You are on page 1of 8

Score:

25 out of 25 points (100%)


Questions #1-3 (of 4)Question #4 (of 4)

[The following information applies to the questions displayed below.]

Morrisey & Brown, Ltd., of Sydney is a merchandising company that is the sole distributo that is increasing in popularity among Australian consumers. The company's income stat three most recent months follow: Morrisey & Brown, Ltd. Income Statements For the Three Months Ended September 30 July August Sales in units 1,600 3,500 A$ A$ Sales revenue 286,400 626,500 Cost of goods sold 107,200 234,500 Gross margin 179,200 392,000 Selling and administrative expenses: Advertising expense 69,800 69,800 Shipping expense 36,800 57,700 Salaries and commissions 94,200 164,500 Insurance expense 8,300 8,300 Depreciation expense 41,700 41,700 Total selling and administrative expenses 250,800 342,000 Net operating income (loss) A$ (71,600 ) A$ 50,000

Septemb 5,25

A$ 939,75

351,75 588,00

69,80 76,95 229,25 8,30 41,70 426,00 A$ 162,00

(Note: Morrisey & Brown, Ltd.'s Australian-formatted income statement has been recas common in the United States. The Australian dollar is denoted here by A$.)

1.

award:

5 out of 5 points

Requirement 1: Identify each of the company's expenses (including cost of goods sold) as either variable, fi Expenses Cost of goods sold Advertising expense Shipping expense Salaries and commissions Insurance expense Depreciation expense Classification Variable Fixed Mixed Mixed Fixed Fixed

2.
award:

5 out of 5 points

Requirement 2: ( Using the high-low method, separate each mixed expense into variable and fixed eleme a "A$" sign in your response.) ) Variable cost Fixed cost Shipping expense A$ 11 per unit A$ 19,200 Salaries and commissions A$ 37 per unit A$ 35,000

( State the cost formula for each mixed expense. (X represents sales in units). (Omit the b your response.) )

Shipping expense

Y = A$ 19,200 +

A$ 11

Salaries and commissions

Y = A$ 35,000 +

A$ 37

Explanation:

Analysis of the mixed expenses: Shipping Units Expense 5,25 A$ 0 76,950 1,60 36,800 0 3,65 A$ 0 40,150 Salaries and Commission Expense A$ 229,250 94,200 A$ 135,050

High level of activity Low level of activity Change

Variable cost element:

Fixed cost element: Shipping Expense Cost at high level of activity Less variable cost element: 5,250 units A$11 per unit 5,250 units A$37 per unit Fixed cost element A$ 76,950 Salaries and Commission Expense A$ 229,250

57,750 194,250 A$ 19,200 A$ 35,000

The cost formulas are: Shipping expense: A$19,200 per month plus A$11 per unit or Y =A$19,200 + A$11 X. Salaries and Commissions expense: A$35,000 per month plus A$37 per unit or

Y = A$35,000 + A$37 X.

3.
award:

5 out of 5 points

Requirement 3: Redo the company's income statement at the 5,250-unit level of activity using the contr (Input all amounts as positive values except net operating loss which should be i minus sign. Omit the "A$" sign in your response.) Morrisey & Brown, Ltd. Income Statement For the Month Ended September 30 Sales Variable expenses: Cost of goods sold Shipping expense Salaries and commissions expense Contribution margin Fixed expenses: Advertising expense Shipping expense Salaries and commissions expense Insurance expense Depreciation expense Net operating income

A$939,75 A$ 351,750 57,750 194,250

603,75 336,00

69,800 19,200 35,000 8,300 41,700

174,00 A$162,00

Explanation:

Sales (5,250 units A$179 per unit) = A$939,750 Cost of goods sold (5,250 units A$67 per unit) = A$351,750 Shipping expense (5,250 units A$11 per unit) = A$57,750 Salaries and commissions expense (5,250 units A$37 per unit) = A$194,250

Score:

25 out of 25 points (100%)


Questions #1-3 (of 4)Question #4 (of 4)

4.
award:

10 out of 10 points

High Country, Inc., produces and sells many recreational products. The company has just plant to produce a folding camp cot that will be marketed throughout the United States. The and revenue data relate to May, the first month of the plant's operation: Beginning inventory Units produced Units sold Selling price per unit Selling and administrative expenses: Variable per unit Fixed (total) Manufacturing costs: Direct materials cost per unit Direct labor cost per unit Variable manufacturing overhead cost per unit Fixed manufacturing overhead cost (total) 0 41,000 36,000 $80 $2 $564,000 $17 $7 $2 $697,000

Management is anxious to see how profitable the new camp cot will be and has asked t statement be prepared for May. Requirement 1: Assume that the company uses absorption costing. ( a Determine the unit product cost. (Omit the "$" sign in your response.) ) Unit product cost ( $43

Prepare an income statement for May. (Input all amounts as positive values. Omit t

b your response.) ) Sales Cost of goods sold Gross profit Selling and administrative expenses Net operating income Requirement 2: Assume that the company uses variable costing. ( a Determine the unit product cost. (Omit the "$" sign in your response.) ) Unit product cost $26 $2,880,000 1,548,000 1,332,000 636,000 $696,000

( Prepare a contribution format income statement for May. (Input all amounts as po b Omit the "$" sign in your response.) ) Sales Variable expenses: Variable cost of goods sold Variable selling and administrative expenses Contribution margin Fixed expenses: Fixed manufacturing overhead Fixed selling and administrative expenses Net operating income

$2,8 $936,000 72,000

1,0 1,8

697,000 564,000

1,2 $6

Requirement 3: ( a Choose the reason for any difference in the ending inventory balances under the two co )
The difference in the ending inventory relates to a difference in the handling of fixed manufacturing overhead costs.

( Choose the impact of the difference in the ending inventory balance and costing metho b net operating income. )
The net operating income reported under absorption costing method is $85,000 higher than the net operating income under variable costing. Explanation: 1(a):

Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead (697,000 41,000 units) Absorption costing unit product cost
1(b):

$17 7 2 17 $43

Sales (36,000 units $80 per unit) Cost of goods sold (36,000 units $43 per unit) Gross margin Selling and administrative expenses [$564,000 + (36,000 units $2 per unit)] Net operating income
2(a):

$2,880,000 1,548,000 1,332,000 636,000 $696,000

Direct materials Direct labor Variable manufacturing overhead Variable costing unit product cost
2(b):

$17 7 2 $26

Sales (36,000 units $80 per unit) Variable expenses: Variable cost of goods sold (36,000 units $26 per unit) Variable selling expenses (36,000 units $2 per unit)

$2,880,000 $936,000 72,000 1,008,000

Contribution margin Fixed expenses: Fixed manufacturing overhead Fixed selling and administrative expenses Net operating income
3(a):

1,872,000 697,000 564,000

1,261,000 $611,000

The difference in the ending inventory relates to a difference in the handling of fixed overhead costs. Under variable costing, these costs have been expensed in full as perio absorption costing, these costs have been added to units of product at the rate of $17 per 41,000 units produced = $17 per unit). Thus, under absorption costing a portion of the manufacturing overhead cost for the month has been added to the inventory accou expensed on the income statement: Added to the ending inventory (5,000 units $17 per unit) Expensed as part of cost of goods sold (36,000 units $17 per unit) Total fixed manufacturing overhead cost for the month
3(b):

$85,000 612,000 $697,000

Because $85,000 of fixed manufacturing overhead cost has been deferred in inventory un costing, the net operating income reported under that costing method is $85,000 highe operating income under variable costing, as shown in requirement 1 and 2 above.

You might also like