Stellar Stairs Co. of Poway designs and builds factory-made premium wooden stairs for homes

ACC 560 Week 3 Assignment

P4-3A Stellar Stairs Co. of Poway designs and builds factory-made premium wooden stairs for homes. The manufactured stair components (spindles, risers, hangers, hand rails) permit installation of stairs of varying lengths and widths. All are of white oak wood. Its budgeted manufacturing overhead costs for the year 2009 are as follows.

Overhead Cost Pools Amount
Purchasing $ 57,000
Handling materials 82,000
Production (cutting, milling, finishing) 210,000
Setting up machines 85,000
Inspecting 90,000
Inventory control (raw materials and finished goods) 126,000
Utilities 180,000
Total budget overhead costs $830,000

For the last 4 years, Stellar Stairs Co. has been charging overhead to products on the basis of machine hours. For the year 2009, 100,000 machine hours are budgeted.

Heather Fujar, owner-manager of Stellar Stairs Co., recently directed her accountant, Lindsay Baker, to implement the activity-based costing system that she has repeatedly proposed. At Heather Fujar's request, Lindsay and the production foreman identify the following cost drivers and their usage for the previously budgeted overhead cost pools.

Activity Cost Pools Cost Drivers Expected
Use of Cost Drivers
Purchasing Number of orders 600
Handling materials Number of moves 8,000
Production (cutting, milling, finishing) Direct labor hours 100,000
Setting up machines Number of setups 1,250
Inspecting Number of inspections 6,000
Inventory control (raw materials and finished goods) Number of components 168,000
Utilities Square feet occupied 90,000

Jason Dion, sales manager, has received an order for 280 stairs from Community Builders, Inc., a large housing development contractor. At Jason's request, Lindsay prepares cost estimates for producing components for 280 stairs so Jason can submit a contract price per stair to Community Builders. She accumulates the following data for the production of 280 stairways.

Direct materials $103,600
Direct labor $112,000
Machine hours 14,500
Direct labor hours 5,000
Number of purchase orders 60
Number of material moves 800
Number of machine setups 100
Number of inspections 450
Number of components 16,000
Number of square feet occupied 8,000

Instructions
a) Compute the predetermined overhead rate using traditional costing with machine hours as the basis.
b) What is the manufacturing cost per stairway under traditional costing?
c) What is the manufacturing cost per stairway under the proposed activity-based costing? (Prepare all of the necessary schedules.)
d) Which of the two costing systems is preferable in pricing decisions and why?

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Flint Tooling Company is considering replacing a machine that has been used in its factory for two years

PR 9-2A Flint Tooling Company is considering replacing a machine that has been used in its factory for two years. Relevant data associated with the operations of the old machine and the new machine, neither of which has any estimated residual value, are as follows:

OLD MACHINE
Cost of machine, eight year life $48,000
Annual depreciation (straight-line) 6,000
Annual manufacturing costs, excluding depreciation 14,500
Annual nonmanufacturing operating expenses 2,900
Annual revenue 29,600
Current estimated selling price of the machine 18,000

NEW MACHINE
Cost of the machine, six year life $58,500
Annual depreciation (straight-line) 9,750
Estimated annual manufacturing costs, exclusive of depreciation 5,200
Annual nonmanufacturing operating expenses and revenue are not expected to be affected by purchase of the new machine.

Instructions
1.Prepare a differential analysis report as of May 22, 2010, comparing operations utilizing the new machine with operations using the present equipment. The analysis should indicate the differential income that would result over the six-year period if the new machine is acquired.
2.List other factors that should be considered before a final decision is reached.

Click here for the solution: Flint Tooling Company is considering replacing a machine that has been used in its factory for two years

Task time estimates for a production line setup project at Robert Klassen’s Ontario factory are as follows

Problem 3.7 Task time estimates for a production line setup project at Robert Klassen’s Ontario factory are as follows:

Activity Time In HRS Immediate Predecessor
A 6 -
B 7.2 -
C 5 A
D 6 B,C
E 4.5 B,C
F 7.7 D
G 4 E,F

a) Develop an AON network for this problem.
b) What is the critical path?
c) What is the total project completion time?


Click here for the solution: Task time estimates for a production line setup project at Robert Klassen’s Ontario factory are as follows

Pollachek Co. purchased land as a factory site for $450,000

Pollachek Co. purchased land as a factory site for $450,000. The process of tearing down two old buildings on the site and constructing the factory required 6 months. The company paid $42,000 to raze the old buildings and sold salvaged lumber and brick for $6,300. Legal fees of $1,850 were paid for title investigation and drawing the purchase contract. Pollachek paid $2,200 to an engineering firm for a land survey, and $65,000 for drawing the factory plans. The land survey had to be made before definitive plans could be drawn. Title insurance on the property cost $1,500, and a liability insurance premium paid during construction was $900. The contractor’s charge for construction was $2,740,000. The company paid the contractor in two installments: $1,200,000 at the end of 3 months and $1,540,000 upon completion. Interest costs of $170,000 were incurred to finance the construction.

Determine the cost of the land and the cost of the building as they should be recorded on the books of Pollachek Co. Assume that the land survey was for the building.


Click here for the solution: Pollachek Co. purchased land as a factory site for $450,000

On February 1, 2007, Reardon Corporation purchased a parcel of land as a factory site for $320,000

On February 1, 2007, Reardon Corporation purchased a parcel of land as a factory site for $320,000. An old building on the property was demolished and construction begun on a new warehouse that was completed April 15, 2008. Costs incurred on the construction project are listed below.

Demolition of old building $21,000
Architect's fees 31,700
Legal fees/title investigation 4,100
Construction costs 950,000
Imputed interest based on stock financing 14,000
Landfill for building site 19,300
Clearing of trees from the building site 9,600
Temporary buildings used for construction activities 29,000
Land survey 4,000
Excavation for basement 13,200
(Salvage materials from demolition sold for $1,800)
(Timber sold for $3,300)

Determine the cost of the land and new building.

Click here for the solution: On February 1, 2007, Reardon Corporation purchased a parcel of land as a factory site for $320,000

Tinker Construction had a contract with Scroge to build a factory addition for Scroge by a particular date

Tinker Construction had a contract with Scroge to build a factory addition for Scroge by a particular date. The contract contained a penalty clause exacting daily penalties for late performance, and Tinker was working hard to complete the building on time. Because prompt completion of the addition was so important to Scroge, however, Scroge offered Tinker a bonus if it completed the factory addition on time. Scroge also learned that the supplier of parts for machinery that he had contracted for had called and said that it could not deliver the parts on Scroge’s schedule for the price it had agreed to. Because there was no other supplier, Scroge promised to pay the requested higher price. The factory addition was completed on time and the parts arrived on time. Scroge then refused to pay both the bonus to Tinker and the higher price for the parts. Were these promises enforceable?

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Tiger Equipment Inc., a manufacturer of construction equipment, prepared the following factory overhead cost budget for the Welding Department for May 2012

Tiger Equipment Inc., a manufacturer of construction equipment, prepared the following factory overhead cost budget for the Welding Department for May 2012. The company expected to operate the department at 100% of normal capacity of 7,000 hours.

Variable Costs:
Indirect factory wages $22,050
Power and light 12,600
Indirect Materials 10,500
Total Variable Cost $45,150
Fixed Costs:
Supervisory salaries $12,000
Depreciation of plant and equipment 31,450
Insurance and property taxes 9,750
Total fixed costs $53,200
Total factory overhead $98,350

During May, the department operated at 7,400 standard hours, and the factory overhead costs incurred were indirect factory wages, $23,580; power and light, $13,120; indirect materials, $11,310; supervisory salaries, $12,000; depreciation of plant and equipment, $31,450; and insurance and property taxes, $9,750.

Required:
Prepare a factory overhead cost variance report for May. To be useful for cost control, the budgeted amounts should be based on 7,400 hours.

Click here for the solution: Tiger Equipment Inc., a manufacturer of construction equipment, prepared the following factory overhead cost budget for the Welding Department for May 2012