Question

Question:

Q1: Prepare the journal entries for the following: (4 Points)

1. When raw materials are received, Give an example
2. When raw materials are sent to the factory floor, Give an example
3. When a job is completed, what happen to the cost, Give an example
4. Overhead expenses ( salary) paid by cheque $ 5000
5. Utilities (Indirect expenses) paid in cash $ 10000

f)   Salaries totaling $5,000 are accrued; 35% of these costs are direct labor, 40% are indirect labor and 25% are overhead expense. Prepare the journal entry.

g)   Overhead costs are allocated to work in process using an allocation rate of 150% of direct labor costs and 300% of overhead expenses.

Prepare the journal entry. (Give different examples- examples should not be same)

Q2- Riyadh Electricity Company manufactures chandeliers . Following is information for next year’s operations, based on an estimated volume of 20,000 units: 4 marks

Expected revenues                                    $1,000,000

Unit costs:

Direct materials                                         $ 6.25

Direct labor                                                  15.75

Variable overhead                                          5.50

Fixed manufacturing overhead                      2.50

Total                                                     $30.00

Other fixed costs:

Administration, marketing, etc.             $225,000

Income tax rate                                                    30%

a.   What is the breakeven point for next year?

b.   What is next year’s projected after-tax income?

c.   Suppose the managers set a target after-tax income of $100,000. Estimate the number of units that must be sold.

Q3-Ahmed has budgeted next year’s sales at 8,000 units. (2 marks )

Compute Ahmed's degree of operating leverage. If P = 1,000, V = 400, F = 850,000.

Answer 1

1.a.	Raw material received . E.g. $ 10000
	Raw Material	Dr	10000
	Accounts Payable	Cr	10000
b.	Raw material sent to factory, e.g. $ 6000
	Work in Process	Dr	6000
	Raw Material	Cr	6000
c.	When a job is completed, it is removed from work in process and include in the finished goods,
	as this will become the finished good.e.g. $ 4000
	Finished Good	Dr	4000
	Work in process	Cr	4000
d.	Salary Expense	Dr	5000
	Bank	Cr	5000
e.	Utilities	Dr
	Cash	Cr
2		Calculation of the Break Even Point
			Total	Units	Per unit
	Expected Revenue		1000000	20000	50
	Variable Costs
	Direct Material				$6.25
	Direct Labor				15.75
	Variable overhead				$5.50
	Total variable Cost				$27.50
	Contribution per unit		Selling price- Variable cost
			50-27.50
			$22.50
	Fixed Cost		Manufacturing Overhead+Administration cost
			2.5*20000+225000
			275000
	Break Even Point		Fixed Cost/ Contribution
			275000/27.50
	Break Even Point		10000
	The Break Even Point is 10000 units
b.	Next year projected after tax income
	Contribution per unit		27.5
	Total Contribution		27.5*20000
			550000
	Profit before tax	=	Contribution-Fixed Costs
			27.5*20000-275000
			275000
	Less : Tax @ 30%		82500
	(275000*.30)
	Afer Tax Income		192500
b.	Next year after tax income is $ 192500
c.	After Tax Income		$100,000
	before tax income		100000/ (1-tax rate)
			100000/(1-0.3)
			142857
	No of units to be sold=		Fixed Cost+profit before tax/ Contribution per unit
			275000+142857/27.5
			15194.8
c.	15195 units