1. Reid Recreation Products sells the Amazing Foam Frisbee for $12. The variable cost per unit is $2; fixed costs are $36,100 per month. a. Breakeven Point? b. Breakeven sales? 2. How many frisbees must Reid sell to earn $21,100 in operating income? 3. What operating income must Reid earn to realize net income of $19,080, assuming that the company is in the 40% tax bracket? 4. How many frisbees must Reid sell to earn $19,080 in net income, assuming that the company is in the 40% tax bracket? 5. (below) Maverick Wings, Inc. manufactures airplanes for use in stunt shows. Maverick’s factory is highly automated, using the latest in robotic technology. To keep costs low, the company employs as few factory workers as possible. Since each plane has different features (such as its shape, weight, and color), Maverick uses a job order costing system to accumulate product costs. At the end of 2013, Maverick’s accountants developed the following expectations for 2014 based on the marketing department’s sales forecast: Budgeted overhead cost $1,053,000 Estimated machine hours 48,000 Estimated direct labor hours 8,000 Estimated direct materials cost $1,520,000 Maverick’s inventory count, completed on December 31, 2013, revealed the following ending inventory balances: Raw Materials Inventory $249,000 Work in Process Inventory $626,000 Finished Goods Inventory $1,530,000 The company’s 2014 payroll data revealed the following actual payroll costs for the year: Job Title Number Employed Wage Rate per Hour Annual Salary per Employee Total Hours Worked perEmployee President and CEO 1 $225,000 Vice president and CFO 1 $177,000 Factory manager 1 $40,600 Assistant factory manager 1 $30,600 Machine operator 5 $14.50 2,250 Security guard, factory 2 $20,600 Materials handler 2 $7.50 2,000 Corporate secretary 1 $37,000 Janitor, factory 2 $6 2,150 The following information was taken from Maverick’s Schedule of Plant Assets. All assets are depreciated using the straight-line method. Plant Asset Purchase Price Salvage Value Useful Life Factory building $4,000,000 $150,000 20 Years Administrative office $650,000 $125,000 30 Years Factory equipment $2,000,000 $20,000 12 Years Other miscellaneous costs for 2014 all paid in cash included: Cost Amount Factory insurance $14,000 Administrative office utilities $5,100 Factory utilities $30,600 Office supplies $4,400 Additional information about Maverick’s operations in 2014 includes the following: • Raw materials purchases for the year amounted to $1,948,000. All purchases were on account. • The company used $1,870,000 in raw materials during the year. Of that amount, 85% was direct materials and 15% was indirect materials. • Maverick applied overhead to Work in Process Inventory based on direct materials cost. • Airplanes costing $3,450,000 to manufacture were completed and transferred out of Work in Process Inventor ...

1. 1. Reid Recreation Products sells the Amazing Foam Frisbee for
$12. The variable cost per unit is $2; fixed costs are
$36,100 per month.
a. Breakeven Point?
b. Breakeven sales?
2. How many frisbees must Reid sell to earn $21,100 in
operating income?
3. What operating income must Reid earn to realize net income
of $19,080, assuming that the company is in the 40% tax
bracket?
4. How many frisbees must Reid sell to earn $19,080 in net
income, assuming that the company is in the 40% tax bracket?
5. (below)
Maverick Wings, Inc. manufactures airplanes for use in stunt
shows. Maverick’s factory is highly automated, using the latest
in robotic technology. To keep costs low, the company employs
as few factory workers as possible. Since each plane has
different features (such as its shape, weight, and color),
Maverick uses a job order costing system to accumulate product
costs.
At the end of 2013, Maverick’s accountants developed the
following expectations for 2014 based on the marketing
department’s sales forecast:
Budgeted overhead cost
$1,053,000
Estimated machine hours
48,000

2. Estimated direct labor hours
8,000
Estimated direct materials cost
$1,520,000
Maverick’s inventory count, completed on December 31, 2013,
revealed the following ending inventory balances:
Raw Materials Inventory
$249,000
Work in Process Inventory
$626,000
Finished Goods Inventory
$1,530,000
The company’s 2014 payroll data revealed the following actual
payroll costs for the year:
Job Title
Number Employed
Wage Rate per Hour
Annual Salary per Employee
Total Hours Worked perEmployee

3. President and CEO
1
$225,000
Vice president and CFO
1
$177,000
Factory manager
1
$40,600
Assistant factory manager
1

4. $30,600
Machine operator
5
$14.50
2,250
Security guard, factory
2
$20,600
Materials handler
2
$7.50
2,000
Corporate secretary

5. 1
$37,000
Janitor, factory
2
$6
2,150
The following information was taken from Maverick’s Schedule
of Plant Assets. All assets are depreciated using the straight-
line method.
Plant Asset
Purchase Price
Salvage Value
Useful Life
Factory building
$4,000,000
$150,000

6. 20 Years
Administrative office
$650,000
$125,000
30 Years
Factory equipment
$2,000,000
$20,000
12 Years
Other miscellaneous costs for 2014 all paid in cash included:
Cost
Amount
Factory insurance
$14,000
Administrative office utilities
$5,100
Factory utilities
$30,600

7. Office supplies
$4,400
Additional information about Maverick’s operations in 2014
includes the following:
•
Raw materials purchases for the year amounted to $1,948,000.
All purchases were on account.
•
The company used $1,870,000 in raw materials during the year.
Of that amount, 85% was direct materials and 15% was indirect
materials.
•
Maverick applied overhead to Work in Process Inventory based
on direct materials cost.
•
Airplanes costing $3,450,000 to manufacture were completed
and transferred out of Work in Process Inventory.
•
Maverick uses a markup of 80% to price its airplanes. Sales for
the year were $6,570,000.
(Note: This transaction requires two journal entries.)
•
All sales were on account.
What was Maverick’s predetermined overhead rate in

8. 2014? (Round answer to 2 decimal places, e.g. 2.45%.)
Predetermined overhead rate
% of direct materials cost
SHOW LIST OF ACCOUNTS
LINK TO TEXT
Prepare the journal entries to record Maverick’s costs for 2014.
(Use Salaries Payable and Wages Payable accounts for payroll
costs.) (Credit account titles are automatically indented when
the amount is entered. Do not indent manually. Post entries in
order presented in the problem. Round answers to 0 decimal
places, e.g. 345,000.)
No.
Account Titles and Explanation
Debit
Credit
1.

9. (To record salaries for president, vice president, and corpoarte
secretary)
2.
(To record labor costs for factory manager, assistant factory
manager, and two security gaurds)
3.
(To record direct labor)
4.

10. (To record depreciation on administrative office equipment)
5.
(To record depreciation on factory building and equipment)
6.

11. (To record administrative office utilities and office supplies
expense)
7.
(To reocrd factory insurance and factory utilities)
8.
(To record raw materials purchases)
9.

12. (To record direct materials and indrect materials used in
production)
10.
(To apply overhead to work in process)
11.
(To record transfer of completed airplanes)
12.

13. (To record cost of airplanes sold)
13.
(To record sale of airplanes to customers)
SHOW LIST OF ACCOUNTS
LINK TO TEXT

14. Prepare the appropriate T-accounts for Raw Materials
Inventory, Work-in-Process Inventory, Finished Goods
Inventory, Manufacturing Overhead Control, Cost of Goods
Sold, and Sales, and record Maverick’s transactions for
2014. (Post entries in order presented in the problem. Round
answers to 0 decimal places, e.g. 345,000.)
Raw Materials
Work in Process Inventory

15. Finished Goods Inventory
Manufacturing Overhead

16. Cost of Goods Sold
Sales Revenue
SHOW LIST OF ACCOUNTS
LINK TO TEXT

17. Was manufacturing under- or overapplied in 2014? By how
much? (Round answer to 0 decimal places, e.g. 345,000.)
Overheads by
$
SHOW LIST OF ACCOUNTS
LINK TO TEXT
Make the adjusting entry necessary to close the under- or
overapplied overhead to cost of goods sold. (Credit account
titles are automatically indented when the amount is entered. Do
not indent manually. Round answers to 0 decimal places, e.g.
345,000.)
Account Titles and Explanation
Debit
Credit

18. SHOW LIST OF ACCOUNTS
LINK TO TEXT
If Maverick chooses instead to prorate under- or overapplied
overhead, what would the adjusted balances be in Work in
Process Inventory, Finished Goods Inventory, and Cost of
Goods Sold for 2014?(Round answers to 0 decimal places, e.g.
345,000 and percentage of total to 2 decimal places e.g. 34.52).
Adjusted Balance
Work In Process
$
Finished Goods
$
Cost of Goods Sold
$
SHOW LIST OF ACCOUNTS
LINK TO TEXT

19. Job 3827 was started and completed in 2014. The job required
1,600 machine hours, 1,100 direct labor hours, and $77,000 in
direct materials to complete. What was the total cost of this
job? Using Maverick’s 80% markup, what sales price would be
charged for this airplane? (Round answers to 0 decimal places,
e.g. 345,000.)
Total Cost
$
Sales Price
$
SHOW LIST OF ACCOUNTS
LINK TO TEXT
If Maverick had chosen to use machine hours as its overhead

20. application base, what would the rate have been in
2014? (Round answer to 2 decimal places, e.g. 2.45.)
Predetermined rate
$/
Claire Company produces Tablets and Books. Total overhead
costs traditionally have been allocated on the basis of direct
labor hours. After implementing activity-based costing,
managers determined the following cost pools and cost drivers.
They also decided that general costs should no longer be
allocated to products.
Activity Pool
Department Costs
Cost Driver
Binding
$262,293
Number of units
Printing
810,231
Machine hours

21. Product design
193,071
Change orders
General
612,573
None
Total overhead costs
$1,878,168
Other information is as follows:
Tablets
Books
Units
63,000
20,100
Direct materials cost per unit

22. $2.95
$10.01
Direct labor cost per unit
$4.20
$8.10
Direct labor hours
25,300
16,400
Machine hours
127,000
120,000
Change orders
1,300
2,400

23. Calculate predetermined OH rate. (Round answer to 2 decimal
places, e.g. 15.25.)
Predetermined OH rate
$ /DLH
LINK TO TEXT
Determine the unit product cost for Tablets and Books using the
traditional costing system. (Round overhead rate and final
answers to 2 decmial places, e.g. 15.25.)
Tablets
Books
Unit product cost
$
$

24. LINK TO TEXT
Calculate ABC rates. (Round answers to 2 decimal places, e.g.
15.25.)
ABC rates
Binding
$ /unit
Printing
$ /machine hour
Product design
$ /change order
LINK TO TEXT
Determine the unit product cost for Tablets and Books using the
activity-based costing system. (Round all rates and final

25. answers to 2 decmial places, e.g. 15.25.)
Tablets
Books
Total unit cost
$
$
LINK TO TEXT
Show that General cost is the difference between the total
overhead costs allocated to products under the traditional
system and the total cost allocated to products under the
activity-based costing system. (Round answers to 0 decmial
places, e.g. 1,525.)
Traditional
ABC
Difference
Total allocated overhead

26. $
$
$
7.
Buttermilk Bakery has provided the following cost data for the
last year when 107,000 loaves of bread were produced and sold.
Raw materials
$237,540
Direct labor
82,390
Manufacturing overhead
217,900
Selling and administrative costs
160,520
All costs are variable except for $130,160 overhead and
$81,340 selling and administrative. The sales price was $10 per
loaf.

27. (a)
How many units must be sold to meet a target operating income
of $358,570?
Must be sold
loaves
8.
A manufacturer of potting soil has the following financial data:
Pounds produced and sold
26,600
Sales
$206,800
Less: Variable manufacturing costs
119,100
Fixed manufacturing costs
9,400
Variable selling and administrative costs
27,500
Fixed selling and administrative costs
13,800

28. Net operating income
$37,000
(a)
What is the company’s unit contribution margin? (Round answer
to 2 decimal places, e.g. 1.64.)
Unit contribution margin
$
9.
Milsaps Company produces sportsmen’s digital scales. In
preparing the current budget, Milsaps’ controller estimates a
total of $294,000 in direct materials cost, $231,000 in direct
labor cost, and $279,510 in manufacturing overhead costs. Since
much of the production process requires skilled workers to
assemble the scales, direct labor cost is used as the overhead

29. application base. At the end of the period, Milsaps reported
actual results as follows: direct materials cost of $295,000,
direct labor cost of $224,000, and manufacturing overhead cost
$266,790.
(a)
What is Milsaps’ predetermined overhead rate for the year?
Milsaps’ predetermined overhead rate
%
10.
Megan Industries manufactures several products including a
basic case for a popular smart phone. The company is
considering adopting an activity-based costing approach for
setting its budget. The company’s production activities,
budgeted activity costs, and cost drivers for the coming year are
as follows.

30. Activity
Activity overhead $
Cost driver
Cost driver quantity
Machine setup
$187,110
# of setups
770
Inspection
180,360
# of quality tests
540
Materials receiving
173,400
# of purchase orders
1,700
The budgeted data for smart phone case production are as
follows.
Direct materials
$2.50
per unit
Direct labor

31. $0.64
per unit
Number of setups
92
Number of quality tests
378
Number of purchase orders
61
Production
19,290
units
(a)
Calculate the activity rate for each cost pool.
Machine setup
$ per setup

32. Inspection
$ per test
Materials receiving
$ per PO
11.
Stockin Company produces Tablets and Books. Total overhead
costs traditionally have been allocated on the basis of direct
labor hours. After implementing activity-based costing,
managers determined the following cost pools and cost drivers.
They also decided that general costs should no longer be
allocated to products.
Activity Pool
Department Costs
Cost driver
Binding
$240,677.50
Number of units
Printing
903,582.75
Machine hours
Product design
219,447.00

33. Change orders
General
728,492.75
None
Total overhead costs
$2,092,200.00
Other information is as follows:
Tablets
Books
Units
80,900
20,225
Direct materials cost per unit
$4.00
$12.00
Direct labor cost per unit
$5.00
$10.00
Direct labor hours
31,700

34. 15,850
Machine hours
157,900
118,425
Change orders
1,977
3,954
(a)
Determine the unit product cost for Tablets using the traditional
costing system. (Round answer to 2 decimal places, e.g. 1.64.)
Unit product cost for Tables
$