Practice Midterm Solutions

Page 1
1.
2.
3.
4.

B
B
D
C

Page 2
1.
2.
3.
4.

B
A
E
B

Page 3

Beca Company
Schedule of Cost of Goods Manufactured
Direct Materials:
Beginning raw materials inventory
Add: Purchases of raw materials
Raw materials available for use
Deduct: Ending raw materials inventory
Raw materials used in production
Direct labor
Manufacturing overhead:
Rent, factory building
Indirect labor
Utilities, factory
Maintenance, factory equipment
Supplies, factory
Depreciation, factory equipment
Total overhead costs
Total manufacturing costs
Add: Beginning work in process inventory
Deduct: Ending work in process inventory
Cost of goods manufactured

9,000
124,000
133,000
11,000
$122,000
80,000
70,000
54,500
8,000
20,000
1,500
30,000
184,000
386,000
6,000
92,000
21,000
$371,000

Page 4

Quantity schedule and equivalent units

Quantity
Schedule
Units to be accounted for:
Work in process, beginning ............
Started into production....................
Total units accounted for....................

200
18,000
18,200
Equivalent Units
Materials Conversion

Units accounted for as follows:

Transferred to next department .......
Work in process, ending .................
Total units ..........................................

17,700
500
18,200

17,700
350
18,050

17,700
400
18,100

Costs per equivalent unit

Total Cost
Cost to be accounted for:
Work in process, beginning ............
Cost added during the month ..........
Total cost (a) ......................................
Equivalent units (above) (b)...............
Cost per EU, (a) (b).........................
Cost per whole unit ............................

2,264
792,001
$794,265

Materials Conversion
$

756
116,569
$117,325
18,050
$6.500

1,508
675,432
$676,940
18,100
$37.400

$43.900

Cost reconciliation
Total
Cost
Cost accounted for as follows:
Transferred out ................................
Work in process, ending:
Materials ......................................
Conversion ...................................
Total work in process, ending .........
Total cost ............................................

Equivalent Units
Materials Conversion

$777,030

17,700

$2,275
14,960
17,235
$794,265

350

17,700

400

Page 5
a. Gross Margin: Sales cost of sales = $60 15 = $45 per unit x 500 units = $22,500
b. Contribution margin: Sales Variable Costs = $60 15 6 Commissions 12 Variable admin = $33
per unit x 500 units = $13,500
c. Total Administrative expense: $3,000 + (20% of $60 x 500 units) = $9,000
d. Net operating income:
Sales $60 x 500 units
Less: Cost of sales #15 x 500 units
Gross margin
Less Expenses:
Commissions 10% of $30,000
Advertising
Admin $3,000 + (20% of sales)
Net operating Income

$30,000
- 7,500
22,500
3,000
5,000
9,000
$5,500

Page 6
1.B
2.B
3.C. First Calculate the CM% at breakeven. Since at breakeven FC = 30,000 then CM must also =
$30,000. Then, CM / Sales = $30,000 / $120,000 = .25 CM % of 25%....then, ($12,000 target profit +
$30,000 FC) / .25 = $168,000 Sales
4.D First calculate the amount of FC. Since with the data given CM is 70% of sales, CM in $$ = 196,000
and since NOI = 21,000, then FC must be $175,000 ( 196,000 21,000). Then, take FC / CM % =
$175,000 / 70% = $250,000
Page 7
1.C Total contribution margin currently is (50-15)x3600 = 126,000. If you increase total contribution
margin by 40% you get 176,400. Solving for A in (A-15)x 3600 = 176,400 you get $64, then times 3600
you get $230,400; an increase of $50,400.
2.B. First, calculate sales in units at breakeven = FC/ CM per unit = $40,530 / (50 15) = 1,158 units x
$50 per unit = $57,900 at breakeven. Since we want a margin of safety of $40,000, then sales in $ must
equal $97,900 and in units 1,958 ($97,900 / $50)
3.C. First, calculate the decrease in FC = $40,530 x (1-.20) = $32,424 new FC. Then, FC/CM per unit =
$32,424 / $35 = 926.4 new breakeven in unitsa decrease of 232 units approx (1,158 current unit sales at
breakeven 926.4 new)

Page 8
1.
a. At the break-even, the total contribution margin equals total fixed expenses. Therefore, the total
contribution margin would be $30,000.

b. Contribution margin ratio =Unit contribution margin Selling price

= ($20 - $12) $20 = 40%
c. Increase in sales ......................................
CM ratio..................................................
Increase in net operating income ............

$20,000
40%
$8,000

d. Increase in advertising expenses ..................

Desired increase in net operating income.....
Total required contribution margin ..............
Contribution margin per unit.....................
Required unit sales .......................................
Page 8 continues next page..

$6,000
2,000
$8,000
$8
1,000

2.

a. Variable costing unit product cost

Direct materials ........................................... $28
Direct labor.................................................. 49
Variable manufacturing overhead ...............
7
Unit product cost......................................... $84
b. Variable costing income statement
Sales .............................................................
Less variable expenses:
Variable cost of goods sold:
Beginning inventory...............................
Add variable manufacturing costs .........
Goods available for sale.........................
Less ending inventory............................
Variable cost of goods sold .......................
Variable selling and administrative ..........
Contribution margin .....................................
Less fixed expenses:
Fixed manufacturing overhead..................
Fixed selling and administrative ...............
Net operating income ...................................

$666,500

$ 8,400
378,000
386,400
25,200
361,200
30,100

175,500
81,700

391,300
275,200

257,200
$ 18,000

c. Computation of absorption costing net operating income

Fixed manufacturing overhead per unit ..........................
Change in inventories (units) ..........................................

$39.00
200

Variable costing net operating income ............................

Add fixed manufacturing overhead costs deferred in
inventory under absorption costing .............................
Absorption costing net operating income .......................

$18,000
7,800
$25,800