ACCT-312 (Fall 2019) ANSWER KEY

Section 1: 4 Short Answer Problems

Use the following data for short problems 1-4:
Chequers Company produced 30,000 baseball bats during March. The company uses an overhead cost-
allocation base of $11.25 per machine-hour. March’s variable overhead data is shown below:

Actual Budgeted
Production 30,000 units 24,000 units
Machine-hours 15,000 hours 10,800 hours
Variable overhead cost per machine-hour: $11.00 $11.25

1) Calculate the actual variable overhead cost

Explanation: 15,000 mh × $11.00 = $165,000

2) Calculate the flexible-budget amount

Explanation: 30,000 × (10,800/24,000) × $11.25 = $151,875

3) Calculate the variable overhead spending variance and indicate favorable or unfavorable

Explanation: ($11.00 - $11.25) × 15,000 mh = $3,750 favorable

4) Calculate the variable overhead efficiency variance & indicate favorable or unfavorable

Explanation: [15,000 - (30,000 × 10,800/24,000) mh] × $11.25 = $16,875 unfavorable

Section Two:

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Problem #1
(Based on Textbook Problem #7-18) Scotia Bank prints checkbooks for its customers. The bank’s accountant
reported the following results with regard to check printing operations in February.

Budgeted Data Amount

Number of Checkbooks 380
Selling Price per
Checkbook $42
Variable Cost per
Checkbook $21
Monthly Fixed Cost $3,750

Actual Results Amount

Number of Checkbooks 370
Selling Price per
Checkbook $45
Variable Cost per
Checkbook $24
Monthly Fixed Cost $3,800

a] Prepare a Level One (static Budget) analysis for February. Use the grid provided

Static
Budget
Actual Results Variance Static Budget

Number of Units Sold 370 (10) 380

Revenues $16,650 $690 $15,960

Variable Cost $8,880 $900 $7,980

Contribution Margin $7,770 ($210) $7,980

Fixed Cost $3,800 $50 $3,750

Operating Income $3,970 ($260) $4,230

b] Prepare a Level two (flexible Budget) analysis for February. Use the grid provided

Flexible
Budget Sales Volume
Actual Results Variance Flexible Budget Variance Static Budget

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 Number of Units Sold 370 0 370 (10) 380

Revenues 16,650 1,110 15,540 (420) 15,960

Variable Cost 8,880 1,110 7,770 (210) 7,980

Contribution Margin 7,770 0 7,770 (210) 7,980

Fixed Cost 3,800 50 3,750 0 3,750

Operating Income 3,970 (50) 4,020 (210) 4,230

Prepare Variable Costing Income Statement (based on Problem 9-16 (from the textbook)

Production & Sales Data: Amt

Beginning Inventory 300
Production 800
Sales 1000
Ending Inventory 520

Variable Costs: Amt

Manufacturing cost per unit $12,000
Marketing (selling) cost per unit $3,000

Fixed Costs: Amt

Manufacturing Fixed Cost per year $6,000,000
Marketing (selling) fixed cost per year $1,500,000

Additional Data:
Selling Price per motorcycle $32,000
Budgeted Fixed Costs:  
Budgeted Fixed manufacturing cost per unit $5,000
Budgeted level of production (in units)used to
calculate Fixed Costs 1000

Required: Prepare a variable costing income statement (Use the grid below….show your calculations):

Production & Sales Data: Amt

Beginning Inventory 300
Production 800
Sales 1000

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Ending Inventory 520

Variable Costs: Amt

Manufacturing cost per unit $12,000
Marketing (selling) cost per unit $3,000

Fixed Costs: Amt

Manufacturing Fixed Cost per year $6,000,000
Marketing (selling) fixed cost per year $1,500,000

Additional Data:
Selling Price per motorcycle $32,000
Budgeted Fixed Costs:  
Budgeted Fixed manufacturing cost per unit $5,000
Budgeted level of production (in units)used to
calculate Fixed Costs 1000

Problem #2:

Variable Costing Income Statement

Revenues   $32,000,000
Variable Costs:
Beginning Inventory $3,600,000
Add: Variable manufacturing costs (Production) $9,600,000
= Cost of Goods Available for sale $13,200,000
Less:
Ending Inventory ($1,200,000)
= Variable Cost of Goods Sold $12,000,000
Plus: Variable Selling Costs $3,000,000
Total variable Costs $15,000,000
Contribution Margin $17,000,000

Fixed Costs:
Fixed Manufacturing Costs $6,000,000

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 Fixed Operating costs $1,500,000
Total Fixed Costs $7,500,000
Operating Income $9,500,000

Problem #3: Calculating Production costs using Absorption Costing

: Calculating Production costs using Absorption Costing

Pirelli company manufactures flower vases. The company produced 20,000 units during 2018. The company sold 18,900
units at a price pf $17 per unit. The company uses a practical capacity of 20,000 to compute its predetermined overhead
rate. The company incurred the following manufacturing costs:

Direct materials $80,000

Direct labor $101,400
Variable overhead $15,600
Fixed overhead $54,600

Requirements:

a) Calculate the unit cost for each of the four costs shown above

b) Calculate the cost of one unit of product under Absorption Costing

c) How many units are in ending inventory?

d) Calculate the cost of ending inventory under absorption costing

Solution:

#4

Calculating Production costs using Variable & Absorption Costing

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Murphy company’s records show the following cost information at the end of 2017:

Beginning Inventory (in units) 5,000

Units Produced 20,000
Units Sold 23,700

Cost per Unit:

Direct materials $8.00
Direct labor $4.00
Variable overhead $1.50
Fixed overhead ** $4.15
Variable selling expenses $3.00
Fixed selling & Admin. Expenses $24,300

**Note: Annual fixed overhead total is $83,000

Problem #4: Calculating Production costs using Variable & Absorption Costing

Required:

a) Calculate the cost of one unit of product under absorption costing

b) Calculate the cost of one unit of product under variable costing

c) How many units are in ending inventory?

d) Calculate the cost of ending inventory under absorption costing

e) Calculate the cost of ending inventory under variable costing

Solution:

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Use the following information for problems #5 & 6 (the problem is based on the Service Department Cost Allocation
Power Point loaded to Moodle and discussed in week-6 recording):

Support-department cost allocation; direct and step-down methods. Calais Company provides consulting and tax
preparation services to Client A and Client B. Calais has two support departments—administrative services (AS) and
information systems (IS)—and two operating departments—consulting (CONS) and Tax preparation (TAX). For the first
quarter of 2016, Calais’s cost records show the following:

Support Depts. Operating Depts.

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 AS IS CONS TAX Total

Budgeted Overhead Costs $400,000 $1,600,000 $5,800,000 $8,200,000 $16,000,000

Support work supplied by AS   25% 40% 35% 100%

Support work supplied by IS 10% 30% 60% 90%

Problem #5: Allocate the two support departments’ costs to the two operating departments using the Direct Method
(build your own answer grid): Required

[5] Support   Operating    

AS IS   CONS TAX   Total Check
Direct Method:              

Allocation of AS Costs $400,000            

[40/75; 35/75] ($400,000)     $213,333 $186,667    

Allocation of IS Costs   $1,600,000          

[30/90; 60/90]   ($1,600,000)   $533,333 $1,066,667    

$0 $0 $746,667 $1,253,333 $2,000,000
                 

[6] Support   Operating    

AS IS   Govt. Corp   Total
Step-Down Method (AS First):              
Allocation of AS Costs $400,000 $1,600,000          
[.25; .40; 35] ($400,000) $100,000   $160,000 $140,000    
Allocation of IS Costs              
[30/90; 60/90]   ($1,700,000)   $566,667 $1,133,333    
$0 $0 $726,667 $1,273,333 $2,000,000

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