A+ Industries manufacturers lawn furniture through two departments: Framing and Painting. Materials are entered at the beginning of each process. For June, the following cost data are obtained from the two work in process accounts:

Framing Painting

Work in Process, April 1 $ 0 $ ?

Materials 48,000 ?

Conversions costs 78,000 114,800

Cost transferred in 0 106,700

Costs transferred out 106,700 ?

Work in process, June 30 19,300 ?

REQUIRED:

a. If 15,000 tables were started in production on June 1 and 11,000 tables were transferred to Painting, what was the unit cost of materials for June in the Framing Department?

b. Using the data in (a) above, what was the per unit conversion cost of the tables transferred to Painting?

c. Continuing the assumption in (a) above, what is the percentage of completion of the units in process on June 30 in the Framing Department?

Case Summary

Austin, Texas has undergone a tremendous population growth over the past few years. Builders cannot construct housing fast enough. Squirrelly Builders has just contracted with SK Renting Company to build an apartment complex. The job is expected to take a year and a half to finish, with an estimated cost of 2.5 million dollars and, per the contract, a promised consideration of 3.125 million dollars (a 25% profit), with a bonus of $150,000 if the job is completed on schedule.

By the end of the first year, Squirrelly Builders had spent 1.62 million dollars on construction and estimated the total cost of the completed job to be 2.7 million dollars. The company was unsure if it would complete the job in time to collect the bonus, but was trying diligently to meet the schedule.

In the first month of the second year, SK Renting Company and Squirrelly Builders agreed upon the following modifications:

The flooring would be switched from carpeting to tile and the apartments would be upgraded to have deluxe closets and bathrooms, including whirlpool tubs. This required modifications of the currently installed bathrooms and closets. The two companies agreed that this modification would cause the total time of the project to increase to 26 months. It was agreed that Squirrelly Builders would still be given the $150,000 bonus if the project were completed in that amount of time. It was estimated by Squirrelly Builders that this would add $200,000 to the construction cost. The promised consideration was increased by $250,000 for this modification.

SK Renting Company also contracted Squirrelly Builders to construct a recreation room with an indoor heated pool and tub. This additional building was to be in an area originally designated for green space. It was decided the roof of the building should be an outdoor garden so that the residents would still have an area where they could go to relax. It was estimated that this building would take 15 months to construct, at a cost of $350,000. SK Renting Company agreed to pay Squirrelly Builders $437,500 for the building.

At the end of the second year, the following data were available:

At that time, Squirrelly Builders was finishing the modifications inside the apartments and is certain it will complete the project on schedule.

Required

Providing relevant support from the FASB ASC, discuss the proper accounting treatment for the revenue generating activities. More specifically, at what point(s) in time should revenue be recognized, for what amount(s), to which accounts, and why? (Your answer should provide this information for years 1 and 2).

1. Common-Size Income Statements and Horizontal Analysis
2. Income statements for Mariners Corp. for the past two years are as follows:
   

3. 	(amounts in thousands of dollars)
   	2017	2016
   Sales revenue	$60,000	$50,000
   Cost of goods sold	42,000	30,000
   Gross profit	$18,000	$20,000
   Selling and administrative expense	9,000	5,000
   Operating income	$9,000	$15,000
   Interest expense	2,000	2,000
   Income before tax	$7,000	$13,000
   Income tax expense	2,000	4,000
   Net income	$5,000	$9,000

4. Required:

1. 1. Using the format in Example 13-5, prepare common-size comparative income statements for the two years for Mariners Corp. Round percentages to one decimal point.

1. Feedback

1. 2. Based on Mariner's common size statements in 2017 compared to 2016, it can be concluded that

1. all of these are true.
2. gross profit as a percentage of sales declined due to higher cost of goods sold.
3. net income decreased both in dollars and as a percentage of sales.
4. selling and administrative expenses increased both in dollars as well as percentage of sales.

1. a

• b
• c
• d

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1. 3. Using the format in Example 13-2, prepare comparative income statements for Mariners Corp., including columns for the dollars and for the percentage increase or decrease in each item on the statement. Round all percentages to the nearest whole percent. If an answer is zero, enter "0".

1. Feedback

1. 4. Identify the two items on the income statement that experienced the largest change from one year to the next. For each of these items, where you would look to find additional information about the change.

1. selling and administration expense, and for information refer to individual expense records.
2. Income tax expense, and for information refer to income tax return and supporting records.
3. cost of goods sold, and for information refer to refer to individual expense records.
4. sales revenue, and for information refer to sales ledgers and supporting records.

1. a and b

• b and c
• c and d
• d and a

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ontribution Margin, Break-Even Sales, Cost-Volume-Profit Chart, Margin of Safety, and Operating Leverage
Belmain Co. expects to maintain the same inventories at the end of 20Y7 as at the beginning of the year. The total of all production costs for the year is therefore assumed to be equal to the cost of goods sold. With this in mind, the various department heads were asked to submit estimates of the costs for their departments during the year. A summary report of these estimates is as follows:
 Estimated
Fixed Cost Estimated Variable Cost
(per unit sold)Production costs:      Direct materials  $17   Direct labor  12   Factory overhead$626,700  9  Selling expenses:      Sales salaries and commissions130,200  4   Advertising44,100      Travel9,800      Miscellaneous selling expense10,800  3  Administrative expenses:      Office and officers' salaries127,300      Supplies15,700  1   Miscellaneous administrative expense14,600  2   Total$979,200  $48  
It is expected that 10,200 units will be sold at a price of $192 a unit. Maximum sales within the relevant range are 13,000 units.
Required:

1.   Prepare an estimated income statement for 20Y7.

Belmain Co.Estimated Income StatementFor the Year Ended December 31, 20Y7 $Cost of goods sold: $  Cost of goods soldGross profit$Expenses:Selling expenses: $   Total selling expenses$Administrative expenses: $  Total administrative expensesTotal expensesIncome from operations$

2.  What is the expected contribution margin ratio? Round to the nearest whole percent.
 %
3.  Determine the break-even sales in units and dollars.
Units unitsDollars units
4.  Construct a cost-volume-profit chart on your own paper. What is the break-even sales?
$ 
5.  What is the expected margin of safety in dollars and as a percentage of sales?
Dollars:$ Percentage: (Round to the nearest whole percent.)%
6.  Determine the operating leverage. Round to one decimal place.

Contribution Margin, Break-Even Sales, Cost-Volume-Profit Chart, Margin of Safety, and Operating Leverage

Belmain Co. expects to maintain the same inventories at the end of 20Y7 as at the beginning of the year. The total of all production costs for the year is therefore assumed to be equal to the cost of goods sold. With this in mind, the various department heads were asked to submit estimates of the costs for their departments during the year. A summary report of these estimates is as follows:

It is expected that 8,400 units will be sold at a price of $288 a unit. Maximum sales within the relevant range are 11,000 units.

Required:

1. Prepare an estimated income statement for 20Y7.

2. What is the expected contribution margin ratio? Round to the nearest whole percent.
%

3. Determine the break-even sales in units and dollars.

4. Construct a cost-volume-profit chart on your own paper. What is the break-even sales?
$

5. What is the expected margin of safety in dollars and as a percentage of sales?

6. Determine the operating leverage. Round to one decimal place.

Contribution Margin, Break-Even Sales, Cost-Volume-Profit Chart, Margin of Safety, and Operating Leverage

Belmain Co. expects to maintain the same inventories at the end of 20Y7 as at the beginning of the year. The total of all production costs for the year is therefore assumed to be equal to the cost of goods sold. With this in mind, the various department heads were asked to submit estimates of the costs for their departments during the year. A summary report of these estimates is as follows:

1. Estimated Fixed Cost			Estimated Variable Cost (per unit sold)
   Production costs:
   	Direct materials				$28
   	Direct labor				19
   	Factory overhead	$377,400			14
   Selling expenses:
   	Sales salaries and commissions	78,400			6
   	Advertising	26,500
   	Travel	5,900
   	Miscellaneous selling expense	6,500			6
   Administrative expenses:
   	Office and officers' salaries	76,700
   	Supplies	9,400			2
   	Miscellaneous administrative expense	8,880			3
   	Total	$589,680			$78

   It is expected that 11,760 units will be sold at a price of $156 a unit. Maximum sales within the relevant range are 15,000 units.

   Required:

   1. Prepare an estimated income statement for 20Y7.

   Belmain Co.
   Estimated Income Statement
   For the Year Ended December 31, 20Y7
   			$
   Cost of goods sold:
   		$
   Cost of goods sold
   Gross profit			$
   Expenses:
   Selling expenses:
   	$
   Total selling expenses		$
   Administrative expenses:
   	$
   Total administrative expenses
   Total expenses
   Income from operations			$

   2. What is the expected contribution margin ratio? Round to the nearest whole percent.
   %

   3. Determine the break-even sales in units and dollars.

   Units	units
   Dollars	units

   4. Construct a cost-volume-profit chart on your own paper. What is the break-even sales?
   $

   5. What is the expected margin of safety in dollars and as a percentage of sales?

   Dollars:	$
   Percentage: (Round to the nearest whole percent.)		%

   6. Determine the operating leverage. Round to one decimal place.

Contribution Margin, Break-Even Sales, Cost-Volume-Profit Chart, Margin of Safety, and Operating Leverage

Belmain Co. expects to maintain the same inventories at the end of 20Y7 as at the beginning of the year. The total of all production costs for the year is therefore assumed to be equal to the cost of goods sold. With this in mind, the various department heads were asked to submit estimates of the costs for their departments during the year. A summary report of these estimates is as follows:

It is expected that 12,000 units will be sold at a price of $240 a unit. Maximum sales within the relevant range are 18,000 units.

Required:

1. Prepare an estimated income statement for 20Y7.

2. What is the expected contribution margin ratio?
%

3. Determine the break-even sales in units and dollars.

4. Construct a cost-volume-profit chart on your own paper. What is the break-even sales?

5. What is the expected margin of safety in dollars and as a percentage of sales?

6. Determine the operating leverage.

Contribution Margin, Break-Even Sales, Cost-Volume-Profit Chart, Margin of Safety, and Operating Leverage

Belmain Co. expects to maintain the same inventories at the end of 20Y7 as at the beginning of the year. The total of all production costs for the year is therefore assumed to be equal to the cost of goods sold. With this in mind, the various department heads were asked to submit estimates of the costs for their departments during the year. A summary report of these estimates is as follows:

It is expected that 11,480 units will be sold at a price of $264 a unit. Maximum sales within the relevant range are 14,000 units.

Required:

1. Prepare an estimated income statement for 20Y7.

2. What is the expected contribution margin ratio? Round to the nearest whole percent.
%

3. Determine the break-even sales in units and dollars.

4. Construct a cost-volume-profit chart on your own paper. What is the break-even sales?
$

5. What is the expected margin of safety in dollars and as a percentage of sales?

6. Determine the operating leverage. Round to one decimal place.

Contribution Margin, Break-Even Sales, Cost-Volume-Profit Chart, Margin of Safety, and Operating Leverage

Belmain Co. expects to maintain the same inventories at the end of 20Y7 as at the beginning of the year. The total of all production costs for the year is therefore assumed to be equal to the cost of goods sold. With this in mind, the various department heads were asked to submit estimates of the costs for their departments during the year. A summary report of these estimates is as follows:

It is expected that 7,000 units will be sold at a price of $390 a unit. Maximum sales within the relevant range are 9,000 units.

Required:

1. Prepare an estimated income statement for 20Y7.

2. What is the expected contribution margin ratio? Round to the nearest whole percent.
%

3. Determine the break-even sales in units and dollars.

4. Construct a cost-volume-profit chart on your own paper. What is the break-even sales?
$

5. What is the expected margin of safety in dollars and as a percentage of sales?

6. Determine the operating leverage. Round to one decimal place.

Contribution Margin, Break-Even Sales, Cost-Volume-Profit Chart, Margin of Safety, and Operating Leverage

Belmain Co. expects to maintain the same inventories at the end of 20Y7 as at the beginning of the year. The total of all production costs for the year is therefore assumed to be equal to the cost of goods sold. With this in mind, the various department heads were asked to submit estimates of the costs for their departments during the year. A summary report of these estimates is as follows:

It is expected that 5,600 units will be sold at a price of $160 a unit. Maximum sales within the relevant range are 7,000 units.

Required:

1. Prepare an estimated income statement for 20Y7.

2. What is the expected contribution margin ratio? Round to the nearest whole percent.
%

3. Determine the break-even sales in units and dollars.

4. Construct a cost-volume-profit chart on your own paper. What is the break-even sales?
$

5. What is the expected margin of safety in dollars and as a percentage of sales?

6. Determine the operating leverage. Round to one decimal place.