Problem 1
Job costing and overhead application
Uniflex applies overhead on the basis of direct labor cost. In December 20X4, the company's cost accountant made the following predictions for20X5 operations: direct labor cost, $620,000; factory overhead, $961,000.
Uniflex worked on job Nos. 241 and 242 in January. The costs incurred and production status of these two jobs appear in the table thatfollows.
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|
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Job No. 241
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Job No. 242
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Direct materials
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$26,000
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$47,000
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Direct labor
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18,000
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24,000
|
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Production status
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In process
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In process
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By the end of 20X5, actual direct labor cost amounted to $612,500, and factory overhead incurred totaled $967,500. There was no work inprocess on January 1, 20X5.
Compute the following:
Uniflex's overhead application rate.
The balance of the Work in Process account on January 31, 20X5.
The amount of over- or underapplied overhead for 20X5. Be sure to indicate whether overhead was overapplied or underapplied.
Problem 2
Computations using a job order system
General Corporation employs a job order cost system. On May 1, the following balances were extracted from the general ledger:
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Work in process
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$ 35,200
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Finished goods
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86,900
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Cost of goods sold
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128,700
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Work in Process consisted of two jobs, No. 101 ($20,400) and No. 103 ($14,800). During May, direct materials requisitioned from thestoreroom amounted to $96,500, and direct labor incurred totaled $114,500. These figures are subdivided as follows:
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Direct Materials
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Direct Labor
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Job No.
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Amount
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Job No.
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Amount
|
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101
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$ 5,000
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101
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$ 7,800
|
|
115
|
19,500
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103
|
20,800
|
|
116
|
36,200
|
115
|
42,000
|
|
Other
|
35,800
|
116
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18,000
|
|
$96,500
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Other
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25,900
|
|
|
|
|
$114,500
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Job No. 115 was the only job in process at the end of the month. Job No. 101 and three "other" jobs were sold during May at a profit of20% of cost. The "other" jobs contained material and labor charges of $21,000 and $17,400, respectively.
General applies overhead daily at the rate of 150% of direct labor cost as labor summaries are posted to job orders. The firm's fiscal yearends on May 31.
Instructions
Compute the total overhead applied to production during May.
Compute the cost of the ending work in process inventory.
Compute the cost of jobs completed during May.
Compute the cost of goods sold for the year ended May 31.
Problem 3
Break-even and other CVP analysis
Hodge and Best manufactures a single product. The information that follows relates to current operations:
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Sales (80,000 units @ $15)
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|
|
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$1,200,000
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Less: Variable cost
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$720,000
|
|
|
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Fixed cost
|
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360,000
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1,080,000
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Net income
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|
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$ 120,000
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Instructions
The sales outlook for next year is bleak. Calculate the number of units that must be sold to break even if current revenue and costbehavior patterns continue.
If Hodge and Best wishes to earn a target income of $90,000 during the next accounting period, what level of dollar sales must begenerated?
Management is studying an increase in the selling price to $18 per unit. If consumers balk and volume drops, calculate the number of unitsthat must be sold to earn the target income of $90,000. Should the change be implemented? Why?
Hodge and Best's projected break-even point and target income are the result of interactions of numerous financial events andtransactions. Determine the impact of the following operating changes by filling in the blanks below with "increase," "decrease," or "notaffect."
1) An increase in direct labor cost will _______________________ total variable costs, _______________________ the contributionmargin, and _______________________ the break-even point.
2) An increase in plant insurance will _______________________ the break-even point and _______________________ the dollarsales level calculated in part (b).
Problem 4
Straightforward CVP analysis
FRB Inc. sells a single product for $40. The following costs and expenses were incurred at store No. 504:
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Variable costs per unit
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Annual fixed costs
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|
Invoice cost
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$24
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Salaries
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$60,000
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|
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Sales commission
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4
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Advertising
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14,000
|
|
|
|
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Other
|
16,000
|
|
The company sold 8,200 units during 20X4.
Instructions
Compute the 20X4 break-even point in both dollar and unit sales.
By how much will sales have to increase in 20X5 over 20X4 levels if management wishes to earn a target income of $14,400?
At present, how much does each unit provide toward covering FRB's fixed costs and generating income? Assume that managementbelieves this amount is too low. What alternatives are available to FRB?
What would be the effect on the break-even point if management reduced salary costs by $11,600 and increased the $4 sales commissionby 20%?
Problem 5
Break-even and other CVP analysis
Quebec Inc. manufactures and sells a single product. The information that follows relates to the year just ended, when 230,000 units were sold:
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Sales priceper unit
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$
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10
|
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Variablecost perunit
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|
4
|
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Fixed costs
|
|
930,000
|
Instructions
Determine the number of units that Quebec sold in excess of its break-even point.
If current revenue and cost patterns continue, compute the dollar sales needed next year to produce a target income of $492,000.
Assume that a different compensation plan was in effect during the current year. Rather than pay six salespeople an average salary of$36,000 each, management has proposed that the salespeople receive a $10,000 base salary and a 6% commission based on gross sales.
1) Would the company have been better off financially if the new plan had been adopted for the year just ended? By how much?
2) What effect might paying a commission have on gross sales? Briefly explain.
In addition to the compensation plan described in part (c), Quebec is studying the impact of other operating changes as well. Statewhether you agree or disagree with the following findings of a newly hired staff accountant:
1) A rise in property taxes will increase the break-even point.
2) A decrease in raw material cost will increase the contribution margin and decrease total fixed costs.