Value: 10.00 points

1. value: 10.00 points

Maxwell Company manufactures and sells a single product. The following costs w ere incurred during the company's first y ear of operations:

Variable costs per unit:

Manufacturing: Direct materials Direct labor Variable manufacturing overhead Variable selling and administrative

Fixed costs per y ear: Fixed manufac turing ov erhead

Fixed selling and administrative expenses

$18 $7 $2 $2

$ 200,000 $ 110.000

During the y ear. the company produced 20,000 units and sold 16,000 units. The selling price of the company's product is $50 per unit.

Required: 1. Assume that the company uses absorption costing:

a. Compute the unit product cost. (Omit the " $" sign in your response.)

Unit product cost

37 1

b. Prepare an income statement for the y ear. (Input all amounts as positive values except losses which should be indicated by a minus sign. Omit the "$" sign in your response.)

Absorption Cosiing Income Statement

[Sal~

-. 1

$1

ICost of goods s~ld

-. 1

I

IGross margin

-. 1

ISelling and administrative expenses

-. 1

800000 1 592000 1

208000 1 142000 1

INet operating income (loss)

-. 1

$1

66000 1

2. Assume that the company uses v ariable costing:

a. Compute the unit product cost. (Omit the"$" sign in your response.)

Unit product cost

$J,__ _ _2_7.I

b. Prepare an income statement for the y ear. (Input all amounts as positive values except losses which should be indicated by a minus sign. Omit the "$" sign in your response.)

ISales

Variable Costing Income Statement

-. 1

$1

Less: Variable expenses Variable cost of goods sold Variable selling expense

....

$ 432,000 32,000

IContribution margin

-. 1

Less: Fixed expenses Fixed selling and administrative expenses Fixed manufacturing overhead

....

110,000 200,000

INet operating income (loss)

-. 1

$1

800000 1

464000 1 336000 1

310000 1 26000 1

3. The company 's controller believes that the company should have set last y ear's selling price at $51 instead of $50 per unit. She estimates the company could have sold 15,000 units at a price of $51 per unit, thereby increasing the company's gross margin by $2,000 and its net operating income by $4,000.

a. Do y ou think the absorption costing approach is the proper w ay to assess the merits of the proposed price increase?

O Yes 1!J N0

b. Do y ou think the v ariable costing approach is the proper w ay to assess the merits of the proposed price inc rease?

1,!) Yes

O No

c. Using the variable costing approach, by how much will profits increase or dec rease if the price increase in implemented?

[Decrease~

$ l~_ _6_0_00..,..1

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2.

value:

10.00 points

CompuDesk, Inc., makes an oak desk specially designed for personal computers. The desk sells for

$200. Data for last y ear's operations follow:

Units in beginning inventory Units produced Units sold Units in ending inventory Variable costs per unit:

Direct materials Direct labor Variable manufac turing ov erhead Variable selling and administrative

Total variable cost per unit

Fixed costs: Fixed manufac turing overhead Fixed selling and administrativ e

Total fixed costs

0 10,000 9,000 1,000

$ 60 30 10 20

$ 120

$300,000 450,000

$750,000

Required : 1. Assume that the company uses v ariable costing. Comput e the unit product cost for one computer

desk. (Omit the " $" sign in your response.)

Unit produc t cost

$ ._I_ _1_0o_,I

2. Assume that the company uses v ariable costing. Prepare a contribution format income statement for the y ear. (Input all amounts as positive values except losses which should be indicated by a minus sign. Om i t the " $" sign in your response.)

ISales

Variable Costing Income Statement

?I

Variable exoenses:

Variable cost of goods sold

$ 900,000

Variable selling and administrative expense: ?

180,000

IContribution margin

? I

Fixed exnnses:

Fixed manufac turing overhead

?

Fixed selling and administrative expenses ?

300,000 450,000

$ ~I__18_00_0_00~1

1080000 1 120000 1 750000 1

INet operating income (loss)

?I

$ 1 -30000 1

3. W hat is the company 's break-ev en point in terms of units sold?

Break-ev en point

I 9375 units

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3.

value

10.00 points

Shastri Bicycle of Bombay, india, produces an inexpensive, y et ruggeifblcycle for use on the city's

crowded streets that it sells for 500 rupees. (Indian currency is denominated in rupees, denoted by ~.)

Selected data for the company's operations last year follow:

Units in beginning inventoiy Units produced Units sold Units in ending inventory Variable costs per unit:

Direct materials Direct labor Variable manufacturing overhead Variable selling and administrative Fixed costs: Fixed manufacturing overhead Fixed selling and administrative

0 10.000 8.000 2,000

~ 120 ~ 140 ~ 50 ~ 20

~ 600,000 ~ 400,000

Required: 1. Assume that the company uses absorption costing. Compute the unit product cost for one bicycle.

(Omit the"'?' sign in your response.)

Unrt product cost

~ '-- 370

2. Assume that the company uses variable costing. Compute the unit product cost for one bicycle. (Omit the'" " sign in your response.)

Unit product cost

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