1. Mary Inc.

manufactured 50,000 kilos of compound Milo in 2020 at the following costs:

Opening work in process of 88,125.
Materials of 182,500 of which 90% is direct materials
Labor of 242,500 of which 93% is direct labor
Closing work in process of 67, 500.

Factory overhead is 125% for direct labor cost and includes indirect materials and indirect labor.

Compute for the following:

 Total amount of Manufacturing Cost.

 Cost of Goods Manufactured.
 Cost of Goods place in process.

Answer:

Work in process beg. 88125

Added Manufacturing cost
Materials (182,500*90%) 164,250
Labor (242,500*93%) 225,525
Overhead (225,525*125%) 281,906
Total Manufacturing Cost 671,681 (1)
Total cost of goods placed in process 759,806 (2)
Less: WIP end 67,500_______
Cost of goods manufactured 692,306 (3)

2. Milan Company uses job order costing. Factory overhead is applied to production at a
predetermined rate of 150% of direct labor cost. Any over or underapplied factory overhead is
closed to the cost of goods sold account at the end of each month. Additional information is
available as follows:

Job 101 was the only job in process at January 31, 2019, with accumulated costs as follows:

Direct Materials 4,000

Direct Labor 2000
Applied factory overhead 3000
Total 9,000

 Job 102, 103 and 104 werw started during February.

 Direct Materials requisition for February totaled 26,000.
 Direct labor cost of 20,000 was incurred for February.
 Actual factory overhead was 32,000 for February.
 The only job still in process at February 28, 2019 was Job 104, with costs of 2800 direct
materials and 1,800 for direct labor.

Compute for the following:

  Cost of Goods manufactured
 Under or overapplied if there’ s any.

Answer:

Work in process, January 31, 2009 9000

Added during February:
Direct Materials 26,000
Direct Labor 20,000
Applied factory overhead (150%*20,000) 30,000 76,000
Total work place in process 85,000
Less: Work in process, February 28,2011
(2,800+1,800+(1800*150%) 7300
Cost of Goods Manufactured 77,700

Actual Factory Overhead 32,000

Budgeted (20,000*150%) 30,000
Under applied overhead 2,000

3. The Manila Manufacturing Company uses a raw in process (RIP) inventory account and
expenses all conversion costs to the cost of goods sold account. At the end of each month all
inventories are counted, their conversion cost components are estimated, and inventory account
balances are adjusted accordingly. Raw materials costs is backflushed from RIP to finished
goods. The following information is for the month of April:

Beginning balance of RIP account, including P1,400 of conversion cost 31,000

Raw materials received on credit 367,000
Ending RIP inventory per physical count, including 1800 conversion cost estimate 33,000

Compute for the following:

 Amount to be backflushed from RIP to Finished Goods.
 Amount to be debited to WIP if there’s any.

Answer:
Beginning Balance of RIP Account (31,000-1,400) 29,600
Add: Raw Materials received on credit 367,000
Total 396,000
Less: Ending Balance of RIP inventory per physical count
(33,000-1,800) 31,200
Amount to be Back flushed from RIP to Finished Good 365,400

4. Zoltrixound company manufactures high quality speakers for desktop and laptop computers.
Last month Zoltrixound suffered a loss of $18,000. The income statement for the last month is as
follows:
 1. Compute the break-even point in unit and in peso as well as contribution margin ratio
(CM ratio) of Zoltrixound company?

2. If the current sales of Zoltrixound Company was 17,800 units, what is their margin of
safety?

3. The company is planning to purchase a new machine. The installation of new machine
will increase fixed cost by $236,000 and decrease unit variable expenses by 50%.

(3.a). Compute the CM ratio and break-even point if the new machine is installed.
(3.b). Company expects a sale of 20,000 units for the next month. Prepare two income
statement, one assuming that the machine is not installed and one assuming that it is
installed.

4. The Zoltrixound wants to make the packing of  its product more attractive. The new
packing would increase cost by $1.20 per unit. Assuming no other changes, compute the
number of units to be sold to earn a net operating income of $9,000.

Answer:

a. Contribution margin ratio = Contribution margin/Net sales

= $162,000/$540,000

= 0.30 or 30%

b. Break-even point in units = Fixed expenses/Contribution margin per unit

= $180,000/$12*

= 15,000 units

$162,000/13,500 units
Break-even point in dollars = Break-even point in units × Sale price

=  15,000 units × $40

= $600,000

2. 17,800-15,000=2,800

Contribution margin ratio and break-even point if new machine is installed:

 Contribution margin ratio = Contribution margin/Net sales

= $351,000/$540,000

= 0.65 or 65%

ii. Break-even point in units = Fixed expenses/Contribution margin per unit

= $416,000/$26*

= 16,000 units

*Variable expenses have decreased from $28 to $14 (50% reduction) therefore the contribution
margin would increase from $12 per unit to $26 per unit ($40 – $14).

Break-even point in dollars = Break-even point in units × Sale price

= 16,000 units × $40

= $640,000

(b). Income statement with and without installing new machine:

If new machine is not installed:

If new machine is installed:

Unit sale for target profit = (Fixed expenses + Target profit)/Contribution margin per unit

= ($180,000 + $9,000) / $10.80*

= 17,500 Units

*The new packing will increase variable expenses from $28 per unit to $29.20 per unit and
reduce the contribution margin from $12 per unit to $10.80 per unit.

[$40 – ($28 + $1.20)] = $10.80