Variable Costing, Value of Ending Inventory, Operating Income

Pattison Products, Inc., began operations in October and manufactured 43,000 units during the month with the following unit costs:

* Fixed overhead per unit = $305,300 / 43,000 units produced = $7.10

Total fixed factory overhead is $305,300 per month. During October, 42,000 units were sold at a price of $25.25, and fixed marketing and administrative expenses were $111,800.

Required:

1. Calculate the cost of each unit using variable costing. Round your final answer to the nearest cent.

$ per unit

2. How many units remain in ending inventory?
units

What is the cost of ending inventory using variable costing?
$

3. Prepare a variable-costing income statement for Pattison Products, Inc., for the month of October.

4. What if November production was 43,000 units, costs were stable, and sales were 44,000 units? What is the cost of ending inventory? If an amount is zero, enter "0".
$

What is operating income for November?
$

ariable Costing, Value of Ending Inventory, Operating Income

Pattison Products, Inc., began operations in October and manufactured 43,000 units during the month with the following unit costs:

^* Fixed overhead per unit = $279,500 / 43,000 units produced = $6.50

Total fixed factory overhead is $279,500 per month. During October, 42,000 units were sold at a price of $23.75, and fixed marketing and administrative expenses were $111,800.

Required:

1. Calculate the cost of each unit using variable costing. Round your final answer to the nearest cent.

$ per unit

2. How many units remain in ending inventory?
units

What is the cost of ending inventory using variable costing?
$

3. Prepare a variable-costing income statement for Pattison Products, Inc., for the month of October.

4. What if November production was 43,000 units, costs were stable, and sales were 44,000 units? What is the cost of ending inventory? If an amount is zero, enter "0".
$

What is operating income for November?
$

Variable Costing, Value of Ending Inventory, Operating Income

Pattison Products, Inc., began operations in October and manufactured 49,000 units during the month with the following unit costs:

^* Fixed overhead per unit = $318,500 / 49,000 units produced = $6.50

Total fixed factory overhead is $318,500 per month. During October, 48,000 units were sold at a price of $24.75, and fixed marketing and administrative expenses were $118,500.

Required:

1. Calculate the cost of each unit using variable costing. Round your final answer to the nearest cent.

$ per unit

2. How many units remain in ending inventory?
units

What is the cost of ending inventory using variable costing?

3. Prepare a variable-costing income statement for Pattison Products, Inc., for the month of October.

4. What if November production was 49,000 units, costs were stable, and sales were 50,000 units? What is the cost of ending inventory? If an amount is zero, enter "0".
$

What is operating income for November?
$

ABC Firm uses variable costing for internal decision making purposes. In the month of September, the firm produced 2,000 units and sold 1,500. There was no beginning inventory. The income statement follows:

Sales (1,500 units)    $67,500

Variable Costs:               

                                 Manufacturing                           15,000

                                 Selling and Administrative         14,250 29,250

Contribution Margin $38,250

Fixed Costs:

                                 Manufacturing                           12,000

Selling and Administrative   13,000   25,000

                                           Net Income $13,250

1. Prepare a traditional income statement assuming absorption costing.

1. For the month of October, the firm made a few changes. Sales people were offered an incentive of $1 per unit for every unit they sold. The product was redesigned to be more visually attractive. This increased variable manufacturing costs per unit by 5% and added $3,000 to fixed costs. During October, the firm produced 10,000 units and sold 9,500. Prepare the contribution format income statement for October. For purposes of this problem, you may ignore beginning inventory--do the computation as if there were no units in beginning inventory.

1. What was the firm’s break even point in September? You may provide your response either in units or sales dollars.

1. What was the firm’s break even point in October? Use the same measure of break even as you used in part c.

ABC Firm uses variable costing for internal decision making purposes. In the month of September, the firm produced 2,000 units and sold 1,500. There was no beginning inventory. The income statement follows:

Sales (1,500 units)    $67,500

Variable Costs:               

                                 Manufacturing                           15,000

                                 Selling and Administrative         14,250 29,250

Contribution Margin $38,250

Fixed Costs:

                                 Manufacturing                           12,000

Selling and Administrative   13,000   25,000

                                           Net Income $13,250

1. Prepare a traditional income statement assuming absorption costing.

1. For the month of October, the firm made a few changes. Sales people were offered an incentive of $1 per unit for every unit they sold. The product was redesigned to be more visually attractive. This increased variable manufacturing costs per unit by 5% and added $3,000 to fixed costs. During October, the firm produced 10,000 units and sold 9,500. Prepare the contribution format income statement for October. For purposes of this problem, you may ignore beginning inventory--do the computation as if there were no units in beginning inventory.

1. What was the firm’s break even point in September? You may provide your response either in units or sales dollars.

1. What was the firm’s break even point in October? Use the same measure of break even as you used in part c.

After establishing their company’s fiscal year-end to be October 31, Natalie and Curtis began operating Cookie & Coffee Creations Inc. on November 1, 2018. The company had the following selected transactions during its first fiscal year of operations.

Jan.    1 Issued an additional 800 preferred shares to Natalie’s brother for $4,000 cash.

June. 30 Repurchased 750 shares issued to the lawyer, for $500 cash. The lawyer had decided to retire and wanted to liquidate all of her assets.

Oct.   15 The company had a very successful first year of operations and as a result declared dividends of $28,000, payable November 15, 2019. (Indicate the amounts payable to the preferred stockholders and to the common stockholders.)

Oct.   31 The company earned revenues of $472,500 and incurred expenses of $416,500 (including the $750 legal expense from November 1 but excluding income tax). Record income tax expense, assuming the company has a 20% income tax rate.

Instructions:

(a) Prepare the journal entries to record each of the above transactions.

(b) Prepare all of the closing entries required on October 31, 2019.

(c) Prepare the retained earnings statement for the year ended October 31, 2019.

(d) Prepare the stockholders’ equity section of the balance sheet as of October 31, 2019.

The Polaris Company uses a job-order costing system. The following transactions occurred in October:

a.Raw materials purchased on account, $209,000.

b.Raw materials used in production, $192,000 ($153,000 direct materials and $38,400 indirect materials).

c.Accrued direct labor cost of $49,000 and indirect labor cost of $20,000

d.Depreciation recorded on factory equipment, $105,000.

e.Other manufacturing overhead costs accrued during October, $130,000.

f.The company applies manufacturing overhead cost to production using a predetermined rate of $9 per machine-hour. A total of 76,400 machine-hours were used in October.

g.Jobs costing $513,000 according to their job cost sheets were completed during October and transferred to Finished Goods.

h.Jobs that had cost $449,000 to complete according to their job cost sheets were shipped to customers during the month. These jobs were sold on account at 32% above cost.

Required SHOW ALL WORK:

1.Prepare journal entries to record the transactions given above.

2.Prepare T-accounts for Manufacturing Overhead and Work in Process. Post the relevant transactions from above to each account. Compute the ending balance in each account, assuming that Work in Process has a beginning balance of $36,000.

Lorenzo operates a brushless car wash. Incoming cars are put on an automatic, continuously moving conveyor belt. A car is washed as the conveyor belt carries it from the start station to the finish station. After the car moves off the conveyor belt, workers dry it and clean and vacuum the inside. Workers are managed by a single supervisor.

Lorenzo's accountant wants to estimate total costs in October, when 9,350 cars are expected to be washed. She uses two different methods to estimate total October costs, account analysis and high-low, with number of cars washed as the independent variable for both methods.

For the account analysis method, she developed cost function parameter estimates by analyzing actual costs in February, when 8,200 cars were washed. The following are February total costs and her variable cost estimates:

For the high-low method, she developed cost function parameter estimates by using the actual costs in July and August, when 8,300 and 11,000 cars were washed, respectively. The following are total costs for those two months:

Part A [6 tries; 5 points]
1. Using account analysis, what is the accountant's estimate of total fixed costs for October?    

2. Using account analysis, what is the accountant's estimate of variable costs per unit for October?

Part B [6 tries; 5 points]
1. Using the high-low method, what is the accountant's estimate of total fixed costs for October?    

2. Using the high-low method, what is the accountant's estimate of total variable costs for October?   

Schedule of Cash Collections of Accounts Receivable

OfficeMart Inc. has "cash and carry" customers and credit customers. OfficeMart estimates that 30% of monthly sales are to cash customers, while the remaining sales are to credit customers. Of the credit customers, 20% pay their accounts in the month of sale, while the remaining 80% pay their accounts in the month following the month of sale. Projected sales for the next three months are as follows:

The Accounts Receivable balance on September 30 was $76,000.

Prepare a schedule of cash collections from sales for October, November, and December. Round all calculations to the nearest whole dollar.

Ace Racket Company manufactures two types of tennis rackets, the Junior and Pro Striker models. The production budget for July for the two rackets is as follows:

Both rackets are produced in two departments, Forming and Assembly. The direct labor hours required for each racket are estimated as follows:

The direct labor rate for each department is as follows:

Prepare the direct labor cost budget for July.

It is​ April, and Hans Anderson is planting his barley crop near​ Plunkett, Saskatchewan. He is concerned about losing his farm if his operations result in a loss at the end of the season. He expects to harvest 3 comma 000 tonnes of barley and sell it in October. Futures contracts are available for October delivery with a futures price of $ 200 per tonne. Options with strike price of $ 200 per tonne are also​ available; puts cost $ 16 and calls cost $ 20. a. Describe how Hans can fully hedge using futures contracts. b. Given the strategy in ​(a​), what will be the total net amount received by Hans​ (for all 3 comma 000 ​tonnes) if the price of barley in October is as​ follows: i . $ 150 per​ tonne; ii. $ 200 per​ tonne; iii. $ 250 per tonne c. Describe how Hans can fully hedge using options. d. Given the strategy in ​(c​), what will be the total net amount received by Hans​ (for all​ 3,000 tonnes) if the price of barley in October is as​ follows: i. $ 150 per​ tonne; ii. $ 200 per​ tonne; iii. $ 250 per tonne e. Hans has asked for your advice regarding hedging. Discuss how the each of the following individually will influence your advice. i. Hans does not expect to have much cash available between May and September. ii. Hans thinks there is a 25​% chance his crop will be destroyed by hail before he has a chance to harvest it. iii.​ Hans's farming business will go bankrupt if his net revenues in October do not cover his costs. He estimates his costs will be $ 570 comma 000. If his business goes​ bankrupt, Hans's bank will foreclose and take his house and farm. iv.​ Hans's farming business will go bankrupt if his net revenues in October do not cover his costs. He estimates his costs will be $ 800 comma 000. If his business goes​ bankrupt, Hans's bank will foreclose and take his house and farm.