ACTG131 Exam 2

Almo company manufactures and sells adjustable canopies that attach to motor homes and trailers. Almo developed its budget for the current year assuming that the canopies would sell at a price of $360 each. The variable expenses for each canopy were forecasted to be $160 and the annual fixed expenses were forecasted to be $170,000. Almo had targeted a profit of $470,000.

While Almo’s sales usually rise during the second quarter, the May financial statements reported that sales were not meeting expectations. For the first five months of the year, only 300 units had been sold at the established price, with variable expense as planned, and it was clear that the target profit for the year would not be reached unless some actions were taken. Almo’s president assigned a management committee to analyze the situation and develop several alternative courses of action. The following three alternatives were presented to the president, only one of which can be selected.

Reduce the selling price by $50. The marketing department forecasts that with the lower price, 2,200 units could be sold during the remainder of the year.

Lower variable expenses per unit by $25 through the use of less expensive materials. Because of the difference in materials, the selling price would have to be lowered by $39 and sales of 1,700 units for the remainder of the year are forecast.

Cut fixed expenses by $9,000 and lower the selling price by 10 percent. Sales of 1,500 units would be expected for the remainder of the year.

Required:

If no changes are made to the selling price or cost structure, estimate the number of units that must be sold during the year to break even.

If no changes are made to the selling price or cost structure, estimate the number of units that must be sold during the year to attain the target profit of $470,000.

Determine which of the alternatives Almo’s president should select to maximize profit. 

The EG Company produces and sells one product. The following data refer to the year just completed:

  Beginning inventory

0  

  Units produced

31,600  

  Units sold

29,600  

  Sales

414  

  Selling and administrative expenses:

  Variable per unit

21  

  Fixed (total)

621,600  

  Manufacturing costs:

  Direct materials cost per unit

216  

  Direct labor cost per unit

50  

  Variable manufacturing overhead cost per unit

37  

  Fixed manufacturing overhead

379,200  

Assume that direct labor is a variable cost.

Compute the cost of a single unit of product under both the absorption costing and variable costing approaches. (Omit the “$” sign in your response.)

Prepare an income statement for the year using absorption costing. (Input all amounts as positive values except losses which should be indicated by a minus sign.

Prepare a contribution format income statement for the year using variable costing. (Input all amounts as positive values except losses which should be indicated by a minus sign. Omit the “$” sign in your response.)

Reconcile the absorption costing and variable costing net operating income figures in (b) and (c) above. (Omit the “$” sign in your response.)

B26W

149L

  Direct materials per unit

20.90   

65.60  

  Direct labor per unit

21.30   

56.30  

  Direct labor-hours per unit

0.70   

2.40  

  Annual production

30,800   

17,500  

The company’s estimated total manufacturing overhead for the year is $2,997,452 and the company’s estimated total direct labor-hours for the year is 63,560.

The company is considering using a variation of activity-based costing to determine its unit product costs for external reports. Data for this proposed activity-based costing system appear below:

  Activities

Estimated Overhead Cost

  Supporting direct labor

444,920     

  Setting up machines

810,852     

  Parts admission

1,741,680     

Total

2,997,452     

21,560    

42,000    

63,560    

827    

3,310    

4,137    

2,060    

1,630    

3,690    

Determine the unit product cost of each of the company’s two products under the traditional costing system.

Determine the unit product cost of each of the company’s two products under activity-based costing system.

Randall Company is a merchandising company that sells a single product. The company’s inventories, production, and sales in units for the next three months have been forecasted as follows:

October

November

December

11,000   

  Merchandise purchases

61,000   

71,000   

6,000   

41,000   

  Ending inventory

Units are sold for $10 each. One fourth of all sales are paid for in the month of sale and the balance are paid for in the following month. Accounts receivable at September 30 totaled $451,000.

Merchandise is purchased for $4 per unit. Half of the purchases are paid for in the month of the purchase and the remainder are paid for in the month following purchase. Selling and administrative expenses are expected to total $121,000 each month. One half of these expenses will be paid in the month in which they are incurred and the balance will be paid in the following month. There is no depreciation. Accounts payable at September 30 totaled $291,000 includes selling and administrative payables.

Cash at September 30 totaled $81,000. A payment of $301,000 for purchase of equipment is scheduled for November, and a dividend of $201,000 is to be paid in December.

Prepare a schedule of expected cash collections for each of the months of October, November, and December. (Omit the “$” sign in your response.)

Prepare a schedule showing expected cash disbursements for merchandise purchases and selling and administrative expenses for each of the months October, November, and December. (Omit the “$” sign in your response.)

Prepare a cash budget for each of the months October, November, and December. There is no minimum required ending cash balance.  (Input all amounts as positive values. Omit the “$” sign in your response.)