ACC 230 Outcome 2 Measurement Instrument

Cost Accounting I
1. (Chapter 5, LO 1) At an activity level of 20,000 units produced, fixed costs total $30,000 and
variable costs total $67,000. Assuming this activity is within the relavent range, if 25,000 units are
produced, then:


a. total fixed costs are expected to be $37,500.

b. total cost per unit is expected to be $3.88.

c. fixed cost per unit is expected to be $1.20.

d. variable cost per unit is expected to be $2.68.

Solution:
At 25,000 units, total fixed costs would remain $30,000, variable costs per unit would remain at
$67,000 / 20,000 =$3.35, fixed costs per unit would be $30,000 / 25,000 =$1.20, and total per
unit costs would be $3.35 +$1.20 =$4.55.

ans. c



2. (Chapter 5, LO 4)Bee Company is a honey wholesaler. An income statement and other data
for the second quarter of the year are given below:
Bee Company
Income Statement
For the Quarter Ended June 30
Sales $960,000
Cost of Goods Sold 420,000
Gross Margin 540,000
Less operating expenses:
Selling $200,000
Administrative 75,000 275,000
Net operating income $265,000

Other data;
Average selling price: $60 per unit
Sales expenses: base salaries plus 8% of sales
Administrative expenses: base salaries plus $2 per unit

What is Bee Company's net operating income for the second quarter using the contribution
approach?


a. $431,200

b. $685,000

c. $265,000

d. $156,200
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ACC 230 Outcome 2 Measurement Instrument
Cost Accounting I
Net operating income will be the same whether the GAAP or contribution margin approach is
used. Therefore, NOI =$265,000

ans. c

3. (Chapter 6, LO 6) A company has the following cost structure:

For sales of $5,000,000:
- total variable costs are $3,000,000
- total fixed costs are $1,500,000

What sales would be required to realize a net operating income of $300,000?

Solution:
Sales =VC +FC +Profit
Sales =0.6 sales +1,500,000 +300,000
Sales =$4,500,000


4. (Chapter 6, LO 6) Buteco Corporation has provided the following cost data for last year when
100,000 units were produced and sold:
Raw Materials $200,000
Direct Labor 100,000
Manufacturing overhead 200,000
Selling and administrative expenses 150,000

All costs are variable except for $100,000 of manufacturing overhead and $100,000 of selling and
administrative expense. There are no beginning or ending inventories.

If the selling price is $10 per unit, find the net operating income from producing and selling
110,000.


a. $450,000

b. $405,000

c. $385,000

d. $560,000

Solution:
Q x USP =Q x UVC +FC +NOI
UVC =(200,000 +100,000 +100,000 +50,000)/100,000 =$4.50 per unit
110,000 x 10 =110,000 x 4.50 +200,000 +NOI
NOI =405,000

ans. b





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ACC 230 Outcome 2 Measurement Instrument
Cost Accounting I
5. (Chapter 5, LO 5) A company has the following data for the month of J une:


Sales $220,000
Variable Cost $80,000
Fixed Cost $35,000

Determine the contribution margin and net operating income.

Solution:
Contribution margin =220,000 - 80,000 =140,000
NOI =140,000 - 35,000 =105,000



6. (Chapter 5, LO 4) Unix, Inc.'s accounting records show the following information for the month
of J une:

Units sold 150
Selling price per unit $3,000 each
Direct materials used per unit $350 each
Direct labor per unit $75 each
Variable manufacturing overhead rate $2.50 per direct labor dollar.
Fixed manufacturing overhead $25,000 per month
Advertising $5,000 per month
Sales Compensation $7,500 per month plus 12% of gross sales.
Utilities on office building $2,500 per month
Liability insurance $3,500 per month
Clerical wages $1,000 per month plus $50 per unit sold
Depreciation of office equipment $3,000 per month
Executive and office salaries $30,000 per month

Construct a Contribution Margin income statement for the month of J une.


















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ACC 230 Outcome 2 Measurement Instrument
Cost Accounting I
Solution:

Sales (150 x $3,000) $ 450,000
Variable Expenses:
Direct Materials (150x$350) $ 52,500
Direct Labor (150 x $75) 11,250
Variable MOH (11,250 x $2.50) 28,125
Variable Selling (0.12 x 450,000) 54,000
Variable Clerical (150 x $50) 7.500
Total Variable Expenses 153,375
Contribution Margin 296,625
Fixed Expenses
Fixed MOH 25,000
Advertising 5,000
Fixed Selling 7,500
Utilities 2,500
Liability Insurance 3,500
Fixed Clerical Wages 1,000
Depreciation on office equipment 3,000
Executive and office salaries 30,000
Total Fixed Expenses 77,500
Net Operating Income $ 219,125



7. (Chapter 6, LO 4) Data for Hermann Corporation are shown below:


Per Unit
Percent
of Sales
Selling Price $90 100%
Less: Variable Expenses $63 70%
Contribution Margin $27 30%

Fixed expenses are $30,000 per month and the company is selling 2,000 units per month.

The marketing manager argues that a $5,000 increase in the monthly advertising budget would
increase monthly sales by $9,000. Should the advertising budget be increased?

Solution:
$9,000 in sales is a 100 unit increase (90,000/90)
100 units x 27 contribution margin per unit =$2,700 addition contribution.
Since the $2,700 is $2,300 short of covering the addition $5,000 spent on advertising,
the additional advertising would result in a reduced net income. Therefore, do not
increase the advertising budget.










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ACC 230 Outcome 2 Measurement Instrument
Cost Accounting I
8. (Chapter 6, LO 4) Miller Company's most recent contribution format income statement is
shown below:


Total
Per
unit
Sales (20,000 units) $300,000 $15.00
Less: Variable expenses 180,000 9.00
Contribution margin 120,000 $6.00
Less: Fixed expenses 70,000
Net operating income $50,000

Prepare a new contribution format income statement under the assumption that the selling price
decreases by $1.50 per unit and the sales volume increases by 25%.

Solution:
Total
Per
unit
Sales (25,000 units) $ 337,500 $13.50
Less: Variable expenses 225,000 9.00
Contribution margin 112,500 $4.50
Less: Fixed expenses 70,000
Net operating income $ 42,500



9. (Chapter 6, LO 5) Menlo company manufactures and sells a single product. The company's sales
and expenses for the last quarter follow:


Total Per unit
Sales $450,000 $30.00
Less: Variable expenses 180,000 12.00
Contribution margin 270,000 $18.00
Less: Fixed expenses 216,000
Net operating income $54,000

What is the quarterly break-even in units sold AND in sales dollars?

Solution:
BE in units =Fixed Expenses / Unit Contribution Margin
BE in units =216,000 / 18 =12,000 units

BE in sales $ =12,000 units x $30/unit =$360,000





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