Reference no: EM132458368

Question 1 - Job costing and overhead application

Uniflex applies overhead on the basis of direct labor cost. In December 20X4, the company's cost accountant made the following predictions for 20X5 operations: direct labor cost, $680,000; factory overhead, $961,000.

Uniflex worked on job Nos. 241 and 242 in January. The costs incurred and production status of these two jobs appear in the table that follows.

	Job No. 241	Job No. 242
Direct materials	$32,000	$47,000
Direct labor	18,000	33,000
Production status	In process	In process

By the end of 20X5, actual direct labor cost amounted to $612,500, and factory overhead incurred totaled $847,500. There was no work in process on January 1, 20X5.

Compute the following:

1. Uniflex's overhead application rate (This rate needs to be recalculated because the labor has changed)

2. The balance of the Work in Process account on January 31, 20X5.

3. The amount of over- or underapplied overhead for 20X5. Be sure to indicate whether overhead was overapplied or underapplied.

Question 2 - Computations using a job order system

General Corporation employs a job order cost system. On May 1, the following balances were extracted from the general ledger:

Work in process	$44,200
Finished goods	86,900
Cost of goods sold	128,700

Work in Process consisted of two jobs, No. 101 ($21,000) and No. 103 ($14,800). During May, direct materials requisitioned from the storeroom amounted to $96,500, and direct labor incurred totaled $114,500. These figures are subdivided as follows:

Direct Materials		Direct Labor
Job No.	Amount	Job No.	Amount
101	$5,000	101	$7,800
115	465	103	20,800
116	36,200	115	42,000
Other	35,800	116	641
	$96,500	Other	25,900
			$114,500

Job No. 115 was the only job in process at the end of the month. Job No. 101 and three "other" jobs were sold during May at a profit of 20% of cost. The "other" jobs contained material and labor charges of $21,000 and $17,400, respectively.

General applies overhead daily at the rate of 150% of direct labor cost as labor summaries are posted to job orders. The firm's fiscal year ends on May 31.

Instructions -

1. Compute the total overhead applied to production during May.

2. Compute the cost of the ending work in process inventory.

3. Compute the cost of jobs completed during May.

4. Compute the cost of goods sold for the year ended May 31.

Question 3 - Break-even and other CVP analysis

Hodge and Best manufactures a single product. The information that follows relates to current operations:

Sales (80,000 units @ $27)		$2,160,000
Less: Variable cost	$720,000
Fixed cost	360,000	1,080,000
Net income		$1,080,000

Instructions -

a. The sales outlook for next year is bleak. Calculate the number of units that must be sold to break even if current revenue and cost behavior patterns continue.

b. If Hodge and Best wishes to earn a target income of $90,000 during the next accounting period, what level of dollar sales must be generated?

c. Management is studying a change in the selling price to $24 per unit. Calculate the number of units that must be sold at this price to earn the target income of $90,000.

Question 4 - Straightforward CVP analysis

FRB Inc. sells a single product for $46. The following costs and expenses were incurred at store No. 504:

Variable costs per unit		Annual fixed costs
Invoice cost	$24	Salaries	$60,000
Sales commission	4	Advertising	14,000
		Other	16,000

The company sold 8,200 units during 20X4.

Instructions -

a. Compute the 20X4 break-even point in both dollar and unit sales.

b. By how much will sales have to increase in 20X5 over 20X4 levels if management wishes to earn a target income of $14,400?

c. At present, how much does each unit provide toward covering FRB's fixed costs and generating income? Assume that management believes this amount is too low. What alternatives are available to FRB?

d. What would be the effect on the break-even point if management reduced salary costs by $11,600 and increased the $4 sales commission by 20%?

Question 5 - Break-even and other CVP analysis

Quebec Inc. manufactures and sells a single product. The information that follows relates to the year just ended, when 230,000 units were sold:

Sales price per unit $10

Variable cost per unit 5.5

Fixed costs 930,000

Instructions -

a. Determine the number of units that Quebec sold in excess of its break-even point.

b. If current revenue and cost patterns continue, compute the dollar sales needed next year to produce a target income of $492,000.

c. Assume that a different compensation plan was in effect during the current year. Rather than pay six salespeople an average salary of $36,000 each, management has proposed that the salespeople receive a $10,000 base salary and a 12% commission based on gross sales.

1) Would the company have been better off financially if the new plan had been adopted for the year just ended? By how much?

2) What effect might paying a commission have on gross sales? Briefly explain.

d. In addition to the compensation plan described in part (c), Quebec is studying the impact of other operating changes as well. State whether you agree or disagree with the following findings of a newly hired staff accountant:

1) A rise in property taxes will increase the break-even point.

2) A decrease in raw material cost will increase the contribution margin and decrease total fixed costs.