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1. (TCO C) Madlem, Inc., produces and sells a single product whose selling price is $120.00 per unit and whose variable expense is $46.20 per unit. The company's fixed expense is $405,900 per month.
Required: Determine the monthly breakeven in either unit or total dollar sales. Show your work! (Points : 25)
Question 2.2. (TCO B) Industrial Supply Corporation uses the weighted-average method in its process costing system. Data concerning the first processing department for the most recent month are listed below.
Work in process, beginning:
Units in beginning work in process inventory 400
Materials costs $6,900
Conversion costs $2,500
Percent complete for materials 80%
Percent complete for conversion 15%
Units started into production during the month 6,000
Units transferred to the next department during the month 5,200
Materials costs added during the month $112,500
Conversion costs added during the month $210,300
Ending work in process:
Units in ending work-in-process inventory 1,200
Percentage complete for materials 75%
Percentage complete for conversion 30%
Required: Calculate the equivalent units for conversion for the month in the first processing department. (Points : 25)
Question 1.1. (TCO D) The following absorption costing income statement and additional data are available from the accounting records of Bernon Co. for the month ended May 31, XXXX. During the accounting period, 17,000 units were manufactured and sold at a price of $60 per unit. There were no beginning inventories.
Absorption Costing Income Statement
for the Month Ended May 31, XXXX
Sales (17,000 @ $60) $1,020,000
Cost of goods sold 612,000
Gross profit $ 408,000
Selling and administrative expenses 66,000
Income from operations $ 342,000
Cost Total Cost Number of Units Unit Cost
Variable $442,000 17,000 $26
Fixed 170,000 17,000 10
Total $612,000 $36
Selling and administrative expenses:
Variable ($2 per unit sold) $34,000
Required: Prepare a new income statement for the year using variable costing. Comment on the differences, if any, between the absorption costing and the variable costing income statements. (Points : 30)
Question 2.2. (TCO I) (Ignore income taxes in this problem.) Simpson Beauty Products Corporation is considering the production of a new conditioning shampoo that will require the purchase of new mixing machinery. The machinery will cost $700,000, is expected to have a useful life of 10 years, and is expected to have a salvage value of $70,000 at the end of 10 years. The machinery will also need a $45,000 overhaul at the end of Year 5. A $60,000 increase in working capital will be needed for this investment project. The working capital will be released at the end of the 10 years. The new shampoo is expected to generate net cash inflows of $150,000 per year for each of the 10 years. Simpson's discount rate is 18%.
Items Year(s) Amount 18% Factor Present Value
Cost of machinery Now ($700,000) 1 ($700,000)
Working capital increase Now ($60,000) 1 ($60,000)
Annual cash inflows 1–10 $150,000 4.494 674,100
Overhaul 5 ($45,000) 0.437 ($19,665)
Salvage value 10 $70,000 0.191 13,370
Working capital release 10 $60,000 0.191 11,460
Net present value ($80,735)
(a) What is the net present value of this investment opportunity?
(b) Based on your answer to (a) above, should Simpson go ahead with the new conditioning shampoo? (Points : 30)
Question 3.3. (TCO A) The following data (in thousands of dollars) have been taken from the accounting records of the Maroon Corporation for the just-completed year.
Raw materials inventory, beginning 50
Raw materials inventory, ending 25
Purchases of raw materials 210
Direct labor 360
Manufacturing overhead 330
Administrative expenses 400
Selling expenses 200
Work-in-process inventory, beginning 120
Work-in-process inventory, ending 150
Finished goods inventory, beginning 80
Finished goods inventory, ending 120
Use the above data to prepare (in thousands of dollars) a schedule of Cost of Goods Manufactured and a Schedule of Cost of Goods Sold for the year. In addition, what is the impact on the financial statements if the ending finished goods inventory is overstated or understated? (Points : 25)
Question 4.4. (TCO F) Walker Corporation is preparing its cash budget for November. The budgeted beginning cash balance is $43,000. Budgeted cash receipts total $117,000 and budgeted cash disbursements total $122,000. The desired ending cash balance is $55,000. The company can borrow up to $100,000 at any time from a local bank, with interest not due until the following month.
Prepare the company's cash budget for November in good form. Make sure to indicate what borrowing, if any, would be needed to attain the desired ending cash balance(Points : 25)
Question 5.5. (TCO F) The following overhead data are for a department of a large company.
Actual Costs Incurred Static Budget
Activity level (in units) 360 340
Indirect materials $4,182 $4,148
Electricity $2,536 $2,414
Administration $6,540 $6,500
Rent $6,310 $6,400
Required: Construct a flexible budget performance report that would be useful in assessing how well costs were controlled in this department. (Points : 25)
Question 6.6. (TCO H) McMullen Co. uses 10,000 units of Part X each year as a component in the assembly of one of its products. The company is presently producing Part X internally at a total cost of $125,000 as follows.
Direct materials $40,000
Direct labor 30,000
Variable manufacturing overhead 25,000
Fixed manufacturing overhead 30,000
Total costs $125,000
An outside supplier has offered to provide Part X at a price of $10 per unit. If McMullen stops producing the part internally, one third of the fixed manufacturing overhead would be eliminated.
Required: Prepare a make-or-buy analysis showing the annual advantage or disadvantage of accepting the outside supplier's offer. Please state clearly whether the part should be made or bought and share your work. (Points : 30)
Question 7.7. (TCO B) Buckhorn Corporation bases its predetermined overhead rate on the estimated machine hours for the upcoming year. Data for the upcoming year appear below.
Estimated machine hours 37,000
Estimated variable manufacturing overhead $7.77 per machine hour
Estimated total fixed manufacturing overhead $888,000
The actual machine hours for the year turned out to be 35,000.
Required: Compute the company's predetermined overhead rate. (Points : 25)
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