Exercise 13-5 Utilization of a Constrained Resource
Barlow Company manufactures three products: A, B, and C. The selling price, variable costs, and Contribution margin for one unit of each product follow:
Product
A B C
Selling price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $180 $270 $240
Variable expenses:
Direct materials . . . . . . . . . . . . . . . . . . . . . . . . . 24 72 32
Other variable expenses . . . . . . . . . . . . . . . . . . 102 90 148
Total variable expenses . . . . . . . . . . . . . . . . . . . . . 126 162 180
Contribution margin . . . . . . . . . . . . . . . . . . . . . . . . $ 54 $108 $ 60
Contribution margin ratio . . . . . . . . . . . . . . . . . . . . 30% 40% 25%
The same raw material is used in all three products. Barlow Company has only 5,000 pounds of raw material on hand and will not be able to obtain any more of it for several weeks due to a strike in its supplier’s plant. Management is trying to decide which product(s) to concentrate on next week in filling its backlog of orders. The material costs $8 per pound.
Required:
1. Compute the amount of contribution margin that will be obtained per pound of material used in each product.
2. Which orders would you recommend that the company work on next week—the orders for product A, product B, or product C? Show computations.
3. A foreign supplier could furnish Barlow with additional stocks of the raw material at a substantial premium over the usual price. If there is unfilled demand for all three products, what is the highest price that Barlow Company should be willing to pay for an additional pound of materials? Explain.
Click here for the solution: Barlow Company manufactures three products: A, B, and C
Showing posts with label products. Show all posts
Showing posts with label products. Show all posts
Friday, April 15, 2016
The Thompson Corporation, a manufacturer of steel products, began operations on October 1, 2009
P11-5 Property, plant, and equipment and intangible assets; comprehensive
The Thompson Corporation, a manufacturer of steel products, began operations on October 1, 2009. The accounting department of Thompson has started the fixed-asset and depreciation schedule presented below. You have been asked to assist in completing this schedule. In addition to ascertaining that the data already on the schedule are correct, you have obtained the following information from the company's records and personnel:
a. Depreciation is computed from the first of the month of acquisition to the first of the month of disposition.
b. Land A and Building A were acquired from a predecessor corporation. Thompson paid $812,500 for the land and building together. At the time of acquisition, the land had a fair value of $72,000 and the building had a fair value of $828,000.
c. Land B was acquired on October 2, 2009, in exchange for 3,000 newly issued shares of Thompson's common stock. At the date of acquisition, the stock had a par value of $5 per share and a fair value of $25 per share. During October 2009, Thompson paid $10,400 to demolish an existing building on this land so it could construct a new building.
d. Construction of Building B on the newly acquired land began on October 1, 2010. By September 30, 2011, Thompson had paid $210,000 of the estimated total construction costs of $300,000. Estimated completion and occupancy are July 2012.
e. Certain equipment was donated to the corporation by the city. An independent appraisal of the equipment when donated placed the fair value at $16,000 and the residual value at $2,000.
f. Machine A's total cost of $110,000 includes installation charges of $550 and normal repairs and maintenance of $11,000. Residual value is estimated at $5,500. Machine A was sold on February 1, 2011.
g. On October 1, 2010, Machine B was acquired with a down payment of $4,000 and the remaining payments to be made in 10 annual installments of $4,000 each beginning October 1, 2011. The prevailing interest rate was 8%.
Required:
Supply the correct amount for each numbered item on the schedule. Round each answer to the nearest dollar.
Click here for the solution: The Thompson Corporation, a manufacturer of steel products, began operations on October 1, 2009
The Thompson Corporation, a manufacturer of steel products, began operations on October 1, 2009. The accounting department of Thompson has started the fixed-asset and depreciation schedule presented below. You have been asked to assist in completing this schedule. In addition to ascertaining that the data already on the schedule are correct, you have obtained the following information from the company's records and personnel:
a. Depreciation is computed from the first of the month of acquisition to the first of the month of disposition.
b. Land A and Building A were acquired from a predecessor corporation. Thompson paid $812,500 for the land and building together. At the time of acquisition, the land had a fair value of $72,000 and the building had a fair value of $828,000.
c. Land B was acquired on October 2, 2009, in exchange for 3,000 newly issued shares of Thompson's common stock. At the date of acquisition, the stock had a par value of $5 per share and a fair value of $25 per share. During October 2009, Thompson paid $10,400 to demolish an existing building on this land so it could construct a new building.
d. Construction of Building B on the newly acquired land began on October 1, 2010. By September 30, 2011, Thompson had paid $210,000 of the estimated total construction costs of $300,000. Estimated completion and occupancy are July 2012.
e. Certain equipment was donated to the corporation by the city. An independent appraisal of the equipment when donated placed the fair value at $16,000 and the residual value at $2,000.
f. Machine A's total cost of $110,000 includes installation charges of $550 and normal repairs and maintenance of $11,000. Residual value is estimated at $5,500. Machine A was sold on February 1, 2011.
g. On October 1, 2010, Machine B was acquired with a down payment of $4,000 and the remaining payments to be made in 10 annual installments of $4,000 each beginning October 1, 2011. The prevailing interest rate was 8%.
Required:
Supply the correct amount for each numbered item on the schedule. Round each answer to the nearest dollar.
Click here for the solution: The Thompson Corporation, a manufacturer of steel products, began operations on October 1, 2009
Tuesday, November 10, 2015
Decker Company has five products in its inventory
P 9-1 Lower of cost or market
Decker Company has five products in its inventory. Information about the December 31, 2011, inventory follows.
Unit Replacement Selling
Product/ Quantity/ Unit Cost /unit replacement Cost/ unit selling Price_____
A /1,000 /$10/ $12 $16
B /800 /15/ 11/ 18
C/ 600 /3/ 2/ 8
D/ 200/ 7 /4/ 6
E /600 /14 /12 /13
The selling cost for each product consists of a 15 percent sales commission. The normal profit percentage for each product is 40 percent of the selling price.
Required:
1. Determine the balance sheet inventory carrying value at December 31, 2011, assuming the LCM rule is applied to individual products.
2. Determine the balance sheet inventory carrying value at December 31, 2011, assuming the LCM rule is applied to the entire inventory. Also, assuming that Decker recognizes an inventory write-down as a separate income statement item, determine the amount of the loss.
Click here for the solution: Decker Company has five products in its inventory
Decker Company has five products in its inventory. Information about the December 31, 2011, inventory follows.
Unit Replacement Selling
Product/ Quantity/ Unit Cost /unit replacement Cost/ unit selling Price_____
A /1,000 /$10/ $12 $16
B /800 /15/ 11/ 18
C/ 600 /3/ 2/ 8
D/ 200/ 7 /4/ 6
E /600 /14 /12 /13
The selling cost for each product consists of a 15 percent sales commission. The normal profit percentage for each product is 40 percent of the selling price.
Required:
1. Determine the balance sheet inventory carrying value at December 31, 2011, assuming the LCM rule is applied to individual products.
2. Determine the balance sheet inventory carrying value at December 31, 2011, assuming the LCM rule is applied to the entire inventory. Also, assuming that Decker recognizes an inventory write-down as a separate income statement item, determine the amount of the loss.
Click here for the solution: Decker Company has five products in its inventory
Wednesday, October 14, 2015
Spencer Company manufactures and sells three products
E6-11 Spencer Company manufactures and sells three products. Relevant per unit data concerning each product are given below.
Product
A B C
Selling price $9 $12 $14
Variable costs and expenses $3 $9.50 $12
Machine hours to produce 2 1 2
Instructions:
(a) Compute the contribution margin per unit of the limited resource (machine hour) for each product.
(b) Assuming 1,500 additional machine hours are available, which product should be manufactured?
(c) Prepare an analysis showing the total contribution margin if the additional hours are (1) divided equally among the products, and (2) allocated entirely to the product identified in (b) above.
Click here for the solution: Spencer Company manufactures and sells three products
Product
A B C
Selling price $9 $12 $14
Variable costs and expenses $3 $9.50 $12
Machine hours to produce 2 1 2
Instructions:
(a) Compute the contribution margin per unit of the limited resource (machine hour) for each product.
(b) Assuming 1,500 additional machine hours are available, which product should be manufactured?
(c) Prepare an analysis showing the total contribution margin if the additional hours are (1) divided equally among the products, and (2) allocated entirely to the product identified in (b) above.
Click here for the solution: Spencer Company manufactures and sells three products
Wednesday, October 7, 2015
Wigs Plus Company supplies wigs and hair care products to beauty salons throughout California and the Pacific Northwest
PR 9-2A Wigs Plus Company supplies wigs and hair care products to beauty salons throughout California and the Pacific Northwest. The accounts receivable clerk for Wigs Plus prepared the following partially completed aging of receivables schedule as of the end of business on December 31, 2009:
Customer Balance Not Past Due 1-30 31-60 61-90 91-120 Over 120
Alpha Beauty 20,000 20,000
Blonde Wigs 11,000 11,000
Zahn’s Beauty 2,900 2,900
Subtotals 900,000 498,600 217,250 98,750 33,300 29,950 22,150
The following accounts were unintentionally omitted from the aging schedule:
Customer Due Date Balance
Sun Coast Beauty May 30, 2009 $ 2850
Paradise Beauty Store Sept 15, 2009 6050
Helix Hair Products Oct 17, 2009 800
Hairy’s Hair Care Oct 20, 2009 2000
Surf Images Nov 18, 2009 700
Oh The Hair Nov 29, 2009 3500
Mountain Coatings Dec 1, 2009 2250
Lasting Images Jan 9, 2010 7400
Wigs Plus has a past history of uncollectible accounts by age category, as follows:
Age Class Percent Uncollectible
Not Past Due 2%
1-30 Days past due 4
31-60 days past due 10
61-90 days past due 15
91-120 days past due 35
Over 120 days 80
Instructions:
1. Determine the number of days past due for each of the preceding accounts.
2. Complete the aging of receivables schedule
3. Estimate the allowance for doubtful accounts, based on the aging of receivables schedule.
4. Assume that the allowance for doubtful accounts for Wigs Plus has a credit balance of $1,710 before adjustment on December 31, 2009. Journalize the adjustment for uncollectible account.
Click here for the solution: Wigs Plus Company supplies wigs and hair care products to beauty salons throughout California and the Pacific Northwest
Customer Balance Not Past Due 1-30 31-60 61-90 91-120 Over 120
Alpha Beauty 20,000 20,000
Blonde Wigs 11,000 11,000
Zahn’s Beauty 2,900 2,900
Subtotals 900,000 498,600 217,250 98,750 33,300 29,950 22,150
The following accounts were unintentionally omitted from the aging schedule:
Customer Due Date Balance
Sun Coast Beauty May 30, 2009 $ 2850
Paradise Beauty Store Sept 15, 2009 6050
Helix Hair Products Oct 17, 2009 800
Hairy’s Hair Care Oct 20, 2009 2000
Surf Images Nov 18, 2009 700
Oh The Hair Nov 29, 2009 3500
Mountain Coatings Dec 1, 2009 2250
Lasting Images Jan 9, 2010 7400
Wigs Plus has a past history of uncollectible accounts by age category, as follows:
Age Class Percent Uncollectible
Not Past Due 2%
1-30 Days past due 4
31-60 days past due 10
61-90 days past due 15
91-120 days past due 35
Over 120 days 80
Instructions:
1. Determine the number of days past due for each of the preceding accounts.
2. Complete the aging of receivables schedule
3. Estimate the allowance for doubtful accounts, based on the aging of receivables schedule.
4. Assume that the allowance for doubtful accounts for Wigs Plus has a credit balance of $1,710 before adjustment on December 31, 2009. Journalize the adjustment for uncollectible account.
Click here for the solution: Wigs Plus Company supplies wigs and hair care products to beauty salons throughout California and the Pacific Northwest
Monday, October 5, 2015
Benson, Inc. produces three separate products from a common process costing $100,000
ACC 560 Week 5 Assignment
E7-8 Benson, Inc. produces three separate products from a common process costing $100,000. Each of the products can be sold at the split-off point or can be processed further and then sold for a higher price. Shown below are cost and selling price data for a recent period.
Sales Value at Split-off Point Cost to Process Further Sales Value After Further Processing
Product 12 $50,000 $100,000 $190,000
Product 14 10,000 30,000 35,000
Product 16 60,000 150,000 220,000
a. Determine total net income if all products are sold at the split-off point.
b. Determine total net income if all products are sold after further processing.
c. Using incremental analysis, determine which products should be sold at the split-off point and which should be processed further.
d. Determine total net income using the results from the previous part of the question.
Click here for the solution: Benson, Inc. produces three separate products from a common process costing $100,000
E7-8 Benson, Inc. produces three separate products from a common process costing $100,000. Each of the products can be sold at the split-off point or can be processed further and then sold for a higher price. Shown below are cost and selling price data for a recent period.
Sales Value at Split-off Point Cost to Process Further Sales Value After Further Processing
Product 12 $50,000 $100,000 $190,000
Product 14 10,000 30,000 35,000
Product 16 60,000 150,000 220,000
a. Determine total net income if all products are sold at the split-off point.
b. Determine total net income if all products are sold after further processing.
c. Using incremental analysis, determine which products should be sold at the split-off point and which should be processed further.
d. Determine total net income using the results from the previous part of the question.
Click here for the solution: Benson, Inc. produces three separate products from a common process costing $100,000
Sunday, September 27, 2015
(Ethics Case) International Network Solutions provides products and services related to remote access networking
Ethics Case 19-7 International Network Solutions
International Network Solutions provides products and services related to remote access networking. The company has grown rapidly during its first 10 years of operations. As its segment of the industry has begun to mature, though, the fast growth of previous years has begun to slow. In fact, this year revenues and profits are roughly the same as last year.
One morning, nine weeks before the close of the fiscal year, Rob Mashburn, CFO, and Jessica Lane, controller, were sharing coffee and ideas in Lane's office.
Lane: About the Board meeting Thursday. You may be right. This may be the time to suggest a share buyback program.
Mashburn: To begin this year, you mean?
Lane: Right! I know Barber will be lobbying to use the funds for our European expansion. She's probably right about the best use of our funds, but we can always issue more notes next year. Right now, we need a quick fix for our EPS numbers.
Mashburn: Our shareholders are accustomed to increases every year.
Required:
1. How will a buyback of shares provide a “quick fix” for EPS?
2. Is the proposal ethical?
3. Who would be affected if the proposal is implemented?
Click here for the solution: (Ethics Case) International Network Solutions provides products and services related to remote access networking
International Network Solutions provides products and services related to remote access networking. The company has grown rapidly during its first 10 years of operations. As its segment of the industry has begun to mature, though, the fast growth of previous years has begun to slow. In fact, this year revenues and profits are roughly the same as last year.
One morning, nine weeks before the close of the fiscal year, Rob Mashburn, CFO, and Jessica Lane, controller, were sharing coffee and ideas in Lane's office.
Lane: About the Board meeting Thursday. You may be right. This may be the time to suggest a share buyback program.
Mashburn: To begin this year, you mean?
Lane: Right! I know Barber will be lobbying to use the funds for our European expansion. She's probably right about the best use of our funds, but we can always issue more notes next year. Right now, we need a quick fix for our EPS numbers.
Mashburn: Our shareholders are accustomed to increases every year.
Required:
1. How will a buyback of shares provide a “quick fix” for EPS?
2. Is the proposal ethical?
3. Who would be affected if the proposal is implemented?
Click here for the solution: (Ethics Case) International Network Solutions provides products and services related to remote access networking
Howit Inc. operates a retail operation that purchases and sells snowmobiles, amongst other outdoor products
P5-6B Howit Inc. operates a retail operation that purchases and sells snowmobiles, amongst other outdoor products. The company purchases all merchandise inventory on credit and uses a periodic inventory system. The accounts payable account is used for recording inventory purchases only; all other current liabilities are accrued in separate accounts. You are provided with the following selected information for the fiscal years 2005 through 2008, inclusive.
2005 2006 2007 2008
Income Statement Data
Sales $96,850 $ (e) $82,220
Cost of goods sold (a) 25,140 25,990
Gross profit 69,640 61,540 (i)
Operating expenses 63,500 (f) 52,060
Net income $ (b) $4,570 $ (j)
Balance Sheet Data
Merchandise inventory $13,000 $ (c) $14,700 $ (k)
Account payable 5,800 6,500 4,600 (l)
Additional Information
Purchases of merchandise
Inventory on account $25,890 $ (g) $24,050
Cash payments to supplies (d) (h) 24,650
Instructions
(a) Calculate the missing accounts.
(b) Sales declined over the 3-year fiscal period, 2006-2008. Does that mean that profitability necessarily also declined? Explain, computing the gross profit rate and the profit margin ratio for each fiscal year to help support your answer. (Round to one decimal place.)
Click here for the solution: Howit Inc. operates a retail operation that purchases and sells snowmobiles, amongst other outdoor products
2005 2006 2007 2008
Income Statement Data
Sales $96,850 $ (e) $82,220
Cost of goods sold (a) 25,140 25,990
Gross profit 69,640 61,540 (i)
Operating expenses 63,500 (f) 52,060
Net income $ (b) $4,570 $ (j)
Balance Sheet Data
Merchandise inventory $13,000 $ (c) $14,700 $ (k)
Account payable 5,800 6,500 4,600 (l)
Additional Information
Purchases of merchandise
Inventory on account $25,890 $ (g) $24,050
Cash payments to supplies (d) (h) 24,650
Instructions
(a) Calculate the missing accounts.
(b) Sales declined over the 3-year fiscal period, 2006-2008. Does that mean that profitability necessarily also declined? Explain, computing the gross profit rate and the profit margin ratio for each fiscal year to help support your answer. (Round to one decimal place.)
Click here for the solution: Howit Inc. operates a retail operation that purchases and sells snowmobiles, amongst other outdoor products
Calibri Company produces three products
Calibri Company produces three products: F, G, and H. The selling price, variable costs, and contribution margin for one unit of each product follow:
Product
F G H
Selling price $40 $110 $50
Variable costs:
Direct materials $16 $25 $20
Direct labor $11 $20 $12
Variable manufacturing $10 $10 $8
overhead
Total variable costs $37 $55 $40
Contribution margin $3 $55 $10
Contribution margin ratio 7.5% 50% 20%
One of two major machines used to produce these products has broken down and a new one is on backorder, so the company is down to one machine. Product F takes 0.20 machine hours to produce one unit, Product G takes 11 machine hours to produce one unit, and Product H takes 2.5 machine hours. There are 1,000 machine hours available on the new machine.
a. What is the amount of contribution margin that will be obtained per machine hour on each product?
b. Which product would you recommend that the company work on next week – the orders for product F, product G or product H? Show your computations.
Click here for the solution: Calibri Company produces three products
Product
F G H
Selling price $40 $110 $50
Variable costs:
Direct materials $16 $25 $20
Direct labor $11 $20 $12
Variable manufacturing $10 $10 $8
overhead
Total variable costs $37 $55 $40
Contribution margin $3 $55 $10
Contribution margin ratio 7.5% 50% 20%
One of two major machines used to produce these products has broken down and a new one is on backorder, so the company is down to one machine. Product F takes 0.20 machine hours to produce one unit, Product G takes 11 machine hours to produce one unit, and Product H takes 2.5 machine hours. There are 1,000 machine hours available on the new machine.
a. What is the amount of contribution margin that will be obtained per machine hour on each product?
b. Which product would you recommend that the company work on next week – the orders for product F, product G or product H? Show your computations.
Click here for the solution: Calibri Company produces three products
Friday, September 25, 2015
Ozark Distributing Company is primarily engaged in the wholesale distribution of consumer products in the Ozark Mountain regions
E 18-8 Reporting preferred shares
Ozark Distributing Company is primarily engaged in the wholesale distribution of consumer products in the Ozark Mountain regions. The following disclosure note appeared in the company's 2011 annual report:
Note 5. CONVERTIBLE PREFERRED STOCK (in part):
The Company has the following Convertible Preferred Stock outstanding as of September 2011:
Date of issuance: June 17, 2008
Optionally redeemable beginning June 18, 2010
Par value (gross proceeds): $2,500,000
Number of shares: 100,000
Liquidation preference per share: $25.00
Conversion price per share: $30.31
Number of common shares in which to be converted: 82,481
Dividend rate: 6.785%
The Preferred Stock is convertible at any time by the holders into a number of shares of Ozark's common stock equal to the number of preferred shares being converted times a fraction equal to $25.00 divided by the conversion price. The conversion prices for the Preferred Stock are subject to customary adjustments in the event of stock splits, stock dividends and certain other distributions on the Common Stock. Cumulative dividends for the Preferred Stock are payable in arrears, when, as and if declared by the Board of Directors, on March 31, June 30, September 30 and December 31 of each year.
The Preferred Stock is optionally redeemable by the Company beginning on various dates, as listed above, at redemption prices equal to 112% of the liquidation preference. The redemption prices decrease 1% annually thereafter until the redemption price equals the liquidation preference after which date it remains the liquidation preference.
Required:
1. What amount of dividends is paid annually to a preferred shareholder owning 100 shares of the Series A preferred stock?
2. If dividends are not paid in 2012 and 2013, but are paid in 2014, what amount of dividends will the shareholder receive?
3. If the investor chooses to convert the shares in 2012, how many shares of common stock will the investor receive for his/her 100 shares?
4. If Ozark chooses to redeem the shares on June 18, 2012, what amount will the investor be paid for his/her 100 shares?
Click here for the solution: Ozark Distributing Company is primarily engaged in the wholesale distribution of consumer products in the Ozark Mountain regions
Ozark Distributing Company is primarily engaged in the wholesale distribution of consumer products in the Ozark Mountain regions. The following disclosure note appeared in the company's 2011 annual report:
Note 5. CONVERTIBLE PREFERRED STOCK (in part):
The Company has the following Convertible Preferred Stock outstanding as of September 2011:
Date of issuance: June 17, 2008
Optionally redeemable beginning June 18, 2010
Par value (gross proceeds): $2,500,000
Number of shares: 100,000
Liquidation preference per share: $25.00
Conversion price per share: $30.31
Number of common shares in which to be converted: 82,481
Dividend rate: 6.785%
The Preferred Stock is convertible at any time by the holders into a number of shares of Ozark's common stock equal to the number of preferred shares being converted times a fraction equal to $25.00 divided by the conversion price. The conversion prices for the Preferred Stock are subject to customary adjustments in the event of stock splits, stock dividends and certain other distributions on the Common Stock. Cumulative dividends for the Preferred Stock are payable in arrears, when, as and if declared by the Board of Directors, on March 31, June 30, September 30 and December 31 of each year.
The Preferred Stock is optionally redeemable by the Company beginning on various dates, as listed above, at redemption prices equal to 112% of the liquidation preference. The redemption prices decrease 1% annually thereafter until the redemption price equals the liquidation preference after which date it remains the liquidation preference.
Required:
1. What amount of dividends is paid annually to a preferred shareholder owning 100 shares of the Series A preferred stock?
2. If dividends are not paid in 2012 and 2013, but are paid in 2014, what amount of dividends will the shareholder receive?
3. If the investor chooses to convert the shares in 2012, how many shares of common stock will the investor receive for his/her 100 shares?
4. If Ozark chooses to redeem the shares on June 18, 2012, what amount will the investor be paid for his/her 100 shares?
Click here for the solution: Ozark Distributing Company is primarily engaged in the wholesale distribution of consumer products in the Ozark Mountain regions
Wednesday, September 23, 2015
Gwinnett Paper Company manufactures three products (computer paper, newsprint, and specialty paper)
Gwinnett Paper Company manufactures three products (computer paper,
newsprint, and specialty paper) in a continuous production process.
Senior management has asked the controller to conduct an activity-based
costing study. The controller identified the amount of factory overhead
required by the critical activities of the organization as follows:
Activity Activity Cost Pool
Production $495,000
Setup 225,000
Moving 29,750
Shipping 126,000
Production engineering 150,000
The activity bases identified for each activity are as follows:
Activity Activity Base
Production Machine Hours
Setup Number of setups
Moving Number of moves
Shipping Number of customer orders
Production engineering Number of test runs
The activity-base usage quantities and units produced for the three products were determined from corporate records and are as follows:
Machine Number of Number of Number of Number of Units
hours setups moves customer test runs
orders
Computer paper 900 130 290 440 90 1000
Newsprint 1125 60 130 135 20 1250
Speciality paper 450 310 430 625 140 500
Total 2475 500 850 1200 250 2750
Each product requires 0.9 machine hour per unit.
Instructions
1. Determine the activity rate for each activity.
2. Determine the total and per-unit activity cost for all three products. Round all per unit amounts to the nearest whole cent.
3. Why aren't the activity unit costs equal across all three products since they require the same machine time per unit?
Click here for the solution: Gwinnett Paper Company manufactures three products (computer paper, newsprint, and specialty paper)
Activity Activity Cost Pool
Production $495,000
Setup 225,000
Moving 29,750
Shipping 126,000
Production engineering 150,000
The activity bases identified for each activity are as follows:
Activity Activity Base
Production Machine Hours
Setup Number of setups
Moving Number of moves
Shipping Number of customer orders
Production engineering Number of test runs
The activity-base usage quantities and units produced for the three products were determined from corporate records and are as follows:
Machine Number of Number of Number of Number of Units
hours setups moves customer test runs
orders
Computer paper 900 130 290 440 90 1000
Newsprint 1125 60 130 135 20 1250
Speciality paper 450 310 430 625 140 500
Total 2475 500 850 1200 250 2750
Each product requires 0.9 machine hour per unit.
Instructions
1. Determine the activity rate for each activity.
2. Determine the total and per-unit activity cost for all three products. Round all per unit amounts to the nearest whole cent.
3. Why aren't the activity unit costs equal across all three products since they require the same machine time per unit?
Click here for the solution: Gwinnett Paper Company manufactures three products (computer paper, newsprint, and specialty paper)
Tuesday, September 15, 2015
Scotwood Industries, Inc., sells calcium chloride flake for use in ice melt products
11-8A. A question of Ethics: Revocation. Scotwood Industries, Inc.,
sells calcium chloride flake for use in ice melt products. Between July
and September 2004, Scotwood delivered thirty-seven shipments of flake
to Frank Miller & Sons, Inc. After each delivery, Scotwood billed
Miller, which paid thirty-five of the invoices and processed 30 to 50
percent of the flake. In August, Miller began complaining about the
product’s quality. Scotwood assured Miller that it would remedy the
situation. Finally, in October, Miller told Scotwood, “This is totally
unacceptable. We are willing to discuss Scotwood picking up the
material. “ Miller claimed that the flake was substantially defective
because it was chunked. Calcium chloride maintains its purity for up to
five years, but if it is exposed to and absorbs moisture, it chunks and
becomes unusable. In response to Scotwood’s suit to collect payment in
the unpaid invoices, Miller filed a counterclaim in a federal district
court for breach of contract, seeking to recover based on revocation of
acceptance, among other things. [Scotwood Industries, Inc . v. Frank
Miller & Sons, Inc., 435 F. Supp.2d 1160 (D.Kan.2006)]
(a) What is revocation of acceptance? How does a buyer effectively exercise this option? Do the facts in this case support this theory as a ground for Miller to recover damages? Why or why not?
(b) Is there an ethical basis for allowing a buyer to revoke acceptance of goods and recover damages? If so, is there an ethical limit to this right? Discuss.
Click here for the solution: Scotwood Industries, Inc., sells calcium chloride flake for use in ice melt products
(a) What is revocation of acceptance? How does a buyer effectively exercise this option? Do the facts in this case support this theory as a ground for Miller to recover damages? Why or why not?
(b) Is there an ethical basis for allowing a buyer to revoke acceptance of goods and recover damages? If so, is there an ethical limit to this right? Discuss.
Click here for the solution: Scotwood Industries, Inc., sells calcium chloride flake for use in ice melt products
Sunday, September 13, 2015
Zenon Chemical, Inc. processes pine rosin into three products: turpentine, paint thinner, and spot remover
Zenon Chemical, Inc. processes pine rosin into three products:
turpentine, paint thinner, and spot remover. During May, the joint costs
of processing were $240,000. Production and sales value information for
the month is as follows:
Product
Units Produced
Sales Value at Splitoff Point
Turpentine
6,000 liters
$60,000
Paint thinner
6,000 liters
50,000
Spot remover
3,000 liters
25,000
Determine the amount of joint cost allocated to each product if the physical-measure method is used.
Click here for the solution: Zenon Chemical, Inc. processes pine rosin into three products: turpentine, paint thinner, and spot remover
Product
Units Produced
Sales Value at Splitoff Point
Turpentine
6,000 liters
$60,000
Paint thinner
6,000 liters
50,000
Spot remover
3,000 liters
25,000
Determine the amount of joint cost allocated to each product if the physical-measure method is used.
Click here for the solution: Zenon Chemical, Inc. processes pine rosin into three products: turpentine, paint thinner, and spot remover
Oregon Lumber processes timber into four products
Oregon Lumber processes timber into four products. During January, the joint costs of processing were $280,000. There was no inventory at the beginning of the month. Production and sales value information for the month is as follows:
Sales Value at
Product
Board feet
Splitoff Point
Ending Inventory
2 x 4's
6,000,000
$0.30 per board foot
500,000 bdft.
2 x 6's
3,000,000
0.40 per board foot
250,000 bdft.
4 x 4's
2,000,000
0.45 per board foot
100,000 bdft.
Slabs
1,000,000
0.10 per board foot
50,000 bdft.
Determine the value of ending inventory if the sales value at splitoff method is used for product costing. Round to three decimal places when necessary.
Click here for the solution: Oregon Lumber processes timber into four products
Sales Value at
Product
Board feet
Splitoff Point
Ending Inventory
2 x 4's
6,000,000
$0.30 per board foot
500,000 bdft.
2 x 6's
3,000,000
0.40 per board foot
250,000 bdft.
4 x 4's
2,000,000
0.45 per board foot
100,000 bdft.
Slabs
1,000,000
0.10 per board foot
50,000 bdft.
Determine the value of ending inventory if the sales value at splitoff method is used for product costing. Round to three decimal places when necessary.
Click here for the solution: Oregon Lumber processes timber into four products
Tuesday, September 8, 2015
Rene Ritter opened a small grocery and related-products convenience store in 1987 with money she had saved working as an A&P store manager
Auditing P 6-31
Rene Ritter opened a small grocery and related-products convenience store in 1987 with money she had saved working as an A&P store manager. She named it Ritter Dairy and Fruits. Because of the excellent location and her fine management skills, Ritter Dairy and Fruits grew to three locations by 1992. By that time, she needed additional capital. She obtained financing through a local bank at 2 percent above prime, under the condition that she submit quarterly financial statements reviewed by a CPA firm approved by the bank. After interviewing several firms, she decided to use the firm of Gonzalez & Fineberg CPAs, after obtaining approval from the bank.
In 1996, the company had grown to six stores, and Rene developed a business plan to add another 10 stores in the next several years. Ritter's capital needs had also grown, so Rene decided to add two business partners who both had considerable capital and some expertise in convenience stores. After further discussions with the bank and continued conversations with the future business partners, she decided to have an annual audit and quarterly review don by Gonzalez & Fineberg, even though the additional cost was almost $15,000 annually. The bank agreed to reduce the interest rate on the $4,000,000 of loans to 1 percent above prime.
By 2001, things were going smoothly, with the two business partners heavily involved in day-to-day operations and the company adding two new stores each year. The company was growing steadily and was more profitable than they had expected. By the end of 2002, one of the business partners, Fred Worm, had taken over responsibility for accounting and finance operations, as well as some marketing. Annually, Gonzalez & Fineberg did an in-depth review of the accounting system, including internal controls, and reported their conclusions and recommendations to the board of directors. Specialists in the firm provided tax and other advice. The other partner, Ben Gold, managed most of the stores and was primarily responsible for building new stores. Rene was president and manages four stores.
In 2006, the three partners decided to go public to enable them to add more stores and modernize existing ones. The public offering was a major success, resulting in $25 million in new capital and nearly 1,000 shareholders. Ritter Dairy and Fruits added stores rapidly under the three managers, and the company remained highly profitable under the leadership of Ritter, Worm, and Gold.
Rene retired in 2009 after a highly successful career. During the retirement celebration, she thanked her business partners, employees, and customers. She also added a special thanks to the bank management for their outstanding service and to Gonzalez & Fineberg for being partners in the best and most professional sense of the word. She mentioned their integrity, commitment, high-quality service in performing their audits and reviews, and considerable tax and business advice for more than two decades.
Required:
a. Explain why the bank imposed a requirement of a quarterly review of the financial statements as a condition of obtaining the loan at 2 percent above prime. Also explain why the bank didn't require an audit and why the bank demanded the right to approve which CPA firm was engaged.
b. Explain why Ritter Dairy and Fruits agreed to have an audit performed rather than a review, considering the additional annual cost of $15,000.
c. What did Rene mean when she referred to Gonzalez & Fineberg as partners? Does the CPA firm have an independence problem?
d. What benefit does Gonzalez & Fineberg provide to stockholders, creditors, and management in performing the audit and related services?
e. What are the responsibilities of the CPA firm to stockholders, creditors, management, and other users?
Click here for the solution: Rene Ritter opened a small grocery and related-products convenience store in 1987 with money she had saved working as an A&P store manager
Rene Ritter opened a small grocery and related-products convenience store in 1987 with money she had saved working as an A&P store manager. She named it Ritter Dairy and Fruits. Because of the excellent location and her fine management skills, Ritter Dairy and Fruits grew to three locations by 1992. By that time, she needed additional capital. She obtained financing through a local bank at 2 percent above prime, under the condition that she submit quarterly financial statements reviewed by a CPA firm approved by the bank. After interviewing several firms, she decided to use the firm of Gonzalez & Fineberg CPAs, after obtaining approval from the bank.
In 1996, the company had grown to six stores, and Rene developed a business plan to add another 10 stores in the next several years. Ritter's capital needs had also grown, so Rene decided to add two business partners who both had considerable capital and some expertise in convenience stores. After further discussions with the bank and continued conversations with the future business partners, she decided to have an annual audit and quarterly review don by Gonzalez & Fineberg, even though the additional cost was almost $15,000 annually. The bank agreed to reduce the interest rate on the $4,000,000 of loans to 1 percent above prime.
By 2001, things were going smoothly, with the two business partners heavily involved in day-to-day operations and the company adding two new stores each year. The company was growing steadily and was more profitable than they had expected. By the end of 2002, one of the business partners, Fred Worm, had taken over responsibility for accounting and finance operations, as well as some marketing. Annually, Gonzalez & Fineberg did an in-depth review of the accounting system, including internal controls, and reported their conclusions and recommendations to the board of directors. Specialists in the firm provided tax and other advice. The other partner, Ben Gold, managed most of the stores and was primarily responsible for building new stores. Rene was president and manages four stores.
In 2006, the three partners decided to go public to enable them to add more stores and modernize existing ones. The public offering was a major success, resulting in $25 million in new capital and nearly 1,000 shareholders. Ritter Dairy and Fruits added stores rapidly under the three managers, and the company remained highly profitable under the leadership of Ritter, Worm, and Gold.
Rene retired in 2009 after a highly successful career. During the retirement celebration, she thanked her business partners, employees, and customers. She also added a special thanks to the bank management for their outstanding service and to Gonzalez & Fineberg for being partners in the best and most professional sense of the word. She mentioned their integrity, commitment, high-quality service in performing their audits and reviews, and considerable tax and business advice for more than two decades.
Required:
a. Explain why the bank imposed a requirement of a quarterly review of the financial statements as a condition of obtaining the loan at 2 percent above prime. Also explain why the bank didn't require an audit and why the bank demanded the right to approve which CPA firm was engaged.
b. Explain why Ritter Dairy and Fruits agreed to have an audit performed rather than a review, considering the additional annual cost of $15,000.
c. What did Rene mean when she referred to Gonzalez & Fineberg as partners? Does the CPA firm have an independence problem?
d. What benefit does Gonzalez & Fineberg provide to stockholders, creditors, and management in performing the audit and related services?
e. What are the responsibilities of the CPA firm to stockholders, creditors, management, and other users?
Click here for the solution: Rene Ritter opened a small grocery and related-products convenience store in 1987 with money she had saved working as an A&P store manager
Sunday, September 6, 2015
Farmer Frank’s produces items from local farm products and distributes them to supermarkets
Ethics and Standard Costs
Farmer Frank’s produces items from local farm products and distributes them to supermarkets. Over the years, price competition has become increasingly important, so Susan Kramer, the company’s controller, is planning to implement a standard cost system for Farmer Frank’s. She asked her cost accountant, Margaret Chang, to gather cost information on the production of blueberry preserves (Farmer Frank’s most popular product). Margaret reported that blueberries cost $.75 per quart, the price she intends to pay to her good friend who has been operating a blueberry farm that has been unprofitable for the last few years. Because of an oversupply in the market, the price for blueberries has dropped to $.60 per quart. Margaret is sure that the $.75 price will be enough to pull her friend’s farm out of the red and into the black.
Required:
Is Margaret’s behavior regarding the cost information she provided to Susan unethical? Explain your answer.
Click here for the solution: Farmer Frank’s produces items from local farm products and distributes them to supermarkets
Farmer Frank’s produces items from local farm products and distributes them to supermarkets. Over the years, price competition has become increasingly important, so Susan Kramer, the company’s controller, is planning to implement a standard cost system for Farmer Frank’s. She asked her cost accountant, Margaret Chang, to gather cost information on the production of blueberry preserves (Farmer Frank’s most popular product). Margaret reported that blueberries cost $.75 per quart, the price she intends to pay to her good friend who has been operating a blueberry farm that has been unprofitable for the last few years. Because of an oversupply in the market, the price for blueberries has dropped to $.60 per quart. Margaret is sure that the $.75 price will be enough to pull her friend’s farm out of the red and into the black.
Required:
Is Margaret’s behavior regarding the cost information she provided to Susan unethical? Explain your answer.
Click here for the solution: Farmer Frank’s produces items from local farm products and distributes them to supermarkets
Wednesday, September 2, 2015
Delaware Bay Chemical Company produces three products: ethylene, butane, and ester
PR 25-6A Delaware Bay Chemical Company produces three products: ethylene, butane, and ester. Each of these products has high demand in the market, and Delaware Bay Chemical is able to sell as much as it can produce of all three. The reaction operation is a bottleneck in the process and is running at 100% of capacity. Delaware Bay wants to improve chemical operation profitability. The variable conversion cost is $7 per process hour. The fixed cost is $550,000. In addition, the cost analyst was able to determine the following information about the three products:
AND SO ON
The reaction operation is part of the total process for each of these three products. Thus, for example, 1.0 of the 3 hours required to process ethylene are associated with the reactor.
Instructions
1. Determine the unit contribution margin for each product.
2. Provide an analysis to determine the relative product profitabilities, assuming that the reactor is a bottleneck.
3. Assume that management wishes to improve profitability by increasing prices on selected products. At what price would ethylene and ester need to be offered in order to produce the same relative profitability asbutane?
Click here for the solution: Delaware Bay Chemical Company produces three products: ethylene, butane, and ester
AND SO ON
The reaction operation is part of the total process for each of these three products. Thus, for example, 1.0 of the 3 hours required to process ethylene are associated with the reactor.
Instructions
1. Determine the unit contribution margin for each product.
2. Provide an analysis to determine the relative product profitabilities, assuming that the reactor is a bottleneck.
3. Assume that management wishes to improve profitability by increasing prices on selected products. At what price would ethylene and ester need to be offered in order to produce the same relative profitability asbutane?
Click here for the solution: Delaware Bay Chemical Company produces three products: ethylene, butane, and ester
The president wanted to know the break-even point for each of the company's products
The president wanted to know the break-even point for each of the company's products. Piedmont Fasteners Corporation makes three different clothing fasteners in its manufacturing facility in North Carolina. Data concerning these products appear below:
VELCRO METAL NYLON
Normal annual sales volume 100,000 200,000 400,000
Unit selling price 1.65 1.50 0.80
Variable cost per unit 1.25 0.70 0.25
*Total fixed expenses are $400,000 per year.
All three products are sold in highly competitive markets, so the company is unable to raise its prices without losing unacceptable numbers of customers. The company has an extremely effective lean production system, so there are no beginning or ending work in process or finished goods inventories.
Required:
1. What is the company’s over-all break-even point in total sales dollars?
2. Of the total fixed costs of $400,000, $20,000 could be avoided if the Velcro product were dropped, $80,000 if the Metal product were dropped, and $60,000 if the Nylon product were dropped. The remaining fixed costs of $240,000 consist of common fixed costs such as administrative salaries and rent on the factory building that could be avoided only by going out of business entirely.
a. What is the break-even point in units for each product?
b. If the company sells exactly the break-even quantity of each product, what will be the overall profit of the company? Explain this result.
Click here for the solution: The president wanted to know the break-even point for each of the company's products
VELCRO METAL NYLON
Normal annual sales volume 100,000 200,000 400,000
Unit selling price 1.65 1.50 0.80
Variable cost per unit 1.25 0.70 0.25
*Total fixed expenses are $400,000 per year.
All three products are sold in highly competitive markets, so the company is unable to raise its prices without losing unacceptable numbers of customers. The company has an extremely effective lean production system, so there are no beginning or ending work in process or finished goods inventories.
Required:
1. What is the company’s over-all break-even point in total sales dollars?
2. Of the total fixed costs of $400,000, $20,000 could be avoided if the Velcro product were dropped, $80,000 if the Metal product were dropped, and $60,000 if the Nylon product were dropped. The remaining fixed costs of $240,000 consist of common fixed costs such as administrative salaries and rent on the factory building that could be avoided only by going out of business entirely.
a. What is the break-even point in units for each product?
b. If the company sells exactly the break-even quantity of each product, what will be the overall profit of the company? Explain this result.
Click here for the solution: The president wanted to know the break-even point for each of the company's products
Friday, August 14, 2015
Fouch Company makes 30,000 units per year of a part it uses in the products it manufactures
Fouch Company makes 30,000 units per year of a part it uses in the products it manufactures. The unit product cost of this part is computed as follows:
Direct Materials-------------------------------$15.70
Direct Labor-----------------------------------$17.50
Variable Manufacturing Overhead-------$ 4.50
Fixed Manufacturing Overhead----------$14.60
----------
Unite Product Cost--------------------------$52.30
----------
An outside supplier has offered to sell the company all of these parts it needs for $51.90 a unit. If the company accepts this offer, the facilities now being used to make the part could be used to make more units of a product that is in high demand. The additional contribution margin on this other product would be $219,000 per year.
If the part were purchased from the outside supplier, all of the direct labor cost of the part would be avoided. However, $6.20 of the fixed manufacturing overhead cost being applied to the part would continue even if the part were purchased from the outside supplier. This fixed manufacturing overhead cost would be applied to the company's remaining products.
Required:
i. How much of the unit product cost of $52.30 is relevant in the decision of whether to make or buy the part?
ii. What is the net total dollar advantage (disadvantage) of purchasing the part rather than making it?
iii. What is the maximum amount the company should be willing to pay an outside supplier per unit for the part if the supplier commits to supplying all 30,000 units required each year?
Click here for the solution: Fouch Company makes 30,000 units per year of a part it uses in the products it manufactures
Direct Materials-------------------------------$15.70
Direct Labor-----------------------------------$17.50
Variable Manufacturing Overhead-------$ 4.50
Fixed Manufacturing Overhead----------$14.60
----------
Unite Product Cost--------------------------$52.30
----------
An outside supplier has offered to sell the company all of these parts it needs for $51.90 a unit. If the company accepts this offer, the facilities now being used to make the part could be used to make more units of a product that is in high demand. The additional contribution margin on this other product would be $219,000 per year.
If the part were purchased from the outside supplier, all of the direct labor cost of the part would be avoided. However, $6.20 of the fixed manufacturing overhead cost being applied to the part would continue even if the part were purchased from the outside supplier. This fixed manufacturing overhead cost would be applied to the company's remaining products.
Required:
i. How much of the unit product cost of $52.30 is relevant in the decision of whether to make or buy the part?
ii. What is the net total dollar advantage (disadvantage) of purchasing the part rather than making it?
iii. What is the maximum amount the company should be willing to pay an outside supplier per unit for the part if the supplier commits to supplying all 30,000 units required each year?
Click here for the solution: Fouch Company makes 30,000 units per year of a part it uses in the products it manufactures
Lindon Company uses 4,500 units of Part X each year as a component in the assembly of one of its products
Lindon Company uses 4,500 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 $69,000 as follows:
Direct Materials...... $16,000
Direct Labor........ 18,000
Variable Manufacturing Overhead .....10,000
Fixed Manufacturing Overhead....... 25,000
Total Costs ....$69,000
An outside supplier has offered to provide Part X at a price of $11 per unit. If Lindon stops producing the part internally, one-third of the 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.
Click here for the solution: Lindon Company uses 4,500 units of Part X each year as a component in the assembly of one of its products
Direct Materials...... $16,000
Direct Labor........ 18,000
Variable Manufacturing Overhead .....10,000
Fixed Manufacturing Overhead....... 25,000
Total Costs ....$69,000
An outside supplier has offered to provide Part X at a price of $11 per unit. If Lindon stops producing the part internally, one-third of the 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.
Click here for the solution: Lindon Company uses 4,500 units of Part X each year as a component in the assembly of one of its products
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