Question

Question 1.

The following data is from the accounting records of Padcore Ltd. for the year just ended:

Administrative expenses	64,000
Administrative salaries	110,000
Depreciation, factory	25,000
Depreciation, office equipment	8,000
Direct labour	400,000
Factory equipment maintenance	15,000
Factory supervisor's salary	80,000
Insurance, factory	22,000
Raw materials purchased	260,000
Sales	1,700,000
Sales salaries and commissions	120,000
Selling expenses	40,000
Supplies, factory	9,000
Utilities, factory	12,000

		Beginning of		End of
		the Year		the Year
Raw Materials		20,000		35,000
Work in process		40,000		30,000
Finished goods		65,000		40,000

Calculate the cost of goods manufactured, cost of goods sold and net income for the year just ended:

Question 2.

Waldorf Corporation had the following overhead costs for the previous year (Waldorf allocates overhead on the basis of direct labour hours):

		Labour hours		Total Overhead
1st Quarter		7,000		$              75,000
2nd Quarter		6,000		$              74,000
3rd Quarter		8,000		$              77,000
4th Quarter		7,500		$              76,000

Assume that total overhead is comprised of Indirect materials (a variable cost), Rent (a fixed cost) and Maintenance (a mixed cost).  The breakdown of these three costs at the 6,000 labour hour level is as follows:

Indirect materials (V)		$                3,600
Rent (F)		35,000
Maintenance (M)		35,400
		$              74,000

Determine how much of the total overhead at the 8,000 direct labour hour is maintenance.  Using the amount just determined and the high low method, estimate a cost formula for maintenance.  Determine what the cost formula for total overhead would be and estimate what total overhead costs would be at the 10,000 direct labour hour level.

Question 2A

Question 3.

The income statement for Big Franks Bicycle Emporium for the month just ended is as follows:

Sales				300,000
Cost of goods sold				140,000
Gross margin				160,000
Less operating expenses
	Selling expenses		40,000
	Depreciation		25,000
	Admin expenses		65,000
	Total operating expenses			130,000
Net income				30,000

Additional information:

·       On average Frank sells his bikes for $300 each

·       The sales department has variable expenses of $12 per bike sold

·       Depreciation expense is unaffected by changes in the sales level

·       Admin costs are 70% fixed and 30% variable

Prepare an income statement for the month just ended using the contribution margin approach.

Question 4.

Wyatt Enterprises manufactures and sells a single product.  The company’s sales and expenses for the month just ended are as follows:

	Total		Per Unit
Sales	$            190,000		$                      50
Less variable expenses	114,000		30
Contribution margin	76,000		$                      20
less fixed expenses	60,000
Net income	$              16,000

Determine the break-even point in terms of both units and dollars.  How many units would need to be sold in a month to achieve a target profit of $25,000?  What is Wyatt’s margin of safety in both dollars and as a percentage?

Question 5.

The Happy Cardiologist Ltd. manufactures and sells pacemakers for $3,400 each.  Cost information for March was as follows:

Variable manufacturing costs per unit	$                   1,650
Variable selling costs per unit	150
Fixed manufacturing costs	290,000
Fixed admin costs	825,000

In March, the company sold 750 pacemakers.

Calculate the margin of safety in both dollars and as a percentage.  Compute the company’s degree of operating leverage.  If sales increase by 20%, by how much will net income increase?

Answer 1

Calculate the cost of goods manufactured, cost of goods sold and net income for the year just ended:
Sr no	Particulars	Amount	Amount
A	Sales		17,00,000
	Cost of Goods Manufactured
B	Raw Material Consumed
	Opening	20,000
	Raw materials purchased	2,60,000
	Closing Stock	-35,000	2,45,000
C	Change in Work in progress
	Opening	40,000
	Closing	-30,000	10,000
D	Change in Finished Goods
	Opening	65,000
	Closing	-40,000	25,000
E	Direct labour		4,00,000
F	Depreciation, factory		25,000
G	Factory equipment maintenance		15,000
H	Factory supervisor's salary		80,000
I	Insurance, factory		22,000
J	Supplies, factory		9,000
K	Utilities, factory		12,000
L	Cost Of Goods Sold	Sum(B:k)	8,43,000
M	Administrative expenses		64,000
N	Administrative salaries		1,10,000
O	Depreciation, office equipment		8,000
P	Sales salaries and commissions		1,20,000
Q	Selling expenses		40,000
R	Cost of Sales	SUM (L:Q)	11,85,000
S	Net Profit (A-R)		5,15,000