ACCT 2020 Lecture Notes - Lecture 4: Etsy, Variable Cost
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Rabin Ltd uses a perpetual FIFO inventory system and hascompiled the following cost information for the year ended December31, 2017. Opening inventory consisted of 100 units. The cost perunit of opening inventory is $100 DM, $60 DL and $110 MOH (of which20% is variable). Robin produced 1,400 units and sold 1,250 unitsduring 2017. The selling price per unit is $320.
| Direct materials | $135,000 |
| Wages for assembly workers | 104,000 |
| Utilities on factory (of which 25,000 is fixed) | 68,000 |
| Factory supervisor salary | 50,000 |
| Bookkeeper salary | 35,000 |
| Office rent | 60,000 |
| Amortization of factory and equipment | 45,000 |
Answer the following for the year ended December 31, 2017 (roundyour answer to the nearest unit or dollar and use the roundedanswer for subsequent calculations):
(a) How many units are left in ending inventory at December 31,2017? units
(b) What is the cost per unit in ending inventory under:
absorptioncosting $/ unit?
variablecosting $/ unit?
throughputcosting $/ unit?
(c) Calculate the total cost of opening inventory using:
absorption costing $?
variablecosting $?
throughputcosting $?
(d) Calculate: gross profit $?
contribution margin $?
throughputmargin $?
(e) Net income will be greatest under whichcosting method? Absorption costing or Variable costing
(f) Net income will be lowest under whichcosting method? Absorption costing or Variable costing
1. The following is a list of various costs of producingT-shirts. Classify each cost as either a variable, fixed, or mixedcost for units produced and sold.
(a) | Leather used to make a handbag. |
(b) | Warehouse rent of $8,000 per month plus $.50 per square foot ofstorage used. |
(c) | Thread. |
(d) | Electricity costs of $.038 per kilowatt-hour. |
(e) | Janitorial costs of $4,000 per month. |
(f) | Advertising costs of $12,000 per month. |
(g) | Accounting salaries. |
(h) | Color dyes for producing different colors of sweatshirts. |
(i) | Salary of the production supervisor. |
(j) | Straight-line depreciation on sewing machines. |
(k) | Patterns for different designs. Patterns typically last manyyears before being replaced. |
(l) | Hourly wages of sewing machine operators. |
(m) | Property taxes on factory, building, and equipment. |
(n) | Cotton and polyester cloth. |
(o) | Maintenance costs with sewing machine company. The cost is$2,000 per year plus $.001 for each machine hour of use. |
2. Copper Hills manufactures laser printers within a relevantrange of production of 70,000 to 100,000 printers per year. Thefollowing partially completed manufacturing cost schedule has beenprepared:
Number of Printers Produced | |||
70,000 | 90,000 | 100,000 | |
Total costs: | |||
Total variable costs | $350,000 | (d) | (j) |
Total fixed costs | 630,000 | (e) | (k) |
Total costs | $980,000 | (f) | (l) |
Cost per unit: | |||
Variable cost per unit | (a) | (g) | (m) |
Fixed cost per unit | (b) | (h) | (n) |
Total cost per unit | (c) | (i) | (o) |
Complete the preceding cost schedule, identifying each cost bythe appropriate letter (a) through (o).
3. For the current year ending April 30, Haley Company expectsfixed costs of $60,000, a unit variable cost of $70, andanticipated break-even of 1,715 sales units.
(a) | Compute the unit sales price. |
(b) | Compute the sales (units) required to realize an operatingprofit of $8,000. |
Round your answer to the nearest whole number.
4. Currently, the unit selling price is$50, the variable cost, $34, and the total fixed costs, $108,000. Aproposal is being evaluated to increase the selling price to$54.
(a) | Compute the current break-even sales (units). |
(b) | Compute the anticipated break-even sales (units), assuming thatthe unit selling price is increased and all costs remainconstant. |
5. For the coming year, Reve Companyestimates fixed costs at $109,000, the unit variable cost at $21,and the unit selling price at $85. Determine (a) the break-evenpoint in units of sales, (b) the unit sales required to realizeoperating income of $150,000 and (c) the probable operating incomeif sales total $500,000.
Round units to the nearest whole number and percentage to onedecimal place.
1. The following is a listof various costs of producing T-shirts. Classify each cost aseither a variable, fixed, or mixed cost for units produced andsold.
(a) | Leather used to make a handbag. |
(b) | Warehouse rent of $8,000 per month plus $.50 per square foot ofstorage used. |
(c) | Thread. |
(d) | Electricity costs of $.038 per kilowatt-hour. |
(e) | Janitorial costs of $4,000 per month. |
(f) | Advertising costs of $12,000 per month. |
(g) | Accounting salaries. |
(h) | Color dyes for producing different colors of sweatshirts. |
(i) | Salary of the production supervisor. |
(j) | Straight-line depreciation on sewing machines. |
(k) | Patterns for different designs. Patterns typically last manyyears before being replaced. |
(l) | Hourly wages of sewing machine operators. |
(m) | Property taxes on factory, building, and equipment. |
(n) | Cotton and polyester cloth. |
(o) | Maintenance costs with sewing machine company. The cost is$2,000 per year plus $.001 for each machine hour of use. |
2. Copper Hillsmanufactures laser printers within a relevant range of productionof 70,000 to 100,000 printers per year. The following partiallycompleted manufacturing cost schedule has been prepared:
Number of Printers Produced | |||
70,000 | 90,000 | 100,000 | |
Total costs: | |||
Total variable costs | $350,000 | (d) | (j) |
Total fixed costs | 630,000 | (e) | (k) |
Total costs | $980,000 | (f) | (l) |
Cost per unit: | |||
Variable cost per unit | (a) | (g) | (m) |
Fixed cost per unit | (b) | (h) | (n) |
Total cost per unit | (c) | (i) | (o) |
Complete the preceding cost schedule, identifying each cost bythe appropriate letter (a) through (o).
3. For the current year ending April 30, HaleyCompany expects fixed costs of $60,000, a unit variable cost of$70, and anticipated break-even of 1,715 sales units.
(a) | Compute the unit sales price. |
(b) | Compute the sales (units) required to realize an operatingprofit of $8,000. |
Round your answer to the nearest whole number.
4. Currently, the unitselling price is $50, the variable cost, $34, and the total fixedcosts, $108,000. A proposal is being evaluated to increase theselling price to $54.
(a) | Compute the current break-even sales (units). |
(b) | Compute the anticipated break-even sales (units), assuming thatthe unit selling price is increased and all costs remainconstant. |
5. For the coming year,Reve Company estimates fixed costs at $109,000, the unit variablecost at $21, and the unit selling price at $85. Determine (a) thebreak-even point in units of sales, (b) the unit sales required torealize operating income of $150,000 and (c) the probable operatingincome if sales total $500,000.
Round units to the nearest whole number and percentage to onedecimal place.
