3,000 – (500+300) – (400+600) = 1,200 of overhead
1,200 overhead divided by the 1000 (400+600) of labor is 1.20. So the overhead rate is 120% of direct labor.
2. The break-even point in dollar sales for Rice Company is\$480,000 and the company’s contribution margin ratiois 40 percent. If Rice Company desires a profit of\$84,000, how much would sales have to total?
contribution margin 40% / variable costs are 60% / break-even point \$480,000
480,000 x 60% = \$288,000 variable costs at break-even point 480,000 – 288,000 = \$192,000 fixed costs
192,000 + 84,000 + 0.60x = x 276,000 = 0.40x x = \$690,000 sales needed
This means fixed costs are \$288,000 and variable are 192,000.Each marginal dollar in sales costs \$.40 variable and 0 fixed, so MS=(84,000/.6)=140,000.
break even sales of 480,000 + marginal sales of 140,000 = 620,000.
Fixed costs are 288,000.Variable costs are 620000*.4=248000.Total costs are 536,000.Profits are 620,000-536,000=84,000.
3. Williams Company’s direct labor cost is 25 percent of itsconversion cost. If the manufacturing overhead for thelast period was \$45,000 and the direct material cost was\$25,000, how much is the direct labor cost?
60000 + 30000 = 90000 = 60% / 60 = 1500 = 1% x 100 = 150000 = 100% X .4 = 60000 The above solution is incorrect.By definition, the conversion cost is the sum of the direct labor cost and the overhead.Therefore, if we assume x is the conversion cost, then x = 0.4x + 60,000. The solution is conversion cost = 100,000. Hence, the direct labor cost = 40,000.Note that the knowing the direct material cost is not necessary for the computation of the labor cost.I am really bad at math so i just have to think you are right on this one
4. Grading Company’s cash and cash equivalents consist ofcash and marketable securities. Last year the company’scash account decreased by \$16,000 and its marketablesecurities account increased by \$22,000. Cash providedby operating activities was \$24,000. Net cash used forfinancing activities was \$20,000. Based on this information,was the net cash flow from investing activities onthe statement of cash flows a net increase or decrease?By how much?
Cash provided by operating activities = 24000 Cash used by financing activities = (20000) Cash and cash equivalents net increase = 4000 Net increase/(decrease) in cash flow of investing activities = 21000 (because dollar difference between (10000) and 4000 is that of 21000 dollars, i.e., travelling from (10000) to 0 is first 10000 then from 1 to 11000, hence it makes up total of 21000.
5. Gladstone Footwear Corporation’s flexible budget costformula for supplies, a variable cost, is \$2.82 per unit ofoutput. The company’s flexible budget performance reportfor last month showed an \$8,140 unfavorable spendingvariance for supplies. During that month, 21,250 unitswere produced. Budgeted activity for the month hadbeen 20,900 units. What is the actual cost per unit forindirect materials?
Spending variance = (AP – SP) x AQ Since the spending variance was \$8,140 unfavorable we know that the actual price was more than the standard. We also have 3 known, spending variance, standard price, and actual quantity. \$8,140 U = (AP – 2.82) x 21,250 units. Rearrange the formula, solve for AP to get 3.20305 or \$3.20305 / unit.
6. Lyons Company consists of two divisions, A and B. LyonsCompany reported a contribution margin of \$60,000 forDivision A, and had a contribution margin ratio of 30percent in Division B, when sales in Division B were\$240,000. Net operating income for the company was\$22,000 and traceable fixed expenses were \$45,000. Howmuch were Lyons Company’s common fixed expenses?
DivisionsTotal A% BCompanySales \$240,000*Variable expenses \$Contribution margin \$Traceable fixed expenses \$Segment Margin \$Common fixed expenses \$Net operating income \$
7. Atlantic Company produces a single product. For the mostrecent year, the company’s net operating income computedby the absorption costing method was \$7,800, and its netoperating income computed by the variable costing methodwas \$10,500. The company’s unit product cost was \$15under variable costing and \$24 under absorption costing.If the ending inventory consisted of 1,460 units, howmany units must have been in the beginning inventory?
Difference in Operating Income of 2,700 unfavorable under Absorption, with fixed cost per unit of \$9, means a 300 unit decrease in Ending Inventory. Beginning Inventory then was 1760 units.
8. Black Company uses the weighted-average method in itsprocess costing system. The company’s ending work-inprocessinventory consists of 6,000 units, 75 percentcomplete with respect to materials and 50 percent completewith respect to labor and overhead. If the totaldollar value of the inventory is \$80,000 and the cost perequivalent unit for labor and overhead is \$6.00, what isthe cost per equivalent unit for materials?
EU in Ending Work in Process – DM 6,000 x 75% = 4,500 / CC 6,000 x 50% = 3,000 Total WiP \$80,000 CC 3,000 x \$6 = \$8,000 DM per EU = \$62,000 / 4,500 = \$13.7778 per EU
9. At Overland Company, maintenance cost is exclusively avariable cost that varies directly with machine-hours. Theperformance report for July showed that actual maintenancecosts totaled \$11,315 and that the associated ratevariance was \$146 unfavorable. If 7,300 machine-hourswere actually worked during July, what is the budgetedmaintenance cost per machine-hour?
10. The cost of goods sold in a retail store totaled \$650,000.Fixed selling and administrative expenses totaled \$115,000and variable selling and administrative expenses were\$420,000. If the store’s contribution margin totaled\$590,000, how much were the sales?
• The cost of goods sold in a retail store totaled \$650,000. Fixed selling and administrative expenses totaled \$115,000 and variable selling and administrative expenses were \$420,000. If the store’s contribution margin totaled \$590,000, how much were the salesSales – Variable Costs = Contribution Marginsales=1,010,000+650000+115000=\$1,190,000
11. Denny Corporation is considering replacing a technologicallyobsolete machine with a new state-of-the-artnumerically controlled machine. The new machine wouldcost \$600,000 and would have a 10-year useful life.Unfortunately, the new machine would have no salvagevalue. The new machine would cost \$20,000 per year tooperate and maintain, but would save \$125,000 per yearin labor and other costs. The old machine can be soldnow for scrap for \$50,000. What percentage is the simplerate of return on the new machine rounded to the nearesttenth of a percent? (Ignore income taxes in this problem.)
• Total Income gained = 50000 – 600000 + (125000 – 20000) * SPW = 0=>105000*SPW = 550000=>SPW = 5.2381=>((1+x)^10-1)/(1+x)^10x = 5.2381=>(1+x)^10 – 1 = 5.2381x(1+x)^10=>x = 0.139 = 13.9% approximately
take the units of the nos. as dollarssavings = \$125,000maintenance per year = \$20,000depreciation = 600000/100net profit = \$45,000therefore investment = (600000+0)/2 = 300000rate of return = (45000/300000) * 100 =15%
12. Lounsberry Inc. regularly uses material O55P and currentlyhas in stock 375 liters of the material, for which it paid\$2,700 several weeks ago. If this were to be sold as is onthe open market as surplus material, it would fetch \$6.35per liter. New stocks of the material can be purchasedon the open market for \$7.20 per liter, but it must bepurchased in lots of 1,000 liters. You’ve been asked todetermine the relevant cost of 900 liters of the materialto be used in a job for a customer. What is the relevantcost of the 900 liters of material O55P?
cost if it is purchased new = 1000*6.90 =6900 surplus = 360+1000-800=560 surplus sold = 560*6.35= 3556 bought 360 lt cost =2484 total cost = 6900+2484-3556= 5828
13. Harwichport Company has a current ratio of 3.0 andan acid-test ratio of 2.8. Current assets equal \$210,000,of which \$5,000 consists of prepaid expenses. Theremainder of current assets consists of cash, accountsreceivable, marketable securities, and inventory. Whatis the amount of Harwichport Company’s inventory?
• 210000/current liabilties = 3=> current liabilties = \$70,000current ratio – acid ratio = inventories/current liabilities=> 3-2.8 = inventories/70,000=> inventories = \$14,000
14. Tolla Company is estimating the following sales for thefirst six months of next year:January \$350,000February \$300,000March \$320,000April \$410,000May \$450,000June \$470,000Sales at Tolla are normally collected as 70 percent in themonth of sale, 25 percent in the month following the sale,and the remaining 5 percent being uncollectible. Also, customerspaying in the month of sale are given a 2 percentdiscount. Based on this information, how much cashshould Tolla expect to collect during the month of April?
• Tolla Company is estimating the following sales for the first six months of next year: January \$350,000 February \$300,000 March \$320,000 April \$410,000 May \$450,000 June \$470,000 Sales at Tolla are normally collected as 70 percent in the month of sale, 25 percent in the month following the sale, and remaining 5 percent being uncollectible. Also, customers paying in the month, of sale are given a 2 percent discount. Based on this information, how many cash should Tolla expect to coTolla expect to collect during the month of AprilCash collection in April = 410000*70%*98% + 320000*25% =\$361260
15. Trauscht Corporation has provided the following datafrom its activity-based costing system:The company makes 360 units of product P23F a year,requiring a total of 725 machine-hours, 85 orders, and 45inspection-hours per year. The product’s direct materialscost is \$42.30 per unit and its direct labor cost is \$14.55per unit. The product sells for \$132.10 per unit. Accordingto the activity-based costing system, what is the productmargin for product P23F?
16. Williams Company’s direct labor cost is 30 percent of itsconversion cost. If the manufacturing overhead for thelast period was \$59,500 and the direct materials costwas \$37,000, what is the direct labor cost?
17. In a recent period, 13,000 units were produced, and therewas a favorable labor efficiency variance of \$23,000.If 40,000 labor-hours were worked and the standardwage rate was \$13 per labor-hour, what would be thestandard hours allowed per unit of output?
18. The balance in White Company’s work-in-process inventoryaccount was \$15,000 on August 1 and \$18,000 onAugust 31. The company incurred \$30,000 in direct laborcost during August and requisitioned \$25,000 in rawmaterials (all direct material). If the sum of the debits tothe manufacturing overhead account total \$28,000 for themonth, and if the sum of the credits totaled \$30,000, thenwas Finished Goods debited or credited? By how much?
19. A company has provided the following data:Sales 4,000 unitsSales price \$80 per unitVariable cost \$50 per unitFixed cost \$30,000If the dollar contribution margin per unit is increasedby 10 percent, total fixed cost is decreased by 15 percent,and all other factors remain the same, will net operatingincome increase or decrease? By how much?
20. For the current year, Paxman Company incurred\$175,000 in actual manufacturing overhead cost. Themanufacturing overhead account showed that overheadwas overapplied in the amount of \$9,000 for the year.If the predetermined overhead rate was \$8.00 perdirect labor-hour, how many hours were workedduring the year?

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