Abbott Suit (ASC) corporation manufactures BOTH nylon AND cotton jogging suits.

On 1/1/20, Erin Rogers ESTIMATES the following fixed costs:

Accountants salary $10,000

Depreciation on factory equipment $4,000

Rent on Manufacturing Facility $6,000

$20,000

ABBOTT SUIT CORPORATION USES DIRECT LABOR HOURS TO ALLOCATE DEPRECIATION ANDRENT.

	Nylon Jogging Suits		Cotton Jogging Suits
	Std.qty/suit	Std.price/input	Std.qty/suit	Std.price/input
Direct Materials	2.5 yds/suit	$20/yd	4 yds/suit	$15/yd
Direct Labor	5 dlh/suit	$10/dlh	4 dlh/suit	$15/dlh
VOH:utilities/grease/janitor	5 mh/suit	$10/mh	8 mh/suit	$10/mh

REQUIRED:

1. Calculate the number of nylon and cotton jogging suits that need to be SOLD to achieve a goal operating income of $100,000. ASC believes that for every nylon jogging suit sold TWO TIMES AS MANY cotton jogging suits will be sold (that is if 10 nylon jogging suits are sold, then 20 cotton jogging suits will be made). ASC estimates that it can sell nylon jogging suits for $250/nylon jogging suit and cotton jogging suits for the same price of $250/cotton jogging suit.

For Nylon Jogging Suits: Variable cost per unit is calculated as below - Direct Material = Standard quantity * standard price = 2.5 * 20 = $ 50 Direct Labor = Standard quantity * standard price = 5 * 10 = $ 50 VOH = = Standard quantity * standard price = 5 * 10 = $ 50

Variable cost for each Nylon Jogging suit is $ 150 (50 + 50 + 50)

Contribution Margin = Selling price - Variable Cost Contribution Margin = 250 - 150 Contribution Margin = $ 100

Contribution margin for Nylon Jogging Suits is $ 100

For Cotton Jogging Suits: Variable cost per unit is calculated as below - Direct Material = Standard quantity * standard price = 4 * 15 = $ 60 Direct Labor = Standard quantity * standard price = 4 * 15 = $ 60 VOH = = Standard quantity * standard price = 8 * 10 = $ 80

Variable cost for each Cotton Jogging suit is $ 200 ( 60 + 60 + 80)

Contribution Margin = Selling price - Variable Cost Contribution Margin = 250 - 200 Contribution Margin = $ 50

Contribution margin for Cotton Jogging Suits is $ 50

Business want to earn $ 100,000 operating income. So we need to calculate required units for $ 120,000 (20,000 fixed cost + 100,000 operating income).

Required combined Units = (Fixed Cost + Operating income) / combined Contribution margin Required combined Units = (20,000 + 100,000) / 200 Required combined Units = 120,000 / 200 Required combined Units = 600 units.

50% profit belongs to Nylon jogging suit and 50% goes to cotton jogging suit. So business need to sold 300 units (600 * 50%) of Nylon joggings suits and 600 units (600 *50% *2) of cotton suits.

To achieve operating income of $ 100,000 business need to sale 300 units of Nylon joggings suits and 600 units of cotton suits.

2. ASC currently has the following inventory balances as of the BEGINNING of the year: 0 nylon jogging suits and 0 cotton jogging suits. ASC budgets to have 200 nylon jogging suits and 300 cotton jogging suits by the end of the year. Calculate the BUDGETED # of suits that need to be produced.

Total Production = Number of units sold + Ending inventory - Beginning Inventory

Description	Nylon Jogging Suit	Cotton Jogging Suit
Number of units Sold	300	600
Add Ending Inventory	200	300
Less Beginning Inventory	(0)	(0)
Number of units to be produce	500	900

3. Calculate the (FPDOH) FIXED PREDETERMINED OVERHEAD RATE. SHOW YOUR WORK REMEMBER Abbott uses DLH to allocate fixed overhead..

Business have fixed overhead of $ 10,000 ( 4,000 depreciation + 6,000 manufacturing rent). Fixed overheads are allocated basis the direct labor hours.

Total Direct Labor Hours = Direct Labor hours required for Nylon Jogging suits + Direct Labor hours required for Cotton Jogging suits Total Direct Labor Hours = ( number of units of production * direct labor hour per unit) + ( number of units of production * direct labor hour per unit) Total Direct Labor Hours = ( 500 * 5) + (900 * 4) Total Direct Labor Hours = 2,000 + 3,600 Total Direct Labor Hours = 5,600

Fixed Predetermined overhead rate = Total fixed manufacturing cost / number of direct labor hours Fixed Predetermined overhead rate = 10,000 / 5,600 Fixed Predetermined overhead rate = $ 1.79 per direct labor hour

ACTUAL RESULTS FOR JANUARY

4. On 1/1/2020, ASC purchased 10,000 lbs of grease at $100,000 for factory equipment in CASH. Give the journal entry (note: just because a company purchased grease in January does NOT mean it used grease in january). GIVE THE JOURNAL ENTRY.

5. Abbott made the following purchases for the year in January:

Nylon 1,000 yards for $18,000;

Cotton 1,000 yards for $14,000;

Give the journal entry for this transaction and include ANY variances.

6. ASC workers requisitioned out the following from the RMI warehouse for JANUARY 2017:

Nylon 150 yards;

Cotton 300 yards;

ASC workers made 50 nylon jogging suits and 80 cotton jogging suits in JANUARY.

Give the journal entry for this transaction and include ANY related variances. SHOW YOUR WORK.

7. ASC workers worked the following during January (IN CASH).

Nylon workers (260 dlh*$15/dlh);

Cotton workers (300 dlh*$20/dlh);

Janitor wages (100 hours for a total of $1,000)

Accountant (200 hours for a total of $2,000).

Give the journal entry for this transaction and include ANY direct labor-related variances. SHOW WORK

8. ASC paid its vendors the following in CASH during the JANUARY:

Fisher Properties for rent $500

We Energies for utilities $24,000

9. Abbott has a sewing machine that was purchased in 2018 for $40,000, with a useful life of 10 years and a salvage value of 0. Give the MONTHLY depreciation journal entry for this machine.
10. On January 30, Abbott workers requisitioned out 500 pounds of grease and put it into the sewing machine. Give the journal entry.
11. Give the journal entry to APPLYoverhead in January for BOTH VOH and FOH. Nylon jogging workers used 350 machine hours and cotton jogging suit workers used 850 machine hours
12. Create the different MOH/VOH and MOH/FOH clearing accounts. Indicate if the individual moh t-accounts are OVER- or UNDER-applied. SHOW YOUR WORK.
13. CALCULATE - BUT DO NOT JOURNALIZE - THE VOH VARIANCES FOR JANUARY.

14. 14. During January, ASC sells the following: 40 nylon jogging suits for $250/nylon jogging suits ON ACCOUNT and 75 cotton jogging suits for $240/cotton jogging suit. Give the journal entry.