Question

13. A.

1. A business operated at 100% of capacity during its first month and incurred the following costs:

   Production costs (20,700 units):
   Direct materials	$172,500
   Direct labor	232,400
   Variable factory overhead	259,600
   Fixed factory overhead	97,500	$762,000
   Operating expenses:
   Variable operating expenses	$134,200
   Fixed operating expenses	46,900	181,100

   If 1,600 units remain unsold at the end of the month, what is the amount of inventory that would be reported on the variable costing balance sheet?

   a. $51,360

   b. $61,735

   c. $58,899

   d. $72,897

13. B.

1. Strait Co. manufactures office furniture. During the most productive month of the year, 3,800 desks were manufactured at a total cost of $82,800. In the month of lowest production the company made 1,170 desks at a cost of $64,400. Using the high-low method of cost estimation, total fixed costs are

   a. $56,200

   b. $64,400

   c. $18,400

   d. $82,800

13. C.

1. If a business had sales of $4,248,000 and a margin of safety of 20%, the break-even point was

   a. $7,646,400

   b. $849,600

   c. $5,097,600

   d. $3,398,400

Answer 1

• #13A
  Correct Answer = Option ‘A’ $ 51,360

		Variable Costing
Direct Material	=172500/20700	$8.33
Direct Labor	=232400/20700	$11.23
Variable manufacturing overhead	=259600/20700	$12.54
Total product cost	$88.25	$32.10

Ending inventory = 1600 units x $ 32.10 = $ 51,360

• #13 B

Correct Answer = Option ‘A” $ 56200 is the Fixed Cost

		Units	Cost
High Level		3,800	$                   82,800.00
Low Level		1,170	$                   64,400.00
Difference		2,630	$                   18,400.00
A	Difference in Cost		$                   18,400.00
B	Difference in units		2,630
C = A/B	Variable cost per unit		$                           7.000

Working		High Level
A	Total Cost	$                 82,800.00
B	Total Units	3800
C	Variable cost per unit	$                           7.00
D = B x C	Total Variable cost	$                 26,600.00
E = A - D	Total Fixed Cost	$                 56,200.00

• #13 C

If Margin of Safety = 20% of sales, it means that Break even sales = 100% - 20% = 80% of sales.
Break even point = $ 4248000 sales x 80%
= $ 3398400

Correct Answer = Option ‘D’ $ 3,398,400