Question #1 (6 points)

Jan Haley owns and operates Haley’s Dry Cleaners. The following occurred during
December:

a. On December 1, Haley prepaid rent on her store for December and January with
$2,000 cash.

b. On December 1, Haley purchased insurance with cash in the amount of $2,400 that
will last six months.

c. Haley paid $900 of her accounts payable balance.

d. Haley paid off all of her salaries payable balance.

e. Haley purchased supplies on account in the amount of $2,400.

f. Haley paid a salary to her assistant of $1,000 in cash for work done in the first two
weeks of December.

g. Haley dry-cleaned clothes for customers on account in the amount of $8,000.

h. Haley collected $6,300 of her accounts receivable balance.

i. Haley paid tax of $750 in cash.

Prepare the journal entry required for each of the transactions

a. On December 1, Haley prepaid rent on her store for December and January for
$2,000 in cash.

Dr. Prepaid rent $2,000

Cr. Cash $2,000

b. On December 1, Haley purchased insurance with cash in the amount of $2,400.

The coverage will last 6 months.

Prepaid Insurance $2,400

.......Cash $2400
c. Haley paid $900 of her accounts payable balance.

Dr. Accounts payable $900

Cr. Cash $900

d. Haley paid off all of her salaries payable balance.

Salaries Payable $1,000

........Cash 1,000

e. Haley purchased supplies on account in the amount of $2,400.

Dr. Supplies $2,400

Cr. Accounts Payable $2,400

f. Haley paid a salary to her assistant of $1,000 in cash for work done in the first
two weeks of December.

Dr. Salaries Payable $1,000

Cr. Cash $1,000

g. Haley dry-cleaned clothes for customers on account in the amount of $8,000.

Account Receivable 8,000

......Revenue 8,000

h. Haley collected $6,300 of her accounts receivable balance.

Dr. Cash $6,300

Cr. Accounts receivable $6,300

i. Haley paid tax of $750 in cash.

Dr. Tax Expense $750

Cr. Cash $750

Question #4 (6 points)

Cluster Company distributes a single product. The company’s sales and expenses for a
recent
month follow:

Total Per Unit

Sales . . . . . . . . . . . . . . . . . . . . . . $600,000 $40

Variable expenses . . . . . . . . . . . . 420,000 28

Contribution margin . . . . . . . . . . . 180,000 $12

Fixed expenses . . . . . . . . . . . . . . 150,000

Net operating income . . . . . . . . . $ 30,000

Required:

a. What is the monthly break-even point in units sold and in sales dollars?

b. Without resorting to computations, what is the total contribution margin at the

break-even point?

c. How many units would have to be sold each month to earn a target profit of
$18,000?

1)

Profit = (Unit CM × Q) − Fixed expenses

$0 = (($40 − $28) × Q) − $150,000
$0 = ($12 × Q) − $150,000
$12Q = $150,000
Q = $150,000 ÷ $12 per unit
Q = 12,500 units, or at $40 per unit, $500,000

2) The contribution margin at the break-even point is $150,000 because

at that point it must equal the fixed expenses.

3) Unit sales to attain = Target Profit + Fixed expenses

Target Profit
 Unit contribution margin = 18000$ + 150000$ = 14000 units

12$ per unit

4) Margin of safety in dollar terms:

Margin of safety = Total sales – Break even sales in dollars = 600000$ -

500000$ = 100000$

Margin of safety percentage terms:

Margin of safety = Margin of safety in dollars percentage

Total sales = 100000$ = 16,7% (rounded)

600000$

5)

The CM ratio is 30%.

  Expected total contribution margin: $680,000 × 30%         $ 204,000  
  Present total contribution margin: $600,000 × 30% $   180,000  
  Increased contribution margin         $ 24,000