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ADM 3346 X

COST ACCOUNTING 1
Spring/Summer 2013
Quiz No. 1
Solutions


. . . . . . . / 20 marks


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Question No. 1 (6 marks)

Sioux Office Equipment Limited manufactures and sells metal shelving. It began operations on
January 1, 2012. Costs incurred during 2012 are as follows (V stands for variable; F stands for
fixed):

Direct materials used costs
Direct manufacturing labour costs
Plant energy costs
Indirect manufacturing labour costs
Indirect manufacturing labour costs
Other indirect manufacturing costs
Other indirect manufacturing costs
Marketing, distribution, and customer-service costs
Marketing, distribution, and customer-service costs
Administrative costs
$140,000 V
30,000 V
5,000 V
10,000 V
16,000 F
8,000 V
24,000 F
122,850 V
40,000 F
50,000 F

Variable manufacturing costs are variable with respect to units produced. Variable marketing,
distribution, and customer-service costs are variable with respect to units sold.

Inventory data are as follows:

Beginning,
January 1, 2012
Ending,
December 31, 2012
Direct materials
Work in process
Finished goods
0 kilograms
0 units
0 units
2,000 kilograms
0 units
? units

Production in 2012 was 100,000 units. Two kilograms of direct materials are used to make one
unit of finished product.

Revenues generated in 2012 were $436,800. The selling price per unit and the purchase price per
kilogram of direct materials were stable throughout the year. The companys ending inventory of
finished goods is carried at the average unit manufacturing costs for 2012. Finished goods
inventory at December 31, 2012, was $20,970.

Required:

Calculate finished goods inventory, total units, December 31, 2012.

Answer:

Manufacturing Costs for 100,000 units

Direct materials costs $140,000
Direct manufacturing labour costs 30,000
Plant energy costs 5,000
Indirect manufacturing labour costs 10,000 + 16,000 = 26,000
Other indirect manufacturing costs 8,000 + 24,000 = 32,000
Manufacturing costs incurred during the period $233,000
There is no beginning or ending work-in-process
Cost of goods manufactured $233,000

Average unit manufacturing cost: $233,000 100,000 units
= $2.33 per unit

Finished goods inventory in units: = $20,970 (given) $2.33 per unit
= 9,000 units



Question No. 2 (5 marks)

The Woodward Company makes three products. The cost data for these three products are as
follows:

Product A Product B Product C
Selling price $10 $20 $40
Variable costs 7 12 16

Total annual fixed costs are $840,000. The firm's experience has been that about 20 percent of
dollar sales come from product A, 60 percent from B, and 20 percent from C.

Required:
(a) Compute the overall break-even point in sales dollars.

(b) Determine the number of units of Product B to be sold at the break-even point.


Answer:

A B C
a. SP $10 $20 $40
- VC (7) (12) (16)
= CM $ 3 $ 8 $24
CMR 30% 40% 60%

Average CMR = (.2 x 30%) + (.6 x40%) + (.2 x 60%) = 42%

Overall BE point in sales dollars = $840,000/.42 = $2,000,000

b. Product B: ($2,000,000 x .60)/$20 = 60,000 units




Question No. 3 (3 marks)

Value Pro produces and sells a single product. Production and sales amounted to 5,000 units
during 2012. At this level, Value Pro reported a net income of $18,000. Information on its costs
for 2012 follows:

Variable costs:
Selling, general & administrative $2 per unit
Manufacturing $4 per unit
Fixed costs:
Selling, general & administrative $12,000 per year
Manufacturing $15,000 per year

Required:

Calculate Value Pro's selling price per unit.

Answer:

Profit + Fixed Costs = Contribution Margin
$18,000 + $27,000 = $45,000

$45,000 / 5,000 units = $9 contribution margin per unit

Contribution Margin + Variable Costs = Sales Price/Unit
$[9 + (4 + 2)] = $15.00/Unit


Question No. 4 (6 marks)

Refer to Value Pro. For 2013, Value Pro estimates that it will produce and sell 4,000 units. The
variable costs per unit and the total fixed costs are expected to be the same as in 2012. However,
it anticipates a sales price of $16 per unit.

Required:

What is Value Pro's projected margin of safety in dollars for 2013?


Answer

Sales (4,000 x $16/unit) $64,000
Contribution Margin = $(16 - 6) = $10/unit x 4,000 units 40,000
Fixed Costs 27,000
Net income $13,000

CM ratio = $40,000 / $64,000 = 62.5%
Breakeven point in sales dollars = $27,000 / .625 = $43,200

Therefore, margin of safety in sales dollars = Sales BEP = $64,000 $43,200 = $20,800