Question

1. Big Wheel, Inc., collects 25% of its sales on account in the month of the sale and 75% in the month following the sale. Sales on account are budgeted to be $18,600 for March and $39,900 for April. What are the budgeted cash receipts from sales on account for April?
$____________________

2.

A business operated at 100% of capacity during its first month, with the following results:

Sales (108 units)		$615,600
Production costs (135 units):
Direct materials	$83,183
Direct labor	21,238
Variable factory overhead	37,167
Fixed factory overhead	35,397	176,985
Operating expenses:
Variable operating expenses	$5,505
Fixed operating expenses	4,503	10,008

The amount of gross profit that would be reported on the absorption costing income statement is

a.$468,507

b.$464,004

c.$474,012

d.$615,465

3.

Strait Co. manufactures office furniture. During the most productive month of the year, 3,500 desks were manufactured at a total cost of $82,600. In the month of lowest production, the company made 1,200 desks at a cost of $64,400. Using the high-low method of cost estimation, total fixed costs are

a.$18,200

b.$54,915

c.$82,600

d.$64,400

4.

Gladstorm Enterprises sells a product for $50 per unit. The variable cost is $33 per unit, while fixed costs are $13,311. Determine the following: Round your answers to the nearest whole number.

a. Break-even point in sales units		units
b. Break-even point in sales units if the selling price increased to $60 per unit		units

Answer 1

Answer to 1st:

Budgeted cash receipt from sales on account for April = 75% of March Sales + 25% of April Sales

Budgeted cash receipt from sales on account for April = (75% * $18,600) + (25% * $39,900)

Budgeted cash receipt from sales on account for April = $23,925

Answer to 2nd:

The correct answer is "C. $474,012" calculated as follows:

Calculation of product cost per unit
Particulars	No. of units	Total cost	Cost per unit
Direct Materials	135	83,183	616
Direct Labor	135	21,238	157
Variable factory overhead	135	37,167	275
Fixed factory overhead	135	35,397	262
		Total	1,311

Calculation of Gross profit
Particulars	Amount
Sales	6,15,600
Less: Production cost (108 units * 1,311)	1,41,588
Gross Profit	4,74,012

Answer to 3rd:

The correct answer is "b. $54,915" calculated as follows:

Variable cost using high-low formula = (Highest activity cost - Lowest activity cost) / (Highest activity units - Lowest activity units)

Variable cost = ($82,600 - $64,400) / (3,500 - 1,200)

Variable cost per unit = $7.91

Fixed cost = Highest activity cost - (Highest activity unit * Variable cost per unit)

Fixed cost = $82,600 - (3,500 * $791)

Fixed cost = $54,915

Answer to 4th:

a. Contribution margin per unit = Sales - V.C. = $50 - $33 = $17

Break-even point in units = Fixed cost / Contribution margin per unit

Break-even point in units = $13,311 / $17 = 783 units

b. Contribution margin per unit = Sales - V.C. = $60 - $33 = $27

Break-even point in units = Fixed cost / Contribution margin per unit

Break-even point in units = $13,311 / $27 = 493 units