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QUESTION 1: SHORT ANSWER CONTINUED... QUESTION 2: COST OF GOODS MANUFACTURED, INCOME STATEMENT (9 marks) ABC Company has provided the following information for the most recent year ended, June 30, 2011. Administrative expense Advertising Direct labor Direct materials purchased Finished goods inventory, beginning Finished goods inventory, ending Indirect labor Insurance, factory Insurance, office Production line supervisor salary Raw Materials inventory, beginning Raw Materials inventory, ending Rent expense (Note 1) Revenue Work in Process inventory, beginning Work in Process inventory, ending $ 4,200 22,200 28,400 94,800 37,400 44,800 14,600 9,800 10,000 38,500 10,000 8,000 50,000 342,000 15,000 12,200 Note 1: 40% of the rent applies to the factory, whereas the remainder relates to the retail store and office space Part 1: 1. Required: Fill in the blanks for items a - e. Show all details and calculations. (2 marks each) a. Direct materials used in production b. Manufacturing overhead List all overhead expenses included in your calculation (no marks awarded without details): QUESTION 2: COST OF GOODS MANUFACTURED, INCOME STATEMENT CONTINUED... Part 2: Schedule of Cost of Goods Manufactured Required: Create a Schedule of Cost of Goods Manufactured using your answers from a and b above (detailed calculations must be shown for answers a and b; details do not need to be shown below) (5 marks) ABC Company Schedule of Cost of Goods Manufactured For the Year Ended June 30, 2011 QUESTION 3: COST BEHAVIOR (14 marks) Edson Marine Company is a merchandising company that sells a single product. The company's revenues and expenses for the last three months are presented below: Edson Marine Company Comparative Income Statement for the First Quarter Sales in units January 5,000 February 5,250 March 7,000 Sales Cost of Goods Sold Gross Margin $750,000 275,000 $475,000 $787,500 $1,050,000 288,750 385,000 $498,750 $665,000 Operating expenses Shipping expense Advertising expense Salaries and commissions Insurance expense Depreciation expense Total operating expenses $25,000 50,000 130,000 19,000 22,000 $246,000 $26,250 50,000 132,500 19,000 22,000 $249,750 $35,000 50,000 150,000 19,000 22,000 $276,000 Operating income $229,000 $249,000 $389,000 Required: 1. Using the information provided above & your knowledge of cost behaviour, classify each of the company's expenses as either variable (V), fixed (F), or mixed (M) in the space below: (3 marks) Cost of goods sold Shipping expense Advertising expense Salaries and commissions Insurance expense Depreciation expense QUESTION 3: COST BEHAVIOR CONTINUED... (14 marks) 2. Using the high-low method, estimate the cost formula for the mixed costs. (4 marks) QUESTION 3: COST BEHAVIOR CONTINUED... (14 marks) 3. Prepare a Contribution Margin Income Statement for March showing total, per unit, and percentage information where appropriate. Round percentages to one decimal point. (7 marks) SHOW DETAILED LISTING OF EXPENSES. Marks will not be awarded for summarized lists of expenses. Edson Marine Company Contribution Income Statement For the month ended March 31, 2010 Total ($) Per Unit ($) % 10 QUESTION 4: SEGMENTED INCOME STATEMENT (15 marks) Omstadt Company produces and sells two product lines that are referred to as RIPS and PITS. The following data have been extracted relating to last month: Sales Manufacturing costs: Materials Labor Overhead Selling expenses Administrative expenses RIPS PITS $190,000 $190,000 $19,000 $58,900 $74,100 $17,100 $12,000 $26,000 $51,900 $87,000 $9,500 $18,000 An analysis has been made of the manufacturing overhead. Although the items listed above are traceable to the product lines, $27,050 of the overhead assigned to RIPS and $66,000 of that assigned to PITS is fixed. The balance of the overhead is variable. Selling expenses consist entirely of commissions paid as a percentage of sales. Direct labor is completely variable. Administrative expenses in the data above are fixed and cannot be traced to the product lines but have been arbitrarily allocated to the products. Required: 1. Prepare a segmented income statement, in total and for the two products (total dollars and percentage). Use the contribution approach. Round to one decimal point and show all details (summarized lists will not be accepted). (9 marks) PLEASE USE SPACE ON FOLLOWING PAGE TO COMPLETE SEGMENTED INCOME ST AT EM EN T 11 QUESTION 4: SEGMENTED INCOME STATEMENT CONTINUED... **ROUND TO NEAREST DOLLAR. ROUND TO ONE DECIMAL POINT.** Total RIPS P IT S Amount % Amount % Amount % 12 QUESTION 4 CONTINUED... 2. The RIPS product line has two product lines: RI and PS. Selected information has been provided for the two product lines as follows: Contribution Margin Contribution Margin Ratio Segment Margin Segment Margin Ratio Traceable fixed expenses RI $20,000 25% $9,700 PS $13,600 12.3% $14,350 Required: Fill in the blanks below (2 marks each = 6 marks). a) What were the total sales for the RI product line? b) How much were common fixed expenses for the RIPS division? c) What was the segment margin ratio for the RI product line? (Hint: Use the template below to solve for each of the following). Answers must be in the space provided above to receive marks (marks will not be awarded for answers in the below template). 13 QUESTION 5: INCREMENTAL ANALYSIS (5 marks) The Cupcake Factory has provided the following information regarding recent sales: Sales in cupcakes Total Fixed Costs Total Sales Total Variable Costs 500 $2,000 $3,000 $1,200 Management is considering using higher quality vanilla extract for the cupcakes which will increase the variable cost to $2.60/unit. Management believes that the higher quality product will attract new customers, resulting in a 10% increase in unit sales. Required: Should management use the higher quality vanilla extract? Why? Show all calculations to support your answer. Do not prepare an income statement. END OF EXAM 14