Final Exam Review2

QUESTION ONE: ( 7 marks)

The following data is taken from Abeer Garments Company.
1. Salary paid to the supervisor of the factory: MOH
2. Cost of factory maintenance: MOH
3. Rent of administrative office building: Admin
4. Cost of cotton for making T Shirts: DM
5. Wages paid to tailors: DL
6. Cost of factory cleaning material: MOH
7. Travel expenses of the Sales Manager: Selling

Required:
Whether the above transaction can be categorized as DM,DL, MOH, Selling and Admin

Question no. 2

>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
Complication in questions:
Assembly line worker wage per hour = $5
Total Assembly line worker 200
In this case direct labor = 200*5= $1000
MOH
Factory insurance =$500
Factory maintenance= $200
MOH= 500+200= 700
Admin Expenses:
Manager Admin Salary 1000
Accountant Salary 2500
Admin expenses= 1000+2500= 3500
>>>>>>>>>>>>>>>>>>>>>>>>>>>
1. Product costs:

DM+DL +MOH= 110000+42000+29,000=

$181,000

2. Period costs: (3 marks)

Selling expense+ Admin expense=

22000+25,000=47,000

3. Conversion costs: (3 Marks)

DL+MOH= 42,000+29,000= $71,000

4. Prime costs: (Sum of all Direct costs) (3 marks)

DM+DL= 110,000+42,000= 152,000

 QUESTION THREE

Data given below belongs to Gulf Company:

Number of units sold 25,000 units
Selling price per unit AED15
Variable selling expense per unit AED4
Variable administrative expense per unit AED2
Total fixed selling expense AED 23,200
Total fixed administrative expense AED18,600
Beginning merchandise inventory AED15,900
Ending merchandise inventory AED11,400
Merchandize Purchases AED128,600

Required:
Use the above information to prepare a:
Contribution Format income statement in good form

Two kind of companies:

1) Manufacturing Company= Cost of goods sold= DM+DL+MOH

2) Merchandising company (Baqala)=Cost of goods sold= Beginning Inventory+ Purchases- Ending

Inventory

Solution
Two types of companies
1) Manufacturing company =Cost of goods sold= DM+DL+MOH
2) Merchandising company (Baqala)=Cost of goods sold= Beginning inventory +Purchase- Ending
Inventory

Sales (25000*$15) $375,000

Less: Variable Expenses
1.Variable COGS(Beg.Inv+ Purchase-End Inv.)= (15,900+128600- 133100
11,400)
2.Variable Selling Expense (25000*$4) 100,00
0
3.Variable Admin Expense (25000*2) 50,000 (283,100)
Contribution Margin 91900
Less Fixed Expenses:
1.Fixed selling 23,200
2.Fixed Admin 18600 (41800)
Net Operating Income 50100
Question 4

Solution:
SP= $15 Sales= $600,000

We know that: Sales = SP* No.of units sold then

No.of units sold= Sales/SP= 600,000/15= 40,000 units sold
Variable Expense per unit (VE/unit)= Variable expenses/ units sold =360,000/40,000=$9/ unit

a. Contribution Margin ratio

Contribution margin per unit=

CM/unit= SP-(VE/unit)= 15-9= $6

Contribution margin ratio=CMR=

(CM/unit)/SP= 6/15= 40%= 0.4

b. Break-even point in unit sales

(Break-even point in units)

=Fixed cost/ Contribution Margin per unit

= FC/ (CM/unit)= 180,000/6=
=30,000 units

c. Break-even point in dollar sales

(Breakeven point in Dollars)

=Fixed cost/Contribution margin

ratio= FC/CM ratio
= 180,000/0.4
= $450,000
New SP= $15*(1+.10)=$ 15 *(1.10)=$16.5
New VE/unit= $9*(1.10)= 9.90
New fixed expenses= 180,000+25000= $205,000

Sales (16.5* 40,000) $660,000

Less: Variables expenses (9.90* 40,000) (396,000)
Contribution Margin 264,000
Less: Fixed expenses (205,000)
NOI $59,000

Solution
i. New variable expense= $9+$1= $10
 New CM/unit= SP-New variable expense= 15-10= $5
No.of units required to get Target profit of $60,000=
=(Fixed Cost+Target Profit)/(New CM/unit)=180,000+60,000/$5=48000 units

ii. New CM ratio = (New CM/unit)/SP= 5/15= 0.3333

Dollar sales required to get Target Profit of $60,000=

(Fixed cost+Target Profit)/ New CMR=(FC+TP)/new CMR= 180,000+60,000/0.3333=$720,072
Question five (14 marks)

Solution:
a. Unit product cost (Variable costing)
DM+DL+VMOH= 25+20+10= $55
 b. Contribution format Income Statement

Sales (6000*$110) $660,000

Less: Variable Expenses
1. Variable COGS (6000*$55) (330,000)
2. Var.MRK (72000)
&Admin(6000*$12)
Contribution Margin $258,000
Less: Fixed expenses
1. Fixed MOH (80,000)
2. Fixed Mark.Admin (8000)
Net Operating Income $170,000

Practice question: Please prepare absorption costing cost per unit and Absorption Costing Income Statement.

a. Absorption costing cost/ unit

DM+DL+VMOH+ (FMOH/Unit produced) = 25+20+10+(80,000/7800)

= 25+20+10+(10.26)= $65.26
b. Absorption costing Income Statement
Sales (6000*$110) $660,000
Less: cost of goods sold(6000 *65.26) (391538.46)
Gross Margin 268461.54
Less: Operating Expense
(Marketing and Admin Expenses)
(Variable + Fixed)( (6000*$12)+8000 (80,000)
Net Operating Income (Absorption 188461.54
costing)

3) Please explain the difference between two Net operating Incomes

Solutions:
The difference between two net operating income is due the reason that unit produced
are not equal to units sold and FMOH hidden in Ending inventory units.
 Question six (18 marks)

Solution (In Budgeting chapter three topic are very important, 1) Expected cash collection, 2. Production and Direct
material budget and 3) cash budget.)

Quarter Q12020 Q22020 Q32020 Q42020 Q12021

Required production (units) 12000 24000 45000 25000 35000
RM/unit 3 3 3 3 3
Raw Material needed = 12000* 3= =24000*3= 135000 75000 105,00
36000 72000 0
Add: Desired Ending Inventory 72000*0.2= 14400 135000*0.2= 75000*0.2 105000*0.2
27000 = =
15000 21000
Total Raw Material needed =36000+14400= =72000+27000 150,000 96000
50,400 =
99000
Less: Beginning Inventory (7200) (14,400) (27,000) (15000)
(R.M)
Raw Material to be purchased 43,200 84,600 123,000 81,000