SRIHARI KUMAR SETHI

ROLL NO – P19097
SECTION - B

CHAPTER 2
PROBLEM 2-45:
Particulars Case A Case B Case C
Sales 1600000 1500000 2,40,000.00
Beginning inventory, raw material 1,20,000 600000 7500
Ending inventory, raw material 180000 30,000 15000
Purchases of raw material 200000 255000 35,000
Direct material used 140000 285000 27,500
Direct labour 4,00,000 300000 62500
Manufacturing overhead 500000 4,50,000 80000
Total manufacturing costs 10,40,000 10,35,000 1,70,000
Beginning inventory, work in process 70000 60000 7,500
Ending inventory, work in process 60,000 105000 2500
Cost of goods manufactured 105000 9,90,000 175000
Beginning inventory, finished goods 100000 120000 10,000
Cost of goods available for sale 11,50,000 11,10,000 185000
Ending inventory, finished goods 60,000 1,20,000 12500
Cost of goods sold 109000 990000 1,72,500
Gross margin 510000 510000 67,500
Selling and administrative expenses 2,10,000 225000 22,500
Income before taxes 300000 2,85,000 45000
Income tax expense 80000 135000 17,500
Net income 2,20,000 1,50,000 27500

CHAPTER 3
PROBLEM 3-47:
𝐵𝑢𝑑𝑔𝑒𝑡𝑒𝑑 𝑀𝑎𝑛𝑢𝑓𝑎𝑐𝑡𝑢𝑟𝑖𝑛𝑔 𝑂𝑣𝑒𝑟ℎ𝑒𝑎𝑑 2000000
1. POHR of Machining Department = = = $10
𝐵𝑢𝑑𝑔𝑒𝑡𝑒𝑑 𝑀𝑎𝑐ℎ𝑖𝑛𝑒 𝐻𝑜𝑢𝑟𝑠 200000
𝐵𝑢𝑑𝑔𝑒𝑡𝑒𝑑 𝑀𝑎𝑛𝑢𝑓𝑎𝑐𝑡𝑢𝑟𝑖𝑔 𝑂𝑣𝑒𝑟ℎ𝑒𝑎𝑑 1540000
POHR of Assembly Department = = 2800000 = $0.55
𝐵𝑢𝑑𝑔𝑒𝑡𝑒𝑑 𝐷𝑖𝑟𝑒𝑐𝑡 𝐿𝑎𝑏𝑜𝑟 𝐶𝑜𝑠𝑡
2. Year-end Work in Progress Inventory:

Particulars Machining Dept Assembly Dept

Direct Material 12250 3350
Direct Labour 13950 29300
POHR 10 0.55
Machine Hours 180 75
Overheads 1800 16115
Total 28000 48765
Cost of Company year-end WIP = 28000+48756 = $76765

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 SRIHARI KUMAR SETHI
ROLL NO – P19097
SECTION - B

3. Machining Department:
Actual machine hours = 212500
POHR off machining Department = $ 10
Total manufacturing overhead = 212500 × 10=2125000
Actual manufacturing overhead equal to 2130000
Since, actual manufacturing overhead greater than total manufacturing overhead.
so, overhead was under-applied = 2125000 - 2130000 = $ 5000.
4. Assembly Department:
Actual Direct Labor cost = 2890000
POHR of Assembly Department = 0.55
Total assembly overhead = 2890000 × 0.55 = 1589500
Actual assembly overhead = 1525000
Since, total assembly overhead > actual assembly overhead hence overhead was
over-applied That is: 1589500 -152500 = $64500.
5. Overapplied overhead in assembly Department = 64500
Underapplied overhead in Machining department = 5000
Difference = $59500
So, we need to decrease COGS account by $59500.
6. Overhead charged to the company over the year

Particulars Amount
Overhead in Machining Department 2125000
Overhead in Assembly Department 1589500
Overhead Charged to WIP 3714500

7. Evaluating the overhead applied, it is clear that direct labor cost as a cost driver for
assembly department is not appropriate as it increases cost of goods.

PROBLEM 3-54:
𝑇𝑜𝑡𝑎𝑙 𝐵𝑢𝑑𝑔𝑒𝑡𝑒𝑑 𝑀𝑎𝑛𝑢𝑓𝑎𝑐𝑡𝑢𝑟𝑖𝑛𝑔 𝑂𝑣𝑒𝑟ℎ𝑒𝑎𝑑 306000
1. POHR of current year = = = $6/machine hour
𝑇𝑜𝑡𝑎𝑙 𝐵𝑢𝑑𝑔𝑒𝑡𝑒𝑑 𝑀𝑎𝑐ℎ𝑖𝑛𝑒 𝐻𝑜𝑢𝑟𝑠 51000
2. Manufacturing overhead for January = POHR × (M07+T28+B19 machine hrs)
= 6 × (1200+3000+1800)
= 6 × 6000
= $36000
3. Actual overhead in January = 38000
Total overhead in January = 36000
Difference = $2000
So, overhead is undervalued by $2000

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 SRIHARI KUMAR SETHI
ROLL NO – P19097
SECTION - B

PROBLEM 3-62:
2. Manufacturing overhead applied to jobs by Opticom through November 30:
POHR = 2400000/80000 = 30
Machine Hours: 73000
So, manufacturing overhead applied to jobs by Opticom through November 30 = 73000×30 =
2190000.

3. Manufacturing overhead applied to jobs during December of the year just completed is $180000

Job No Machine Hours POHR Overhead

T11-007 300 30 9000
N11-013 1000 30 30000
N11-015 1400 30 42000
D12-002 2500 30 75000
D12-003 800 30 24000
Total 180000

4. Total Overhead applied for year = (73000×30) + (6000×30) = $2370000

Actual Overhead Incurred = $2392000
Difference: =2370000 – 2392000 = $22000
So, Manufacturing overhead under-applied as of December = $22000
5. Total finished good inventory on December 31:
Work in progress in December
Opening Inventory - 284000
Direct material cost - 190000
Direct Labor - 160000
Overhead - 180000
Total - 814000

Finished goods inventory:

Opening Inventory - 250000
WIP in December - 814000

Closing Inventory = 250000 + 814000 = 1064000 units

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 SRIHARI KUMAR SETHI
ROLL NO – P19097
SECTION - B

CHAPTER 4
PROBLEM 4-28:
1. Schedule of Equivalent Units:
Physical Units Output
Opening WIP 40000 Units completed and transferred 100000
Unit Started during August 80000 Closing WIP 20000
Total 120000 Total 120000

Equivalent Units:

Particulars %Complete Material %complete Conversion

Units Completed 100% 100000 100% 100000
Closing WIP 100% 20000 30% 6000
Total 120000 106000
2. Cost per equivalent units:

Particulars Open WIP Current Cost Total Equivalent Cost per Equivalent
Material 42000 96000 138000 120000 1.15
Conversion 305280 784400 1089680 106000 10.28

Total cost per equivalent units = 1.15 + 10.28 = $11.43

3. The cost of goods completed and transferred out during August Is = 100000 × 11.43 = $1143000
4. Cost of remaining WIP inventory on August 31:
Direct material: 20000 × 1.15 = $23000
Conversion: 6000 × 10.28 = $61680
5. Journal Entry Log:
Particulars Debit Credit
COGS 1143000
Finished Good Inv Acc 1143000

CHAPTER 7
PROBLEM 7-27:
𝐹𝑖𝑥𝑒𝑑 𝐶𝑜𝑠𝑡 2000000
1. Break-even point = 𝑃𝑟𝑜𝑓𝑖𝑡 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡 = 1500−1000 = 4000 Units
2000000 ×1.05
2. New break-even point if fixed cost increase by 5% = = 4200 Units
500
{New Fixed Cost at 5% increase = 2000000 × 1.05 = 2100000}

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 SRIHARI KUMAR SETHI
ROLL NO – P19097
SECTION - B

3. Company’s net income for prior year:

Total units sold = 7000
Break-even unit = 4000
So, we will get profit from (7000 – 4000 = 3000) units.
Net Income = 3000 × 500 = 11500000
4. Break-even point after price change:
2000000
Break-even point at 1400 = = 5000 Units
400
{Contribution = 1400-1000 = 400}
5. Price Change Evaluation:
Particulars At Current Price At New Price
Sales 10500000 11200000
Less: Variable Cost 7000000 8000000
Contribution 3500000 3200000
Less: Fixed Cost 2000000 2000000
Net Income 1500000 1200000
There is $30000 less in net income if the price is changed to 1400 for selling. Therefore,
price shouldn’t be changed.

PROBLEM 7-31:
1. Hostel cost structure as percentage of revenue
Particulars Amount Percentage
Revenue 1500000 100%
Less: Variable Cost 900000 60%
Contribution 600000 40%
Less: Fixed Cost 450000 30%
Net Income 150000 10%

2. Hostel’s Revenue decreased by 20%:

New Revenue = 1500000 × 20% = 1200000
Net Income: Revenue – 40%(Revenue) – Fixed Cost
=1200000-720000-450000 = $30000
𝐶𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 600000
3. Operating Leverage Factor = = 150000 = 4
𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑛𝑔 𝐼𝑛𝑐𝑜𝑚𝑒
4. Increase in sales revenue = 1.25 × 1500000 = 1875000
Contribution = 40% of revenue = 1875000 × 40% = 75000
𝐶𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛
Net Income = 𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑛𝑔 𝐿𝑒𝑣𝑒𝑟𝑎𝑔𝑒 𝐹𝑎𝑐𝑡𝑜𝑟 = 750000/4 = $187500

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 SRIHARI KUMAR SETHI
ROLL NO – P19097
SECTION - B

PROBLEM 7-37:
1. Break-even units when model A is selected:
Variable Cost: $8 Per Unit
Fixed Cost: $1971200
Selling Price = $32/unit
Commission= 5% = $1.6/unit
Contribution per unit = 32-8-1.6 = $22.4
Break-even point for model A = 1971200/22.4 = 88000 units
2. Evaluation of Two models:
Particulars Model A Model B
Sales Revenue 184000[32-1.6] 5593600 5593600
Less: Variable Cost 1472000 1177600
Contribution 4121600 4416000
Fixed Cost 1971200 2227200
Net Income 2150400 2188800
From above table we can see that Model B is more profitable for sales and production of 184000
units per year.
3. New Equipment Cost = $900000
Depreciation amount per year = 900000/5 = 180000
Adjusted fixed cost = 2227200 + 180000 = 2407200
Contribution per unit for model B = 32 – 1.6 – 6.4 = $24
Profit to be earned = $1912800
1912800 + 2407200
Quantity to sell for getting this net income = = 180000 units.
24
𝐷𝑖𝑓𝑓𝑒𝑟𝑒𝑛𝑐𝑒 𝑖𝑛 𝐹𝑖𝑥𝑒𝑑 𝐶𝑜𝑠𝑡 2227200−1971200
4. Indifference Point = = = 160000 units.
𝐷𝑖𝑓𝑓𝑒𝑟𝑒𝑛𝑐𝑒 𝑖𝑛 𝑉𝑎𝑟𝑟𝑖𝑎𝑏𝑙𝑒 𝐶𝑜𝑠𝑡 8−6.40
Volume Level = 160000 × 30.4 = $4864000
So, at quantity of 160000 units and volume level of 4864000, the total cost of the
system will be equal.

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