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Principles of Accounting, Volume 2: Managerial Accounting

Problem Set A

Principles of Accounting, Volume 2: Managerial AccountingProblem Set A
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PA 1.

LO 2.1Ballentine Manufacturing produces and sells lawnmowers through a national dealership network. They purchase raw materials from a variety of suppliers, and all manufacturing and assembly work is performed at their plant outside of Kansas City, Missouri. They recorded these costs for the year ending December 31, 2017. Construct an income statement for Ballentine Manufacturing to reflect their net income for 2017.

Administrative and selling expenses $425,000, Cost of Goods Sold 1,400,000, Rent on corporate headquarters 75,000, Marketing and advertising 400,000, Sales revenue 2,700,000, Straight-line depreciation on office equipment 100,000.
PA 2.

LO 2.1Tom West is a land surveyor who operates a small surveying company, performing surveys for both residential and commercial clients. He has a staff of surveyors and engineers who are employed by the firm. For the year ending December 31, 2017, he reported these income and expenses. Using this information, construct an income statement to reflect his net income for 2017.

Service income $850,000, Surveyor salaries 124,000, Supplies and materials 32,000, Utilities 14,000, Office rent 24,000, Administrative expenses 115,000.
PA 3.

LO 2.1Just Beachy is a retail business located on the coast of Florida where it sells a variety of beach apparel, T-shirts, and beach-related souvenir items. They purchase all of their inventory from wholesalers and distributors. For the year ending December 31, 2017, they reported these revenues and expenses. Using this information, prepare an income statement for Just Beachy for 2017.

Sales revenue $685,000, Building rent 48,000, Advertising 50,000, Sales staff salaries 85,000, Cost of Goods Sold 315,000, Utilities 23,000, Supplies 9,000.
PA 4.

LO 2.2Listed as follows are various costs found in businesses. Classify each cost as a fixed or variable cost, and as a product and/or period cost.

  1. Wages of administrative staff
  2. Shipping costs on merchandise sold
  3. Wages of workers assembling computers
  4. Cost of lease on factory equipment
  5. Insurance on factory
  6. Direct materials used in production of lamps
  7. Supervisor salary, factory
  8. Advertising costs
  9. Property taxes, factory
  10. Health insurance cost for company executives
  11. Rent on factory
PA 5.

LO 2.2Wachowski Company reported these cost data for the year 2017.

Factory maintenance costs $90,000; Direct labor, wages 352,000; Direct labor, health insurance 32,000; Indirect labor, health insurance 15,000; Health insurance for production supervisor 6,500; Administrative costs 55,000; Rental of office space for administrative staff 17,500; Sales commissions 52,500; Direct material 1,230,000; Indirect materials 632,000; Advertising expense 39,000; Depreciation on factory building 62,000; Indirect labor, wages, 70,000; Production supervisor’s salary 32,000.

Use the data to complete the following table.

Total prime costs  
Total manufacturing overhead costs  
Total conversion costs  
Total product costs  
Total period costs  
PA 6.

LO 2.3Carolina Yachts builds custom yachts in its production factory in South Carolina. Once complete, these yachts must be shipped to the dealership. They have collected this shipping cost data:

Month, Yachts Shipped, Shipping Cost, respectively: January, 6, $11,650; February, 4, 9,100; March, 3, 7,825; April, 8, 14,200; May, 2, 6,550; June, 7, 12,925; July, 5, 10,375.
  1. Prepare a scatter graph of the shipping data. Plot cost on the vertical axis and yachts shipped on the horizontal axis. Is the relationship between shipping costs and unit shipped approximately linear? Draw a straight line through the scatter graph.
  2. Using the high-low method, create the cost formula for Carolina Yachts’ shipping costs.
  3. The least-squares regression method was used and the analysis resulted in this cost equation: Y = 4,000 + 1,275x. Comment on the accuracy of your high-low method estimation.
  4. What would you estimate shipping costs to be if Carolina Yachts shipped 10 yachts in a single month? Use the cost formula you obtained in part B. Comment on how accurately this is reflected by the scatter graph you constructed.
  5. What factors other than number of yachts shipped do you think could affect Carolina Yachts’ shipping expense? Explain.
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