I. Questions
1. Provide three examples of a cost pool, its cost driver and the cost object.
2. What are the costs included in work-in-process?
3. What is the formula for computing; 1) gross margin, 2) contribution margin and operating income.
4. If current sales increased, would the margin of safety increase or decrease.
5. If variable costs increased with all other factors (amounts) not changing; would the breakeven point in units increase or decrease.
II. Exercises
1. The following information is provided for International Paper Manufacturing Inc. for 2015: (Amounts are in thousands)
Beginning finished goods, 1/1/15 $125,000
Net income $ 65,000
Gross margin $245,000
Beginning work-in-process 1/1/15 $165,000
Ending finished goods, 1/31/15 98,000
Cost of goods sold 134,000
Ending work-in-process 1/31/15 150,000
Ending raw materials inventory 1/31/15 74,500
Required:
Determine the cost of goods manufactured for 2015?
2. The following information is provided for Diamonite Manufacturing Company for 2015:
Beginning finished goods, 1/1/15 $4,250,000
Raw material purchases during 2015 $ 365,000
Accounts payable 1/31/15 $1,710,000
Beginning raw materials inventory 1/1/15 $ 465,000
Cost of goods manufactured $2,980,000
Cost of goods sold $2,245,000
Ending raw materials inventory 1/31/15 440,200
Required:
Determine the ending finished good at 1/31/15?
ACCT321 Week One Homework Assignment Continued: Page 2 of 2
3. Jeremy Wellington sells widgets at $450 each which cost Jeremy $225 each. The only fixed costs are $35,000 for the rent of the store.
Required:
1. If Jeremy sold 650 widgets, what is the total contribution margin?
2. If sales increased by $74,250 and Jeremy's costs for each widget was reduced by $25, what is Jeremy's operating income.
4. Brown Appliances Store sells microwaves for $350 each which cost Brown $200 each. Brown pays $2,570 for the store rent. Brown pays a commission of 10% of the sales price for each microwave sold to its salesman.
Required:
1) What is Brown's breakeven point in units (microwaves)?
2) Assume the same as above, except now Brown wants to earn a profit of $1,600. How many units (microwaves) does Brown need to sell to earn the profit of $1,600?
5. Assume the following for Jake Collins's lawn mowers sales:
Selling price $800 per unit
Variable costs $300 per unit
Total fixed costs $100,000
Tax rate 30%
Required:
What minimum volume of sales dollars is required to earn an after tax net income of $70,000?
6. Simple Manufacturing is conducting an analysis during June 2015 to determine how to increase the sales next month during July 2015. Simple Manufacturing only produces one product that sells for $1,200. Variable cost per product is $575 and fixed cost is expected to be $120,000 in July 2015. Simple expects to sell 7,500 units during July.
Required:
1. Determine the operating income (net income)?
2. Assume now that, based on their analysis, Simple plans to increase the advertising expense (fixed cost) by $25,000 during July 2015. Simple expects that sales will increase during July 2015 as a result of the increase in advertising expenses. How much does sales in units and dollars need to increase to cover the increase in fixed costs and to also maintain the operating income calculated in requirement 1?