Q1. Variable Costing Income Statement

On July 31, the end of the first month of operations, Rhys Company prepared the following income statement, based on the absorption costing concept

Sales (20,000 units)				$1,140,000
Cost of goods sold:
	Cost of goods manufactured	$864,000
	Less ending inventory (4,000 units)	144,000
	Cost of goods sold		720,000
Gross profit		$420,000
Selling and administrative expenses		75,000
Income from operations		$345,000

Question Content Area

a. Prepare a variable costing income statement, assuming that the fixed manufacturing costs were $48,000 and the variable selling and administrative expenses were $34,000. In your computations, round unit costs to two decimal places and round final answers to the nearest dollar

Ending inventoryFixed selling and administrative expensesSalesVariable cost of goods manufacturedVariable selling and administrative expenses		$- Select -
Variable cost of goods sold:
Fixed manufacturing costsFixed selling and administrative expensesSalesVariable cost of goods manufacturedVariable selling and administrative expenses	$- Select -
Less ending inventoryLess fixed selling and administrative expensesLess manufacturing costsLess salesLess variable selling and administrative expenses	- Select -
Ending inventoryFixed selling and administrative expensesSalesVariable cost of goods manufacturedVariable cost of goods sold		- Select -
Contribution marginManufacturing margin		$- Select -
Ending inventoryFixed manufacturing costsFixed selling and administrative expensesSalesVariable selling and administrative expenses		- Select -
Contribution marginManufacturing margin		$- Select -
Fixed costs:
Ending inventoryFixed manufacturing costsManufacturing marginSalesVariable cost of goods manufactured	$- Select -
Ending inventoryFixed selling and administrative expensesSalesVariable cost of goods manufacturedVariable selling and administrative expenses	- Select -	- Select -
Income from operations		$fill in the blank 7598dafe4013fb3_20

Question Content Area

b. Reconcile the absorption costing income from operations of $345,000 with the variable costing income from operations determined in (a).

Absorption costing income from operations	$fill in the blank 9ce4acf9d03f04d_1
Variable costing income from operations	fill in the blank 9ce4acf9d03f04d_2
Difference	$fill in the blank 9ce4acf9d03f04d_3

Q2. Sales Mix and Break-Even Sales

Data related to the expected sales of laptops and tablets for Tech Products Inc. for the current year, which is typical of recent years, are as follows:

Products	Unit Selling Price	Unit Variable Cost	Sales Mix
Laptops	$270		$180		20%
Tablets	490		230		80%

The estimated fixed costs for the current year are $560,480.

Required:

1. Determine the estimated units of sales of the overall (total) product, E, necessary to reach the break-even point for the current year. fill in the blank 1 units

2. Based on the break-even sales (units) in part (1), determine the unit sales of both laptops and tablets for the current year.

Laptops:	fill in the blank 2 units
Tablets:	fill in the blank 3 units

3. Assume that the sales mix was 80% laptops and 20% tablets. Determine the estimated units of sales of the overall product necessary to reach the break-even point for the current year. fill in the blank 4 units

Q3. Contribution Margin, Break-Even Sales, Cost-Volume-Profit Chart, Margin of Safety, and Operating Leverage

Belmain Co. expects to maintain the same inventories at the end of 20Y7 as at the beginning of the year. The total of all production costs for the year is therefore assumed to be equal to the cost of goods sold. With this in mind, the various department heads were asked to submit estimates of the costs for their departments during the year. A summary report of these estimates is as follows:

	Estimated Fixed Cost		Estimated Variable Cost (per unit sold)
Production costs:
	Direct materials			$26
	Direct labor			17
	Factory overhead	$516,100			13
Selling expenses:
	Sales salaries and commissions	107,300			6
	Advertising	36,300
	Travel	8,100
	Miscellaneous selling expense	8,900			5
Administrative expenses:
	Office and officers' salaries	104,800
	Supplies	12,900			2
	Miscellaneous administrative expense	12,000			3
	Total	$806,400			$72

It is expected that 8,800 units will be sold at a price of $240 a unit. Maximum sales within the relevant range are 11,000 units.

Required:

Question Content Area

1. Prepare an estimated income statement for 20Y7.

Direct materialsIncome from operationsMiscellaneous administrative expenseSales salaries and commissionsSales			$- Select -
Cost of goods sold:
Direct materialsIncome from operationsSalesSuppliesTravel		$- Select -
AdvertisingDirect laborIncome from operationsLoss from operationsOffice and officers' salaries		- Select -
Factory overheadMiscellaneous administrative expenseSalesSuppliesTravel		- Select -
Cost of goods sold			fill in the blank ca756cfcafbdf92_9
Gross profit			$fill in the blank ca756cfcafbdf92_10
Expenses:
Selling expenses:
Factory overheadIncome from operationsMiscellaneous administrative expenseSales salaries and commissionsSales	$- Select -
AdvertisingCost of goods manufacturedDirect materialsOffice and officers' salariesSales	- Select -
Direct laborFactory overheadSalesSuppliesTravel	- Select -
Direct materialsMiscellaneous administrative expenseMiscellaneous selling expenseSalesSupplies	- Select -
Total selling expenses		$fill in the blank ca756cfcafbdf92_19
Administrative expenses:
AdvertisingDirect laborOffice and officers' salariesSales salaries and commissionsTravel	$- Select -
Direct materialsFactory overheadSalesSuppliesTravel	- Select -
Direct materialsMiscellaneous administrative expenseMiscellaneous selling expenseSales salaries and commissionsSales	- Select -
Total administrative expenses		fill in the blank ca756cfcafbdf92_26
Total expenses			fill in the blank ca756cfcafbdf92_27
Income from operations			$fill in the blank ca756cfcafbdf92_28

Question Content Area

2. What is the expected contribution margin ratio? Round to the nearest whole percent. fill in the blank 147be708ffe3fd2_1 %

3. Determine the break-even sales in units and dollars.

Units	fill in the blank 147be708ffe3fd2_2 units
Dollars	fill in the blank 147be708ffe3fd2_3 units

4. Construct a cost-volume-profit chart on your own paper. What is the break-even sales? $ fill in the blank 147be708ffe3fd2_4

5. What is the expected margin of safety in dollars and as a percentage of sales?

Dollars:	$fill in the blank 147be708ffe3fd2_5
Percentage: (Round to the nearest whole percent.)	fill in the blank 147be708ffe3fd2_6	%

6. Determine the operating leverage. Round to one decimal place. fill in the blank 147be708ffe3fd2_7