Question 1:
East Meets West Ltd. operates two stores, one in Victoria and another in Halifax. The following income statements were prepared for the most recent year:
| Victoria | Halifax | |
| Net sales | $3,780,000 | $960,000 |
| Variable costs: | ||
| Cost of goods sold | 1,512,000 | 528,000 |
| Sales commission | 189,000 | 48,000 |
| Utilities | 17,200 | 15,300 |
| Contribution margin | $2,061,800 | $368,700 |
| Fixed costs: | ||
| Annual building lease | 84,000 | 39,000 |
| Salaries | 380,000 | 180,000 |
| Allocated corporate overhead | 750,000 | 250,000 |
| Amortization of store equipment & leasehold improvements | 60,000 | 30,000 |
| Operating income (loss) | $787,800 | $(130,300) |
The store equipment and leasehold improvements have no market value. The building leases can be cancelled without penalty.
Required:
- Calculate the dollar value of sales required for each store to break-even assuming that all of the fixed costs are to be covered?
- Should management close the Halifax store? Assume that corporate overhead would be reduced by $100,000 if the Halifax store is closed.
Question 2:
Columbia Coco Beans Inc. sells two types of coffee, Regular and Decaf. The monthly budget for Canadian coffee sales is based on a combination of last year’s performance, a forecast of industry sales, and the company’s expected share of the Canadian market. The following information is provided for October:
| Budgeted | Actual | |||
| Regular | Decaf | Regular | Decaf | |
| Price per kilogram | $50 | $60 | $52 | $60 |
| Variable cost per kilogram | 24 | 26 | 24 | 28 |
| Contribution margin | $26 | $34 | $28 | $32 |
| Sales (in kg) | 4,000 | 4,500 | 3,700 | 4,800 |
Budgeted fixed costs are $58,000. Actual fixed costs are $62,000.
Required:
1) Calculate the static-budget, flexible-budget and sales-volume variances for the contribution margin, for the company for October.
Question 3:
Saul’s Appliances manufactures industrial dryers and washers. During July the following data are available:
| Dryers | Washers | |
| Actual units sold | 10,000 | 40,000 |
| Budgeted sales | 8,820 | 33,180 |
| Actual selling price | $700 | $900 |
| Budgeted selling price | $710 | $930 |
| Budgeted market share | 25% | 24% |
| Actual market share | 20% | 25% |
| Budget cont. margin /unit | $275 | $375 |
| Required: | ||
| Determine the following: |
- Sales-mix and sales-quantity variances
- Market-share and market-size variances (for calculation purposes round combined actual and budgeted market share percentages to six decimal places).
Question 4:
For each of the following items identify whether it is spoilage, reworked units, or scrap.
- Defective jeans sold as seconds ________
- Shavings_______
- Edges from plastic moldings________
- Carpets sold as seconds________
- Precision tools that are not built successfully to the necessary tolerance, but which can be successfully converted to a saleable product________
- Rock extracted as a result of mining processing________
- Complex defective products such as semiconductors_______
Question 5:
The Scooter Company uses a process cost system for making scooter wheels. Materials are added at the beginning of the process and conversion costs are uniformly incurred. At the beginning of October the work-in-process is 40 percent complete and at the end of the month it is 60 percent complete. Spoilage is detected at the end of the process. Other data for the month include:
| Beginning work-in-process inventory | 1,600 units |
| Units started | 20,000 units |
| Units placed in finished goods | 12,000 units |
| Ending work-in-process inventory | 1,200 units |
| Normal spoilage % on all units finished | 20 percent |
Conversion costs $40,320
Cost of direct materials $40,000
Beginning work-in-process costs:
Materials $4,000
Conversion $4,032
Required:
- Prepare a production cost worksheet assuming that spoilage is recognized and the weighted-average method is used.
- Prepare journal entries to record transferring out of cost from the work-in-process accounts.
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