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.
