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ACCT 386 - Week 4 - Homework 4

ACCT 386 - Week 4 - Homework 4
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ACCT 386 - Week 4 - Homework 4

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Question 1

Wiengot Antennas, Inc., produces and sells a unique type of TV antenna. The company has just opened a new plant to manufacture the antenna, and the following cost and revenue data have been provided for the first month of the plant’s operation.

 

 

 

  Beginning inventory

 

0   

  Units produced

 

42,000   

  Units sold

 

37,000   

  Selling price per unit

 

$77   

  Selling and administrative expenses:

 

 

    Variable per unit

 

$3   

    Fixed (total)

$

560,000   

  Manufacturing costs

 

 

    Direct materials cost per unit

 

$16   

    Direct labor cost per unit

 

$9   

    Variable manufacturing overhead cost per unit

 

$2   

    Fixed manufacturing overhead cost (total)

$

756,000   


    Because the new antenna is unique in design, management is anxious to see how profitable it will be and has asked that an income statement be prepared for the month.

 

 

Question 2

Nickelson Company manufactures and sells one product. The following information pertains to each of the company’s first three years of operations:

 

 

 

  Variable costs per unit:

 

 

    Manufacturing:

 

 

      Direct materials

 

$21   

      Direct labor

 

$13   

      Variable manufacturing overhead

 

$8   

    Variable selling and administrative

 

$1   

  Fixed costs per year:

 

 

    Fixed manufacturing overhead

$

600,000   

    Fixed selling and administrative expenses

$

240,000   


During its first year of operations Nickelson produced 60,000 units and sold 60,000 units. During its second year of operations it produced 75,000 units and sold 50,000 units. In its third year, Nickelson produced 40,000 units and sold 65,000 units. The selling price of the company’s product is $57 per unit.

 

 

Question 3

The most recent monthly contribution format income statement for Reston Company is given below:

Reston Company
Income Statement
For the Month Ended May 31

  Sales

$

900,000    

100.0

%

  Variable expenses

 

400,000    

44.4

 

 





  Contribution margin

 

500,000    

55.6

 

  Fixed expenses

 

485,000    

53.9

 

 





  Net operating income

$

15,000    

1.7

%

 










     Management is disappointed with the company’s performance and is wondering what can be done to improve profits. By examining sales and cost records, you have determined the following:

a.

The company is divided into two sales territories—Central and Eastern. The Central Territory recorded $400,000 in sales and $160,000 in variable expenses during May. The remaining sales and variable expenses were recorded in the Eastern Territory. Fixed expenses of $184,000 and $150,000 are traceable to the Central and Eastern Territories, respectively. The rest of the fixed expenses are common to the two territories.

 

 

b.

The company is the exclusive distributor for two products—Awls and Pows. Sales of Awls and Pows totaled $290,000 and $110,000, respectively, in the Central Territory during May. Variable expenses are 29% of the selling price for Awls and 69% for Pows. Cost records show that $145,000 of the Central Territory’s fixed expenses are traceable to Awls and $26,400 to Pows, with the remainder common to the two products.

 

 

Question 4

Linden Company manufactures and sells a single product. Cost data for the product follow:

 

 

 

  Variable costs per unit:

 

 

      Direct materials

 

$6    

      Direct labor

 

12    

      Variable factory overhead

 

2    

      Variable selling and administrative

 

3    

 

 


  Total variable costs per unit

 

$23    

 

 



  Fixed costs per month:

 

 

      Fixed manufacturing overhead

$

135,000    

      Fixed selling and administrative

 

169,000    

 



  Total fixed cost per month

$

304,000    

 






    The product sells for $49 per unit. Production and sales data for May and June, the first two months of operations, are as follows:

 

Units
Produced

Units
Sold

  May

27,000     

23,000     

  June

27,000     

31,000     


    Income statements prepared by the accounting department, using absorption costing, are presented below:

 

May

June

  Sales

$

1,127,000    

$

1,519,000   

  Cost of goods sold

 

575,000    

 

775,000   

 





  Gross margin

 

552,000    

 

744,000   

  Selling and administrative expenses

 

238,000    

 

262,000   

 





  Net operating income

$

314,000    

$

482,000   

 

 

Question 5

Brabant NV of the Netherlands is a wholesale distributor of Dutch cheeses that it sells throughout the European Community. Unfortunately, the company’s profits have been declining, which has caused considerable concern. To help understand the condition of the company, the managing director of the company has requested that the monthly income statement be segmented by sales territory. Accordingly, the company’s accounting department has prepared the following statement for March, the most recent month. (The Dutch currency is the euro which is designated by €.)

 

 

Sales Territory

 

Southern
Europe

Middle
Europe

Northern
Europe

  Sales

313,000    

799,000     

696,000    

 







  Territorial expenses (traceable):

 

 

 

 

 

 

       Cost of goods sold

 

95,000    

 

242,000     

 

313,000    

       Salaries

 

54,000    

 

59,000     

 

107,000    

       Insurance

 

8,600    

 

16,100     

 

14,300    

       Advertising

 

105,000    

 

239,000     

 

235,000    

       Depreciation

 

20,000    

 

34,000     

 

25,000    

       Shipping

 

18,000    

 

34,000     

 

40,000    

 







  Total territorial expenses

 

300,600    

 

624,100     

 

734,300    

 







  Territorial income (loss)
    before corporate expenses

 

12,400    

 

174,900     

 

(38,300)   

 







  Corporate expenses:

 

 

 

 

 

 

       Advertising (general)

 

15,000    

 

38,000     

 

37,000    

       General administrative

 

21,000    

 

21,000     

 

21,000    

 







  Total corporate expenses

 

36,000    

 

59,000     

 

58,000    

 







  Net operating income (loss)

(23,600)   

115,900     

(96,300)