Variable Cost and Net Operating Income Essay Example

Variable Cost and Net Operating Income Essay Example Variable Cost and Net Operating Income Paper Variable Cost and Net Operating Income Paper TCO B Questions 1. (TCO C) The following overhead data are for a department of a large company. Actual costs Static Incurred budget Activity level (in units) 800 750 Variable costs: Indirect materials $6,850 $6,600 Electricity $1,312 $1,275 Fixed costs: Administration $3,570 $3,700 Rent $3,320 $3,200 Required: Construct a flexible budget performance report that would be useful in assessing how well costs were controlled in this department. (Points : 30) 2. (TCO D) Mr. Earl Pearl, Accountant for Margie Knall, Inc. has prepared the following product-line income data: PRODUCT Total A B C Sales $ 100,000.. $50,000 $20,000.. $30,000 Variable Expenses 60,000. 30,000 10,000. 20,000 Contribution Margin.. .40,000. 20,000 10,000. 10,000 Fixed Expenses: Rent. .5,000.. 2,500.. 1,000 1,500 Depreciation. 6,000.. 3,000.. 1,200. 1,800 Utilities 4,000.. 2,000.. 00. 1,500 Supervisors salaries.. 5,000. 1,500.. 500. 3,000 Maintenance 3,000.. 1,500 600 900 Administrative Expenses. 10,000.. 3,000.. 2,000.. 5,000 Total Fixed Expenses 33,000. 13,500 5,800. 13,700 Net Operating Income $7,000. $6,500. $4,200 $3,700) The following additional information is available: The factory rent of $1,500 assigned to product C is avoidable if the product were dropped. The companys total depreciation would not be affected by dropping C. Eliminating product C will reduce the monthly utility bill from $1,500 to $800. All supervisors salaries are avoidable. If product C is discontinued, the maintenance department will be able to reduce monthly expenses from $3,000 to $2,000. Elimination of product C will make it possible to cut two persons from the administrative staff. Currently, their combined salaries total $2,000. Required: Prepare an analysis showing whether product C should be eliminated. Articulate your findings. (Points : 30) 3. (TCO E) Hanks Company produces a single product. Operating data for the company and its absorption costing income statement for the last year is presented below: Units in beginning inventory.. 0 Units produced.. 9,000 Units sold ,000 Sales $80,000 Less cost of goods sold: Beginning inventory. 0 Add cost of goods manufactured 54,000 Goods available for sale. 54,000 Less ending inventory 6,000 Cost of goods sold.. 48,000 Gross margin. 32,000 Less selling admin. expenses.. 28,000 Net operating income.. 4,000 Variable manufacturing costs are $4 per unit. Fixed factory overhead totals $18,000 for the year. This overhead was applied at a rate of $2 per unit. Variable selling and administrative expenses were $1 per unit sold. Required: Prepare a new income statement for the year using variable costing. Comment on the diffe rences between the absorption costing and the variable costing income statements. (Points : 30) 4. (TCO A) The following data (in thousands of dollars) have been taken from the accounting records of Karmana Corporation for the just completed year. Sales $950 Raw materials inventory, beginning $10 Raw materials inventory, ending . $30 Purchases of raw materials . $120 Direct labor $200 Manufacturing overhead .. $230 Administrative expenses .. $100 Selling expenses .. 140 Work in process inventory, beginning $70 Work in process inventory, ending . $40 Finished goods inventory, beginning $100 Finished goods inventory, ending $80 Use these data to prepare (in thousands of dollars) a schedule of Cost of Goods Manufactured and a Schedule of Cost of Goods Sold for the year. In addition, elaborate on the relationship between these schedules as they relate to the flow of product costs in a manufacturing company.