Determine the total amount of (a) delivery service (product) costs and (b) period costs.

Question 1

The following information is available for Mergenthaler Corporation for the year ended December 31, 2017:


Collection of principal on long-term loan to a supplier                                               $16,000

Acquisition of equipment for cash                                                                               10,000

Proceeds from the sale of long-term investment at book value                                 22,000

Issuance of common stock for cash                                                                           20,000

Depreciation expense                                                                                                  25,000

Redemption of bonds payable at carrying (book) value                                             34,000

Payment of cash dividends                                                                                           6,000

Net income                                                                                                                  30,000

Purchase of land by issuing bonds payable                                                                40,000


In addition, the following information is available from the comparative balance sheet for Mergenthaler at the end of 2017 and 2016:

2017                        2016

Cash                                                                            $148,000                 $91,000

Accounts receivable (net)                                               25,000                   15,000

Prepaid insurance                                                           19,000                   13,000

Total current assets                                                    $192,000               $119,000


Accounts payable                                                       $  30,000                 $19,000

Salaries and wages payable                                             6,000                     7,000

Total current liabilities                                                 $  36,000                 $26,000



Prepare Mergenthaler’s statement of cash flows for the year ended December 31, 2017, using the indirect method.



Question 2

Here is financial information for Valdez Express Inc.


December 31, 2017                December 31, 2016

Current assets                                              $114,000                                   $80,000

Plant assets (net)                                           414,000                                   360,000

Current liabilities                                               91,000                                     65,000

Long-term liabilities                                        134,500                                     90,000

Common stock, $1 par                                  149,500                                   115,000

Retained earnings                                          153,000                                   170,000



Prepare a schedule showing a horizontal analysis for 2017 using 2016 as the base year.


Question 3

Kwik Delivery Service reports the following costs and expenses in June 2016.


Indirect materials                            $  8,400            Driver’s salaries                                 $17,000

Depreciation on delivery                                          Advertising                                             5,100

equipment                                   11,200            Delivery equipment

Dispatcher’s salary                             5,000                    repairs                                                300

Property taxes on office                                          Office supplies                                          650

building                                             870            Office utilities                                         2,490

CEO’s salary                                     12,000            Repairs on office

Gas and oil for delivery trucks            3,200                    equipment                                          180



Determine the total amount of (a) delivery service (product) costs and (b) period costs.


Question 4

Erickson, Inc. makes student book bags that sell for $20 each. For the coming year, management expects fixed costs to be $225,000. Variable costs are $14 per unit.



(a)   Compute break-even sales in dollars using the mathematical equation.

(b)   Compute break-even sales using the contribution margin ratio.

(c)   Compute margin of safety ratio assuming actual sales are $937,500.


(d)   Compute the sales required to earn net income of $150,000, using the mathematical equation.

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