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The document outlines various cost accounting scenarios for multiple companies, including Langman Company, Jack's Jax, Garrett Manufacturing, Spotted Turtle, and Romel Travel Agency. It provides specific financial data, calculations for income statements, contribution margins, operating income, and breakeven analysis, while also discussing the impact of cost changes on unit costs and profitability. Additionally, it poses questions regarding production costs, pricing strategies, and the effects of commission structures on sales and income.

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ailespiansay04
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2 views

Problems

The document outlines various cost accounting scenarios for multiple companies, including Langman Company, Jack's Jax, Garrett Manufacturing, Spotted Turtle, and Romel Travel Agency. It provides specific financial data, calculations for income statements, contribution margins, operating income, and breakeven analysis, while also discussing the impact of cost changes on unit costs and profitability. Additionally, it poses questions regarding production costs, pricing strategies, and the effects of commission structures on sales and income.

Uploaded by

ailespiansay04
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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Cost Accounting: Part 2

Langman Company is a woodcutting and metal manufacturer, selling products to the


home-construction market. Consider the following data for 2023:

Sandpaper = 2,000
Materials-handling costs = 70,000
Lubricants and coolants = 5,000
Miscellaneous indirect manufacturing labor = 40,000
Direct manufacturing labor = 300,000
Direct materials inventory, Jan. 1, 2017 = 40,000
Direct materials inventory, Dec. 31, 2017 = 50,000
Finished-goods inventory, Jan. 1, 2017 = 100,000
Finished-goods inventory, Dec. 31, 2017 = 150,000
Work-in-process inventory, Jan. 1, 2017 = 10,000
Work-in-process inventory, Dec. 31, 2017 = 14,000
Plant-leasing costs = 54,000
Depreciation—plant equipment = 36,000
Property taxes on plant equipment = 4,000
Fire insurance on plant equipment = 3,000
Direct materials purchased = 460,000
Revenues = 1,360,000
Marketing promotions = 60,000
Marketing salaries = 100,000
Distribution costs = 70,000
Customer-service costs = 100,000

Required:

1. Prepare an income statement with a separate supporting schedule of cost of goods


manufactured. For all manufacturing items, classify costs as direct costs or indirect costs
and indicate by V or F whether each is a variable cost or a fixed cost (when the cost
object is a product unit). If in doubt, decide on the basis of whether the total cost will
change substantially over a wide range of units produced.
2. Suppose that both the direct material costs and the plant-leasing costs are for the
production of 900,000 units. What is the direct material cost of each unit produced?
What is the plant-leasing cost per unit? Assume that the plant-leasing cost is a fixed cost.
3. Suppose Langman Company manufactures 1,000,000 units next year. Repeat the
computation in requirement 2 for direct materials and plant-leasing costs. Assume the
implied cost-behavior patterns persist.
4. As a management consultant, explain concisely to the company president why the unit
cost for direct materials did not change in requirements 2 and 3 but the unit cost for
plant leasing costs did change.
Jack's Jax has total fixed costs of 25,000. If the company’s contribution margin is 60%,
the income tax rate is 25% and the selling price of a box of Jax is 20, how many boxes of
Jax would the company need to sell to produce a net income of 15,000?

Garrett Manufacturing sold 410,000 units of its product for $68 per unit in 2017 Variable cost per unit
is $60, and total fixed costs are $1,640,000

1. Calculate (a) contribution margin and (b) operating income.

2. Garrett's current manufacturing process is labor intensive. Kate Schoenen, Garrett's production
manager, has proposed investing in state-of-the-art manufacturing equipment, which will increase the
annual fixed costs to $5,330,000. The variable costs are expected to decrease to $54 per unit. Garrett
expects to maintain the same sales volume and selling price next year. How would acceptance of
Schoenen's proposal affect your answers to (a) and (b) in requirement 1?

3. Should Garrett accept Schoenen's proposal?

Spotted Turtle provides daycare for children Mondays through Fridays. Its monthly variable costs per
child are as follows: Spotted Turtle charges each parent $640 per child per month
1. Spotted Turlie's target operating income is 10,800 per month. Compute the number of children who
must be enrolled to achieve the target operating income.
2. Spotted Turtle lost its lease and had to move to another building. Monthly rent for the new building is
$3,500 . In addition, at the suggestion of parents, Spotted Turtle plans to take children on field trips.
Monthly costs of the field trips are 2,500. By how much should Spotted Turtle increase fees per child
to meet the target operating income of $10,800 per month, assuming the same number of children as
in requirement 2?

Romel Travel Agency specializes in flights between Los Angeles and London. It books
passengers on United Airlines at $900 per round-trip ticket. Until last month, United paid
Wembley a commission of 10% of the ticket price paid by each passenger. This
commission was Wembley’s only source of revenues. Wembley’s fixed costs are $14,000
per month (for salaries, rent, and so on), and its variable costs, such as sales commissions
and bonuses, are $20 per ticket purchased for a passenger.
Philippine Airlines has just announced a revised payment schedule for all travel agents. It
will now pay travel agents a 10% commission per ticket up to a maximum of $50. Any
ticket costing more than $500 generates only a $50 commission, regardless of the ticket
price. Wembley’s managers are concerned about how United’s new payment schedule
will affect its breakeven point and profitability.

1. Under the old 10% commission structure, how many round-trip tickets must Wembley sell
each month
(a) to break even and
(b) to earn an operating income of $7,000?
2. How does United’s revised payment schedule affect your answers to
(a) and (b) in requirement 1?

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