Bus 247-Introductory Managerial Accounting

Chapter 2- Cost Behavior: Analysis and Use Practice Sheet 1

1. Gapsoon a small manufacturer, has submitted the items below concerning

last year's operations. The president's secretary, trying to be helpful, has
alphabetized the list.

Required:

a.) Prepare a schedule of cost of goods manufactured in good form for the year.
b.) Determine the cost of goods sold for the year.

Q2. Laco Company acquired its factory building about 20 years ago. For a number of
years the company has rented out a small, unused part of the building. The renter's lease
will expire soon. Rather than renewing the lease, Laco Company is considering using the
space itself to manufacture a new product. Under this option, the unused space will
continue to be depreciated on a straight-line basis, as in past years.
Direct materials and direct labor cost for the new product would be $50 per unit. In order
to have a place to store finished units of the new product, the company would have to rent
a small warehouse nearby. The rental cost would be $2,000 per month. It would cost the
company an additional $4,000 each month to advertise the new product. A new
production supervisor would be hired to oversee production of the new product who
would be paid $3,000 per month. The company would pay a sales commission of $10 for
each unit of product that is sold.
Bus 247-Introductory Managerial Accounting
Chapter 2- Cost Behavior: Analysis and Use Practice Sheet 1
Required:

Complete the chart below by placing an "X" under each column heading that helps to
identify the costs listed to the left. There can be "X's" placed under more than one
heading for a single cost. For example, a cost might be a product cost, an opportunity
cost, and a sunk cost; there would be an "X" placed under each of these headings on the
answer sheet opposite the cost.

*Between the alternatives of (1) renting the space out again or (2) using the space to
produce the new product.

* We suggest you allow either answer (a blank or an X) in this cell. Some would consider an
opportunity cost to be a differential cost and others would not. It is all a matter of definition and
the definitions given in the text do not really cover this contingency.

Q3. Whitman Corporation, a merchandising company, reported sales of 7,400 units for May at a
selling price of $677 per unit. The cost of goods sold (all variable) was $441 per unit and the
variable selling expense was $54 per unit. The total fixed selling expense was $155,600. The
variable administrative expense was $24 per unit and the total fixed administrative expense was
$370,400.

Required:

a. Prepare a contribution format income statement for May.

b. Prepare a traditional format income statement for May.
Bus 247-Introductory Managerial Accounting
Chapter 2- Cost Behavior: Analysis and Use Practice Sheet 1
Practice chapter 03

1. The Collins Company uses a job-order costing system and applies manufacturing
overhead cost to jobs on the basis of the cost of materials used in production. At the
beginning of the most recent year, the following estimates were made as a basis for
computing the predetermined overhead rate for the year:

The following transactions took place during the year (all purchases and services were
acquired on account):

a.) Raw materials purchased: $86,000.

b.) Raw materials requisitioned for use in production (all direct materials): $98,000.
c.) Utility costs incurred in the factory: $15,000.
d.) Salaries and wages incurred as follows:

e.) Maintenance costs incurred in the factory: $15,000.

f.) Advertising costs incurred: $89,000.
g.) Depreciation recorded for the year: $80,000, of which 80% relates to factory assets
and the remainder relates to selling and administrative assets.
h.) Rental cost incurred on buildings: $70,000 (75% of the space is occupied by the
factory, and 25% is occupied by sales and administration).
i.) Miscellaneous selling and administrative costs incurred: $11,000.
j.) Manufacturing overhead cost was applied to jobs as per company policy.
k.) Cost of goods manufactured for the year: $500,000.
l.) Sales for the year (all on account): $1,000,000. These goods cost $600,000 to
manufacture.

Required:

Prepare journal entries to record the information above. Key your entries by the letters a
through l.
Bus 247-Introductory Managerial Accounting
Chapter 2- Cost Behavior: Analysis and Use Practice Sheet 1
Bus 247-Introductory Managerial Accounting
Chapter 2- Cost Behavior: Analysis and Use Practice Sheet 1
Allenton Company is a manufacturing firm that uses job-order costing. At the beginning of the
year, the company's inventory balances were as follows:

The company applies overhead to jobs using a predetermined overhead rate based on machine
hours. At the beginning of the year, the company estimated that it would work 31,000 machine
hours and incur $248,000 in manufacturing overhead cost. The following transactions were
recorded for the year:

a.) Raw materials purchased: $411,000.

b.) Raw materials requisitioned for use in production: $409,000 ($388,000 direct and $21,000
indirect).
c.) The following employee costs were incurred:

d.) Selling costs: $148,000.

e.) Factory utility costs: $12,000.
f.) Depreciation for the year: $121,000, of which $114,000 is related to factory operations and
$7,000 is related to selling and administrative activities.
g.) Manufacturing overhead was applied to jobs. The actual level of activity for the year was
29,000 machine hours.
h.) Cost of goods manufactured for the year: $783,000.
i.) Sales for the year: $1,107,000; the costs on the job cost sheets of the goods that were sold:
$768,000.
j.) The balance in the Manufacturing Overhead account was closed out to Cost of Goods Sold.

Required:

Prepare the appropriate journal entry for each of the items above (a. through j.). You can assume
that all transactions with employees, customers, and suppliers were conducted in cash.
Bus 247-Introductory Managerial Accounting
Chapter 2- Cost Behavior: Analysis and Use Practice Sheet 1
Bus 247-Introductory Managerial Accounting
Chapter 2- Cost Behavior: Analysis and Use Practice Sheet 1
Q. The following cost data relate to the manufacturing activities of the Kamas Company during
the most recent year:

The company uses a predetermined overhead rate to charge overhead cost to production. The rate
for the year just completed was $4.00 per machine hour; a total of 6,000 machine hours were
recorded for the year.

Required:

a. Compute the amount of under- or overapplied overhead cost for the year just ended.
b. Prepare a schedule of cost of goods manufactured for the year.
Bus 247-Introductory Managerial Accounting
Chapter 2- Cost Behavior: Analysis and Use Practice Sheet 1
Bus 247-Introductory Managerial Accounting
Chapter 2- Cost Behavior: Analysis and Use Practice Sheet 1
Chapter 5

1. Guitian Corporation produces and sells a single product. The company's contribution format
income statement for June appears below:

Redo the company's contribution format income statement assuming that the company sells
5,700 units.

2.. Guagliano Corporation produces and sells a single product whose selling price is $110.00 per
unit and whose variable expense is $29.70 per unit. The company's monthly fixed expense is
$345,290.

Required:

a. Assume the company's monthly target profit is $16,060. Determine the unit sales to attain that
target profit. Show your work!
b. Assume the company's monthly target profit is $40,150. Determine the dollar sales to
attainthat target profit. You’re your work!

3. Iron Decor manufactures decorative iron railings. In preparing for next year's operations,
management has developed the following estimates:
Bus 247-Introductory Managerial Accounting
Chapter 2- Cost Behavior: Analysis and Use Practice Sheet 1

Required:

Compute the following items:

a. Unit contribution margin.
b. Contribution margin ratio.
c. Break-even in dollar sales.
d. Margin of safety percentage.
e. If the sales volume increases by 20% with no change in total fixed expenses, what will be the
change in net operating income?
f. If the per unit variable production costs increase by 15%, and if fixed selling and
administrative expenses increase by 12%, what will be the new break-even point in dollar sales?