Questions -
Q1. Merritt Company uses a process cost system of accounting for the following transactions. Journalize the entries using general journal format.
1. Purchased $100,000 of raw materials on credit.
2. Used $40,000 of direct materials in production.
3. Used $10,000 of indirect materials.
4. Incurred total labor cost of $80,000, paid in cash.
5. Used $50,000 of direct labor in production.
6. Used $8,000 of indirect labor.
7. Paid cash for overhead costs, other than indirect materials and indirect labor, of $12,000
8. Transferred completed products with a cost of $78,000 to finished goods inventory.
9. Sold $150,000 of products on credit. Their cost is $75,000. (two- part entry)
Q2. Cricket Company produces many different types of pet toys. You have been hired as a cost accountant to do some basic cost analysis on several of their new products. It is also your responsibility to communicate your findings to a few of the people on the management team. Assume this team has no accounting experience.
Cricket Company is considering the purchase of a new machine. This machine will produce two different kinds of floating dog toys used in retrieving exercises. The machine costs $5,000 and is the only fixed cost associated with the toys. Toy A will sell for $28 and has a variable cost of $18. Toy B will sell for $20 and has a variable cost of $5.
1. What is the breakeven in units and dollars if Toy A is the only one produced?
2. What is the breakeven in units and dollars if Toy B is the only one produced?
3. If the company only produces Toy A and targets a profit of $10,000, how many units do they need to sell?
4. Write a short memo to the management team explaining the meaning of break-even analysis. Include contribution margin and illustrate that concept with an example using numbers.
Q3. Below are numbers from Spectrum Company on a product during the first year of operations. During this first year the company produced 44,000 units and sold 36,000 units at a price of $140 per unit.
Production costs
Direct materials per unit $60
Direct labor per unit $22
Variable overhead per unit $8
Fixed overhead for the year $528,000
Selling and administrative cost
Variable selling and administrative cost per unit $11
Fixed selling and administrative cost per year $105,000
1. Determine the unit product cost using absorption costing.
2. Determine the unit product cost using variable costing.
3. Prepare an income statement for the year under absorption costing.
4. Prepare an income statement for the year under variable costing.
Q4. Melrose Manufacturing's cost accountant produced the following information on production activities for the year:
Actual raw materials used 16,000 pounds at $4.05 per pound
Actual factory payroll 5,545 hours for a total cost of $72,085
Actual units produced 30,000
Standard material per unit 0.50 pounds
Standard price of material $4.15
Standard direct labor per unit 10 minutes
Standard direct labor rate $12.50 per hour
1. Calculate the direct materials price variance.
2. Calculate the direct materials quantity variance.
3. Calculate the direct labor rate variance.
4. Calculate the direct labor efficiency variance.
You must indicate if each variance is favorable or unfavorable.