Question

1. A company that makes organic fertilizer has supplied the following data:

Bags produced and sold	240,000
Sales revenue	$1,896,000
Variable manufacturing expense	$804,000
Fixed manufacturing expense	$520,000
Variable selling and administrative expense	$180,000
Fixed selling and administrative expense	$270,000
Net operating income	$122,000

The company's margin of safety in units is closest to:

Select one:

a. 140,000 units

b. 202,238 units

c. 125,714 units

d. 32,105 units

2. Davey Corporation is preparing its Manufacturing Overhead Budget for the fourth quarter of the year. The budgeted variable manufacturing overhead rate is $3.00 per direct labor-hour; the budgeted fixed manufacturing overhead is $66,000 per month, of which $10,000 is factory depreciation.

If the budgeted direct labor time for December is 4,000 hours, then the predetermined manufacturing overhead per direct labor-hour for December would be:

Select one:

a. $3.00

b. $19.50

c. $5.50

d. $17.00

3. Harris Inc., has budgeted sales in units for the next five months as follows:

June	9,400 units
July	7,800 units
August	7,300 units
September	5,400 units
October	4,100 units

Past experience has shown that the ending inventory for each month should be equal to 20% of the next month's sales in units. The inventory on May 31 contained 1,880 units. The company needs to prepare a production budget for the next five months.

The beginning inventory for September should be:

Select one:

a. 820 units

b. 1,880 units

c. 1,460 units

d. 1,080 units

4. Juenemann Kennel uses tenant-days as its measure of activity; an animal housed in the kennel for one day is counted as one tenant-day. During December, the kennel budgeted for 3,800 tenant-days, but its actual level of activity was 3,770 tenant-days. The kennel has provided the following data concerning the formulas used in its budgeting and its actual results for December:

Data used in budgeting:

	Fixed element per month	Variable element per tenant-day
Revenue	−	$33.90
Wages and salaries	$2,900	$7.60
Food and supplies	600	13.40
Facility expenses	9,000	4.00
Administrative expenses	7,500	0.30
Total expenses	$20,000	$25.30

Actual results for December:

Revenue	$132,193
Wages and salaries	$32,662
Food and supplies	$48,918
Facility expenses	$23,040
Administrative expenses	$8,931

The spending variance for facility expenses in December would be closest to:

Select one:

a. $1,040 U

b. $1,040 F

c. $1,160 F

d. $1,160 U

5. Larance Detailing's cost formula for its materials and supplies is $2,230 per month plus $1 per vehicle. For the month of November, the company planned for activity of 75 vehicles, but the actual level of activity was 25 vehicles. The actual materials and supplies for the month was $2,160.

The materials and supplies in the planning budget for November would be closest to:

Select one:

a. $2,255

b. $2,160

c. $2,305

d. $6,480

Answer 1

1		$	$	Per unit $
	Sales Revenue		1896000	7.90
	Less: Variable cost;
	Variable manufacturing expense	804000		3.35
	Variable selling and administrative expense	180000		0.75
	Total variable costs		984000
	Contribution margin		912000
	Bags produced and sold ( units)		240000
	Contribution margin per unit			3.80
	Fixed manufacturing expense	520000
	Fixed selling and administrative expense	270000
	Total fixed costs	790000
	Break-even point in units ($ 790,000 / $ 3.80 ) =	207,895
	Margin of safety in units ( 240,000 units - 207,895 units)	32,105	units
2	Variable manufacturing overhead rate per hour	3
	Fixed manufacturing overhead per hour ( $ 66,000 / 4,000 hours )	16.5
	Predetermined overhead rate per hour	19.5
3	Ending inventory for each month should be equal to 20% of the next month's sales in units.
	Ending inventory of August = 5,400 units x 20% = 1,080 units .
	hence, Beginning inventory of September = 1,080 units
5	planning budget for November ;	$
	Budgeted material and Supplies	2,230.00
	Vehicle cost ( 75 vehicles x $ 1 per vehicle )	75.00
	Material and supplies budget	2,305.00