Accounting 3131

Fall 2018

Chapter 1
Skip Supply Chain Analysis on page 6.
Skim pages 9 through mid page 12.
(Decision Making, Planning, and Control).
Skim Statement of Ethical Professional Practice on page 17.
Exercises 17, 18
Problem 35 (not part 3)

Chapter 2
Exercises 25, 33
Problems 35, 38, 39
#35 net cost of goods purchased=575,000; cost of goods sold
= 558,900; operating income=34,040. Note: company uses
periodic inventory system for merch. inventory (Gross Method).
#38 solution provided, see following pages (Carolina Corporation)
#39 cost of goods manufactured=645; operating income=50.

Chapter 3 (do not read appendix)

Exercises 22*, 25 (parts 1, 5, 6), 26, 30, 36
Problems 41 (do parts 1, 2), 51 (not part 2)
Practice problems, see next page

* For Ex. 22 (part 2), also calculate the indifference point for the
competing alternatives of automated v. labor intensive production. In
other words, calculate that sales level at which operating income is the
same for either alternative. (indifference point = 615,000 units)

#22 (1b) operating income = 1,640,000

(2b) operating income = 410,000
#25 (1b) break-even sales = 4,500,000 unit
(5) break-even sales = 4,950,000 units
(6) break-even sales = 3,680,000 units
 #26 (1) break-even sales = 37 units
(2) 69 units
#30 (1) break-even for option 1 is 39 units
(2) indifference point = 78 units
(3) for option 1, operating leverage is 2.5
for option 2, operating leverage is 1.0
#36 (1) operating income = 148,500, net income = 89,100
(2) break-even point = 15,000 units
(3) margin of safety = 5,000 units
(4) net income = 2,800
#41 (1) operating income=148,500; net income = 89,100
(2) break-even point = 13,000 units
#51 (1) break-even sales = 180,000 total units (standard and deluxe)
(3) break-even sales = 187,500 total units (standard and deluxe)

Chapter 3
Practice Problems (cost-volume-profit analysis working in sales dollars)

1. A company sells one product with a variable cost ratio of 60%. Fixed
costs are $200,000 per year. What is the sales volume (in dollars) required
to earn target operating income of $400,000 per year?
[sales = $1.5 million]

2. A division in a large conglomerate has a contribution margin ratio of 20%

and fixed costs of $1 million. What is the sales volume (in dollars) required
to earn target net income $600,000. Assume a tax rate of 40%.
[sales = $10 million]

3. A large drug store offers a variety of products for sale. For 2018, the
company reported: $10 million sales; $6 million variable costs; $2.4
million fixed costs. For 2019, what is the expected break-even sales (in
dollars)? [sales = $6 million]
2-38
Carolina Corporation
Schedule of Cost of Goods Manufactured
Year Ended December 31, 2017
(in thousands)

Direct materials costs

Beginning inventory, January 1, 2017 $124,000
Purchases of direct materials 262,000
Cost of direct materials available for use 386,000
Ending inventory, December 31, 2017 73,000
Direct materials used $313,000
Direct manufacturing labor costs 217,000
Indirect manufacturing costs
Indirect manufacturing labor 97,000
Plant insurance 9,000
Depreciation—plant building & equipment 45,000
Plant utilities 26,000
Repairs and maintenance—plant 12,000
Equipment lease costs 65,000
Total indirect manufacturing costs 254,000
Manufacturing costs incurred during 2017 784,000
Add beginning work-in-process inventory, January 1, 2017 173,000
Total manufacturing costs to account for 957,000
Deduct ending work-in-process inventory, December 31, 2017 145,000
Cost of goods manufactured (to Income Statement) $812,000

Carolina Corporation
Income Statement
Year Ended December 31, 2017
(in thousands)

Revenues $1,300,000
Cost of goods sold:
Beginning finished goods, January 1, 2017 $ 240,000
Cost of goods manufactured 812,000
Cost of goods available for sale 1,052,000
Ending finished goods, December 31, 2017 206,000
Cost of goods sold 846,000
Gross margin 454,000
Operating costs:
Marketing, distribution, and customer-service costs 125,000
General and administrative costs 71,000
Total operating costs 196,000
Operating income $ 258,000