Premier University, Chittagong

Accounting Assignment (1, 4, 6, 8, 9)

Submitted to:
Steve Oscar D Rozario
Assistant Professor and Coordinator
Accounting Discipline
Department of Business Administration
Premier University

Submitted By:
Name: Mariea Rahman
ID -0222210004087071
Session- Spring 2022
RMBA program
Faculty of Business Studies
Premier University

Date of submission: 29 October 2022

1. Supply the missing data in the following cases. Each case is independent of
the others.

Case

1 2 3 4
Schedule of Cost of Goods Manufactured
Direct materials . . . . . . . . . . . . . . . . . . . . . . . . . $4,500 $6,000 $5,000 $3,000
Direct labor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . ?1 $3,000 $7,000 $4,000
Manufacturing overhead . . . . . . . . . . . . . . . . . . $5,000 $4,000 ?12 $9,000
Total manufacturing costs. . . . . . . . . . . . . . . . . $18,500 ?6 $20,000 ?18
Beginning work in process inventory . . . . . . . . . $2,500 ?7 $3,000 ?19
Ending work in process inventory . . . . . . . . . . . ?2 $1,000 $4,000 $3,000
Cost of goods manufactured . . . . . . . . . . . . . . . $18,000 $14,000 ?13 ?20
Income Statement
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $30,000 $21,000 $36,000 $40,000
Beginning finished goods inventory . . . . . . . . . . $1,000 $2,500 ?14 $2,000
Cost of goods manufactured . . . . . . . . . . . . . . . $18,000 $14,000 ?15 $17,500
Goods available for sale. . . . . . . . . . . . . . . . . . . ?3 ?8 ?16 ?21
Ending finished goods inventory . . . . . . . . . . . . ?4 $1,500 $4,000 $3,500

Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . $17,000 ?9 $18,500 ?22

Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . $13,000 ?10 $17,500 ?23
Selling and administrative expenses . . . . . . . . . ?5 $3,500 ?17 ?24
Net operating income. . . . . . . . . . . . . . . . . . . . . $4,000 ?11 $5,000 $9,000

Answer:
(1) Direct labor (case-1)= $18,500-$5,000-$4,500=$9,000
(2) Ending work in process inventory ( c a s e - 0 1 ) = $18,000-($18,500+$2,500) = ($3,000)
(3) Goods available for sale (case-01) = $1,000+$18,000=$19,000
(4) Ending Finished goods inventory (case-01) = $17,000-$19,000= ($2,000)
(5) Selling and administrative expenses Case-01) =$13,000-$4,000=$9,000
(6) Total Manufacturing cost (case-02) = $6,000+$3,000+$4,000=$13,000
(7) Beginning work in process inventory (case-02) = $14,000-$13,000+$1,000=$2,000
(8) Goods available for sale (case-02) = $2,500+$14,000=$16,500
(9) Costs of goods sale (case-02) = $16,500-$1,500=$15,000
(10) Gross Margin (case-02) $21,000-$15,000=$6,000
(11) Net Operating Income (case-02) = $6,000-$3,500=$2,500
(12) Manufacturing overhead (case-03)= $20,000-$7,000-$5,000=$8,000
(13) Cost of goods manufactured (case-03)= $20,000+3,000-$4,000=$19,000
(14) $22,500-$19,000=$3,500
(15) $20,000+3,000-$4,000=$19,000
(16) $18,500+$4,000=$22,500
(17) $5,000-$17,500= ($12,500)
(18) $3,000+$4,000+$9,000=$16,000
(19) $17,500+$3,000-$16,000=$4,500
(20) $17,500
(21) $2,000+$17,500=$19,500
(22) $19,500-$3,500=$16,000
(23) $40,000-$16,000=$24,000
(24) $9,000-$24,000= ($15,000

4. Nova Company’s total overhead cost at various levels of activity are presented below:

Month Machine- Hours Total Overhead Cost

April . . . . . . . . . 70,000 $198,000

May. . . . . . . . . . 60,000 $174,000
June . . . . . . . . . 80,000 $222,000
July . . . . . . . . . . 90,000 $246,000

Assume that the total overhead cost above consists of utilities, supervisory salaries, and
maintenance. The breakdown of these costs at the 60,000 machine-hour level of activity is:

Utilities (variable) . . . . . . . . . . . . $ 48,000

Supervisory salaries (fixed). . . . 21,000
Maintenance (mixed) . . . . . . . . . 105,000
Total overhead cost . . . . . . . . . . $174,000

Nova Company’s management wants to break down the maintenance cost into its variable
and fixed cost elements.

Required:
1. Estimate how much of the $246,000 of overhead cost in July maintenance cost was.
(Hint: to do this, it may be helpful to first determine how much of the $246,000 consisted of
utilities and supervisory salaries. Think about the behavior of variable and fixed costs!)
2. Using the high-low method, estimate a cost formula for maintenance.
3. Express the company’s total overhead cost in the linear equation form Y = a + bX.
What total overhead cost would you expect to be incurred at an operating activity level of
75,000 machine-hours?

Ans:
1. Calculate the utilities cost per machine hour $48,000 ÷ 60,000 MH = $0.8 per MH
Maintenance cost = (Total overhead cost – Utilities cost @ activity level - Supervisory Cost )

= $246,000 – 90,000 x $0.8 - $21,000 =$153,000

2. The high activity level is 90,000 in July

Low activity level is 60,000 in May,
hence Machine-Hour Maintenance Cost High Activity Level 90,000 $153,000
Low Activity Level 60,000 $105,000 Change 30,000 $48,000
The variable Rate = $48,000 ÷ 30,000
machine-hour = $1.6 per MH Take the data in July (High activity level),
the fixed cost element =$153,000 – 90,000 x $1.6 = $9,000
i.e. the cost formula is Y = $9,000 + $1.6X

3. The total variable rate = $1.6 + $0.8 = $2.4 per MH The total fixed cost element =
$90,000 + $21,000 = $30,000 i.e. the overall cost formula is Y = $30,000 + $2.4X

4. The total overhead cost at an activity level of 75,000 MH will be

$30,000 + 75,000 x $2.4 = $210,000

6. Minden Company introduced a new product last year for which it is trying to find an optimal
selling price. Marketing studies suggest that the company can increase sales by 5,000 units for
each $2 reduction in the selling price. The company’s present selling price is $70 per unit, and
variable expenses are $40 per unit. Fixed expenses are $540,000 per year. The present annual
sales volume (at the $70 selling price) is 15,000 units.

Required:

1. What is the present yearly net operating income or loss?

2. What is the present break-even point in units and in dollar sales?
3. Assuming that the marketing studies are correct, what is the maximum profit that the
company can earn yearly? At how many units and at what selling price per unit would the
company generate this profit?
4. What would be the break-even point in units and in sales dollars using the selling price you
determined in (3) above (e.g., the selling price at the level of maximum profits)? Why is this
break-even point different from the break-even point you computed in (2) above?

Answer (6):

Given information:
Sales would be increased by $5000.
A reduction in price would be $2.
The present selling price is $70 and the variable expense is $40per unit.
Fixed expenses are $54000 annually.
Presently, the sales volume is 15000 at a $70 selling price.
The net operating income at present is computed as follows:
Selling price* Units sold
=15000*70= 10, 50,000 USD
Now, Variable cost* unit sold+ fixed cost
=15000*40+540000
=11, 40,000
Net loss would be derived as :=( 10, 50,000-11, 40,000) =90,000 USD

2. The present break-even point would be calculated as follows:

B.E.P = 540000/ (70-40)=18,000
Hence, the current BEP would be 18000 units.
Now, break-even sales would be derived by multiplying BEP with the selling price per unit.
18000*70=$12,60,000
Hence, BES would be $1260000.
3. The maximum annual profit in the case of the correct marketing study.
Firstly compute the new selling price by subtracting the sale price reduction from the current price.
70-2= 68
Hence, the new selling price per unit would be $68.
Now, compute the number of units sold at $68
5000+15000
=20000
Therefore, maximum profit by selling 20000 units at $68 price would be
68*20,000-(40*20,000+540000)
1360000-1340000=20000
Hence, the new net profit would be $20000.

4. The new break-even point would be

B.E.P=540000/ (68-40)=19286 unit
Now, the new break-even sales would be:
19286*68=1311429
Hence, the break-even sales with the new marketing study would be $1311429.
The new break-even point is different from the break-even point computed in (2) above because
Break-Even point (units) = Fixed Costs/(Sales price per unit – Variable costs per unit)
Although fixed expenses value is constant and also variable cost is unchanged but selling price
reduces by 2 dollars.
Break event point increases from above 2 (19286-18000) units= 1286 unit

8. The marketing department of Jessi Corporation has submitted the following sales
forecast for the upcoming fiscal year (all sales are on account):
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
Budgeted unit sales 11,000 12,000 14,000 13,000
The selling price of the company’s product is $18.00 per unit. Management expects to collect
65% of sales in the quarter in which the sales are made, 30% in the following quarter, and 5% of
sales are expected to be uncollectible. The beginning balance of accounts receivable, all of which
is expected to be collected in the first quarter, is $70,200.
The company expects to start the first quarter with 1,650 units in finished goods inventory.
Management desires an ending finished goods inventory in each quarter equal to 15% of the next
quarter’s budgeted sales. The desired ending finished goods inventory for the fourth quarter is
1,850 units.
Required:
Prepare the company’s sales budget and schedule of expected cash collections.
Prepare the company’s production budget for the upcoming fiscal year.

Answer (8)

1st quarter:
Sales= (11,000*18)*0.65= 128,700
From last year= 70,200
Total= $198,900
2nd quarter:
Sales= (12,000*18)*0.65= 140,400
From 1st Q= 59,400
Total= 199,800

3rd quarter:
Sales= (14,000*18)*0.65= 163,800
From 2nd Q= 64,800
Total= 228,600

4th quarter:
Sales= (13,000*18)*0.65= 152,100
From 3rd Q= 75,600
Total= 227,700

Production budget:
1st Q:
Sales= 11,000 units
Ending inventory= (12,000*0.15)= 1,800
Beginning inventory= (1,650)
Total= 11,150 units

2nd Q:
Sales= 12,000 units
Ending inventory= (14,000*0.15)= 2,100
Beginning inventory= (1,800)
Total= 12,300 units

3rd Q:
Sales= 14,000 units
Ending inventory= (13,000*0.15)= 1,950
Beginning inventory= (2,100)
Total= 13,850 units

4th Q:
Sales= 13,000 units
Ending inventory= 1,850
Beginning inventory= (2,100)
 Total= 12,750 units

9. From the following information, prepare income statement and balance sheet for the year
ended December 31, 2020.

LOBAL CABLE
Trial Balance
December 31, 2020
Accounts title Debit Credit
Opening stock 4,000
Cash $24,100
Accounts Receivable 3,200
Supplies 1,800
Equipment 30,600
Accumulated Depreciation—Equipment $2,050
Accounts Payable 2,100
Purchase 25,000
Mortgage Payable 40,000
Unearned Rent Revenue 1,500
Owner’s Capital 16,190
Sales Revenue 35,450
Prepaid insurance 2,400
Salaries and Wages Expense 3,300
Drawings 1,500
Advertising Expense 600
Miscellaneous Expense 290
Depreciation Expense 500
$97,290 $97,290

Other data:
1. Prepaid insurance is a 1-year policy starting May 1, 2020.
2. A count of supplies shows $750 of unused supplies on December 31.
3. Annual depreciation is $1,500 on equipment.
4. The mortgage interest rate is 12%. (The mortgage was taken out on May 1.)
5. Two-thirds of the unearned rent revenue has been earned.
6. Salaries of $750 are accrued and unpaid at December 31.