Module 4 Homework Answer Key

Wild Book
Module 4
CH 14 Exercise 8, 9, 11
CH 23 Exercise 2, 4, 7, 11

Exercise 14-8 (30 minutes)

Garcon Pepper
Company
Company

1. COST OF GOODS MANUFACTURED

Direct materials

Beginning raw materials inventory.................. $ 7,250 $ 9,000

Raw materials purchases................................. 33,000 52,000

Raw materials available for use....................... 40,250 61,000

Less ending raw materials inventory.............. 5,300 7,200

Direct materials used........................................ 34,950 53,800

Direct labor........................................................... 19,000 35,000

Factory overhead

Rental cost on factory equipment................... 27,000 22,750

Factory utilities.................................................. 9,000 12,000

Factory supplies used...................................... 8,200 3,200

Indirect labor...................................................... 1,250 7,660

Repairs—Factory equipment........................... 4,780 1,500

1
 Total factory overhead...................................... 50,230 47,110
Total manufacturing costs.................................. 104,180 135,910

Beginning work in process inventory................ 14,500 19,950

Total cost of work in process.............................. 118,680 155,860

Less ending work in process inventory............. 22,000 16,000

Cost of goods manufactured.............................. $ 96,680 $139,860

2. COST OF GOODS SOLD

Beginning finished goods inventory.................. $ 12,000 $ 16,450

Cost of goods manufactured.............................. 96,680 139,860

Cost of goods available for sale......................... 108,680 156,310

Less ending finished goods inventory.............. 17,650 13,300

Cost of goods sold............................................... $ 91,030 $143,010

EE

Exercise 14-9 (30 minutes)

GARCON COMPANY
Income Statement
For Year Ended December 31, 2017

Sales.............................................................................................$195,030

Cost of goods sold (from Ex. 14-8)............................................ 91,030

Gross profit.................................................................................. 104,000

Operating expenses
Selling expenses........................................................................ 50,000

2
 General and administrative expenses..................................... 21,000

Income before tax........................................................................$ 33,000

PEPPER COMPANY
Income Statement
For Year Ended December 31, 2017

Sales.............................................................................................$290,010

Cost of goods sold (from Ex. 14-8)............................................ 143,010

Gross profit.................................................................................. 147,000

Operating expenses
Selling expenses........................................................................ 46,000
General and administrative expenses..................................... 43,000

Income before tax........................................................................$ 58,000

GARCON COMPANY
Partial Balance Sheet
As of December 31, 2017

Cash.......................................................................................... $20,000

Accounts receivable, net......................................................... 13,200

Inventories

3
 Raw materials inventory.......................................................
$ 5,300

Work in process inventory...................................................

22,000

Finished goods inventory....................................................

17,650 44,950

Total current assets................................................................. $78,150

PEPPER COMPANY
Partial Balance Sheet
As of December 31, 2017

Cash.......................................................................................... $15,700

Accounts receivable, net......................................................... 19,450

Inventories
Raw materials inventory.......................................................
$ 7,200

Work in process inventory...................................................

16,000

Finished goods inventory....................................................

13,300 36,500

Total current assets................................................................. $71,650

4
Exercise 14-11 (20 minutes)

Merchandising Business

UNIMART
Partial Income Statement
For Year Ended December 31, 2017

Cost of goods sold

Merchandise inventory, December 31, 2016.............................$275,000

Merchandise purchases............................................................. 500,000

Goods available for sale............................................................. 775,000

Less merchandise inventory, December 31, 2017................... 115,000

Cost of goods sold......................................................................$660,000

Merchandise Inventory
Beginning Inventory 275,000
Purchases 500,000

Goods available for sale 775,000

660,000 Cost of Goods Sold
Ending Inventory 115,000

5
Exercise 14-11 (concluded)

Manufacturing Business

PRECISION MANUFACTURING
Partial Income Statement
For Year Ended December 31, 2017

Cost of goods sold

Finished goods inventory, December 31, 2016.................... $ 450,000

Cost of goods manufactured.................................................. 900,000

Goods available for sale......................................................... 1,350,000

Less finished goods inventory, December 31, 2017............ 375,000

Cost of goods sold.................................................................. $ 975,000

Finished Goods Inventory

Beginning Inventory 450,000
Cost of Goods Manufactured 900,000

Goods available for sale 1,350,000

975,000 Cost of Goods Sold
Ending Inventory 375,000

6
Exercise 23-2 (25 minutes)

Normal Additional Combined

Volume Volume* Total

Sales.................................................. $2,250,000 $180,000 $2,430,000

Costs and expenses
Direct materials.............................. 300,000 30,0001 330,000

Direct labor..................................... 600,000 60,0002 660,000

Overhead......................................... 150,000 22,500 172,500

Selling expenses............................ 225,000 225,000

Administrative expenses............... 385,500 64,500 450,000

Total costs and expenses.............. $1,660,500 $177,000 $1,837,500

Net income........................................ $ 589,500 $ 3,000 $ 592,500

The company should accept the offer as it increases income by $3,000.

1 2
(15,000 x $2) (15,000 x $4)

* ADDITIONAL VOLUME COMPUTATIONS

Additional sales revenue = 15,000 units @ $12 = $180,000
Materials cost per unit = $300,000/150,000 units = $2 per unit
Labor cost per unit = $600,000/150,000 units = $4 per unit
Incremental overhead = $150,000 x 15% = $22,500
Incremental administrative = $64,500 (given)

7
Exercise 23-4 (20 minutes)
Make Buy

Variable costs (65,000 @ $1.95).......................... $126,750 ----

Incremental fixed costs....................................... 75,000
Cost to buy (65,000 @ $3.25) ............................. --- $211,250
Total....................................................................... $201,750 $211,250

RECOMMENDATION: Note that the allocated fixed costs of $62,000 are not
relevant to this managerial decision because they will continue whether the
part is made or bought. Therefore, the incremental costs of making the
part are $9,500 less per year than buying it. This implies that the company
should continue to make this part.
Note: We should recognize that this decision depends on the alternative uses for the
productive facilities dedicated to making the part. If they can be used to produce a profit
greater than the $9,500 annual savings that the company attains by making this part, the
part should probably be purchased and the facilities used for the other more profitable
activities.

Exercise 23-7 (15 minutes)

INCREMENTAL REVENUE AND COST OF ADDITIONAL PROCESSING

Revenue if processed further (7,000 x $25)...............................................

$175,000
Revenue if sold as is (7,000 x $8)...............................................................
56,000
Incremental revenue....................................................................................
119,000
Less incremental cost of processing.........................................................
125,000
Incremental net income...............................................................................
$ (6,000)

RECOMMENDATION: Varto should not process these units further, as they will
be $6,000 worse off if they do so. (Note that the $22 per unit manufacturing
cost is not relevant because it is a sunk cost.)

8
Exercise 23-11 (30 minutes)

K1 S5 G9

Selling price per unit……………………………… $160 $112 $210

Variable costs per unit…………………………… 96 85 144

Contribution margin per unit…………………… 64 27 66

Pounds of material required…………………… ÷ 4 ÷ 3 ÷ 6

Contribution margin per pound………………… $ 16 $ 9 $ 11

Childress should produce and fill orders for K1 first because it has the
highest contribution margin per pound of materials. Production and orders
for G9 should be addressed second, and production and orders for S5
should be addressed third.