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Score: 39 out of 39 points (100%)

1.

award:

6 out of 6 points Sierra Company incurs the following costs to produce and sell a single product. Variable costs per unit: Direct materials Direct labor Variable manufacturing overhead Variable selling and administrative expenses Fixed costs per year: Fixed manufacturing overhead Fixed selling and administrative expenses

$9 $10 $5 $3 $150,000 $400,000

During the last year, 25,000 units were produced and 22,000 units were sold. The Finished Goods inventory account at the end of the year shows a balance of $72,000 for the 3,000 unsold units. Requirement 1: (a) Is the company using absorption costing or variable costing to cost units in the Finished Goods inventory account? Variable costing (b) Compute the total cost of finished goods inventory using variable costing and absorption costing. (Omit the "$" sign in your response.) Variable Costing $72,000 Absorption Costing $90,000

Total cost

Requirement 2: Assume that the company wishes to prepare financial statements for the year to issue to its stockholders. (a) Is the $72,000 figure for Finished Goods inventory the correct amount to use on these statements for external reporting purposes? No (b) At what dollar amount should the 3,000 units be carried in the inventory for external reporting purposes? (Omit the "$" sign in your response.) Finished goods inventory $90,000

Worksheet

Learning Objective: 07-1

Learning Objective: 07-4

Sierra Company incurs the following costs to produce and sell a single product. Variable costs per unit: Direct materials Direct labor Variable manufacturing overhead Variable selling and administrative expenses Fixed costs per year: Fixed manufacturing overhead Fixed selling and administrative expenses

$9 $10 $5 $3 $150,000 $400,000

During the last year, 25,000 units were produced and 22,000 units were sold. The Finished Goods inventory account at the end of the year shows a balance of $72,000 for the 3,000 unsold units. Requirement 1: (a) Is the company using absorption costing or variable costing to cost units in the Finished Goods inventory account?
Variable costing

(b) Compute the total cost of finished goods inventory using variable costing and absorption costing. (Omit the "$" sign in your response.) Variable Costing $ 72,000 Absorption Costing $ 90,000

Total cost

Requirement 2: Assume that the company wishes to prepare financial statements for the year to issue to its stockholders. (a) Is the $72,000 figure for Finished Goods inventory the correct amount to use on these statements for external reporting purposes?
No

(b) At what dollar amount should the 3,000 units be carried in the inventory for external reporting purposes? (Omit the "$" sign in your response.)

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Finished goods inventory

90,000

Explanation: 1: (b)

Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead ($150,000 25,000 units) Unit product cost Total cost, 3,000 units
2: (a)

Variable Costing $9 10 5

Absorption Costing $9 10 5 6 $30 $90,000

$24 $72,000

No, $72,000 is not the correct figure to use because variable costing is not generally accepted for external reporting purposes or for tax purposes.
(b)

The Finished Goods inventory account should be stated at $90,000, which represents the absorption cost of the 3,000 unsold units. Thus, the account should be increased by $18,000 for external reporting purposes. This $18,000 consists of the amount of fixed manufacturing overhead cost that is allocated to the 3,000 unsold units under absorption costing (3,000 units $6 per unit fixed manufacturing overhead cost = $18,000).

2.

award:

5 out of 5 points Whitman Company has just completed its first year of operations. The company's absorption costing income statement for the year appears below: Whitman Company Income Statement Sales (35,000 units $25 per unit) Cost of goods sold (35,000 units $16 per unit) Gross margin Selling and administrative expenses Net operating income

$875,000 560,000 315,000 280,000 $35,000

The company's selling and administrative expenses consist of $210,000 per year in fixed expenses and $2 per unit sold in variable expenses. The $16 per unit product cost given above is computed as follows: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead ($160,000 40,000 units) Absorption costing unit product cost $5 6 1 4 $16

Requirement 1: Redo the company's income statement in the contribution format using variable costing. (Input all amounts as positive values. Omit the "$" sign in your response.)

Sales Variable expenses: Variable selling and administrative expenses Variable cost of goods sold Contribution margin Fixed expenses: Fixed manufacturing overhead Fixed selling and administrative expenses Net operating income $ 70,000 420,000

$875,000

490,000 385,000

160,000 210,000

370,000 $15,000

Requirement 2: Reconcile any difference between the net operating income on your variable costing income statement and the net operating income on the absorption costing income statement above. (Omit the "$" sign in your response.)

Variable costing net operating income (loss) Add : Fixed manufacturing overhead cost deferred Absorption costing net operating income (loss)

$15,000 20,000 $35,000

Worksheet

Learning Objective: 07-2

Learning Objective: 07-3

Whitman Company has just completed its first year of operations. The company's absorption costing income statement for the year appears below: Whitman Company Income Statement Sales (35,000 units $25 per unit) Cost of goods sold (35,000 units $16 per unit) Gross margin Selling and administrative expenses

$875,000 560,000 315,000 280,000

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Net operating income

$35,000

The company's selling and administrative expenses consist of $210,000 per year in fixed expenses and $2 per unit sold in variable expenses. The $16 per unit product cost given above is computed as follows: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead ($160,000 40,000 units) Absorption costing unit product cost $5 6 1 4 $16

Requirement 1: Redo the company's income statement in the contribution format using variable costing. (Input all amounts as positive values. Omit the "$" sign in your response.)

Sales Variable expenses: Variable cost of goods sold Variable selling and administrative expenses Contribution margin Fixed expenses: Fixed manufacturing overhead Fixed selling and administrative expenses Net operating income

$ $ 420,000 70,000

875,000

490,000 385,000

160,000 210,000 $ 370,000 15,000

Requirement 2: Reconcile any difference between the net operating income on your variable costing income statement and the net operating income on the absorption costing income statement above. (Omit the "$" sign in your response.)

Variable costing net operating income (loss) Add: Fixed manufacturing overhead cost deferred Absorption costing net operating income (loss)

$ $

15,000 20,000 35,000

Explanation: 1:

Variable cost of goods sold (35,000 units $12 per unit*) = $420,000 Variable selling and administrative expenses (35,000 units $2 per unit) = $70,000 *Direct materials Direct labor Variable manufacturing overhead Total variable manufacturing cost
2:

$5 6 1 $12

Fixed manufacturing overhead cost deferred in inventory under absorption costing (5,000 units $4 per unit in fixed manufacturing cost) = $20,000

3.

award:

9 out of 9 points Denton Company manufactures and sells a single product. Cost data for the product are given below: Variable costs per unit: Direct materials Direct labor Variable manufacturing overhead Variable selling and administrative Total variable cost per unit Fixed costs per month: Fixed manufacturing overhead Fixed selling and administrative Total fixed cost per month

$7 10 5 3 $25 $315,000 245,000 $560,000

The product sells for $60 per unit. Production and sales data for July and August, the first two months of operations, follows: Units Produced 17,500 17,500 Units Sold 15,000 20,000

July August

The company's Accounting Department has prepared absorption costing income statements for July and August as presented below: Sales Cost of goods sold Gross margin Selling and administrative expenses Net operating income July $900,000 600,000 300,000 290,000 $10,000 August $1,200,000 800,000 400,000 305,000 $95,000

Requirement 1: Determine the unit product cost under Absorption costing and Variable costing. (Omit the "$" sign in your response.)

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Absorption costing Variable costing

Unit product cost $40 $22

Requirement 2: Prepare contribution format variable costing income statements for July and August. (Input all amount as positive value except net loss which should be indicated with a minus sign. Omit the "$" sign in your response.) July $900,000 330,000 45,000 375,000 525,000 315,000 245,000 560,000 $-35,000 August $1,200,000 440,000 60,000 500,000 700,000 315,000 245,000 560,000 $140,000

Sales Variable expenses: Variable cost of goods sold Variable selling and administrative expenses Total variable expenses Contribution margin Fixed expenses: Fixed manufacturing overhead Fixed selling and administrative expenses Total fixed expenses Net operating income (loss)

Requirement 3: Reconcile the variable costing and absorption costing net operating income figures. (Input all amount as positive value except net loss which should be indicated with a minus sign. Leave no cells blank be certain to enter "0" wherever required. Omit the "$" sign in your response.) July $-35,000 45,000 0 $10,000 August $140,000 0 45,000 $95,000

Variable costing net operating income (loss) Add fixed manufacturing overhead cost deferred in inventory under absorption costing Deduct fixed manufacturing overhead cost released from inventory under absorption costing Absorption costing net operating income Requirement 4: Which is the most appropriate method of costing? Variable Costing

Worksheet Learning Objective: 07-1

Learning Objective: 07-2 Learning Objective: 07-3

Learning Objective: 07-4

Denton Company manufactures and sells a single product. Cost data for the product are given below: Variable costs per unit: Direct materials Direct labor Variable manufacturing overhead Variable selling and administrative Total variable cost per unit Fixed costs per month: Fixed manufacturing overhead Fixed selling and administrative Total fixed cost per month

$7 10 5 3 $25 $315,000 245,000 $560,000

The product sells for $60 per unit. Production and sales data for July and August, the first two months of operations, follows: Units Produced 17,500 17,500 Units Sold 15,000 20,000

July August

The company's Accounting Department has prepared absorption costing income statements for July and August as presented below: Sales Cost of goods sold Gross margin Selling and administrative expenses Net operating income July $900,000 600,000 300,000 290,000 $10,000 August $1,200,000 800,000 400,000 305,000 $95,000

Requirement 1: Determine the unit product cost under Absorption costing and Variable costing. (Omit the "$" sign in your response.) Unit product cost $ 40 $ 22

Absorption costing Variable costing

Requirement 2: Prepare contribution format variable costing income statements for July and August. (Input all amount as positive value except net loss which should be indicated with a minus sign. Omit the "$" sign in your response.) July 900,000 August 1,200,000

Sales Variable expenses:

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Variable cost of goods sold Variable selling and administrative expenses Total variable expenses Contribution margin Fixed expenses: Fixed manufacturing overhead Fixed selling and administrative expenses Total fixed expenses Net operating income (loss) $

330,000 45,000 375,000 525,000 315,000 245,000 560,000 -35,000 $

440,000 60,000 500,000 700,000 315,000 245,000 560,000 140,000

Requirement 3: 2009 The McGraw-Hill Reconcile the variable costing and absorption costing net operating income figures. (Input all amount as Companies. All rights reserved. positive value except net loss which should be indicated with a minus sign. Leave no cells blank be certain to enter "0" wherever required. Omit the "$" sign in your response.) July -35,000 45,000 0 $ 10,000 $ August 140,000 0 45,000 95,000

Variable costing net operating income (loss) Addfixed manufacturing overhead cost deferred in inventory under absorption costing Deductfixed manufacturing overhead cost released from inventory under absorption costing Absorption costing net operating income Requirement 4: Which is the most appropriate method of costing?
Variable Costing Explanation: 1:

Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead ($315,000 17,500 units) Unit product cost
2:

Absorption Costing $7 10 5 18 $40

Variable Costing $7 10 5 $22

Variable cost of goods sold $22 per unit Variable selling and administrative expenses $3 per unit
3:

July 330,000 45,000

August 440,000 60,000

Variable costing net operating income (loss) Add fixed manufacturing overhead cost deferred in inventory under absorption costing (2,500 units $18 per unit) Deduct fixed manufacturing overhead cost released from inventory under absorption costing (2,500 units $18 per unit) Absorption costing net operating income

July $(35,000) 45,000 0 $10,000

August $140,000 0 45,000 $95,000

4.

award:

6 out of 6 points The production department of Hareston Company has submitted the following forecast of units to be produced by quarter for the upcoming fiscal year: Units to be produced 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter 7,000 8,000 6,000 5,000

In addition, the beginning raw materials inventory for the first quarter is budgeted to be 1,400 pounds and the beginning accounts payable for the first quarter is budgeted to be $2,940. Each unit requires 2 pounds of raw material that costs $1.40 per pound. Management desires to end each quarter with an inventory of raw materials equal to 10% of the following quarter's production needs. The desired ending inventory for the fourth quarter is 1,500 pounds. Management plans to pay for 80% of raw material purchases in the quarter acquired and 20% in the following quarter. Each unit requires 0.60 direct labor-hours and direct labor-hour workers are paid $14.00 per hour. Requirement 1: (a) Prepare the company's direct materials budget. (Input all amounts as positive values. Omit the "$" sign in your response.) Hareston Company Direct Materials Budget 1st Quarter 2nd Quarter 14,000 16,000 1,600 1,200 15,600 17,200 1,400 1,600 14,200 15,600 $19,880 $21,840

Production needs Add : Desired ending inventory Total needs Less : Beginning inventory Raw materials to be purchased Cost of raw materials to be purchased

3rd Quarter 12,000 1,000 13,000 1,200 11,800 $16,520

4th Quarter 10,000 1,500 11,500 1,000 10,500 $14,700

Year 52,000 1,500 53,500 1,400 52,100 $72,940

(b) Prepare the schedule of expected cash disbursements for purchases of materials for the upcoming fiscal year. (Leave no cells blank - be certain to enter "0" wherever required. Omit the "$" sign in your response.) Schedule of Expected Cash Disbursements for Materials

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1st Quarter Accounts payable, beginning balance 1st Quarter purchases 2nd Quarter purchases 3rd Quarter purchases 4th Quarter purchases Total cash disbursements for materials $2,940 15,904 0 0 0 $18,844

2nd Quarter $0 3,976 17,472 0 0 $21,448

3rd Quarter $0 0 4,368 13,216 0 $17,584

4th Quarter $0 0 0 3,304 11,760 $15,064

Year $2,940 19,880 21,840 16,520 11,760 $72,940

Requirement 2: Prepare the company's direct labor budget for the upcoming fiscal year, assuming that the direct labor workforce is adjusted each quarter to match the number of hours required to produce the forecasted number of units produced. (Omit the "$" sign in your response.) Hareston Company Direct Labor Budget 1st Quarter 2nd Quarter 3rd Quarter Total direct labor-hours needed Total direct labor cost 4,200 $58,800 4,800 $67,200 3,600 $50,400

4th Quarter 3,000 $42,000

Year 15,600 $218,400

Worksheet

Learning Objective: 09-4

Learning Objective: 09-5

The production department of Hareston Company has submitted the following forecast of units to be produced by quarter for the upcoming fiscal year: Units to be produced 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter 7,000 8,000 6,000 5,000

In addition, the beginning raw materials inventory for the first quarter is budgeted to be 1,400 pounds and the beginning accounts payable for the first quarter is budgeted to be $2,940. Each unit requires 2 pounds of raw material that costs $1.40 per pound. Management desires to end each quarter with an inventory of raw materials equal to 10% of the following quarter's production needs. The desired ending inventory for the fourth quarter is 1,500 pounds. Management plans to pay for 80% of raw material purchases in the quarter acquired and 20% in the following quarter. Each unit requires 0.60 direct labor-hours and direct labor-hour workers are paid $14.00 per hour. Requirement 1: (a) Prepare the company's direct materials budget. (Input all amounts as positive values. Omit the "$" sign in your response.) Hareston Company Direct Materials Budget 1st Quarter 2nd Quarter 14,000 16,000 1,600 15,600 1,400 14,200 $ 19,880 $ 1,200 17,200 1,600 15,600 21,840 $

Production needs Add: Desired ending inventory Total needs Less: Beginning inventory Raw materials to be purchased Cost of raw materials to be purchased

3rd Quarter 12,000 1,000 13,000 1,200 11,800 16,520

4th Quarter 10,000 1,500 11,500 1,000 10,500 $ 14,700 $

Year 52,000 1,500 53,500 1,400 52,100 72,940

(b) Prepare the schedule of expected cash disbursements for purchases of materials for the upcoming fiscal year. (Leave no cells blank - be certain to enter "0" wherever required. Omit the "$" sign in your response.) Schedule of Expected Cash Disbursements for Materials 1st Quarter 2nd Quarter 3rd Quarter Accounts payable, beginning balance 1st Quarter purchases 2nd Quarter purchases 3rd Quarter purchases 4th Quarter purchases Total cash disbursements for materials $ $ 2,940 15,904 0 0 0 18,844 $ $ 0 3,976 17,472 0 0 21,448 $ $ 0 0 4,368 13,216 0 17,584 $

4th Quarter $ 0 0 0 3,304 11,760 15,064 $ $

Year 2,940 19,880 21,840 16,520 11,760 72,940

Requirement 2: Prepare the company's direct labor budget for the upcoming fiscal year, assuming that the direct labor workforce is adjusted each quarter to match the number of hours required to produce the forecasted number of units produced. (Omit the "$" sign in your response.) Hareston Company Direct Labor Budget 1st Quarter 2nd Quarter 3rd Quarter Total direct labor-hours needed Total direct labor cost 4,200 $ 58,800 $ 4,800 67,200 $ 3,600 50,400 $

4th Quarter 3,000 42,000 $

Year 15,600 218,400

Explanation: 1(a):

Required production Raw materials per unit Production needs

Hareston Company Direct Materials Budget 1st 2nd 3rd Quarter Quarter Quarter 7,000 8,000 6,000 2 2 2 14,000 16,000 12,000

4th Quarter 5,000 2 10,000

Year 26,000 2 52,000

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2:

Units to be produced Direct labor time per unit (hours) Total direct labor-hours needed Direct labor cost per hour Total direct labor cost

Hareston Company Direct Labor Budget 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter 7,000 8,000 6,000 5,000 0.60 0.60 0.60 0.60 4,200 4,800 3,600 3,000 $14.00 $14.00 $14.00 $14.00 $58,800 $67,200 $50,400 $42,000

Year 26,000 0.60 15,600 $14.00 $218,400

[The following information applies to the questions displayed below.] Minden Company is a wholesale distributor of premium European chocolates. The company's balance sheet as of April 30 is given below: Minden Company Balance Sheet April 30 Assets Cash Accounts receivable Inventory Buildings and equipment, net of depreciation Total assets Liabilities and Stockholders' Equity Accounts payable Note payable Capital stock, no par Retained earnings Total liabilities and stockholders' equity $9,000 54,000 30,000 207,000 $300,000 $63,000 14,500 180,000 42,500 $300,000

The company is in the process of preparing budget data for May. A number of budget items have already been prepared, as stated below: a. Sales are budgeted at $200,000 for May. Of these sales, $60,000 will be for cash; the remainder will be credit sales. One-half of a month's credit sales are collected in the month the sales are made, and the remainder is collected in the following month. All of the April 30 accounts receivable will be collected in May. b. Purchases of inventory are expected to total $120,000 during May. These purchases will all be on account. Forty percent of all purchases are paid for in the month of purchase; the remainder are paid in the following month. All of the April 30 accounts payable to suppliers will be paid during May. c. The May 31 inventory balance is budgeted at $40,000. d. Selling and administrative expenses for May are budgeted at $72,000, exclusive of depreciation. These expenses will be paid in cash. Depreciation is budgeted at $2,000 for the month. e. The note payable on the April 30 balance sheet will be paid during May, with $100 in interest. (All of the interest relates to May.) f. New refrigerating equipment costing $6,500 will be purchased for cash during May. g. During May, the company will borrow $20,000 from its bank by giving a new note payable to the bank for that amount. The new note will be due in one year.

5.

award:

5 out of 5 points Requirement 1: (a) What is the expected cash receipts from sales and the expected cash payments for merchandise purchases? (Omit the "$" sign in your response.)

Total cash receipts Total cash payments

$184,000 $111,000

(b) Compute the following for the month May. (Hint: Prepare your answer using the layout of a Cash Budget.) (Omit the "$" sign in your response.)

Total cash available Total cash disbursements Excess (deficiency) of receipts over disbursements Total financing Cash balance, ending

$193,000 189,500 3,500 5,400 $8,900

Worksheet Learning Objective: 09-10

Learning Objective: 09-2 Learning Objective: 09-4

Learning Objective: 09-8 Learning Objective: 09-9

Requirement 1: (a) What is the expected cash receipts from sales and the expected cash payments for merchandise purchases? (Omit the "$" sign in your response.)

Total cash receipts Total cash payments

$ $

184,000 111,000

(b) Compute the following for the month May. (Hint: Prepare your answer using the layout of a Cash Budget.) (Omit the "$" sign in your response.)

Total cash available

193,000

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Total cash disbursements Excess (deficiency) of receipts over disbursements Total financing Cash balance, ending $

189,500 3,500 5,400 8,900

Explanation: a):

Cash salesMay Collections on accounts receivable: April 30 balance May sales(50% $140,000) Total cash receipts Schedule of cash payments for purchases: April 30 accounts payable balance May purchases (40% $120,000) Total cash payments
(b):

$60,000 54,000 70,000 $184,000

$63,000 48,000 $111,000

Minden Company Cash Budget For the Month of May Cash balance, beginning Add receipts from customers (above) Total cash available Less disbursements: Purchase of inventory (above) Selling and administrative expenses Purchases of equipment Total cash disbursements Excess of receipts over disbursements Financing: Borrowingnote Repaymentsnote Interest Total financing Cash balance, ending

$9,000 184,000 193,000 111,000 72,000 6,500 189,500 3,500 20,000 (14,500) (100) 5,400 $8,900

6.

award:

4 out of 4 points Requirement 2: Prepare a budgeted income statement for May. (Input all amounts as positive values. Omit the "$" sign in your response.) Minden Company Budgeted Income Statement For the Month of May Sales Cost of goods sold: Beginning inventory Add : Purchases Goods available for sale Deduct : Ending inventory Cost of goods sold Gross margin Selling and administrative expenses Net operating income Interest expense Net income $200,000 $30,000 120,000 150,000 40,000 110,000 90,000 74,000 16,000 100 $15,900

Worksheet Learning Objective: 09-10

Learning Objective: 09-2 Learning Objective: 09-4

Learning Objective: 09-8 Learning Objective: 09-9

Requirement 2: Prepare a budgeted income statement for May. (Input all amounts as positive values. Omit the "$" sign in your response.) Minden Company Budgeted Income Statement For the Month of May Sales Cost of goods sold: Beginning inventory Add: Purchases Goods available for sale Deduct: Ending inventory Cost of goods sold Gross margin Selling and administrative expenses Net operating income Interest expense $ $ 30,000 120,000 150,000 40,000 110,000 90,000 74,000 16,000 100 200,000

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Net income

15,900

Explanation: Selling and administrative expenses ($72,000 + $2,000) = 74,000

7.

award:

4 out of 4 points Requirement 3: Prepare a budgeted balance sheet as of May 31. (Omit the "$" sign in your response.) Minden Company Budgeted Balance Sheet May 31 Assets Cash Accounts receivable Inventory Buildings and equipment, net of depreciation Total assets $8,900 70,000 40,000 211,500 $330,400 Liabilities and Equity Accounts payable Note payable Capital stock Retained earnings Total liabilities and equity $72,000 20,000 180,000 58,400 $330,400

Worksheet Learning Objective: 09-10

Learning Objective: 09-2 Learning Objective: 09-4

Learning Objective: 09-8 Learning Objective: 09-9

Requirement 3: Prepare a budgeted balance sheet as of May 31. (Omit the "$" sign in your response.) Minden Company Budgeted Balance Sheet May 31 Assets Cash Accounts receivable Inventory Buildings and equipment, net of depreciation Total assets $ $ 8,900 70,000 40,000 211,500 330,400 Liabilities and Equity Accounts payable Note payable Capital stock Retained earnings Total liabilities and equity $ $ 72,000 20,000 180,000 58,400 330,400

Explanation:

Accounts receivable (50% $140,000) = $70,000 Buildings and equipment, net of depreciation ($207,000 + $6,500 $2,000) = $211,500 Accounts payable (60% 120,000) = $72,000 Retained earnings ($42,500 + $15,900) = $58,400

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