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    Managerial Accounting Problems Computed

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    PROBLEM 2-25 Working with Incomplete Data from the Income Statement and Schedule of Cost of
    Goods Manufactured [ LO4 , LO5 ]
    Supply the missing data in the following cases. Each case is independent of the others. Replace each "?" with the correct answer in red text.

    1 2 3 4
    Schedule of Cost of Goods Manufactured
    Direct materials . . . . . . . . . . . . . . . . . . . . . . . . . $4,500 $6,000 $5,000 $3,000
    Direct labor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . ? $3,000 $7,000 $4,000
    Manufacturing overhead . . . . . . . . . . . . . . . . . . $5,000 $4,000 ? $9,000
    Total manufacturing costs . . . . . . . . . . . . . . . . . $18,500 ? $20,000 ?
    Beginning work in process inventory . . . . . . . . . $2,500 ? $3,000 ?
    Ending work in process inventory . . . . . . . . . . . ? $1,000 $4,000 $3,000
    Cost of goods manufactured . . . . . . . . . . . . . . . $18,000 $14,000 ? ?
    Income Statement
    Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $30,000 $21,000 $36,000 $40,000
    Beginning finished goods inventory . . . . . . . . . . $1,000 $2,500 ? $2,000
    Cost of goods manufactured . . . . . . . . . . . . . . . $18,000 $14,000 ? $17,500
    Goods available for sale. . . . . . . . . . . . . . . . . . . ? ? ? ?
    Ending finished goods inventory . . . . . . . . . . . . ? $1,500 $4,000 $3,500
    Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . $17,000 ? $18,500 ?
    Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . $13,000 ? $17,500 ?
    Selling and administrative expenses . . . . . . . . . ? $3,500 ? ?
    Net operating income. . . . . . . . . . . . . . . . . . . . . $4,000 ? $5,000 $9,000

    PROBLEM 5-16 High-Low Method; Cost of Goods Manufactured [ LO1 , LO3 ]
    Amfac Company manufactures a single product. The company keeps careful records of manufacturing
    activities from which the following information has been extracted:
    Level of Activity
    March-Low June-High
    Number of units produced . . . . . . . . . . . . . . . . 6,000 9,000
    Cost of goods manufactured . . . . . . . . . . . . . . $168,000 $257,000
    Work in process inventory, beginning . . . . . . . $9,000 $32,000
    Work in process inventory, ending . . . . . . . . . . $15,000 $21,000
    Direct materials cost per unit . . . . . . . . . . . . . . $6 $6
    Direct labor cost per unit . . . . . . . . . . . . . . . . . $10 $10
    Manufacturing overhead cost, total . . . . . . . . . ? ?
    The company's manufacturing overhead cost consists of both variable and fixed cost elements.
    To have data available for planning, management wants to determine how much of the overhead
    cost is variable with units produced and how much of it is fixed per month.
    Required:
    1. For both March and June, estimate the amount of manufacturing overhead cost added to production.
    The company had no under applied or over applied overhead in either month. (Hint: A
    useful way to proceed might be to construct a schedule of cost of goods manufactured.)

    2. Using the high-low method, estimate a cost formula for manufacturing overhead. Express the
    variable portion of the formula in terms of a variable rate per unit of product.

    3. If 7,000 units are produced during a month, what would be the cost of goods manufactured?
    (Assume that work in process inventories do not change and that there is no under applied or
    over applied overhead cost for the month.)

    PROBLEM 6-19 Basics of CVP Analysis [ LO1 , LO3 , LO4 , LO6 , LO8]
    Feather Friends, Inc., distributes a high-quality wooden birdhouse that sells for $20 per unit. Variable
    costs are $8 per unit, and fixed costs total $180,000 per year.
    Required:

    Answer the following independent questions:
    1. What is the product's CM ratio?

    2. Use the CM ratio to determine the break-even point in sales dollars.

    3. Due to an increase in demand, the company estimates that sales will increase by $75,000 during
    the next year. By how much should net operating income increase (or net loss decrease)
    assuming that fixed costs do not change?

    4. Assume that the operating results for last year were:

    Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $400,000
    Variable expenses . . . . . . . . . . . . . . . . . . . 160,000
    Contribution margin . . . . . . . . . . . . . . . . . . 240,000
    Fixed expenses . . . . . . . . . . . . . . . . . . . . . 180,000
    Net operating income . . . . . . . . . . . . . . . . $ 60,000
    a. Compute the degree of operating leverage at the current level of sales.

    b. The president expects sales to increase by 20% next year. By what percentage should net
    operating income increase?

    5. Refer to the original data. Assume that the company sold 18,000 units last year. The sales
    manager is convinced that a 10% reduction in the selling price, combined with a $30,000 increase
    in advertising, would cause annual sales in units to increase by one-third. Prepare two
    contribution format income statements, one showing the results of last year's operations and
    one showing the results of operations if these changes are made. Would you recommend that
    the company do as the sales manager suggests?

    6. Refer to the original data. Assume again that the company sold 18,000 units last year. The president
    does not want to change the selling price. Instead, he wants to increase the sales commission
    by $1 per unit. He thinks that this move, combined with some increase in advertising, would
    increase annual sales by 25%. By how much could advertising be increased with profits remaining
    unchanged? Do not prepare an income statement; use the incremental analysis approach.

    PROBLEM 6-21 Basic CVP Analysis; Graphing [ LO1 , LO2 , LO4 , LO6 ]
    The Fashion Shoe Company operates a chain of women's shoe shops around the country. The
    shops carry many styles of shoes that are all sold at the same price. Sales personnel in the shops are
    paid a substantial commission on each pair of shoes sold (in addition to a small basic salary) in
    order to encourage them to be aggressive in their sales efforts.

    The following worksheet contains cost and revenue data for Shop 48 and is typical of the
    company's many outlets:

    Required:
    1. Calculate the annual break-even point in dollar sales and in unit sales for Shop 48.

    2. Prepare a CVP graph showing cost and revenue data for Shop 48 from zero shoes up to 17,000
    pairs of shoes sold each year. Clearly indicate the break-even point on the graph.

    3. If 12,000 pairs of shoes are sold in a year, what would be Shop 48's net operating income or
    loss?

    4. The company is considering paying the store manager of Shop 48 an incentive commission of
    75 cents per pair of shoes (in addition to the salesperson's commission). If this change is
    made, what will be the new break-even point in dollar sales and in unit sales?

    5. Refer to the original data. As an alternative to (4) above, the company is considering paying
    the store manager 50 cents commission on each pair of shoes sold in excess of the break-even
    point. If this change is made, what will be the shop's net operating income or loss if 15,000
    pairs of shoes are sold?

    6. Refer to the original data. The company is considering eliminating sales commissions entirely
    in its shops and increasing fixed salaries by $31,500 annually. If this change is made, what
    will be the new break-even point in dollar sales and in unit sales for Shop 48? Would you
    recommend that the change be made? Explain.

    PROBLEM 9-15 Production and Direct Materials Budgets [LO3, LO4]
    Pearl Products Limited of Shenzhen, China, manufactures and distributes toys throughout South
    East Asia. Three cubic centimeters (cc) of solvent H300 are required to manufacture each unit of
    Supermix, one of the company's products. The company is now planning raw materials needs for
    the third quarter, the quarter in which peak sales of Supermix occur. To keep production and sales
    moving smoothly, the company has the following inventory requirements:

    a. The finished goods inventory on hand at the end of each month must be equal to 3,000 units of
    Supermix plus 20% of the next month's sales. The finished goods inventory on June 30 is
    budgeted to be 10,000 units.

    b. The raw materials inventory on hand at the end of each month must be equal to one-half of the
    following month's production needs for raw materials. The raw materials inventory on June
    30 is budgeted to be 54,000 cc of solvent H300.

    c. The company maintains no work in process inventories.
    A sales budget for Supermix for the last six months of the year follows.

    Budgeted Sales
    in Units
    July . . . . . . . . . . . . . . 35,000
    August . . . . . . . . . . . . 40,000
    September . . . . . . . . 50,000
    October . . . . . . . . . . . 30,000
    November . . . . . . . . . 20,000
    December . . . . . . . . . 10,000

    Required:
    1. Prepare a production budget for Supermix for the months July, August, September, and
    October.

    2. Examine the production budget that you prepared in (1) above. Why will the company produce
    more units than it sells in July and August, and fewer units than it sells in September and
    October?

    3. Prepare a direct materials budget showing the quantity of solvent H300 to be purchased for
    July, August, and September, and for the quarter in total.

    PROBLEM 9-17 Schedules of Expected Cash Collections and Disbursements [LO2, LO4, LO8]
    You have been asked to prepare a December cash budget for Ashton Company, a distributor of
    exercise equipment. The following information is available about the company's operations:

    a. The cash balance on December 1 is $40,000.

    b. Actual sales for October and November and expected sales for December are as follows:

    October November December
    Cash sales . . . . . . . . . . . . . $65,000 $70,000 $83,000
    Sales on account . . . . . . . . $400,000 $525,000 $600,000

    Sales on account are collected over a three-month period as follows: 20% collected in the
    month of sale, 60% collected in the month following sale, and 18% collected in the second
    month following sale. The remaining 2% is uncollectible.

    c. Purchases of inventory will total $280,000 for December. Thirty percent of a month's inventory
    purchases are paid during the month of purchase. The accounts payable remaining from
    November's inventory purchases total $161,000, all of which will be paid in December.

    d. Selling and administrative expenses are budgeted at $430,000 for December. Of this amount,
    $50,000 is for depreciation.

    e. A new Web server for the Marketing Department costing $76,000 will be purchased for cash
    during December, and dividends totaling $9,000 will be paid during the month.

    f. The company maintains a minimum cash balance of $20,000. An open line of credit is available
    from the company's bank to bolster the cash position as needed.

    Required:
    1. Prepare a schedule of expected cash collections for December.
    2. Prepare a schedule of expected cash disbursements for merchandise purchases for December.
    3. Prepare a cash budget for December. Indicate in the financing section any borrowing that will be
    needed during the month. Assume that any interest will not be paid until the following month.

    PROBLEM 10-19 Critique a Report; Prepare a Performance Report [LO1, LO4, LO6]
    TipTop Flight School offers f ying lessons at a small municipal airport. The school's owner and
    manager has been attempting to evaluate performance and control costs using a variance report that
    compares the planning budget to actual results. A recent variance report appears below:

    After several months of using such variance reports, the owner has become frustrated. For example,
    she is quite conf dent that instructor wages were very tightly controlled in July, but the report
    shows an unfavorable variance.
    The planning budget was developed using the following formulas, where q is the number of
    lessons sold:

    Required:
    1. Should the owner feel frustrated with the variance reports? Explain.
    2. Prepare a flexible budget performance report for the school for July.
    3. Evaluate the school's performance for July.
    PROBLEM 11-14 Comprehensive Variance Analysis [LO2, LO3, LO4]
    Miller Toy Company manufactures a plastic swimming pool at its Westwood Plant. The plant has
    been experiencing problems as shown by its June contribution format income statement below:

    Janet Dunn, who has just been appointed general manager of the Westwood Plant, has been given
    instructions to "get things under control." Upon reviewing the plant's income statement, Ms. Dunn
    has concluded that the major problem lies in the variable cost of goods sold. She has been provided
    with the following standard cost per swimming pool:

    During June the plant produced 15,000 pools and incurred the following costs:
    a. Purchased 60,000 pounds of materials at a cost of $1.95 per pound.
    b. Used 49,200 pounds of materials in production. (Finished goods and work in process inventories
    are insignifi cant and can be ignored.)
    c. Worked 11,800 direct labor-hours at a cost of $7.00 per hour.
    d. Incurred variable manufacturing overhead cost totaling $18,290 for the month. A total of
    5,900 machine-hours was recorded.
    It is the company's policy to close all variances to cost of goods sold on a monthly basis.
    Required:
    1. Compute the following variances for June:
    a. Direct materials price and quantity variances.
    b. Direct labor rate and effi ciency variances.
    c. Variable overhead rate and effi ciency variances.
    2. Summarize the variances that you computed in (1) above by showing the net overall favorable
    or unfavorable variance for the month. What impact did this fi gure have on the company's income
    statement? Show computations.
    3. Pick out the two most signifi cant variances that you computed in (1) above. Explain to
    Ms. Dunn possible causes of these variances.

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    https://brainmass.com/business/management-accounting/managerial-accounting-problems-computed-279428

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    Solution Summary

    The expert computes the managerial accounting. The direct materials price and quantity variances are determined.

    $2.19