ACCT 225

MIDTERM REVIEW

SOLUTION
 Solution – Question 1
Any Manufacturing Company

a. Total direct materials used

260,000+575,000-150,000 = 685,000

b. Total manufacturing overhead

75,000+10,000+25,000+250,000+15,000 = 375,000

c. Total cost of manufacturing

685,000+750,000+375,000 = 1,810,000

d. Cost of goods manufactured

475,000+1,810,000-750,000 = 1,535,000

e. Cost of goods sold

215,000+1,535,000-260,000 = 1,490,000

f. Gross margin
3,700,000-1,490,000 = 2,210,000

See next page for an example of a completed COGM, COGS

 Solution Question 1 - alternative
Any Manufacturing Company
Cost of Goods Manufactured
December 31, 2008

Costs of Manufacturing:
Direct Materials
Inventory, Raw Materials, Jan 1 $ 260,000
Add: Purchases 575,000
$ 835,000
Less: Inventory, Raw Materials, Dec 31 150,000
Cost of Raw Materials $ 685,000
Direct Labour 750,000
Manufacturing Overhead
Wages - Indirect $ 75,000
Insurance 10,000
Amortization 25,000
Utilities 250,000
Maintenance 15,000
Total MOH 375,000
Cost of Manufacturing $ 1,810,000

Cost of Goods Manufactured:

Work in process, beginning $ 475,000
Add: Cost of Manufacturing 1,810,000
$ 2,285,000
Work in process, ending 750,000
Less: Cost of goods manufactured. $ 1,535,000

Cost of Goods Sold

Cost of Goods Sold: $3,700,000
Finished goods, opening $ 215,000
Add: Cost of goods manufactured 1,535,000
Goods available for sale $ 1,750,000
Less: Finished Goods Inventory,
ending 260,000
Cost of Goods Sold $ 1,490,000
 Solution – Question 2
Oz Manufacturing Company
1.
Fixed Expenses: Variable Expenses
Advertising expense Cost of goods sold
Insurance expense Royalty payments
Depreciation

Mixed Expenses
Maintenance
Rent expense
Salaries

2. Activity Maintenance Rent Salaries

High January 14,000 41,000 34,500 52,250
Low March 8,000 26,000 30,000 47,000
Difference 6,000 15,000 4,500 5,250

Variable 2.50 0.75 0.875

Fixed 6,000 24,000 40,000

3. Total Maintenance cost = 6,000 + (2.50 x Sales in units)

Total Rent cost = 24,000 + (.75 x Sales in units)
Total Salaries cost = 40,000 + (0.875 x Sales in units)

4.
Sales $ 900,000
Less: variable expenses
Cost of goods sold $ 408,000
Royalty payments 15,000
Maintenance 30,000
Rent expense 9,000
Salaries 10,500
Total Variable expenses 472,500
Contribution margin $ 427,500
Less: Fixed expenses
Advertising expense $ 40,000
Insurance expense 6,000
Depreciation 60,000
Maintenance 6,000
Rent expense 24,000
Salaries 40,000
Total Fixed expenses 176,000
Net income $ 251,500
 Solution – Question 3
Pete’s Pocket Protectors

1. Predetermined Overhead Rate = Estimated Cost / Estimated Machine Hours

$0.80 = 80,000 / 100,000

2.
a Raw materials 80,000
Accounts Payable 80,000

b Work in process 85,000

Manufacturing Overhead 5,000
Raw Materials 90,000

c Work in process 120,000

Manufacturing overhead 30,000
Administration and selling expense 75,000
Cash / Payroll payable 225,000

d Manufacturing overhead 12,000

Cash 12,000

e Manufacturing overhead 25,000

Amortization expense - admin and selling 5,000
Accumulated Amortization 30,000

f Manufacturing overhead 4,000

Insurance expense - admin and selling 800
Prepaid insurance 4,800

g Delivery expenses 40,000

Cash 40,000

h Manufacturing overhead 17,000

Cash 17,000

i. Work in process 96,000

Manufacturing overhead 96,000
(80,000/100000)*120000

j. Finished good inventory 310,000

Work in process 310,000

k. Accounts receivable 450,000

Sales 450,000
Cost of goods sold 300,000
Finished goods inventory 300,000
l. Cash 445,000
Accounts receivable 445,000

m Accounts payable 85,000

Cash 85,000

3. Manufacturing overhead 3,000

Cost of goods sold 3,000

Raw materials
25,000 90,000 b
a 80,000
105,000 90,000 4.
90,000 Direct Materials 8,000
15,000 Direct Labour 6,000
Overhead (7,000 x .80) 5,600
Total Cost 19,600
Work in process
30,000 310,000 j. Mark-Up (80%) 15,680
b 85,000 Selling Price $35,280
c 120,000
i. 96,000
331,000 310,000
310,000
21,000

Finished Goods
45,000 300,000 k.
j. 310,000
355,000 300,000
300,000
55,000

Manufacturing Overhead
b 5,000 96,000 i.
c 30,000
d 12,000
e 25,000
f 4,000
h 17,000
93,000 96,000
93,000
3,000
 Solution – Question 4
Samantha’s Shoe Horns
1.
Sales in Units 20,000
Per unit %
Sales $ 320,000 16 100%
Variable Expenses 240,000 12 75%
Contribution Margin $ 80,000 4 25%
Fixed Expenses 60,000
Net Income $ 20,000

Break even - units Fixed Expenses 60,000 = 15,000 units

C.M. per unit 4

Break even - dollars Fixed Expenses 60,000 $ 240,000

C.M. ratio per unit 25%

Margin of Safety Current sales - B.E. sales $ 80,000

Margin of safety / Sales 25%

2. Increase in C.M. - 10% of C.M. 8,000

Less: Increase in Fixed Expenses 15,000
Net increase (decrease) (7,000)
This plan is not advisable.

3. Sales (per unit) 16 C.M. 20,000 units at $6 120,000

Variable expenses 10 Current C.M. 80,000
Contribution margin 6 Increased C.M. 40,000
Increased Fixed costs 45,000
Net increase(decrease) (5,000)
This plan is not advisable.

4. Sales (per unit) 16 C.M. 20,000 units x 110% at $6 132,000

Variable expenses 10 Current C.M. 80,000
Contribution margin 6 Increased C.M. 52,000
Increased Fixed costs 45,000
Net increase(decrease) 7,000
The plan is advisable
Samantha’s Shoe Horns alternative solution for questions 2 – 4

Current Question 2 Question 3 Question 4

Total /unit Total /unit Total /unit Total /unit
Number of units 20,000 22000 20,000 22000
Sales $ 320,000 $ 16 $ 352,000 $ 16 $ 320,000 $ 16 $ 352,000 $ 16
-Variable Costs $ (240,000) $ 12 $ (264,000) $ 12 $ (200,000) $ 10 $ (220,000) $ 10
Contribution Margin $ 80,000 $ 4 $ 88,000 $ 4 $ 120,000 $ 6 $ 132,000 $ 6
-Fixed Costs $ (60,000) $ (75,000) $ (105,000) $ (105,000)
Net Income $ 20,000 $ 13,000 $ 15,000 $ 27,000
Change in NI $ (7,000) $ (5,000) $ 7,000
change in Total CM $ 8,000 $ 40,000 $ 52,000

Note: The change in Total CM and Net Income are consistent with the incremental approach results presented above.