MANAGEMENT AND ACCOUNTING WEB
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CHAPTER 2 
PROBLEM SOLUTIONS

SOLUTION 2-1
 1. D    2. D    3. D    4. D    5. E     6. B

SOLUTION 2-2
 1. C    2. E    3. D    4. B    5. F    6. D

SOLUTION 2-3

 1. C    2. D    3. A    4. C    5. E    6. B    7. D    8. B    9. A    10. E

 11. D    12. B    13. C    14. B    15. A    16. D

SOLUTION 2-4

 1.C    2. C and D    3. B    4. A    5. B    6. D    7. A    8. C and D

 9. A    10. C    11. B    12. D

SOLUTION 2-5

 

 

SOLUTION 2-6

 

 

SOLUTION 2-7

Part I

1.) 30 + 200 - 15 = 215

2.) Supervisors salary + overtime + payroll taxes + electric power 
     + rent + repair + property taxes + indirect labor + unemployment
     taxes + health insurance + depreciation + property insurance 
   = 50 + 6 + 8 + 10 + 40 + 8 + 4 + 40 + 6 + 4 + 60 + 5 = 241

3.) 215 + 80 + 241 = 536

4.) 536 + 20 - 10 = 546

5.) Shipping + other adm. + payroll taxes + electric power + sales
     salaries + property taxes + unemployment taxes + health
     insurance + depreciation + property insurance + sales
    commissions 
    = 4 + 60 + 4 + 2 + 30 + 3 + 2 + 2 + 20 + 3 + 50 = 180

6.) 546 + 20 - 25 = 541

7.) 1,000 - 541 = 459

8.) 459 - 180 = 279

Solution 2-7 Part II

1.) 30 + 200 - 15 = 215

2.) 31.6 (See income statement below.)

3.) 215 + 80 + 31.6 = 326.6

4.) 326.6 + 3 - 1.5 = 328.1

5.) Shipping + Health insurance + Sales commissions = 4 + .8 + 50 = 54.8

6.) 328.1 + 3 - 3.75 = 327.35

7.) 1,000 - 327.35 = 672.65

8.) 672.65 - 54.8 = 617.85

9.) 617.85 - 209.4 - 125.2 = 283.25

10.) Reconcilation:

Fixed costs in the inventory under full absorption costing:

BWIP   17.00
BFG      17.00      34.00

EWIP     8.50
EFG     21.25       29.75

Difference in NI    $4.25     (283.25 - 279 = 4.25)

The inventory decreased which indicates that more products were sold than produced. In other words, some of the units produced in a prior period were sold as well as all of the units produced during the current period. This means that $4.25 of the prior period fixed costs was charged to cost of goods sold in absorption costing along with all of the current period's fixed costs. Only the current period's fixed costs are charged to expense in direct costing.

 

 

 

SOLUTION 2-8

1. The cost of direct materials used = 50 + 600 - 80 = 570

2. The cost of goods manufactured for absorption costing
     = 1,200 + 4,800 + 160 - 200 = 5,960

3. The cost of goods manufactured for direct costing
    = 1,200 + (1/4)(160) - (1/4)(200) = 1,190

4. COGS for absorption costing = 5,960 + 400 - 480 = 5,880

5. COGS for direct costing = 1,190 + (1/4)(400) - (1/4)(480) = 1,170

6. Gross profit = 10,000 - 5,880 = 4,120

7. Contribution margin = 10,000 - 1,170 - 600 = 8,230

8. NI for absorption costing = 4,120 - 1,600 = 2,520

9. NI for direct costing = 8,230 - 5,800 = 2,430

10. The difference of 2,520 - 2,430 = $90 results because an additional $90 of fixed cost is capitalized in the inventory under absorption costing while all fixed costs are expensed under direct costing.

Fixed cost under absorption costing:
In Beginning inventories
BWIP (3/4)(160)   = 120
BFG (3/4)(400)     = 300     520

In Ending inventories
EWIP (3/4)(200 ) = 150
EFG (3/4)(480)    = 360      510
                                            $90 Increase
                                            ===