   Module 2 Exercise

Topics: Variable cost, Costs / Pages: 5 (400 words) / Published: Feb 15th, 2015
a. Kao Tiles, Inc—October Unit Reconciliation Units in beg. WIP (65% material, 35% conversion costs) 5,000 Units started during 6,000 Units to account for 11,000 Units completed 4,000* Units in ending WIP (75% material, 50% conversion costs) 7,000 Units accounted for 11,000

*Computed as 11,000 - 7,000 = 4,000.
Cost per Equivalent Unit Calculation

Material Labor Overhead Total Cost Beginning WIP \$170,000 \$160,000 \$ 50,000 \$ 380,000 Cost incurred during Oct. 422,000 1,055,000 107,500 1,584,500 Total \$592,000 \$1,215,000 \$157,500 \$1,964,500

Units Units completed 4,000 4,000 4,000 Equivalent units Ending WIP (75% material, 50% Conversion cost) 5,250 3,500 3,500 Total 9,250 7,500 7,500

Cost per equivalent unit \$64 \$162 \$21 \$247

Cost Reconciliation

Total cost to account for \$1,964,500

Cost of completed units (4,000 units  \$247) \$ 988,000 Cost of ending WIP Material (5,250 equivalent units  \$64) \$336,000 Labor (3,500 equivalent units  \$162) 567,000 Overhead (3,500 equivalent units  \$21) 73,500 976,500 Total cost accounted for \$1,964,500

b. Finished Goods Inventory 988,000 Work in Process Inventory 988,000
a) Let the BEP sales be x dollars, x * 0.40 + 300,000 = x
a) So, x = 500,000 dollars
Total Selling price = 500,000
Total Variable cost = 200,000
Total fixed cost = 300,000
b) For a monthly profit of \$ 60,000
Let sales be x dollars
So, x - 60000 = 0.4 * x + 300,000
So, sales, x = \$ 600,000
c) Sales = 1,000,000
So, variable cost = 400,000
Fixed cost = 300,000
So, level of profit = sales - total cost = \$300,000

a.
Axar Products
Income Statement
For the Year Ended December 31, 2011

Sales (\$30 × 18,000)

\$540,000
Less Cost of goods sold (\$20* × 18,000)

360,000
Gross margin

180,000
Less:

80,000 Variable selling expense (\$3 × 18,000)

54,000
Net income

\$46,000

* Product cost per unit:

Direct material