1. 22 Abiqua Acres WIP Units 5,000 60,000 8,000 57,000 Out BI IN EI DM 100% CC 40% 50% WIP - $ (Wtd. Avg.) DM $20,000.00 CC 16,000.00 DM 250,000.00 CC.

1

22

Abiqua Acres

WIP Units

5,000

60,000

8,000

57,000 Out

BI

IN

EI

DM

100%

100%

CC

40%

50%

WIP - $ (Wtd. Avg.)

DM $20,000.00

CC 16,000.00

DM 250,000.00

CC 450,000.00

DM $33,230.40

CC 30,557.20

$63,787.60

57,000 × $11.7932

= $672,212.40

= 8,000 × $4.1536

= 4,000 × $7.6393

E.U.

DM CC

57,000

8,000

65,000

57,000

4,000

61,000

Costs to Account For

$ 20,000

250,000

$270,000

$ 16,000

450,000

$466,000

BI

IN

Total

$/EU

$270,000 / 65,000 = $4.1538

$ 11.7932 per E.U.

OUT

EI: (DM) 8,000 × 100%

EI: (CC) 8,000 × 50%

E.U.

WEIGHTED AVERAGE METHOD

$466,000 / 61,000 = $7.6393

BIOut

IN

EI

DM

DM

CC

CC

1. 2.

5.

6.

3. 4.

33

Abiqua Acres (p. 2)WIP Units

5,000

60,000

8,000

57,000 Out

BI

IN

EI

DM

100%

100%

CC

40%

50%

WIP - $ (FIFO)

DM $ 20,000.00

CC 16,000.00

DM 250,000.00

CC 450,000.00

DM $33,333.60

CC 30,508.40

$63,842.00

$ 36,000.00 from BI

22,881.30 Finished CC 5,000×60%×$7.6271

613,277.60 S&F 52,000 × $11.7938

$672,158.90

= 8,000 × $4.1667

= 4,000 × $7.6271

E.U.

DM CC

- 0 -

52,000

8,000

60,000

3,000

52,000

4,000

59,000


DM CC

$4.00

$8.00

$ per EU

BI: (DM) 5,000× 0%

BI: (CC) 5,000×60%

Start & Finish

EI: (DM) 8,000×100%

EI: (CC) 8,000× 50%

E.U.

FIFO METHOD

$20,000 DM ÷ (5,000×100%)

$16,000 CC ÷ (5,000× 40%)

Total

$12.00

$4.1667

$7.6271

$ per EU

$250,000 DM ÷ 60,000 E.U.

$450,000 CC ÷ 59,000 E.U. $11.7938

$736,000 Costs to Account For

BI

OutIN

EI

BI

IN

1. 2.

5.

6.

3.

4.

44

Abtex Electronics

SP VC CM Mix

Wtd. Avg.

CM

TapeRecorders

$15.00 $8.00 $7.00 1/3 $2.33

Electronic

Calculators$22.50 $9.50 $13.00 2/3 $8.67

$11.00

BE(units) =FC

CM per unit=

$280,000+ $1,040,000

$11.00= 120,000 units

40,000TapeRecorders

80,000ElectronicCalculators

⅓ ⅔

1.

55

Abtex Electric (p. 2)

Tape Recorders Electronic Calculators

DM $4.00 × 90% =DL $2.00 × 110% =VOH Total VC per unit

DM $4.50 × 80% =DL $3.00 × 110% =VOH Total VC per unit

$3.60 2.20 2.00$7.80

$3.60 3.30 2.00$8.90

Total Fixed Costs:$ 280,000 1,040,000 57,000$1,377,000

Sales Mix Calculation:

$750,000

I made up a big number for “revenue”,likely to be divisible by both $15.00 and $20.00,the 1998 selling prices

20% 80% Estimated 1998 mix of revenue

$600,000 Rev.SP $20 per unit

30,000 calculators

$150,000 Rev.SP $15 per unit

10,000 recorders

¼ ¾SALES MIX IN UNITS

2.

66

Abtex Electric (p. 3)

2. (Continued)

SP VC CM Mix

Wtd. Avg.

CM

TapeRecorders

$15.00 $7.80 $7.20 1/4 $1.800

Electronic

Calculators$20.00 $8.90 $11.10 3/4 $8.325

$10.125

BE(units) =FC

CM per unit=

$1,377,000

$10.125

= 136,000 units

27,200TapeRecorders

108,800ElectronicCalculators

¼ ¾

77

Adams’ Co.

80,000 lbs. of RM available ÷ 4 lbs. per Set of Golf Clubs= 20,000 Sets of Golf Clubs produced to maximize CM *** What if they can only sell 8,000 Sets of Golf Clubs?? *** Make 8,000 Sets of Golf Clubs 32,000 lbs.Make 6,000 Bicycle Frames 48,000 lbs. (= 48,000 lbs. / 8 lbs. per unit)Total available titanium 80,000 lbs.

Contribution margin per unitPounds of RM per unitCM per pound of RM

$ 40.00÷ 8$ 5.00

$ 32.00÷ 4$ 8.00

Bicycle Frames Golf Clubs

Adams’ Co. should make golf clubs in order to maximize incomebecause the contribution margin per pound of raw material (the constraint) is the greatest.

88

1.

Al $20 $16 $ 4 2/10 $ .80 $ 4.00

Cat $50 $36 $14 3/10 $ 4.20 $15.00

Raz $40 $28 $12 5/10 $ 6.00 $20.00

$11.00 $39.00

BE (units) = FC = $77,000 = 7,000 units

CM per unit $11

AL CAT RAZ

20% 30% 50%

1400 + 2100 + 3500 = $7000

$28,000 + $105,000 + $140,000 = $273,000

“Al” “Cat” “Raz”

Alcatraz ArtifactsSP VC CM Mix

Wtd.Avg.CM

Wtd.Avg.SP

99

2.

WTD.AVG.

SP VC CM MIX CMAl $20 $16 $ 4 .40 $1.60Cat $50 $36 $14 .40 $5.60Raz $40 $28 $12 .20 $2.40

$9.60BE (units) = FC = $77,000 = 8021 units

CM per units $9.60

Al Cat Raz

40% + 40% + 20%

3,209 + 3208 + 1,604

$64,180 + $160,400 + $64,160 = $288,740

Increased BE point because more low profit “Al’s” were sold.

Alcatraz Artifacts (p. 2)

1010

Andretti Company

Variable cost per unit:

Direct material

Direct labor

Variable OH

Variable S&A

$10.00

4.50

2.30

1.20

$18.00Total

Fixed expenses:

Fixed OH

Fixed S&A

$300,000

210,000

$510,000Total

Before increase in selling expenses:

Net Income:

Sales

Variable costs

CM

Fixed costs

$1,920,000

(1,080,000)

$840,000

$330,000Net Income

(510,000)

($32*60,000 units)

($18*60,000 units)

Variable cost per unit:

Direct material

Direct labor

Variable OH

Variable S&A

$10.00

4.50

2.30

1.20

$18.00Total

Fixed expenses:

Fixed OH

Fixed S&A

$300,000

290,000

$590,000Total

After increase in selling expenses:

Net Income:

Sales

Variable costs

CM

Fixed costs

$2,400,000

(1,350,000)

$1,050,000

$460,000Net Income

(590,000)

($32*75,000 units)

($18*75,000 units)

Andretti should increase fixed selling expenses by $80,000 because it increases net income by $130,000 ($460,000 - $330,000).

1.

1111

Andretti Company (p. 2)

Variable expenses:

Direct material

Direct labor

Variable OH

Duties

$10.00

4.50

2.30

1.70

$21.70Total

Variable S&A 3.20

Minimum selling price should be set at breakeven point.

Breakeven is when TR = TC.

Let x equal unit selling price per unit:

TR = TC

(Quantity)*(Selling Price) = (Quantity)*(Variable expenses) + Fixed Costs

Increased fixed expenses:

Permits $9,000

$9,000Total

20,000x = (20,000) * ($21.70) + $9,000

20,000x = $443,000

x = $22.15

2. 3.

The relevant cost figure is $1.20 per unit, which is thevariable selling expense per Dak. Since the irregularunits have already been produced, all production costs(including the variable production costs) are sunk. Thefixed selling expenses are not relevant since they willnot change regardless of whether or not the irregularunits are sold.

1212

Andretti Company (p. 3)Continue producing:

If the plant operates at 30% of normal levels then only 3,000 units will be producedand sold during the 12 month period:

60,000 units per year * 2/12 = 10,000 units

10,000 units * 30% = 3,000 units produced and sold

Net Income:

Sales

Variable costs

CM

Fixed costs

$96,000

(54,000)

$42,000

($43,000)Net Income

(85,000)

($32 * 3,000 units)

($18 * 3,000 units)

($510,000 * 2/12)

Shut down:

CM

Fixed costs

($30,000)

($58,000)Net Income

(28,000)

($300,000 * 2/12 * .60)

($210,000 * 2/12 * .80)

Shutting down the plant would cause a decrease in net income of $15,000 [($58,000)-($43,000)].Therefore, the plant should continue to produce at the 30% production level.

4.

Net Income:

1313

Andretti Company (p. 4)

Relevant costs avoided by purchasingfrom outside supplier:

Direct material

Direct labor

Variable OH

Variable S&A

$10.00

4.50

2.30

0.40

$20.95Total

Fixed OH

Variable S&A

3.75

0.00

[($300,000*.75)/60,000]

[$1.20*1/3]

The outside supplier’s quote must be less than $20.95per unit in order to purchase from it.

5.

1414

Apple Appliances

Relevant costs to make

$ 541

$10

Relevant costs to buy

Selling price $12

Total relevant cots $12

Direct materialDirect laborVariable OHTotal relevant costs

It is $2 cheaper to make the timer assemblies ($12 – $10).Therefore, the offer should be rejected.

1515

Arc Light & SoundRaw Materials

$ 32,000BI

$170,000Purch$144,000$ 36,000

$22,000EI

Work in Progress

BI

EI

$ 20,000

$700,000

Finished Goods

BI $ 48,000

$720,000

EI $28,000

$144,000

$200,000

$350,000

$700,000

$ 14,000

MOH

$ 36,000

$ 82,000

$ 65,000

$ 18,000

$153,000

$350,000

COGS

$720,000$4,000

$ 4,000

COGM

I/S

$724,000

$100,000

$ 90,000

$ 2,000

$ 27,000

$1,000,000 SalesCOGS

Adver.

Salary

Insur.

Depr.

$ 57,000 OI

IDM

IDL

Util.

Fact. Ins.

Fact. Depr.

S&A

S&A

S&A

S&A

Direct Labor

$200,000 $200,000

- 0 -

$ 4,000

- 0 -

$724,000

1.

- 0 -

1616

Arc Light & Sound (p. 2)Arc Light & SoundIncome Statement

For the Year Ended March 31

Sales $1,000,000

Less cost of goods sold ($720,000 + $4,000) 724,000

Gross Margin $ 276,000

Less selling and administrative expenses:

Salary expense $90,000

Advertising expense 100,000

Insurance expense 2,000

Depreciation expense 27,000 219,000

Net Operating Income $ 57,000

2.

17

Archer Company

UNITS UNITS UNITS UNITS

FG - Mar FG - April FG - May FG - June

6000

6000

32,000

8,000(20% x 40,000)

Produce30,000

BI 8000Produce 44,000 40,000

EI 12,000(20% x 60,000)

60,000

RM UNITS

RM - April

RM UNITS

RM - May

RM UNITS

FG - June

44,000 x 3

= 132,000

33,000 lbs.(25% x 132,000)

24,000 lbs.Purchase 105,000 lbs.

32,000 x 3= 96,000 lbs,

a.

b.

18

$ 9,000

$40,000

$11,000

$32,300 (85%)

$ 5,700 (15%)

RM

BI

Purch

EI

$ 20,000

32,300

45,000

64,200

$ 21,500

$140,000

BI

EI

WIP

$ 32,000

140,000

$ 42,000

$ 130,000

BI

EI

FG

$ 45,000 $ 45,000

- 0 -

DL

MOH

$ 5,700

19,100

27,000

10,000

2,400

64,200 $ 64,200

- 0 -

IDM

Mfg Utilities

Mfg Depr

IDL

Prepd Insur

COGS

I/S

$ 130,000

9,000

48,000

30,000

600

9500

$ 250,000COGS

Depr. Exp.

Adv. Exp.

Admin. Salaries

Prepaid Ins.

Misc. S&A

Sales

NI BT

$ 130,000

- 0 -

$ 130,000

COGS

Astoria Company

$ 22,900$ 4,580Inc. Tax

NI AT$ 18,320$ 18,320

- 0 -

(to R/E)

COGM

19

Astoria Co. (p. 2)$ 7,000

245,000

$34,820

$ 19,100

48,000

9,500

2,000

41,000

84,000

9,000

4,580

Beg

End

CASH

Assets (aka: “Pete”)

$ 18,000

250,000

$ 23,000

$ 245,000

Beg

End

A/R

$ 290,000

9,000

$ 219,000

Beg

End

Property, Plant & Equip

$ 53,000

36,000

$ 89,000

Beg

End

Accum. Depr.

Cash fromCustomers

((A/R))

Util

Advertsng

Misc S&A

Prepd Ins

A/P

W/P

Purch PPE

Inc Tax

Liabilities & Owners’ Equity (aka: “Re-Pete”)

$ 38,000

40,000

$ 37,000

Beg

End

Accounts Payable

$ - 0 -

45,000

10,000

30,000

$ 1,000

Wages Payable

$ 160,000

$ 160,000

Beg

End

Capital Stock

$ 49,000

18,320

$ 67,320

Beg

End

R/E

$ 84,000

(to Cash)(Sales)

(Depr. Exp.)

(Net Income)

$ 4,000

2,000

$ 3,000

Beg

End

Prepaid Insurance

Beg. (implied)

DL

IDL

Admin Salaries

End

(from Cash)

Purch ofEquip

$ 3,000

$ 41,000 DM Purch(from Cash)OUT

20

Astoria Company (p. 3)Cannon Beach Sand Company

Balance SheetAs of December 31, 2001

Assets CashA/RPrepd InsurPPEAccum DeprRMWIPFG

Total

$ 34,820 23,000 3,000

219,000 (89,000)11,000 21,500 42,000

$265,320

Liabilities& Owners’Equity

A/PW/PC/SR/E

Total

$ 37,000 1,000

160,000 67,320

$265,320

21

Astoria Company (p. 4)Astoria Company

Statement of Cash Flows (Indirect Method)For the Year-Ended December 31, 2001

Net Income

Depr. Exp↑ A/R (use)↓ Prepd Ins (source)↑ DM (use)↑ WIP (use)↑ FG (use)↓ A/P (use)↑ W/P (source)

Net Cash provided byOperating Activities

Purch of Equipment

Net Cash used byInvesting Activities

Net increase in cash

Beg. Cash

End Cash

$ 18,320

+ 36,000 - 5,000 + 1,000 - 2,000 - 1,500 - 10,000 - 1,000 + 1,000

$ 36,820

$ - 9,000

$ (9,000)

$ 27,820

7,000

$ 34,820

Calculation of Free Cash Flows

Cash from OperationsLess: Capital Expenditures (net)

Free Cash Flows

$36,8209,000

$27,820

Operating Activities

Investing Activities

2222

ACTIVITY:“N” Number of production runs : $400,000 / 50 = $8,000 per…“Q” Quality tests performed : $360,000 / 300 = $1,200 per…“S” Shipping orders processed : $120,000 / 150 = $ 800 per…

Audio Basics Corp.

Activity Based Costing

Standard High Grade

“N”“Q”“S”

40 × $8,000 =180 × $1,200 =100 × $ 800 =

$ 320,000$ 216,000$ 80,000

$ 616,000$ 250,000$ 348,000$1,214,000

MOHDMDLTotal MFG

÷ 320,000 units

$3.79375 per unit

“N”“Q”“S”

10 × $8,000 =120 × $1,200 = 50 × $ 800 =

$ 80,000$ 144,000$ 40,000

$ 264,000$ 228,000$ 132,000$ 624,000

MOHDMDLTotal MFG

÷ 100,000 units

$6.24 per unit

a.

b.

Allocated MOHEst. MOH Activity

$880,000$480,000

= $1.833 per DL$

$ 638,000 (= $348,000 × $1.833)$ 250,000$ 348,000$1,214,000

MOHDMDLTotal MFG

÷ 320,000 units

$3.8625 per unit

$ 242,000 (= $132,000 × $1.833)$ 228,000$ 132,000$ 602,000

MOHDMDLTotal MFG

÷ 100,000 units

$6.02 per unit

Standard High Grade

$ 616,000+ 264,000$ 880,000

1.

2.

b.

2323

Axiom Products1. Predetermined

Overhead rate=

Estimated total manufacturing overhead costEstimated total amount of the allocation base

=$170,000

85,000 machine-hours

= $2.00 per machine-hour

2.The amount of overhead cost applied to Work in Process for the year would be:80,000 machine-hours × $2.00 per machine hour = $160,000. This amount is shownin entry (a) below:

Manufacturing Overhead

(Utilities)(Insurance)(Maintenance)(Indirect materials)(Indirect labor)(Depreciation)

Balance

$14,0009,000

33,0007,000

65,00040,000

$ 8,000

$160,000 (a)

Work in Process

(Direct materials)(Direct labor)(Overhead)

$530,00085,000

160,000 (a)

$ 8,000

- 0 -

2424

Axiom Products (p. 2)3. Overhead is underapplied by $8,000 for the year, as shown in the Manufacturing

Overhead account above. The entry to close out his balance to Cost of Goods Sold would be:

Cost of Goods Sold………………………………... Manufacturing Overhead ………………………..

8,000 8,000

4. When overhead is applied using a predetermined rate based on machine-hours, it is assumed thatoverhead cost is proportional to machine-hours. So when the actual level of activity turns out to be80,000 machine-hours, the costing system assumes that the overhead will be80,000 machine-hours × $2.00 per machine hour, or $160,000. This is a drop of $10,000 from theinitial estimated total manufacturing overhead cost of $170,000. However, the actual total manufacturingoverhead did not drop by this much. The actual total manufacturing overhead was $168,000—a drop ofonly $2,000 from the estimate. The manufacturing overhead did not decline by the full $10,000 becauseof the existence of fixed costs and/or because overhead spending was not under control.

2525

The Baize Company

PDOR = Estimated MOH

Estimated Activity=

$403,200

21,000 DLH

=

$19.20 per DLH

Applied MOH = Actual Activity × PDOR 20,000 DLH × $19.20 $384,000

MOH

$378,000

$6,000

$6,000

- 0 -to COGS

Overapplied

=

=1.

2.

3.

$384,000

2626

Bags and More

Unit cost * (1-CMR)

2a.BE (units)

FC + NI

CMU=

$360,000

$24= 15,000 units

BE ($) = $900,000FC + NI

CMR=

$360,000

0.40

$60 * (100% - 40%)

$36

Variable expenses (per unit) =

Variable expenses (per unit) =

$60 - $36 Contribution margin (per unit) =

Contribution margin (per unit) = $24

=

=

Variable expenses (per unit) =1.

2727

Bags and More (p. 2)

2b.BE (units)

FC + NI

CMU= = 18,750 units

BE ($) = $1,125,000

$360,000 + $90,000

$24

2c.BE (units)

FC + NI

CMU

$360,000

$27

= 13,334 units(rounded)

BE ($) $800,000=

FC + NI

CMR

$360,000 + $90,000

0.40=

$360,000

0.45

FC + NI

CMR=

=

=

=

=

=

28

1.

2.

DMPrice Qty

AQ × AC14,000 × $1.80 $25,200

AQ × SC14,000 × $1.75 $24,500

SQ × SC × $1.75

$700 U

AQ × SC13,250 × $1.75 $23,187.50

SQ × SC12,600 × $1.75 $22,050

(6300)(2)

$1137.50 U

DL

AQ × AC4,100 × $9.05 $37,105

AQ × SC4,100 × $9.00 $36,900

SQ × SC(2000)(2) × $9.00 $36,000

$205 U

Rate Efficiency

$900 U

Ballycanally Corp.

29

AQ × AC

27,750 × $1.22 $33,855

AQ × SC

27,750 × $1.20 $33,300

$555 U

Spending Efficiency

$300 F

SQ × SC (Applied)28,000 × $1.20 $33,600

VOH3.

$255 U

4. FOH

Actual

$155,500

Budget

$144,000

$11,500 U

Spending Volume

$6,000 F

$5,500 U

Applied (SQ × SC)60,000 × $2.50

$150,000

Ballycanally Corp. (p. 2)

30

Barbershop Company

Rate

AQ * AP AQ * SP SQ * SP34,500 * ? 34,500 * ? 35,000 * ?

$241,500 $220,800

$3,200 / 500 hours = $6.40

Eff

$3,200 F

? = $6.40

$20,700 u

3131

Barefoot Books

Hardbacks $18.00 $12.00 $ 6.00 7/10 $4.200

Paperbacks $ 3.00 $ 2.40 $ 0.60 2/10 $0.120

Magazines $ 3.20 $ 2.00 $ 1.20 1/10 $0.120

$4.440

SPU VCU CMU Mix

Wtd.Avg.CMU

FC $97,680 22,000 units

CM per unit $4.440

HB PB Mag

70% 20% 10%

15,400 + 4,400 + 2,200 = 22,000

$277,200 + $13,200 + $7,040 = $297,440

HB PB Mag

RentUtilitiesSalariesOverheadAdvertisingProf. ServicesTotal

$19,2007,680

56,00011,500

900 2,400

$97,680

Fixed Costs:

1. & 2. & 3.

===BE (units)

2.

1.

3.

3232

Barefoot Books (p. 2)

NIBT =NIAT

(1- Tax Rate)

4. $26,640

(1- .40)

NIBT $44,400

$97,680 + $44,400

$4.440BE (units) =

FC + NIBT

BE (units) 32,000 units=

CM per unit

HB PB Mag

70% 20% 10%

22,400 + 6,400 + 3,200 = 32,000

$403,200 + $19,200 + $10,240 = $432,640

HB PB Mag

#4

=

=

=

33

Beachside Industries (A)

Spending Efficiency

Actual Cost AQ x SC SQ x SC

$ 21,840 3,780 × $6 $ 22,680

(6,720)(0.5) × $6$ 20,160

$ 840 F $ 2,520 U

VARIABLE OVERHEAD SQ = Standard Allowedfor Actual Output

DLH

$1,680 U

$21,000 ÷ 3,500 DLH

34

Beachside Industries (B)

Actual Budgeted Applied

$ 128,800 $ 126,000 (6,720)(0.5) × $36 $ 120,960

$ 2,800 U $ 5,040 U

FIXED OVERHEAD

Spending Volume

BQ x SC SQ x SC

SQ = Standard Allowedfor Actual Output

$126,000 ÷ 3,500 DLH

$ 7,840 U

35

Price Usage

AQ × AC

25,000 × $2.60

$65,000

AQ × SC

25,000 × $2.50

$62,500

SQ × SC

$2,500 U

1AQ × SC

23,100 × $2.50

$57,750

SQ × SC

23,400 × $2.50

$58,500

(7800 units)(3lbs)

$750 F 2

DM

DL

Rate Efficiency

AQ × AC

40,100 × $7.30

$292,730

AQ × AC

40,100 × $7.50

$300,750

SQ x SC

39,000 × $7.50

$292,500

$8020 F $8250 U

$230 U

3 4

(7800 units)(5 hrs)

Beale Street Blues, Inc.

36

FOH

Spending Volume

Actual

AQ × AC

$170,000

Budgeted

BQ × SC

40,000 × $4.00

$160,000

$10,000 U $4,000 U

Applied

SQ x SC

(7800)(5)

39,000 × $4.00

$156,000

6

VOH

Spending Efficiency

Actual

AQ × AC

$130,000

AQ × SC

40,100 × $3.00

$120,300

$9,700 U $3,300U

5

SQ × SC

(7800)(5)

39,000 × $3.00

$117,000

Beale Street Blues (p.2)

7

37

Bee-Cee’s Guitar (A)

JAN

FEB

MAR

Dec.Jan.

Jan.Feb.

Feb.Mar.

$100,000×20%$ 60,000×80%

$ 60,000×20%$ 80,000×80%

$ 80,000×20%$ 90,000×80%

$20,000 48,000$68,000

$12,000 64,000$76,000

$16,000 72,000$88,000

JAN FEB MAR Total

$232,000

38

Bee-Cee’s Guitar (B)

JAN

FEB

MAR

Dec.Jan.

Jan.Feb.

Feb.Mar.

$70,000×90%$42,000×10%

$42,000×90%$56,000×10%

$56,000×90%$63,000×10%

$63,000 4,200$67,200

$37,800 5,600$43,400

$50,400 6,300$56,700

JAN FEB MAR Total

$167,300

39

Bee-Go Company

FG – Jan. FG – Mar.FG – Feb. FG – Apr.

16,500

15,650

1,650

1,600

16,250

1,850

1,650

16,450

1,600

15,600 18,50016,00016,500

15,65016,45016,250

48,350

Jan.Feb.Mar.

Total

(10%×16,500) (10%×18,500)(10%×16,000)

Units Produced

40

Bee-Kill Chemical (A)

RM – Q1 RM – Q3RM – Q2 RM – Q4

45,000

189,400

50,400

60,000

186,800

46,800

50,400

177,600

60,000

184,000

189,400177,600186,800166,800

720,600

Q1Q2Q3Q4

(30%×168,000) (30%×156,000)(30%×200,000)

RM – Q1 (2007)

46,800

166,800

57,600

168,000 200,000 156,000 192,000

(30%×192,000)

(46,000×4 lbs.) (48,000×4 lbs.)(39,000×4 lbs.)(50,000×4 lbs.)(42,000×4 lbs.)

57,600

× $4

$2,882,400

Total pounds of raw materials purchased

Total cost of raw materials purchased

RM Purchased

Cost per pound of raw material

41

Bee-Kill Chemical (B)

Quarter 1Quarter 2Quarter 3Quarter 4

46,00042,00050,00048,000

Units

115,000105,000125,000 97,500

442,500

DLH

× 2.5 DLH per unit =

DLH worked during 2006

× $20 DL cost per hour

$8,850,000 Cost of DLH worked during 2006

2006

Q1Q2Q3Q4

42

Bee-Kill Chemical (C)

Quarter 1, 2006Quarter 2Quarter 3Quarter 4 Total

46,00042,00050,000

39,000177,000

UnitsUnitsUnitsUnitsUnits

Production Information

Indirect materialIndirect laborUtilities Total

$2.251.501.00

$4.75

Per unitPer unitPer unitPer unit

Variable Costs

Supervisor salariesFactory depreciationOther Total

$80,00030,000

4,100$114,100

Fixed Costs per Quarter

1.

2.

$218,500199,500237,500

185,250

$840,750

Variable costsFixed costs

Total mfg. overhead

$ 840,750 456,400

$1,297,150

( = $114,100 × 4 Qtrs.)

Quarter 1, 2006Quarter 2Quarter 3Quarter 4

Total

Variable MOH by Qtr.

Total MOH for 2006

( = 46,000 units × $4.75)( = 42,000 units × $4.75)( = 50,000 units × $4.75)( = 39,000 units × $4.75)

43

Bee-Safe Company

First quarterSecond quarterThird quarterFourth quarter

21,00026,00025,00030,000

2004

27,30033,80032,500

39,000

132,600

2005

× 130% =

Unit sales during 2005

× $40 Selling price per unit

$5,304,000 Sales revenue during 2005

44

BELLY RUB PRODUCTIONSUnit Product Cost Data

Years 2001 through 2004 Year2001 2002 2003 2004

Variable manufacturing costs:

Direct materials………………………….. $ 6 $ 6 $ 7 $ 8

Direct labor……………………………… 3 4 4 5

Variable MOH…………………………… 2 2 3 4

Product cost using variable costing………… $11 $12 $14 $17

Add prorated fixed MOH cost……………… 5 6 7 8

Product cost using absorption costing……… $16 $18 $21 $25

BELLY RUB MANUFACTURINGAbsorption Costing Income Statement

For Years 2001 through 2004

Sales………………………………… $200,000 $243,000 $390,000 $350,000

Cost of goods sold………………….. 128,000 158,000 258,000 242,000

Underapplied (overapplied) overhead 0 (12,000) 0 16,000

Gross margin………………………. 72,000 97,000 132,000 92,000

Variable selling and administrative... 24,000 27,000 52,000 50,000

Fixed selling and administrative…… 30,000 35,000 40,000 50,000

Total operating expenses…………… 54,000 62,000 92,000 100,000

Net income………………………… $18,000 $35,000 $40,000 $ (8,000)

Year2001 2002 2003 2004

Belly Rub Productions

45

Belly Rub (p. 2)BELLY RUB MANUFACTURINGVariable Costing Income Statement

For Years 2001 through 2004

Sales ……………………………………….. $200,000 $243,000 $390,000 $350,000

Variable product cost ……………………. 88,000 106,000 172,000 164,000

Manufacturing contribution margin ……….. 112,000 137,000 218,000 186,000

Variable selling and administrative ……….. 24,000 27,000 52,000 50,000

Contribution margin ……………….………. 88,000 110,000 166,000 136,000

Fixed manufacturing overhead ……………. 50,000 60,000 70,000 80,000

Fixed selling and administrative…………… 30,000 35,000 40,000 50,000

Total fixed cost …………………………… 80,000 95,000 110,000 130,000

Net income ……………………………….. $ 8,000 $ 15,000 $ 56,000 $ 6,000

Year2001 2002 2003 2004

Belly Rub ProductionsSchedule of Product Costs with Absorption CostingYears 2001 through 2004

Year2001200220032004

Beginning Inventory - 0 -2,000 units @ $165,000 units @ $182,000 units @ $21

++++

Current Year Production8,000 units @ $167,000 units @ $188,000 units @ $218,000 units @ $25

Total Product Cost$128,000$158,000$258,000$242,000

Belly Rub ProductionsSchedule of Product Costs using Variable CostingYears 2001 through 2004

Year2001200220032004

Beginning Inventory - 0 -2,000 units @ $115,000 units @ $122,000 units @ $14

++++

Current Year Production8,000 units @ $117,000 units @ $128,000 units @ $148,000 units @ $17

Total Product Cost$ 88,000$106,000$172,000$164,000

46

Belly Rub (p. 3)

BELLY RUB PRODUCTIONSSchedule of Fixed Overhead Costs Included

In Beginning and Ending Inventory Under Absorption Costing

Year

2001 2002 2003 2004

Units in beginning inventory …Applied fixed MOH per unit … Equals ……………………….

Units in ending inventory ……Fixed MOH per unit …………. Equals ……………………….

Causes absorption costing NI to be …………………………

- 0 -

2,000$ 5$10,000

$10,000Higher

2,000$ 5$10,000

5,000$ 6$30,000

$20,000Higher

5,000$ 6$30,000

2,000$ 7$14,000

$16,000Lower

2,000$ 7$14,000

- 0 -

$14,000Lower

47

AQ × AC

$25,150

AQ × SC3,010 × $8 $24,080

$1,070 U

Spend Eff.

$1,760 U

N/A

N/A

SQ × SC(310) (9) × $8 $22,320

SQ × SCVOH

Actual

$23,800

Budget

$24,300

$500 F

Spend N/A

N/A

Vol.

$810 F

Budget BQ × SC2,700 × $9 $24,300

Applied SQ × SC(310) (9) × $9.00 $25,110

FOH

$48,950

$570 U

Spend Eff.

$1760 U

Vol.

$810 F

$1520 U

$20,769 / $6.90 = 3010 DLH

310 units actual x 9 hrs. = 2790 hrs.

$63 / 9 hrs. = $7 / hr. = DL cost per hr.

$45,900

$8 + $9= 2,700 budgeted DL hrs.

TOTAL

Benton Company

$47,430

4848

B.G. Wip CompanyStep 1

DM CC

100% 60% BI

100% 33% EI

WIP

2,000

9,000

3,300

7,700

Step 2Wtd. Avg. Equivalent Units

OUT

EI 3300 × 100%

3300 × 33%

E.U.

DM CC

7,700 7,700

3,300

1,100

11,000 8,800

Weighted Average MethodStep 2

BI 2,000 × 0%

2,000 × 40%

S&F

EI 3,300 × 100%

3,300 × 33%

E.U.

DM CC

- 0 -

800

5,700 5,700

3,300

1,100

9,000 7,600

FIFO Method

FIFO Equivalent Units

49

Big Dog FoodsStandard Allowedfor Actual Output

Price Quantity / Usage

AQ × AC AQ × SC SQ × SC

pounds

24,500 × $0.19$4,655

(30)(800) × $0.2024,000 × $0.20

$4,80024,500 × $0.20

$4,900

$245 F $100 U

$145 F

DIRECT MATERIALS – Ground Brown Rice

50

Big Dog Foods (p. 2)Standard Allowedfor Actual Output



pounds

5,900 × $0.41$2,419

(30)(200) × $0.406,000 × $0.40

$2,4005,900 × $0.40

$2,360

$59 U $40 F

$19 U

DIRECT MATERIALS – Chicken Meal

51

Big Dog Foods (p. 3)Standard Allowedfor Actual Output

Rate Efficiency


DLH

300 × $16.00$4,800

(30)(8) × $15.00240 × $15.00

$3,600300 × $15.00

$4,500

$300 U $900 U

$1,200 U

DIRECT LABOR

52

Big League Inc.

DIRECT LABOR

Price Usage


DLH

3,050 × $2.00 = $6,100.009,100 × $1.10 = 10,010.001,650 × $1.95 = 3,217.50

$19,327.50

3,050 × $2.00 = $6,1009,100 × $1.00 = 9,1001,650 × $2.00 = 3,300

$18,500

2,800 × $6.00 =$16,800 400 × $6.25 = 2,500

$19,300

3,200 × $6.00$19,200

(1,500)(2) × $6 $18,000

Standard Allowedfor Actual Output

$1,100 U $400 U

$1,500 U

DIRECT MATERIALS

Rate Efficiency


4,000 × $2.00 = $8,00012,000 × $1.00 = 12,000 2,000 × $2.00 = 4,000

$24,000

$1,200 U$100 U

$1,300 U

1 At the time of purchase.

2 3

4 5

53

Big League Inc. (p.2)VARIABLE OVERHEAD

Spending Efficiency


$6,500


$400 U $600 U

$1,000 U

FIXED OVERHEAD

Price Usage

Actual Budgeted Applied

$0$500 U

$500 U

$10,000 3,200 × $3$9,600

(1,500)(2) × $3$9,000

(1,500)(2) × $2$6,000

3,000 × $2$6,000

BQ × SC SQ × SC

2,800 + 400 DLH

6 7

8 9

54

Bob’s Beef Boy

- 0 -

$54,000

$6,750

$7,500

$9,250

$77,500

DM

$66,400 $66,400

DL

$2,650

$2,400

$22,500

$7,000

$25,000

$6,800

$66,350$66,350

MOH

- 0 -

$77,500

66,400

66,350

- 0 -

$210,250

WIP

- 0 -

$210,250

- 0 -

$210,250

FG

$210,250 $210,250

COGS

COGM

$210,250

$53,000

$41,000

$3,250

$3,500

$478,800

$167,800

I/S

- 0 -

- 0 -

- 0 -

Purch

- 0 -

COGS

ACOGS

PeriodCosts

Inventory Accounts

Product Costs

(BI + In = EI + Out)

55

Billy’s Boat BonanzaDirectLabor

DirectMaterials

ManufacturingOverhead

Marketing& Selling

Admin.Cost

1. The wages of employees who build the sailboats.

X

2. The cost of advertising in the local newspapers.

X

3. The cost of an aluminum mast installed in a sailboat.

X

4. The wages of the assembly shop’s supervisor.

X

5. Rent on the boathouse. (Prorated on the basis of space occupied.)

X X X

6. The wages of the company’s bookkeeper.

X

7. Sales commissions paid to the company’s salespeople.

X

8. Depreciation on power tools.X

5656

Bohr, Inc.

Relevant costs to producing:

Direct materialsDirect laborVariable overheadTotal per unitQuantityTotal

$ 2818

6$ 52x 2,000

$112,000

Total Cost

Since the purchase price is greater than the production price by $12,000 ($124,000 - $112,000),Bohr Inc. should make the units. Since there is some urgency to the order Mr. Bohr may opt forthe alternative which will allow him to deliver the product as quickly as possible. Quality,reliability, and capacity utilization are other considerations.

Relevant costs to buying:

Selling price

Total

$124,000

$124,000

Total Cost

57

Absorption Costing

Income Statement

For the Year Ended Dec. 31, 2002

Rev. $630,000

COGS: Prime (252,000)

VOH (84,000)

FOH (100,000)

GM $194,000

S&A: VSE (54,000)

FSE (45,000)

FAE (90,000)

OI $5,000

Variable Costing

Income Statement


Rev. $630,000

VC: Prime (252,000)

VOH (84,000)

VSE (54,000)

CM $240,000

FC: FOH (100,000)

FSE (45,000)

FAE (90,000)

OI $5,000

Bojangle Dance Shoes

58

Bosna Corporation

Spend N/A

AQ * AP AQ * SP SQ * SP SQ * SP$2,450,000 * .5% $2,000,000 * .5%

$12,500 $12,250 $10,000

$2,250 u

$2,500 u

If you are asked for a "variance" this is it

Eff

$250 u

59

Bowling Company

Bowly Company Absorption Costing I/SFor the Y/E Dec. 31, 2005

Rev

- CoGS

GM

- S&A

NI

$100,000

(60,000)

$ 40,000

(15,000) (10,000)

$ 15,000

= 5,000 × $20

= 5,000 × $12

= 5,000 × $3

Bowly Company Variable Costing I/SFor the Y/E Dec. 31, 2005

Rev

- VC

CM

- FC

NI

$100,000

(50,000)

$ 50,000

(30,000) (10,000)

$ 10,000

= 5,000 × $20

= 5,000 × $10

MOHS&A

The difference in NI equals the change in FG Inventorytimes the fixed MOH per unit (1,000 × $5 = $5,000)

60

Brötchen Bakery Standard Allowedfor Actual Output

Price Usage


Pounds

30,000 × $2.20$66,000

(1,450)(20) × $2.00$58,000

30,000 × $2.00$60,000

$6,000 U $2,000 U

$8,000 U

DIRECT MATERIALS

Rate Efficiency


DLH

8,000 × $18.90$151,200

(1,450)(5) × $18.00$130,500

8,000 × $18.00$144,000

$7,200 U $13,500 U

$20,700 U

DIRECT LABOR

Qty purch=

Qty used

61

Brötchen Bakery (p. 2)Spending Efficiency


DLH

8,000 × $1.375$11,000

(1,450)(5) × $1.50$10,875

8,000 × $1.50$12,000

$1,000 F $1,125 U

$125 U

VARIABLE OVERHEAD

Spending Volume

Actual BudgetedBQ × SC

AppliedSQ × SC

DLH

8,000 × $3.25$26,000

(1,450)(5) × $3.00$21,750

8,333.33 × $3.00$25,000

$1,000 U $3,250 U

$4,250 U

FIXED OVERHEAD

$150,000 ÷ 100,000 DLH

$300,000 ÷ 100,000 DLH


SQ =

100,000 DLH ÷ 12 months

62

Brother’s Bakeries (A)

WIP Units

30,000

480,000

20,000

490,000 Out

BI

IN

EI

DM

100%

100%

CC

55%

90%

E.U.

DM CC

490,000

20,000

510,000

490,000

18,000

508,000

OUT

EI: (DM) 20,000 * 100%

EI: (CC) 20,000 * 90%

E.U.


63

Brother’s Bakeries (B)

E.U.

DM CC

0

460,000

20,000

480,000

13,500

460,000

18,000

491,500

BI: (DM) 30,000 × 0%

BI: (CC) 30,000 × 45%

Start & Finish*

EI: (DM) 20,000 × 100%

EI: (CC) 20,000 × 90%

E.U.

FIFO METHOD

WIP Units

30,000

480,000

20,000

490,000 Out

BI

IN

EI

DM

100%

100%

CC

55%

90%

* 480,000 loaves started – 20,000 loaves in ending WIP = 460,000 loaves started and completed this month

6464

Buffalo Broilers


Estimated Activity=

$500,000

100,000 DLH$5.00 per DLH=1.


Estimated Activity=

$500,000

$800,000 of DL$0.625 per DL$=


Estimated Activity=

$500,000

80,000 MH$6.25 per MH=

6565

Buffalo Broilers (p. 2)

Actual Applied

$5.00 * 120,000

$576,000 = $600,000

$24,000 overapplied

Actual Applied

.625 * $930,000

$576,000 = $581,250

$5,250 overapplied

Actual Applied

$6.25 * 90,000

$576,000 = $562,500

$13,500

2.

3.

MOH (MH)

MOH (DLH) MOH (DL$)

underapplied

Actual OHper DL

Actual MOH

Actual Activity=

$576,000

120,000 DLH= $4.80 per DLH=

6666

California Textbooks (A)Relevant costs to make

$ 1842

$15


Selling price $16

Total relevant cots $16

Direct materialDirect laborVariable OHAvoidable FOHTotal relevant costs

It is $10,000 cheaper to make the covers.Therefore, California should make the covers.


$ 10,00080,00040,00020,000

$150,000


Selling price $160,000

Total relevant cots $160,000

Direct materialDirect laborVariable OHAvoidable FOHTotal relevant costs

- OR -

It is $1 per unit cheaper to make the covers.Therefore, California should make the covers.

6767

California Textbooks (B)Relevant costs to buy and usefacilities for other products

$ 19,000 (160,000)

($141,000)

CM (other products)Selling price

Net relevant costs

California should buy the covers and use the facilities for otherproducts since the net relevant costs is the lowest for that option.


($ 10,000) (80,000) (40,000) (20,000)($150,000)

Relevant costs to buyand leave facilities idle

Selling price ($160,000)

Net relevant cots ($160,000)

Direct materialDirect laborVariable OHAvoidable FOHNet relevant costs

Relevant costs to buy and rentthe facilities

$ 5,000 (160,000)

($155,000)

Rent RevenueSelling price

Net relevant costs

68

Candlelight Candles

I have chosen to round to

2 decimal places

WIP Units

25,000

510,000

12,000

523,000Out

BI

IN

EI

DM

100%

100%

CC

40%

80%

WIP - $ (Wtd. Avg.)

DM $42,650

CC $17,152

DM $433,500

CC $339,690

DM $10,680

CC $ 6,432

$17,112

523,000 * $1.56

= $815,880

= 12000 * 100% * $0.89

= 12000 * 80% * $0.67

OutBI

IN

EI

E.U.

DM CC

523,000

12,000

535,000

523,000

9,600

532,600

OUT

EI: (DM) 12000 * 100%

EI: (CC) 12000 * 80%

E.U.


DM CC

$42,650

$433,500

$476,150

$17,152

$339,690

$356,842

BI

IN

Total

$/EU

DMCC

$476,150 / 535,000 = $0.89

$356,842 / 532,600 = $0.67

$1.56


69

Candlelight (p. 2)

WIP - $ (FIFO)

DM $ 42,650

CC $ 17,152

DM $433,500

CC $339,690

DM $10,200

CC $ 6,240

$16,440

$ 59,802 from BI

9,750 Finished CC 25,000×60%×$0.65

747,000 S&F 498,000 × $1.50

$816,552

= 12,000 × 100% × $0.85

= 10,000 × 80% × $0.65

OutBI

IN

EI

E.U.

DM CC

- 0 -

498,000

12,000

510,000

15,000

498,000

9,600

522,600


DM CC

$1.706

$1.715

$ per EU

BI: (DM) 25,000× 0%

BI: (CC) 25,000×60%

Start & Finish

EI: (DM) 10,000×100%

EI: (CC) 10,000× 40%

E.U.

FIFO METHOD

BI

$42,650 DM ÷ (25,000×100%)

$17,150 CC ÷ (25,000× 40%)

Total

$3.421

$0.85

$0.65

$ per EUIN

$433,500 DM ÷ 510,000 E.U.

$339,690 CC ÷ 522,600 E.U. $1.50

(Info we need to do problem)


WIP Units

25,000

510,000

12,000

523,000Out

BI

IN

EI

DM

100%

100%

CC

40%

80%

70

$ 30,000

$205,000

$20,000

$215,000

DM

BI

Purch

EI

$ 80,000

215,000

350,000

289,000

$ 50,000

$884,000

BI

EI

WIP

$ 110,000

884,000

$ 120,000

$ 874,000

BI

EI

FG

$ 350,000 $ 350,000

- 0 -

DL

MOH

$ 15,000

35,000

14,000

6,000

90,000

40,000

65,000

24,000

$ 289,000

$ 289,000

- 0 -

IDM

Fact Mgr Sal

Fact Ins

Ptty Tax

IDL

Mach Rent

Fact Util

Fact Bldg Depr

COGS

I/S

$ 874,000

150,000

300,000

100,000

17,500

3,000

$ 1,700,000COGS

Sales Comm

Admin Exp

Delivery Exp

Interest Exp

Loss on Sale of Equip

Sales

NI BT

$ 874,000

- 0 -

$ 874,000

COGS

Cannon Beach Co.

$ 255,500$ 34,100Inc. Tax

NI AT$ 221,400$ 221,400

- 0 -

(to R/E)

71

Cannon Beach (p. 2)$ 37,000

1,707,220

40,000

$245,020

$ 350,000

35,000

90,000

150,000

17,500

34,100

743,400

119,200

Beg

End

CASH


$ 127,220

1,700,000

$ 120,000

$1,707,220

Beg

End

A/R

$720,000

119,200

$790,200

Beg

End

Factory Assets

$ 264,000

24,000

$ 282,000

Beg

End

Accum. Depr.

Cash fromCustomers

((A/R))

DL

Fact Mgr

IDL

Sales Comm

Int Exp

Tax Exp

A/P

Purch of Equip


$ 350,000

$ 350,000

Beg

End

Notes Payable

$ 38,500

205,000

15,000

14,000

6,000

40,000

65,000

300,000

100,000

$ 40,100

A/P

$ 250,000

$ 250,000

Beg

End

Common Stock

$ 240,720

221,400

$ 462,120

Beg

End

R/E

$ 743,400

(to Cash)(Sales on Acct.)(Depr.Exp.)

(Net Income)

$ 39,000

$ 39,000

Beg

End

Short Term Investments

Beg.

DM

IDM

Fact Ins

Ppty Taxes

Mach Rent

Fact Util

Admin Exp

Delivery Exp

End

(to Cash)

$ 6,000Sale of EquipPurch of

Equip$49,000

Sale of Equip

72

Cannon Beach (p. 3)Cannon Beach Sand Company


Assets CashA/RS/T InvestmtsPlant AssetsAccum DeprDMWIPFG

Total

$ 245,020 120,000 39,000

790,200 (282,000)

20,000 50,000

120,000

$1,102,220


N/PA/PC/SR/E

Total

$ 350,000 40,100

250,000 462,120

$1,102,220

73

Cannon Beach (p. 4)Cannon Beach Sand Company

Statement of Cash Flows (Indirect Method)For the Year-Ended December 31, 2005

Net Income

Depr. Exp↓ A/R (source)↑ A/P (source)↓ DM (source)↓ WIP (source)↑ FG (use)Loss on Equip Sale

Net Cash provided byOperating Activities

Sale of EquipmentPurch of Equipment

Net Cash used byInvesting Activities

Net increase in cash

Beg. Cash

End Cash

$ 221,400

+ 24,000 + 7,220 + 1,600 + 10,000 + 30,000 - 10,000 + 3,000

$ 287,220

$ 40,000 - 119,200

$ (79,200)

$ 208,020

37,000

$ 245,020

Not specifically requested by problem;already calculated CF using Direct Method.

Calculation of Free Cash Flows

Cash from OperationsLess: Capital Expenditures (net)

Free Cash Flows

$287,220 (79,200)

$208,020

Operating Activities

Investing Activities

74

Cardinal ManufacturingIf Jocketty Division sells all components on the outside market, Cardinal Manufacturing’s contribution

margin per unit will be the same as Jocketty’s, which follows:

Sales revenues $80Variable costs 50Contribution margin per unit $30

If Jocketty Division sells to the LaRussa Division, Cardinal Manufacturing’s contribution margin per unit will be as follows:

Estimated revenue from special orderVariable costs Manufacturing, LaRussa Division Shipping, LaRussa Division Component, Jocketty DivisionContribution margin per unit

Cardinal Manufacturing’s overall contribution margin per unit will be $10 greater if Jocketty sells to LaRussa. Notice that fixed costs were excluded from the calculation, as they will not change with the special order and are therefore irrelevant to the decision.

No, management should not force the transfer price down to $60 per unit. It should follow the present transfer price policy and transfer at market price. Corporate management should also ensure that LaRussa Division does not refuse the special order. Even at a transfer price of $80, the order will generate a contribution margin of $10 per unit of LaRussa. Although the LaRussa Division would prefer a higher contribution margin, its managers should realize that a $10 contribution margin per unit is better than a zero contribution margin. And that is the amount that would be generated by the idle facilities.

$130

3010

50$40

2.

1.

75

Carolina Corp.

$3.75 per gallon x 1,500 gallons = $5,625

% Applied to

Total Joint Cost

Sales Value at % of Allocated AdditionalTotal

Product Split-Off Total NPV Joint Cost Costs Costs

Coal Tar $11,250 0.3488 $2,386 $ -0- $2,386

Petroleum Tar 21,000 0.6512 4,454 5,625 10,079

$32,250 1.0000 $6,840 $5,625 $12,465

76

Carwash Company (A)

Present0

Year1

Year2

Year3

Investment

Savings

Total

PV Factor

NPV Calc.

$(100,000)$ 40,000

$(60,000)

× 1.0000

$(60,000)

$15,000

$15,000

× 3.7908

$56,862

Year4

Year5

= $(3,138) < $0 +

From PV of Annuity Table

77

Carwash Company (B)The higher the interest rate, the lower the Present Value

Correct Answer: 12% YES, the investment should be made.

Present0

Year1

Year2

Year3

Investment

Savings

Total

PV Factor

NPV Calc.

$(15,403)

$(15,403)

× 1.0000

$(15,403)

$4,000

$4,000

× 0.8929

$3,571.60

Year4

$4,000

$4,000

× 0.7972

$3,188.80

$5,000

$5,000

× 0.7118

$3,559.00

$8,000

$8,000

× 0.6355

$5084.00 ≈ $0 difference

$15,403.40

78

DM $210,000

DL 140,000

VOH 30,000

$380,000

Cass Company

Absorption Costing

Income Statement


Rev. $500,000

COGS: Direct materials (210,000)

Direct labor (140,000)

Variable overhead (30,000)

Fixed overhead (50,000) (430,000)

GM $70,000

S&A: Variable S&A (20,000)

Fixed S&A (60,000)

OI ($10,000)

Variable Costing

Income Statement


Rev. $500,000

VC: Direct materials (210,000)


Variable overhead (30,000)

Variable S&A (20,000)

CM $100,000

FC: Fixed overhead (50,000)

Fixed S&A (60,000)

OI ($10,000)

78

1.

2. & 3. & 4.

2. 3.4.

79

Cass Company (p. 2)

Operating Leverage 10

79

BE($) FC

CM Ratio

$110,000

$100,000$500,000

$550,000

CM

NI

$100,000

$ 10,000

=

=

=

= =

=5.

6.

80

Cattle Company (1997)

$ 96,000

202,000 $190,000

$108,000

DL

$130,000 $130,000

MOH

$ 15,000

104,000

$119,000

$119,000

- 0 -

Purch.

Inventory AccountsProduct

Costs

$ 71,000 190,000 130,000 $445,000 119,000

$65,000

$45,000

445,000 $408,000

$82,000

$408,000 $408,000

- 0 -

I/S

$408,000 $566,000

135,000

$23,000

COGS

ACOGS

COGM

NI

Rev.

Admin.


PeriodCosts

- 0 -

FG

COGS

WIPDM

81

Cattle Company (1998)

$ 65,000

235,000

170,000 $562,000

176,000

$84,000

$ 82,000

562,000 $575,000

$69,000

$575,000 $575,000

- 0 -

$575,000 $812,000

161,000

$76,000 NI

Rev.

ACOGS

COGSCOGM

DM

$108,000

229,000 $235,000

$102,000

DL

$170,000 $170,000

- 0 -

MOH

$18,000

158,000

$176,000

$176,000

- 0 -

Purch.

Admin.PeriodCosts

FG

COGS

I/S

WIP


Costs


82

1. Y= a + bx b = hi-low $

hi-low Activity

b = $80,630 - $45,380

986 – 486

b = $70.50 per testing hour

$80,630 = a + $70.50 (986)

$80,630 = a + $69,513

a = $11,117

Cost Formula

y = $11,170 + $70.50x

2.y = $11.17 + $70.50 (800)

y= $11.17 + $56,400

y= $67,517

Chain Saw Company

83

Chain Saw Co. (cont.)CHAIN SAW COMPANYRegression Analysis

SUMMARY OUTPUTY = Costs X = Hours

J $54,235 640 Regression StatisticsF $59,520 722 Multiple R 0.915652697M $45,380 486 R Square 0.838419862A $64,000 886 Adjusted R Square 0.822261848M $59,235 634 Standard Error 4677.027055J $73,060 812 Observations 12J $81,625 927A $80,630 986 ANOVAS $75,105 958 df SS MS F Significance FO $63,970 819 Regression 1 1135045702 1135045702 51.88879487 2.91444E-05N $67,350 856 Residual 10 218745820.7 21874582.07D $55,285 546 Total 11 1353791523

Coefficients Standard Error t Stat P-value Lower 95% Upper 95%Intercept 17431.74361 6733.347046 2.588867542 0.027002373 2428.90886 32434.57837X = Hours 61.49849834 8.537441076 7.203387736 2.91444E-05 42.47589089 80.52110579

y = $61.50 x + $17,431.74

when x = 800 y = $66,631.74

Cost Function:

8484

Cheetah Company

Cost Pools Activity Costs Cost Drivers Overhead Rate

Machine setup $360,000 3,000 setup hours $120Materials handling $100,000 25,000 pounds $ 4Electric power $ 40,000 40,000 kilowatt hours $ 1

Direct materialsDirect laborFactory overhead: Machine setup Materials handling Electric powerTotal product costsProduction unitsCost per Unit

The Quick$40,000

24,000

24,000 4,000

2,000$94,000 4,000$ 23.50

$120 × 200 =$ 4 × 1,000 =$ 1 × 2,000 =

÷

The Dead$50,000

40,000

28,800 12,000

4,000$134,800 20,000

$ 6.74

$120 × 240 =$ 4 × 3,000 =$ 1 × 4,000 =

÷

÷÷÷

===

8585

$12,000 * .60

Sales $9,000

x .60

CM $5,400

FC (6,000)

OI ($600)

Rev. $120,000 (12,000 x $10)

x .60 (VCU = $4)

CM $72,000

FC (18,000)

OI $54,000

Rev. $144,000 (18,000 X $8)

72,000 (18,000 x $4 from “Before”)

CM $72,000

FC (20,000)

OI $52,000

Clear ToysOI Increase = Sales Increase * CM Ratio = $7,200=

The additional advertising should not be purchasedbecause it will decrease operating revenue.

BE($)FC

CM Ratio

$3,000

.60$5,000= = =

Before After

The selling price should not be reducedbecause it will decrease operating revenue.

1.

2.

3.

4.

86

CMSU Who

Month ofSale

TotalCredit Sale

Percentage to beCollected in October

Budgeted CashCollected in October

October

September

August

July

$90,000

$80,000

$70,000

$60,000

70%

15%

10%

4%

$63,000

$12,000

$ 7,000

$ 2,400

$84,400Estimated Total Cash Collection in October

1.

87

CMSU Who (p. 2)

Month ofSale

Amount of Sale

% Collected inOct. Nov. Dec.

Budgeted collection in the 4th quarter fromsales in the 4th quarter

October

November

December

$ 90,000

100,000

85,000

70%15%

70%

10%

15%

70%

$ 63,00013,500

9,000

70,00015,000

59,500

Total budgeted collection in the fourth quarter $230,000

2.

88

The Costume Company

$800,000 ÷ $8.00 = 100,000 expected (budgeted) DLH… 4 DLH per unit

FIXED OVERHEAD Spending Volume Actual FOH Budgeted FOH Applied FOH BQ × SP SQ × SP $802,000 $800,000 (25,250)(4) × $8

$808,000

$2,000 U $8,000 F

$6,000 F

Flexible Budget Variance = $2,000 U

WHERE: BQ = Budgeted Qty. × Std. Allowed

89

Cowboy Boots Co.Standard Allowedfor Actual Output



yards

10,000 × $8.00

$80,000

(7,000)(1.5) × $9.0010,500 × $9.00

$94,500

10,000 × $9.00

$90,000

$10,000 F

$4,500 U

CAN’T!

DIRECT MATERIALS

11,000 × $9.00

$99,000

DM Purchased ≠ DM Used

90

Cowboy Boots Co. (p.2)Standard Allowedfor Actual Output

Rate Efficiency


DLH

3,800 × $15.50

$58,900

(7,000)(0.5) × $15.003,500 × $15.00

$52,500

3,800 × $15.00

$57,000

$1,900 U $4,500 U

$6,400 U

DIRECT LABOR

91

Coxwain Company

Price

AQ * AP AQ * SP SQ * SP18,000 * $3.60 SP = $3.40

18,000 * SP$64,800 $61,200

AQ * SP SQ * SP15,000 * $3.40 16,000 * $3.40

$51,000 $54,400

$3,600 u

Quantity/ Usage

$3,400 F

92

Creamed Cornhusker

Rate Efficiency

AQ × AC AQ × SC SQ × SC11,000 × $30.00 11,000 × $33.00 12,000 × $33.00 $330,000 $363,000 $396,000

$33,000 F $33,000 F

$66,000 F

Std. Allowed forActual Output(in units)

1.

2.

9393

The Cutters (A)

PDOR =Est. MOH

Est. Activity=

780,000,000

10,000 DLH= 78,000 per DLH

78,000 per DLH × 80 DLH = 6,240,000 pesos applied to The Hunter

78,000 per DLH × 400 DLH = 31,200,000 pesos applied to The Carver

SalesCost: Direct materials Direct labor Mfg. overheadGross profit

53,000,000

(10,000,000) ( 6,000,000) (31,200,000)

5,800,000

The Carver(pesos)


19,500,000

(4,500,000) (1,200,000) (6,240,000)

7,560,000

The Hunter(pesos)

9494

The Cutters (B)

Manufacturing Overhead Pool

Cost Driver

Allocation Base Application Rate

Pool 1: 75,000,000 pesos 750,000

Number of parts

75,000,000 ÷ 750,000 =

100 pesos per part

Pool 2: 100,000,000 pesos 25

Number of production runs

100,000,000 ÷ 25 =

4,000,000 pesos per production run

Pool 3: 350,000,000 pesos 2,000

Number of machine hours

350,000,000 ÷ 2,000 =

175,000 pesos per machine hour

Pool 4: 100,000,000 pesos 25,000

Number of components tested

100,000,000 ÷ 25,000 =

4,000 pesos per component tested

Pool 5: 155,000,000 pesos 10,000

Number of direct labor hours

155,000,000 ÷ 10,000 =

15,500 pesos per direct labor hour

Use these rates to assign overhead to The Hunter and to The Carver

9595

Allocation Rate

Pool 1: 100 pesos per part

Pool 2: 4,000,000 pesos per production run

Pool 3: 175,000 pesos per machine hour

Pool 4: 4,000 pesos per component tested

Pool 5: 15,500 pesos per direct labor hour

Activity

15,000 units × 3 parts per unit

1production run

16machine hours

1,000components tested

80direct labor hours

Cost (pesos)

4,500,000

4,000,000

2,800,000

4,000,000

1,240,000

16,540,000

÷ 15,000

1,203

Total mfg. overhead for 15,000 Hunters

Number of Hunters

Manufacturing overhead per cutter

Allocation Rate

Pool 1: 100 pesos per part

Pool 2: 4,000,000 pesos per production run

Pool 3: 175,000 pesos per machine hour

Pool 4: 4,000 pesos per component tested

Pool 5: 15,500 pesos per direct labor hour

Activity

100,000 units × 1 part per unit

1production run

48machine hours

100components tested

400direct labor hours

Cost (pesos)

10,000,000

4,000,000

8,400,000

400,000

6,200,000

29,000,000

÷ 100,000

290

Total mfg. overhead for 100,000 Carvers

Number of Carvers

Manufacturing overhead per cutter

THE HUNTER THE CARVER

The Cutters (B) (p. 2)

(Rounded)

9696

The Cutters (B) (p. 3)

PROFIT PER ACTIVITY-BASED COSTINGThe Cutters (B)

PROFIT PER JOB-ORDER COSTING The Cutters (A)


53,000,000

(10,000,000) ( 6,000,000) (29,000,000)

8,000,000

The Carver(pesos)


19,500,000

( 4,500,000) ( 1,200,000) (16,540,000)

( 2,740,000)

The Hunter(pesos)


53,000,000

(10,000,000) ( 6,000,000) (31,200,000)

5,800,000

The Carver(pesos)


19,500,000

(4,500,000) (1,200,000) (6,240,000)

7,560,000

The Hunter(pesos)

97

Cutting Edge Skis

Shaping and Milling Dept.

November 1997

(Round to 3 decimal places)

WIP Units

200

5000

400

4800Out

BI

IN

EI

DM

50%

40%

CC

30%

25%

WIP - $ (Wtd. Avg.)

DM $3000

CC $1,000

DM $74,000

CC 70,000

DM $2,483.84

CC $1,449.00

$3,932.84

4800 * 30.014

= $144,067.20

= 400 * 40% * $15.524

= 400 * 25% * $14.490

OutBI

IN

EI

E.U.

DM CC

4800

160

4960

4800

100

4900


DM CC

$3,000

$74,000

$77,000

$1,000

$70,000

$71,000

BI

IN

Total

$/EU

DMCC

$77,000 / 4960 = $15.524

$71,000 / 4900 = $14.490

$30.014

OUT

EI: (DM) 400 * 40%

EI: (CC) 400 * 25%

E.U.


98

Cutting Edge Skis (p. 2)

WIP - $ (FIFO)

DM $3,000

CC $1,000

DM $74,000

CC $70,000

DM $2,436.16

CC $1,446.30

$3,882.46

$ 4,000.00 from BI

1,522.60 Finished DM 200×50%×$15.226

2,024.82 Finished CC 200×70%×$14.463

136,569.40 S&F 4,600 × $29.689

$144,116.82

= 400 × 40% × $15.226

= 400 × 25% × $14.463

OutBI

IN

EI

E.U.

DM CC

100

4,600

160

4,860

140

4,600

100

4,840


DM CC

$30

$16.667

$ per EU

BI: (DM) 200 × 50%

BI: (CC) 200 × 70%

Start & Finish

EI: (DM) 400 × 40%

EI: (CC) 400 × 25%

E.U.

FIFO METHOD

BI

$3,000 DM ÷ (200×50%)

$1,000 CC ÷ (200×30%)

Total

$46.667

$15.226

$14.463

$ per EUIN

$74,000 DM ÷ 4,860 E.U.

$70,000 CC ÷ 4,840 E.U. $29.689



WIP Units

200

5000

400

4800Out

BI

IN

EI

DM

50%

40%

CC

30%

25%

99

Cyclone Company

FG – 2nd Quarter

1,600

8,800

2,400

8,000

BI (8,000 * 20%)

Budgeted Production

EI (12,000 * 20%)

Budgeted sales

100100

WTD. WTD.AVG. AVG.

SP VC CM MIX CM SP

Boston $1,200 $700 $500 60% $300 $720

Deluxe $5,000 $2,000 $3,000 40% $1,200 $2,000

$1,500 $2,720

60% Boston = 1200 Boston = 1200 Boston

40% Deluxe = 800 Deluxe = 800 Deluxe

2000 units total @ BE

2,000 units

-- OR ---

1200 x $1200 = $1,440,000

800 x $5000 = 4,000,000

$5,440,000

Deering Banjo Co.

BE(units)

BE($)

FC

FC

CM per unit

CM ratio$3,000,000

$1,500$2,700

2,000 units

$5,440,000

$3,000,000

$1,500= = =

= = =

1.

2.

101101

Duncan’s Avionics

1. The cost of the memory chips used in a radar set.

2. Factory heating costs.

3. Factory equipment maintenance costs.

4. Training costs for new administrative employees.

5. The cost of the solder that is used in assembling the radar sets.

6. The travel costs of the company’s salespersons.7. Wages and salaries of factory security personnel.

8. The cost of air-conditioning executive offices.

9. Wages and salaries in the department that handles billing customers.

10. Depreciation on the equipment in the fitness room used by factory workers.

11. Telephone expenses incurred by factory management.

12. The costs of shipping completed radar sets to customers.

13. The wages of the workers who assemble the radar sets.

15. Health insurance premiums for factory personnel.

14. The president’s salary.

Product Period

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

102

Q=DLH

$4.00 $900,000

(SP) 1,500,000 × 150/1000

Rate Eff

AQ x AP190,000 x $4.00$760,000

SQ x SP

180,000 X $4.00

$720,000

$760,000 ÷ 190,000AQ x SP

$0 $40,000 U

1,200,000 x 150/1000

=

1. FC $150,000

VC $720,000

$870,000

190,000 × $4.00

$760,000GIVEN

=

180,000

2.Dunce Company

103103

Earl Corporation

Additional costs if processed furtherIncrease in sales value if processed furtherDifferential benefit (cost)

$28,00040,000

$ 12,000

$20,00020,000

$ 0

A B

$12,00020,000$ 8,000

C

Earl Corporation is indifferent about the further processing for B since the net benefit is zero.There would be a positive benefit for further processing of A ($12,000) and C ($8,000).

104104

East Meets West (A)

1. BE (units) = FC + NI

CMU

= $20,000

($10 - $6)

= 5,000 units

BE ($) = FC + NI

CMR

= $20,000

$4$10

= $50,000

2. BE (units) = FC + NI

CMU

= $20,000 + $15,000

($10 - $6)

= 8,750 units

BE ($) = FC + NI

CMR

= $20,000 + $15,000

$4$10

= $87,500

105105

East Meets West (B)

SP (x) = VCU (x) FC NI

$10 (x) = $6 (x) $20,000 (.15) ($10) (x)

$10 (x) = $6 (x) $20,000 $1.50 (x)

$2.50 (x) = $20,000

x = 8,000 units

+

+

+

+

+

+

TR = VC FC NI

R = .6 R $20,000 .15 R

.25 R = $20,000

R = $80,000

+

+

+

+

106106

East Meets West (C)

BE (units) = FC + NI

CMU=

$18,000 + $9,000

$10.40 - $6.80

= 7,500 units

BE ($) = =$18,000 + $9,000

$10.40 - $6.80= $78,000

FC + NI

CMR

$10.40

107107

East Meets West (D)

1.

2.


CMU=

$20,000 + $12,000

$4

= 8,000 units

BE ($) = FC + NI

CMR=

$20,000 + $12,000

0.4= $80,000

NIBT = NIAT

1- Tax Rate

= $8,400

1 - 0.30

First, …

= $12,000

108108

East Meets West (E)

$20,000 + $12,0000.4

$27,500 + $12,0000.5

This seems better because EMW does notneed earn as much revenue to achieve itstarget profit

BUT!

$20,0000.4

$27,5000.5

Actual Rev. – BE Rev. $80,000 - $50,000Actual Rev. $80,000

Actual Rev. – BE Rev. $79,000 - $55,000

Actual Rev. $79,000MORE RISKY

=

=

=

=

=

=

=

=

=

=

=

=FC + NI

CMR

FC + NI

CMR

FC + NI

CMR

FC + NI

CMR

Current

New BE ($)

Current

New

BE ($)

BE ($)

BE ($)

Current

New MS Ratio

MS Ratio

$80,000

$79,000

$50,000

$55,000

.375

.304

=

=

=

=

=

=

109

Edwards Inc.

WIP - $ (FIFO)

DM $27,000

CC $13,000

DM $468,000

CC $357,000

DM $ 50,400

CC $ 19,600

$70,000

$ 40,000.00 from BI

21,600.00 Finished DM 60,000×40%×$0.90

29,400.00 Finished CC 60,000×70%×$0.70

704,000.00 S&F 440,000 × $1.60

$ 795,000.00

= 70,000 × 80% × $0.90

= 70,000 × 40% × $0.70

OutBI

IN

EI

E.U.

DM CC

24,000

440,000

56,000

520,000

42,000

440,000

28,000

510,000


DM CC

$0.75

$0.722

$ per EU

BI: (DM) 60,000 × 40%

BI: (CC) 60,000 × 70%

Start & Finish

EI: (DM) 70,000 × 80%

EI: (CC) 70,000 × 40%

E.U.

FIFO METHOD

BI

$27,000 DM ÷ (60,000×60%)

$13,000 CC ÷ (60,000×30%)

Total

$1.472

$0.90

$0.70

$ per EUIN

$468,000 DM ÷ 520,000 E.U.

$357,000 CC ÷ 510,000 E.U. $1.60


WIP Units

60,000

510,000

70,000

500,000Out

BI

IN

EI

DM

60%

80%

CC

30%

40%


110110

Everything Inc.

* Some of the listed businesses might user either process costing or a job-ordercosting system, depending on how operations are carried out and howhomogeneous the final product is. For example, a plywood manufacturer mightuse job-order costing if plywoods are constructed of different woods or comein markedly different sizes.

Job-Order Costing Process Costing

Custom yacht builder x

Golf course designer x

Potato chip manufacturer x

Business consultant x

Plywood manufacturer* x

Soft-drink bottler* x

Film studio x

Bridge construction company x

Manufacturer of fine custom jewelry x

Made-to-order garment factory x

Factory making one personal computer model x

Fertilizer factory x

111

Case 1 Case 2

Relevant Not Relevant

Relevant

Not Relevant

a. Sales revenue X X

b. Direct materials X X

c. Direct labor X X

d. Variable manufacturing overhead X X

e. Book value-Model A3000 machine X X

f. Disposal value-Model A3000 machine X X

g. Depreciation-Model A3000 machine X X

h. Market value-Model B3800 machine (cost) X X

i. Fixed manufacturing overhead (general) X X

j. Variable selling expense X X

k. Fixed selling expense X X

l. General administrative overhead X X

Fabulous Furniture

112

Fast Company

VARIABLE-COSTING INCOME STATEMENTS

SalesLess variable expenses: Variable cost of goods sold a

Variable selling and administrative b

Contribution marginLess fixed expenses: Fixed overhead Fixed selling and administrativeNet income

$1,500,000

(900,000) (37,500)$ 562,500

(150,000) (50,000)$ 362,500

$1,000,000

(600,000) (25,000) $ 375,000

(150,000) (50,000)$ 175,000

$2,000,000

(1,200,000) (50,000)$ 750,000

(150,000) (50,000)$ 550,000

2002 2003 2004

a 2002: $6.00 × 150,000 = $ 900,000 2003: $6.00 × 100,000 = $ 600,000 2004: $6.00 × 200,000 = $1,200,000

b $0.25 per unit × Units sold

$4.00 + $1.50 + $0.50 = $6.00

113

Fast Company (p. 2)

ABSORPTION-COSTING INCOME STATEMENTS

SalesLess cost of goods sold: Variable manufacturing expense a

Fixed manufacturing expense b

Gross marginLess selling and admin. expenses: Variable selling and admin.c

Fixed selling and admin.Net income

$1,500,000

(900,000) (150,000)$ 450,000

(37,500) (50,000)$ 362,500

$1,000,000

(600,000) (100,000) $ 300,000

(25,000) (50,000)$ 225,000

$2,000,000

(1,200,000) (200,000)$ 600,000

(50,000) (50,000)$ 500,000

2002 2003 2004

a 2002: $6.00 × 150,000 = $ 900,000 2003: $6.00 × 100,000 = $ 600,000 2004: $6.00 × 200,000 = $1,200,000

b 2002: $1.00 × 150,000 = $ 150,000 2003: $1.00 × 100,000 = $ 100,000 2004: $1.00 × 200,000 = $ 200,000

c $0.25 per unit × Units sold

FOH per unit = Est. FOHNormal volume

=$150,000150,000 = $1.00 per unit

$4.00 + $1.50 + $0.50 = $6.00

114

Fools Gold JewelryStandard Allowedfor Actual Output



ounces

663 × $300

$198,900

(1,300)(0.5) × $295650 × $295$191,750

663 × $295

$195,585

$3,315 U $3,835 U

$7,150 U

DIRECT MATERIALS

115115

Foster’s Bar-B-Que

Variable cost of each mealFixed costs per meal ($1,200/600)Cost per meal

$2$2$4

$4 is a reasonable cost basis for long term pricing and Foster is getting a $1.00 margin on each meal.However, in a special order situation the fixed costs are irrelevant, and Foster should be willing to accepta customer for any price above the variable cost of $2. Thus, the tour operator’s deals is a good one forBarry. As long as there is space for the additional meals, and since daily fixed costs are unaffected by theadditional patrons, any price about $2.00 should be acceptable.

Selling price for each mealVariable cost for each mealMargin per mealNumber of patrons gained/(lost)Revenue gained (lost)

$5 $2 $3

× (100) ($300)

$3$2$1

× 200$200

RegularPatrons

BusPatrons

The idea of agreeing to serve 200 patrons on any given day presents a problem with limited capacity.In this case, 100 of the regular customers would have to look elsewhere for lunch on the days, at a loss of$3.00 per meal or a total of $300 per day. The additional new patrons at $3.00 each would bring in acontribution of only $1.00 per meal or a total of $200. It turns out the single bus load is a better deal.

116116

Frodo CompanyThere are two ways to approach this problem: Method 1:Costs Keep Old Buy New DifferenceOperating costs ($75,000) ($20,000)Depreciation (not relevant) ($30,000) ($30,000)Resale of old $ 2,000Purchase of new ($40,000)

_______ _______($105,000) ($88,000) $17,000

Method 2:Incremental Method (as shown in class)

Change in operating cost $11,000 × 5 years = $ 55,000Resale of old machine $ 2,000Cost of new machine ($40,000)(Cost) or Savings $ 17,000

- =

Frodo should buy the new machine as it will result in a savings of $17,000.

117

FOH

Spending Volume

Actual

AQ × AC

$7,890

Budgeted

BQ × SC

(3,100)(2.5) × $0.90

7,750 × $0.90

$6,975

$140 U $225 U

Applied

SQ x SC

(3000)(2.5) × $0.90

7,500 × $0.90

$6,750

VOH

Spending Efficiency

AQ × AC

7,300 × $2.308

$16,850

AQ × SC

7,300 × $2.20

$16,060

$790 U $440 F

SQ × SC

(3000)(2.5) × $2.20

7,500 × $2.20

$16,500

Frostee Freeze Co.

118

The case will require three attorneys to stay four nights ina San Francisco hotel. The predicted hotel bill is $1,200.

1.

Funk and Wagnall’s professional staff is paid $800per day for out-of-town assignments.2.

Last year, depreciation on Funk and Wagnall’soffice was $12,000.3.

Round-trip transportation to San Francisco is expectedto cost $600 per person for the engagement.4.

The firm has recently accepted an engagement that willrequire partners to spend two weeks in Dallas. Thepredicted out-of-pocket costs of this engagement are $8,500.

5.

The firm has a maintenance contract on its word processingequipment that will cost $2,200 next year.6.

If the firm accepts the engagement in San Francisco, it willhave to decline a conflicting engagement in Orlando thatwould have provided a net cash inflow of $7,200.

7.

The firm’s variable overhead is $40 per client-hour.8.

The firm pays $150 per year for Mr. Funk’s subscriptionto a law journal.9.

Last year the firm paid $7,500 to increase the insulationin its building.10.

Relevant Costs Irrelevant Costs

Opportunity Outlay Outlay Sunk

X

X

X

X

X

X

X

X

X X

X

Funk and Wagnall

119119

Gamers Inc.

Selling price per unitVariable cost per unitContribution margin per unitRelative use of labor hours(GASH requries ½ as many as Bash)Contribution margin per labor hr.

$200.00164.00

$ 36.00÷ 2

$ 18.00

$140.00121.00

$ 19.00÷ 1

$ 19.00

BASH GASH

Since GASH requires ½ the labor time, and since labor capacity is a constraint,and since GASH’s relative contribution per labor hour is greater, as much productionas possible should be devoted to GASH.

120

Gee-Whiz ShoesStandard Allowedfor Actual Output

Rate Efficiency


DLH

9,500 × $18.20$172,900

(20,000)(0.5) × $18.00650 × $295$180,000

9,500 × $18.00$171,000

$1,900 U $9,000 F

$7,100 F

DIRECT LABOR

121

Georgetown, Inc.

Georgetown, Inc.Absorption Costing I/S

For the Y/E Dec. 31, 2005

Georgetown, Inc.Absorption Costing I/S


Rev $ 4,000 = 2,000 units × $2.00

- CoGS (1,400) = VC 2,000 units × $0.70 per unit (1,000) = FC 2,000 units × $0.50 per unit

GM $ 1,600

- S&A (1,000) = 2,000 units sold × $0.50 per unit (300) = Fixed

NI $ 300

Rev $ 4,800 = 2,400 units × $2.00

- CoGS (1,680) = VC 2,400 units × $0.70 per unit (1,200) = FC 2,400 units × $0.50 per unit

GM $ 1,920

- S&A (1,200) = 2,400 units sold × $0.50 per unit (300) = Fixed

NI $ 420

Fixed cost of production per unit:$1,100 / 2,200 = $0.50 per unit

122

Georgetown, Inc. (p. 2)

Georgetown, Inc.Variable Costing I/S


Georgetown, Inc.Variable Costing I/S


Rev $ 4,000 = 2,000 units × $2.00

- VC (1,400) = CoGS (2,000 units × $0.70) (1,000) = S&A (2,000 units × $0.50)

CM $ 1,600

- FC (1,100) = MOH (300) = S&A

NI $200

Rev $ 4,800 = 2,400 units × $2.00

- VC (1,680) = CoGS (2,400 units × $0.70) (1,200) = S&A (2,400 units × $0.50)

CM $ 1,920

- FC (1,100) = MOH (300) = S&A

NI $520

Production > SalesAbs. NI is higher!

Sales > ProductionVC NI is higher!

The difference in NI 2005:

Units mfg. - units sold× FOH per unitDifference in NI



200 $0.50

$ 100

200 $0.50

$ 100

123123

Gilligan’s Boat Rentals

New boatDeduct current disposal priceRebuild of existing boatMargin

$92,0009,000

$ 83,000

$ -

$ 75,000$ 75,000

Replace Rebuild

The difference is in favor of rebuilding by $8,000 ($83,000 - $75,000).The $90,000 purchase cost is irrelevant.

124124

Global, Inc.

* This particular item may cause some debate. Hopefully, advertising results in more demand forproducts and services by customers. So advertising costs are correlated with the amount ofproducts and services provided. However, note the direction of causality. Advertising causes anincrease in the amount of goods and services provided, but an increase in the amount of goodsand services demanded by customers does not necessarily result in a proportional increase inadvertising costs. Hence, advertising costs are fixed in the classical sense that the total amountspent on advertising is not proportional to what the unit sales turn out to be.

1. Small glass plates used for lab tests in a hospital

2. Straight-line depreciation of a building

3. Top-management salaries

4. Electrical costs of running machines

5. Advertising of products and services*

6. Batteries used in manufacturing trucks7. Commissions to salespersons

8. Insurance on a dentist’s office

9. Leather used in manufacturing footballs

10. Rent on a medical center

Product Period

X

X

X

X

X

X

X

X

X

X

Cost Behavior

125

Greasy Hands1. Activity Levels

a. Unit-levelb. Unit-levelc. Facility-sustainingd. Unit-levele. Unit-level

f. Product-sustainingg. Facility-sustainingh. Facility-sustainingi. Batch-levelj. Batch-level (one bag per customer)

2. Cost Driver

a. Number of hamburgersb. Number of hoursc. Square feetd. Number of hamburgers; Size of hamburgerse. Number of hamburgers

f. Number of time advertising is rung. Number of hours store is openh. Square feeti. Number of coupons redeemed; Number of multiple orders; Number of hamburgersj. Number of customers

126126

Green Soda

1.

MS ($) = Actual Revenue - BE Revenue

MS ($) = $900,000 - $791,500 MS ($) = $108,500

Act. Rev. = (SP) (Units Sold)

Act. Rev. = ($4.50) (200,000)

Act. Rev = $900,000


CMU=

$316,600

$1.80

= 175,889

BE ($) = = $791,500

MS ($) = $108,500

FC + NI

CMU

=$316,600

0.40

127127

Green Soda (p. 2)

Operating leverage = CM / NI

NI = $360,000 – 316,600

NI = $43,400

CM = (SPU – VCU)(Units Sold)

CM = ($4.50 - $2.70)(200,000)

CM = $360,000

Operating leverage = $360,000 / $43,400

3.

Proof using income statement approach:

Sales ($4.50 * 200,000 units * 130%) $1,170,000Var. Costs ($2.70 * 200,000 units * 130%) (702,000)CM $ 468,000Fixed Costs (316,600)Net Income $ 151,400

(New NI – Old NI) ÷ Old NI = Increase in NI($151,400 - $43,400) ÷ $43,400 = 249%

2.

8.29 * 30% = 249%

Operating leverage ratio * Increase in Sales = Increase in NI

Operating leverage = 8.29

NI = CM – FC

128128

Green Soda (p. 3)

4. BE (units) FC + NI

CMU=

($316,600 + $41,200)

$1.80198,778

BE ($) $894,500

7.37Operating leverage =

FC + NI

CMR=

($316,600 + $41,200)

0.40

Sales ($4.50 * 200,000 * 115%)

VC ($2.70 * 200,000 * 115%)

CM

FC ($316,600 + $41,200)

NI

$1,035,000

(621,000)

$ 414,000

(357,800)

$ 56,200

Income Statement:

CM

NI

$414,000

$56,200

=

=

=

=

= =

129

Grover Manufacturing

Grover ManufacturingAbsorption Costing I/S


Grover ManufacturingAbsorption Costing I/S


Rev. $ 82,500 = 1,100 units × $75

- CoGS (38,500) = VC 1,100 units × $35 per unit (19,800) = FC 1,100 units × $18 per unit (3,600) = Underapplied MOH (200 @ $53)

GM $ 20,600

- S&A (11,000) = 1,100 units sold × $10 per unit (4,000) = Fixed

NI $ 5,600

Rev $ 150,000 = 2,000 units × $75

- CoGS (70,000) = VC 2,000 units × $35 per unit (36,000) = FC 2,000 units × $18 per unit (-0-) = Underapplied MOH

GM $ 44,000

- S&A (20,000) = 2,000 units sold × $10 per unit (4,000) = Fixed

NI $ 20,000

Fixed cost of production per unit:$27,000 / 1,500 = $18 FC per unit$18 FC + 35 VC = $53 TC per unit

Normal volume is 1,500 units of production.Underapplied MOH = 1,500 normal volume – 1,300 actual production = 200 units

Normal volume is 1,500 units of production.Underapplied MOH = 1,500 normal volume – 1,500 actual production = 0 units

130

Grover Mfg. (p. 2)

Grover ManufacturingVariable Costing I/S


Grover ManufacturingVariable Costing I/S


Rev $ 82,500 = 1,100 units × $75

- VC (38,500) = CoGS (1,100 units × $35) (11,000) = S&A (1,100 units × $10)

CM $ 33,000

- FC (27,000) = MOH (4,000) = S&A

NI $2,000

Rev $ 150,000 = 2,000 units × $75

- VC (70,000) = CoGS (2,000 units × $35) (20,000) = S&A (2,000 units × $10)

CM $ 60,000

- FC (27,000) = MOH (4,000) = S&A

NI $29,000







200 $18

$ 3,600

500 $18

$ 9,000

131

Halo Products Company


Estimated Activity=

$200,000

32,000 DLH

=

$6.25 per DLH

Applied MOH = Actual Activity × PDOR 36,400 DLH × $6.25 $227,500=

=1.

2.

3. MOH

$256,200 $227,000

$28,700

$28,700

- 0 -

to COGS

Underapplied

4.Actual OH

per DL

Actual MOH

Actual Activity=

$256,200

36,400 DLH= $7.04 per DLH=

132

Hannibal Company

DM

$23,400

Purch 160,000

$33,400

$150,000

$100,000 $100,000

DL

$20,000

21,000

30,000

5,978

$76,978

$76,978

$6,520

150,000

100,000

76,978

$7,498

$326,000

WIP

$40,000

326,000

$57,050

$308,950

FG

$308,950$308,950

COGS

I/S

$308,950

$55,000

38,000

61,000

$600,000

$137,050 OI

MOH

- 0 -

- 0 -

- 0 -

COGS

ACOGS

COGM

PeriodCosts

Inventory Accounts

Product Costs


133133

Hassle Company


$ .60.40.10

$1.10


Selling price $1.25

Total relevant cots $1.25

Direct materialDirect laborVariable OHTotal relevant costs

It is $.15 ($1.25 - $1.10) cheaper to make the handles.Therefore, Hassle should make the handles.

134134

The Hat Source

1. BE(units) =CM per unit

FC + NI=

$150,000 + $0

$30 - $18 12,500 units

BE($) =CM Ratio

FC + NI=

$150,000 + $0

40% $375,000

2. BE(units) =CM per unit

FC + NI =$30 - $18

15,000 units

BE($) =CM Ratio

FC + NI=

$150,000 + $30,000

40% $450,000

$150,000 + $30,000

=

=

=

=

135135

HBM Industries

1. Activity Levels

a. Product-sustainingb. Product-sustainingc. Product-sustainingd. Product-sustaininge. Batch-level

f. Batch-levelg. Unit-levelh. Facility-sustainingi. Product-sustainingj. Facility-sustaining

2. Cost Drivers

a. Number of productsb. Number of productsc. Number of products d. Number of productse. Number of batches or setupsf. Number of batchesg. Number of units

h. Purchase costs; Replacement costs; Book valuesi. Number of purchase orders; Number of products; Number of suppliersj. Square feet

136

Herding Cats, Inc.

Spend N/AVOH

AQ * AP AQ * SP SQ * SP SQ * SP$3.00

Spend VolumeFOH

Actual Budgeted Budgeted

50,000 * $6,000$300,000

42,000 $6.00$252,000

N/A

SQ * SPApplied

Eff

$48,000 u

137

VOH

Spending Efficiency

AQ x AP

$131,000

AQ x SP

121,000 x $.50

$60,500

$3,000U

SQ x SP

115,000 x $.50

$57,500

N/A

SQ x SP

115,000 x $.50

FOH

Actual

Budgeted

$110,000

Budgeted

$110,000

Applied

SQ x SP ($1)

115,000

Spending N/A Volume

$5,000 F

TOTAL

$178,500 $179,500

$3,000U

$172,500

Spending Efficiency Volume

$5,000 F$8000 U

Herry Company

138

Hollandaise CompanyThe cost of a single unit of product under the two costingmethods would be:

Absorption VariableCosting Costing

DM, DL & Vbl MOH $5.00 $5.00Fixed MOH ($15,000/5,000 units) $3.00 - Total cost per unit $8.00 $5.00

Absorption costing Year 1 Year 2 Year 3 Total

Sales (@ $15.00) $75,000 $60,000 $90,000 $225,000Less COGS: Beg. Inv. (@ $8.00) 0 0 8,000 0 COGM (@ $8.00) 40,000 40,000 40,000 120,000 CGAS 40,000 40,000 48,000 120,000 End. Inv. (@ $8.00) 0 8,000 0 0 COGS 40,000 32,000 48,000 120,000Gross Margin 35,000 28,000 42,000 105,000Less S&A 26,000 25,000 27,000 78,000Net Income $9,000 $3,000 $15,000 $27,000

139

Hollandaise Co. (p. 2)Variable costing Year 1 Year 2 Year 3 Total

Sales (@ $15.00) $75,000 $60,000 $90,000 $225,000Less vbl. exp: Vbl COGS (@ $5.00) 25,000 20,000 30,000 75,000 Vbl S&A (@ $1.00) 5,000 4,000 6,000 15,000Total vbl. exp. 30,000 24,000 36,000 90,000Contribution margin 45,000 36,000 54,000 135,000Less fixed exp: MOH 15,000 15,000 15,000 45,000 S&A exp. 21,000 21,000 21,000 63,000Total fixed exp. 36,000 36,000 36,000 108,000Net income $9,000 $0 $18,000 $27,000

A reconciliation of the net income figures for the two methodsover the three year period follows:

Year 1 Year 2 Year 3

Variable costing NI $9,000 $0 $18,000Add: FOH cost deferred in inv. under absorp. costing (1,000 units x $3.00) 3,000Less: FOH cost released from inv. under absorption costing (1,000 x $3.00) (3,000)Absorption costing NI $9,000 $3,000 $15,000

140140

Holman Company1. Predetermined

overhead rate= Estimated total manufacturing overhead cost

Estimated total amount of the allocation base

= $170,00071,000 direct labor-hours

= $4.00 per direct labor-hour

2. Applied Overhead = Direct labor-hours × Predetermined overhead rate

75,000 DL hours × $4.00

= $300,000

=

141141

Holman Company (p. 2)

UtilitiesDepreciationInsuranceIndirect laborIndirect materialSalary

$ 75,40058,00025,00054,60053,00055,000

3.

$21,000 underapplied

Manufacturing Overhead

$300,000

$21,000Balance

Applied overheadfrom part 2

142

Home Quality Products

Prevention Costs: b. Seminar costs for “Vendor Day”.

Appraisal Costs: c. Costs of conformance tests at Charlotte plant. e. Costs of inspection tests at the Raleigh packaging plant.

Internal Failure Costs: a. Labor and materials costs of reworking a batch of steam-iron handles.

External Failure Costs: d. Replacement cost of 1,000 steam-irons sold in the Pittsburgh are.

The cost of customer ill-will created by the sale of defective products has two components:

(a) The volume of future lost sales,(b) The contribution margin on lost sales.

Customer surveys and interviews with distributors and retailers can provide a way to estimate (a);(b) can be estimated using internal accounting information.

1.

2.

143143

$35 - $20

$35

FC + NI ($30,000 * 12) + $510,000 CM ratio $35 - $20

$35

Actual Rev. – BE Rev.

$2,030,000 – ($70,000 x 12)

$2,030,000 – $840,000

$1,190,000

$864,000

$360,000 + $1,440,000

Howard’s Limited$35 – $20

FC + NICM per unit $35 – $20

FC

BE(units)

BE(units)

BE($)

BE($)

MS($)

MS Ratio

OI

2,000 units

$70,000

$2,030,000

120,000 units annually

$30,000

$30,000CM ratio

FC

$1,440,0001 – TR 1 – .4

10,000 units monthly

NIAT

=

=

=

=

=

=

=

=

=

= =

=

=

=

= =

=

=

=

=

$2,030,000 - $840,000

$2,030,00058.6%= =

Act. Rev. – BE Rev.

Act. Rev.

4.

3.

2.

1.CM per unit

144

Howdy Company

PDOR =

Estimated MOH

Estimated Activity=

$602,000

70,000 MH$8.60 per MH=

1. Department A

PDOR =

Estimated MOH

Estimated Activity=

$735,000

$420,000 of DL$1.75 per DL$=

Department B

=Applied MOH = Actual Activity × PDOR 110 MH × $8.60 $946=2.

Department A

=Applied MOH = Actual Activity × PDOR 680 DL$ × $1.75 $1,190=

Department A

$2,136 total applied MOH

DMDL

MOH

$470290946

$1,706

DMDL

MOH

332680

1,190$2,202

3.

$3,90850 units

$78.16 per unit=

Department B

Department B

145145

Howdy Company (p. 2)

MOH

(65,000 * $8.60)

559,000

$11,000

$570,000

$11,000

- 0 -

MOH

$750,000

$13,000

- 0 -

($436,000 * 1.75)

$763,000

$13,000

4.

overapplied

Department BDepartment A

To COGS

underapplied

146146

J.B. Goode Company

PDOREst. MOH

Est. Activity

$135,000

10,000$13.50 per DLH= =1.

Applied MOH Actual Activity PDOR

900 units 10 DLH 9,000 DLH

$13.50 $121,500

Actual Activity Production Volume Hrs. Per Unit

9,000 DLH

×= = ×

×=×=

Standard

=

=

=

Applied MOH Actual Activity PDOR

100 units 10 DLH 1,000 DLH

$13.50 $13,500

Actual Activity Production Volume Hrs. Per Unit

1,000 DLH

×= = ×

×=×=

Custom

=

=

147147

J.B. Goode Co. (p. 2)

Depr.Maint.Purch.Insp.IDMSuper.Supplies

3,0009,0001,500 400 900 400 900

×××××××

$10.00$ 1.50$11.00$12.00$15.00$28.00$ 3.00

=======

$30,000 13,500 16,500 4,800 13,500 11,200 2,700$92,200 Applied MOH ÷ 900 Guitars = $102.45 each

Depr.Maint.Purch.Insp.IDMSuper.Supplies

1,0001,000 500 600 100 600 100

×××××××

$10.00$ 1.50$11.00$12.00$15.00$28.00$ 3.00

=======

$10,000 1,500 5,500 7,200 1,500 16,800 300$42,800 Applied MOH ÷ 100 Guitars = $428 each

2. Standard

Custom

Applied MOHAct. Activity PDOR× =

Applied MOHAct. Activity PDOR× =

148148

J.B. Goode Co. (p. 3)

CustomOLD WAY

CustomNEW WAY

DMDLMOHTOTAL

DMDLMOHTOTAL

$375240

135$750

$ 375240

428$1,043

No, the $1,000 revenue is not covering the true cost of production.

The single biggest reason for the higher overhead costis the supervision required for the custom guitars.

3.

149

Joe Slow

R

R

R

I

R

I

R

I

R

1.__________ The cost of traveling the 250 miles to Finding Foodstore.2.__________ The time he will spend on the road.3.__________ The time he will spend visiting with Finding Foodstore executives.4.__________ The amount of time already devoted to Finding Foodstore.5.__________ The revenue potential from Finding Foodstore.6.__________ The cost of his last visit to Finding Foodstore.7.__________ The probability that his visit will result in new sales.8.__________ The cost of lunch for himself if he visits Finding Foodstore.9.__________ The cost of lunch he would buy for Finding Foodstore executives.

150150

The John Company

WIP Units

5,000

40,000

10,000

35,000

OutBI

IN

EI

DM

100%

100%

CC

60%

40%

WIP - $ (Wtd. Avg.)

DM $ 5,050

CC 3,270

DM 44,000

CC 48,600

DM $10,900

CC 5,320

$16,220

35,000 × $2.42

= $84,700

= 10,000 × $1.09

= 4,000 × $1.33

E.U.

DM CC

35,000

10,000

45,000

35,000

4,000

39,000


$5,050

$44,000

$49,050

$3,270

$48,600

$51,870

BI

IN

Total

$/EU

$49,050 / 45,000 = $1.09

$ 2.42

OUT

EI: (DM) 10,000 × 100%

EI: (CC) 10,000 × 40%

E.U.

DM CC

DM CC

$51,870 / 39,000 = $1.33


BI Out

IN

EI

1.

1.

151151

The John Co. (p.2)

WIP Units

5,000

40,000

10,000

35,000Out

BI

IN

EI

DM

100%

100%

CC

60%

40%

WIP - $ (FIFO)

DM $ 5,050

CC 3,270

DM 44,000

CC 48,600

DM $11,000

CC 5,400

$16,400

$ 8,320 from BI

2,700 Finished CC 5,000×40%×$1.35

73,500 S&F 30,000 × $2.45

$84,520

= 10,000 × 100% × $1.10

= 10,000 × 40% × $1.35

E.U.

DM CC

- 0 -

30,000

10,000

40,000

2,000

30,000

4,000

36,000

Costs per EU

DM CC

$1.01

$1.09

$ per EU

BI: (DM) 5,000× 0%

BI: (CC) 5,000×40%

Start & Finish

EI: (DM) 10,000×100%

EI: (CC) 10,000× 40%

E.U.

$5,050 DM ÷ (5,000×100%)

$3,270 CC ÷ (5,000× 60%)

Total

$2.10

$1.10

$1.35

$ per EU

$44,000 DM ÷ 40,000 E.U.

$48,600 CC ÷ 36,000 E.U. $2.45


BI Out

IN

EI

BI

IN

FIFO METHOD

2.

2.

152152

Johnson County Senior Services

1.

No, the housekeeping program should not be discontinued. It is actually generating a positive programsegment margin and is, of course, providing a valuable service to seniors.

Contribution margin lost if the housekeeping program is droppedFixed costs that could be avoided: Liability insurance Program administrator’s salaryDecrease in net operating income for the organization as a whole

$(80,000)

52,000 $(28,000)

$15,00037,000

Depreciation on the van is a sunk cost and the van has no salvage value since it would be donated toanother organization. The general administrative overhead is allocated and none of it would be avoided if theprogram were dropped; thus it is not relevant to the decision.

Relevant revenues and costs of the housekeeping program:

153153

Johnson County (p. 2)2.

To give the administrator of the entire organization a clearer picture of the financial viability of each of theorganization’s programs, the general administrative overhead should not be allocated. It is a common cost thatshould be deducted from the total program segment margin. Following the format for a segmented incomestatement, a better income statement would be:

RevenuesLess variable expensesContribution marginLess traceable fixed expenses: Depreciation Liability insurance Program administrators’ salariesTotal traceable fixed expensesProgram segment marginsGeneral admin overheadNet operating income (loss)

$900,000490,000

$410,000

$ 68,00042,000

115,000225,000185,000180,000$ 5,000

$260,000120,000

$140,000

$ 8,00020,00040,00068,000

$72,000

$400,000210,000

$190,000

$ 40,0007,000

38,00085,000

$105,000

$240,000160,000

$ 80,000

$20,00015,00037,00072,000$ 8,000

TotalHome

NursingMeals onWheels

House-keeping

154154

Jolly Roger Candies

CM per unit

FC + NI=

$400 + $300

$1= 700 units

BE(units) =CM per unit

FC + NI=

$400 + $0

$1= 400 units

400 units × 120% = 480 units (volume 20% above breakeven volume)

Rev (480 units × $4)- VC (480 units × $3) CM- FC NI

$1,920 1,440$ 480 400$ 80

NIBT = NIAT

1- TR=

$300

1 – 40%= $500


FC + NI =$400 + $500

$4.00 - $3.50= 1,800 units

BE(units) =1.

2.

3.

155155

Jude Law & Associates

Purchasing the new system will cause the following to occur:

$180,000 Labor cost savings on old system ($36,000 × 5 years) 10,000 Sale of old system (76,000) Cost of new system (90,000) Labor cost of new system ($18,000 × 5 years) 500 Higher residual value of new system

$24,500 Savings by purchasing the new system

Jude Law will save $24,500 by purchasing the new system.Therefore, the system should be purchased.

156

Judge Ely Jeans

$29,500

98,400 $95,600

$32,300

$118,400 $118,400

- 0 -

$ 7,200

44,800

4,800

21,600*

10,400

15,200

35,200

$139,200

$139,200

- 0 -

$49,600

95,600

118,400 $340,400

139,200

$62,400

$37,600

340,400 $326,000

$52,000

COGS

$326,000 $326,000

- 0 -

I/S

$326,000 $715,200

7,200

14,400**

4,000

2,640

123,200

15,300

OI

40% * $36,000 = $14,400

COGS

ACOGS

COGM

FG

PeriodCosts

60% * $36,000 = $21,600*

**

$222,460

WIPDM

DL

MOH

Purch.

Inventory Accounts

Product Costs


157

Kaitlyn Korporation

CASH

$15,000$90,000

$32,000

$12,000

$125,000Beg.Collections

Borrow

End

Disbursements

158

Kennel Street Company

Price Quantity

AQ * AP AQ * SP SQ * SP1,600 * AP

1,600 * $3.60$5,520 $5,760

AQ * SP SQ * SP * $3.60 1,450 * $3.60

$240 F

AP = $3.45

159

Kit Incorporated

Cash - 2006

$ 10,000

$ 20,000

150,000

26,000

Beginning Cash

Ending cash

Collections from customers

Financing needed

DM purchases

Operating Expense lessdepreciation($50,000 - $20,000)

Payroll

Income taxes

Machinery purchase

25,000

30,000

75,000

6,000

30,000

160160

Knob Noster Hospital

1a. Hospital Wide Rate Based on Nurse-Hours

PDORHospital total overhead

Hospital total nurse hours=

$69,120,000

1,152,000$60 per nurse-hour

Total CCU applied overhead costs

= Per nurse-hour rate × Nurse-hours = $60 × 5,900 = $354,000

==

PDOREstimated MOH

Estimated Activity=

Applied MOH = PDOR × Actual Activity

161161

Knob Noster (p. 2)1b.

The CCU Department Wide Rate Based on Patient-Day

Total budgeted CCU overhead = Beds budget Equipment budget Nursing care budget

Total budgeted CCU overhead = $810,000 $422,500 $457,500

Total budgeted CCU overhead = $1,690,000

Overhead rate per patient-day = Total budget CCU Overhead Budgeted patient days÷

Overhead rate per patient-day = $1,690,000 845÷

Overhead rate per patient-day = $2,000

Total CCU applied overhead costs = Rate per patient day Actual patient days×

Total CCU applied overhead costs = $2,000 870×

Total CCU applied overhead costs = $1,740,000

+

++

+

162162

Knob Noster (p. 3)1c.

Activity Cost Driver Rates

BudgetedCost Pool

BudgetedCost

BudgetedActivity

BudgetedMOH Rate

ActualActivity

AppliedOverhead

Beds $810,000 900 $900.00 900 $ 810,000÷ = × =

Equipment 422,500 845 500.00 870 435,000÷ = × =

Personnel 457,500 6,000 76.25 5,900 449,875÷ = × =

Total applied manufacturing overhead costs $1,694,875

2.

The first method uses a hospital wide overhead rate, which likely bears no relationship with the overheadactivities performed in the critical care unit (CCU). The second method uses the patient-day overhead ratefor the CCU department. This is an improvement over the first method. But a single patient-day cost drivermay not have direct relationships with some of the activities performed in the CCU department. The thirdmethod is the preferred method because it uses a cost driver for each of the cost pools that reflects the resourcesconsumed by activities of the cost pool.

163

KSU Company

Rate Efficiency

AQ × AC AQ × SC SQ × SC40,000 × $25 40,000 × $24 42,000 × $24 $1,000,000 $960,000 $1,008,000

$40,000 U $48,000 F

$8,000 F


1.

2.

164164

Landis Playhouses

1. NIBT NIAT

1 – TR

$495,014

1 – 35%

BE(units) CM per unit

FC + NI $280,420 + $761,560

$1,200 869 units

CM per unit = $3,000 – $1,200 – $400 – $150 – $50

2. After-tax equivalent of 20% increase:

20% ÷ (1 – .35) = 30.77%

VC + FC + NI TR = .6 TR + $280,420 + .3077 TR.0923 TR = $280,420

TR = $3,038,137

(Rounded)

CM per unit = Selling Price – all variable costs

$1,200CM per unit =

$761,560

Let TR = the level of revenue that generates a pretax return of 30.77%

= = =

= = =

=TR

165

Lands End Men’s Suits Price Qty/Usage

AQ × AC AQ × SC SQ × SC10,000 × $5.00 10,000 × $6.00$50,000 $60,000

$10,000 F

AQ × SC SQ × SC (2700)(4) × $6.00 (2700)(3.5) × $6.00 $64,800 $56,700

$8,100 U

CAN’T!

Actual Cost < Standard Cost = FAVORABLEActual Quantity < Standard Quantity = FAVORABLE


(in units)

166

Mango Motors

Absorption Costing

Income Statement


Rev. $810,000

VC (540,000)

FC (60,000)

GM $210,000

VS&A (67,500)

FS&A (50,000)

OI $92,500

Variable Costing

Income Statement

For the year Ended Dec. 31, 1996

Rev. $810,000

VC (540,000)

VS&A (67,500)

CM $202,500

FC (60,000)

FS&A (50,000)

OI $92,500

167167

Marie Manufacturing CoBI $ 42,000

Purch. 850,000

EI $ 48,000

DM

(a.)$844,000

$820,000

DL

$820,000

MOHIDM

Supplies

Fact Depr

Security

Supplies

Equip Dep

$ 4,000

6,200

60,000

12,000

82,600

560,000

$765,000$724,800

Overapplied MOH

$40,200

$ 40,200

WIPBI $ 84,000

844,000

820,000

765,000

$ 93,000EI

$2,420,000(d.)

FG$ 124,000

2,420,000

BI

$2,411,000

$ 133,000EI

COGS

$2,411,000

$2,370,800

(e.)$2,370,800

- 0 -

I/S

Office Depr.

Adm. Depr.

Sales Sal.

Office Depr.

$3,335,000 Sales$2,370,800

4,000

3,000

120,000

22,200

$2,520,000

$815,000 (f.)

- 0 -

- 0 -


Estimated Activity=

$750,000

50,000 DLH= $15 per DLH

Applied MOH = Actual Activity × PDOR

51,000 DLH × $15 = $765,000

(b.)

(c.)

$ 40,200

168168

Marshall Props Unlimited

$25,000

80,000

$15,000

$85,000

5,000

DM

BI

Purch

EI

$ 30,000

85,000

120,000

96,000

$ 21,000

$310,000

BI

EI

WIP

$ 45,000

310,000

$ 55,000

$300,000

BI

EI

FG

$120,000 $120,000

DL

MOH

$ 5,000

30,000

12,000

25,000

4,000

17,000

$93,000$120,000 * .8

= $96,000

$ 3,000

IDM

IDL

Util.

Depr

Insurance

Other

COGS

I/S

$297,000

75,000

5,000

800

40,000

$450,000

$32,200

COGS

S&A Salaries

Depr

Insurance

Shipping

Sales

OI

Est.OH

Est Activity

$80,000

$100,000 DL cost

= 80% of DL

3,000

$297,000

$ 3,000

$300,000

$297,000 Adj. COGS

PDOR =

=

COGS

1. & 2.

overapplied

COGM

2.

- 0 -

- 0 -

- 0 -

169169

Marshall Props (p. 2)Marshall Props Unlimited

Schedule of Cost of Goods Manufactured

For the Year Ended December 31, 2006

Raw material:

Raw materials inventory, 1-1

Add: Purchases of raw materials

Total materials available

Deduct: Raw materials inventory, 12-31

Raw materials used in production

Less: Indirect Materials

Direct Labor

Manufacturing overhead:

Utilities......................................................................................

Indirect Labor..............................................................................

Indirect Materials..........................................................................

Depreciation.................................................................................

Other………..............................................................................

Insurance……………………………………………………..

Actual overhead costs

Add: Overapplied overhead

Manufacturing overhead applied to WIP

Total manufacturing costs

Add: Beginning work in process inventory

Deduct: Ending work in process inventory

Cost of Goods Manufactured

$ 25,000

80,000

$105,000

(15,000)

$ 90,000

(5,000)$ 85,000

120,000

$12,000

30,000

5,000

25,000

17,000

4,000

$93,000

3,000

96,000

$301,000

30,000

$331,000

(21,000)

$310,000

3.

170170

Marshall Props (p. 3)


Schedule of Cost of Goods Sold

For the year ended December 31, 2006

Finished goods inventory, 1-1

Add: Cost of goods manufactured

Goods available for sale

Less: Ending finished goods inventory

Cost of goods sold

Deduct: Overapplied overhead

Adjusted cost of goods sold

$45,000

310,000

355,000

(55,000)

$300,000

(3,000)

$297,000

3.

171171

Marshall Props (p. 4)


Income Statement


Sales

Less: Cost of Goods Sold

Gross Margin

Less: Selling and administrative expenses:

Salaries expense

Depreciation expense

Insurance expense

Shipping expense

Operating Income

$450,000

(297,000)

$153,000

$120,800

$32,000

$ 75,000

5,000

800

40,000

3.

172

McKay Mills

Yarn 455 × $811.55 = $369,255.25

Fabric 420 × $811.55 = $340,851.00

Clothing 750 × $811.55 = $608,662.50


Estimated Activity=

$1,335,000

1,645 DLH$811.55 per DLH=

(500 + 410 + 735)

Actual Activity × PDOR = Applied MOH2.

1.

MOH

$1,372,000.00 $1,318,768.75

$53,231.25

$53,231.25

- 0 -

to COGS

Underapplied

$1,318,768.75

172

173

Mesa Verde Company

MESA VERDE COMPANYBalance Sheet

December 31, 2005

AssetsCurrent Assets: Cash ………………………… Accounts receivable ………… Inventories ………………….. Total current assets …………Noncurrent assets …………….Total assets ……………………

Liabilities

Stockholders’ Equity

Current liabilities ..……………Noncurrent liabilities …………Total liabilities.………………..

Common stock ..………………Additional paid-in capital …….Retained earnings .……………Total stockholders’ equity ……Total liabilities and equity ……

$ 10,25046,000

86,250

$ 22,500 62,000

$142,500 280,000$422,500

$ 84,500

$150,00060,000

128,000 338,000

$422,500

Where? How?Note 8 [Plug]Note 5Note 4Note 7 [Plug](Given)Note 6 [Calc. = Total L + SE]

Note 9Note 10 [Plug]Note 3

(Given)(Given)Note 2Note 2[Calc.: Note 6]

174

Mesa Verde (p. 2)SUPPORTINGCOMPUTATIONS

Note 1: Compute net income for 2005

Sales …………………..Cost of goods sold ……Gross profit …………..Operating expenses …..Income before taxes ….Taxes expense ………..Net income ……………

$920,000 690,000$230,000

180,000$ 50,000 20,000

$ 30,000

(75% of sales (100% - Gross profit margin ratio))(25% of sales (#) Gross profit margin ratio)

(tax at 40% rate (#))

Note 2: Compute Stockholders’ Equity

Common stock ($15 par × 10,000 sh.)Additional paid-in capital (($21-$15)×10,000 sh.)

Retained earnings, Dec. 31, 2004Net incomeRetained earnings, Dec. 31, 2005Total stockholders’ equity

$150,000 60,000

98,000 30,000

(#) — piece(s) of information provided in problem

$210,000

128,000$338,000

(#)(#)

(#)

(#)

Note 3: Total equity

Total Debt

$338,0000 ÷ 4$ 84,500

(#) Shareholders’ equity to total debt

175


Note 4: Inventory turnover = Cost of goods sold ÷ (Avg.) Inventory 8 = $690,000 (from Note 1) ÷ Inventory Inventory = $86,250

(#) or (#) — piece(s) of information provided in problem

Precisely is “Avg.” Inv.., We will use as “End”

(because it is all we have)

8 = 360(#) ÷ 45(#) Days sales in inventory

An alternative calculation for Inventory turnover

Days sales in receivables = Receivables ÷ (Credit sales ÷ 360(#)) 18 days (#) = Receivables ÷ ($920,000(#)÷360) Receivables = $46,000

“Ending”

Note 6: Total assets = Total liabilies + Total equity = $338,000 (from Note 3) + $84,500 (from Note 3) = $422,500

Total assets = Current assets + Noncurrent assets $422,500 = Current assets + $280,000 (#)Current assets = $142, 500

Current assets = Cash + Receivables + InventoryCash (plug) = Total assets – Receivables – Inventory = $142,500 - $46,000 (from Note 4) - $86,250 (from Note 4) = $10,250

Note 5:

Note 7:

Note 8:

176



Note 9: Acid-test ratio = (Cash + Accounts receivable) ÷ Current liabilities 2.5 (#) = ($10,250 + $46,000) ÷ Current liabilities

Current liabilities = $22,500

Total liabilities = Current liabilities + Noncurrent liabilities $84,500 (from Note 3) = $22,500 + Noncurrent liabilities

Noncurrent liabilities = $62,000

Note 10:

177

Millstone Company

MILLSTONE COMPANYBalance Sheet

December 31, 2004

AssetsCurrent Assets: Cash ………………………… Accounts receivable ………… Inventories ………………….. Total current assets …………Noncurrent assets …………….Total assets ……………………

Liabilities

Stockholders’ Equity


Common stock ..………………Additional paid-in capital …….Retained earnings .……………Total stockholders’ equity ……Total liabilities and equity ……

$ 61,700115,000

161,000

$276,000 63,080

$337,700 510,000$847,700

$339,080

$100,000150,000

258,620 508,620

$847,700

Where? How?Note 7Note 4Note 3Calculation: Cash+A/R+Inv.(Given)Calc: Note 8


(Given)(Given)Note 13 [Plug]Note 11[ = Total assets]

178

Millstone (p. 2)SUPPORTINGCOMPUTATIONS



$1,840,000 1,288,000

$552,000

$ 92,000

(#)(70% of sales (100% - Gross profit margin ratio))(30% of sales (#) Gross profit margin ratio)

(5% Net operating profit margin ratio (#))

Note 2: Compute Stockholders’ Equity

Common stock ($15 par × 10,000 sh.)Additional paid-in capital (($21-$15)×10,000 sh.)

Retained earnings, Dec. 31, 2004Net incomeRetained earnings, Dec. 31, 2005Total stockholders’ equity

$100,000 150,000

$166,620 92,000


$250,000

258,620$508,620

(#)(#) (#)

[Plug: Note 12](Note 11)

The Answer toQuestion #2

(Note 13)

Note 3: Inventory turnover = Cost of goods sold ÷ (Avg.) Inventory 8 (#) = $1,288,000 (from Note 1) ÷ Inventory Inventory = $161,000



179



Accounts receivable turnover = Sales ÷ Average accounts receivable 16 (#) = $1,840,000 ÷ Avg. A/R Accounts receivable = $115,000

Note 5:

Working capital = Current assets - Current liabilities = Cash + Accounts receivable + Inventories - Current liabilities $27,200 (#) = Cash + $115,000 (Note 4) + $161,000 (Note 3) - $276,000 (Note 6) Cash = $61,700

Note 4:

Note 6:

Note 7:



Operating cash flow to income = Operating cash flow ÷ Net income 3 (#) = Operating cash flow ÷ $92,000 (Note 1) Operating cash flow = $276,000

Cash flow to current liabilities ratio = Operating cash flow ÷ Current liabilities 1 (#) = $276,000 (Note 5) ÷ Current liabilities Current liabilities = $276,000

Note 8: Total assets = Cash + Accounts receivables + Inventories + Noncurrent assets = $61,700 (Note 7) + $115,000 (Note 4) + $161,000 (Note 3) + $510,000 (#)Total assets = $847,700

180

Total debt ratio = Total liabilities ÷ Total assets 0.4 (#) = Total liabilities ÷ $847,700 (Note 8)Total liabilities = $339,080



Note 9:

Note 10: Total liabilities = Current liabilities + Noncurrent liabilities $339,080 (Note 9) = $276,000 (Note 6) + Noncurrent liabilitiesNoncurrent liabilities = $63,080

Note 11: Total assets = Total liabilities + Total equity $847,700 (Note 8) = $339,080 (Note 9) + Total equityTotal equity = $508,620

Note 12: Total equity = Common stock + Add’l paid-in capital + Ending retained earnings$508,620 (Note 11) = $100,000 (#) + $150,000 (#) + Ending R/EEnding retained earnings = $258,620

Note 13: End retained earnings = Begin retained earnings + Net income $258,620 (Note 12) = Begin retained earnings + $92,000 (Note 1) Begin retained earnings = $166,620

181

Missouri Retailers (A)

APR

MAY

JUN

FebMar.Apr.

Mar.Apr.May

Apr.MayJun.

$ 85,000×20%$ 95,000×30%$ 75,000×50%

$ 95,000×20%$ 75,000×30%$ 85,000×50%

$ 75,000×20%$ 85,000×30%$108,000×50%

$17,00028,500

37,500$83,000

$19,00022,500

42,500$84,000

$15,00025,500

54,000$94,500

APR MAY JUN Total

$261,500

182

Missouri Retailers (B)

Mar.Apr.

Apr.May

MayJun.

$50,000×70%$55,000×30%

$55,000×70%$65,000×30%

$65,000×70%$88,000×30%

$35,000 16,500$51,500

$38,500 19,500$58,000

$45,500 26,400$71,900

Total

$181,400

APR

MAY

JUN

APR MAY JUN

183183

Mizzou Company

PDOR = Estimated Activity ÷ Estimated Activity= $130,890 ÷ 1,720= $76.10 per DLH

Unit Product Cost: Direct Materials Direct Labor Mfg. Overhead Total Unit Cost

Miz Zou

$10.70 11.20 53.27 *$75.17

$16.70 19.20 91.32 **$127.22

* 0.7 DLH/unit × $76.10 = $53.27** 1.2 DLH/unit × $76.10 = $91.32

Activity-Based Costing: Activity Rates

Activity Cost Pool Machine set-ups Purchase orders General factory

EstimatedMOH

EstimatedActivity

ActivityRates

$13,57091,52025,800

230 setups2,080 orders1,720 DLH

$59 per setup$44 per order$15 per DLH

Traditional Method1.

2.

÷÷÷

===

184184

Mizzou Company (p. 2)

Activities Machine set-ups Purchase orders General factory Total Overhead Cost

ActivityRates

$59 per setup$44 per order$15 per DLH

EstimatedActivity

100 setups 810 orders 280 DLH

MOH$ 5,900

35,640 4,200$45,740

EstimatedActivity

130 setups1,270 orders1,440 DLH

MOH$ 7,670

55,880 21,600$85,150

MIZ ZOU

Activity-Based Costing: Applying MOH to Products

Activity-Based Costing: MOH per Unit

Number of units produced 400 units 1,200 units

MOH per unit $ 114.35 $ 70.96

Unit Product Cost: Direct Materials Direct Labor Mfg. Overhead Total Unit Cost

Miz Zou

$ 10.70 11.20 114.35$136.25

$16.70 19.20 79.96$106.86

Activity-Based Costing: Unit Product Costs

3. (a)

3. (b)

3. (c)

Total overhead cost $45,740 units $85,150 units÷ ÷

185185

Moehrle Manufacturing

$ 453030

5$110

Direct materialDirect laborVariable OHSpecial logo costTotal relevant costs

Relevant costs to manufacture

The minimum selling price for the special order is $110 sincethat is the total of relevant costs per unit.

186186

Moore Computers

Absorption Costing

Income Statement


Rev. $500,000

COGS: Direct materials (60,000)


Indirect labor (25,000)

Factory insurance (12,000)

Depreciation—Factory (80,000)

Repairs and maint.—Factory (15,000)

GM $263,000

S&A: Marketing expenses (66,000)

General and admin. expenses (55,000)

OI $142,000

Variable Costing

Income Statement


Rev. $500,000

VC: Direct materials (60,000)


Repairs and maint.—Factory (15,000)

Marketing expenses (66,000)

CM $314,000

FC: Indirect labor (25,000)

Factory insurance (12,000)

Depreciation—Factory (80,000)

General and admin. expenses (55,000)

OI $142,000

187

$ 60,000

250,000 $240,000

$70,000

DL

$405,000 $405,000

MOH

$ 10,000

25,000

100,000

35,000

30,000

$200,000

- 0 -

Purch

$120,000 240,000 405,000 $850,000 200,000

$115,000

FG

$150,000

850,000 $835,000

$165,000

COGS

$835,000 $835,000

- 0 -

I/S

$835,000 $940,000

110,000

$ 5,000

COGS

ACOGS

COGM

OI (LOSS!!)

Rev.

Admin.PeriodCosts

$200,000

DM WIP

Muleskinner Athletic Wear, Inc.

- 0 -


Costs


188188

Narcissus NeedlesUtilities $10,000

Depr. 15,000

Dupr. Sal. 30,000

Janitorial 6,000

Ins. 9,000

Total MOH $70,000

Utilities $10,500

Depr. 15,000

Supr. Sal. 30,000

Janitorial 5,200

Ins. 8,500

1.

2.

3.


Estimated Activity=

$70,000

3,500 DLH

=

$20.00 per DLH

Applied MOH = Actual Activity × PDOR 3,600 DLH × $20.00 $72,000=

=

Total MOH $69,200

MOH

Actual$69,200

$2,800

$2,800

- 0 -to COGS

Overapplied

Applied$72,000

189189

Oatman Company

$ 16,000

200,000

$ 26,000

$190,000

DM

BI

Purch

EI

$ 10,000

190,000

160,000

170,000

$ 50,000

$480,000

BI

EI

WIP

$ 30,000

480,000

$ 35,000

$475,000

BI

EI

FG

$160,000 $160,000

DL

MOH

$ 42,000

27,000

9,000

51,000

129,000 40,000 * $4.25

= $170,000

$ 41,000

Utilities

IDL

Insurance

Depr.

COGS

I/S

$434,000

36,000

80,000

1,000

50,000

9,000

$700,000

$ 90,000

COGS

Sales comm.

Admin Sal.

Insurance

Advertising

Depreciation

Sales

OI

Est.OH

Est Activity

$153,000

36,000 MH

= $4.25 per MH

$ 41,000

$434,000

$ 41,000

$475,000

$434,000

Adj. COGS

PDOR =

=

COGS

- 0 -

1.

- 0 -

COGM

- 0 -

190190

Oatman Company (p. 2)2. Direct materials

Accounts payable

Work in process Direct materials

Work in processManufacturing overheadSales commissions expenseAdministrative salaries expense Salaries and wages payable

Manufacturing overhead Accounts payable

Manufacturing overheadInsurance expense Prepaid insurance

Advertising expense Accounts payable

Manufacturing overheadDepreciation expense Accumulated depreciation

Work in process Manufacturing overhead

a.

b.

c.

d.

e.

f.

g.

h.

$200,000 $200,000

$190,000 $190,000

$160,000 27,000 36,000 80,000 $303,000

$ 42,000 $ 42,000

$ 9,000 1,000 $ 10,000

$50,000 $ 50,000

$ 51,000 9,000 $ 60,000

$170,000 $170,000

Finished goods Work in process

Accounts receivable Sales

Cost of goods sold Finished goods

Manufacturing overhead Cost of goods sold

Income Summary Cost of goods sold

i.

j.

$480,000 $480,000

$700,000 $700,000

$475,000$475,000

$ 41,000$ 41,000

$ 434,000$434,000

191191

Oatman Company (p. 3)

Oatman Company

Income Statement


Sales

Less: Cost of goods sold ($475,000 – $41,000)

Gross margin


Sales commissions

Administrative salaries

Insurance

Advertising

Depreciation

Operating Income

$700,000

(434,000)

$266,000

176,000

$90,000

$ 36,000

80,000

1,000

50,000

9,000

192192

Pacific Coast Home Furnishings

DM

DL

MOH

WIP FG

COGS

I/S

Purch.

$ 23,400

201,500$ 192,400

$ 32,500

$633,100 $633,100

- 0 -

$ 57,200 37,700 44,200 114,400 32,500 85,800

$371,800$371,800

- 0 -

$ 29,900 192,400 633,100 371,800

BI

$ 11,700

$1,215,500

$19,500BI

1,215,500 $1,185,600COGM

$ 49,400

$1,185,600

$1,185,600

- 0 -

COGS

$1,185,600 188,500 20,800 42,900

$1,950,000 Sales

$ 512,200 OI

EI

ACOGS

PeriodCosts

Inventory Accounts

Product Costs


193

Pacific Coast (p. 2)

PACIFIC COAST HOME FURNISHINGSSchedule of Cost of Goods ManufacturedFor the Year Ended December 31, 2006

Direct materials: Direct materials inventory, 1-1-2006 $ 23,400 Add: Purchases of direct materials 201,500 Total direct materials available $ 224,900 Deduct: Direct materials inventory, 12-31-2006 (32,500) Direct materials used in production $ 192,400Direct labor $ 633,100Manufacturing overhead

Heat, Light, & Power--Plant $ 57,200Supplies—Plant 37,700Property Taxes—Plant 44,200Depreciation Expense—P&E 114,400Indirect Labor—Wages 32,500Supervisor’s Salary Plant 85,800

Total Factory Overhead $ 371,800Total manufacturing costs incurred $ 1,197,300Add: Beginning work in process inventory 29,900Total manufacturing costs to account for $ 1,227,200Deduct: Ending work in process inventory (11,700)Cost of Goods Manufactured $ 1,215,500

194194

Pacific Coast (p. 3)

PACFIC COAST HOME FURNISHINGSIncome Statement


Sales $ 1,950,000Cost of Goods Sold Finished Goods Inventory, Beginning $ 19,500 Cost of Goods Manufactured 1,215,500 Total Goods Available for Sale $ 1,235,000 Finished Goods Inventory, Ending 49,400

Less: Cost of goods sold (1,185,600)Gross margin $ 764,400Less: Selling and administrative expenses:

Sales reps’ salaries $ 188,500 Supplies—Admin Office 20,800 Depr. Exp—Admin Office 42,900

Total Selling & Administrative Expenses (252,200)Operating Income $ 512,200

195

Paradise Company

40,000 10,000 80,000

Purch. 1,000,000 1,000,000 1,000,000 1,000,00050,000 10,000 50,000

RM (RM-lbs.) WIP (RM-lbs.) FG (RM-lbs.)

1,010,000

196196

Pauley’s Parts Co.

Future revenuesDeduct future costsMargin

$30,00025,000

$ 5,000

$2,500

$2,500

Remachine Scrap

The difference is in favor of remachining by $2,500 ($5,000 - $2,500).The $50,000 inventory cost is irrelevant.

197

Penner Corporation

FG – 2nd Quarter

3,800

37,600

3,400

38,000

BI (38,000 * 10%)

Budgeted Production

EI (34,000 * 10%)

Budgeted sales

FG – 3nd Quarter

3,400

35,400

4,800

34,000

BI (34,000 * 10%)

Budgeted Production

EI (48,000 * 10%)

Budgeted sales

DM – 2nd Quarter

22,560

111,480

21,240

112,800

BI (112,800 * 20%)

Budgeted DM Purch

EI (106,200 * 20%)

DM needed in production

(37,600 * 3)

DM – 3nd Quarter

106,200

DM needed in production

(35,400 * 3)

198198

Phony Phones Co.

Corded $30.00 $24.00 $ 6.00 5/10 $3.00

2.4 GHz $32.00 $24.00 $ 8.00 4/10 $3.20

5.8 GHz $40.00 $36.00 $ 4.00 1/10 $0.40

$6.60

SPU VCU CMU Mix

Wtd.Avg.CMU

FC $165,000 25,000 units

CM per unit $6.60

Corded 2.4 GHz 5.8 GHz

50% 40% 10%

12,500 + 10,000 + 2,500 = 25,000

$375,000 + $320,000 + $100,000 = $795,000


# 1

===BE (units)

#1

199199

Phony Phones Co. (p. 2)

NIBT =NIAT

(1- Tax Rate)

# 2NIBT =

$59,400

(1- .4)

NIBT = $99,000

BE (units) = $165,000 + $99,000

$6.60BE (units) =

FC + NIBT

BE (units) 40,000 =

CM per unit


50% 40% 10%

20,000 + 16,000 + 4,000 = 40,000

$610,500 + $512,000 + $160,000 = $1,282,500


#2

200

Pipes Company

WIP Units

70,000

350,000

40,000

380,000Out

BI

IN

EI

DM

100%

75%

CC

90%

25%

WIP - $ (Wtd. Avg.)

DM $86,000

CC $36,000

DM $447,000

CC 198,000

DM $39,000

CC $6,000

$45,000

380,000 * 1.90

= $722,000

= 40,000 * 75% * $1.30

= 40,000 * 25% * $0.60

OutBI

IN

EI

E.U.

DM CC

380,000

30,000

410,000

380,000

10,000

390,000


DM CC

$86,000

$447,000

$533,000

$36,000

$198,000

$234,000

BI

IN

Total

$/EU

DMCC

$533,000 / 410,000 = $1.30

$234,000 / 390,000 = $0.60

$1.90

OUT

EI: (DM) 40,000 * 75%

EI: (CC) 40,000 * 25%

E.U.


201

Pirates, Inc.

Rate Efficiency

AQ × AC AQ × SC SQ × SC28,000 × $11.70 28,000 × $12.00 (22,000)(1.25) × $12.00 $327,600 $336,000 $330,000

$8,400 F $6,000 U

$2,400 F


202202

Plentiful Printing, Inc.$15,000

95,000

$20,000

$90,000

DM

$ 3,000

90,000

40,000

60,000

$ 8,000

2,000

3,000

$13,000

$180,000

WIP

$ 20,000

180,000

$ 15,000

$185,000

FG

$40,000

2,500 * $16

$40,000

DL

Actual

$57,000

$ 3,000

Applied

$40,000 * 1.5

= $60,000

$ 3,000

MOH

$182,000

$ 3,000

$182,000

COGS

$182,000

57,000

12,000

$285,000

$34,000

I/S

PD

OR

= E

st M

OH

/ E

st A

ctiv

ity

=

$60

0,00

0 / $

400,

000

=

$1.

50 p

er D

L $

$2,0

00 /

125

hrs

= $

16 /h

r D

L R

ate

BI

Purch

EI

BI

EI

Adj. COGS

Selling

Admin

Sales

OI

COGMCOGS

Adj. COGS- 0 -

- 0 -

- 0 -

$185,000

203203

Polaris Company$ 10,000

210,000

$ 34,000

$178,000

12,000

DM

BI

Purch

EI

$ 42,000

178,000

90,000

240,000

$ 30,000

$520,000

BI

EI

WIP

$ 37,000

520,000

$ 77,000

$480,000

BI

EI

FG

$ 90,000

- 0 -

$ 90,000

DL

MOH

$ 12,000

110,000

40,000

70,000

$232,000 30,000 * $8

= $240,000

$ 8,000

IDM

IDL

Depr.

Other

COGS

I/S

$472,000

54,000

42,000

$600,000COGS

Selling

Admin.

Sales

$ 8,000

- 0 -

$480,000

$472,000

- 0 -Adj. COGS

COGS

$ 8,000

$472,000

COGM

$ 32,000 OI

204204

Polaris Company (p. 2)

$600,000

$ 24,000

$210,000

90,000

110,000

70,000

54,000

42,000

CASH

$ 40,000

Accum. Depr.

[Stmt. of Cash Flows]

Sales DM Purch

DL

IDL

Other MOH

Selling

Admin

CF

205

Portland Pilots Association

Assets 2004 2003Cash $67,200 $40,800 $26,400 IncreaseAccounts receivable $24,000 $36,000 (12,000) DecreasePrepaid expenses $4,800 $0 4,800 IncreaseLand $156,000 $0 156,000 IncreaseBuilding $192,000 $0 192,000 IncreaseAccumulated depreciation - building ($13,200) $0 (13,200) IncreaseEquipment $32,400 $12,000 20,400 IncreaseAccumulated depreciation -- equipment ($3,600) $0 (3,600) IncreaseTotal $459,600 $88,800

Liabilities and Stockholders' EquityAccounts payable $70,800 $4,800 $66,000 IncreaseBonds payable $156,000 $0 156,000 IncreaseCommon stock $60,000 $60,000 0Retained earnings $172,800 $24,000 148,800 IncreaseTotal $459,600 $88,800

Increase/DecreaseChange

31-Dec

Portland Pilots AssociationComparative Balance Sheets

206

Portland Pilots (p. 2)

Operating ActivitiesNet income $166,800Adjustments to convert net income to a cash basis: Depreciation expense $18,000 Loss on sale of equipment 3,600 Decrease in accounts receivable 12,000 Increase in prepaid expenses (4,800) Increase in accounts payable 66,000 94,800Net cash provided by operating activities $261,600

Investing Activities Purchase of building ($192,000) Purchase of equipment (30,000) Sale of equipment 4,800Net cash used by investing activies (217,200)

Financing Activities Payment of cash dividends (18,000)Net cash used by financing activities (18,000)

Net increase in cash and cash equivalents $26,400Cash and cash equivalents at beginning of year 40,800Cash and cash equivalents at end of year $67,200

Noncash investing and financing activities Issuance of bonds payable to purchase land $156,000

PORTLAND PILOTS COMPANYStatement of Cash Flows -- Indirect Method


207

Postmodern ProductsStandard Allowedfor Actual Output



feet

15,200 × $3.15$47,880

(3,000)(5) × $3.0045,000 × $3.00

$45,00015,200 × $3.00

$45,600

$2,280 U $600 U

$2,880 U

DIRECT MATERIALS

ANSWERS:1(a) = $3.151(b) = $2,280 U1(c) = $600 U

208

Postmodern Prod. (p. 2)Standard Allowedfor Actual Output

Rate Efficiency


DLH

5,400 × $11.40$61,560

(3,000)(1.75) × $11.505,250 × $11.50

$60,3755,400 × $11.50

$62,100

$540 F $1,725 U

$1,185 U

DIRECT LABOR

ANSWERS:2(a) = $11.502(b) = 5,2502(c) = 1.75

209

P.W. ProductsStandard Allowedfor Actual Output



pounds

350,000 × $4.12$1,442,000

(12,000)(25) × $4.00300,000 × $4.00

$1,200,000

350,000 × $4.00$1,400,000

$42,000 U

$16,000 U

CAN’T!

DIRECT MATERIALS

304,000 × $4.00$1,216,000

DM Purchased ≠ DM Used

210

P.W. Products (p. 2)Standard Allowedfor Actual Output

Rate Efficiency


DLH

95,400 × $10.55$1,006,470

(12,000)(8) × $10.0096,000 × $10.00

$960,00095,400 × $10.00

$954,000

$52,470 U $6,000 F

$46,470 U

DIRECT LABOR

211

Rainbow, Inc.The minimum transfer price is $30. The Yellow Division has idle capacity and so must cover only its

incremental costs, which are the variable manufacturing costs. (Fixed costs are the same whether or not the internal transfer occurs; the variable selling expenses are avoidable.)

The maximum transfer price is $56. The Green Division would not pay more for the part than it has to pay an external supplier.

Yellow Division Operating Income

Yes, an internal transfer should occur; the opportunity cost of the selling division is less than the opportunity cost of the buying division. The Yellow Division would earn an additional $150,000 ($6 × 25,000). The total joint benefit, however is $650,000 ($26 × 25,000). The manager of the Yellow Division should attempt to negotiate a more favorable outcome for that division.

SalesLess expenses:

Original productionAdded by the division

Total ExpensesNet operating income

$5,250,000 = ($58 × 75,000) + ($36 × 25,000)

3,000,000 = $40 × 75,000 750,000 = $30 × 25,000 3,750,000$1,500,000

1.

2.

3.

4.

212

Rebel Company

Price

AQ * AP AQ * SP SQ * SP30,000 * $2.80 30,000 * $3.00 29,000 * $3.00

$84,000 $90,000 $87,000

$3,000 / 1,000 in Q = $3.00

$3,000 F

Quantity

$3,000 u$6,000 F

213

Rikki-Tikki-Tavi TaffyRikky-Tikky-Tavi Taffy

Comparative Balance Sheets31-Dec

Assets 2002 2001

Current Assets:

Cash $3,600 $26,400 ($22,800) Decrease Accounts receivable 144,000 98,400 $45,600 Increase Inventory 129,600 102,000 $27,600 Increase Prepaid expenses 6,000 9,600 ($3,600) DecreaseTotal current assets 283,200 236,400 $46,800 IncreaseLong-term investments 64,800 88,800 ($24,000) DecreasePlant and equipment 523,200 336,000 $187,200 IncreaseLess: Accumulated depreciation 72,000 60,000 $12,000 IncreaseNet plant and equipment 451,200 276,000 $175,200 IncreaseTotal assets $799,200 $601,200 $198,000 Increase

Liabilities and Stockholders’ Equity

Current liabilities:

Accounts payable $86,400 $72,000 $14,400 Increase Accrued liabilities 22,800 21,600 $1,200 IncreaseTotal current liabilities 109,200 93,600 $15,600 IncreaseBonds payable 156,000 0 $156,000 IncreaseDeferred income taxes 14,400 12,000 $2,400 IncreaseStockholders’ equity:

Preferred stock 98,400 114,000 ($15,600) Decrease Common stock 318,000 285,600 $32,400 Increase Retained earnings 103,200 96,000 $7,200 IncreaseTotal stockholders’ equity 519,600 495,600 $24,000 IncreaseTotal liabilities and stockholders’ equity $799,200 $601,200 $198,000 Increase

214

Rikki-Tikki-Tavi (p. 2)

Operating ActivitiesNet income $37,200Adjustments to convert net income to a cash basis: Depreciation expense $33,600 Increase in accounts receivable (45,600) Increase in inventory (27,600) Decrease in prepaid expenses 3,600 Increase in accounts payable 14,400 Increase in accrued liabilities 1,200 Gain on sale of investments (12,000) Gain on sale of equipment (3,600) Increase in deferred income taxes 2,400 (33,600)Net cash provided by operating activities $3,600

Investing Activities Sale of investments $36,000 Sale of equipment 12,000 Purchase of plant and equipment (217,200)Net cash used by investing activies (169,200)

Financing Activities Increase in bonds payable $156,000 Increase in common stock 16,800 Payment of cash dividends (30,000)Net cash used by financing activities 142,800

Net increase in cash and cash equivalents ($22,800)Cash and cash equivalents at beginning of year 26,400Cash and cash equivalents at end of year $3,600

Noncash investing and financing activities Preferred stock converted to common stock $15,600

RIKKY-TIKKY-TAVI TAFFYStatement of Cash Flows -- Indirect Method


215215

Robin Hood, Inc.

MOH

$2,400,000 $2,240,000

$160,000

$160,000

- 0 -

to COGS

Underapplied


Estimated Activity=

$2,000,000

125,000 DLH

=

$16.00 per DLH

Applied MOH = Actual Activity × PDOR 140,000 DLH × $16.00 $2,240,000=

=1.

2.

3.

216

Rocky Mountain Bicycle Club

Direct materials $ 60Direct labor 70Variable manufacturing OH 25Fixed manufacturing OH ($300,000 ÷ 5,000 units) 60Unit cost $ 215

Absorption Costing

Rocky Mountain Bicycle ClubAbsorption Costing I/S


Rev $ 1,400,000 = 4,000 units × $350 per unit

- CoGS (240,000) = VC DM 4,000 units × $60 per unit (280,000) = VC DL 4,000 units × $70 per unit

(100,000) = VC MOH 4,000 units × $25 per unit (240,000) = FC MOH 4,000 units × $60 per unit

GM $ 540,000

- S&A (40,000) = VC S&A 4,000 units × $10 per unit (400,000) = FC S&A

NI $100,000

217

Rocky Mountain (p. 2)

Variable Costing

Direct materials $ 60Direct labor 70Variable manufacturing OH 25Unit cost $ 155

Rocky Mountain Bicycle ClubVariable Costing I/S


Rev $ 1,400,000 = 4,000 units × $350

- VC (240,000) = DM 4,000 units × $60 per unit (280,000) = DL 4,000 units × $70 per unit

(100,000) = MOH 4,000 units × $25 per unit (40,000) = S&A 4,000 units × $10 per unit

CM $ 740,000

- FC (300,000) = MOH (400,000) = S&A

NI $40,000



1,000 $60

$60,000


218218

BI $131,400

PURCH. 319,700

EI $126,100

DM

1. $325,000

$293,480

DL

$293,480

MOHIDL

DEPR.

PTY TAX

FIRE INS.

IDM

UTIL.

DEPR.

$22,700

31,000

12,600

7,840

11,600

36,000

44,000

920 x 29= 26,680 DLH

26,680 x $600

= $160,080

$165,740

UnderappliedMOH

$5,6603.

$5,660

PRIME COSTS DM $325,000DL 293,480

$618,4802.

WIPBI $ 49,000

325,000

293,480

160,080

$ 73,900EI

$753,660

4.

FG$ 87,300

753,660

BI

$763,660

$ 77,300EI

COGS$763,660

5,660

$769,320

6.$769,320

- 0 -

I/S

SOLO SALARIES

ADU.

PTY TAX

FIRE INS.

COMM.

ADMIN.

UTIL.

RENT

DEPR.

MISC.

R & ALLOW

$1,281,700 Sales$769,320

85,000

44,000

5,400

1,960

28,500

167,200

9,000

8,700

17,400

4,300

36,100$1,176,880

$104,820 X 40% = $41,928 $104,820

$62,892

NI BT7.

NI AT

- 0 -

Roley Poley

PER UNIT

$753,660 / 920

5.= $819

- 0 -

219

Rondini Magic CompanyRondini Magic Company

Comparative Balance Sheets December 31

Assets

2004

2003

Change Increase/Decrease

Cash $ 64,800 $ 44,400 $ 20,400 Increase Accounts receivable 81,600 31,200 50,400 Increase Inventories 64,800 - 0 - 64,800 Increase Prepaid expenses 4,800 7,200 2,400 Decrease Land 54,000 84,000 30,000 Decrease Building 240,000 240,000 - 0 - Accumulated depreciation – building (25,200) (13,200) 12,000 Increase Equipment 231,600 81,600 150,000 Increase Accumulated depreciation – equipment (33,600) (12,000) 21,600 Increase Total $ 682,800 $ 463,200 Liabilities and Stockholders’ Equity Accounts payable $ 27,600 $ 48,000 $ 20,400 Decrease Accrued liabilities 12,000 - 0 - 12,000 Increase Bonds payable 132,000 180,000 48,000 Decrease Common stock ($1 par) 264,000 72,000 192,000 Increase Retained earnings 247,200 163,200 84,000 Increase Total $ 682,800 $ 463,200

220

Rondini Magic Co. (p. 2)

Operating ActivitiesNet income $150,000Adjustments to convert net income to a cash basis: Depreciation expense $39,600 Increase in accounts receivable (50,400) Increase in inventories (64,800) Decrease in prepaid expenses 2,400 Decrease in accounts payable (20,400) Increase in accrued liabilities 12,000 Loss on sale of equipment 2,400 (79,200)Net cash provided by operating activities $70,800

Investing Activities Sale of land $30,000 Sale of equipment 40,800 Purchase of equipment (199,200)Net cash used by investing activies (128,400)

Financing Activities Redemption of bonds (12,000) Sale of common stock 156,000 Payment of cash dividends (66,000)Net cash used by financing activities 78,000

Net increase in cash and cash equivalents $20,400Cash and cash equivalents at beginning of year 44,400Cash and cash equivalents at end of year $64,800

RONDINI MAGIC COMPANYStatement of Cash Flows -- Indirect Method


221221

Sadly Corporation


FC + NI $300,000 + $0

$10 - $560,000 units

2. BE($) =CM Ratio

FC + NI $300,000 + $0

50%$600,000=

= =

=

1.

222222

Sam Enterprises

Units produced per hourCM per unitCM per hour (constraint)

$ 3.00x 3.00$ 9.00

$ 1.00x 6.00$ 6.00

Cans Can-ettes

Sam should produce “Cans” because the contribution margin perhour (constraint) is greater.

223

Shockey Company

Price Qty/Usage

AQ × AC AQ × SC SQ × SC3,350 × $30 3,350 × $25$100,500 $83,750

$16,750 U

AQ × SC SQ × SC 3,375 × $25 (900)(4) × $25 $84,375 $90,000

$5,625 F

CAN’T!

Actual Cost > Standard Cost = UNFAVORABLEActual Quantity < Standard Quantity = FAVORABLE


(in units)

1.

RM – Alum (lbs.)

503,350 3,375

25

224

Shockey Co. (p. 2)

Rate Efficiency

AQ × AC AQ × SC SQ × SC4,200 × $42 4,200 × $40 (900)(5) × $40 $176,400 $168,000 $180,000

$8,400 U $12,000 F

$3,600 F


2.

225

Sleep Warm, Inc.

$18,500

80,000 $81,700

$16,800

$40,500 $40,500

$105,750

$105,750

$105,750

$12,000

81,700

40,500 $216,450

105,750

$23,500

$10,200

216,450 $217,550

$9,100

$217,550 $217,550

$ 82,450

$217,550 $400,000

100,000

DM

DL

MOH

WIP FG

COGS

- 0 -

- 0 - - 0 -

I/S

ACOGS

COGSCOGM

Admin.PeriodCosts

Purch.

Inventory Accounts

Product Costs


OI

226

Sly-Like-A-Fox, Inc.

SLY-LIKE-A-FOX, INC.Balance Sheet

December 31, 2002

AssetsCurrent Assets: Cash ………………………… Accounts receivable ………… Inventories …………………..Current Assets ………………...Noncurrent assets …………….Total assets ……………………

Liabilities and Equity


Total equity …………………..Total Liabilities and Equity …..

$ 75,00075,000

50,000$200,000$300,000$500,000

$100,000 150,000$250,000

$250,000$500,000

Where? How?Note 10 [Plug]Note 4Note 5Note 7 [Plug](Given)Note 6 [Calc. = Total L+E]


Note 2[Calc.: Note 6]

227

Sly-Like-A-Fox (p. 2)SUPPORTINGCOMPUTATIONS


Sales …………………..Cost of goods sold ……Gross profit …………..Operating expenses …..Net income ……………

$1,000,000 500,000$ 500,000 450,000$ 50,000

(50% of sales (100% - Gross profit margin ratio))(50% of sales (#) Gross profit margin ratio)

(With no information given about taxes, this is all we have.)

Note 2: Return on end-of-year equity = Net income ÷ End of year equity 20% (#) = $50,000 (from Note 1) ÷ End of year equity Equity = $250,000

Note 3: Total debt to equity ratio = Total liabilities ÷ Stockholders’ equity 1 (#) = Total liabilities ÷ $250,000 (from Note 2) Total liabilities = $250,000

Note 4: Accounts receivable turnover = Sales ÷ Average accounts receivable

16 (#) = $1,000,000 (#)

($50,000(#) + End A/R) ÷ 2


Ending accounts receivable = $75,000

228

Sly-Like-A-Fox (p. 3)

Note 6: Total assets = Total liabilities + Total equity = $250,000 (from Note 3) + $250,000 (from Note 2) = $500,000

Total assets = Current assets + Noncurrent assets $500,000 = Current assets + $300,000 (#) Current assets = $200,000

Current ratio = Current assets ÷ Current liabilities 2 (#) = $200,000 ÷ Current liabilities Current liabilities = $100,000

Total liabilities = Current liabilities + Noncurrent liabilities$250,000 (from Note 3) = $100,000 + Noncurrent liabilities Noncurrent liabilities = $150,000


SUPPORTINGCOMPUTATIONS

Note 10: Current assets = Cash + Accounts receivable + Inventory $200,000 = Cash (plug) + $75,000 (from Note 4) + $50,000 (from Note 5) Cash = $75,000

(This “formula” provided by problem information)

Note 5: Days’ sales in inventory = (Inventory × 360) ÷ Cost of goods sold 36 (#) = (Inventory × 360) ÷ $500,000 (from Note 1) End Inventory = $50,000

Note 9:

Note 8:

Note 7:

229

Smith Company Price Qty

AQ × AC AQ × SC SQ × SC 36,000 × $8.35 36,000 × $8.25 $300,600 $297,000

$3,600 U Std. Allowed for Actual Output(Std. Amt. x Actual Units)

AQ × SC SQ × SC31,800 × $8.25 (3200)(10) × $8.25 $262,350 $264,000

$1,650 F

CAN’T!

230

Smith Company (p. 2)

Rate Efficiency

AQ × AC AQ × SC SQ × SC 11,520 × $9.80 11,520 × $9.65 (3200)(3.5) × $9.65 $112,896 $111,168 $108,080

$1,728 U $3,088 U

$4,816 U

Translating Dr. Fessler’s “picture” into Formulas:1. AQ × (SC – AC) = Rate Variance2. SC × (SQ – AQ) = Efficiency variance

231

Soap ‘N Suds Inc.

Sales Value Less: Net Allocatedof Production Separable Costs Realizable Value % NRV Joint Cost

Mango $202,500 - 0 - $202,500 0.49 $102,900

Kiwi 210,000 - 0 - 210,000 0.51 107,100

Total $412,500 - 0 - $412,500 1.00 $210,000

Net Realizable Value Method (Sold at the Split-Off Point)

1.

Gal. Produced x Selling Price

Units ofProduction % Of Allocated(in gallons) Production Joint Cost

Mango 90,000 0.60 $126,000

Kiwi 60,000 0.40 84,000

Total 150,000 1.00 $210,000

Physical Unit Method

2.

4.

232

Soap ‘N Suds Inc. (p. 2)

Sales Value Less: Net Allocatedof Production Separable Costs Realizable Value % NRV Joint Cost

Mango $202,500 $117,000 $85,500 0.35 $ 73,500

Kiwi 210,000 48,000 162,000 0.65 136,500

Total $412,500 $165,000 $247,500 1.00 $210,000

Net Realizable Value Method (Sold Beyond the Split-Off Point)

3.

233

SoMuch StereosAbsorption Costing

Income Statement

For the Year Ended Feb. 28, 2000

Rev. $89,000

COGS: DM (22,000)

DL (14,000)

VOH (9,000)

FOH (10,000)

GM $34,000

S&A: VSE (5,000)

FSE (16,000)

FAE (14,000)

OI ($1,000)

Variable Costing

Income Statement

For the Year Ended Feb. 28, 2000

Rev. $89,000

VC: DM (22,000)

DL (14,000)

VOH (9,000)

VSE (5,000)

CM $39,000

FC: FOH (10,000)

FSE (16,000)

FAE (14,000)

OI ($1,000)

234

South Street Furniture

South Street Furniture Company Absorption Costing I/S For the Y/E Dec. 31, 2005

Rev

- CoGS

GM

- S&A

NI

$3,600,000

(248,000)(2,176,000) (12,000)$1,164,000

(216,000) (340,000)

$ 608,000

= 72,000 units × $20

= BI 8,000 units × $31 per unit= 64,000 units × $34 per unitUnderapplied MOH (2,000 @ $6)

= 72,000 units sold × $3 per unitFixed

South Street Furniture Company Variable Costing I/S For the Y/E Dec. 31, 2005

Rev

- VC

CM

- FC

NI

$ 3,600,000

(208,000)(1,792,000)

(216,000)$ 1,384,000

(480,000) (340,000)

$ 564,000

= 72,000 units × $20

= BI 8,000 units × $26 per unit= 64,000 units × $28 per unit= 72,000 units × $ 3 per unit

MOHS&A

The difference in NI :

FOH from BIFOH to EIDifference in NI

PDOR = $480,000 ÷ 80,000 normal production = $6.00 per unit

$(40,000) 84,000 $ 44,000

= 8,000 units @ $5 per unit = 14,000 units @ $6 per unit

235

1.y = a + bx b = hi-lo $

hi-lo activity

b = $390,700 - $180,000

4,980 – 2,180

= $210,700

2,800

b = $75.25 per machine hour

$390,000 = a + $75.25 (4,980)

$390,700 = a + $374,745

a = $15,955

Cost Formula

y = $15,955 + $75.25x

y = $15,955 + $75.25 (3,500)

y = $15,955 + $263,375

y = $279,330

2.

Southern Carpets

236

Southern Carpets (p. 2)SOUTHERN CARPETSRegression Analysis

SUMMARY OUTPUTY = Costs X = Hours

J $341,062 3,467 Regression StatisticsF $346,471 4,426 Multiple R 0.740754563M $287,328 3,103 R Square 0.548717323A $262,828 3,625 Adjusted R Square 0.503589056M $220,843 3,081 Standard Error 46999.24973J $390,700 4,980 Observations 12J $337,924 3,948A $180,000 2,180 ANOVAS $376,246 4,121 df SS MS F Significance FO $295,041 4,762 Regression 1 26858506459 26858506459 12.1590602 0.005852441N $215,121 3,402 Residual 10 22089294751 2208929475D $275,343 2,469 Total 11 48947801211

Coefficients Standard Error t Stat P-value Lower 95% Upper 95%Intercept 86152.88975 61152.29174 1.408825202 0.18921362 -50102.93094 222408.7104X = Hours 57.27371965 16.42500026 3.486984399 0.005852441 20.6765321 93.87090721

y = $57.27 x + $86,152.89

when x = 3,500 y = $286,597.85when x = 4,000 y = $315,232.89

Cost Function:

237

Spartan Inc.

Product Sales Value Additional Costs Net Realizable Value % of NRV Allocated Joint Cost

Alpha $180,000 $20,000 $160,000 0.64 $76,800

Beta 100,000 20,000 80,000 0.32 38,400

Chi 20,000 10,000 10,000 0.04 4,800

$250,000 1.00 $120,000

Sales Value less

Additional Costs

% Applied to

Total Joint Cost

238

Steinmueller SteinsStep 1 Step 5

DM CC100% 70% 5,000

DM $6,00020,000 23,000 CC $7,000 23,000*$1.98

100% 80% 2,000 $13,000$45,540

DM $18,000Step 2 CC $18,000

$36,000DM CC

out DM $1,920 2000*100%*$.9623,000 23,000 CC $1,632 2000*80%*$1.02

EI 2000*100% 2,000 $3,5522000*80% 1,600

E.U. 25,000 24,600

Step 3 BI + IN = EI + Out

BI $6,000 $7,000IN $18,000 $18,000

$24,000 $25,000

Step 4Compute E.U. Costs

$24,000/25,000 $25,000/24,600 =$.96 =$1.01626 = $1.02

$1.98

WIP-Molding (units)

EU

Total Costs To Account For:

WIP-Molding ($)


239

Steinmueller (p. 2)

WIP Units

5,000

20,000

2,000

23,000

OutBI

IN

EI

DM

100%

100%

CC

70%

80%

WIP - $ (FIFO)

DM $6,000

CC $7,000

DM $18,000

CC $18,000

DM $1,800.00

CC 1,364.80

$3,164.80

$ 13,000.00 from BI

1,279.50 Finished CC 5,000×30%×$0.853

31,554.00 S&F 18,000 × $1.753

$45,833.50

= 2,000 × 100% × $0.90

= 2,000 × 80% × $0.853

OutBI

IN

EI

E.U.

DM CC

- 0 -

18,000

2,000

20,000

1,500

18,000

1,600

21,100


DM CC

$1.20

$2.00

$ per EU

BI: (DM) 5,000× 0%

BI: (CC) 5,000×30%

Start & Finish

EI: (DM) 2,000×100%

EI: (CC) 2,000× 80%

E.U.

FIFO METHOD

BI

$6,000 DM ÷ (5,000×100%)

$7,000 CC ÷ (5,000× 70%)

Total

$3.20

$0.90

$0.853

$ per EUIN

$18,000 DM ÷ 20,000 E.U.

$18,000 CC ÷ 21,100 E.U. $1.753



240

Stetson Company

Stetson Company Absorption Costing I/S For the Y/E Dec. 31, 2001

Rev

- CoGS

GM

- S&A

NI

$17,000

(- 0 -)(6,000)

(4,000)$ 7,000

(1,000) (1,400)

$ 4,600

= 2,000 units × $8.50

= BI ( - none - )= 2,000 units × $3 per unitUnderapplied MOH (4,000 @ $1)

= 1,000 units sold × $0.50 per unitFixed

Normal volume is 10,000 units of production.Underapplied MOH = 10,000 – 6,000 actual production = 4,000 units

Stetson Company Absorption Costing I/S For the Y/E Dec. 31, 2002

Rev

- CoGS

GM

- S&A

NI

$25,500

(9,000)( - 0 - )

(9,100)$ 7,400

(1,500) (1,400)

$ 4,500

= 3,000 units × $8.50

= BI 3,000 units × $3 per unit= - 0 - units × $3 per unitUnderapplied MOH (9,100 @ $1)

= 3,000 units sold × $0.50 per unitFixed

Normal volume is 10,000 units of production.Underapplied MOH = 10,000 – 900 actual production = 9,100 units

241

Stetson Company (p. 2)

Stetson Company Variable Costing I/S For the Y/E Dec. 31, 2002

Rev

- VC

CM

- FC

NI

= 3,000 units × $8.50

CoGS (3,000 units × $2 per unitS&A (3,000 units × $0.50 per unit)

MOHS&A



4,000 $1.00$ 4,000

$ 25,500

(6,000) (1,500)$ 18,000

(10,000) (1,400)

$ 6,600

Stetson Company Variable Costing I/S For the Y/E Dec. 31, 2001

Rev

- VC

CM

- FC

NI

= 2,000 units × $8.50

CoGS (2,000 units × $2.00 per unit)S&A (2,000 units × $0.50 per unit)

MOHS&A

$ 17,000

(4,000) (1,000)$ 12,000

(10,000) (1,400)

$ 600



2,100 $1.00$2,100



242242

Stewart Company

Relevant fixed cost of making ($20*50%)DMDLFOHRelevant cost per unit

$10351119

$75

When you compare the cost to make of $75 to the cost of buy of $85; there isa $10 per unit savings. Stewart should make the product.

Relevant costs to make:

Selling price

Relevant cost per unit

$85

$85

Relevant costs to buy:

243

Stiegl Corporation

Spend N/A

AQ * AP AQ * SP SQ * SP SQ * SP15,000 * 15,000 * $2.00 12,000 * $2.00

$27,500 $30,000 $24,000

$6,000 u

$3,500 u

Eff

$2,500 F

244244

Stone Monument (A)

1.

2.


CMU

= $6,000,000

$1,000

= 6,000 units

BE ($) = FC + NI

CMR

= $6,000,000

$2,000 - $1,000

= $12,000,000

= 30%BE (units)

NormalCapacity

BE unitsas a % ofnormalcapacity

=6,000

20,000

=

$2,000

245245

Stone Monument (B)

1.

2.


CMU=

$6,000,000 + $1,400,000

$1,000= 7,400 units

BE ($) = = = $14,800,000

FC + NI

CMR

$6,000,000 + $1,400,000

$2,000 - $1,000

$2,000

246246

Stone Monument (C)

1.

2.

SP (x) = VCU (x) FC NI

$2,000 (x) = $1,000 (x) $6,000,000 (.25) ($2,000) (x)

$2,000 (x) = $1,000 (x) $6,000,000 $500 (x)

$500 (x) = $6,000,000

x = 12,000 units

+

+

+

+

+

+

TR = VC FC NI

R = .5 R $6,000,000 .25R

.25 R = $6,000,000

R = $24,000,000

+

+

+

+

247247

Stone Monument (D)

2.

1. SP (x) = VCU (x) FC NI

$2,000 (x) = $1,000 (x) $6,000,000 (.25) ($2,000) (x)

$2,000 x = $1,000 x $6,000,000 $400 x

$600 x = $6,000,000

x = 10,000 units

+

+

+

+

+

+

Sales($) = Units SP

Sales($) = 10,000 $2,000

Sales($) = $20,000,000

*

*

248248

Stone Monument (E)

SP (x) = VCU (x) + FC + NI

SP (20,000) = $1,000 (20,000) + $6,000,000 + $21,000,000

SP = $47,000,000

20,000

SP = $2,350

249249

Stone Monument (F)

1.

2.

MS ($) = Actual Revenue - BE Revenue

MS ($) = $40,000,000* - $12,000,000** MS ($) = $28,000,000

MS Ratio = Actual Revenue - BE Revenue

MS Ratio = $40,000,000 - $12,000,000

Actual Revenue

$40,000,000

MS Ratio = 70%Quite Good!!

*($2,000 SP x 20,000 normal volume)

** (from (A))

250250

Stone Monument (G)

1.

2.


CMU=

$6,000,000 + $2,000,000

$1,000

= 8,000 units

BE ($) = FC + NI

CMR= = $16,000,000

NIBT = NIAT

1- Tax Rate=

$1,400,000

1 - 0.30

First, …

= $2,000,000

$6,000,000 + $2,000,000

$2,000 - $1,000

$2,000

251

Strange Fire, P.C.

Variable Overhead

Spending Efficiency N/A

Actual VOH AQ × SC SQ × SC 2900 × $20 2800 × $20

$54,000 $58,000 $56,000

$4,000 F $2,000 U

2,000 F

Flexible Budget Variance = $2,000 F

252

Stuffing Company (A)

Present0

Year1

Year2

Year3

Purchase

Savings

Total

PV Factor

NPV Calc.

$(60,000)

$(60,000)

× 1.0000

$(60,000)

$25,000

$25,000

× 0.9091

$22,727.50

$25,000

$25,000

× 0.7513

$18,782.50

$25,000

$25,000

× 0.8264

$20,660.00 = $2,170

From PV Table

≥ $0 ☺

OR use Annuity Table

PurchaseSavingsPV FactorNPV Calc.

$25,000× 2.4869

$62,172.50

per year for 3 years$(60,000)

× 1.0000 $(60,000) = $2,172.50 ☺

+ ++

253

Stuffing Company (B)•TRIAL & ERROR•THE HIGHER THE INTEREST RATE, THE LOWER THE PV

We know 10% is TOO LOW (why, because it yields a positive NPV)

So we try 11% … $25,000× 2.4437

$61,092.50(11% for 3 yr. annuity)

vs. $(60,000) STILL TOO LOW

So we try 12% … $25,000× 2.4018

$60,200(12% for 3 yr. annuity)

vs. $(60,000) Still A BIT too low

So we try 13% … $25,000× 2.3612

$59,025(13% for 3 yr. annuity)

vs. $(60,000) Now A BIT too HIGH

Closer to 12% than 13%

254

Stuffing Company (C)

Investment A: 2 years

$ 20,000 in Year 1 80,000 in Year 2 $100,000 Total

Investment B: 2 years

$ 90,000 in Year 1 10,000 in Year 2 $100,000 Total

Investment B BETTER because get money sooner

Payback Period = Original Investment ÷ Periodic Cash Flow

Investment C: 3 years

$100,000 ÷ $39,000 = 2.5641 years

255

Stuffing Company (D)

Accounting Rate of Return (ARR) = Avg. NI ÷ Investment

[ARR aka Simple Rate of Return]

Avg. NI =$80,000

5 yrs. = $16,000 NI per year

Average NIInvestment

= $16,000 $100,000 = 16% ARRARR =

256

Stuffing Company (E)

Profitability Index = PV of CF

Investment

Project 1:

Project 2:

Project 3:

$567,270 ÷ $480,000 = 1.182

$336,140 ÷ $270,000 = 1.245

$379,760 ÷ $400,000 = 0.949

RANKING:

NPV

PI

IRR

Project 1

1

2

2

Project 2

2

1

1

Project 3

3

3

3

1.

2.

257

$ 16,700

$152,500

$22,800

185,000

DM

BI

Purch (for Cash)

EI

$ 18,400

146,400

175,600

54,800

$ 25,200

$370,000

BI

EI

WIP

$ 24,600

370,000

$ 19,500

$375,100

BI

EI

FG

$175,600 $175,600

- 0 -

DL

MOH

$ 14,300

12,600

10,100

9,440

8360

$ 54,800 $ 54,800

- 0 -

IDL

Fact. Repairs

Fact. Utilities

Depr., Fact.

Fact. Ins.

COGS

I/S

$375,100

114,900

92,600

5,150

$680,000COGS

Selling Exp.

Admin. Exp.

Interest Exp.

Sales

NI BT

$375,100

- 0 -

$375,100

COGS

Sven’s Sweets Co.

(for Cash)

(for C

ash)

(on Acct.)

(on Acct.)

$ 92,250$ 20,000Inc. Tax (o

n Acct.)

NI AT$ 72,250$ 72,250

- 0 -

(Cash)

(to R/E)

258

Sven’s Sweets (p. 2)$ 42,500

671,900

$ 104,290

$ 14,300

12,600

10,100

8,360

212,500

19,000

152,500

175,600

5,150

Beg

End

CASH


$ 71,900

680,000

$ 80,000

$671,900

Beg

End

A/R (net)

$724,000

$724,000

Beg

End

Plant Assets

$ 278,400

9,440

$ 287,400

Beg

End

Accum. Depr.

Cash fromCustomers

((A/R))

IDL

Repairs

Util.

Ins.

A/P

Tax Pay.

DM

DL

Int. Exp.


$ 100,000

$ 100,000

Beg

End

Notes Payable

$ 5,000

20,000

$ 6,000

Beg

End

Inc. Taxes Payable

$ 40,000

114,900

92,600

$ 35,000

Beg

End

A/P

$ 269,600

$ 269,600

Beg

End

Common Stock

$ 205,100

72,250

$ 277,350

Beg

End

R/E

$ 19,000 $ 212,500(Inc. Tax Exp.)(to Cash)

(to Cash)(Sales on Acct.)(Depr.Exp.)

(Net Income)

(Selling Exp.)(Adm. Exp..)

259

Sven’s Sweets (p. 3)Sven’s Sweets Company


Assets CashA/RPlant AssetsAccum DeprDMWIPFG

Total

$ 104,290 80,000

724,000 (287,840)

22,800 25,200 19,500

$687,950


N/PIT/PA/PC/SR/E

Total

$ 100,000 6,000

35,000 269,600 277,350

$687,950

Sven’s Sweets CompanyStatement of Cash Flows (Indirect Method)

For the Year-Ended December 31, 2005

Net Income

Depr. ExpA/RIT/PA/PDMWIPFG

Net Cash Inflows

Beg. Cash

End Cash

$ 72,250

+ 9,440- 8,100+ 1,000- 5,000- 6,100- 6,800+ 5,100

$ 61,790

42,500

$104,290

Not specifically requested by problem;already calculated CF using Direct Method.

260

Sweet Surrender, Inc.

SWEET SURRENDER, INC.Balance Sheet

December 31, 2003

AssetsCurrent Assets: Cash ………………………… Accounts receivable ………… Inventories …………………..Current Assets ………………...Noncurrent assets …………….Total assets ……………………

Liabilities and Equity


Total equity …………………..Total Liabilities and Equity …..

$ 85,000125,000

75,000$285,000$495,000$780,000

$237,500 22,500

$260,000

$520,000$780,000

Where? How?(Given)Note 5Note 4[Calc.: Note 7]Note 8 [Plug]Note 6 [Calc. = Total L+E]


Note 2[Calc.: Note 6]

261

Return on end-of-year equity = Net income ÷ End of year equity 0.5 (#) = $260,000 (from Note 1) ÷ End of year equity Equity = $520,000

Total debt to equity ratio = Total liabilities ÷ Stockholders’ equity 0.5 (#) = Total liabilities ÷ $520,000 (from Note 2) Total liabilities = $260,000

Days’ sales in inventory = (Inventory × 360) ÷ Cost of goods sold 15 days (#) = (Inventory × 360) ÷ $1,800,000 (from Note 1) End Inventory = $75,000

Days’ sales in receivables = (Accounts receivable × 360) ÷ Sales 15 days (#) = (Inventory × 360) ÷ $3,000,000 (from Note 1) End Accounts receivable = $125,000



$3,000,000 1,800,000$1,200,000 800,000$ 400,000 140,000$ 260,000

(= COGS + Gross profit)(#) (60% of sales (100% - Gross profit margin ratio))(40% of sales (#) Gross profit margin ratio)(#)(Calculation)(tax at 35% rate (#))

Sweet Surrender (p. 2)SUPPORTINGCOMPUTATIONS

Note 2:

Note 3:

Note 4:


Note 5:

262

Note 10: Total liabilities = Current liabilities + Noncurrent liabilities$260,000 (Note 3) = $237,500 (Note 9) + Noncurrent liabilities Noncurrent liabilities = $22,500

Current assets = Cash + Accounts receivable + InventoriesCurrent assets = $85,000 (#) + $125,000 (Note 5) + $75,000 (Note 4) Current assets = $285,000

Current ratio = Current assets ÷ Current liabilities 1.2 (#) = $285,000 (Note 7) ÷ Current liabilities Current liabilities = $237,500

Sweet Surrender (p. 3)

Note 7:

Total assets = Current assets + Noncurrent assets$780,000 (Note 6) = $285,000 (Note 7) + Noncurrent assets (plug) Noncurrent assets = $495,000

SUPPORTINGCOMPUTATIONS

Note 9:

Note 8:

Total assets = Total liabilities + Total equity = $260,000 (Note 3) + $520,000 (Note 2) = $780,000

Note 6:


263263

The Swizzle Manufacturing Co.

$ 10,000

200,000

$ 25,000

185,000

DM

BI

Purch

EI

$ 15,000

185,000

230,000

385,200

$ 22,000

$793,200

BI

EI

WIP

$ 30,000

793,200

$ 43,200

$780,000

BI

EI

FG

$230,000

(21,400 hrs)

$230,000

DL

MOH

$ 63,000

90,000

54,000

76,000

102,000

385,000 21,400 * $18

= $385,200

$ 200

Utilities

IDL

Maint.

Depr.

Rental

COGS

I/S

$779,800

7,000

110,000

136,000

19,000

18,000

$1,200,000

$ 130,200

COGS

Utilities

S&A Salaries

Advertising

Depr.

Rental

Sales

OI

Est.OH

Est Activity

$360,000

20,000 DLH

= $18 per DLH

200

$779,800

$ 200

$780,000

$779,800 Adj. COGS

PDOR =

=

COGSCOGM

- 0 -

- 0 -

- 0 -

264264

Swizzle (p. 2)The Swizzle Manufacturing Company

Schedule of Cost of Goods Manufactured

For the Year Ended December 31,1994

Direct material:

Raw materials inventory, 1-1-94

Add: Purchases of raw materials


Deduct: Raw materials inventory, 12-31-94

Raw materials used in production

Direct Labor


Utilities......................................................................................

Indirect Labor..............................................................................

Maintenance.................................................................................

Depreciation.................................................................................

Building rent..............................................................................

Actual overhead costs

Add: Overapplied overhead

Manufacturing overhead applied to WIP





$10,000

200,000

$210,000

(25,000)

$185,000

230,000

$63,000

90,000

54,000

76,000

102,000

$385,000

200

385,200

$800,200

15,000

$815,200

(22,000)

$793,200

265265

Swizzle (p. 3)

The Swizzle Manufacturing Company

Schedule of Cost of Goods Sold

For the year ended December 31, 1994

Finished goods inventory, 1-1-94

Add: Cost of goods manufactured

Goods available for sale

Less: Ending finished goods inventory

Cost of goods sold

Deduct: Overapplied overhead

Adjusted cost of goods sold

$30,000

793,200

823,200

(43,200)

$780,000

(200)

$779,800

266266

Swizzle (p. 4)

The Swizzle Manufacturing Company

Income Statement


Sales

Less: Cost of Goods Sold

Gross Margin


Utilities

Salaries

Advertising

Depreciation

Building rental

Operating Income

$1,200,000

(779,800)

$420,200

$290,000

$130,200

$ 7,000

110,000

136,000

19,000

18,000

267

Tallyho Company

$3,000,000 budgeted FOH ÷ 100,000 budgeted units = $30 per unit (SC)

FIXED OVERHEAD Spending Volume Actual FOH Budgeted FOH Applied FOH BQ × SC SQ × SC (110,000)(1) × $30 $3,200,000 $3,000,000 $3,300,000

$200,000 U $300,000 F

$100,000 F

268

Thor’s Hammer, Inc.

Rate

AQ * AP AQ * SP SQ * SP2,000 * $5.00 2,000 * $5.50 1,727 *$5.50

$10,000 $11,000 $9,500

$1,000 F

Eff

$1,500 u

269269

Tigér Boats

$12,500 Selling price per boat(11,500) Variable cost per boat ($5,000 + $5,500 + $1,000)

Fixed manufacturing overhead will not change and thus isnot relevant.

$ 1,000 Contribution per boat

Contribution margin per boat is positive, therefore the offer shouldbe accepted.

270270

Tillamook Cheese Co.

Sales value if processed furtherSales value at split off (raw milk)Cost of further processing

Gain or (loss) from processing further

$450,000 (400,000)( 17,000)

$ 33,000

Cheese Ice Cream Butter

$679,000 (500,000)(103,000)

$ 76,000

$110,000 (100,000)( 14,000)

($ 4,000)

The milk should be processed further into cheese and ice cream since the increased revenuesare greater than the increased costs to produce those products. The milk should not be processedfurther into butter because increased revenues are less than the increased costs to produce butter.

271271

Tina’s Best Choc. (A)

$2,000 Selling price of Instant Cocoa (500) Selling price of Cocoa powder$1,500 Additional revenue from processing further (800) Additional cost of processing further $700 Additional profit per ¼ ton from processing further

Tina should process the cocoa powder further because it willIncrease operating income by $700.

272272

Tina’s Best Choc. (B)

Contribution margin per case

Machine hours required per case

Revenue per machine hour

THE DARK

$2.00

.05 MH

$40.00

THE LIGHT

$1.00

.02 MH

$50.00

Tina should produce The Light because its revenue permachine hour (the constraint) is higher ($50 vs. $40).

273273

Toledo Torpedo Co.Cost Comparison – Replacement of Machine, Including Relevant and Irrelevant Items

Sales

VariableOld machine (book value) Depreciation write-off

-or Lump-sum write-off

Disposal value

New machine (purchase price)

Total expenses

Operating income

Expenses:

$400,000 $400,000

320,000 224,000 96,000

40,000

4,000*

40,000*

4,000

$ --

-- -- -- --

60,000 (60,000)

$360,000 $320,000 $40,000

$40,000$40,000 $80,000

-- --

*In a formal income statement, these two items would be combined as a “loss on disposal of $36,000.

Keep Replace Difference

Four Years Together

Toledo should replace the machine because it willincrease operating income by $40,000.

274

Traber Company

DM

DL

MOH

WIP FG

COGS

I/S

Purch.

$ 25,000

75,000$ 56,250

$ 43,750

$ 43,750 $ 43,750

-0-

$ 18,750 15,000 100,000 31,250

$165,000$165,000

-0-

$ 41,250 56,250 43,750 165,000

$ 43,750

$ 275,000

$28,750

$ 275,000 $ 278,750COGM

$ 25,000

-0-

COGS

$ 278,750 82,500 68,750

$ 625,000

$ 195,000 OI

$ 278,750$ 278,750 ACOGS

PeriodCosts

Inventory Accounts

Product Costs


275

Traber Company (p. 2)

Direct material:

Direct materials inventory, 1-1-04

Add: Purchases of direct materials


Deduct: Direct materials inventory, 12-31-04

Direct materials used in production

Direct Labor


Repair and Maintenance..............................................................

Factory insurance ........................................................................

Depreciation Expense—Plant......................................................

Indirect Labor--Wages.................................................................





$25,000

75,000

$100,000

(43,750)

$56,250

56,250

$18,750

15,000

100,000

31,250 165,000

$277,500

41,250

$318,750

(43,750)

$275,000

Traber CompanySchedule of Cost of Goods ManufacturedFor the Year Ended December 31, 2004

276

Traber Company (p. 3)

Traber CompanyIncome Statement


Sales $ 625,000

Cost of Goods Sold

Finished Goods Inventory, Beginning $ 28,750

Cost of Goods Manufactured 275,000

Total Goods Available for Sale $ 303,750

Less: Finished Goods Inventory, Ending 25,000

Less: Cost of goods sold (278,750)

Gross margin $ 346,250


Marketing Expenses $ 82,500

General and Administrative 68,750

Total Selling & Administrative Expenses (151,250)

Operating Income $ 195,000

277

True Blue Corporation

Variable Overhead

Spending Efficiency N/A

Actual VOH AQ × SC SQ × SC 400 × $3.85 420 × $3.85

$1,600 $1,540 $1,617

$60 U $77 F

$17 F

Flexible Budget Variance = $17 F

278

Tubber Company

Rate

AQ * AP AQ * SP SQ * SP2,200 * $8.40 2,200 * $8.00 2,000 * $8.00

$18,480 $17,600 $16,000

$880 u

Eff

$1,600 u

279

Wabash Cannonball1. $90,000 ÷ 30,000 units = $3.00 per unit

3.2.

Price Qty/Usage

AQ × AC AQ × SC SQ × SC30,000 × $3 30,000 × $3.25$90,000 $97,500

$7,500 F

AQ × SC SQ × SC 28,000 × $3.25 26,000 × $3.25 $91,000 $84,500

$6,500 U

CAN’T!

Actual Cost < Standard Cost = FAVORABLEActual Quantity > Standard Quantity = UNFAVORABLE


(in units)

280

Ward Company

June June July August SeptemberApril: ?May: ?June: $30,000 * 30%

JulyMay: ?June: $30,000 * 50%July: $50,000 * 30%

AugustJune: $30,000 * 15%July: $50,000 * 50%Aug: $70,000 * 30%

SeptemberJuly: $50,000 * 15% $7,500Aug: $70,000 * 50% $35,000Sept: $60,000 * 30% $18,000

$60,500

PART 1 PART 2

July:Aug:Sept:Sept:

$50,000 × 80% × 15% =$70,000 × 80% × 50% = $60,000 × 80% × 30% =$60,000 × 20% =

$ 6,000$28,000$14,400$12,000$60,400

20% of sales collected as cash in month of sale80% of sales are on account and collected later

281

Whiskers Products, Inc.

April April May JuneTotal

QuarterFeb: $55,000 * 20% $11,000Mar: $60,000 * 30% $18,000 $54,000Apr: $50,000 * 50% $25,000

MayMar: $60,000 * 20% $12,000Apr: $50,000 * 30% $15,000 $57,000May: $60,000 * 50% $30,000

JuneApr: $50,000 * 20% $10,000May: $60,000 * 30% $18,000 $55,500June: $55,000 * 50% $27,500Total: $54,000 $57,000 $55,500 $166,500

2ND Quarter Cash Receipts

282

Whittle Company

650

PRODUCTION: 4,60010%*5000= 500

FG-Units

4,450

283

Young ProductsYoung Products

Sales budgetFor the First Quarter

Units 100,000Unit price x $15.00Sales $1,500,000

Young ProductsProduction Budget

For the First QuarterSales (in units) 100,000Desired end. inv. 12,000

284

Young Products (cont.)

Young ProductsDirect Materials

For the First QuarterUnits to be produced 104,000DM per unit (lbs) x 4 Production needs (lbs) 416,000Desired end. inv. 6,000 Total needs (lbs) 422,000Less: Beg. inv. (lbs) (4,000) Materials to be purch. (lbs) 418,000

Young ProductsDirect Labor BudgetFor the First Quarter

Units to be produced 104,000Labor: Time per unit x 0.5 Total hours needed 52,000

285

Zephyr Companya. The lowest acceptable transfer price from the perspective of the selling division, the Mechanics Division, is

given by the following formula:

Transfer price = Variable cost per unit + Contribution margin on lost sales

Since there is enough idle capacity to fill the entire order from the Computer Division, there are no lost outside sales. And since the variable cost per unit is $42, the lowest acceptable transfer price as far as the selling division is concerned is also $42.

Transfer price = $42 + $0 = $42

b. The Computer Division can buy a similar transformer from an outside supplier for $76. Therefore, the Computer Division would be unwilling to pay more than $76 per motor.

Transfer price < Cost of buying from outside supplier = $76

c. Combining the requirements of both the selling division and the buying division, the acceptable range of transfer prices in this situation is:

$42 < Transfer price < $76

Assuming that the managers understand their own businesses and that they are cooperative, they should be able to agree on a transfer price within this range and the transfer should take place.

d. From the standpoint of the entire company, the transfer should take place. The cost of the motors transferred is only $42 and the company saves the $76 cost of the motors purchased from the outside supplier.

1.

286

Zephyr Company (p. 2)

a. Each of the 5,000 units transferred to the Computer Division must displace a sale to an outsider at a price of $80. Therefore, the selling division would demand a transfer price of at least $80. This can also be computed using the formula for the lowest acceptable transfer price as follows:

Transfer price = $42 + ($80 - $42) = $80

b. As before, the Computer Division would be unwilling to pay more than $76 per motor.

c. The requirements of the selling and buying divisions in this instance are incompatible. The selling division must have a price of at least $80 whereas the buying division will not pay more than $76. An agreement to transfer the motors is extremely unlikely.

d. From the standpoint of the entire company, the transfer should not take place. By transferring a motor internally, the company gives up revenue of $80 and saves $76, for a loss of $4.

2.

1. 22 Abiqua Acres WIP Units 5,000 60,000 8,000 57,000 Out BI IN EI DM 100% CC 40% 50% WIP - $ (Wtd. Avg.) DM $20,000.00 CC 16,000.00 DM 250,000.00 CC.

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