Accounting 2102 Practice Exam 2 Fall 2024 PDF

ACCOUNTING 2102 Name: ____________________________________ Practice Exam 2 Signature: ____________________________________ Fall Semester 2024 Student ID# (81 num...

ACCOUNTING 2102 Name: ____________________________________ Practice Exam 2 Signature: ____________________________________ Fall Semester 2024 Student ID# (81 number): ____________________________________ Circle Your Section Time: Steiner 8:00 AM Christensen 8:00 AM Thoms 9:10 Thoms 10:20 Thoms 11:30 Hugie 9:35 Hugie 11:10 Hugie 12:45 Hugie 2:20 Please note/do the following: 1. This exam covers Chapters 6, 7, 8, and 9 from your textbook. 2. KEEP THIS TEST BOOKLET INTACT: Do not unstaple the pages. make sure your test booklet has 11 pages (including this cover page) consisting of two parts: 15 multiple choice questions and two workout problems. 3. Complete this cover page of the test booklet and your scantron sheet per instructions. Be sure to fill in all bubbles on the answer sheet for your name and ID number. The answer sheet will not be graded unless all bubbles are filled in appropriately. 4. Sign the Honor Code statement at the bottom of the page. 5. Record all answers for multiple choice questions on your scantron sheet (no credit will be given for answers in this test booklet). ALSO, record your answers on your test booklet because your scantron will not be given back to you during exam review. Use only No. 2 pencils. Mark your answer on the answer sheet by blackening the appropriate space. Do not make extraneous marks on the scantron sheet. If you must change an answer, ensure that your erasure is complete. 6. Your calculations and answers for the workout problems must be written in this test booklet. 7. BUDGET YOUR TIME! Please allow yourself enough time to record all answers on your scantron sheet during the 120 minutes of the exam. Additional time will not be given to fill in empty bubbles or transfer your answers from your test booklet to the scantron. Only your scantron will be graded for multiple choice questions. 8. At the end of the exam, place your scantron sheet and any scratch paper you use inside this test booklet. Turn in your test booklet, scantron form, and scratch paper to the proctor. Failure to follow any of these instructions may result in a loss of points at the discretion of the instructor. Points Earned Points Possible Problem I 60 Problem II 20 Problem III 20 Total 100 Honor Code Statement: I have not violated any restrictions during my preparation for this examination. I will neither seek, receive, nor give assistance during or after this exam. Moreover, I understand that I am obligated to report any honor code violation that I believe is taking place or has taken place prior/during/after the exam. Signature: _________________________________________________________ Page 1 of 11  Problem I: Multiple Choice. 60 Points Total, 15 Questions, 4 Points Each. Use the scantron answer sheet for your responses to the multiple choice questions AND circle your response in this packet. For each question, choose the most correct answer. 1. Macklemore Inc., a manufacturer of fur coats, includes three different costs in its manufacturing operations: Fur, Factory Rent, Factory Utilities. Per unit costs for each cost type at two different activity levels are as follows: Fur Factory Rent Factory Utilities 50,000 Units $30.00 $50.00 $14.00 100,000 Units $30.00 $40.00 $7.00 Unit is Constant > Variable Fur Per - The cost behavior of reach cost listed above is: - Fur - Variable; Factory Rent - Mixed; Factory Utilities - Fixed unit and Fur - Mixed; Factory Rent - Mixed; Factory Utilities - Mixed Factory Rent-Changes per in total > Mixed Fur - Variable; Factory Rent - Variable; Factory Utilities - Variable - Fur - Fixed; Factory Rent - Mixed; Factory Utilities - Fixed Factory Utilities Constant in total> Fixed - - Fur - Fixed; Factory Rent - Variable; Factory Utilities - Variable 2. For CVP analysis calculations, which of the following statements is correct? If sales volume is expected to be higher than the indifference point, management should choose the cost structure with the higher fixed costs. CVP analysis relies on our knowledge of cost function to express relationships among costs, sales volume, and profit. The Break-even point is the point at which operating income is greater than $0. In target profit calculations, sales revenue is less than total costs. A company's sales mix is ultimately determined by the management of a company. 3. So Nice, You Do It Twice is a manufacturer of unicycles used for circus performers. The following data has been collected from their financial records. ($120 000 $94, 500) Cost Per Unicycle Total Month Activity Level = - , m m= High June O 300 Unicycles $400.00 $120 , 000 (300 - 225) July 255 Unicycles $448.00 M = $340 /Unit Solve for h. August 240 Unicycles $375.00 , Law September 225 Unicycles & $420.00 $94, 500 $120, 00 = $340(30) + b E b = $8, 050 Assuming the relevant range extends to 7,000 Unicycles per year and the data above does not include an outlier, which of the following statements is correct? (Assume a high-low method is used to develop cost behavior equations). For each additional unicycle manufactured, costs are expected to increase by $340.00. m $340 = /m The manufacturing costs are variable costs because the per unit amount changes X with the activity level. Cost Behavior If 4,500 unicycles are expected to be produced in a given year, total annual costs would be $1,548,000.X Equation : & 1 Total monthly fixed costs are expected to be $216,000. - Yearly Fixed Costs y $340x + 18 000 = , None of the above are correct. 4. Which of the following costs would be applied to manufactured inventory under variable costing? Salary of factory manager Fixed Mo Cost of raw materials v y $340(4 500) = , + ($216 000), Rental payments on administrative offices SGiA = $1 746 000 Rental payments on factory Fixed Most , , Commissions to sales persons SGit Page 2 of 11 5. Under variable costing, which of the following is true? Period cost Fixed overhead costs are applied to inventory as units move through the production process. X Expensed as All fixed overhead costs are expensed in the period in which they are incurred. ~ Fixed selling and administrative costs are applied to inventory as units move through the production process. X Period Costs All variable overhead costs are expensed in the period incurred, regardless of whether the units are in ending inventory or if they have been sold. X None of the above are true.X 6. H3 Co. is a farming corporation that grows and sells sugar beets. The company is publicly traded on the stock market: however, management prefers to use variable costing for decision purposes. The company's books are adjusted to arrive at Absorption Income for financial reporting purposes. The company reported the following financial information for the past month: Variable Net Income: $2,000,000 Sales: 5,000 truck loads of sugar beets Fixed manufacturing costs rate per truckload: $500 Variable SGA costs per truckload: $100 Fixed SGA costs (overall): $200,000 The company tracks harvested crops that have not yet been shipped out as "in-process." This inventory of sugar beets increased from the equivalent of 50 full truckloads at the beginning of the month to 70 full truckloads at the end of the Sold 50 & month. Ending Inventory & By 20 Units (Produced 70 will Variable Wet Income because of higher than * be Absorption Not Income What was Absorption Net Income? increase Inventory Ending in. $1,988,000 Variable Net Income : $2,000,000 $2,012,000 + A in FMOH in El : + 10 000 (20 Unitx $500/unit) $1,990,000 , $2,010,000 Absorption Net Income $2 ,010, 000 None of the above 7. Which of the following "rules of thumb" is incorrect with regard to making short-term business decisions? Qualitative factors should be considered when analyzing a decision. Per unit fixed costs should be converted to totals for analysis. Variable costs should be analyzed in total. Ishould be Per Unit) Analysis should be performed using a contribution margin income statement format Past costs should not be used in the decision-making process. Page 3 of 11 8. Café Tropical is a local restaurant specializing in tropical cuisine. Among its various Hawaiian-themed menu item is the popular "Surprise-Me-Smoothie." The smoothies are sold to regular customers at a price of $6.50 per smoothie. The café typically sells 40 smoothies during breakfast. At this quantity, the smoothies cost the café $2.50 each to make - $2.00 of the cost is variable and $0.50 of the cost is fixed. The restaurant is currently operating at 80% capacity during the breakfast hour. The only menu item offered during breakfast is the smoothie. The café is considering accepting a special catering order for their "Surprise-Me-Smoothie" from the Jazzagals before they depart for their a cappella competition. The Jazzagals will need the smoothies ready for breakfast, one of the café's busiest times. The Jazzagals need 30 smoothies and would like a discounted price of $4.50 per smoothie because of the quantity. Excess Capacity : 48 = 80% x Full Cop. What will be the effect on operating income if Café Tropical accepts the special-order? Increase of $75 Regular Production Special order Full Capacity So units =. Increase of $15 SP # 6 50 & 4 50. Get Give. Decrease of $15 VC ($2) ($2) 38x$2 30 20x$4 50 Decrease of $20 CM. $2 So. $ 4 50 $75 (415). $90. Increase of $25 - = F2 $20 $20 Loss 9. Post Firetrucks is a large-scale manufacturer of fire trucks for local fire departments. Throughout the years, they have consistently manufactured all components for their trucks in-house. Recently, they have found a vendor for the chassis of the firetruck that would be willing to sell them the chassis for $8,250. After gathering information from the accounting department, management has found the following with regard to the current cost levels when producing 3,000 trucks. Direct Materials $9,000,000 /3000 = $3, 000/Unit & Direct Labor $15,000,000 /3 , 000 = $5, 00/Unit Mott = $50/umit Management has also identified that manufacturing overhead- costs incurred over the same period for the production of the chassis is represented by the following cost behavior equation: Y = & $50X + $5,000,000. 4. 500, 800 FC Remain If the part were to be outsourced, 10% of total fixed manufacturing overhead would be eliminated, and the facilities freed up could be rented out to generate $650,000 in rental income to offset any additional costs from outsourcing the product. Volume & offset costs.New , Assuming that 3,500 units will need to be produced next year, which of the following statements is incorrect? In addition to the quantitative aspects of the analysis, Post should also consider the qualitative aspects in order to make sure that outsourcing the chassis makes sense for the company's strategy. More At a purchase price of $8,250, the cost to make is less than the cost to buy. - The total cost to make the part in-house next year is $33,175,000. At a purchase price of $8,378.57 (rounded), Post would be indifferent between making and outsourcing the chassis. If Post decides to outsource the production of the chassis, operating income will increase by $450,000. > - See Solution on following Page. Page 4 of 11 10. Miranda owns Miranda Writing Supplies (MWS). MWS has two main divisions: Mechanical Pencils and Fountain Pens. During the previous year, the Mechanical Pencil line generated $500,000 in sales revenue and had total traceable costs of $240,000, $90,000 of which were fixed costs. The fountain pens generated a segment margin of $150,000. Common fixed costs totaled $350,000 and were arbitrarily allocated across the segments as follows: Mechanical Pencils - $160,000, and Fountain Pens - $190,000. Khloe has shown concern that the Fountain Pen line should be discontinued because it has shown an operating loss for the past couple of years. If the Fountain Pens are dropped, the company would take advantage of the freed-up capacity and would open a new division to replace it. This new division would sell Wood Pencils and is expected to generate $300,000 in sales and have a variable cost percentage of 25%. The Wood Pencil division's traceable fixed costs would total $30,000. Additionally, as a side effect of opening the new division, sales in the Mechanical Pencil division are expected to increase by 4%. Assuming each of the scenarios are independent from each other, which of the following statements is correct? Total traceable costs for the Wood Pencil division total $105,000. > ve + -FC - X If the Fountain Pens division is dropped and replaced with the Wood Pencil division, the company's operating income would increase by $45,000. Common Fixed CostsShouldn't be factored. The Mechanical Pencil division's contribution margin percentage increases by 4% if the Fountain Pens are dropped and replaced with Wood Pencils. No , CM% Remains theSame When comparing the traditional income statement to the segmented contribution margin income statement for MWS, the operating income amounts will differ by the amount of Common Fixed Costs. No 1 in Segment Margin , MWS's common fixed costs would decrease by $190,000 if the Fountain Pen division is dropped. ~ of Impacted by Drop. 11. Earthworks Co. produces three products from a common raw material. The joint costs for a typical year are as follows: Incremental Re for 2 : Direct material $40,000 Direct labor $45,000 $23 000 (57 000 30, 000 , , - Variable manufacturing overhead $20,000 Incremental Costs for Z : The annual revenues from each product are as follows: $23 , 000 ($17 500 + 5 500) , , Product X $60,000 Net Increase to Process further : Product Y $70,000 Product Z $30,000 >- New Valvez $4, 000 ($27, 000 - $23, 000 57 200, Management is considering processing Product Z beyond the split-off point, which would increase the value of Product Z to $57,000. To process Product Z further, Earthworks must rent processing facilities at an annual cost of $17,500 and will incur additional labor- > - of $5,500. Ve What will be the effect on annual operating income if Earthworks decides to process Product Z further? $23,000 incremental loss $34,000 incremental income $4,000 incremental income $14,312.50 incremental income None of the above Page 5 of 11  9 Make VS. Buy (3 500 x $8 050) + $5 000, 000 (3 500 x $8 250) + $4 500 , 000 = - , , , , , , $33 175, 000 $650 000 , = $32 725 000 , , , $450 000 , more expensive to make than to buy ! * Indifference Price : poste Make Buy↓ $33 , 175 000 , = (3 5088X) +44 500 , 000 $650, 000 , , - X = $8 , 738. 87 10 Ven Mechanical Fountain Total Mechanical Wood Total sales $500 , 000 $300, 000 (VC) (100, 000) (75 000) , CM 350 , 000 364 000 (215, 000 , CTFC) (90 000) 190 000) 130 000) , , , · SM 260 000 , 100 , 000410 , 000274 000 195 , 000 , 469 000 , (CFC) - 100 000 - 1350 000) , , opy a $ , 000: - $119 , 000 12. Speedy Furniture manufactures two types of products: Chairs and Tables. Both products are produced using the same cutting machine. The machine is a constrained resource with only 600 hours of operation time available per month. The following data summarizes the time requirements and profits for each product: Product Machine Hours per UnitProfit per Unit Units $45 $9 000 Hrs/3Hrs = Unit 200 x 600 = , per Chair 3 hours $45 Units X $80 = $9 , 600 Table 5 hours $80 62 Hrs/SHrs Per Unit = 120 Constraint * Make units that have higher Profit Percent of Given the 600-hour constraint, how many chairs and tables should Speedy Furniture produce to maximize profit? Tables - 120; Chairs - 0 No mention of Demand Limitations ! Tables - 0; Chairs - 200 Tables - 30; Chairs - 150 Tables - 90; Chairs - 50 None of the above. 13. Which of the following statements is incorrect concerning budget preparation? If a top-down approach is used in the budgeting process, high-level management sets the budget, and communicates it to all other levels in the company. Participative budgeting increases the risk that budgetary slack will be present in a company's budget. A disadvantage of a rolling budget is the need for constant time and energy focused on budgeting each period. A zero-based budget uses information from the prior period's budget and uses it as a base for the current period's budget. A sales budget is the starting point for all other types of budgets within a company. 14. Seven Sages, LLC made $350,000 is sales during the month of July, of which 30% constituted cash sales. The remaining amount were sales made on credit. In August, sales on account totaled $260,000, which represented 80% of total sales during the month. The company planned for $250,000 in sales for September and expects sales in October to be 20% higher than September's sales. Budgeted sales are expected to be categorized as follows: 30% cash sales, 70% credit sales. Sales on account carry credit terms of net 30. Based on prior experience, management believes 80% of credit sales will be collected in the month following the month of sale. 10% of credit sales will be collected in the second month following the month of sale and 7% will be collected in the third month following the sale. The remaining 3% of credit sales are not anticipated to be collected. Given the information listed above, calculate the total expected cash receipts in October. $273,150 $274,200 $183,150 > - $255,650 None of the above options is correct. Solution on Next Page Page 6 of 11  14 Seven. Sages Cash Rec Oct. IOct Cash Sales $90 008 ely Any Sep. 80% Sep : , Cash Sales $105, 00065 000 75, 00090 000 creditsales $140, 000 +. , , Credit Sales $245 000 260, 000 175, 000 210 , 000 + 10% Ang $26 00 , · , cred-sales - Total Sales $350, 000 , , 250 , 000 , 300, 000 1 + 7% July 325 000 $17, 150 cred Sales. Total $273 , 150 15. Castle Black is a merchandiser of ice picks and other ice wall climbing gear. The company plans to begin operations on January 1. The company expects sales in the first month of operations to total $100,000, all of which are cash sales. Purchases of inventory during the first month of operations are expected to total 35% of sales. Suppliers are hesitant to extend credit to Castle Black, as it is a new business with no track record; as such, purchases are paid for in the month of purchase. No purchase discounts are available. Castle Black expects monthly operating expenses of $5,000. No timing differences between when cash operating expenses are incurred and when they are paid exist. Castle Black expects to begin a construction project to expand its current facilities. The project will cost $6,000 in January and $7,000 in February. Castle Black is required to maintain a minimum cash balance of $50,000 at the end of each month in case of emergencies. What is Castle Black's ending cash balance as of January 31? $54,000 $49,000 Cash Sales $100,000 $104,000 Purchases =35 % x 100 000 , $35 , 000 = $62,000 $50,000 $5 Cash = 000 , OpEx Cap $6 , 000 Project = Ex Beg. Lush Balance Do - TotalCollections $100 000 , - Cash Payments ($46 000) , End Cash Balance $54 000. , Page 7 of 11 Problem II: CVP Analysis. 20 Total Points Possible. Complete the questions below by answering the indicated questions listed. Be sure to show all intermediate steps of your calculations for partial credit. SwiftStep Company is a small startup business founded by Molly and Jonathan Ledbetter. Both are avid runners. In fact, Molly was a successful track and field star at UGA in the early 2000s. She is also an engineer. Jonathan, a graduate of the Terry College of Business in accounting is a partner at one of the Big 4 public accounting firms in one of their advisory practices. In a quest to find the perfect shoe, Molly developed a design that she felt was better than any shoe that either of them had ever worn from any of the large running shoe manufacturers. They patented her design and started a small manufacturing facility just outside of Athens, Georgia. Swiftstep started with just two running shoe models. The Standard SwiftStep running shoe sells for $110 per pair while the Deluxe SwiftStep running shoe sells for $140. Variable costs to produce the Standard shoe total $91 while variable costs to manufacture a Deluxe show amount to $101 per shoe. SwiftStep summarizes its monthly fixed expenses as follows: Rent Expense $10,000 Insurance Expense $2,000 Utilities Expense $3,000 Accounting and Other Fixed Expenses $500 Total $15,500 While SwiftStep shoes are becoming very popular in the Atlanta area, the company has not yet launched a national ad campaign. The manufacturing facility is small and not able to handle the demand that would be required for national distribution. Molly and Jonathan are focusing on short term profitability with the intent of expanding once the brand becomes more mature. The Ledbetters need your help with several questions as they contemplate the expansion of their business. Required: 1. Assuming a local sales mix of seven pairs of the Standard SwiftStep to every three pairs of the Deluxe SwiftStep, how many pairs of each model would SwiftStep need to sell in a typical month to break even? (5 points) Standard Model: ____________ Deluxe Model: _____________ 2. Assuming that SwiftStep would like to earn a monthly operating profit of $10,000, how many pairs of each model would the company need to sell in a typical month? (5 points) Standard Model: ____________ Deluxe Model: ______________ Page 8 of 11 3. If SwiftStep sells 500 of the Standard model and 200 of the Deluxe model during March, what is the company’s margin of safety in dollars? (2 points) Margin of Safety ($): _______________ 4. Assume that SwiftStep locates a manufacturing facility in Bufford, Georgia that already manufactures shoes. The facility has excess capacity and better machines than the ones SwiftStep has been using in the Athens facility. The Bufford location would rent space to SwiftStep for $15,000 per month. Monthly insurance expense would increase to $2,500 and Utilities would rise to $5,475. However, the higher quality machines would reduce variable costs on the Standard model to $85 per shoe and to $94 on the Deluxe model. What would SwiftStep’s breakeven point in the Standard and Deluxe models be in the new location? (5 points) Standard Model: ____________ Deluxe Model: ______________ 5. Assume that SwiftStep only sells the Standard model. All data in the original Athens manufacturing option from part 1 are the same except that SwiftStep only sells the Standard model (i.e., the Standard model sells for $110 with variable costs of $91 per pair and fixed costs are $15,500). If SwiftStep moves to the Bufford location, selling price remains the same, but the variable cost per pair drops to $85. Recall that fixed costs in the Bufford location total $24,475. 3 At what level of Standard model sales would SwiftStep be indifferent between staying in Athens versus moving to the Bufford location? If SwiftStep believes it can sell more than this number, should Molly and Jonathan remain Athens or move to the Bufford location? (3 points) Deluxe Model: _______________ If selling more than indifference volume where should he operate? (Circle One) Athens OR Buford Page 9 of 11 SwiftStep Company--Break Even Solution Part I: 1. Weighted Average Contribution Margin (WACM) Per Unit Contribution Sales Mix Sales Mix Weighted Average Item Sales Price Variable Cost Margin (Units) (%) Contribution Standard SwiftStep Shoe $ 110.00 $ 91.00 $ 19.00 7 70% $ 13.30 Deluxe SwiftStep Shoe $ 140.00 $ 101.00 $ 39.00 3 30% $ 11.70 10 $ 25.00 WACM Fixed Costs Amount Rent expense $10,000 Insurance expense 2,000 Utilities expense 3,000 Accounting and other fixed expenses 500 Total $15,500 2. Breakeven points in units. Weighted Average Units = 620.00 Weighted Average Units Rounding up: BEUnits = FC / WACM per unit Standard SwiftStep Shoe 434.00 434.00 16 per day = $4,700 / $4.24 per unit Deluxe SwiftStep Shoe 186.00 186.00 7 per day = 1,108.49 Weighted Average Units 3. Breakeven Point in Sales Dollars Sales Revenue - Standard Shoe $ 47,740.00 Sales Revenue - Deluxe Shoe $ 26,040.00 Total Revenue $ 73,780.00 Contribution Margin Income Statement - Breakeven Proof Sales Revenue - Standard Shoe $ 47,740.00 Sales Revenue - Deluxe Shoe $ 26,040.00 Variable Costs - Standard Shoe $ (39,494.00) Variable Costs - Deluxe Shoe $ (18,786.00) Contribution Margin $ 15,500.00 Fixed Costs $ (15,500.00) Operating Income $ 0 Part II: 1. Weighted Average Contribution Margin (WACM) Per Unit Contribution Sales Mix Sales Mix Weighted Average Item Sales Price Variable Cost Margin (Units) (%) Contribution Standard SwiftStep Shoe $ 110.00 $ 91.00 $ 19.00 7 70% $ 13.30 Deluxe SwiftStep Shoe $ 140.00 $ 101.00 $ 39.00 3 30% $ 11.70 Total 10 $ 25.00 WACM Fixed Costs Amount Rent expense $10,000 Insurance expense 2,000 Utilities expense 3,000 Target Profit 10,000 Accounting and other fixed expenses 500 Total $15,500 2. Breakeven points in units. Weighted Average Units = 1020.00 Weighted Average Units Rounding up: BEUnits = FC / WACM per unit Standard SwiftStep Shoe 714.00 714.00 26 per day = $4,700 / $2.44 per unit Deluxe SwiftStep Shoe 306.00 306.00 11 per day = 1,927 Weighted Average Units 3. Target Profit in Sales Dollars Sales Revenue - Standard Shoe $ 78,540.00 Sales Revenue - Deluxe Shoe $ 42,840.00 Total Revenue $ 121,380.00 Contribution Margin Income Statement - Breakeven Proof Sales Revenue - Standard Shoe $ 78,540.00 Sales Revenue - Deluxe Shoe $ 42,840.00 Variable Costs - Standard Shoe $ (64,974.00) Variable Costs - Deluxe Shoe $ (30,906.00) Contribution Margin $ 25,500.00 Fixed Costs $ (15,500.00) Operating Income $ 10,000.00 SwiftStep Company--Margin of Safety 1. Weighted Average Contribution Margin (WACM) Per Unit Sales Contribution Sales Mix Sales Mix Weighted Average Item Price Variable Cost Margin (Units) (%) Contribution Standard SwiftStep Shoe $ 110.00 $ 91.00 $ 19.00 7 70% $ 13.30 Deluxe SwiftStep Shoe $ 140.00 $ 101.00 $ 39.00 3 30% $ 11.70 Total 10 $ 25.00 WACM Fixed Costs Amount Rent expense $10,000 Insurance expense 2,000 Utilities expense 3,000 Accounting and other fixed expenses 500 Total $15,500 2. Current units. Standard SwiftStep Shoe 500.00 500.00 18 per day = $4,700 / $2.44 per unit Deluxe SwiftStep Shoe 200.00 200.00 7 per day = 1,927 Weighted Average Units 3. Margin of Safety Current Breakeven Sales Revenue - Standard Shoe $ 55,000.00 $ 47,740.00 Sales Revenue - Deluxe Shoe $ 28,000.00 $ 26,040.00 Total Revenue $ 83,000.00 $ 73,780.00 $ 9,220.00 Margin of Safety Part IV: 1. Weighted Average Contribution Margin (WACM) Per Unit Variable Contribution Sales Mix Sales Mix Weighted Average Item Sales Price Cost Margin (Units) (%) Contribution Standard SwiftStep Shoe $ 110.00 $ 85.00 $ 25.00 7 70% $ 17.50 Deluxe SwiftStep Shoe $ 140.00 $ 94.00 $ 46.00 3 30% $ 13.80 Total 10 $ 31.30 WACM Fixed Costs Amount Rent expense $15,000 Insurance expense 2,500 Utilities expense 5,475 Accounting and other fixed expenses 500 Total $23,475 2. Breakeven points in units. Weighted Average Units = 750.00 Weighted Average Units Rounding up: BEUnits = FC / WACM per unit Standard SwiftStep Shoe 525.00 525.00 19 per day = $4,700 / $2.44 per unit Deluxe SwiftStep Shoe 225.00 225.00 8 per day = 1,927 Weighted Average Units 3. Breakeven Point in Sales Dollars Sales Revenue - Standard Shoe $ 57,750.00 Sales Revenue - Deluxe Shoe $ 31,500.00 Total Revenue $ 89,250.00 Contribution Margin Income Statement - Breakeven Proof Sales Revenue - Standard Shoe $ 57,750.00 Sales Revenue - Deluxe Shoe $ 31,500.00 Variable Costs - Standard Shoe $ (44,625.00) Variable Costs - Deluxe Shoe $ (21,150.00) Contribution Margin $ 23,475.00 Fixed Costs $ (23,475.00) Operating Income $ 0  Original Location New Location Sales 110.00 Sales 110.00 - VC (91.00) - VC (85.00) CM 19.00 CM 25.00 Fixed Costs (Total) $ 15,500.00 Fixed Costs (Total) $23,475 Indifference Point Calculation Operating IncomeFood Truck = Operating IncomeDowntown (CM x Units) - FC = (CM x Units) - FC $19X - $15,500 = $25X - $23,475 $7,975 $6X Units = 1,329.17 1,330.00 If selling more than 1330 the new location would be preferred. If selling less than 1330 the original location would be preferred. Problem III: Absorption versus Variable Costing. 20 Total Points Possible. Complete the questions below by answering the indicated questions listed. Be sure to show all intermediate steps of your calculations for partial credit. DiamondHand, Inc. manufactures baseball gloves. The company budgets for and produces 14,000 genuine cowhide baseball gloves each month. The company summarizes its data as follows for September: Direct Materials per unit $12.00 Direct Labor per unit $16.00 Variable Manufacturing Overhead per unit $7.00 Fixed Manufacturing Overhead $70,000 Fixed Overhead Applied per unit under Absorption Costing $5.00 Variable SG&A Expenses $9.00 Fixed SG&A Expenses $40,000 Units Produced 14,000 Units Sold 11,500 Selling Price $65.00 Units in Beginning Inventory 4,000 Required: 1. Prepare DiamondHand’s Income Statement for September using the absorption costing method and fill in the Finished Goods Inventory T-Account (in dollars) under absorption costing. List your operating income number on the line provided. (8 points) Operating Income: ____________ Page 10 of 11 2. Prepare DiamondHand’s Income Statement for September using the variable costing method and fill in the Finished Goods Inventory T-Account (in dollars) under variable costing. List your operating income number in the line provided. (8 points) Operating Income: ____________ 3. Calculate the difference in operating income between the absorption and variable costing methods. (2 points) 4. Reconcile the difference in operating income between the two methods by examining the change in fixed manufacturing overhead costs tied up in finished goods inventory from the beginning of the period to the end of the period. (2 points) Page 11 of 11 DiamondHand Direct Materials per unit $12.00 Direct Labor per unit $16.00 Variable Manufacturing Overhead per unit $7.00 Fixed Manufacturing Overhead $70,000 FOH Application Rate = $24,000 / 12,000 units = $5 Fixed Overhead Applied per unit under Absorption Costing $5 Variable SG&A Expenses $9.00 Finished Goods Inv. (Units) Fixed SG&A Expenses $40,000 BB 4,000 Units Produced 14,000 COGM 14,000 11,500 COGS Units Sold 11,500 EB 6,500 Selling Price $65.00 Units in Beginning Inventory 4,000 Variable Costing Income Statement Sales $747,500 Finished Goods Inventory Less Variable COGS (402,500) BB 140,000 Manufacturing margin 345,000 COGM 490,000 402,500 COGS Less Variable S&A costs (103,500) EB 227,500 Contribution margin 241,500 Less Fixed manufacturing costs (70,000) Less Fixed S&A costs (40,000) Operating Income $131,500 Absorption Costing Income Statement Sales 747,500 Finished Goods Inventory Beginning Finished Goods Inventory 160,000 BB 160,000 Add Cost of Goods Manufactured 560,000 COGM 560,000 460,000 COGS Less Ending Finished Goods Inventory (260,000) EB 260,000 Cost of Goods Sold 460,000 Gross Profit 287,500 Less Variable S&A costs (103,500) Less Fixed S&A costs (40,000) Operating Income 144,000 Difference in Income = $12,500 FOH in EI $32,500 FOH in BI $20,000 Reconciliation (FOHEI - FOHBI) $12,500 Alternatively: Difference in EI 32,500 Difference in BI 20,000 Reconciliation = Diff EI - Diff BI 12,500