1. Supply the missing data in the following cases. Each case is independent of the others.

Case
1 2 3 4
Schedule of Cost of Goods Manufactured
Direct materials . . . . . . . . . . . . . . . . . . . . . . . . . $ $ $ $
4,500 6,000 5,000 3,000
Direct labor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . ? $ $ $
3,000 7,000 4,000
Manufacturing overhead . . . . . . . . . . . . . . . . . . $ $ ? $
5,000 4,000 9,000
Total manufacturing costs . . . . . . . . . . . . . . . . . $ ? $ ?
18,500 20,000
Beginning work in process inventory . . . . . . . . . $ ? $ ?
2,500 3,000
Ending work in process inventory . . . . . . . . . . . ? $ $ $
1,000 4,000 3,000
Cost of goods manufactured . . . . . . . . . . . . . . . $ $ ? ?
18,000 14,000
Income Statement
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ $ $ $
30,000 21,000 36,000 40,000
Beginning finished goods inventory . . . . . . . . . . $ $ ? $
1,000 2,500 2,000
Cost of goods manufactured . . . . . . . . . . . . . . . $ $ ? $
18,000 14,000 17,500
Goods available for sale. . . . . . . . . . . . . . . . . . . ? ? ? ?
Ending finished goods inventory . . . . . . . . . . . . ? $ $ $
1,500 4,000 3,500
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . $ ? $ ?
17,000 18,500
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . $ ? $ ?
13,000 17,500
Selling and administrative expenses . . . . . . . . . ? $ ? ?
3,500
Net operating income. . . . . . . . . . . . . . . . . . . . . $ ? $ $
4,000 5,000 9,000
 3. Morrisey & Brown, Ltd., of Sydney is a merchandising company that is the sole
distributor of a product that is increasing in popularity among Australian consumers. The
company’s income statements for the three most recent months follow:

Morrisey & Brown, Ltd. Income Statements

For the Three Months Ended September 30
July August September
Sales in units . . . . . . . . . . . . . . . . . . . . . 4,000 4,500 5,000
Sales revenue . . . . . . . . . . . . . . . . . . . . A$400,000 A$450,000 A
$500,000
Cost of goods sold . . . . . . . . . . . . . . . . . 240,000 270,000 3
00,000
Gross margin . . . . . . . . . . . . . . . . . . . . . 160,000 180,000 2
00,000
Selling and administrative expenses:
Advertising expense . . . . . . . . . . . . . . 21,000 21,000 2
1,000
Shipping expense. . . . . . . . . . . . . . . . 34,000 36,000 3
8,000
Salaries and commissions . . . . . . . . . 78,000 84,000 9
0,000
Insurance expense . . . . . . . . . . . . . . . 6,000 6,000 6
,000
Depreciation expense. . . . . . . . . . . . . 15,000 15,000 1
5,000
Total selling and administrative expenses 154,000 162,000 1
70,000
Net operating income. . . . . . . . . . . . . . . A$ 6,000 A$ 18,000 $ 30,000

(Note: Morrisey & Brown, Ltd.’s Australian-formatted income statement has been recast in
the format common in the United States. The Australian dollar is denoted here by A$.)
Required:
1. Identify each of the company’s expenses (including cost of goods sold) as either variable,
fixed, or mixed.
2. Using the high-low method, separate each mixed expense into variable and fixed
elements. State the cost formula for each mixed expense.
3. Redo the company’s income statement at the 6,000-unit level of activity using the
contribution format.
7. High Country, Inc., produces and sells many recreational products. The company has just
opened a new plant to produce a folding camp cot that will be marketed throughout the
United States. The following cost and revenue data relate to May, the first month of the
plant’s operation:

Management is anxious to see how profi table the new camp cot will be and has asked that
an income statement be prepared for May.
Required:
1. Assume that the company uses absorption costing.
a. Determine the unit product cost.
b. Prepare an income statement for May.

2. Assume that the company uses variable costing.

a. Determine the unit product cost.
b. Prepare a contribution format income statement for May.

3. Explain the reason for any difference in the ending inventory balances under the two
costing methods and the impact of this difference on reported net operating income.
9. Denton Company manufactures and sells a single product. Cost data for the product are
given below:
Variable costs per unit:
Direct materials . . . . . . . . . . . . . . . . . . . . $ 7
Direct labor. . . . . . . . . . . . . . . . . . . . . . . . 10
Variable manufacturing overhead. . . . . . . 5
Variable selling and administrative. . . . . . 3
Total variable cost per unit . . . . . . . . . . . . $25

Fixed costs per month:

Fixed manufacturing overhead. . . . . . . . . $315,000
Fixed selling and administrative. . . . . . . . 245,000
Total fixed cost per month . . . . . . . . . . . . $560,000

The product sells for $60 per unit. Production and sales data for July and August, the fi rst
two months of operations, follow:
Units Units
Produced Sold
July . . . . . . . . . . . 17,500 15,000
August . . . . . . . . . 17,500 20,000

The company’s Accounting Department has prepared absorption costing income

statements for July and August as presented below:

July August
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $900,000 $1,200,000
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . 600,000 800,000
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300,000 400,000
Selling and administrative expenses . . . . . . . . . . . . 290,000 305,000
Net operating income. . . . . . . . . . . . . . . . . . . . . . . . $ 10,000 $ 95,000

Required:
1. Determine the unit product cost under:
a. Absorption costing.
b. Variable costing.

2. Prepare contribution format variable costing income statements for July and August.

3. Reconcile the variable costing and absorption costing net operating income figures.