Problem 1:

The Moore Company had the following revenues and costs per unit based on the production and
sale of 30,000 units:
Selling Price $ 75 per unit
Direct Materials $ 15 per unit
Direct Labor $ 25 per unit
Variable manufacturing Overhead $ 9 per unit
Fixed Manufacturing Overhead $ 8 per unit
Sales Commissions $ 5 per unit
Sales Salaries $ 4 per unit
Administrative Salaries $ 11 per unit

Their present plant capacity is 50,000 units per year, which can be increased in increments of
10,000 units at a cost of $ 50,000 per increment.
How many units would the company have to produce and sell if they desired net income
after taxes of $ 220,000 and taxes are equal to 45%?

Answer:

Total Variable Cost = 15+25+9+5 = $54

Unit CM = 75 - 54 = $21

Unit Fixed Costs = 8+4+11 = $23

Current Fixed Costs @ 30,000 units = 30,000 x 23 = $690,000

Q = ((220,000/.55) + 690,000) / 21 = 51,905 units

Since Q > 50,000 units, new Fixed Costs = 690,000 + 50,000 = $740,000

Therefore QBE = ((220,000/.55) + 740,000) / 21 = 54,286 units

Problem 2:
The Bonami Company produces 3 product lines (Ls, Ms & Ns) in a year with the following
selling prices and manufacturing costs per unit based on the volumes given for each product line:

Sales in Units 2,000 units 4,000 units 3,000 units

Selling Price $20.00 per unit $10.00 per unit $30.00 per unit
Cost of Goods Sold:
Direct Materials $4.00 per unit $2.00 per unit $2.00 per unit
Direct Labour $2.00 per unit $1.00 per unit $2.00 per unit
Variable MOH $1.00 per unit $1.00 per unit $2.00 per unit
Fixed MOH $6.00 per unit $2.50 per unit $13.00 per unit
Cost of Goods Sold $13.00 per unit $6.50 per unit $19.00 per unit

Gross Profit Margin $7.00 per unit $3.50 per unit $11.00 per unit

In addition, the company also incurred the following common costs in the year:
Sales Salaries $20,000
Admin. Salaries $34,200

How many units of each product line would the company have to sell in the year if they
desire net income after taxes of $12,000? Income taxes are expected to be 40% and they
expect the product mix to change to a 2:1:3 mix.

FC = (6 x 2,000) + (2.5 x 4,000) + (13 x 3,000) + 20,000 + 34,200

= 115,200

NI (before taxes) = 12,000 / .6 = 20,000

CM (L, M, N) = 13, 6, 24
Mix (L, M, N) = 2, 1, 3

WACM = (2/6 x 13) + (1/6 x 6) + (3/6 x 24) = 17.333333

Q (Target Income) = (115,200 + 20,000) / 17.3333333 = 7,800 units

Therefore in Units of L, M and N:

L = 7,800 X 2/6 = 2,600 units
M = 7,800 X 1/6 = 1,300 units
N = 7,800 X 3/6 = 3,900 units
Problem 3:

12/31/07 12/31/08
Direct materials $ 34,165 A $ 45,210
Purchases of direct materials $ 65,250 $ 70,125
Ending direct materials $ 45,210 $ 40,350 F
Direct materials used $ 54,205 $ 74,985 G
Direct labor $155,050 $162,000
Manufacturing overhead $110,000 B $127,145
Total manufacturing costs $319,255 $364,130
Beginning work-in-process inventory $ 21,985 $ 29,635
C
Ending work-in-process inventory $ 29,635 $ 30,845 H
Costs of goods manufactured $311,605 D $362,920
Beginning finished goods inventory $ 46,650 $ 42,500
Ending finished goods inventory $ 42,500 $ 39,550
Cost of goods sold $315,755 $365,870 I
Net sales $495,000 $535,000 J
Selling and Administrative Expenses $132,995 E $130,130
Net income $ 46,250 $ 39,000
Problem 4:
(a) OH rate = $4,200,000/ (80,000 x 0.5 + 20,000 X 1) = $70/DLH

Regular Super

DM 108 160

DL 4 8

Allocated MOH 0.5 X 70 35 1 X 70 70

Product Cost 147 238

(b) ABC Allocation

Regular Super

(80,000 units) (20,000 units)

Purchase Orders (252,000/1200) X 900 189,000 (252,000/1200) X 300 63,000

Rework Orders (848,000/1,000) X 250 212,000 (848,000/1,000) X 750 636,000

Product Testing (300,000/15,000) X 5,000 100,000 (300,000/15,000) X 10,000 200,000

Machine Work (2,800,000/50,000) X 30,000) 1,680,000 (2,800,000/50,000) X 20,000) 1,120,000

2,181,000 2,019,000

Per unit OH cost 27.26 100.95

DM & DL 112.00 168.00

Product cost using ABC 139.26 268.95

( c) Using a single allocation method Super is undercosted. Under a single cost allocation method
large volume product (Regular) is overcosted and small volume product (Super) is undercosted.
The more accurate cost of Super is $269. Given that Super is sold at $270, very little profit.
Pricing decisions are distorted by inaccurate costs. Need to change the prices of Regular and
Super.
Problem 5:

Part A:
The company's production budget is as follows:

January February March April

Budgeted sales (units) .......................... 20,000 35,000 60,000 40,000
Add: Desired ending inventory ............ 7,000 12,000 8,000 6,000
Total needs ........................................... 27,000 47,000 68,000 46,000
Deduct beginning inventory ................. 4,000 7,000 12,000 8,000
Units to be produced ............................ 23,000 40,000 56,000 38,000

The materials purchase budget (based on the above production budget) would be as
follows:

January February March Quarter

Units to be produced ......................... 23,000 40,000 56,000 119,000
Switches per unit ............................... 3 3 3 3
Production needs (number of
switches) ........................................ 69,000 120,000 168,000 357,000
Add desired ending inventory
(number of switches)** ................. 36,000 50,400 34,200 34,200
Total needs ........................................ 105,000 170,400 202,200 391,200
Deduct beginning inventory
(number of switches)* ................... 20,700 36,000 50,400 20,700
Required purchases (number of
switches) ........................................ 84,300 134,400 151,800 370,500

* For January: 69,000 0.30 =20,700.

** For March: 38,000 3 = 114,000; 114,000 0.30 = 34,200
Part B:
Answer:
a. April May June
Production units............................................... 25,000 25,000 30,000
Cash required per unit ..................................... $6 $6 $6
Production costs .............................................. $150,000 $150,000 $180,000

Cash disbursements:
Production this month (40%) ....................... $ 60,000 $ 60,000 $ 72,000
Production prior month (60%) ..................... 96,000 90,000 90,000
Selling and administration............................ 60,000 60,000 60,000
Total disbursements......................................... $216,000 $210,000 $222,000

b. April May June

Sales units ........................................................ 30,000 20,000 25,000
Sales price ....................................................... $15 $15 $15
Total sales ........................................................ $450,000 $300,000 $375,000

Cash receipts:
February sales............................................... $ 45,000
March sales................................................... 157,500 $ 52,500
April sales..................................................... 270,000 135,000$ 45,000
May sales ...................................................... 180,000 90,000
June sales ...................................................... 255,000
Total receipts ................................................... $472,500 $367,500 $360,000