Question 01:

The controller of Hall Industries has collected the following monthly expense data for use
in analyzing the cost behavior of maintenance costs

Total Total
Month Maintenance Costs Machine Hours

January $2,640 3,500

February 3,000 4,000

March 3,600 6,000

April 4,500 7,900

May 3,200 5,000

June 4,620 8,000

Answer:

Variable cost per machine hour = Change in cost/Change in Machine hours

i.e [Total cost at highest level -Total cost at lowest level] / (Highest level-Lowest level)

= ($4,620-$2,640) / (8,000-3,500)

Variable cost per machine hour = $0.44 per machine hour

Fixed cost = Total Maintenance cost-Variable cost

Apply above equation for june month to calculate fixed cost component

= $4,620-(8,000hrs*$0.44)

Fixed cost = $1,100

Question 02:
Pure Decorating uses a job order cost system to collect the costs of its interior decorating
business. Each client's consultation is treated as a separate job. Overhead is applied to each
job based on the number of decorator hours incurred. Listed below are data for the
current year

Estimated overhead $960,000

Actual overhead $982,800
Estimated decorator hours 40,000
Actual decorator hours 40,500

(a) Compute the predetermined overhead rate.

(c) Determine whether the overhead was under or over applied and by how much.

Answer:

a. Predetermined overhead rate

Predetermined overhead rate = estimated decorated hours / actual decorated hours

= 960000/40000

= $24 per decorator hour

b. Determined whether the overhead was under or over applied and by how much

Since actual overhead is greater than applied overhead Pure Decorating has under applied
overhead for the year by:
Under applied overhead = Actual - Applied
Under applied overhead = $982800 - 960000
Under applied overhead = $22,800

Question 03:
All Wood Corporation manufactures dining chairs and tables. The following information is avail
able:

Dining Chairs Tables Total Cost

Machine setups 200 600 $36,000

Inspections 250 470 $54,000

Labor hours 2,600 2,400

All Wood is considering switching from one overhead rate based on labor hours to activity-
based costing. Perform the following analyses for these two components of overhead:

a. Compute total machine setups and inspection costs assigned to each product, using a sing
le overhead rate.
b. Compute total machine setups and inspection costs assigned to each product, using activit
y-based costing.

Answer:

a. Single overhead rate

($36,000 + $54,000) ÷ 5,000 = $18 per labor hour

Dining chairs: 2,600 × $18 = $46,800

Tables: 2,400 × $18 = 43,200

$90,000

b. Activity-based costing

Machine setups: $36,000 ÷ 800 = $45 per setup

Inspections: $54,000 ÷ 720 = $75 per inspection

Dining chairs: (200 × $45) + (250 × $75) = $27,750

Tables: (600 × $45) + (470 × $75) = 62,250

$90,000
Question 04

In the month of March, Style Salon services 560 clients at an average price of $ 120.
During the month, fixed costs were $ 21,024 and variable costs were 60 % of sales.

Answer

a. Contribution Margin = Sales - Variable cost

Sales = 560 Clients x $ 120

= $ 67,200

Variable cost = $ 67,200 x 60%

= $ 40,320

Hence, Contribution Margin = $ 67,200- $ 40,320

= $ 26,880
Number of Units = 560 Clients

Hence, Contribution Margin Per Unit= $ 26,880/ 560

= $ 48 Per Unit

Contibution Margin Ratio = Contribution Margin / Sales *100

= $26,880/ $ 67,200 x 100

= 40%
Hence the correct answer is :

Contribution Margin =$ 48 Per Unit

Contribution Margin Ratio = 40%

b. Break- Even Point( Units) = Fixed Cost/ Contribution Margin Per Unit

= $ 21,024/ $ 48 Per Unit

= 438 Units
Break- Even Point(in Dollars) = Fixed Cost/ Contribution Margin Ratio

= $ 21,024 / 40%

= $ 52,560

Hence, the correct answer is:

Break Even Point (Units ) = 438 Units

Break- Even Point(in Dollars) = $ 52,560

Question 05:

Billings Company has the following information available for Setpember 2017.
Unit selling price of video game consoles $400
Unit variable costs $280
Total fixed costs $54,000
Units sold 600

a. Compute Billing's break-even point in units.

b. Prepare a CVP income statement for the break-even point that shows both total and per unit
amounts

Answer:

a. Compute Billing's break-even point in units

The break-even point in units is calculated as follows:

 Break-even point in units = Fixed costs / Unit contribution margin

 Break-even point in units = $54,000 / $120 per unit = 450 units

Billings needs to sell 450 units to break-even.

 b. Prepare a CVP income statement for the break-even point that shows both total and
per unit amounts

Billings Company
Break-Even Contribution Income Statement
For the Month Ended September 30, 2017
Total Per Unit
Sale (450 units * $400 per unit) $180,000 $400
Variable costs (450 units * $280 per unit) 126,000 280
Contribution margin 54,000 120
Fixed costs 54,000
Operating income (loss) 0