Managerial Accounting - Exercises

International Business Program
Managerial Accounting
Practice 1
The following information refers to Arizona Company for January 2022.

Prepare a Schedule of Cost of Goods Manufactured, a Schedule of Cost of Goods Sold
and an Income Statement for the month.
* The company closes overapplied or underapplied overhead into Cost of Goods Sold.
* Income taxes 30%
Work in Process Inventory January 1st $12,150

Administrative expenses (Salaries and 80,476
Services of administrative offices)
Purchases of raw material 60,000
Direct labor cost incurred 88,500
Selling expenses (Salaries of sales 92,000
personnel and Publicity)
Interest expense 12,000
Returns of raw material to supplier 3,000
Utilities for factory 12,600
Applied manufacturing overhead 87,000
Raw Material Inventory January 31st 16,500
Insurance on factory and equipment 5,400
Net Sales 908,700
Raw Material Inventory January 1st $15,150
Rent on factory building 4,650
Finished Goods Inventory January 31st 23,100
Indirect Labor 43,500
Indirect Material 7,350
Work in Process Inventory January 31st 12,450
Depreciation on factory equipment 8,850
Practice 2
The following data pertains to Bucks Manufacturers Company. Prepare a Schedule of

Cost of Goods Manufactured, a Schedule of Cost of Goods Sold and an Income
Statement for the first quarter of 2022.
* Income taxes 30%
Depreciation on factory building and machinery $150,000

Selling expenses (Commissions and Publicity) 712,000
Finished Goods Inventory March 31st 350,000
Administrative expenses (Salaries, Rent, Services) 912,500
Direct labor 592,500
Net Sales 5,631,250
Work in Process Inventory January 1st 0
Raw Material Inventory March 31st 73,750

Utilities for factory 231,250
Raw Material Inventory January 1st 111,250
Work in Process Inventory March 31st 100,200
Practice 3
The following information refers to Ohio Supplies Company for March 2022.
Prepare a Schedule of Cost of Goods Manufactured, a Schedule of Cost of Goods Sold
and an Income Statement for the month.
* Income taxes 30%

Net Sales 340,000
Depreciation on factory equipment 1,000
Administrative expenses (Salaries, Telephone bill,
Rent) 20,200
Direct labor 30,000
Electricity and water for factory 4,200
Selling expenses (Marketing and Commissions) 39,300
Practice 4
The following data pertains to Vans Company for the month of October 2021. Prepare
a Schedule of Cost of Goods Manufactured, a Schedule of Cost of Goods Sold and an
Income Statement for the month.
* Income taxes 30%
Utilities for factory $14,160

Selling expenses (Salaries of sales personnel,
Advertising) 22,000
Finished Goods Inventory Oct. 1st 41,000
Depreciation on machinery 5,000
Administrative expenses (Salaries of administrative
personnel, Rent, Services) 175,000
Insurance on factory and machinery 2,000
Raw Material Inventory Oct. 31st 12,000
Net Sales 750,000
Direct labor 120,000
Work in Process Inventory Oct. 1st 40,000
Raw Material Inventory Oct. 1st 22,300
Finished Goods Inventory Oct. 31st 70,000
Work in Process Inventory Oct. 31st 30,920
Practice 5. Budgeting
Saboc Manufacturing, Inc. produces a 55 litre galvanised garbage bin. Management is

preparing the budgets for the last quarter of 2021.
Sales policy is 70% cash and 30% on account, which is collected the month following
the sale. Uncollectible accounts represent 2%. The sales price is $35 per garbage bin.
Estimated units of bins to be sold:
October 720
November 640
December 560
Sales in units in September 2021 is 550.

Sales in units expected in January 2022 is 630.
The company has a beginning work-in-process inventory in October for $1,200, and
expects to complete 90% of production by the end of December.
Saboc uses 1.5 kilograms of galvanised metal in each bin. Galvanised metal costs $6
per kilogram.
The beginning inventory of raw material in October is 258 kg. The desired ending
inventory of materials is the 25% of the next month ś production.
The raw material required for production expected in January 2022 is 897 kg.
Materials are paid 80% in cash and 20% on account, which is paid the month after the
purchase. The total cost of the raw material purchases in September 2021 is $5,719.50.
Four garbage bins can be produced in one hour. Production personnel are paid an
average of $15.50 per hour.
The beginning inventory of finished goods in October is 288 units. Management

requires an ending inventory of units equal to 40% of the next month ś sales.
Indirect material costs are estimated as follows:
October $500
November $550
December $600
The cost of indirect labor required is $800 each month.

Other monthly overhead costs are estimated as follows:
• Electricity $150
• Maintenance $50
• Utilities and property taxes $110
• Rent $800
• Depreciation expense $100
The general expenses per month consist of salaries of administrative personnel for
$4,000 and for sales personnel $2,000. Advertising $300, and other administrative
expenses $200.
Additional information:
• A bank loan for $50,000 will be obtained in October.

• Payments will be $5,000 each month plus an interest of $500.
• The company is going to invest in new equipment for $20,000 in November.
• The costs of the Finished goods beginning and ending inventory in the quarter
are $4,970 and $4,349, respectively.
• The beginning balance of cash in October is $10,000
• Income taxes 30%
MASTER BUDGET
Saboc Manufacturing, Inc.

Sales Budget 2021
October November December Quarter
Sales in units
Unit sales price
Sales Revenue

Cash Receipts Budget 2021
Collections in the month of sale

Collections in month following sale
Total cash receipts

Production Budget 2021
Sales in units
Add: Desired ending inventory of finished
goods
Total units required
Less: Expected beginning inventory of
finished goods
Units to be produced
Direct Material Budget 2021
Material: ______________
Raw material required per unit
Raw material required for production
Add: Desired ending inventory of raw

material
Total raw material required
Less: Expected beginning inventory of raw

material
Raw material to be purchased
Cost per unit of material
Total cost of raw material purchases

Direct Labor Budget 2021
Direct labor required per unit (hours)
Total direct labor hours required
Direct labor cost per hour
Total direct labor cost

Manufacturing Overhead Budget 2021
Indirect material
Indirect labor
Total manufacturing overhead
Less: Depreciation
Total cash disbursements for overhead

Selling, General and Administrative Expenses Budget 2021
Total of General Expenses

Cash disbursements Budget 2021
Cash payments for purchases made

during the month
Cash payments for prior month´s
purchases
Total cash payments for raw material
purchases
Other cash disbursements:
Total of other cash disbursements
Total cash disbursements

Cash Budget 2021
Cash receipts
Less: Cash disbursements
Change in cash balance due to operations
Proceeds from bank loan
Payments of principal of bank loan
Interest on bank loan
Payments for investments in assets
Change in cash balance during the quarter
Cash balance 10/01/2021
Cash balance 12/31/2021
Budgeted Schedule of Cost of Goods Manufactured and Sold
For the period October-December 2021
Direct Material
Raw Material Inventory, October 1st
Add: Purchases of raw material
Raw material available for use
Deduct: Raw Material Inventory, December 31st
Direct material used
Direct Labor
Manufacturing Overhead
Total manufacturing costs
Add: Work-in-process inventory, October 1st.
Subtotal
Deduct: Work-in-process inventory, December 31st
Cost of goods manufactured
Add: Finished goods inventory, October 1st

Cost of goods available for sale
Deduct: Finished goods inventory, December 31st
Cost of goods sold

Budgeted Income Statement
For the period October-December 2021
Sales Revenue
Cost of goods sold
Gross profit
Other expenses
Selling, general and administrative expenses
Interest expense
Total of other expenses
Income before taxes
Income taxes
Net Income
Manager´s signature Accountant´s signature

Newpak Corporation manufactures cardboard boxes used in shipping canned food,

fruits and vegetables.
They have the following policies and information to prepare the Master Budget for
2021:
• Sales are made 80% in cash and 20% on credit.

• All credit accounts are collected the quarter after the sale.
• The company estimates 2% of each quarter ́s sales to be uncollectible.
• The inventory of finished goods on January 1st 2021 is 10,000 units, and the
company expects to keep each quarter ́s ending inventory equal to 10% of the
next quarter ́s expected sales.
• The raw material on January 1st 2021 is 306,000 pounds, and the desired ending
inventory of raw material is 10% of the next quarter ́s expected raw material
requirements.
• Corrugating medium is purchased in the basis of a just in time system.
• Cash payments for material purchases are made 70% in cash and 30% on credit.
• The total cost of raw material purchases during the last quarter of 2020 is
$734,600.
• There is no work in process inventory beginning nor ending balance.
• Cash balance 01/01/2021 $20,000.
• The raw material required for production expected in January 2022 is 4,320,000
pounds.
The company has the following material and labor requirements:
Direct material required per unit (1 unit includes 100 boxes)
• Paperboard: 30 pounds at $0.20 per pound

• Corrugating medium: 20 pounds at $0.10 per pound
Direct labor per unit:
0.50 hour at $12 per hour
Manufacturing overhead costs anticipated per quarter:
• Indirect material:
1st quarter $10,500, 2nd quarter $12,600, 3rd quarter $12,600, 4th quarter
$16,800.
• Indirect labor:
1st quarter $50,000, 2nd quarter $55,000, 3rd quarter $55,000, 4th quarter
$60,000.
• Utilities 10,000
• Property taxes 12,000
• Maintenance 10,000
• Electricity:
1st quarter $20,000 , 2nd quarter $24,000, 3rd quarter $24,000, 4th quarter
$32,000.
• Insurance 16,000
• Depreciation 8,000
• Rent 15,000
The following selling and administrative expenses are anticipated per quarter:
Management salaries and fringe benefits 90,000

Salaries and fringe benefits for sales personnel $30,000
Advertising 15,000
Computer operator salaries 20,000
Other administrative expenses 4,000
Commissions 5% of sales
The sales forecast in units for the next year is as follows:
• 1st quarter 100,000

• 2nd quarter 120,000
• 3rd quarter 120,000
• 4th quarter 160,000
Sales price $180 per unit (100 boxes)
The sales in units in the last quarter of 2020 is 90,000.

Sales in units expected in the first quarter 2022 is 150,000.
The costs of the Finished goods beginning and ending inventory in 2021 are $151,709
and $227,564, respectively.
• A loan will be obtained in the first quarter for $500,000.

• Payments will be $100,000 per quarter.
• Interest expense per quarter $12,000.
• Construction of plant addition during the 2nd quarter $300,000.
MASTER BUDGET
Sales in units
Unit sales price
Sales Revenue
Collections in quarter of sale

Collections in quarter following sale
Total cash receipts
Sales in units
goods
finished goods
Material: ______________

material

material
Total cost of ___________ purchases
Material: _______________
Units of material to be purchased
Total cost of __________ purchases

Indirect material
Indirect labor
Less: ________________

during the quarter
Cash payments for prior quarter´s
purchases
purchases
Cash receipts
Change in cash balance during the year

Cash balance ___________
Direct Material
Raw Material Inventory, ___________
Deduct: Raw Material Inventory, ___________
Direct Labor
Add: Work-in-process inventory, ___________
Subtotal
Deduct: Work-in-process inventory, ___________
Add: Finished goods inventory, ___________

Deduct: Finished goods inventory, ___________
Cost of goods sold
Sales Revenue
Cost of goods sold
Gross profit
Other expenses
Interest expense
Income before taxes
Income taxes
Net Income

Midwest Academy Company manufactures a variety of desks, chairs, tables and shelf
units which are sold to public school systems throughout the midwest. The controller of
the company ́s Desk division is currently preparing the master budget for the year 2022.
The following sales forecast has been made by the division ́s sales manager:
• 1st quarter 3,100

• 2nd quarter 3,500
• 3rd quarter 4,000
• 4th quarter 5,000
Each desk-and-chair set requires 90 board feet of pine planks and 17 hours of direct
labor.
Each set sells for $4,900. Their sales are 80% in cash and 20% on account, which is
collected the quarter following the sale. The division estimates uncollectible accounts of
2%.
Pine planks cost $12 per board foot, and the division ends each quarter with enough wood
to cover 10 percent of the next quarter ́s production requirements. The beginning
inventory in the first quarter of 2022 is 28,980 board feet.
Material purchases are made 70 percent in cash and 30 percent on credit, which is paid
the quarter after the purchase. The cost of the purchases of raw material during the last
quarter of 2021 is $3,224,880.
The raw material required for production expected in the first quarter 2023 is 424,800
board feet.
The division incurs a cost of $30 per hour of direct labor wages.
The total of finished goods in inventory on January 1st 2022 is 930. The division ends each
quarter with enough finished-goods inventory to cover the 30 percent of the next quarter ́s
sales.
The beginning balance of cash in 2022 is $20,000,000.
Indirect material costs are estimated as follows:
1st quarter $350,000

2nd quarter $400,000
3rd quarter $470,000
4th quarter $550,000
The expected cost of indirect labor required is $520,000 during the first quarter, $522,000
in the second quarter, and $590,000 for each of the last two quarters.
Other overhead costs per quarter are estimated next:
• Electricity $110,000
• Insurance $50,000
• Maintenance $30,000
• Utilities and property taxes $70,000
• Rent $100,000
• Depreciation expense $20,000
The general expenses per quarter consist of :
• Salaries of administrative personnel: $400,000

• Salaries of sales personnel: $300,000
• Publicity: $100,000
• Other administrative expenses: $360,000
• Commissions 3% of sales
The total of sales in units in the 4th quarter of 2021 is 2,900 and the sales in units expected
in the 1st quarter of 2023 is 5,500.
• A bank loan for $1,000,000 will be obtained in March 2022.

• Payments on loan will be $200,000 each quarter
• The interest per quarter will be $40,000
• The company is going to invest in new machinery for $500,000 in the second
quarter, and in equipment for $200,000 in the third quarter.
• There is no beginning nor ending balance of Work-in-Process.
• The costs of the Finished Goods beginning and ending inventory in the year
are $1,792,802 and $3,180,779, respectively.
MASTER BUDGET
Sales in units
Unit sales price
Sales Revenue

Total cash receipts
Sales in units
goods
finished goods
Material: ______________

material

material

Indirect material
Indirect labor
Less: ________________

during the quarter
purchases
purchases
Cash receipts

Direct Material
Direct Labor
Subtotal

Cost of goods sold
Sales Revenue
Cost of goods sold
Gross profit
Other expenses
Interest expense
Income before taxes
Income taxes
Net Income

Cozy Furniture, Inc. manufactures furniture for home and has requested to prepare the
master budget for the year ended June 2023.
Cash balance on July 1st 2022: $35,000,000.
There is work-in-process on July 1st 2022 for $2,900,000.
Labor and materials requirements per unit are:
Cutting labor: 1 hour at $20 per hour

Finishing labor: 2 hours at $30 per hour
Pinewood: 4 meters at $17 per meter

Stained wood: 3 meters at $10 per meter
Forecast quarterly unit sales for coming year:
• September quarter 20,000

• December quarter 30,000
• March quarter 35,000
• June quarter 40,000
Sales in units in June quarter 2022: 17,000.

Sales in units expected in September quarter 2023: 43,000.
Sales are made 75% in cash and 25% on credit, which is collected the quarter after the
sale. The sales price per unit is $740. No uncollectible accounts are expected.
The company requires an ending inventory of pinewood raw materials equal to 20% of
the next quarter ́s production requirements. Stained wood is purchased in a just in time
system.
The beginning inventory of raw material in July 2022 is 17,600 meters. The raw material
required for production expected in September quarter 2023 is 151,200 meters.
Cozy Furniture, Inc. payments to suppliers are made 80% in the quarter of the purchase
and 20% the next quarter. The total cost of raw material purchases during June quarter
2022 is $1,784,640.
The ending inventory balance of finished goods should be equal to 20% of the next
quarter ́s expected sales. The beginning inventory of finished goods in July 2022 is 4,000
units.
Indirect material costs expected:
September quarter $227,000

December quarter $300,000
March quarter $359,000
June quarter $394,000
The estimated indirect labor cost in September quarter is $900,000; in December quarter
$1,200,000; and $1,700,000 in each of the last two quarters.
Other overhead costs per quarter:
• Electricity and utilities $90,000

• Insurance $20,000
• Maintenance $29,000
• Rent on factory building $200,000
• Depreciation $11,000
General expenses per quarter are as follows:
• Salaries to administrative personnel $360,000

• Salaries to sales personnel $100,000
• Commissions 7% of sales
• Computer operator salaries $170,000
• Other administrative expenses $150,000
• Advertising $115,000
• A $2,000,000 bank loan will be obtained in March.

• Loan payments will be $200,000 per quarter and interest expense $5,000 per
quarter.
• Investment in equipment in December for $1,000,000.
• The company expects to complete 90% of the work-in-process by the end of
June 2023.
• The costs of the Finished goods beginning inventory in July 2022 is $964,469,
and the cost of the ending inventory in June 2023 is $2,073,000.
MASTER BUDGET
Sales in units
Unit sales price
Sales Revenue

Total cash receipts
Sales in units
goods
finished goods
Material: ______________

material

material
Total cost of ___________ purchases
Material: _______________
Units of material to be purchased
Total cost of __________ purchases

________ labor required per unit (hours)
Total ________ labor cost
________ labor required per unit (hours)
Total________ labor cost
Indirect material
Indirect labor
Less: ________________

during the quarter
purchases
purchases

Cash receipts

Direct Material
Direct Labor
Subtotal

Cost of goods sold
Sales Revenue
Cost of goods sold
Gross profit
Other expenses
Interest expense
Income before taxes
Income taxes
Net Income

Practice 9. Cost-Volume-Profit Analysis
University Pizza delivers pizzas to the dormitories and apartments near a major state
university. The company ́s annual fixed expenses are $54,000. The sales price of a pizza
is $20, and it costs the company $12 to make and deliver each pizza. (In the following
requirements, ignore income taxes).
Required:
1. Using the contribution-margin approach, compute the company ́s break-even

point in units (pizzas).
2. What is the contribution-margin ratio?
3. Compute the break-even sales revenue. Use the contribution-margin ratio in your
calculation.
4. How many pizzas must the company sell to earn a target net profit of $70,000?
Use the equation method.
Rosario Company, which is located in Buenos Aires, Argentina, manufactures a

component used in farm machinery. The firm ́s fixed costs are 2,000,000 p per year. The
variable cost of each component is 1,000 p, and the components are sold for 1,500 p
each. The company sold 7,000 components during the prior year. (p denotes the peso,
Argentina ́s national currency. In the following requirements, ignore income taxes).
Required:
1. Compute the break-even point in units.

2. What will the new break-even point be if fixed costs increase by 5 percent?
3. What was the company ́s net income for the prior year?
4. The sales manager believes that a reduction in the sales price to 1,400 p will
result in orders for 1,000 more components each year. What will the break-even
point be if the price is changed?
5. Should the price change discussed in requirement (4) be made? Explain.
Spark Company sells a product used for car cleaning. The company ́s fixed costs for the
month are $44,000. The cost to make each product is $31 and it is sold at $78. Last
month, the company sold 1,730 products.
Answer the following questions:
a) What is the company ́s break-even point in units? Use the contribution margin
approach.
b) What is the company ́s break-even point in sales? Use the contribution margin ratio.
c) How many units must the company sell to earn a target net profit of $100,000? Use
the contribution margin approach.
d) What was the company ́s net income in the prior month?
Stylish Dressing Company sells dresses for executive women. The price of each dress
is $5,400 and the manufacturing cost per unit is $2,120. The company ś fixed costs are
$35,000. Last month, the company sold 90 dresses.
Answer the following questions. You must include the procedure to support each
answer.
a) What is the company´s break-even point in units? Use the contribution margin
approach.
b) How many dresses must the company sell to earn a target net profit of $200,000?
c) What was the company ś net income in the prior month?
d) What will the new break-even point be if fixed costs increase by 10% and the rest of
the data doesn´t change??
e) What will the new break-even point be if the company increases the price to $6,000
and the rest of the data doesn´t change?
f) What will the new break-even point be if there is an increase of 20% in the
manufacturing cost per unit and the rest of the data doesn´t change?
Practice 13. Break-even point with multiple products
Vincy Company sells four different brands and is going to calculate the amount of units
that must be sold in March 2021 to have no profit or loss. They have the following
information:
Fixed Costs in March 2021: $700,000
The Sales Mix of the company is shown next:
Product A 35%
Product B 40%
Product C 10%
Product D 15%
Data of each product:
Product A Product B Product C Product D

Unit sales price $1,500 $1,700 $2,000 $1,000
Unit variable 800 900 1,200 450
cost
Required:
a) Calculate the break-even point for Vincy Company and the break-even point for each
product.
b) Prepare the contribution income statement of March 2021.
West Company sells four different products: Basic, Standard, Superior and Luxury, and
has the following information for April 2021:
Total of Fixed Costs per month: $100,000
The Sales Mix of the company is as follows:
Luxury 40%
Basic 20%
Standard 30%
Superior 10%
Data of each product:
Luxury Basic Standard Superior

Unit sales price $25 $10 $12 $17
Unit variable 10 4 7 8
cost
Required:
a) Calculate the break-even point for West Company and the break-even point for each
product.
b) Prepare the contribution income statement of April 2021.
Army Company manufactures clothing for men. They sell 3 items: Classy, Sporty and
Casual .
The sales mix of the Company is as follows:
Sporty 30%
Classy 30%
Casual 40%
Data of each of the 3 products is the following:
Product Unit sales price Unit variable cost

Sporty $300 $120
Classy 400 173
Casual 350 150
The fixed cost in April 2022 is $97,300.
Required:
a) Calculate the break-even point in units for Army Company and the break- even point
of each of the 3 products.
b) Prepare the Contribution Income Statement for the month of April 2022.
Practice 16. Activity-Based Costing System
Knickknack Inc. manufactures two products: odds and ends. The firm uses a single,
plantwide overhead rate based on direct-labor hours. Production and product-costing
data are as follows:
Odds Ends
Production quantity 1,000 units 5,000 units
Direct material $40 $60
Direct labor (not including setup 30 (2 hr. at $15) 45 (3 hr. at $15)
time)
Manufacturing overhead* 96 (2 hr. at $48) 144 (3 hr. at $48)
Total cost per unit $166 $249
*Calculation of predetermined overhead rate:
Manufacturing overhead budget:

Machine-related costs…………………………………………………….. $450,000
Setup and inspection………………………………………………………. $180,000
Engineering………………………………………………………………… $90,000
Plant-related costs………………………………………………………… $96,000
Total………………………………………………………………………… $816,000
Predetermined overhead rate:
Budgeted manufacturing overhead = $816,000 = $48 per direct-labor hour

Budgeted direct-labor hours (1,000)(2)+(5,000)(3)
Knickknack, Inc. prices its products at 120 percent of cost, which yields target prices of
$199.20 for odds and $298.80 for ends. Recently, however, Knickknack has been
challenged in the market for ends by a European competitor, Bricabrac Corporation. A
new entrant in this market, Bricabrac, has been selling ends for $220 each.
Knickknack´s president is puzzled by Bricabrac´s ability to sell ends at such a low cost.
She has asked you (the controller) to look into the matter. You have decided that
Knickknack´s traditional, volume-based product-costing system may be causing cost
distortion between the firm´s two products. Ends are a high-volume, relatively simple
product. Odds, on the other hand, are quite complex and exhibit a much lower volume.
As a result, you have begun work on an activity-based costing system.
The following cost drivers have been identified for the four activity cost pools.
Activity Cost Pool Cost Driver Budgeted Level of Cost

Driver
Machine-related costs Machine hours 9,000 hr.
Setup and inspection Number of production 40 runs
runs
Engineering Engineering change 100 change orders
orders
Plant-related costs Square footage of space 1,920 sq. ft.
You have gathered the following additional information:
• Each odd requires 4 machine hours, whereas each end requires 1 machine hour.
• Odds are manufactured in production runs of 50 units each. Ends are
manufactured in 250 unit batches.
• Three-quarters of the engineering activity, as measured in terms of change
orders, is related to odds.
• The plant has 1,920 square feet of space, 80 percent of which is used in the
production of odds.
Required:
1. For each activity cost pool, compute a pool rate.

2. Determine the unit cost, for each activity cost pool, for odds and ends.
3. Compute the new product cost per unit for odds and ends, using the ABC system.
4. Using the same pricing policy as in the past, compute prices for odds and ends. Use
the product costs determined by the ABC system.
5. Show how Knickknack´s traditional, volume-based costing system distorted its
product costs.
6. Show that the ABC system fully assigns the total budgeted manufacturing overhead
costs of $816,000.
World Gourmet Coffee Company (WGCC) is a distributor and processor of different

blends of coffee. The company buys coffee beans from around the world and roasts,
blends, and packages them for resale. WGCC currently has 15 different coffees that it
offers to gourmet shops in one-pound bags. The major cost is raw materials; however,
there is a substantial amount of manufacturing overhead in the predominantly automated
roasting and packing process. The company uses relatively little direct labor.
Some of the coffees are very popular and sell in large volumes, while a few of the newer
blends have very low volumes. WGCC prices its coffee at full product cost, including
allocated overhead, plus a markup of 30 percent. If prices for certain coffees are
significantly higher than market, adjustments are made. The company competes primarily
on the quality of its products, but customers are price conscious as well.
Data for the 20x1 budget include manufacturing overhead of $3,000,000, which has been
allocated on the basis of each product's direct-labor cost. The budgeted direct-labor cost
for 20x1 totals $600,000. Based on the sales budget and raw-material budget. purchases
and use of raw materials (mostly coffee beans) will total $6,000,000.
The expected prime costs for one-pound bags of two of the company's products are as
follows:
Kona Malaysian
Direct material $3.20 $4.20
Direct labor .30 .30
WGCC’s controller believes the traditional product-costing system may be providing

misleading cost information. She has developed an analysis of the 20x1 budgeted
manufacturing-overhead costs shown in the following chart.
Activity Cost Driver Budgeted Activity Budgeted Cost
Purchasing Purchase orders 1,158 $579,000
Material handling Setups 1,800 720,000
Quality control Batches 720 144,000
Roasting Roasting hours 96,100 961,000
Blending Blending hours 33,600 336,000
Packaging Packaging hours 26,000 260,000

Total manufacturing-overhead cost $3,000,000
Data regarding the 20x1 production of Kona and Malaysian coffee are shown in the
following table. There will be no raw-material inventory for either of these coffees at the
beginning of the year.
Kona Malaysian
Budgeted sales 2,000 lb. 100,000 lb.
Batch size 500 1b. 10,000 lb.
Setups 3 per batch 3 per batch
Purchase order size 500 lb. 25,000 lb.
Roasting time 1hr. per 100 lb. 1hr. per 100 lb.
Blending time .5 hr. per 100 lb. .5 hr. per 100 lb.
Packaging time .1hr. per 100 lb. .1 hr per 100 Ib,
.
Required:
1. Using WGCC´s current product-costing system:

a. Determine the company's predetermined overhead rate using direct-labor cost
as the single cost driver.
b. Determine the full product costs and selling prices of one pound of Kona coffee
and one pound of Malaysian coffee.
2. Develop a new product cost, using an activity-based costing approach, for one
pound of Kona coffee and one pound of Malaysian coffee.
3. What are the implications of the activity-based costing system with respect to:
a. The use of direct labor as a basis for applying overhead to products?
b. The use of the existing product-costing system as the basis for pricing?
Motor Devices, Inc., manufactures a product that is available in both: a superior model
and a regular model. The company has manufactured the regular model for years. The
superior model was introduced several years ago to tap a new segment of the market.
Since the introduction of the superior model, the company's profits have steadily declined,
and management has become increasingly concerned about the accuracy of its costing
system. Sales of the superior model have been increasing rapidly.
The company prices its products at 130% of cost. Manufacturing overhead is assigned to
products on the basis of direct labor-hours. For the current year, the company has
estimated that it will incur $7,000,000 in manufacturing overhead cost and produce
10,000 units of the superior model and 90,000 units of the regular model. Both models
require 2 hours of direct labor time per unit. Material and labor costs per unit are as
follows:
Superior Regular
Direct materials $90 $70
Direct labor $20 $21
Management is considering using activity-based costing to apply manufacturing overhead

costs to products for external financial reports. The activity-based costing system would
have the following four activity cost pools:
Activity Cost Pool Activity Measure Estimated Overhead Costs
Purchase orders Number of purchase orders $802,000
Scrap/Rework orders Number of scrap/rework 548,000

orders
Product testing Number of tests 1,750,000
Machine-related Machine-hours 3,900,000
Total overhead cost $7,000,000

Expected Activity
Activity Measure Superior Regular Total
Number of purchase 600 1,100 1,700
orders
Number of scarp/rework 400 300 700
orders
Number of tests 8,000 12,000 20,000
Machine-hours 30,000 40,000 70,000
Required:
1. Using direct labor-hours as the base for assigning manufacturing overhead cost to
products, compute the predetermined overhead rate.
2. Using the predetermined overhead rate and other data from the problem, determine
the unit product cost and the selling price of each model.
3. Compute the total amount of manufacturing overhead cost that would be applied
to each model using the activity-based costing system.
4. After these totals have been computed, determine the amount of manufacturing
overhead cost per unit for each model.
5. Compute the unit product cost of each model (materials, labor, and manufacturing
overhead).
6. Using the same price policy, compute the new selling price of each model.

Managerial Accounting - Exercises

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Managerial Accounting - Exercises

Uploaded by

Copyright:

Available Formats

International Business Program

The following information refers to Arizona Company for January 2022.

Work in Process Inventory January 1st $12,150

The following data pertains to Bucks Manufacturers Company. Prepare a Schedule of

Depreciation on factory building and machinery $150,000

Raw Material Inventory March 31st 73,750

Raw Material Inventory March 1st 10,700

Utilities for factory $14,160

Saboc Manufacturing, Inc. produces a 55 litre galvanised garbage bin. Management is

Estimated units of bins to be sold:

Sales in units in September 2021 is 550.

The beginning inventory of finished goods in October is 288 units. Management

Indirect material costs are estimated as follows:

The cost of indirect labor required is $800 each month.

• A bank loan for $50,000 will be obtained in October.

Saboc Manufacturing, Inc.

October November December Quarter

Saboc Manufacturing, Inc.

October November December Quarter

Collections in the month of sale

Saboc Manufacturing, Inc.

October November December Quarter

October November December Quarter

Add: Desired ending inventory of raw

Less: Expected beginning inventory of raw

Cost per unit of material

Total cost of raw material purchases

Saboc Manufacturing, Inc.

October November December Quarter

Direct labor cost per hour

Total direct labor cost

October November December Quarter

Total manufacturing overhead

Saboc Manufacturing, Inc.

October November December Quarter

Total of General Expenses

October November December Quarter

Cash payments for purchases made

Other cash disbursements:

Total of other cash disbursements

Total cash disbursements

Saboc Manufacturing, Inc.

October November December Quarter

Add: Finished goods inventory, October 1st

Saboc Manufacturing, Inc.

Manager´s signature Accountant´s signature

Newpak Corporation manufactures cardboard boxes used in shipping canned food,

• Sales are made 80% in cash and 20% on credit.

The company has the following material and labor requirements:

Direct material required per unit (1 unit includes 100 boxes)

• Paperboard: 30 pounds at $0.20 per pound

Direct labor per unit:

0.50 hour at $12 per hour

Manufacturing overhead costs anticipated per quarter:

Management salaries and fringe benefits 90,000

The sales forecast in units for the next year is as follows:

• 1st quarter 100,000

Sales price $180 per unit (100 boxes)

The sales in units in the last quarter of 2020 is 90,000.

• A loan will be obtained in the first quarter for $500,000.

Collections in quarter of sale

Add: Desired ending inventory of raw

Less: Expected beginning inventory of raw

Cost per unit of material