Annual Budget Reports

You are to complete this assignment by the time class starts on the due date (indicated in the syllabus or during class).  You are free to use resources or talk with classmates, but all work turned in must be your own. You may type or write/scan and upload to Blackboard, but make sure that I can read everything written down. It is your responsibility to make sure that the correct images have been uploaded.

 

1. Xylo produces xylophones. Each xylophone is sold for $850. Selected data for the company’s operations last year follow:

 

Units in beginning inventory                                      0

Units Produced                                                           250

Units Sold                                                                   225

Units in ending inventory                                           25

Variable Costs per unit:

Direct materials                                              $100

Direct labor                                                     $320

Variable Mfg Overhead                                  $40

Variable Selling & Admin                              $20

Fixed Costs:

Fixed Mfg Overhead                                      $60,000

Fixed Selling & Admin                                  $20,000

 

Required:

 

1. Compute the unit product cost for one xylophone under absorption costing.
2. Compute the unit product cost for one xylophone under variable costing.

 

2. Refer to Xylo above. The absorption costing income statement prepared by the company’s accountant for last year appears below:

 

Sales                                        $191,250

Cost of Goods Sold                 $157,500

Gross Margin                          $33,750

Selling & Admin Expense      $24,500

Net Operating Income            $9,250

 

Required:

 

1. Determine how much of the ending inventory consists of fixed manufacturing overhead cost deferred in inventory to the next period.
2. Prepare an income statement for the year using variable costing. Explain the difference in net operating income between the two costing methods (1-2 sentences is fine…I’m not looking for an essay).

 

3. Welsh Company manufactures and sells chairs. The following information pertains to each of the company’s first two years of operations:

 

Variable Costs Per Unit:

Direct Materials                                  $25

Direct Labor                                        $15

Variable Mfg Overhead                      $5

Variable Selling & Admin                  $2

Fixed Costs Per Year:

Fixed Mfg Overhead                          $250,000

Fixed Selling & Admin                      $80,000

 

During the first year of operations, Welsh produced 50,000 units and sold 40,000 units. During its second year of operations, it produced 40,000 units and sold 50,000 units. The selling price of a chair is $60 per unit.

 

 

Required:

 

1. Compute unit product cost for Year 1 and Year 2 under variable costing.
2. Compute net operating income in Year 1 and Year 2 under variable costing.
3. Compute unit product cost for Year 1 and Year 2 under absorption costing.
4. Compute net operating income in Year 1 and Year 2 under absorption costing.

 

(Although it is not required that you make income statements to answer parts B and D, it will be helpful in answering the questions. It may also help in terms of partial credit in case your NOI numbers are wrong.)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4. Famous R&B artist Omarion’s arguably most famous solo hit is “Ice Box”. To try and embark on a new money-making journey, Omarion made a new ice box company, which has two divisions: Home Division, for the smaller ice boxes that are more for convenience, and Commercial Division, for giant fridge-like ice boxes. The following report is for the most recent operating period (completely NOT based on a true story):

 

 

The common fixed expenses have been allocated to the divisions on the basis of sales.

 

1. Name one issue with Omarion’s (or Omarion’s internal accountant’s) segmented income statement.
2. What is the Home Division’s break-even in sales dollars?
3. What is the Commercial Division’s break-even in sales dollars?
4. What is the company’s overall break-even in sales dollars?
5. Omarion is confused as to why the sum of the two product division segment break-even sales does not equal the company’s break-even. Explain to Omarion (brief is fine) why this may be the case.

 

 

5. Under variable costing, fixed manufacturing overhead is:
6. Carried in a liability account
7. Carried in an asset account
8. Ignored
9. Expensed as a period cost

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6. Gabbert Corporation, which has only one product, has provided the following data concerning its most recent month of operations:

 

 

 

What is the total period cost for the month under the absorption costing?

 

1. $88,400
2. $182,000
3. $61,200
4. $93,600

 

7. Which of the following costs is a traceable cost if the segment in question is a regional division (e.g., California office vs. Texas office vs. New York Office vs. etc.)?

 

1. Salary of CEO
2. Salary of CEO’s secretary
3. Flight tickets for CEO’s travel to the regional office
4. Costs associated with the company’s annual corporate holiday party