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Cost Exam 1 ROUGH SOLUTIONS

# Cost Exam 1 ROUGH SOLUTIONS - EXAM 1 COST ACCOUNTING 1 NAME...

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EXAM 1 COST ACCOUNTING NAME: 1. Ireland Corporation planned to be in operation for three years. During the first year, 20x1, it had no sales but incurred \$240,000 in variable manufacturing expenses and \$80,000 in fixed manufacturing expenses. In 20x2, it sold half of the finished goods inventory from 20x1 for \$200,000 but it had no manufacturing costs. In 20x3, it sold the remainder of the inventory for \$240,000, had no manufacturing expenses and went out of business. Marketing and administrative expenses were fixed and totaled \$40,000 each year. Required: a. Prepare an income statement for each year using absorption costing. b. Prepare an income statement for each year using variable costing. Answer: a. Absorption-costing income statements : 20X1 20X2 20X3 Sales \$0 \$200,000 \$240,000 Cost of goods sold 0 160,000 160,000 Gross margin 0 40,000 80,000 Marketing and administrative 40,000 40,000 40,000 Operating income \$(40,000) \$ 0 \$40,000 b. Variable-costing income statements : 20X1 20X2 20X3 Sales \$ 0 \$200,000 \$240,000 Variable expenses 0 120,000 120,000 Contribution margin 0 80,000 120,000 Fixed expenses: Manufacturing \$80,000 \$ 0 \$ 0 Marketing and administrative 40,000 40,000 40,000 Total fixed 120,000 40,000 40,000 Operating income \$(120,000) \$40,000 \$80,000

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2. Richard's Electronics manufactures TVs and DVDRs. During April, the following activities occurred: TVs DVDRs Budgeted units sold 17,640 66,360 Budgeted contribution margin per unit \$45 \$78 Actual units sold 20,000 80,000 Actual contribution margin per unit \$50 \$79 Required: Compute the following variances in terms of the contribution margin. a. Determine the total sales-mix variance. b. Determine the total sales-quantity variance. c. Determine the total sales-volume variance. Answer: a. TVs [(100,000 × 0.20) × \$45] = \$900,000 [(100,000 × 0.21) × \$45] = 945,000 \$ 45,000 unfavorable DVDRs [(100,000 × 0.80) × \$78] = \$6,240,000 (100,000 × 0.79) × \$78] = 6,162,000 \$ 78,000 favorable Total sales-mix variance = \$90,000 unfavorable + \$156,000 favorable = \$66,000 favorable.
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