Q.1. Darwin Company sells glass vases at a wholesale price of $4 50 per unit.

The
variable cost to manufacture is $1.75 per unit. The monthly fixed costs are
$8,500. Its current sales are 29,000 units per month. If the company wants to
increase its operating income by 20%, how many additional units must it sell?
(Round any intermediate calculations to two decimal places and your final
answer to the nearest whole number.)
ANSWER:
Net sales revenue ($4.50 * 29,000 ) =$130,500
Less: Variable costs ($1.75 *29,000 )= (50,750 )
Contribution margin 79,750 (SELLING PRICE – VARIABLE
COST=130500-50750)
Less: Fixed costs (8,500 )
Operating income $71,250 (CONTRIBUTION-FC=79750-8500);SALES –
(FC+VC)

Target profit = $71,250 (OPERATING INCOME + 20%) = $85,500

Required sales in units = (Fixed costs + Target profit) / Contribution
margin per unit = 94,000 / $1.75 = 34,182 units
Sales prior to change 29,000 units
Additional sales needed (34,182 - 29,000 ) 5,182
Q.2 Voyage Sail Makers manufactures sails for sailboats. The company has the capacity to
produce 37,000 sails per year and is currently producing and selling 30,000 sails per year. The
following information relates to current production:
Sales price per unit $180
Variable costs per unit:
Manufacturing $50
Selling and administrative $10
Total fixed costs:
Manufacturing $675,000
Selling and administrative $250,000
If a special pricing order is accepted for 5500 sails at a sales price of $150 per unit, and fixed
costs remain unchanged, what is the change in operating income?
[4]
Instructions: Use marginal costing.
ANSWER:
Sales $825,000 (5500*150) SALES REVENEUE=P*Q
Less: Variable costs
Manufacturing $275000 (50*5500)
Selling and administrative 55000(10*5500) 330000 (275000+55000)
Less: incremental fixed costs 400,000
INCREASE in operating income $(95,000)=825000-(33000+400000)
Q.3.The company has the capacity to produce 37,000 sails per year and is
currently producing and selling 30,000 sails per year. The following
information relates to current production:
Sales price per unit $185
Variable costs per unit:
Manufacturing $62
Selling and administrative $22
Total fixed costs:
Manufacturing $675,000
Selling and administrative $250,000
ANSWER:
Sales $825,000
Less: Variable costs
Manufacturing $341,000
Selling and administrative 121,000 462,000
Less: incremental fixed costs 400,000
Decrease in operating income $(37,000 )
Q.4. The phone bill for a company consists of both fixed and variable costs, that is semi-
variable cost. Using the four-month data below, determine the fixed portion of the total cost.
[3]
Minutes Total Bill
January 480 $4000
February 200 $2700
March 170 $2640
April 320 $2855
Instructions: Apply High-Low method

Variable cost per unit = Change in total cost / Change in volume of

activity
Variable cost per unit = (Highest cost - Lowest cost) / (Highest volume -
Lowest volume)

Change in total cost ($3,000 - $2,630 ) $370

Change in minutes (460 -180 ) 280
Variable cost per minute ($370 / 280 ) $1.32

Variable cost for January = 460 minutes * $1.32 per minute = $607
Total fixed costs = Total mixed cost - Total variable cost
Total fixed costs = $3,000 - $607 = $2,393

Q.5.Define the term "implicit transaction" and explain how these transactions are
recorded in the financial records. In addition, list any two types of adjustments and
give an example of each.
Implicit transactions are events that are temporarily ignored in day-to-
day recording procedures and are recognized only at the end of an
accounting period. The accountant uses adjusting entries to record
implicit transactions at the end of each reporting period. The principal
types of adjustments can be classified into four types:
∙ Expiration or consumption of unexpired costs
∙ Realization (earning) of revenues received in advance
∙ Accrual of unrecorded expenses
∙ Accrual of unrecorded revenues

Examples of the expiration of unexpired costs include the recognition of

monthly depreciation expense and the write-offs to expense of such
assets as Supplies Inventory, Prepaid Insurance, and Prepaid Rent.
Examples of the realization of unearned revenues include the reduction
of the liability "Unearned Rent Revenue" at the end of each month or the
reduction of the liability "Unearned Subscription Revenue" each time an
issue of a magazine is mailed to the customer. Examples of the accrual
of unrecorded expenses are the accrual of wage expense, interest
expense, and income tax expense. Examples of unrecorded revenues
include "unbilled" fees generated by attorneys, public accountants,
physicians, and advertising agencies.