ESLSCA UNIVERSITY

Accounting Handout
Managerial Accounting
Part II

Fall Semester 2019

Instructor
Dr. Maha Ramadan
Associate Professor of Accounting
e-mail [email protected]

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Cost Behavior
1. Dickison Corporation reported the following data for the month of December:

Direct Materials……………………...$71,000
Direct Labor cost……………………..38,000
Manufacturing Overhead…………….69,000
Selling expenses……………………...24,000
Administrative expenses……………..42,000

a. The conversion cost for December was:

A. $107,000 B. $142,000
C. $111,000 D. $178,000

b. The prime cost for December was:

A. $109,000 B. $111,000
C. $107,000 D. $66,000

2. A partial listing of costs incurred during December at Gagnier Corporation appears

below:
Factory supplies $8,000
Administrative wages and salaries 105,000
Direct materials 153,000
Sales staff salaries 68,000
Factory depreciation 49,000
Corporate headquarters building rent 34,000
Indirect labor 32,000
Marketing 103,000
Direct Labor 83,000

a. The total of the period costs listed above for December is:
A. $89,000 B. $310,000
C. $325,000 D. $399,000

b. The total of the manufacturing overhead costs listed above for December is:
A. $325,000 B. $635,000
C. $89,000 D. $40,000

c. The total of the product costs listed above for December is:
A. $310,000 B. $89,000
C. $635,000 D. $325,000

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3. Lettman Corporation has provided the following partial listing of costs incurred
during November:

Marketing Salaries $45,000

Property taxes factory 9,000
Administrative travel 98,000
Sales commission 48,000
Indirect labor 38,000
Direct material 165,000
Advertising 138,000
Depreciation of production equipment 39,000
Direct labor 87,000

Required
a. What is the total amount of product cost listed above? Show your work.
b. What is the total amount of period cost listed above? Show your work.

4. The following information summarizes the company's cost structure:

Variable cost per unit…………$1.30
Fixed costs per unit………….…..4.5
Total cost per unit………………5.80
Units produced and sold……….48,000

Required
Estimate the following costs at the 40,000 unit level of activity:
a. Total variable cost.
b. Total fixed cost.
c. Variable cost per unit.
d. Fixed cost per unit.

5. Answer the following questions based on the given data:

Sales price………………………….$160 per unit

Fixed costs
Marketing and administrative…..$20,000 per period
Manufacturing overhead…………$15,000 per period
Variable Costs:
Marketing and Administrative……………...……………$5 per unit
Manufacturing overhead……………………….……………30 per unit
Direct labor (manufacturing)……………..………………..$10 per unit
Direct materials (manufacturing)………..............................$40 per unit
Number of units produced and sold during the period………1000 units
Required:
a. How much is the variable manufacturing cost per unit?
b. How much is the prime cost per unit?
c. How much is the conversion cost per unit?
d. How much is direct cost per unit?
e. How much is the total manufacturing cost per unit?
f. How much is the total variable cost per unit?

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 g. How much is the contribution margin per unit?
h. How much is the gross margin per unit?
i. If the number of units increases from 1000 to 1100, which is with in the
relevant range, what is the fixed manufacturing cost per unit?

6. The facilities housekeeping department at St. Luke's Hospital has determined that
the appropriate cost driver for housekeeping costs is patient-days. There are 10,000
patient-days per month. The department has collected the following accounts for the
past month:

Monthly Housekeeping Expenses Amount

Supervisors' Salaries Expense $10,000
Depreciation Expense—Scrubbing Machines $5,000
Cleaning Supplies Expense $7,000
Hourly Workers' Wages Expense $100,000
Insurance Expense—Scrubbing Machines $2,000

Required:
Estimate the cost function using the account analysis method.

7. Presented below is the production data for the first six months of the year showing
the mixed costs incurred by Eunice Company.

Month Cost Units

January $7,500 4,000
February 13,000 7,500
March 11,500 9,000
April 11,700 11,500
May 13,500 12,000
June 11,850 6,000

Eunice Company uses the high-low method to analyze mixed costs. The variable cost
per unit is ________ and the fixed cost is ……………..
A) $0.625 B) $0.75
C) $1.25 D) $1.31

8. Presented below is the production data for six months showing the mixed costs
incurred by Anderson Company.

Month Cost Units

July $5,890 4,100
August $4,012 3,200
September $7,480 6,300
October $9,000 7,500
November $5,800 5,800
December $7,336 6,600
Anderson Company uses the high-low method to analyze mixed costs. The cost
function is ________ where Y= Total Cost and X= Number of units.
A) Y = $440 + $1.12X B) Y = $300 + $1.16X
C) Y = $440 + $1.20X D) Y = $7,850 + $0.132X

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9. The management of Harrigill Corporation would like to have a better understanding
of the behavior of its inspection costs. The company has provided the following data:
Direct labor hours Inspection cost
March 5,043 $48,500
April 5,036 48,449
May 5,068 48,677
June 5,066 48,650
July 5,021 48,374
August 4,992 48,202
September 5,078 48,721
October 5,033 48,460
November 4,980 48,125

Management believes that inspection cost is a mixed cost that depends on direct
labor-hours.
Required
Estimate the variable cost per direct labor-hour and the fixed cost per month using the
high-low method. Show your work! Round off all calculations to the nearest whole
cent.

10. Whitman Corporation, a merchandising company, reported sales of 7,400 units for
May at a selling price of $677 per unit. The cost of goods sold (all variable) was $441
per unit and the variable selling expense was $54 per unit. The total fixed selling
expense was $155,600. The variable administrative expense was $24 per unit and the
total fixed administrative expense was $370,400.

Required:
a. Prepare a contribution format income statement for May.
b. Prepare a traditional format income statement for May.

11. 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.

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12. Honey Corporation, a merchandising company, reported the following results for
January:

Number of units produced 5,800

Selling price per unit $892
Units costs of goods sold $517
Variable selling expense per unit $31
Total fixed selling expense $152,600
Variable administrative expense per unit $48
Total fixed administrative expenses $390,200

Cost of goods sold is a variable cost in this company.

Required:
a. Prepare a traditional format income statement for January.
b. Prepare a contribution format income statement for January.

13. Management of Modugno Corporation is considering whether to purchase a new

model 370 machine costing $441,000 or a new model 240 machine costing $387,000
to replace a machine that was purchased 7 years ago for $429,000. The old machine
was used to make product M25A until it broke down last week. Unfortunately, the old
machine cannot be repaired. Management has decided to buy the new model 240
machine. It has less capacity than the new model 370 machine, but its capacity is
sufficient to continue making product M25A.Management also considered, but
rejected, the alternative of simply dropping product M25A. If that were done, instead
of investing $387,000 in the new machine, the money could be invested in a project
that would return a total of $430,000.

a.. In making the decision to buy the model 240 machine rather than the model 370
machine, the sunk cost was:
A. $430,000 B. $429,000
C. $387,000 D. $441,000

b. In making the decision to buy the model 240 machine rather than the model 370
machine, the differential cost was:
A. $12,000 B. $1,000
C. $54,000 D. $42,000

c. In making the decision to invest in the model 240 machine, the opportunity cost
was:
A. $430,000 B. $441,000
C. $387,000 D. $429,000

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Cost flows and income statement presentations for a manufacturing Co.
14. The McCain Company manufactures several products. The McCain Company has
gathered the following information for the year ended December 31, 2015:

Sales $110,000
Direct materials used $10,700
Fixed indirect production costs $10,900
Variable indirect production costs $7,900
Fixed direct labor $10,300
Variable direct labor $12,300
Fixed selling expenses $33,040
Variable selling expenses $3,440
Finished Goods Inventory, January 1, 2015 $24,000
Finished Goods Inventory, December 31, 2015 $22,000
Work-In-Process Inventory, January 1, 2015 0
Work-In-Process Inventory, December 31, 2015 0

Required
a. Compute the Cost of Goods Manufactured for the year ended December 31,
2015.
b. Compute the Cost of Goods Sold for the year ended December 31, 2015.
c. Compute the Net Income for the year ended December 31, 2015.

15. The following items (in millions) pertain to Chester Corporation:

Chester’s manufacturing costing system uses a three-part classification of direct
materials, direct manufacturing labor, and manufacturing overhead costs.
For specific Date For Year 2014
Work in process inventory, Jan 1, 2014 15 Plant utilities 8
Direct Material Inventory, December 9 Indirect manufacturing labor 25
31, 2014
Finished Goods Inventory December 19 Depreciation- plant and equipment 8
31,2014
Accounts Payable Dec 31,2014 28 Revenues 354
Accounts Receivable , Jan 1,2014 57 Miscellaneous manufacturing 17
overhead
Work in Process inventory Dec 31,2014 7 Marketing, distribution and 91
customer service costs
Finished Goods Inventory, Jan 1, 2014 43 Direct materials purchased 82
Direct Materials inventory, Jan 1, 2014 39 Direct manufacturing labor 41
Plant supplies used 5
Property taxes on plants 3

Required
a. Prepare an income statement and a supporting schedule of cost of goods
manufactured.
b. Calculate total prime costs and total conversion costs.
c. Calculate total inventoriable costs and period costs.

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 16. The following are data related to Marvel Company for the year ended
December 31,2014

Marketing, Distribution and Customer service $37,000

Merchandise Inventory, January 1, 2014 27,000
Utilities 17,000
General and Administrative Costs 43,000
Merchandise Inventory, December 31, 2014 34,000
Purchases 155,000
Miscellaneous Costs 4,000
Transportation –in 7,000
Purchases Returns and Allowances 4,000
Purchase Discount 6,000
Revenues 280,000
Required
1. Compute the cost of goods purchased and the cost of goods sold
2. Prepare an income statement

Lecture Two (CVP Analysis)

17. Stefanko Manufacturing has prepared the following income statement:

Sales $450,000
Cost of goods sold 200,000
Gross margin 250,000
Operating expenses 196,000
Operating income $54,000
According to company records, $100,000 of Cost of Goods Sold and $100,000 of
Operating Expenses are fixed.
Required
A) Compute the contribution margin.
B) Compute the contribution margin ratio.
C) Compute the break-even point in sales dollars.

18. Longiotti Corporation produces and sells a single product. Data concerning that
product appear below:
Selling price per unit ……$150
Variable expense per unit……36
Fixed expense per month…..$159,600

Required:
Determine the monthly break-even in total dollar sales.

19 Suppose Lattin Corp.’s breakeven point is revenues of $1,500,000.

Fixed costs are $720,000.
1. Compute the contribution margin percentage.
2. Compute the selling price if variable costs are $13 per unit.
3. Suppose 90,000 units are sold. Compute the margin of safety in units and dollars.

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4. What does this tell you about the risk of Lattin making a loss? What are the most
likely reasons for this risk to increase?

20. Iron Decor manufactures decorative iron railings. In preparing for next year's
operations, management has developed the following estimates:

Required:
Compute the following items:
a. Unit contribution margin.
b. Contribution margin ratio.
c. Break-even in dollar sales.
d. Margin of safety percentage.
e. If the sales volume increases by 20% with no change in total fixed expenses, what
will be the change in net operating income?
f. If the per unit variable production costs increase by 15%, and if fixed selling and
administrative expenses increase by 12%, what will be the new break-even point in
dollar sales?

21. Winston Company has variable costs of $5 per unit and a selling price of $10 per
unit. Fixed costs are $100,000. Planned unit sales for 2015 are 25,000 units. Actual unit
sales for 2014 were 22,000 units. What is the margin of safety in units for 2015?
A) 2,000 units B) 3,000 units
C) 5,000 units D) 7,000 units

22. If the selling price per unit$100

Variable costs per unit $80
Total fixed costs $80,000
If fixed costs increased by 10% and management wanted to maintain the original
break-even point, then the selling price per unit would have to be increased to
________.
A) $101.00 B) $102.40
C) $102.00 D) $103.00

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Breakeven and Sales Mix
23. Stanger Inc. produces and sells two products. Data concerning those products for
the most recent month appear below:
Product N16S Product X07D
Sales $14,000 $27,000
Variable expenses $6,720 $12,550

Fixed expenses for the entire company were $17,570.

Required
a. Determine the overall break-even point for the company. Show your work!
b. If the sales mix shifts toward Product N16S with no change in total sales, what will
happen to the break-even point for the company? Explain.

Lecture Three : Job Costing and Activity Based Costing

24. The Lynn Company uses a normal job-costing system at its Minneapolis plant. The
plant has a machining department and an assembly department. Its job-costing system
has two direct-cost categories (direct materials and direct manufacturing labor) and two
manufacturing overhead cost pools (the machining department overhead, allocated to
jobs based on actual machine-hours, and the assembly department overhead, allocated
to jobs based on actual direct manufacturing labor costs). The 2014 budget for the plant
is as follows:

Machining Department Assembly Department

Manufacturing Overhead 1,800,000 3,600,000
Direct Manufacturing 1,400,000 2,000,000
labor costs
Direct manufacturing 100,000 200,000
labor hours
Machine Hours 50,000 200,000
Compute the budgeted manufacturing overhead rate for each department.
2. During February, the job-cost record for Job 494 contained the following:
Machining Department Assembly Department
Direct Materials Used 45,000 70,000
Direct Manufacturing 14,000 15,000
labor costs
Direct manufacturing 1,000 1,500
labor hours
Machine Hours 2,000 1,000

Compute the total manufacturing overhead costs allocated to Job 494.

3. At the end of 2014, the actual manufacturing overhead costs were $2,100,000 in
machining and $3,700,000in assembly. Assume that 55,000 actual machine-hours were
used in machining and that actual direct manufacturing labor costs in assembly were
$2,200,000. Compute the over- or under-allocated manufacturing overhead for each
department.

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25. Audio Corporation produces two types of audio cassettes, standard and high grade.
The standard cassettes, used primarily in answering machines, are designed for
durability rather than accurate sound reproduction The company only recently began
producing the higher quality high grade model to enter the lucrative music recording
market. Since the introduction of the new product, profits have been steadily declining.
Management believes that the accounting system may not be accurately allocating costs
to products, particularly since sales of the new product have been increasing.
Management has asked you to investigate the cost allocation problem. You find that
manufacturing overhead is currently assigned to products based on the direct labor costs
in the products. For your investigation, you have data from the last year. Last year's
manufacturing overhead was $220,000 based on the production of 320,000 standard
cassettes and 100,000 high grade cassettes. Direct labor and direct material costs were
as follows:

Standard High grade Total

Direct labor $174,000 $66,000 $240,000
Materials 125,000 114,000 239,000
Management determined that overhead costs are caused by three cost drivers. The cost
drivers and their costs for the last year were as follows:
Activity level
Cost driver Costs assigned Standard High grade Total
Number of production runs $100,000 40 10 50
Quality tests performed 90,000 12 18 30
Shipping orders processed 30,000 100 50 150
Total overhead 220,000

Required:
1. How much of the overhead will be assigned to each product if the three cost
drivers are used to allocate overhead? What is the total cost per unit produced
for each product?
2. How much of the overhead will be assigned to each product if direct labor costs
had been used to allocate overhead? What is the total cost per unit produced for
each product?
3. How might results from using activity based costing in requirement (a) help
management understand Audio's declining profits?

26. Speedy-print Corporation owns a small printing press that prints leaflets, brochures,
and advertising materials. Speedy-print classifies its various printing jobs as standard

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jobs or special jobs. Speedy-print’s simple job-costing system has two direct-cost
categories (direct materials and direct labor) and a single indirect-cost pool. Speedy-
print operates at capacity and allocates all indirect costs using printing machine-hours
as the allocation base.
Speed-print is concerned about the accuracy of the costs assigned to standard and
special jobs and therefore is planning to implement an activity-based costing system.
Speed-print’s ABC system would have the same direct-cost categories as its simple
costing system. However, instead of a single indirect-cost pool there would now be six
categories for assigning indirect costs: design, purchasing, setup, printing machine
operations, marketing, and administration. To see how activity-based costing would
affect the costs of standard and special jobs, Speedy-print collects the following
information for the fiscal year 2014 that just ended.

Standar Special Total Cause and Effect

d Job Job cost relationship between the
allocation base and
activity cost
Number of printing jobs 400 200
Price per job $600 $750
Cost of supplies per job $100 $125
Direct labor cost per job $90 $100
Printing machine hours 10 10 $75,000 Indirect cost of operating
per job machine hours increase
with printing machine
hours
Set up hours per job 4 7 $45,000 Indirect cost increase with
set up hours
Total number of 400 500 $18,000 Indirect purchase cost
purchase orders increase with number of
purchase orders
Design Costs $4,000 $16,000 $20,000 Design costs are allocated to
standard and special jobs
based on a special study of the
design department
Marketing costs as a 5% 5% $19,500
percentage of revenues
Administration costs $24,000 Demand for administrative
resources increase with set up
costs
Required
1. Calculate the cost of a standard job and a special job under the simple costing system.
2. Calculate the cost of a standard job and a special job under the activity-based costing
system.
3. Compare the costs of a standard job and a special job in requirements 1 and 2. Why
do the simple and activity-based costing systems differ in the cost of a standard job and
a special job?
4. How might Speediprint use the new cost information from its activity-based costing
system to better manage its business?

27. Automotive Products (AP) designs and produces automotive parts. In 2014, actual
variable manufacturing overhead is $308,600. AP’s simple costing system allocates
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variable manufacturing overhead to its three customers based on machine-hours and
prices its contracts based on full costs. One of its customers has regularly complained
of being charged noncompetitive prices, so AP’s controller Devon Smith realizes that
it is time to examine the consumption of overhead resources more closely. He knows
that there are three main departments that consume overhead resources: design,
production, and engineering. Interviews with the department personnel and
examination of time records yield the following detailed information.

Cost driver Variable Usage of cost drivers by customer

Manufacturing contract
OH United Holden Leland
motors motors vehicle
Design CAD design $39,000 110 200 80
hours
Engineering Engineering 29,600 70 60 240
hours
Production Machine 240,000 120 2,800 1,080
hours
Total $ 308,600

Required:
1. Compute the manufacturing overhead allocated to each customer in 2014 using the
simple costing system that uses machine-hours as the allocation base.
2. Compute the manufacturing overhead allocated to each customer in 2014 using
department-based manufacturing overhead rates.
3. Comment on your answers in requirements 1 and 2. Which customer do you think
was complaining about being overcharged in the simple system? If the new department-
based rates are used to price contracts, which customer(s) will be unhappy? How would
you respond to these concerns?

28. The job costing system at Sheri’s Custom Framing has five indirect cost pools
(purchasing, material handling, machine maintenance, product inspection, and
packaging). The company is in the process of bidding on two jobs: Job 215, an order of
15 intricate personalized frames, and Job 325, an order of 6 standard personalized
frames. The controller wants you to compare overhead allocated under the current
simple job-costing system and a newly designed activity-based job-costing system.
Total budgeted costs in each indirect cost pool and the budgeted quantity of activity
driver are as follows.

Budgeted Activity driver Budgeted quantity

Overhead of activity driver
Purchasing $35,000 Purchase orders 2,000
produced

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 Materials handling 43,750 Material moves 5,000
Machine 118,650 Machine hours 10,500
Maintenance
Product inspection 9,450 Inspections 1,200
Packaging 19950 Units produced 3,800
226,800
Information related to Job 215 and Job 325 follows. Job 215 incurs more batch-level
costs because it uses more types of materials that need to be purchased, moved, and
inspected relative to Job 325.
Job 215 Job 325
Number of purchase orders 25 8
Number of material moves 10 4
Machine-hours 40 60
Number of inspections 9 3
Units produced 15 6

Required:
1. Compute the total overhead allocated to each job under a simple costing system,
where overhead is allocated based on machine-hours.
2. Compute the total overhead allocated to each job under an activity-based costing
system using the appropriate activity drivers.
3. Explain why Sheri’s Custom Framing might favor the ABC job-costing system over
the simple job-costing system, especially in its bidding process.

29. Fancy Doors, Inc., produces two types of doors, interior and exterior. The
company’s simple costing system has two direct cost categories (materials and labor)
and one indirect cost pool. The simple costing system allocates indirect costs on the
basis of machine-hours.
Recently, the owners of Fancy Doors have been concerned about a decline in the market
share for their interior doors, usually their biggest seller. Information related to Fancy
Doors production for the most recent year follows:
Interior Exterior
Units sold 3,200 1,800
Selling price 250 400
Direct material cost per unit 60 90
Direct manufacturing labor cost per hour 32 32
Direct manufacturing labor hours per unit 1.50 2.25
Production runs 40 85
Materials moves 72 168
Machine setups 45 155
Machine hours 5500 4500
Number of inspections 250 150

The owners have heard of other companies in the industry that are now using an
activity-based costing system and are curious how an ABC system would affect their
product costing decisions. After analyzing the indirect cost pool for Fancy Doors, the
owners identify six activities as generating indirect costs: production scheduling,

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material handling, machine setup, assembly, inspection, and marketing. Fancy Doors
collected the following data related to the indirect cost activities:
Activity Activity cost Activity cost driver
Production Scheduling $190,000 Production runs
Materials handling 90,000 Material moves
Machine set up 50,000 Machine set ups
Assembly 120,000 Machine hours
Inspection 16,000 Number of inspections

Required
1. Calculate the cost of an interior door and an exterior door under the existing simple
costing system.
2. Calculate the cost of an interior door and an exterior door under an activity-based
costing system.
3. Compare the costs of the doors in requirements 1 and 2. Why do the simple and
activity-based costing systems differ in the cost of an interior and exterior door?

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Profit Planning and Budgeting
1.Randall Company is a merchandising company that sells a single product. The
company's inventories, production, and sales in units for the next three months have
been forecasted as follows:

a. Units are sold for $12 each. One fourth of all sales are paid for in the month of sale
and the balance is paid for in the following month. Accounts receivable at September
30 totaled $450,000.

Required: Prepare a sales budget and cash collection schedule

b. Merchandise is purchased for $7 per unit. Half of the purchases are paid for in the
month of the purchase and the remainder is paid for in the month following purchase.
Selling and administrative expenses are expected to total $120,000 each month. One
half of these expenses will be paid in the month in which they are incurred and the
balance will be paid in the following month. There is no depreciation. Accounts payable
at September 30 totaled $290,000.

Required: Prepare a schedule showing expected cash disbursements for merchandise

purchases and selling and administrative expenses for each of the months October,
November, and December.

c.Cash at September 30 totaled $80,000. A payment of $300,000 for purchase of

equipment is scheduled for November, and a dividend of $200,000 is to be paid in
December.

Required: Prepare a cash budget for each of the months October, November, and
December. There is no minimum required ending cash balance.

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2.Capp Corporation is a wholesaler of industrial goods. Data regarding the store's
operations follow:

• Sales are budgeted at $350,000 for November, $360,000 for December, and 340,000
for January.
• Collections are expected to be 60% in the month of sale, 39% in the month
following the sale, and 1% uncollectible.
• The cost of goods sold is 75% of sales.
• The company desires an ending merchandise inventory equal to 40% of the
following month's cost of goods sold. Payment for merchandise is made in the month
following the purchase.
• The November beginning balance in the accounts receivable account is $70,000.
• The November beginning balance in the accounts payable account is $257,000.

Required:
a. Prepare a Schedule of Expected Cash Collections for November and December.
b. Prepare a Merchandise Purchases Budget for November and December.

3. Edwards Company has projected sales and production in units for the second quarter
of the year as follows:

Required:
a. Cash production costs are budgeted at $6 per unit produced. Of these production
costs, 40% are paid in the month in which they are incurred and the balance in the
following month. Selling and administrative expenses (all paid in cash) amount to
$60,000 per month. The accounts payable balance on March 31 totals $96,000, all of
which will be paid in April.

Required: Prepare a schedule for each month showing budgeted cash disbursements
for Edwards Company.

b.Assume that all units will be sold on account for $15 each. Cash collections from
sales are budgeted at 60% in the month of sale, 30% in the month following the month
of sale and the remaining 10% in the second month following the month of sale.
Accounts receivable on March 31 totaled $255,000 $(45,000 from February's sales and
the remainder from March.)

Required: Prepare a schedule for each month showing budgeted cash receipts for
Edwards Company.

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4.Kindschuh Corporation is working on its direct labor budget for the next two months.
Each unit of output requires 0.07 direct labor-hours. The direct labor rate is $8.50 per
direct labor-hour. The production budget calls for producing 4,800 units in June and
5,300 units in July.
Required:
Construct the direct labor budget for the next two months, assuming that the direct labor
work force is fully adjusted to the total direct labor-hours needed each month.

5. Capati Corporation is working on its direct labor budget for the next two months.
Each unit of output requires 0.41 direct labor-hours. The direct labor rate is $8.50 per
direct labor-hour. The production budget calls for producing 2,300 units in August and
2,200 units in September. The company guarantees its direct labor workers a 40-hour
paid work week. With the number of workers currently employed, that means that the
company is committed to paying its direct labor work force for at least 960 hours in
total each month even if there is not enough work to keep them busy.
Required:
Construct the direct labor budget for the next two months.

6. Mccoo Inc. bases its manufacturing overhead budget on budgeted direct labor-hours.
The variable overhead rate is $1.30 per direct labor-hour. The company's budgeted
fixed manufacturing overhead is $98,900 per month, which includes depreciation of
$19,780. All other fixed manufacturing overhead costs represent current cash flows.
The September direct labor budget indicates that 8,600 direct labor-hours will be
required in that month.
Required
a. Determine the cash disbursement for manufacturing overhead for September.
b. Determine the predetermined overhead rate for September.

7. The manufacturing overhead budget of Lewison Corporation is based on budgeted

direct labor-hours. The June direct labor budget indicates that 5,800 direct labor-hours
will be required in that month. The variable overhead rate is $7.70 per direct labor-hour.
The company's budgeted fixed manufacturing overhead is $111,360 per month, which
includes depreciation of $17,400. All other fixed manufacturing overhead costs
represent current cash flows.
Required
a. Determine the cash disbursement for manufacturing overhead for June. Show your
work!
b. Determine the predetermined overhead rate for June. Show your work!

8. Lahay Inc. bases its selling and administrative expense budget on the number of units
sold. The variable selling and administrative expense is $4.30 per unit. The budgeted
fixed selling and administrative expense is $30,240 per month, which includes
depreciation of $3,510. The remainder of the fixed selling and administrative expense
represents current cash flows. The sales budget shows 2,700 units are planned to be
sold in April.

Required:
Prepare the selling and administrative expense budget for April.

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9. The selling and administrative expense budget of Fenley Corporation is based on the
number of units sold, which are budgeted to be 2,500 units in January. The variable
selling and administrative expense is $4.40 per unit. The budgeted fixed selling and
administrative expense is $35,750 per month, which includes depreciation of $4,000.
The remainder of the fixed selling and administrative expense represents current cash
flows.

Required:

Prepare the selling and administrative expense budget for January.

10. Enciso Corporation is preparing its cash budget for November. The budgeted
beginning cash balance is $31,000. Budgeted cash receipts total $135,000 and budgeted
cash disbursements total $141,000. The desired ending cash balance is $50,000. The
company can borrow up to $100,000 at any time from a local bank, with interest not
due until the following month.

Required:
Prepare the company's cash budget for November in good form.

11. Wehr Inc. is preparing its cash budget for April. The budgeted beginning cash
balance is $19,000. Budgeted cash receipts total $105,000 and budgeted cash
disbursements total $98,000. The desired ending cash balance is $50,000. The company
can borrow up to $120,000 at any time from a local bank, with interest not due until the
following month.

Required:
Prepare the company's cash budget for April in good form. Make sure to indicate what
borrowing, if any, would be needed to attain the desired ending cash balance.

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