Problem 1: Scottsdale Ltd. has the following cost information available for various months of production:
May June July
Unit Sales 20,000 40,000 50,000
Sales Revenues $640,000 $1,280,000 $1,600,000
Expenses (800,000) (900,000) (950,000)
Profit (Loss) ($160,000) $380,000 $650,000
(Note: Round to two decimal places if necessary)
a. Determine the variable cost per unit.
b. Determine the fixed cost.
c. Estimate the total cost for 30,000 units of production.
d. Compute the break-even point in dollars.
e. Scottsdale Ltd. had sales last year of $975,000. Determine last year's margin of safety in sales dollars.
f. Perform a sensitivity analysis to determine how an increase in sales of $30,000 would impact to Net Income?
Problem 2: Assume a company has equipment with a book value of $50,000. The Company can sell the equipment through a broker for $90,000 less a 4% commission fee. Alternatively, the Company could lease the equipment to another party for 3 years at a price of $130,000. At the end of the three years, the equipment is expected to have no residual value (book value of $0). If the equipment is leased, the Company will incur estimated expenses of $12,000 over the three years for maintenance, insurance and taxes.
Calculate the differential net income and write a statement explaining why the company should lease or sell.
Problem 3: Use T-accounts to track the flow of costs through a job-order costing system using the company data provided.
Note: This company applies overhead at a rate of 80% of Direct Labor Costs (Applied OH = 0.80 x Direct Labor Dollars)
Given the following data:
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Purchases:
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Account Balances
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Beginning
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Ending
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Raw Materials
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78,000
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Raw Materials
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60,000
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50,000
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Manufacturing Supplies
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9,000
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Manufacturing Supplies
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6,000
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5,000
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Office Supplies
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2,000
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Office Supplies
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4,000
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1,000
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Sales
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800,000
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Work in Process
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65,000
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47,000
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Administrative Salaries
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16,000
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Finished Goods
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36,000
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35,000
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Direct labor
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95,000
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Production employees fringe benefits
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8,000
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Sales Commissions
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80,000
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Production supervisors salaries
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17,000
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Plant depreciation
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11,000
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Office depreciation
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12,000
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Plant maintenance
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9,000
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Plant Utilities
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18,000
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Office utilities
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7,000
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Office Maintenance
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5,000
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Production Equipment Rent
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6,000
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Office Equipment Rent
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4,000
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A. Calculate the following:
- Cost of Goods Manufactured ___________________________________
- Cost of Goods Sold ___________________________________________
- Applied Overhead ____________________________________________
- Amount of Under or Over Applied Overhead ______________________
B. Prepare an Income Statement in Excel using the template given below. Make sure to show all your work including the flow of costs through specific inventory accounts to arrive at Cost of Goods Sold.
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Sales
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Less: Cost of Goods Sold (COGS)
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Gross Profit
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Less: Selling, Administrative and General Expenses
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1.
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2.
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3.
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4.
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5.
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6.
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7.
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Total SGA Expenses (subtotal)
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Net Income
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