Q#1 – 15%

The following information pertains to MYERZ, Inc., for last year:

Beginning inventory, 0 units
Units produced 60,000
Units sold 57,400
Selling price $32.00
Direct materials $9.00
Direct labor $6.50
Variable overhead $3.60
Variable selling expenses $3.00
Fixed overhead $234,000 per year
Fixed selling expenses $236,000 per year

There are no work-in-process inventories. Normal activity is 60,000 units. Expected and actual
overhead costs are the same.

Required
1. Prepare an income statement, using absorption costing and variable costing approach. (10
points)
2. Reconcile the difference between income statement under absorption costing and variable
costing approach. (5 points)
 Q#2 – 20%
Parker Pottery currently produces a line of vases and a line of ceramic figurines. Each line uses
the same equipment and labor; hence, there are no traceable fixed costs. Common fixed cost
equals $30,000. The income tax rate is 25%.

The management is concerned because the company has yet to make a profit. Sales were slow in
the first quarter but really picked up by the end of the year. Over the course of the year,
units were sold. The management is interested in determining how many units Vases and
Figurines must be sold to break even. The management has begun to assess the profitability of
the two lines and has gathered the following data for last year:

Vases Figurines
Selling price per unit $40 $70
Variable cost per unit 30 42
Number of units sold 1,000 units 500 units

Required:
1. Calculate the units and dollar amounts for vases and figurines that must be sold for the
company to break even. (8 points)
2. Calculate the targeted unit sold for Vases and Figurines if Parker Pottery proposed a
target net income for $20,700. (6 points)
3. Parker Pottery is considering upgrading its factory to improve the quality of its products.
The upgrade will add $5,260 per year to total fixed cost. If the upgrade is successful, the

Q#3 – 25%
Celeby makes a popular barefoot kid’s shoes. It requires special fabric and suede to be
produced. The quantity of fabric on May 1 is 8,000 yards, while suede is 7,000 yards. Based on
company’s policy, it is required to have 125% of beginning material inventory on hand at the
end of the month to secure the next month production. There are no differences on prices for
direct materials between April and May. Celeby accounts for direct materials and finished
goods using a FIFO cost flow assumption. The company is currently preparing its budget for
May and has estimated 20.000 units of sales in May and 22.500 units of sales in June. Celeby
wants ending finished good inventory to be 20% of next month estimated sales. The cost of
finished goods inventory at the beginning of May is $968.000. Other information for the month
of May follows:
 Input prices
Direct materials:
Fabric $15 per yard
Suede $25 per yard
Direct manufacturing labor $30 per direct manufacturing labor-hour

Input quantities per unit of output (per pair of shoes)

Direct materials:
Fabric 1.5 yards
Suede 0.8 yards
Direct manufacturing labor 6 hours

All the barefoot shoes are made in batches of 50 pairs of shoes. Celeby incurs manufacturing
overhead costs that consists of setup and processing costs. Each batch required 2 setup-hours.
The company uses activity-based costing and has classified all overhead costs for May as
follows:

Cost type Denominator Activity Rate

Setup Setup-hours $15 per setup-hour
Processing Direct manufacturing labor-hours $2.75 per DLH

Required
Prepare each of the following for May:
a. Direct material usage budget and direct material purchases budget in both units and
dollars (6 points)
b. Direct manufacturing labor cost budget (2 points)
c. Manufacturing overhead cost budget (6 points)
d. Budgeted unit cost of ending finished goods inventory (5 points)
e. Cost of goods sold budget (6 points)

PROBLEM 4 – 25%
Lemongrass Company produces luxury soap in its plant in New Jersey with an estimated selling
price of $25 per unit. It uses standard costing based on 25,000 output units per year and has
determined the following cost categories for 2019:

Category Standard inputs Standard cost

for 1 output per input
Direct materials 2 pounds $7.50
Direct labor 0.7 DLH $9.00
The budgeted variable manufacturing overhead and fixed manufacturing overhead for a year is
$250,000 and $385,000, respectively. Company uses machine hours to allocate these costs to the
product, with estimated consumption of 0.5 machine hours per output.

Actual performance for the company is shown below:

Actual output: (in units) 20,000

Actual selling price (per unit output) $26.5
Direct Materials:
Materials costs $302,250
Input purchased and used (pounds) 39,000

Direct Manufacturing Labor:

Labor costs $114,700
Labor-hours of input 12,400

Manufacturing Overhead:
VOH cost $231,000
FOH cost $397,500
Machine hours 11,000

Required
a. Calculate the selling price variance (2 points)
b. Calculate the price variance and efficiency variance for the direct materials (4 points)
c. Calculate the price variance and efficiency variance for the direct materials (4 points)
d. Prepare variances analysis for variable manufacturing overhead and fixed manufacturing
overhead (10 points)
e. Give possible explanation for favourable variances (5 points)

Q#5 – 15%
La Famiglia Pizzeria provided the following information for the month of October:
a. Sales are budgeted to be $157,000. About 85 percent of sales are cash; the remainders are on
account.
b. La Famiglia expects that, on average, 70 percent of credit sales will be paid in the month of
sale, 28 percent will be paid in the following month and 2% will be uncollectible.
c. Food and supplies purchases, all on account, are expected to be $116,000. La Famiglia pays 25
percent in the month of purchase and 75 percent in the month following purchase.
d. Most of the work is done by the owners, who typically withdraw $6,000 a month from the
business as their salary. (Note: The $6,000 is a payment in total to the two owners, not per
person.) Various part-time workers cost $7,300 per month. They are paid for their work
weekly, so on average 90 percent of their wages are paid in the month incurred and the
remaining 10 percent in the next month.
e. Utilities average $5,950 per month. Rent on the building is $4,100 per month.
f. Insurance is paid quarterly; the next payment of $1,200 is due in October.
g. September sales were $181,500 and purchases of food and supplies in September equaled
$130,000.
h. The cash balance on October 1 is $2,147.

Required:
1. Prepare schedule cash collection for the month of October. (5 points)
2. Prepare a cash budget for the month of October. (10 points)

Required
f. Calculate the selling price variance (2 points)
g. Calculate the price variance and efficiency variance for the direct materials (4 points)
h. Calculate the price variance and efficiency variance for the direct materials (4 points)
i. Prepare variances analysis for variable manufacturing overhead and fixed manufacturing
overhead (10 points)
j. Give possible explanation for favourable variances (5 points)

Q#6 – 15%
Coolant Co. manufactures two type of refrigerators, the Top Freezer and the French Door
Refrigerator. The following information was gathered about the two products:

Top Freezer French Door

Budgeted sales in units 3,200 800
Budgeted selling price $600 $1,700
Budgeted contribution margin per unit $420 $1,100
Actual sales in units 3,500 1,500
Actual selling price $650 $1,680

Required
1. Calculate the total sales-volume variance (5 points)
2. Calculate the total sales-quantity variance (5 points)
3. Calculate the total sales-mix variance (5 points)