31 Dec Direct material cost per

Question 1

In its first year of business, Soles for Souls, Inc., produced 5,000 shoes and sold 4,000 during the year. Its cost for the year included:

Question 2

Use the following information to calculate Honest Tea, Inc.’s, Inventory balance on its December 31 year-end balance sheet. Note: All purchases of inventory are on account.

Cost of Goods Sold during the year $31,000

January 1 Inventory 10,000

Sales during the year 68,000

December 31 Accounts Receivable 22,000

Purchases of Inventory on Account during the year 41,000

December 31 Inventory = $______

Question 3

Assume you are a retail store that sells jeans. Identify each of your costs as variable, fixed, or mixed:

Units sold 20 40 80

1. Depreciation Expense per unit $480 $240 $120

2. Total Rent $5,000 $5,000 $5,000

3. Total Cost of Shopping Bags $4 $8 $16

Question 4

Total Per unit

Sales revenue (30,000 units) $750,000 25

Variable costs 450,000 15

Contribution margin 300,000 ?

Fixed costs 150,000

Operating income $150,000

What is the company’s breakeven point in sales units?

Question 5

Sea the World Cruises sells 4,000 tickets on its deluxe yacht:

Selling price per customer $5,000

Variable cost per customer $1,000

Annual fixed cost $500,000

What is the company’s breakeven point in units, i.e., customers? Round to the nearest whole unit.

Question 6

If selling price per unit increases, while variable cost per unit and total fixed costs remain the same, the breakeven point will:

Question 7

Bead It, Inc., produces and sells beads by the pound.

Selling price per pound $13

Variable cost per pound $10

Annual fixed costs $200,000

What will the company’s breakeven point in units equal if Bead It were to replace some of its hourly employees with a machine? The labor costs will reduce the cost per pound by $2 but the depreciation on the machine will add $100,000 to the manufacturing costs. Round to the nearest whole pound.

Question 8

Vicious Cycle, Inc., produces and sells 2,000 bikes.

Selling price per unit $4,000

Variable cost per unit $800

Annual fixed cost $500,000

What is the company’s contribution margin per unit? (Round to the nearest cent.)

Question 9

Planet of the Crepes, Inc., makes and sells crepes. It expects sales to equal $500,000, total variable costs to equal $350,000 and total fixed costs to equal $60,000.What is the contribution margin ratio?

Question 10

Wok of Fame, Inc., makes and sells woks at a price of $5.00 per unit. Variable cost is $3.00 per unit. The company’s total fixed costs are $52,500.How much must total sales be if Wok of Fame wants to earn an operating income of $17,500?

Question 11

If Curl Up & Dye, Inc., has an operating leverage of 2.5 and its sales decrease by 8%, calculate the percentage change in operating income rounding to the nearest tenth of a percent. Do not include the % or a negative sign in your answer.

Question 12

Planet of the Crepes, Inc., is preparing its master budget for its first month of business. It expects to sell 2,000 crepes at $3 per crepes per month. It expects to collect 80% of the sales in the month of the sale and 20% in the following month. Calculate the amount of budgeted sales for its first month.

Question 13

Leaning Tower of Pizza, Inc., is preparing its master budget for its first year of business. It expects to sell 6,000 pizzas at $7 per pizza per month. It expects to collect 90% of the sales in the month of the sale and 10% in the following month. Calculate its Accounts Receivable balance at the end of its first year.

Question 14

You plan on starting a lawn mowing business by investing $700 of your own money and purchasing $500 of equipment. You plan to work 260 hours in your first month and 80 hours in your second month of business. You charge your customers $15 per hour. Your anticipated costs include:

Advertising $6 per month

Gas $1.60 per hour

Depreciation $25 per month

Assistant’s Wages $8.00 per hour

Miscellaneous Expenses $60 per month

You plan on collecting 90% of your sales in the month you mow the lawn and the remainder in the following month. Calculate the Accounts Receivable balance at the end of your first month of business.

Question 15

You plan on starting a lawn mowing business by investing $700 of your own money and purchasing $500 of equipment. You plan to work 200 hours in your first month and 300 hours in your second month of business. You charge your customers $20 per hour. Your anticipated costs include:

Advertising $20 per month

Gas $1.40 per hour

Depreciation $25 per month

Assistant’s Wages $8.00 per hour

Miscellaneous Expenses $40 per month

You plan on collecting 90% of your sales in the month you mow the lawn and the remainder in the following month. Calculate the amount of Cash Collections in yoursecond month of business.

Question 16

Dolittle and Dalley has $3,000 in purchases for January and $5,000 in purchases for February. It expects to pay 80% of its purchases in the month the purchases are made. The remaining amount will be paid in the following month. How much does Dolittle and Dalley include as Cash Payments for Purchases in February?

Question 17

Using the incomplete Master Budget (at 100 hours) below, calculate the total fixed costs on the Flexible Budget (at 120 hours).

Master Budget

(100 hours) Flexible Budget

(120 hours)

Sales Revenue $2,000 ?

Total Variable Costs $500 ?

Total Fixed Costs $500 ?

Total Fixed Costs at 120 hours =

Question 18

Grass Is Browner works 30 hours at $7 per hour. It has variable costs of $6 per hour and fixed costs of $2,400. What is Grass Is Browner’s break-even point in sales dollars? (Round to the nearest dollar)

Question 19

Grass Is Greener, Inc., will purchase equipment for $39,000 at the beginning of its first quarter of business. It expects to use the equipment for 10 years, after which it will be worthless. Calculate the amount of its Equipment, net of Accumulated Depreciation, on its pro-forma balance sheet at the end of its first quarter.

Question 20

Sofa So Good, Inc., makes three types of sofas in the same factory. Type 1 Sofa’s costs consist of the following:

Leather $200,000

Factory Supervisor’s Salary 20,000

Allocated Glue 500

Factory Janitor’s Wages 5,000

Wages Charged to Type 1 Sofas 30,000

Wood 40,000

Calculate the Direct Costs for Type 1 Sofas.

Question 21

Salt & Buttery, Inc., is a catering business. Direct labor costs are $15 per hour and overhead is allocated to jobs at a rate of $20 per direct labor hour. Catering for the Morris Lest party cost $800 for direct materials and took 11 direct labor hours. Calculate the total cost of the Morris Lest party.

Question 22

It is necessary to allocate costs because ______.

Question 23

Sleeves, Inc.’s, Purchasing Department’s estimated annual costs are $200,000 and the number of purchase orders written is 800,000. The Clothing Department has requested 200,000 purchases during the year for a total of $4,000,000 in purchases. How much of the Purchasing Department’s cost should be allocated to the Clothing Department?

Question 24

Which of the following should NOT be used to evaluate the production manager’s performance?

Question 25

Impress, Inc., makes books and is trying to decide whether one particular book which sells for $25 should be printed in-house or outsourced. For each of the following items, indicate whether it is a quantitative or qualitative factor.

Question 26

Daily Kneads, Inc., is thinking about having one of its products made by a supplier. The supplier will charge $6,000 for 1,000 units. Currently, Daily Kneads’ costs to make 1,000 units of this product are as follows:

Cost per unit Cost of 1,000 units

Direct labor $4 $4,000

Direct materials $1 $1,000

Allocated unavoidble overhead $2 $2,000

Total costs $7 $7,000

Should the product be outsourced?

Question 27

Daffy Duct, Inc., has the capacity to produce 12,000 cases of duct tape per year but only produces and sells 10,000 cases at $50 per case. The direct materials equals $100,000, direct labor equals $130,000, and overhead equals $100,000. Sixty percent of the manufacturing overhead is variable. The forty percent of fixed overhead is allocated equally to all products.

Dewey, Cheatum & Howe has offered to purchase 1,000 cases but at a reduced price of $40 per case. What is the additional profit (loss) of accepting this offer?

Question 28

Brewed Awakenings, Inc., has received a special order from a customer to buy 1,000 pounds for $6 per pound. Brewed Awakenings has enough idle capacity to accept the order without incurring any additional fixed costs.

Identify each of the items as relevant or irrelevant for this special order decision.

Question 29

The following operating results relate to the operations of Sea the World Cruises, Inc.

Gift Shop Spa Services Casino

Sales $5,000,000 $7,000,000 $10,000,000

Variable Costs 4,500,000 3,000,000 10,500,000

Fixed Costs (all allocated) 600,000 1,000,000 2,000,000

The total fixed costs will remain the same even if one of the above operations is dropped. Identify which (if any) should be eliminated.

Question 30

Applesoft produces tablets, laptops and televisions. Applesoft typically sells 1,000 tablets a year. The tablet information is as follows:

Selling price per unit $60

Direct material cost per unit $30

Direct labor cost per unit $15

Total allocated overhead (1/4 avoidable if eliminate tablets) $70,000

One fourth of the allocated overhead would be avoidable if the tablets were eliminated.

How much would Net Income change by if Applesoft were to eliminate the tablets?

Do not include $ in your answer. Be sure to include “-” in front of your amount if net income will decrease.