In this assessment, you will perform three tasks, while understanding the costing and profit equation.
In Task 1, you will prepare a production cost report and journal entries; in Task 2, you will explore expected level of profit using profit equation and CVP analysis; and in Task 3, you will prepare an income statement using full costing and variable costing.
Task 1: Production Cost Report
Kao Tiles, Inc. is a specialized producer of ceramic tiles. Its production process involves highly skilled workers and top-quality ceramic craftsmen. Work in Process is relatively large because each tile is in process for up to three weeks because of art, mold work, and drying time. The following information relates to the month of October:
Note: A unit is 1 ceramic tile
|Cost Information||Beginning Work in Process||Cost Added in
Based on this information, perform the following tasks:
- Prepare a production cost report for the month of October.
- Prepare the journal entries to recognize the transfer of the units completed and transferred to finished goods during October.
Task 2: CVP Analysis, Profit Equation
This task involves the use of the profit equation and CVP analysis. Read the scenario given below and respond to the questions that follow.
Clyde’s Marina has estimated that fixed costs per month are $300,000 and variable cost per dollar of sales is $0.40. Based on this information, perform the following tasks:
- What is the break-even point per month in sales dollars?
- What level of sales dollars is needed for a monthly profit of $60,000?
- For the month of July, the marina anticipates sales of $1,000,000. What is the expected level of profit?
Task 3: Variable and Full Costing
The following information relates to Axar Products for the past year, the company’s first year of operation:
|Selling price per unit||$30|
|Direct material per unit||$6|
|Direct labor per unit||$4|
|Variable manufacturing overhead per unit||$2|
|Variable selling cost per unit||$3|
|Annual fixed manufacturing overhead||$160,000|
|Annual fixed selling and administrative expense||$80,000|
- Prepare an income statement using full costing.
- Prepare an income statement using variable costing.
- Using the variable costing income statement, calculate the company’s break-even point in sales dollars and in units. Can the break-even point be calculated easily using the full costing income statement? Why or why not?
- Answer each problem in detail with conclusion and results.
- Submit your answer in a Microsoft Excel file, showing step-by-step calculations.
The exercise rubricwill be used to evaluate your responses.