Q1. China Pacific Ltd. has a department that manufactures wooden horses. The following information is for the production of these wooden horses for the month of February:

Work-in-process inventory, 1 Feb. 40,000 wooden horses

Direct materials cost: 100% complete $400,000

Conversion: 20% complete $460,000

Units started during February 60,000 wooden horses

Units completed during February and Transferred out 80,000 wooden horses

Work-in-process inventory, 28 Feb 20,000 wooden horses

Direct materials: 100% complete

Conversion cost: 40% complete

Costs incurred during February

Direct materials $200,000

Conversion $380,000

Required:

(a) Using the weighted-average method, calculate the following:

(i) Costs per equivalent unit.

(ii) Cost of goods completed and transferred out.

(iii) Cost remaining in the ending work-in-process inventory.

(b) Using the first-in first-out method, calculate the following:

(i) Costs per equivalent unit.

(ii) Cost of goods completed and transferred out.

(iii) Cost remaining in the ending work-in-process inventory

(c) Assume that you are the company's financial controller. The production department's February unit cost is higher than the standard cost. If the manager of the first department asks you to do him a favour by increasing the ending inventory completion percentage from 40 to 60 percent to lower the unit costs, what should you do?

(d) Assume China Pacific Ltd. gives you the following information regarding operations for September 20x2: Total wooden horses manufactured 64,000 Wooden horses rejected as spoiled units 2,400 Total manufacturing cost $2,560,000 Assume the spoiled units have no disposal value.

(i) What is the unit cost of making the 64,000 horse?

(ii) What is the total cost of the 2,400 spoiled units?

(iii)If the spoilage is considered normal, what is the increase in the unit cost of good horses manufactured as a result of the spoilage?

(iv)If the spoilage is considered abnormal, prepare the journal entries for the spoilage incurred.

Q2. Snowball Ltd. manufactures a specialized snowboard made for advanced snowboarders. Snowball Ltd. started 20x2 with an inventory of 480 snowboards. During the year, it produced 1,800 boards and sold 1,990 for $750 each. Fixed production costs were $560,000 and variable production costs were $335 per unit. Fixed advertising, marketing and other general and administrative expenses were $224,000 and variable shipping costs were $15 per board. Assume that the cost of each unit in beginning inventory is equal to 20x2 inventory cost.

Required:

(a) an income statement assuming Snowball Ltd. uses variable costing.

(b) an income statement assuming Snowball ltd. uses absorption costing. Snowball Ltd. uses a denominator level of 2,000 units. Production-volume variances are written off to cost of goods sold.

(c) Compute the breakeven point in units sold assuming Snowball Ltd. uses the following: (i) Variable costing (ii) Absorption costing (Production =1,800 boards)

(d) Assume that $40,000 of fixed administrative costs were reclassified as fixed production costs. Would this change affect breakeven point using variable costing? What if absorption costing were used? Explain.

(e) Will the financial statements of a company always differ when different choices are made at the start of the accounting period regarding the denominator-level capacity concept?