30) Stewart Company has no beginning and ending inventories, and reports the
following information about its only product:
Direct materials used $29,000
Direct labor $17,000
Variable indirect production $13,000
Fixed indirect production $18,000
Variable selling and administrative expenses $22,000
Fixed selling and administrative expenses $11,000
Units produced and sold 10,000
Selling price per unit $25
Required:
A) Prepare an income statement using the contribution approach.
B) Prepare an income statement using the absorption approach.
Answer:
A)
Sales (10,000 × $25) $250,000
Variable expenses:
Direct materials $29,000
Direct labor 17,000
Variable indirect production 13,000
Variable manufacturing cost of goods sold 59,000
Variable selling and admin. expenses 22,000
Total variable expenses 81,000
Contribution margin 169,000
Fixed expenses:
Indirect production 18,000
Selling and admin. 11,000
Total fixed expenses 29,000
Operating income $140,000
B)
Sales $250,000
Manufacturing cost of goods sold:
Direct materials $29,000
Direct labor 17,000
Variable indirect production 13,000
Fixed indirect production 18,000
Manufacturing cost of goods sold 77,000
Gross margin 173,000
Selling and administrative expenses 33,000
Operating income $140,000
11) Santana Company has no beginning and ending inventories, and reports the
following information for its only product:
Direct materials used $250,000
Direct labor $120,000
Fixed indirect manufacturing $60,000
Variable indirect manufacturing $20,000
Variable selling and administrative $50,000
Fixed selling and administrative $10,000
Units produced and sold 40,000
Santana Company uses the absorption approach to prepare the income
statement. What is the product cost per unit?
DIRECT MATERIAL 250,000
+ DIRECT LABOR 120,000
+ F IND M 60,000
+ V IND M 20,000
450,000 / 40,000 UNITS = 11.25 &
Grant’s Kitchens is approached by Ms. Tammy Wang, a new customer, to fulfill a
large one-time-only special order for a product similar to one offered to regular
customers. The following per unit data apply for sales to regular customers:
Direct materials $455
Direct labor 300
Variable manufacturing support 45
Fixed manufacturing support 100
Total manufacturing costs 900
Markup (60%) 540
Targeted selling price $1440
Grant’s Kitchens has excess capacity. Ms. Wang wants the cabinets in cherry rather
than oak, so direct material costs will increase by $30 per unit.
84. For Grant’s Kitchens, what is the minimum acceptable price of this one-time-
only special order?
a. $830
b. $930
c. $785
d. $1,440
Answer: a
Terms to Learn: one-time-only special order
$455 + $300 + $45 + $30 = $830
Scrooge Company produces a part that is used in the manufacture of one of its
products. The costs associated with the production of 11,000 units of this part are as
follows:
DIRECT MATERIAL: $25,000;
DIRECT LABOR: $34,000;
VARIABLE FACTORY OVERHEAD: $65,000;
FIXED FACTORY OVERHEAD: $50, 000.
TOTAL MANUFACTURING COSTS ARE $174,000. Of the fixed factory overhead costs,
$ 9,000 is avoidable
a. Assuming that Scrooge has no viable alternative use for the factory space. Should
Scrooge accept the offer from the supplier who has quoted a price of $12,50 each for the
part or not?
b. Would your answer to part A change if the facilities could be rented for $ 10.000 a
year?
Answer:
a. MAKE: $25,000 + $34,000 + $65,000 + $9,000 = $133,000
BUY: $12.50 x 11,000 units = $137,500
Company should continue to make the part.
b. Net cost to buy: $137,500 - $10,000 = $127,500
Net cost to make: $133,000
Company should buy the part to save the company $5,500
86. A manufacturing company produced the following report:
Required:
(1) How many units would have to be sold to break even?
(2) If fixed overhead were to increase by $1,800 what would breakeven be in units?
(3) What is operating income if sales increase by 25%?
Answer:
(1) Contribution margin: 200 – 145 – 15 = 40
(500 + 4000) / 40 = 112.5 or 113 units
(2) (500 + 4000 + 1800) / 40 = 157.5 or 158 units
15) Gonzalez Company has no beginning and ending inventories, and reports the
following data about its only product:
Direct materials used $300,000
Direct labor $80,000
Fixed indirect manufacturing $100,000
Fixed selling and administrative $190,000
Variable indirect manufacturing $20,000
Variable selling and administrative $90,000
Selling price(per unit) $50
Units produced and sold 10,000
Gonzalez Company uses the absorption approach to prepare the income
statement. What is the gross margin?
A) $0
B) $20,000
C) $100,000
D) $120,000
Answer: A
