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 1^st 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