CHAPTER 2: Cost classification

Nathan Coroporation had production overhead cost at various levels of activity for the year
200x0 as below:

Labor-hours Total production overhead cost

January 32,000 335,200
February 51,000 524,000
March 21,000 225,000
April 34,000 354,700
May 55,000 565,000
June 42,000 435,800

Production overhead cost in March was breakdown as follows:

Components of production overhead cost

Indirect material (variable) 126,000
Supervisor salaries (fixed) 3,000
Rent & Depreciation (fixed) 8,000
Electricity (mixed) 88,000

Required:
1. Using the high-low method, estimate a cost formula for electricity.
2. What total production overhead cost would you expect to be incurred at 40,000 labor-
hours?

CHAPTER 3: Job-order costing

Thompson Corporation start to produce and sell a new product using a job order costing
system. The transactions occurred during the month of June as flows:
a. Purchased materials on account for $60,000.
b. Requisitioned materials totaling $52,000 for the use in production. Of the total, $22,000
was for the job 612, $18,000 for the job 613 and the remainder for job 614.
c. Incurred direct labor for the month $72,000 with an average wage of $20 per hour. Job
612 used 1,600 hours, job 613 used 1,200 hours and job 614 used 800 hours.
d. Incurred and paid actual overhead of $35,000 (credit various payables)
e. Charged overhead to each job at the rate of $10 per direct labor hour
f. Completed and transferred Job 612 and 613 to finished goods.
g. Sold job 612 on account for a price of cost plus 40%.
Required:
1. Prepare the journal entries for transactions a. through g.
2. Prepare brief job-order cost sheets for Jobs 612, 613 and 614.
3. Disposition of under or over-applied overhead. The company believes that the under-or-
over-applied manufacturing overhead should be considered material.
CHAPTER 4: Process costing

Flexi Plastics Ltd manufactures a highly specialised plastic material that is used
extensively in the car industry. The following data have been compiled for the month
of June. Conversion activity occurs uniformly throughout the production process.
Work in process, 1 June – 1,250 units
Direct material: 100% complete $512,500
Conversion: 70% complete 245,000
Balance in Work in process, 1 June $757,500
Units started during June 8,300 units
Units completed during June and transferred to finished goods inventory ?
Work in process, 30 June – 1,450 units
Direct material: 100%
Conversion: 60%
Costs incurred during June:
Direct material $4,083,600
Conversion 2,719,920
Total costs $6,803,520
The company use a FIFO process costing system.
Required
Calculate the followings
a) Equivalent units of production
b) Unit costs
c) Costs of finished goods
d) Costs of ending work in process

CHAPTER 6: Cost-Volume-Profit Analysis

Memofax, Inc., produces a single product. Sales have been very erratic, with some
months showing a profit and some months showing a loss. The company’s income
statement for the most recent month is given below:
Sales (13,500 units) $ 270,000
Less variable expenses 189,000
Contribution margin 81,000
Less fixed expenses 90,000
Net loss $ (9,000)
1. Compute the company’s break-even point in both units and dollars.
2. The president is convinced that a 10% reduction in the selling price, combined
with an increase of $35,000 in the monthly advertising budget, will cause unit sales to
double. What will be the effect on the company’s monthly net income or loss? (Use
the incremental approach in preparing your answer).
3. Refer to the original data. By automating certain operations, the company could
slash its variable expenses in half. However, fixed costs would increase by $118,000
per month.
a. Assume that the company expects to sell 20,000 units next month. Prepare
two income statements, one assuming that operations are not automated and one
assuming that they are.
b. Would you recommend that the company automate its operations? Explain.

CHAPTER 7: Pricing products and services

Anna Corporation wants to set the selling price of a mass product. The accounting
department has provided cost estimations as shown below.
Unit variable cost Total fixed costs per
year
Direct material costs 90
Direct labor costs 30
Production overhead 20 100,000
Selling, administration and 10 60,000
 distribution costs
Capacity 2,000 units

Anna Corporation must invest $1,000,000 to produce and sell 2,000 units of the
product each year. Anna expects to obtain a 20% ROI.
Required:
1. Set the selling price and prepare the price quotation sheet by variable costing
(/marginal costing/contribution costing).
2. Assume that due to recession, Anna Corporation expects to sell only 1,800 units
through regular channels with the selling price at $330 per unit next year. A large
retail chain has offered to purchase 500 units of product. There would be no sales
commissions on this order; thus, variable selling expenses would be decreased by
$5 per unit. However, Anna would have to purchase a special machine to
engrave the retail chain’s name on the 500 units. This machine would cost
$4,000. Determine the minimum price per unit for Anna Corporation accepting
this special order.

CHAPTER 8: Relevant information for decision making

Sophia Company produces three models of smart TV, including UA32, UA40 and UA43. A
segmented income statement, with amounts given in thousands, follows:
 UA32 UA40 UA43 Total

Sales revenue $2,450 $1,890 $1,500 $5,84

Less Variable costs 735 1,134 750 2,61

Contribution margin $1,715 $756 $ 750 $ 3,22

Less traceable fixed costs

+ Depreciation 300 400 400 1,10

+ Salaries 615 656 850 2,12

Segment margin $ 800 $ (300) $ (500) $

Traceable fixed costs consist of depreciation and plant supervisory salaries. All depreciation
on the equipment is dedicated to the product lines. None of the equipment can be sold. Each
of three products has a different supervisor whose position would be eliminated if the
associated product were dropped.
Required:
1. Should Sophia keep or drop UA40? Explain.
2. Should Sophia keep or drop UA43? Explain.