Practice Problems Bus 254 for Mid term.docx

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Department
Business Administration
Course
BUS 254
Professor
Masood Kamlani
Semester
Fall

Description
Q1.Stuart Manufacturing produces metal picture frames. The company's income statements for the last two years are presented below: The company has no beginning or ending inventories. Required: a. Estimate the company's total variable cost per unit, and its total fixed costs per year. (Remember that this is a manufacturing firm.) b. Compute the company's contribution margin for this year. Ans: a. Variable component of cost of goods sold: Variable rate = Change in costs/Change in units Variable rate = ($710,000 - $550,000)/(70,000 - 50,000) Variable rate = $8.00 per unit Fixed cost: High units: $710,000 - $8.00(70,000) = $150,000 Low units: $550,000 - $8.00(50,000) = $150,000 Variable component of operating expenses: Variable rate = Change in costs/Change in units Variable rate = ($190,000 - $150,000)/(70,000 - 50,000) Variable rate = $2.00 per unit Fixed cost: High units: $190,000 - $2.00(70,000) = $50,000 Low units: $150,000 - $2.00(50,000) = $50,000 Total variable cost per unit: $8.00 + $2.00 = $10.00 per unit Total fixed cost: $150,000 + $50,000 = $200,000 b. Q2.The following data (in thousands of dollars) have been taken from the accounting records of Larsen Corporation for the year just ended: Sales $860 Purchases of raw $150 materials Direct labour $110 Manufacturing $210 overhead Administrative $130 expenses Selling expenses $180 Raw materials $ 40 inventory, beginning Raw materials $ 80 inventory, ending Work-in-process $ 20 inventory, beginning Work-in-process $ 80 inventory, ending Finished goods $ 80 inventory, beginning Finished goods inventory, ending $150 Required: (a) Prepare a schedule of cost of goods manufactured in good form. (b) Compute the cost of goods sold. (c) Using data from your answers above as needed, prepare an income statement in good form. Ans: (a) Schedule of cost of goods manufactured Direct materials: Raw materials $ 40 inventory, beginning Add: Purchases of raw $150 materials Raw materials $190 available for use Deduct: Raw materials $ 80 inventory, ending Raw materials used in $110 production Direct labour $110 Manufacturing $210 overhead Total manufacturing $430 cost Add: Work-in-process $ 20 inventory, beginning $450 Deduct: Work-in- $ 80 process inventory, ending Cost of goods manufactured $370 (b) Computation of cost of goods sold Finished goods $ 80 inventory, beginning Add: Cost of goods $370 manufactured Goods available for $450 sale Deduct: Finished goods $150 inventory, ending Cost of goods sold $300 (c) Income statement Sales $860 Deduct: Cost of goods $300 sold Gross margin $560 Deduct:Administrative $130 expenses Deduct: Selling $180 expenses Net income $250 Q3.Bakerston Company is a manufacturing firm that uses job-order costing. The company's inventory balances at the beginning and end of the year were as follows: Beginning Ending Balance Balance Balance Raw materials $14,000 $22,000 Work in process $27,000 $ 9,000 Finished goods $62,000 $77,000 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 33,000 machine hours and incur $231,000 in manufacturing overhead cost. The following transactions were recorded for the year: a) Raw materials purchased: $315,000. b) Raw materials requisitioned for use in production: $307,000 ($281,000 direct and $26,000 indirect). c) The following employee costs were incurred: Direct labour: $377,000 Indirect labour: $96,000 Administrative salaries: $172,000 d) Selling costs: $147,000. e) Factory utility costs: $10,000. f) Depreciation for the year: $127,000, of which $120,000 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 34,000 machine hours. h) Sales for the year: $1,253,000. Re
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