BUSI 294

Module 1 Practice Questions

Question 1

Home Entertainment, a retailer of TVs, provided the following information for the month of May:

Sales $150,000
Selling expenses 40,000
Administrative expenses 25,000
Merchandise inventory, opening balance 12,000
Merchandise inventory, ending balance 22,000
Merchandise purchases 90,000

Required:
Prepare May’s income statement

Question 2

Sunshade Fabrics manufacture a variety of products in its factory. Data for May’s operations appear
below:
Raw materials inventory, opening balance $66,000
Purchases of raw materials inventory 528,000
Raw materials inventory, ending balance 78,000
Direct labour 258,000
Manufacturing overhead 456,000
Work in process inventory, opening balance 228,000
Work in process inventory, closing balance 264,000
Required:
Prepare a cost of goods manufactured schedule for the month of May
Question 3

Urban Auto Glass specialized in the repair and replacement of windshields for passenger vehicles.
Variable and fixed costs relate to installation activities for May are listed below:

Number of windshields installed 1,000

Variable expenses:
Direct materials $200,000
Direct labour (1 hour per installation) 30,000
Indirect materials 10,000

Fixed expenses:
Installation supervisor’s wages $4,000
Installation scheduler’s wages 2,000
Warehouse expenses 5,000

Required:
1. Calculate the per unit amounts for each of the variable expense and fixed expense items in May.
2. Management expects that 1,200 windshields will be installed in June and that this level of
activity is within the relevant range for all variable and fixed expenses. Calculate:
a. The total expense for each of the variable and fixed cost items above
b. The per unit amounts for each of the variable and fixed cost items above
Question 4

Summit Skis manufactures specialty downhill skis which are sold in local high-end sports stores across
British Columbia and Alberta. Below is a summary of significant expenses for the last production cycle.
The company produced and sold 500 pairs of skis during this period. The company has a just-in-time
inventory policy, so there are no opening and closing inventory balances.

Item Amount
Polyethylene used for the ski base $49,500
Carbon fibre used in production 44,750
Wood used in production 36,800
Ski passes for the senior leadership team 1,250
Rent expense1 33,000
Payroll expense2 237,400
Depreciation, production equipment 22,000
Depreciation, office equipment 4,500
Utilities1 17,500
Administrative expenses 26,400
Promotional materials 8,750
Indirect materials 11,145
Shipping costs 34,500
Sponsorship expenses 7,500

1
Head office occupies 15% of the building and production occupies the remaining amount. All utilities
are variable costs split based on occupied space
2
Production payroll accounts for 75% of the total, this includes $18,000 of fixed payroll for the
production supervisor, all other production employees are directly involved in ski production.

Required:
1. Classify each of the expenses above as either product or period costs. In addition, if the costs are
product costs, classify as either direct materials, direct labour, or manufacturing overhead.

2. Using the list above, calculate the following amounts:

a. Total variable production cost
b. Total fixed production cost
c. Total production costs
d. Total period expenses
Question 5

An auditor for Canada Revenue Agency is trying to reconstruct some partially destroyed records for two
taxpayers. For each case in the accompanying list, find the unknowns designed by capital letters (figures
are in thousands).

Case 1 Case 2
Accounts receivable, December 31, 2015 $6,000 $2,100
Cost of goods sold A 20,000
Accounts payable, January 1, 2015 3,000 1,700
Accounts payable, December 31, 2015 1,800 1,500
Finished goods inventory, December 31, 2015 B 5,300
Gross margin 11,300 C
Work in process, January 1, 2015 0 800
Work in process, December 31, 2015 0 3,000
Finished goods, January 1, 2015 4,000 4,000
Direct materials used 8,000 12,000
Direct manufacturing labour 3,000 5,000
Indirect manufacturing labour 7,000 D
Purchases of direct material 9,000 7,000
Revenues 32,000 31,800
Accounts receivable, January 1, 2015 2,000 1,400