Question

Could you please help me to solve this exercise? I know it is quite long but please try to do as much as your are allowed to do.

It is very complicated and too difficult to me I m very grateful if you can prove the formulas so I can understand how the numbers come from.

Many thanks

I d to write clearer here the Ending Inventory at the last row of the photo: Ending Inventory is $34,000

More detailed information relating to the co.s two product:

	Product X	Product Y
Units Sold	4,500	2,200
Average selling price	$200	$300
Units produced	5,000	2,000
Direct material (per unit)	$40,00	$80,00
Direct labor (per unit)	$10,00	$12,50
Machine hour (per unit)	3 hours	11 hours
Sales commission	5%	8%

Required:

1. Determine

a. The predetermined overhead rate

b. The effective overhead rate

c. The correct effective manafacturing fixed costs are assuming that only 25% of "Factory utility cost" are variables

2. Compute the effective Cost of Good Sold using Absorption Costing and assuming that the Co. attained the same level of production and efficiency in the previous year

3. Prodive the Traditional Income Statement (Absorption Method) of the company

4. Prepare an alternative Income Statement in which the Contribution margin is shown

5. Find out the Break Even Point in Dollard for the Co.

6. Using full costing, provide a Segmented Income Statement in which the unused portion of manufactoring capacity is seperately disclosed.

Answer 1

1	The predetermined overhead rate
	Predetermined overhead rate = Manufacturing overhead cost/Machine hours
	Manufacturing overhead cost	$450,000
	Machine hours worked	36000
	Predetermined overhead rate	$12.50
2	The effective overhead rate
	Manufacturing overhead cost
	Indirect materials	$30,000
	Indirect manufacturing labor	$110,000
	Factory utility cost	$43,000
	Factory depreciation	$280,000
	Factory insurance	$8,750
	Total manufacturing overhead rate	$471,750
	Machine hours	Product X	Product Y	Total
	Units Produced	5000	2000	7000
	Machine hour per unit	3	11
	Total Machine hours	15000	22000	37000
	Effective overhead rate	$12.75	(471750/37000)
3	Effective manufacturing fixed cost
	Factory utility cost	$32,250	(43000 x 75%)
	Factory depreciation	$280,000
	Factory insurance	$8,750
	Manufacturing fixed cost	$321,000
4	Cost of goods sold
	Per unit cost	Product X	Product Y
	Direct Material	$40	$80
	Direct Labour	$10	$12.50
	Manufacturing overheads	$12.75	$12.75
	Per unit cost	$63	$105
	Unit sold	4,500	2,200
	Cost of goods sold	$282,375	$231,550
5	Income Statement (Absorption method)
	Sales	$1,560,000
	Cost of goods sold	$513,925
	Gross Profit	$1,046,075
	Rent Revenue	$18,000
	Total revenue	$1,064,075
	Operating Expenses:
	Sales Commission	$97,800
	Administative salaries	$200,000
	General selling expenses	$17,000
	Advertising cost	$180,000
	Selling and administrative depreciation	$70,000
	Selling and administrative insurance	$3,000
	Total operating expenses	$567,800
	Income before tax	$496,275
6	Alternative Income statement
	Sales	$1,560,000
	Cost of goods sold	$455,769
	Product Contribution Margin	$1,104,231
	Variable Operating expenses:
	Sales Commission	$97,800
	Contribution Margin	$1,006,431
	Rent Revenue	$18,000
	Total revenue	$1,122,231
	Operating Expenses:
	Factory utility cost	$32,250
	Factory depreciation	$280,000
	Factory insurance	$8,750
	Administative salaries	$200,000
	General selling expenses	$17,000
	Advertising cost	$180,000
	Selling and administrative depreciation	$70,000
	Selling and administrative insurance	$3,000
	Total operating expenses	$791,000
	Income before tax	$331,231
	Cost of goods sold
	Per unit cost	Product X	Product Y
	Direct Material	$40	$80
	Direct Labour	$10	$12.50
	Variable Manufacturing overheads	$4.07	$4.07
	Per unit cost	$54	$97
	Unit sold	4,500	2,200
	Cost of goods sold	$243,315	$212,454
	Variable Manufacturing overhead cost
	Indirect materials	$30,000
	Indirect manufacturing labor	$110,000
	Factory utility cost	$10,750
		$150,750
	Variable overhead rate	$4.07	(150750/37000)