Question
Question 1 Mastery Problem: Activity-Based Costing WoolCorp WoolCorp buys sheep's wool from farmers. The company began operations in January of this year, and is making
Question 1
Mastery Problem: Activity-Based Costing
WoolCorp
WoolCorp buys sheep's wool from farmers. The company began operations in January of this year, and is making decisions on product offerings, pricing, and vendors. The company is also examining its method of assigning overhead to products. Just been hired as a production manager at WoolCorp.
Currently WoolCorp makes two products: (1) raw, clean wool to be used as stuffing or insulation and (2) wool yarn for use in the textile industry.
The company would like to evaluate its costing methods for its raw wool and wool yarn.
Question Content Area
Single Plantwide Rate
WoolCorp is currently using the single plantwide factory overhead rate method, which uses a predetermined overhead rate based on an estimated allocation base such as direct labor hours or machine hours. The rate is computed as follows:
Single Plantwide Factory Overhead Rate = (Total Budgeted Factory Overhead) (Total Budgeted Plantwide Allocation Base)
WoolCorp has been using combing machine hours as its allocation base.
The company would like to consider activity-based costing. In order to understand their current system better, evaluate WoolCorp's current method of costing for raw wool and wool yarn. The production staff has compiled the following information for on the production of 450 pounds of either raw wool or wool yarn:
Factory Overhead Type | Budgeted Factory Overhead |
Sorting | $25,600 |
Cleaning | 38,400 |
Combing | 1,200 |
Raw Wool | Wool Yarn | |
Hours of combing machine use required | 70 | 30 |
In the following table, use combing machine hours as the allocation base for assigning overhead costs to each product. When required, round your answers to the nearest dollar.
Single Plantwide Factory Overhead Rate: $fill in the blank 663bf1fce020f94_1 per combing hour
Raw Wool | Wool Yarn | |
Allocated factory overhead cost | $fill in the blank 663bf1fce020f94_2 | $fill in the blank 663bf1fce020f94_3 |
Question Content Area
Activity-Based Costing
In order to compare WoolCorp's current method with activity-based costing, interview the production staff and compile the following information, which relates to the costs for raw wool and wool yarn.
Type of Cost | Activity Base | Total Cost |
Sorting | Hours of sorting | $25,600 |
Cleaning | Units of cleaning machine power | 38,400 |
Combing | Hours of combing machine use | 1,200 |
Raw Wool | Wool Yarn | |
Hoursofsortingrequired | 1,000 | 4,000 |
Unitsofcleaningmachinepowerrequired | 1,920 | 4,480 |
Hoursofcombingmachineuserequired | 70 | 30 |
In the following table, compute and enter the activity rate for each of the three activities. If required, round answers to the nearest cent.
Activity | Activity Rate | |
Sorting | $fill in the blank 39fdc3fc4079053_1 | per sorting hour |
Cleaning | $fill in the blank 39fdc3fc4079053_2 | per unit of cleaning machine power |
Combing | $fill in the blank 39fdc3fc4079053_3 | per hour of combing machine use |
In the following table, allocate the costs of sorting, cleaning, and combing based on the rates of activity consumed by each product's process. When required, round answers to the nearest dollar.
Raw Wool | Wool Yarn | |
Sorting cost | $fill in the blank 39fdc3fc4079053_4 | $fill in the blank 39fdc3fc4079053_5 |
Cleaning cost | fill in the blank 39fdc3fc4079053_6 | fill in the blank 39fdc3fc4079053_7 |
Combing cost | fill in the blank 39fdc3fc4079053_8 | fill in the blank 39fdc3fc4079053_9 |
Total cost | $fill in the blank 39fdc3fc4079053_10 | $fill in the blank 39fdc3fc4079053_11 |
Final Question
After reviewing work on the Single Plantwide Rate and Activity-Based Costing panels, which of the costing method would recommend to WoolCorp, and why?
Activity-based costing method, because it recognizes differences in how each product uses factory overhead activities, yielding more accurate product costs.Single plantwide factory overhead rate method, because it is a tried-and-true method used for the entire life of the company.Since both the methods give the same costs for each product, there is no advantage to either method.The company should use whichever method is the cheapest to implement.
Question 2
Mastery Problem: Cost-Volume-Profit Analysis
Cost Behavior
Cover-to-Cover Company is a manufacturer of shelving for books. The company has compiled the following cost data, and wants help in determining the cost behavior. After reviewing the data, complete requirements (1) and (2) that follow.
Units Produced | Total Lumber Cost | Total Utilities Cost | Total Machine Depreciation Cost |
15,000shelves | $165,000 | $19,250 | $140,000 |
30,000shelves | 330,000 | 36,500 | 140,000 |
60,000shelves | 660,000 | 71,000 | 140,000 |
75,000shelves | 825,000 | 88,250 | 140,000 |
1. Determine whether the costs in the table are variable, fixed, mixed, or none of these.
Lumber | Variable CostFixed CostMixed CostNone of these |
Utilities | Variable CostFixed CostMixed CostNone of these |
Depreciation | Variable CostFixed CostMixed CostNone of these |
2. For each cost, determine the fixed portion of the cost, and the per-unit variable cost. If there is no amount or an amount is zero, enter "0". Recall that, for N = Number of Units Produced, Total Costs = (Variable Cost Per Unit x N) + Fixed Cost. Complete the following table with answers. Round variable portion of cost (per unit) answers to two decimal places.
Cost | Fixed Portion of Cost | Variable Portion of Cost (per Unit) |
Lumber | $fill in the blank 5eaaa500800401c_4 | $fill in the blank 5eaaa500800401c_5 |
Utilities | fill in the blank 5eaaa500800401c_6 | fill in the blank 5eaaa500800401c_7 |
Depreciation | fill in the blank 5eaaa500800401c_8 | fill in the blank 5eaaa500800401c_9 |
High-Low
Biblio Files Company is the chief competitor of Cover-to-Cover Company in the bookshelf business. Biblio Files is analyzing its manufacturing costs, and has compiled the following data for the first six months of the year. After reviewing the data, answer questions (1) through (3) that follow.
Units Produced | Total Cost | ||
January | 4,360 | units | $65,600 |
February | 275 | 6,250 | |
March | 1,000 | 15,000 | |
April | 5,775 | 116,250 | |
May | 1,750 | 32,500 | |
June | 3,015 | 48,000 |
1. From the data previously provided, help Biblio Files Company estimate the fixed and variable portions of its total costs using the high-low method. Recall that Total Costs = (Variable Cost Per Unit x Number of Units Produced) + Fixed Cost. Complete the following table.
Total Fixed Cost | Variable Cost per Unit |
$fill in the blank ab664906702c047_1 | $fill in the blank ab664906702c047_2 |
2. With Total Fixed Cost and Variable Cost per Unit from the high-low method, compute the total cost for the following values of N (Number of Units Produced).
Number of Units Produced | Total Cost |
3,500 | $fill in the blank ab664906702c047_3 |
4,360 | fill in the blank ab664906702c047_4 |
5,775 | fill in the blank ab664906702c047_5 |
3. Why does the total cost computed for 4,360 units not match the data for January?
a. The high-low method is accurate only for months in which production is at full capacity.
b. The high-low method only gives accurate data when fixed costs are zero.
c. The high-low method gives a formula for the estimated total cost and may not match levels of production other than the highest and lowest.
d. The high-low method gives accurate data only for levels of production outside the relevant range.
abcd
Contribution Margin
Review the contribution margin income statements for Cover-to-Cover Company and Biblio Files Company on their respective Income Statements. Complete the following table from the data provided on the income statements. Each company sold 77,800 units during the year.
Cover-to-Cover Company | Biblio Files Company | |
Contribution margin ratio (percent) | fill in the blank a18ff8044fe0064_1% | fill in the blank a18ff8044fe0064_2% |
Unit contribution margin | $fill in the blank a18ff8044fe0064_3 | $fill in the blank a18ff8044fe0064_4 |
Break-even sales (units) | fill in the blank a18ff8044fe0064_5 | fill in the blank a18ff8044fe0064_6 |
Break-even sales (dollars) | $fill in the blank a18ff8044fe0064_7 | $fill in the blank a18ff8044fe0064_8 |
Income Statement - Cover-to-Cover
Cover-to-Cover Company Contribution Margin Income Statement For the Year Ended December 31, 20Y8 | ||
Sales | $389,000 | |
Variable costs: | ||
Manufacturing expense | $233,400 | |
Selling expense | 19,450 | |
Administrative expense | 58,350 | (311,200) |
Contribution margin | $77,800 | |
Fixed costs: | ||
Manufacturing expense | $5,000 | |
Selling expense | 4,000 | |
Administrative expense | 10,450 | (19,450) |
Operating income | $58,350 |
Income Statement - Biblio Files
Biblio Files Company Contribution Margin Income Statement For the Year Ended December 31, 20Y8 | ||
Sales | $389,000 | |
Variable costs: | ||
Manufacturing expense | $155,600 | |
Selling expense | 15,560 | |
Administrative expense | 62,240 | (233,400) |
Contribution margin | $155,600 | |
Fixed costs: | ||
Manufacturing expense | $79,250 | |
Selling expense | 8,000 | |
Administrative expense | 10,000 | (97,250) |
Operating income | $58,350 |
Sales Mix
Biblio Files Company is making plans for its next fiscal year, and decides to sell two new types of bookshelves, Basic and Deluxe. The company has compiled the following estimates for the new product offerings.
Type of Bookshelf | Sales Price per Unit | Variable Cost per Unit |
Basic | $5.00 | $1.75 |
Deluxe | 9.00 | 8.10 |
The company is interested in determining how many of each type of bookshelf would have to be sold in order to break even. If we think of the Basic and Deluxe products as components of one overall enterprise product called "Combined," the unit contribution margin for the Combined product would be $2.31. Fixed costs for the upcoming year are estimated at $341,880. Recall that the totals of all the sales mix percents must be 100%. Determine the amounts to complete the following table.
Type of Bookshelf | Percent of Sales Mix | Break-Even Sales in Units | Break-Even Sales in Dollars |
Basic | fill in the blank 5fb349072017ff3_1% | fill in the blank 5fb349072017ff3_2 | $fill in the blank 5fb349072017ff3_3 |
Deluxe | fill in the blank 5fb349072017ff3_4% | fill in the blank 5fb349072017ff3_5 | $fill in the blank 5fb349072017ff3_6 |
Target Profit
Refer again to the income statements for Cover-to-Cover Company and Biblio Files Company on their respective Income Statement. Note that both companies have the same sales and net income. Answer questions (1) - (3) that follow, assuming that all data for the coming year is the same as the current year, except for the amount of sales.
1. If Cover-to-Cover Company wants to increase its profit by $30,000 in the coming year, what must their amount of sales be? $fill in the blank 81b5f3093068fdf_1
2. If Biblio Files Company wants to increase its profit by $30,000 in the coming year, what must their amount of sales be? $fill in the blank 81b5f3093068fdf_2
3. What would explain the difference between answers for (1) and (2)?
a. Biblio Files Company has a higher contribution margin ratio, and so more of each sales dollar is available to cover fixed costs and provide operating income.
b. Cover-to-Cover Company's contribution margin ratio is lower, meaning that it's more efficient in its operations.
c. The companies have goals that are not in the relevant range.
d. The answers are not different; each company has the same required sales amount for the coming year to achieve the desired target profit.
abcd
Question 3
Mastery Problem: Variable Costing for Management Analysis
Question Content Area
Absorption vs. Variable
Operating income is one of the most important items reported by a company. Depending on the decision-making needs of management, operating income can be determined using absorption costing or variable costing.
Select whether the following characteristics are most often associated with absorption costing or variable costing.
Required under generally accepted accounting principles (GAAP) | Absorption CostingVariable Costing |
Often used for internal use in decision making | Absorption CostingVariable Costing |
Cost of goods manufactured includes only variable manufacturing costs | Absorption CostingVariable Costing |
Used in reports prepared for external users | Absorption CostingVariable Costing |
Fixed factory overhead costs are not part of cost of goods manufactured | Absorption CostingVariable Costing |
Both fixed and variable factory costs are included in cost of goods sold and inventory | Absorption CostingVariable Costing |
Question Content Area
Absorption Statement
Absorption costing does not distinguish between variable and fixed costs. All manufacturing costs are included in the cost of goods sold.
Saxon, Inc. Absorption Costing Income Statement For the Year Ended December 31 | ||
Sales | $1,360,000 | |
Cost of goods sold: | ||
Cost of goods manufactured | $800,000 | |
Ending inventory | (120,000) | |
Total cost of goods sold | (680,000) | |
Gross profit | $680,000 | |
Selling and administrative expenses | (320,000) | |
Operating income | $360,000 |
Variable Statement
Under variable costing, the cost of goods manufactured includes only variable manufacturing costs. This type of income statement includes a computation of manufacturing margin.
Saxon, Inc. Variable Costing Income Statement For the Year Ended December 31 | |||
Sales | $1,360,000 | ||
Variable cost of goods sold: | |||
Variable cost of goods manufactured | $560,000 | ||
Ending inventory | (84,000) | ||
Total variable cost of goods sold | (476,000) | ||
Manufacturing margin | $884,000 | ||
Variable selling and administrative expenses | (255,000) | ||
Contribution margin | $629,000 | ||
Fixed costs: | |||
Fixed manufacturing costs | $240,000 | ||
Fixed selling and administrative expenses | 65,000 | ||
Total fixed costs | (305,000) | ||
Operating income | $324,000 |
Method Comparison
Review the income statements on the Absorption Statement and Variable Statement, then complete the following table. The company's sales price per unit is $80, and the number of units in ending inventory is 3,000. There was no beginning inventory.
Item | Amount |
Number of units sold | fill in the blank 7e134a04cfcf06d_1 |
Variable sales and administrative costperunit | $fill in the blank 7e134a04cfcf06d_2 |
Number of units manufactured | fill in the blank 7e134a04cfcf06d_3 |
Variable cost of goods manufacturedperunit | $fill in the blank 7e134a04cfcf06d_4 |
Fixedmanufacturingcostperunit | $fill in the blank 7e134a04cfcf06d_5 |
Question Content Area
Manufacturing Decisions
Whenever the units manufactured differ from the units sold, finished goods inventory is affected. In analyzing operating income, such increases and decreases could be misinterpreted as operating efficiencies or inefficiencies. Each decision-making situation should be carefully analyzed in deciding whether absorption or variable costing reporting would be more useful.
All costs are controllable in the long run by someone within a business. For a given level of management, costs may be controllable costs or noncontrollable costs.
The production manager for Saxon, Inc. is worried because the company is not showing a high enough profit. Looking at the income statements on the Absorption Statement and the Variable Statement, he notices that the operating income is higher on the absorption cost income statement. He is considering manufacturing another 10,000 units, up to the company's capacity for manufacturing, in the coming year. He reasons that this will boost operating income and satisfy the company's owner that the company is sufficiently profitable. Although the total units manufactured changes, assume that total fixed costs, unit variable costs, unit sales price, and the sales levels are the same. Complete questions (1)-(4) that follow. If the answer is zero, enter "0".
1. Use the income statements on the Absorption Statement and Variable Statement to complete the following table for the original production level. Then prepare similar income statements at a production level 10,000 units higher and add that information to the table. Assume that total fixed costs, unit variable costs, unit sales price, and the sales levels are the same at both production levels.
Operating Income | |||
Original Production Level-Absorption | Original Production Level-Variable | Additional 10,000 Units-Absorption | Additional 10,000 Units-Variable |
$fill in the blank ca2cd7fe9003fd6_1 | $fill in the blank ca2cd7fe9003fd6_2 | $fill in the blank ca2cd7fe9003fd6_3 | $fill in the blank ca2cd7fe9003fd6_4 |
2. What is the change in operating income from producing 10,000 additional units under absorption costing?
$fill in the blank ca2cd7fe9003fd6_5
3. What is the change in operating income from producing 10,000 additional units under variable costing?
$fill in the blank ca2cd7fe9003fd6_6
4. What would be recommendation to the production manager?
a. Do not produce the extra 10,000 units. The increase in operating income under absorption costing is due to fixed manufacturing costs being held in inventory, and the additional inventory will lead to higher handling, storage, financing, and obsolescence costs.
b. Produce the extra 10,000 units. Operating income will be increased, and the production manager will receive praise for creating higher profits.
c. Do not produce the extra 10,000 units. Operating income does not change under absorption costing when the additional units are produced.
d. Produce the extra 10,000 units. It's always a good idea to have extra units on hand and keep the factory operating at capacity, even if all the units are not sold.
abcd
Question 4
Mastery Problem: Budgeting
Question Content Area
LearnCo
LearnCo manufactures and sells one product, an abacus for classroom use, with two models, the Basic model and the Deluxe model. The company began operations on January 1, 20Y1, and is planning for 20Y2, its second year of operations, by preparing budgets from its master budget.
The company is trying to decide how many units to manufacture, how much it might spend on direct materials and direct labor, and what their factory overhead expenses might be. In addition, the company is interested in budgeting for selling and administrative costs, and in creating a budgeted income statement showing a prediction of net income for 20Y2.
Have been asked to assist the controller of LearnCo in preparing the 20Y2 budgets.
Sales Budget
The sales budget often uses the prior year's sales as a starting point, and then sales quantities are revised for various factors such as planned advertising and promotion, projected pricing changes, and expected industry and general economic conditions. LearnCo has completed reviewing its prior year's sales and has prepared the following sales budget.
After reviewing LearnCo's sales budget, note that three numbers have been omitted. The company's controller has told you that the units sold for the Basic and Deluxe models are expected to be the same. Fill in the missing amounts.
LearnCo Sales Budget For the Year Ending December 31, 20Y2 | |||
Product | Unit Sales Volume | Unit Selling Price | Total Sales |
Basic Abacus | fill in the blank c75d7cff3f96008_1 | $7 | $252,000 |
Deluxe Abacus | fill in the blank c75d7cff3f96008_2 | fill in the blank c75d7cff3f96008_3 | 468,000 |
Totals | 72,000 | $720,000 |
Question Content Area
Production Budget
The production budget should be integrated with the sales budget to ensure that production and sales are kept in balance during the year. The production budget estimates the number of units to be manufactured to meet budgeted sales and desired inventory levels.
Note that LearnCo has omitted six numbers from the following production budget and fill in the missing amounts. May need to use numbers from the sales budget prepared.
LearnCo Production Budget For the Year Ending December 31, 20Y2 | ||
Units Basic | Units Deluxe | |
Expected units to be sold (from Sales Budget) | fill in the blank b80274f88fa104b_1 | fill in the blank b80274f88fa104b_2 |
Desired ending inventory, December 31, 20Y2 | 1,000 | 3,000 |
Total units available | fill in the blank b80274f88fa104b_3 | fill in the blank b80274f88fa104b_4 |
Estimated beginning inventory, January 1, 20Y2 | (1,050) | (2,100) |
Total units to be produced | fill in the blank b80274f88fa104b_5 | fill in the blank b80274f88fa104b_6 |
Question Content Area
Direct Materials Purchases Budget
The direct materials purchases budget should be integrated with the production budget to ensure that production is not interrupted during the year.
Before make any changes to the budget, review the information on the following Direct Materials Data Table and enter the units to be produced from the Production Budget. After scanning the direct materials purchases budget (which follows the Direct Materials Data Table), observe that LearnCo has omitted quite a few numbers from the budget. Fill in the missing amounts. May need to use numbers from the Direct Materials Data Table, or from the sales budget and production budget prepared. When required, round answers to the nearest dollar.
Direct Materials Data Table | ||
Wood Pieces | Beads | |
Packages required per unit: | ||
Basic abacus | 1 | 2 |
Deluxe abacus | 2 | 3 |
Cost per package: | ||
Wood pieces | $0.25 | |
Beads | $0.25 | |
Unitstobeproduced (from Production Budget): | ||
Basic abacus | fill in the blank 8e09bf07e04af8b_1 | |
Deluxe abacus | fill in the blank 8e09bf07e04af8b_2 |
LearnCo Direct Materials Purchases Budget For the Year Ending December 31, 20Y2 | |||
Direct Materials | |||
Wood Pieces | Beads | Total | |
Packages required for production: | |||
Basic abacus | fill in the blank 8e09bf07e04af8b_3 | fill in the blank 8e09bf07e04af8b_4 | |
Deluxe abacus | fill in the blank 8e09bf07e04af8b_5 | fill in the blank 8e09bf07e04af8b_6 | |
Desired inventory, December 31, 20Y2 | 2,200 | 5,000 | |
Total packages available | fill in the blank 8e09bf07e04af8b_7 | fill in the blank 8e09bf07e04af8b_8 | |
Estimated inventory, January 1, 20Y2 | (3,500) | (4,500) | |
Total packages to be purchased | fill in the blank 8e09bf07e04af8b_9 | fill in the blank 8e09bf07e04af8b_10 | |
Unit price (per package) | $fill in the blank 8e09bf07e04af8b_11 | $fill in the blank 8e09bf07e04af8b_12 | |
Total direct materials to be purchased | $fill in the blank 8e09bf07e04af8b_13 | $fill in the blank 8e09bf07e04af8b_14 | $72,888 |
Question Content Area
Direct Labor Cost Budget
Direct labor needs from the direct labor cost budget should be coordinated between the production and personnel departments so that there will be enough labor available for production.
Before make any changes to the budget, review the information on the following Direct Labor Data Table and enter the units to be produced from the Production Budget. After scanning the Direct Labor Cost Budget (which follows the Direct Labor Data Table), observe that LearnCo has omitted quite a few numbers from the budget. Fill in the missing amounts. May need to use numbers from the Direct Labor Data Table, or from the sales budget, production budget, and direct materials purchases budget prepared. When required, round answers to the nearest dollar.
Direct Labor Data Table | ||
Gluing | Assembly | |
Hours required per unit: | ||
Basic abacus | 0.10 | 0.10 |
Deluxe abacus | 0.10 | 0.20 |
Labor hourly rate: | ||
Gluing | $13 | |
Assembly | $17 | |
Units to be produced (from Production Budget): | ||
Basic abacus | fill in the blank de4568068faf029_1 | |
Deluxe abacus | fill in the blank de4568068faf029_2 |
LearnCo Direct Labor Cost Budget For the Year Ending December 31, 20Y2 | |||
Gluing | Assembly | Total | |
Hours required for production: | |||
Basic abacus | fill in the blank de4568068faf029_3 | fill in the blank de4568068faf029_4 | |
Deluxe abacus | fill in the blank de4568068faf029_5 | fill in the blank de4568068faf029_6 | |
Total | fill in the blank de4568068faf029_7 | fill in the blank de4568068faf029_8 | |
Hourly rate | $fill in the blank de4568068faf029_9 | $fill in the blank de4568068faf029_10 | |
Total direct labor cost | $fill in the blank de4568068faf029_11 | $fill in the blank de4568068faf029_12 | $281,280 |
Question Content Area
Factory Overhead Cost Budget
The factory overhead cost budget should be integrated with the production budget to ensure that production is not interrupted during the year. This budget may be supported by departmental schedules, which normally separate factory overhead costs into fixed and variable costs so that department managers may monitor and evaluate costs during the year. For simplicity, LearnCo has not separated costs in this manner.
After reviewing the following factory overhead cost budget, note that LearnCo has completed the budget with the exception of one amount. Fill in the missing amount.
LearnCo Factory Overhead Cost Budget For the Year Ending December 31, 20Y2 | |
Indirect factory wages | $5,400 |
Power and light | fill in the blank a2e0e5fbdf98fbf_1 |
Depreciation of plant and equipment | 1,450 |
Total factory overhead cost | $18,100 |
Question Content Area
Cost of Goods Sold Budget
The cost of goods sold budget integrates the direct materials purchases budget, direct labor cost budget, and factory overhead cost budget. Estimated and desired inventories for direct materials, work in process, and finished goods must also be integrated into the cost of goods sold budget.
Complete the preparation of the cost of goods sold budget for LearnCo, using information that follows provided by the controller, and using the previous budgets have prepared.
LearnCo Cost of Goods Sold Budget For the Year Ending December 31, 20Y2 | |||
Finished goods inventory, January 1, 20Y2 | $9,870 | ||
Work in process inventory, January 1, 20Y2 | $2,010 | ||
Direct materials: | |||
Direct materials inventory, January 1, 20Y2 | $2,000 | ||
Direct materials purchases | fill in the blank 14443c030042fac_1 | ||
Cost of direct materials available for use | $fill in the blank 14443c030042fac_2 | ||
Direct materials inventory, December 31, 20Y2 | (1,800) | ||
Cost of direct materials placed in production | $fill in the blank 14443c030042fac_3 | ||
Direct labor | fill in the blank 14443c030042fac_4 | ||
Factory overhead | fill in the blank 14443c030042fac_5 | ||
Total manufacturing costs | fill in the blank 14443c030042fac_6 | ||
Total work in process during period | $fill in the blank 14443c030042fac_7 | ||
Work in process inventory, December 31, 20Y2 | (1,250) | ||
Cost of goods manufactured | fill in the blank 14443c030042fac_8 | ||
Cost of finished goods available for sale | $fill in the blank 14443c030042fac_9 | ||
Finished goods inventory, December 31, 20Y2 | (1,500) | ||
Cost of goods sold | $fill in the blank 14443c030042fac_10 |
Question Content Area
Selling/Admin. Expenses Budget
The sales budget is often used as the starting point for the selling and administrative expenses budget. For example, a budgeted increase in sales may require more advertising expenses. LearnCo has prepared its selling and administrative expenses budget as follows. This budget is merely reviewed by for use on the budgeted income statement.
LearnCo Selling and Administrative Expenses Budget For the Year Ending December 31, 20Y2 | ||
Selling expenses: | ||
Sales salaries expense | $45,000 | |
Advertising expense | 15,000 | |
Travel expense | 5,400 | |
Total selling expenses | $65,400 | |
Administrative expenses: | ||
Officers' salaries expense | $85,000 | |
Office salaries expense | 35,000 | |
Office rent expense | 26,000 | |
Office supplies expense | 6,400 | |
Miscellaneous administrative expenses | 1,600 | |
Total administrative expenses | 154,000 | |
Total selling and administrative expenses | $219,400 |
Budgeted Income Statement
The budgeted income statement is prepared by integrating the sales budget, cost of goods sold budget, and selling and administrative expenses budget. Additional information that may be helpful in preparing the budgeted income statement are on the following Budgeted Income Statement Data Table.
Review the Budgeted Income Statement Data Table, then complete the budgeted income statement that follows the table. Round the computed amount for income tax to the nearest whole dollar.
Budgeted Income Statement Data Table | |
Interest revenue for the year | $2,000 |
Interest expense for the year | $1,500 |
LearnCo's income tax rate | 40% |
LearnCo Budgeted Income Statement For the Year Ending December 31, 20Y2 | ||
Revenue from sales | $fill in the blank d7021ffae04a039_1 | |
Cost of goods sold | fill in the blank d7021ffae04a039_2 | |
Gross profit | $fill in the blank d7021ffae04a039_3 | |
Selling and administrative expenses: | ||
Selling expenses | $fill in the blank d7021ffae04a039_4 | |
Administrative expenses | fill in the blank d7021ffae04a039_5 | |
Total selling and administrative expenses | fill in the blank d7021ffae04a039_6 | |
Operating income | $fill in the blank d7021ffae04a039_7 | |
Other revenue and expense: | ||
Interest revenue | $fill in the blank d7021ffae04a039_8 | |
Interest expense | fill in the blank d7021ffae04a039_9 | fill in the blank d7021ffae04a039_10 |
Income before income tax | $fill in the blank d7021ffae04a039_11 | |
Income tax | fill in the blank d7021ffae04a039_12 | |
Net income | $fill in the blank d7021ffae04a039_13 |
Question Content Area
Final Questions
Budgeting affects the planning, directing, and controlling functions of management. LearnCo wishes to determine the sensitivity of some of its budget values to changes in the economy.
Using the information on the completed budgets, answer the following questions. Consider each question separately, assuming that all other data remains the same, including the level of production of each model.
1. LearnCo believes that sales of the Deluxe Abacus model may decrease in 20Y2. If Deluxe abacus sales are zero, what will be the effect on LearnCo's income before income tax? For simplicity, ignore any change in Cost of Goods Sold.
a. If LearnCo sells zero Deluxe Abacus units in 20Y2, it will break even (i.e., the company will have zero income before income tax).
b. LearnCo will have a net loss before income tax if it sells zero Deluxe Abacus units in 20Y2.
c. LearnCo will still have positive income before income tax if it sells zero Deluxe Abacus units in 20Y2.
abcb
2. LearnCo's vendor for bead packages is expected to double its price per package of beads. If this occurs, what will be the effect on income before income tax?
a. If the price for bead packages doubles, LearnCo will break even (i.e., the company will have zero income before income tax).
b. LearnCo will have a loss before income tax if the price for bead packages doubles.
c. LearnCo will still have positive income before income tax if the price for bead packages doubles.
abcc
3. LearnCo is aware that its labor prices for the Gluing part of the manufacturing process may increase to $15.00 per hour due to changes in minimum wage laws in its state. If this occurs, what will be the effect on LearnCo's income before income tax?
a. LearnCo will still have positive income before income tax if Gluing labor costs increase to $15.00 per hour.
b. If Gluing labor costs increase to $15.00 per hour, LearnCo will break even (i.e., the company will have zero income before income tax).
c. LearnCo will have a loss before income tax if Gluing labor costs increase to $15.00 per hour.
abca
4. LearnCo's controller believes that the company can decrease its selling expenses by 10% and its administrative expenses by 15%. How much would income before income tax increase if these expense cuts are implemented? Round answer to the nearest dollar.
$fill in the blank 58c7910dafcf06b_4
Step by Step Solution
There are 3 Steps involved in it
Step: 1
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-text-image.webp)
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-subtext-image.webp)
Step: 3
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-subtext-image.webp)
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started