Managerial Accounting

QUESTION 1: (9 Marks) Kissimmee Paint Co. reported the following data for the month of July. There were no beginning inventories and all units were completed (no work in process). Total Cost Number of Units Unit Cost Manufacturing costs: Variable DH 465,000 30,000 DH 15.50 Fixed 210,000 30,000 7.00 Total DH 675,000 DH 22.50 Selling and administrative expenses: Variable DH 2 per unit sold Fixed DH 39,000 In the month of July, 28,000 of the 30,000 units manufactured were sold at a price of DH 80 per unit. (a) Prepare a variable costing income statement. (b) Prepare an absorption costing income statement. (c) Briefly explain why there is a difference in income from operations between the two methods. Dr. Sawsan Halbouni 3 QUESTION 2: (10 Marks) A- (4 Marks) Based on the following production and sales data of Shingle Co. for March of the current year, prepare (a) a sales budget and (b) a production budget. Product T Product X Estimated inventory, March 1 28,000 units 20,000 units Desired inventory, March 31 32,000 units 15,000 units Expected sales volume: Area I 320,000 units 260,000 units Area II 190,000 units 130,000 units Unit sales price DH 6 DH 14 Dr. Sawsan Halbouni 4 B- (6 Marks) The treasurer of Systems Company has accumulated the following budget information for the first two months of the coming year: March April Sales. DH 450,000 DH 520,000 Manufacturing costs 290,000 350,000 Selling and administrative expenses 41,400 46,400 Capital additions 250,000 --- The company expects to sell about 35% of its merchandise for cash. Of sales on account, 80% are expected to be collected in full in the month of the sale and the remainder in the month following the sale. One-fourth of the manufacturing costs are expected to be paid in the month in which they are incurred and the other three-fourths in the following month. Depreciation, insurance, and property taxes represent DH 6,400 of the probable monthly selling and administrative expenses. Insurance is paid in February and a DH 40,000 installment on income taxes is expected to be paid in April. Of the remainder of the selling and administrative expenses, one-half are expected to be paid in the month in which they are incurred and the balance in the following month. Capital additions of DH 250,000 are expected to be paid in March. Current assets as of March 1 are composed of cash of DH 45,000 and accounts receivable of DH 51,000. Current liabilities as of March 1 are composed of accounts payable of DH 121,500 (DH 102,000 for materials purchases and $19,500 for operating expenses). Management desires to maintain a minimum cash balance of DH 20,000. Prepare a monthly cash budget for March and April. Dr. Sawsan Halbouni 5 QUESTION 3 (6 Marks) A: (3 Marks) Brancati Inc. produces and sells two products. Data concerning those products for the most recent month appear below: Product W07C Product B29Z Sales...................................... DH 25,000 DH 27,000 Variable expenses................. DH 7,000 DH 8,600 Fixed expenses for the entire company were DH 32,860. Required: a. Determine the overall break-even point for the company. Show your work! b. If the sales mix shifts toward Product W07C with no change in total sales, what will happen to the break-even point for the company? Explain. B: (3 Marks) Lubke Corporation's contribution format income statement for the most recent month follows: Sales ...................................... DH 506,000 Variable expenses.................. 236,500 Contribution margin .............. 269,500 Fixed expenses...................... 241,700 Net operating income ............ DH 27,800 a. Compute the degree of operating leverage to two decimal places. b. Using the degree of operating leverage, estimate the percentage change in net operating income that should result from a 3% increase in sales.