ACG 2071–Managerial Accounting–Spring 2017
Exam #1 Review Problems
Problem 1 Landers makes and sells a single product, scented candles. During 2016, the company produced and
sold 24,750 candles. Other information for 2016 appears below:
Variable manufacturing costs per candle
Beginning inventory in units
Fixed selling and administrative cost per year
$3.70
860
$25,410
Selling price per candle
Variable operating costs per candle
Fixed manufacturing costs per year
$10.25
$2.10
$54,450
Express all ratios with a % and 2 decimal places.
A. Show the calculation of the cost per candle in inventory under full costing.
B. Show the calculation of the amount out each sales dollar available to cover fixed costs and to contribute to
profit for 2016.
C. Show the calculation and interpret the gross margin ratio.
D. Show the calculation of completed inventory to be reported on the balance sheet at the end of 2016 if the
company uses variable costing.
E. Show the calculation of completed inventory to be reported per GAAP on the balance sheet at the end of
2016.
F. Show the calculation of the amount of product costs the company will report on its 2016 income statement
under full costing.
G. Show the calculation of the amount of product costs the company will report on its 2016 income statement
under variable costing.
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Problem 2. SoDew sells leather wallets with a contribution margin ratio of 43% and a unit contribution margin of
$4.70 per unit. Total fixed costs are $12,624. Total sales during the year were $75,600.
A. Show the calculation of the company's sales revenue in dollars needed for the company to earn net operating
income of $11,000.
B. Show the calculation of the amount by which profit will increase as a result of selling 16 more wallets.
Problem 3. DineRite produces two serving trays, basic and premium. Information regarding the products is
summarized for the month of May in the following table:
Basic
Premium
Total
Sales revenue
$126,000
$84,000
$210,000
Variable costs
30,675
29,700
60,375
Fixed costs
40,000
30,000
70,000
Operating income
$ 55,325
$24,300
$ 79,625
Contribution margin ratio
75.65%
64.64%
Show the calculation of the amount of sales revenue that DineRite will generate at breakeven for Premium trays
assuming a stable sales mix.
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Problem 4. Each of the following costs were incurred by Target Stores.  Indicate the appropriate classifications
of each cost by placing the UPPERCASE letters of ALL correct classifications in the Cost Classifications column.
Your letter choices must be clearly legible.
Possible Classifications
Costs
Cost Classifications
A.
B.
V.
F.
Product cost
Period cost
Variable cost
Fixed cost
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Hourly wages for cashiers
2
Product advertising costs
3
Freight costs to acquire shampoo
4
Depreciation on the retail building
5
Store janitor’s salary
6
Product shipping cost to online
customers
Problem 5. SoTech produced and sold 740 wallets in April. At this level of production, each wallet has a selling
price of $12, a variable unit production cost of $3.40, and a fixed unit production cost of $1.90. Operating costs
are $0.70 per unit for variable and $1.60 per unit for fixed. The company expects to sell 750 wallets during May.
Express SoTech’s total cost equation for May in standard form.
Problem 6. The following is SeeCo’s contribution income statement for March when 550 doorknobs were sold:
Sales
Variable costs
Fixed costs
Operating income
$23,100
12,705
6,875
$ 3,520
Show the calculation of the how many doorknobs must be sold in March to breakeven.
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Problem 7. OTech’s contribution margin ratio is determined to be 46.5% for March. Briefly interpret this amount
for OTech’s management.
Problem 8. Quick Pop sells two flavors of popcorn–sea salt and cheddar, both sold in 12 ounce bags. Information
on sales for July of 2016:
Number of units
Sales
Variable costs
Fixed costs
Operating Income
Sea Salt
9,000
$72,000
27,000
24,000
$21,000
Cheddar
6,000
$60,000
15,000
32,000
$13,000
Totals
15,000
$132,000
42,000
56,000
$ 34,000
Quick Pop’s sales mix is expected to remain steady.
A. State the sales mix for Quick Pop using two common bases. (Reduce to lowest terms & use correct
notation)
B. Show the calculation of the number of bags of sea salt popcorn that Quick Pop will sell at breakeven.
C. On a stand alone basis, which product is the most profitable if a single unit is sold and why?
Problem 9. What criteria is used to distinguish product from period costs?
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Problem 10. Fly High Airways provided the following information for its baggage handling activity for selected
months:
A
1
2
3
4
5
6
7
B
Bags handled per month
22,600
22,000
21,000
19,900
20,400
19,800
January
February
March
April
May
June
C
Monthly Handling Cost
$105,955
109,625
102,075
99,500
99,800
102,175
A. A portion of Excel’s regression wizard is
displayed to the right. Legibly write the correct
input in the proper format into each of the
respective fields in the wizard based on the
data table provided.
Regression Statistics
Multiple R
0.987059
R Square
0.974285
Adj R Square
0.971714
Standard Error
421.1325
Observations
12
ANOVA
df
Regression
1
Residual
10
Total
11
Intercept
Delivery Costs
Coefficients
2885.014
0.454863
SS
671970.97
1773526.03
6897625
Standard Error
993.7178529
0.023368165
MS
67109
17732.6
F
378.898
Signific F
2.8E-09
t Stat
2.90325
19.4609
P-value
0.01546
2.8E-09
Lower 95%
-5099.16
0.402796
Upper
95%
-670.873
0.506931
Lower
95.0%
-5099.16
0.402796
Upper
95.0%
-670.873
0.506931
B. Show the calculations of the total expected cost if 21,450 bags are handled. Do not round in the interim.
Problem 11. Use the information in problem 10 to calculate and determine the cost equation using the high low
method. Express the cost equation in standard form in the space provided
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Problem 12. Waters’ End produces swim goggles with total sales revenue in 2017 of $124,000. The unit
contribution margin is $11.50 and the contribution margin ratio is 39%. Fixed costs per month are $28,000. If
Waters’ End’s revenue increases by $800, by how much does profit increase as a result?
Problem 13. Speedy Delivery provided the following data on its delivery costs:
2017
2016
Packages deliveries
8,260
7,560
Total cost
$24,780
$23,814
Perform the two step process necessary in order to determine why delivery costs are considered to be a mixed
cost. Support your answer with clearly identifiable calculations and concisely justify your choice, including why
you ruled out any cost behaviors.
Problem 14. HP produced and sold 850 calculators in April. At this level of activity, each calculator has a selling
price of $4.00, a variable unit cost of $1.25 and a fixed cost of $605. Draw a break even chart for HP. Label the
three primary lines of the chart and the breakeven point.
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