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Compania Maritima S.A., of Santiago de Chile is a merchandising company that supplies a variety of American products to the Chilean market.

PROBLEM 5-20 Cost Behavior; High-Low Method; Contribution Format Income Statement (LO1, LO2, LO4)

CHECK FIGURE: (2) Shipping: P9,000 per month plus P9.00 per unit

P5-20 Compania Maritima S.A., of Santiago de Chile is a merchandising company that supplies a variety of American products to the Chilean market. The company’s income statements for the three most recent months follow:

Compania Maritima S.A.
Income Statements
For the Three Months Ending June 30

April
May
June

Sales in units   
6,500
7,400
7,000

Sales revenue  
P260,000
P296,000
P280,000

Cost of goods sold      
   78,000
   88,800
   84,000

Gross margin  
   182,000
   207,200
   196,000

Selling and administrative expenses:



Advertising expense   
5,000
5,000
5,000

Shipping expense        
67,500
75,600
72,000

Salaries and commissions       
30,800
34,400
32,800

Insurance expense      
4,000
4,000
4,000

Depreciation expense 
2,500
2,500
2,500

Total selling and administrative expenses       
  109,800
121,500
116,300

Net operating income  
P  72,200
P  85,700
P  79,700


(Note: Compania Maritima S.A.’s Chilean-formatted income statement has been recast in the format common in the United States. The Chilean dollar is denoted by P.)

Required:
1. Identify each of the company’s expenses (including cost of goods sold) as either variable, fixed, or mixed.
2. Using the high-low method, separate each mixed expense into variable and fixed elements. State the cost formula for each mixed expense.
3. Redo the company’s income statement at the 7,000-unit level of activity using the contribution format.


SOLUTION PREVIEW

Analysis of the mixed costs:

Units
Shipping Expense
Salaries and Commission Expenses
High activity level
7,400
P 75,600
P 34,400
Low activity level
6,500
67,500
30,800
Change
900
8100
3,600

Correct!
Correct!
Correct!

      
File name: P5-20-Compania-Maritima.xls File type: XLS  Price: $8

The Fun Store, Inc., purchases very large and heavy toys from a large manufacturer and sells them at the retail level.

The Fun Store, Inc., purchases very large and heavy toys from a large manufacturer and sells them at the retail level.

P5-15 Contribution Format versus Traditional Income Statement (LO4)

CHECK FIGURE (1) Net income is $(400)

P5-15 The Fun Store, Inc., purchases very large and heavy toys from a large manufacturer and sells them at the retail level. The toys cost, on the average, $9 each from the manufacturer. The Fun Store, Inc., sells the toys to its customers at an average price of $40 each. The selling and administrative costs that the company incurs in a typical month are presented below:

Costs
Cost Formula
Selling:


Advertising     
$1,000
per month
Sales salaries and commissions           
$800
per month, plus 5% of sales
Delivery of toys to customers 
$6
per toy sold
Utilities           
$700
per month
Depreciation of sales facilities
$900
per month
Administrative:


Executive salaries       
$3,500
per month
Insurance        
$500
per month
Clerical           
$500
per month, plus $5 per toy sold
Depreciation of office equipmen
$600
per month

During June, The Fun Store, Inc., sold and delivered 450 toys.

Required:
1.         Prepare an income statement for The Fun Store, Inc., for June. Use the traditional format, with costs organized by function.

2.         Redo (1) above, this time using the contribution format, with costs organized by behavior. Show costs and revenues on both a total and a per unit basis down through contribution margin.

3.         Refer to the income statement you prepared in (2) above. Why might it be misleading to show the fixed costs on a per unit basis?

CHECK FIGURE
(1) Net income is $(400)

SOLUTION PREVIEW
Selling expenses:
Advertising
$1,000
Sales salaries and commissions
1,700
Delivery of toys
2,700


 File name: P5-15-The Fun Store..xls File type: XLS Price: $7

The Pacific Manufacturing Company operates a job-order costing system and applies overhead cost to jobs on the basis of direct labor cost.

The Pacific Manufacturing Company operates a job-order costing system and applies overhead cost to jobs on the basis of direct labor cost.

P3-24 The Pacific Manufacturing Company operates a job-order costing system and applies overhead cost to jobs on the basis of direct labor cost. Its predetermined overhead rate was based on a cost formula that estimated $126,000 of manufacturing overhead for an estimated allocation base of $84,000 direct labor dollars.

The company has provided the following data.
Beginning        Ending
Raw Materials                          $21,000           $16,000
Work in Process                       $44,000           $40,000
Finished Goods                        $68,000           $60,000

The following actual costs were incurred during the year:
Purchase of raw materials (all direct) $133,000
Direct labor cost $80,000
Manufacturing overhead costs:
Insurance, factory $7,000
Depreciation of equipment $18,000
Indirect labor $42,000
Property taxes $9,000
Maintenance $11,000
Rent, building $36,000

Required:
1-a. Compute the predetermined overhead rate for the year.
1-b. Compute the amount of underapplied or overapplied overhead for the year.
2. Prepare a schedule of cost of goods manufactured for the year. Assume all raw materials are used in production as direct materials.
3-a. Compute the unadjusted cost of goods sold for the year. (Do not include any under applied or  over applied overhead in your cost of goods sold figure.)
3-b. Identify the options available for disposing of underapplied or overapplied overhead? (You may select more than one answer.
4. Job 137 was started and completed during the year. What price would have been charged to the customer if the job required $3,200 in materials and $4,200 in direct labor cost, and the company priced its jobs at 40% above the job’s cost according to the accounting system?
5. Direct labor made up $8,000 of the $40,000 ending Work in Process inventory balance. Supply the information missing below

Direct materials $
Direct labor 8,000  
Manufacturing overhead  
Work in process inventory $40,000

SOLUTION PREVIEW

Pacific Manufacturing Company
Computations
1a.
Estimated total manufacturing overhead cost
$     126,000
Estimated total amount of the allocation base
 $       84,000
Predetermined overhead rate
150%

Correct!


File name: P3-24-The-Pacific-Manufacturing.xls File type: XLS Price: $8

P2-23 Alden company

P2-23 Alden company

Cost formulas:
Cost
Cost Formula
Cost of goods sold
$20 per unit sold
Advertising expense
$170,000 per quarter
Sales commissions
5% of sales
Administrative salaries
$80,000 per quarter
Shipping expense
?
Depreciation expense
$50,000 per quarter



Units sold and related shipping expenses:
Quarter
Units Sold
Shipping Expense
Year 1:


First
16,000
$160,000
Second
18,000
$175,000
Third
23,000
$217,000
Fourth
19,000
$180,000



Year 2


First
17,000
$170,000
Send
20,000
$185,000
Third
25,000
$232,000
Fourth
22,000
$208,000

Sales forecase for 1st Quarter, Year 3:
Units                            21,000
Price per unit                    $50


SOLUTION PREVIEW

Units
sold
Shipping
Expense
High activity level
          25,000
 $     232,000
Low activity level
          16,000
        160,000
Change
            9,000
 $       72,000
e
Correct!
Correct!


File name: P2-23-Alden-company.xls File type: XLS  Price: $7