Managerial accounting (worksheet)

  1. The following data (in thousands of dollars) have been taken from the accounting records of Larklin Corporation for the just completed year.


 Purchases of raw materials


 Direct labor


 Manufacturing overhead


 Administrative expenses


 Selling expenses


 Raw materials inventory, beginning


 Raw materials inventory, ending


 Work in process inventory, beginning


 Work in process inventory, ending


 Finished goods inventory, beginning


 Finished goods inventory, ending


Required: Prepare a Schedule of Cost of Goods Manufactured  statement

  1. The Indiana Company manufactures a product that goes through three processing departments.  Information relating to activity in the first department during June is given below:

Percent completed
Units              Materials            Conversion
Work in process, June 1              70,000               65%                  45%
Work in process, Jun 30              60,000               75%                  65%

The department started 290,000 units into production during the month and transferred 300,000 completed units to the next department.

REQUIRED:  Compute the equivalent units of production for the first department for June, assuming that the company uses the weighted-average method of accounting for units and costs


  1. Drake Company’s income statement for the most recent year appears below:

Sales (45,000 units)                                          $1,350,000

Less: Variable expenses                                       750,000

Contribution margin                                                600,000

Less: Fixed expenses                                           375,000

Net operating income                                          $225,000


a. calculate the unit contribution margin

b. calculate the break-even point in dollars

c. If the company desires a net operating income of $290,000, how many units must it sell?

4. Lehne Company, which has only one product, has provided the following data concerning its most recent month of operations:

Selling Price  $         125
Units in beginning Inventory


Units Produced


Units sold


Units in ending Inventory


Variable Costs per unit:
Direct materials  $           15
Direct labor  $           50
Variable manufacturing overhead  $             8
Variable selling and admin  $           12
Fixed Costs:
Fixed manufacturing overhead  $      75,000
Fixed selling and admin  $      20,000

The company produces the same number of units every month, although the sales in units vary from month to month. The company’s variable costs per unit and total fixed costs have been constant from month to month.

a. What is the unit product cost for the month under variable costing?
b. What is the unit product cost for the month under absorption costing?
c. Prepare an income statement for the month using the variable costing method.
d. Prepare an income statement for the month using the absorption costing method.



Multiple choice :

1. (TCO A) The variable portion of advertising costs is a: (Points : 6)  Conversion YES… Period NO  Conversion YES …. Period YES  Conversion NO…. Period YES  Conversion NO…. Period NO


2. (TCO A)  A cost incurred in the past that is not relevant to any current decision is classified as a(n): (Points : 6)  period cost.  incremental cost.  opportunity cost. none of the above. 



3. (TCO A) Depreciation of office buildings and equipment are also known as: (Points : 6)  variable costs  conversion costs  product costs  period costs


4. (TCO A) Within the relevant range, variable costs can be expected to: (Points : 6)  vary in total in direct proportion to changes in the activity level.  remain constant in total as the activity level changes.  increase on a per unit basis as the activity level increases.   increase on a per unit basis as the activity level decreases.  none of these.


5. (TCO F)  When manufacturing overhead is applied to production, it is added to: (Points : 6)  the Cost of Goods Sold account  the Raw Materials account  the Direct Labor account  none of the above


6. (TCO F) Which of the following statements about process costing system is incorrect? (Points : 6)  In a process costing system, each processing department has a work in process account  In a process costing system, equivalent units are separately computed for materials and for conversion costs  In a process costing system, overhead can be under- or overapplied just as in job-order costing  In a process costing system, materials costs are traced to units of products


7. (TCO F)  The FIFO method only provides a major advantage over the weighted-average method in that (Points : 6)  the calculation of equivalent units is less complex under the FIFO method  the FIFO method treats units in the beginning inventory as if they were started and completed during the current period the FIFO method provides measurements of work done during the current period  the weighted-average method ignores units in the beginning and ending work in process inventories


8. (TCO B) The contribution margin ratio always increases when the: (Points : 6)  break-even point increases  break-even point decreases  variable expenses as a percentage of net sales decreases  variable expenses as a percentage of net sales increases


9. (TCO B)  Which of the following would not affect the break-even point? (Points : 6)  number of units sold  variable expense per unit  total fixed expenses  selling price per unit


10. (TCO E) In an income statement prepared using the variable costing method, variable selling and administrative expenses would: (Points : 6)  be used in the computation of the contribution margin  be used in the computation of net operating income but not in the computation of the contribution margin be treated differently from variable manufacturing expenses

 not be used


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