Question

1. The following journal entry was recorded by Epic Inc:

Work in Process            $94,000

           Raw Materials                     $94,000

Which of the following statements is correct regarding this journal entry?

Multiple Choice

• This journal entry shows that $94,000 of raw materials were purchased during the period.

• This journal entry shows that $94,000 of products were sold.

• This journal entry shows that $94,000 of direct materials were called into the production process.

• This journal entry shows that $94,000 in products were completed during the period.

The Tobler Corporation has budgeted production for next year as follows:

	Quarter
	First			Second		Third		Fourth
Production in units	10,000			12,000		16,000		14,000

2. Four pounds of raw materials are required for each unit produced. Raw materials on hand at the start of the year total 4,000 pounds. The raw materials inventory at the end of each quarter should equal 10% of the next quarter's production needs. Budgeted purchases of raw materials in the second quarter would be:

Multiple Choice

• 49,600 pounds

• 50,400 pounds

• 63,200 pounds

• 45,600 pounds

3. In order for a company to decide to drop a product line, the contribution margin lost from the product must be:

Multiple Choice

• more than the fixed costs avoided (saved).

• less than the fixed costs avoided (saved).

• negative.

• positive.

Answer 1

1. Journal Entry recorded was

Work in process A/c $94,000

To Raw materials A/c $94,000

This journal entry shows that $94,000 of direct materials were called into the production process.

2.

Raw material Budget
Particulars	Quarter 1	Quarter 2	Quarter 3	Quarter 4
a. Production (Units)	10,000	12,000	16,000	14,000
b. Raw material required per unit (in pounds)	4 pounds	4 pounds	4 pounds	4 pounds
c. Raw material consumed (a*b)	40,000	48,000	64,000	56,000
d. Closing stock of raw material (in pounds)	4,800	6,400	5,600
	(48,000 * 10%)	(64,000 * 10%)	(56,000 * 10%)
e. Opening stock of raw material (in pounds)	4,000	4,800	6,400
f. Raw material purchases (in pounds) (c+d-e)	40,800	49,600	63,200

From the above workings we can observe that the budgeted purchases of raw materials for Quarter 2 is 49,600 pounds

3.

In order for a company to decide to drop a product line, the contribution margin lost from the product must be:

less than the fixed costs avoided (saved), because an product line will be dropped or shut down if the fixed cost is more than the contribution from that product line.

Eg. If contribution margin = $100,000 and Fixed cost is $150,000 then net income will be ($50,000) i.e. $100,000 - $150,000.

Hence, the conttribution margin is less than the fixed cost will results in dropping or shutting down of a product.