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Managerial Accounting of a Managerial Accounting

The work-in-process inventory account of a Managerial Accounting shows a
balance of $3,000 at the end of an accounting period. The job-cost sheets of the
two incomplete jobs show charges of $500 and $300 for direct materials, and
charges of $400 and $600 for direct labor. From this information, it appears that
the company is using a predetermined overhead rate as a percentage of direct
labor costs. What percentage is the rate?

  1. The break-even point in dollar sales for Rice Company is $480,000 and the
    company’s contribution margin ratio is 40 percent. If Rice Company desires a
    profit of $84,000, how much would sales have to total?
  2. Williams Company’s direct labor cost is 25 percent of its conversion cost. If the
    manufacturing overhead for the last period was $45,000 and the direct material
    cost was $25,000, how much is the direct labor cost?
  3. Grading Company’s cash and cash equivalents consist of cash and marketable
    securities. Last year the company’s cash account decreased by $16,000 and its
    marketable securities account increased by $22,000. Cash provided by operating
    activities was $24,000. Net cash used for financing activities was $20,000. Based
    on this information, was the net cash flow from investing activities on the
    statement of cash flows a net increase or decrease? By how much?
  4. Gladstone Footwear Corporation’s flexible budget cost formula for supplies, a
    variable cost, is $2.82 per unit of output. The company’s flexible budget
    performance report for last month showed an $8,140 unfavorable spending
    variance for supplies. During that month, 21,250 units were produced. Budgeted
    activity for the month had been 20,900 units. What is the actual cost per unit for
    indirect materials?
  5. Lyons Company consists of two divisions, A and B. Lyons Company reported a
    contribution margin of $60,000 for Division A, and had a contribution margin ratio

Accounts 2
of 30 percent in Division B, when sales in Division B were $240,000. Net
operating income for the company was $22,000 and traceable fixed expenses
were $45,000. How much were Lyons Company’s common fixed expenses?

  1. Atlantic Company produces a single product. For the most recent year, the
    company’s net operating income computed by the absorption costing method
    was $7,800, and its net operating income computed by the variable costing
    method was $10,500. The company’s unit product cost was $15 under variable
    costing and $24 under absorption costing. If the ending inventory consisted of
    1,460 units, how many units must have been in the beginning inventory?
  2. Black Company uses the weighted-average method in its process costing
    system. The company’s ending work-in- process inventory consists of 6,000
    units, 75 percent complete with respect to materials and 50 percent com- plete
    with respect to labor and overhead. If the total dollar value of the inventory is
    $80,000 and the cost per equivalent unit for labor and overhead is $6.00, what is
    the cost per equivalent unit for materials?
  3. At Overland Company, maintenance cost is exclusively a variable cost that varies
    directly with machine-hours. The performance report for July showed that actual

mainte- nance costs totaled $11,315 and that the associated rate variance was
$146 unfavorable. If 7,300 machine-hours were actually worked during July, what
is the budgeted maintenance cost per machine-hour?

  1. The cost of goods sold in a retail store totaled $650,000. Fixed selling and
    administrative expenses totaled $115,000 and variable selling and administrative
    expenses were $420,000. If the store’s contribution margin totaled $590,000,
    how much were the sales?
  2. Denny Corporation is considering replacing a technologi- cally obsolete machine
    with a new state-of-the-art numerically controlled machine. The new machine

Accounts 3
would cost $600,000 and would have a 10-year useful life. Unfortunately, the
new machine would have no salvage value. The new machine would cost
$20,000 per year to operate and maintain, but would save $125,000 per year in
labor and other costs. The old machine can be sold now for scrap for $50,000.
What percentage is the simple rate of return on the new machine rounded to the
nearest tenth of a percent? (Ignore income taxes in this problem.)

  1. Lounsberry Inc. regularly uses material O55P and currently has in stock 375
    liters of the material, for which it paid $2,700 several weeks ago. If this were to
    be sold as is on the open market as surplus material, it would fetch $6.35 per
    liter. New stocks of the material can be purchased on the open market for $7.20
    per liter, but it must be purchased in lots of 1,000 liters. You’ve been asked to
    determine the relevant cost of 900 liters of the material to be used in a job for a
    customer. What is the relevant cost of the 900 liters of material O55P?
  2. Harwichport Company has a current ratio of 3.0 and
    an acid-test ratio of 2.8. Current assets equal $210,000, of which $5,000 consists
    of prepaid expenses. The remainder of current assets consists of cash, accounts
    receivable, marketable securities, and inventory. What is the amount of
    Harwichport Company’s inventory?
  3. Tolla Company is estimating the following sales for the first six months of next
    January $350,000 February $300,000 March $320,000 April $410,000 May $450,000
    June $470,000
    Sales at Tolla are normally collected as 70 percent in the month of sale, 25 percent in
    the month following the sale, and the remaining 5 percent being uncollectible. Also, cus-
    tomers paying in the month of sale are given a 2 percent discount. Based on this
    information, how much cash should Tolla expect to collect during the month of April?
  4. Trauscht Corporation has provided the following data from its activity-based

Accounts 4
costing system:
Activity Cost Pool Total Cost Total Activity
Assembly $704,880 44,000 machine-hours
Processing orders $91,428 1,900 orders
Inspection $117,546 1,950 inspection-hours

The company makes 360 units of product P23F a year, requiring a total of 725
machine-hours, 85 orders, and 45 inspection-hours per year. The product’s direct
materials cost is $42.30 per unit and its direct labor cost is $14.55 per unit. The
product sells for $132.10 per unit. According to the activity-based costing system,
what is the product margin for product P23F?

  1. Williams Company’s direct labor cost is 30 percent of its conversion cost. If the
    manufacturing overhead for the last period was $59,500 and the direct materials
    cost was $37,000, what is the direct labor cost?
  2. In a recent period, 13,000 units were produced, and there was a favorable labor
    efficiency variance of $23,000.
    If 40,000 labor-hours were worked and the standard wage rate was $13 per
    labor-hour, what would be the standard hours allowed per unit of output?
  3. The balance in White Company’s work-in-process inven- tory account was
    $15,000 on August 1 and $18,000 on August 31. The company incurred $30,000
    in direct labor cost during August and requisitioned $25,000 in raw materials (all
    direct material). If the sum of the debits to the manufacturing overhead account
    total $28,000 for the month, and if the sum of the credits totaled $30,000, then
    was Finished Goods debited or credited? By how much?
    A company has provided the following data:
    Sales 4,000 units

Accounts 5
Sales price $80 per unit
Variable cost $50 per unit
Fixed cost $30000
If the dollar contribution margin per unit is increased by 10 percent, total fixed cost is
decreased by 15 percent, and all other factors remain the same, will net operating
income increase or decrease? By how much?

  1. For the current year, Paxman Company incurred $175,000 in actual
    manufacturing overhead cost. The manufacturing overhead account showed that
    overhead was overapplied in the amount of $9,000 for the year. If the predetermined
    overhead rate was $8.00 per direct labor-hour, how many hours were worked during
    the year?


Accounts 6


The percentage rate 3000/1000 * 100 =

Question 2

Breakeven ratio = Fixed costs/contribution margin
Contribution margin = sales – variable costs.

Rice Company

Break even sales   480,000  
Contribution ratio (40%) 192000  
Variable costs     288,000  
For a profit of 84000     3  
Total sales =


(Garrison, Noreen &Brewer, 2009)


Conversion costs = direct labour + manufacturing

Manufacturing costs 45000+25000       70,000
Direct labor costs (1.25 * 70,000)       87500

Accounts 7
Cash account decreased by 16,000        
Marketable securities increased by 22,000        
Net increase       6000
Cash from operating activities 24000        
Net cash used for financing 20,000        
Net increase       4000
Net increase       4000

variable costs $ 2.82 per unit Total costs
Actual costs = 21250 * 2.82 59925
Unfavorable balance means extra spending of 8150
Total actual costs 68075
Units to be produced 20900/2.82 7411.347518
Actual costs per unit = Total actual costs/ units 3.203529412
produced= 68075/21250  
  A B Total
CM 60000 72000.00  
Sales   240,000  
Net income     22000
Fixed exp 60000 72000 132000

Accounts 8

7800/15 520  
Closing stock 1460    
opening stock 1460 -520 = 940


Cost per unit of labor 6
50% complete valued at 3
Cost per unit 13.333333
Cost of material/unit 10.333333

9 Total costs   11315
unfavorable rate 146   77.5
Budgeted cost/machine   94.19355

Cost of goods 650000
Fixed & adm exp 115000

Accounts 9
Contribution margin 590,000
variable expenses 420,000
Sales (contribution + Variable Ex) 1,010,000



Cost of machine 600,000
10 yr useful life  
maintenance/year 10yrs 200,000
Savings/yr 10yrs 1,250,000
Disposal value 50,000
Total costs for machine 800,000
% return 62.5

(Hermanson, Edwards & Invacevich, 2011)

Accounts 10

900 *7.2 6480
Relevant costs = 6480  


Current ratio = current assets/ current liabilities
Acid test ratio = current assets – inventory/
current liabilities/
3.0 – 2.8 = 0.2
Inventory = 0.2 of the current assets
Current assets = 210,000
Inventory = 0.2 * 210,000 = 42000


14 Jan Feb Mar Apr May Jun    
  350,000 300,000 320,000 410,000 450,000 470,000   2,300,000
Collection 245000 210000 224000 287000 315000 329000   1,610,000
Later collections   87500 75000 80000 102500 112500 117500 575,000
Uncollectable 17500 15000 16000 20500 22500 23500   115,000
Discount 7000 6000 6400 8200 9000 9400   46,000
Total exp 24500 21000 22400 28700 31500 32900   161,000
  325,500 279,000 297,600 381,300 418,500 437,100   2,139,000
Net Income 245000 297500 299000 367000 417500 441500 117500 2,185,000
Net income for April was 367000 (Kieso, Weygandt & Warfield, 2007).
360 units product P23F  
unit 42.30 + 14.55 56.85

Accounts 11
Total cost 20466
Sales 132.1 129600
Product margin 109134
% product margin = 84.208333

Conversion costs = direct labour + manufacturing costs    
Manufacturing costs 59500+37000 96,500  
Direct labor costs (1.30 * 96500) 125450  

Total standard hours 40,000 hrs @ 13 520000  
Total units produced 13,000    
Hours per unit produced 3  

Credited by 2000

Sales units 4000 4000
Sales price/unit 80 80
variable cost/unit 50 53
Fixed costs 30,000 25500
CM 30 33

Accounts 12

Total Income 320000 320000
Total variable cost 200000 212000
Fixed Exp 30000 25500
Net income 90000 82500

Net income will decrease by 7500

  1. 175000+9000 184000
    184000/8 = 23000
    23000 hours  

Accounts 13
Ehrhardt, M., Brigham, E. (2008) Corporate Finance: A Focused Approach (3rd ed.) p.131
Garrison, R. H., Noreen, E.R. & Brewer, P.C. (2009) Managerial Accounting , McGraw-Hill
Hermanson, R.H., Edwards, J.D., & Invacevich, S.D. (2011) Accounting Principles: A Business
Perspective. First Global Text Edition, Volume 2 Managerial Accounting, 37-73.
Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2007) Intermediate Accounting (12th ed.)
Hoboken, NJ: John Wiley & Sons, p. 1320.

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