Question

1. The Isbit Company has developed an income statement using a contribution margin format (refer to .pdf in Moodle).

The projected income statement was based upon sales of 10,000 units. Isbit has capacity to produce 15,000 units per year.

Management believes that by lowering the selling price to $17.50 per unit, the company can increase sales by 2,000 units. What would the expected impact to income be?

Revenues $200,000 Variable Costs: Variable manufacturing costs 60,000 Variable selling costs 20,000 _______ Contribution Margin $120,000 Fixed Costs: Fixed manufacturing costs $ 80,000 Fixed selling, general and administrative costs 30,000 ________ Income $ 10,000

Select one:

a. Operating Income would decrease by $4000.

b. Operating Income would decrease by $6000.

c. Operating Income would increase by $10000.

d. There would be no impact to Operating Income.

2. If you were to clear the MOH balance to WIP, FG and COGS what percentage of the balance would you post to each of them?

Select one:

a. 33.33%, 33.33%, 33.33%

b. 12%, 38%, 50%

c. 19%, 25%, 56%

3. Which is the correct journal entry for the below transaction?

$77,000 of RM were put into production, of which $73,000 were direct materials and the remainder were indirect materials.

Select one:

a. DB RM, CR COGS

b. DB FG, CR MOH

c. CR RM, DB WIP, DB MOH

d. DB RM, CR WIP, CR MOH

e. CR RM, DB direct materials, DB indirect materials

Answer 1

Answer to 1st Question is "C"

Operating Profit would increase by 10,000

Working Notes :

1.Sales (12,000 units * 17.5 per unit ) = 2,10,000

Less: Expenses

Variable Mfg Cost = 60,000

Variable selling Cost = 20,000

Fixed Mfg Cost = 80,000

Fixed Selling,general and Admin cost = 30,000

2.Total Expenses = 1,90,000

Income (1-2) = 20,000

Income is 10,000 as per old pricing policy and 20,00 as per new pricing policy.

Net Effect will be Operating profit Increased by 10,000.