Exercises

1. Consider the following information for AMASSA Co. for the year 2018
Sales (net) $ 1,000,000
Raw materials purchased $ 300,000
Direct labor cost 200,000
Advertising Exp 40,000
Selling and Administrative Salaries 100,000
Rent on factory facilities 60,000
Depreciation on factory equipment 90,000
Indirect labor cost 20,000
Factory utilities 10,000
Factory insurance 5,000
After examining other manufacturing cost data, you have acquired additional information as
follows:
 Inventory balances January 1 December 31
Raw materials $20,000 $ 35,000
Work in progress 25,000 31,000
Finished goods 40,000 30,000
 The tax rate was 25% of the profit of the company
2. Consider the following information for ABC co. For August 2014
Sales (net) $ 800,000
Raw materials purchased $ 200,000
Direct labor cost 150,000
Advertising expense 80,000
Selling and Administrative Salaries 70,000
Rent on factory facilities 60,000
Depreciation on factory equipment 90,000
Indirect labor cost 20,000
Factory utilities 10,000
Factory insurance 5,000

After examining other manufacturing cost data, you have acquired additional information as
follows:
1. Inventory balances August1 August 31
Raw materials $18,000 $ 33,000
Work in progress 25,000 31,000
Finished goods 40,000 60,000
2. The tax rate was 30% of the profit of the company

3. The following data have been taken from production records of Global steel manufacturing
company.
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 January 1, 2002 December 31, 2002
Finished goods inventory $29,000 $39,000
Work in process inventory 19,000 12,000
Raw materials inventory 20,000 25,000

The actual costs for the year 2002 were as follows:

Purchases of raw materials $70,000
Indirect manufacturing labor 6,000
Factory utilities 5,000
Factory building depreciation 4,000
Other factory overhead costs 9,000
Direct manufacturing labor 26,000
Selling expense 11,000
Net sales 300,000
Required: For the above three exercises
1). Prepare the statement of cost of goods manufactured
2). Prepare income statement.

4. The Ethiopian National theater sales a ticket for Br 16 and in cures the variable expense of Br
10 per ticket and Br 96,000 fixed expenses per month.

Instruction
A. Compute the break even volume of tickets and BEP in sales or revenue using:
 Equation method
 Contribution method
 Graphical method
B. How many ticket must be sold to make a profit of Br 7,200
C. Prepare income statement if 20,000 tickets are sold.
5. Betiret Company manufactures and sales a single product. During the year just ended the
company produced and sold 60,000 units at an average price of Br. 20 per unit. Variable
manufacturing costs were Br. 8 per unit, and variable marketing costs were Br 4 per unit sold.
Fixed costs amounted to Br 180,000 for manufacturing and Br 72,000 for marketing. There was
no year-end work- in – progress inventory. Ignore income taxes.
Required:
1. Compute Betiret’s breakeven point (BEP) in sales Birrs for the year.
2. Compute the number of sales units required to earn a net income of Br. 180,000
during the year
3. Betiret’s variable manufacturing costs are expected to increase 10% in the coming
year. Compute the firm’s breakeven point in sales Birrs for the coming year.

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 4. If Betiret’s variable manufacturing costs do increase 10% compute the selling price
that would yield the same CM – ratio in the coming year.
(N.B.: show your answer in equation method and contribution margin method separately)
7. Topper Sports Incorporation produces high quality sports equipment. The company’s Racket
Divisions manufactures three tennis rackets- the Standard, the Deluxe, and the Pro-that are
widely used in amateur play. Selected information on the rackets is given below:

Standard Deluxe Pro

Selling price per racket Br. 40. 00 Br. 60.00 Br. 75.00
Variable expense per Racket:
Production 22. 00 27.00 40.45
Selling
(5% of selling Price) 2.00 3.0 3.75
Total Variable Cost 24.00 30.00 44.20

All sales are made through the company’s own retail outlets.

The Racket Division has the following fixed costs:

Per Month
Fixed Production Costs Br. 120,000
Advertising Expenses 100, 000
Administrative salaries 50,000
Total Fixed Costs Br 270,000

Sales, in units, for the month of May have been as follows:

Standard Deluxe Pro Total

Sales in unit 2,000 1,000 5,000 8,000____
Required:
1) Compute the weighted –average unit contribution margin, assuming the above sales mix
is maintained
2) Compute the Racket Division’s breakeven point in Birrs for May.
3) How many units of each product should the company sale in order to earn a Br162, 000
incomes? Ignore income tax.

8. Topper Sports Incorporation produces high quality sports equipment. The company’s Racket
Divisions manufactures three tennis rackets- the Standard, the Deluxe, and the Pro-that are
widely used in amateur play. Selected information on the rackets is given below:

Standard Deluxe Pro

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Selling price per racket Br. 50. 00 Br. 80.00 Br. 120.00
Variable expense per Racket:
Production 25. 00 42.00 68.00
Selling
(10% of selling Price) 5.00 8.00 12.00
Total Variable Cost 30.00 50.00 80.00

All sales are made through the company’s own retail outlets.

The Racket Division has the following fixed costs:

Per Month
Fixed Production Costs Br. 320,000
Advertising Expenses 200, 000
Administrative salaries 160,000
Total Fixed Costs Br 680,000

Sales, in units, for the month of May have been as follows:

Standard Deluxe Pro Total

Sales in unit 2,000 3,000 5,000 10,000____

Required:
A. Compute the weighted –average unit contribution margin and weighted –average
contribution margin ratio, assuming the above sales mix is maintained
B. Compute the Racket Division’s breakeven point in in units and in Birrs for
Month.(Use both Equation method and Contribution Margin Method)
C. How many units of each product should the company sale in order to earn a Br
340, 000 incomes? Ignore income tax.
D. How many units of each product should the company sale in order to earn a Br
200, 000 after tax target profit if the income tax rate is 40 %?

8. XYZ. Inc. sells a product to the city community. This firm’s contribution per unit is br.4
and its selling price amounts to br.20 its annual fixed expenses are Br. 240, 000. The
firm’s income-tax rate is 40%.
Instructions:
a. What is the variable cost per unit
b. Compute the contribution margin ratio
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 c. Calculate the firm’s break-even quantity
d. Determine the break even service revenue
e. How much before-tax income must the firm earn to make an after-tax net income of Br.
96, 000?
f. What level of quantity should the firm sell for must the firm generates to earn an after-tax
income of Br.96, 000?
g. Suppose the firm’s income-tax rate declined to 35% Percent. What will happen to
breakeven level of the company

6. Welwalo Incorporation uses a job order-costing system and it has two departments: Machining
and Assembly. The company has two direct cost categories (direct materials and direct
manufacturing labor) and two manufacturing overhead cost pools one for each department. In
its job order costing system, the Machining department is machine hours oriented and the
Assembly department is direct manufacturing labor cost based to allocate its overhead costs.
The budget for the year 2004 in the plant is:
Machining Assembly
Department Department
Manufacturing Overhead $480,000 $1,056,000
Direct manufacturing Labor cost 450,000 480,000
Direct manufacturing labor hours 25,000 50,000
Machine hours 12,000 50,000

During April 2004, the job cost record for job no.343 has contained the following:
Machining Assembly
Department Department
Direct materials used $11,250 $17,600
Direct manufacturing labor costs 3,500 4,000
Direct manufacturing labor hours 250 375
Machine hours 600 250
At the end of 2004, the actual manufacturing overhead costs were $525,000 in machining and
$925,000 in assembly. Assume that 14,000 actual machine hours were used in machining and
that actual direct manufacturing labor costs in Assembly were $410,000.