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 three. Show all posts
Showing posts with label three. Show all posts
Friday, April 15, 2016
Tuesday, November 10, 2015
The beginning inventory for Waldo Co and data on purchases and sales for a three-month period are shown in Problem 7-1A
PR 7-2A LIFO Perpetual Inventory
The beginning inventory for Waldo Co and data on purchases and sales for a three-month period are shown in Problem 7-1A.
Instructions
1. Record the inventory, purchases, and cost of merchandise sold data in a perpetual inventory record similar to the one illustrated in Exhibit 4, using the last-in, first-out method.
2. Determine the total sales, the total cost of merchandise sold, and the gross profit from sales for the period.
3. Determine the ending inventory cost.
Click here for the solution: The beginning inventory for Waldo Co and data on purchases and sales for a three-month period are shown in Problem 7-1A
The beginning inventory for Waldo Co and data on purchases and sales for a three-month period are shown in Problem 7-1A.
Instructions
1. Record the inventory, purchases, and cost of merchandise sold data in a perpetual inventory record similar to the one illustrated in Exhibit 4, using the last-in, first-out method.
2. Determine the total sales, the total cost of merchandise sold, and the gross profit from sales for the period.
3. Determine the ending inventory cost.
Click here for the solution: The beginning inventory for Waldo Co and data on purchases and sales for a three-month period are shown in Problem 7-1A
On January 1, 2011, VKI Corporation awarded 12 million of its $1 par common shares to key personnel, subject to forfeiture if employment is terminated within three years
E 19-2 Restricted stock award plan
On January 1, 2011, VKI Corporation awarded 12 million of its $1 par common shares to key personnel, subject to forfeiture if employment is terminated within three years. On the grant date, the shares have a market price of $2.50 per share.
Required:
1. Determine the total compensation cost pertaining to the restricted shares.
2. Prepare the appropriate journal entry to record the award of restricted shares on January 1, 2011.
3. Prepare the appropriate journal entry to record compensation expense on December 31, 2011.
4. Prepare the appropriate journal entry to record compensation expense on December 31, 2012.
5. Prepare the appropriate journal entry to record compensation expense on December 31, 2013.
6. Prepare the appropriate journal entry to record the lifting of restrictions on the shares at December 31, 2013.
Click here for the solution: On January 1, 2011, VKI Corporation awarded 12 million of its $1 par common shares to key personnel, subject to forfeiture if employment is terminated within three years
On January 1, 2011, VKI Corporation awarded 12 million of its $1 par common shares to key personnel, subject to forfeiture if employment is terminated within three years. On the grant date, the shares have a market price of $2.50 per share.
Required:
1. Determine the total compensation cost pertaining to the restricted shares.
2. Prepare the appropriate journal entry to record the award of restricted shares on January 1, 2011.
3. Prepare the appropriate journal entry to record compensation expense on December 31, 2011.
4. Prepare the appropriate journal entry to record compensation expense on December 31, 2012.
5. Prepare the appropriate journal entry to record compensation expense on December 31, 2013.
6. Prepare the appropriate journal entry to record the lifting of restrictions on the shares at December 31, 2013.
Click here for the solution: On January 1, 2011, VKI Corporation awarded 12 million of its $1 par common shares to key personnel, subject to forfeiture if employment is terminated within three years
Monday, October 26, 2015
Mabry Manufacturing Company uses a job order cost system in each of its three manufacturing departments
P2-4A Mabry Manufacturing Company uses a job order cost system in each of its three manufacturing departments. Manufacturing overhead is applied to jobs on the basis of direct labor cost in Department D, direct labor hours in Department E, and machine hours in Department K.
In establishing the predetermined overhead rates for 2008 the following estimates were made for the year.
Department
D E K
Manufacturing overhead $1,050,000 $1,500,000 $840,000
Direct labor costs $1,500,000 $1,250,000 $450,000
Direct labor hours 100,000 125,000 40,000
Machine hours 400,000 500,000 120,000
During January, the job cost sheets showed the following costs and production data.
Department
D E K
Direct materials used $140,000 $126,000 $78,000
Direct labor costs $120,000 $110,000 $37,500
Manufacturing overhead incurred $89,000 $124,000 $74,000
Direct labor hours 8,000 11,000 3,500
Machine hours 34,000 45,000 10,400
Required:
a) Compute the predetermined overhead rate for each department
b) Compute the total manufacturing costs assigned to jobs in January in each department
c) Compute the under- or overapplied overhead for each department at January 31
Click here for the solution: Mabry Manufacturing Company uses a job order cost system in each of its three manufacturing departments
In establishing the predetermined overhead rates for 2008 the following estimates were made for the year.
Department
D E K
Manufacturing overhead $1,050,000 $1,500,000 $840,000
Direct labor costs $1,500,000 $1,250,000 $450,000
Direct labor hours 100,000 125,000 40,000
Machine hours 400,000 500,000 120,000
During January, the job cost sheets showed the following costs and production data.
Department
D E K
Direct materials used $140,000 $126,000 $78,000
Direct labor costs $120,000 $110,000 $37,500
Manufacturing overhead incurred $89,000 $124,000 $74,000
Direct labor hours 8,000 11,000 3,500
Machine hours 34,000 45,000 10,400
Required:
a) Compute the predetermined overhead rate for each department
b) Compute the total manufacturing costs assigned to jobs in January in each department
c) Compute the under- or overapplied overhead for each department at January 31
Click here for the solution: Mabry Manufacturing Company uses a job order cost system in each of its three manufacturing departments
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
Manning Industries manufactures and sells three different models of wet-dry shop vacuum cleaners
P6-3A Manning Industries manufactures and sells three different models of wet-dry shop vacuum cleaners. Although the shop vacs vary in terms of quality and features, all are good sellers. Manning is currently operating at full capacity with limited machine time. Sales and production information relevant to each model follows.
Product
Economy Standard Deluxe
Selling price $30 $50 $100
Variable costs and expenses $12 $18 $42
Machine hours required .5 .8 1.6
Instructions
(a) Ignoring the machine time constraint, which single product should Manning Industries produce?
(b) What is the contribution margin per unit of limited resource for each product?
(c) If additional machine time could be obtained, how should the additional time be used?
Click here for the solution: Manning Industries manufactures and sells three different models of wet-dry shop vacuum cleaners
Product
Economy Standard Deluxe
Selling price $30 $50 $100
Variable costs and expenses $12 $18 $42
Machine hours required .5 .8 1.6
Instructions
(a) Ignoring the machine time constraint, which single product should Manning Industries produce?
(b) What is the contribution margin per unit of limited resource for each product?
(c) If additional machine time could be obtained, how should the additional time be used?
Click here for the solution: Manning Industries manufactures and sells three different models of wet-dry shop vacuum cleaners
Friday, October 9, 2015
Selected sales and operating data for three divisions of three different companies are given below
Selected sales and operating data for three divisions of three different companies are given below:
Division X Division Y Division Z
Sales $900,000 $750,000 $600,000
Average operating assets $600,000 $150,000 $200,000
Net operating income $54,000 $30,000 $10,000
Minimum required rate of return 10% 16% 8%
a. Compute the return on investment (ROI) for each division using the formula stated in terms of margin and turnover. Show computations
b. Compute the residual income for each division. Show computations
c. Under which of these methods would they accept an opportunity with a 15% return. Show computations and details
Click here for the solution: Selected sales and operating data for three divisions of three different companies are given below
Division X Division Y Division Z
Sales $900,000 $750,000 $600,000
Average operating assets $600,000 $150,000 $200,000
Net operating income $54,000 $30,000 $10,000
Minimum required rate of return 10% 16% 8%
a. Compute the return on investment (ROI) for each division using the formula stated in terms of margin and turnover. Show computations
b. Compute the residual income for each division. Show computations
c. Under which of these methods would they accept an opportunity with a 15% return. Show computations and details
Click here for the solution: Selected sales and operating data for three divisions of three different companies are given below
Monday, October 5, 2015
SY Telc has recently started the manufacture of RecRobo, a three-wheeled robot that can scan a home for fires and gas leaks
ACC 560 Week 5 Assignment
E7-6 SY Telc has recently started the manufacture of RecRobo, a three-wheeled robot that can scan a home for fires and gas leaks and then transmit this information to a mobile phone. The cost structure to manufacture 20,000 RecRobo’s is as follows.
Cost
Direct materials ($40 per robot) $800,000
Direct labor ($30 per robot) 600,000
Variable overhead ($6 per robot) 120,000
Direct labor ($30 per robot) 600,000
Variable overhead($6 per robot) 120,000
Allocated fixed overhead($25 per robot) 500,000
Total $2,020,000
SY Telc is approached by Chen Inc. which offers to make RecRobo for $90 per unit or $1,800,000.
Instructions
(a) Using incremental analysis, determine whether SY Telc should accept this offer under each of the following independent assumptions.
(1) Assume that $300,000 of the fixed overhead cost can be reduced (avoided).
(2) Assume that none of the fixed overhead can be reduced (avoided). However, if the robots are purchased from Chen Inc., SY Telc can use the released productive resources to generate additional income of $300,000.
(b) Describe the qualitative factors that might affect the decision to purchase the robots from an outside supplier.
Click here for the solution: SY Telc has recently started the manufacture of RecRobo, a three-wheeled robot that can scan a home for fires and gas leaks
E7-6 SY Telc has recently started the manufacture of RecRobo, a three-wheeled robot that can scan a home for fires and gas leaks and then transmit this information to a mobile phone. The cost structure to manufacture 20,000 RecRobo’s is as follows.
Cost
Direct materials ($40 per robot) $800,000
Direct labor ($30 per robot) 600,000
Variable overhead ($6 per robot) 120,000
Direct labor ($30 per robot) 600,000
Variable overhead($6 per robot) 120,000
Allocated fixed overhead($25 per robot) 500,000
Total $2,020,000
SY Telc is approached by Chen Inc. which offers to make RecRobo for $90 per unit or $1,800,000.
Instructions
(a) Using incremental analysis, determine whether SY Telc should accept this offer under each of the following independent assumptions.
(1) Assume that $300,000 of the fixed overhead cost can be reduced (avoided).
(2) Assume that none of the fixed overhead can be reduced (avoided). However, if the robots are purchased from Chen Inc., SY Telc can use the released productive resources to generate additional income of $300,000.
(b) Describe the qualitative factors that might affect the decision to purchase the robots from an outside supplier.
Click here for the solution: SY Telc has recently started the manufacture of RecRobo, a three-wheeled robot that can scan a home for fires and gas leaks
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
Peter Catalano's Verde Vineyards in Oakville, California produces three varieties of wine
Peter Catalano's Verde Vineyards in Oakville, California produces three varieties of wine: Merlot, Viognier, and Pinot Noir. His winemaster, Kyle Ward, has identified the following activities as cost pools for accumulating overhead and assigning it to products:
Choices:
Number of bottles
Number of boxes
Gallons of wine or months of aging
Number of cartfuls
Labor hours
Number of shipments
Gallons of juice
Number of gallons processed
Gallons of chemicals
Number or cartruls or labor hours
1. Culling and replanting. Dead or overcrowded vines are culled, and new vines are planted or relocated. (Separate vineyards by variety.)
2. Tying. The posts and wires are reset, and vines are tied to the wires for the dormant season.
3. Trimming. At the end of the harvest the vines are cut and trimmed back in preparation for the next season.
4. Spraying. The vines are sprayed with chemicals for protection against insects and fungi.
5. Harvesting. The grapes are hand-picked, placed in carts, and transported to the crushers.
6. Stemming and crushing. Cartfuls of bunches of grapes of each variety are separately loaded into machines which remove stems and gently crush the grapes.
7. Pressing and filtering. The crushed grapes are transferred to presses which mechanically remove the juices and filter out bulk and impurities.
8. Fermentation. The grape juice, by variety, is fermented in either stainless-steel tanks or oak barrels.
9. Aging. The wines are aged in either stainless-steel tanks or oak barrels for one to three years depending on variety
10. Bottling and corking. Bottles are machine-filled and corked.
11. Labeling and boxing. Each bottle is labeled, as is each nine-bottle case, with the name of the vintner, vintage, and variety.
12. Storing. Packaged and boxed bottles are stored awaiting shipment.
13. Shipping. The wine is shipped to distributors and private retailers.
14. Heating and air-conditioning of plant and offices
15. Maintenance of buildings and equipment. Printing, repairs, replacements, and general maintenance are performed in the off-season.
Choices:
Number of bottles
Number of boxes
Gallons of wine or months of aging
Number of cartfuls
Labor hours
Number of shipments
Gallons of juice
Number of gallons processed
Gallons of chemicals
Number or cartruls or labor hours
1. Culling and replanting. Dead or overcrowded vines are culled, and new vines are planted or relocated. (Separate vineyards by variety.)
2. Tying. The posts and wires are reset, and vines are tied to the wires for the dormant season.
3. Trimming. At the end of the harvest the vines are cut and trimmed back in preparation for the next season.
4. Spraying. The vines are sprayed with chemicals for protection against insects and fungi.
5. Harvesting. The grapes are hand-picked, placed in carts, and transported to the crushers.
6. Stemming and crushing. Cartfuls of bunches of grapes of each variety are separately loaded into machines which remove stems and gently crush the grapes.
7. Pressing and filtering. The crushed grapes are transferred to presses which mechanically remove the juices and filter out bulk and impurities.
8. Fermentation. The grape juice, by variety, is fermented in either stainless-steel tanks or oak barrels.
9. Aging. The wines are aged in either stainless-steel tanks or oak barrels for one to three years depending on variety
10. Bottling and corking. Bottles are machine-filled and corked.
11. Labeling and boxing. Each bottle is labeled, as is each nine-bottle case, with the name of the vintner, vintage, and variety.
12. Storing. Packaged and boxed bottles are stored awaiting shipment.
13. Shipping. The wine is shipped to distributors and private retailers.
14. Heating and air-conditioning of plant and offices
15. Maintenance of buildings and equipment. Printing, repairs, replacements, and general maintenance are performed in the off-season.
Instructions
For each of Verde's fifteen activity cost pools, identify a probable cost driver that might be used to assign overhead costs to its three wine varieties.
Click here for the solution: Peter Catalano's Verde Vineyards in Oakville, California produces three varieties of wine
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
The standard cost of Product B manufactured by Mateo Company includes three units of direct materials at $5.00 per unit
ACC 560 Week 7 Assignment
E11-5 The standard cost of Product B manufactured by Mateo Company includes three units of direct materials at $5.00 per unit. During June, 28,000 units of direct materials are purchased at a cost of $4.70 per unit, and 28,000 units of direct materials are used to produce 9,000 units of Product B.
Instructions:
a) Compute the total materials variance and the price and quantity variances.
b) Repeat the question above, assuming the purchase price is $5.20 and the quantity purchased and used is 26,200 units.
Click here for the solution: The standard cost of Product B manufactured by Mateo Company includes three units of direct materials at $5.00 per unit
E11-5 The standard cost of Product B manufactured by Mateo Company includes three units of direct materials at $5.00 per unit. During June, 28,000 units of direct materials are purchased at a cost of $4.70 per unit, and 28,000 units of direct materials are used to produce 9,000 units of Product B.
Instructions:
a) Compute the total materials variance and the price and quantity variances.
b) Repeat the question above, assuming the purchase price is $5.20 and the quantity purchased and used is 26,200 units.
Click here for the solution: The standard cost of Product B manufactured by Mateo Company includes three units of direct materials at $5.00 per unit
Summer Company is considering three capital expenditure projects
E12-5 Summer Company is considering three capital expenditure projects. Relevant data for the projects are as follows.
Project Investment Annual Income Life of Project
22A $240,000 $15,000 6 years
23A 270,000 24,400 9 years
24A 280,000 21,000 7 years
Annual income is constant over the life of the project. Each project is expected to have zero salvage value at the end of the project. Summer Company uses the straight-line method of depreciation.
Instructions
(a) Determine the internal rate of return for each project. Round the internal rate of return factor to three decimals.
(b) If Summer Company's required rate of return is 11%, which projects are acceptable?
Click here for the solution: Summer Company is considering three capital expenditure projects
Project Investment Annual Income Life of Project
22A $240,000 $15,000 6 years
23A 270,000 24,400 9 years
24A 280,000 21,000 7 years
Annual income is constant over the life of the project. Each project is expected to have zero salvage value at the end of the project. Summer Company uses the straight-line method of depreciation.
Instructions
(a) Determine the internal rate of return for each project. Round the internal rate of return factor to three decimals.
(b) If Summer Company's required rate of return is 11%, which projects are acceptable?
Click here for the solution: Summer Company is considering three capital expenditure projects
Thursday, September 24, 2015
The three accounts shown below appear in the general ledger of Cesar Corp. during 2008
ACC 560 Week 9 Assignment
E13-6 The three accounts shown below appear in the general ledger of Cesar Corp. during 2008.
Equipment
Date Debit Credit Balance
Jan. 1 Balance 160,000
July 31 Purchase of equipment 70,000 230,000
Sept. 2 Cost of equipment constructed 53,000 283,000
Nov. 10 Cost of equipment sold 49,000 234,000
Accumulated Depreciation-Equipment
Date Debit Credit Balance
Jan. 1 Balance 71,000
Nov. 10 Accumulated depreciation on equipment sold 30,000 41,000
Dec. 31 Depreciation for year 28,000 69,000
Retained Earnings
Date Debit Credit Balance
Jan. 1 Balance 105,000
Aug. 23 Dividends (cash) 14,000 91,000
Dec. 31 Net income 67,000 158,000
Instructions
From the postings in the accounts, indicate how the information is reported on a statement of cash flows using the indirect method. The loss on sale of equipment was $5,000. (Hint: Cost of equipment constructed is reported in the investing activities section as a decrease in cash of $53,000.)
Click here for the solution: The three accounts shown below appear in the general ledger of Cesar Corp. during 2008
E13-6 The three accounts shown below appear in the general ledger of Cesar Corp. during 2008.
Equipment
Date Debit Credit Balance
Jan. 1 Balance 160,000
July 31 Purchase of equipment 70,000 230,000
Sept. 2 Cost of equipment constructed 53,000 283,000
Nov. 10 Cost of equipment sold 49,000 234,000
Accumulated Depreciation-Equipment
Date Debit Credit Balance
Jan. 1 Balance 71,000
Nov. 10 Accumulated depreciation on equipment sold 30,000 41,000
Dec. 31 Depreciation for year 28,000 69,000
Retained Earnings
Date Debit Credit Balance
Jan. 1 Balance 105,000
Aug. 23 Dividends (cash) 14,000 91,000
Dec. 31 Net income 67,000 158,000
Instructions
From the postings in the accounts, indicate how the information is reported on a statement of cash flows using the indirect method. The loss on sale of equipment was $5,000. (Hint: Cost of equipment constructed is reported in the investing activities section as a decrease in cash of $53,000.)
Click here for the solution: The three accounts shown below appear in the general ledger of Cesar Corp. during 2008
These three accounts appear in the general ledger of Tovar Corp. during 2010
These three accounts appear in the general ledger of Tovar Corp. during 2010:
Equipment
Date Debit Credit Balance
Jan. 1 Balance 160,000
July 31 Purchase of equipment 70,000 230,000
Sept.2 Cost of equipment constructed 53,000 283,000
Nov.10 Cost of equipment sold 49,000 234,000
Accumulated Depreciation — Equipment
Date Debit Credit Balance
Jan. 1 Balance 71,000
Nov. 10 Accumulated depreciation on
equipment sold 30,000 41,000
Dec. 31 Depreciation for year 28,000 69,000
Retained Earnings
Date Debit Credit Balance
Jan. 1 Balance 105,000
Aug. 23 Dividends (cash) 19,000 86,000
Dec. 31 Net income 72,000 158,000
From the postings in the accounts, indicated how the information is reported on the statement of cash flows, using the indirect method below. The loss on sale of equipment was $8,000. (Hint: Cost of equipment constructed is reported in the investing activities section as a decrease in cash of $53,000.)
Click here for the solution: These three accounts appear in the general ledger of Tovar Corp. during 2010
Equipment
Date Debit Credit Balance
Jan. 1 Balance 160,000
July 31 Purchase of equipment 70,000 230,000
Sept.2 Cost of equipment constructed 53,000 283,000
Nov.10 Cost of equipment sold 49,000 234,000
Accumulated Depreciation — Equipment
Date Debit Credit Balance
Jan. 1 Balance 71,000
Nov. 10 Accumulated depreciation on
equipment sold 30,000 41,000
Dec. 31 Depreciation for year 28,000 69,000
Retained Earnings
Date Debit Credit Balance
Jan. 1 Balance 105,000
Aug. 23 Dividends (cash) 19,000 86,000
Dec. 31 Net income 72,000 158,000
From the postings in the accounts, indicated how the information is reported on the statement of cash flows, using the indirect method below. The loss on sale of equipment was $8,000. (Hint: Cost of equipment constructed is reported in the investing activities section as a decrease in cash of $53,000.)
Click here for the solution: These three accounts appear in the general ledger of Tovar Corp. during 2010
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
Pickle Motorcycles, Inc. (PMI), manufactures three motorcycle models
Pickle Motorcycles, Inc. (PMI), manufactures three motorcycle models: a
cruising bike (Route 66), a street bike (Main Street), and a starter
model (Alley Cat). Because of the different materials used, production
processes for each model differ significantly in terms of machine types
and time requirements. Once parts are produced, however, assembly time
per unit required for each type of bike is similar. For this reason, PMI
allocates overhead on the basis of machine-hours. Last year, the
company shipped 1,000 Route 66s, 4,000 Main Streets, and 10,000 Alley
Cats and had the following revenues and expenses:
PICKLE MOTORCYCLES, INC. Income Statement
Route 66Main StreetAlley Cat Total
Sales. . . . . . . . . . . . . . . . . . . . $7,600,000 $11,200,000 $9,500,000 $28,300,000
Direct costs
Direct materials . . . . . . . . . . 3,000,000 4,800,000 4,000,000 11,800,000
Direct labor. . . . . . . . . . . . . 288,000 480,000 1,080,000 1,848,000
Variable overhead
Machine setup. .468,000
Order processing. . . . . . . . . 1,152,000
Warehousing costs. . . . . . .1,674,000
Energy to run machines . . .756,000
Shipping. . . . . . . . . . . . . . .648,000
Contribution margin. . . . . . . . . 9,954,000
Fixed overhead
Plant administration. . . . . . .1,760,000
Other fixed overhead. . . . . .2,800,000
PMIs chief financial officer (CFO) hired a consultant to recommend cost allocation bases. The consultant recommended the following:
Activity Level
ActivityCost Driver Route 66 Main Street Alley Cat
Setting up machines . . Number of production runs 223 444
Processing orders . . . Number of sales orders received 400 600 600
Warehousing . . . . . . . Number of units held in inventory 200 200 400
Using energy. . . . . . . Machine-hours10000 16,000 24,000
Shipping. . . . . . . . . . . Number of units shipped1,000 4,000 10,000
The consultant found no basis for allocating the plant administration and other fixed overhead costs and recommended that these not be applied to products.
Required:
a. Using machine-hours to allocate production overhead, complete the income statement for Pickle Motorcycles. (See the "using energy" activity for machine-hours.) Do not attempt to allocate plant administration of other fixed overhead.
b. Complete the income statement using the bases recommended by the consultant.
c. How might activity-based costing result in better decisions by Pickle Motorcycles' management?
d. After hearing the consultant's recommendations, the CFO decides to adopt activity-based costing but expresses concern about not allocating some of the overhead to the products (plant administration and other fixed overhead). In the CFO's view, "Products have to bear a fair share of all overhead or we won't be covering all of the costs." How would you respond to this comment?
Click here for the solution: Pickle Motorcycles, Inc. (PMI), manufactures three motorcycle models
PICKLE MOTORCYCLES, INC. Income Statement
Route 66Main StreetAlley Cat Total
Sales. . . . . . . . . . . . . . . . . . . . $7,600,000 $11,200,000 $9,500,000 $28,300,000
Direct costs
Direct materials . . . . . . . . . . 3,000,000 4,800,000 4,000,000 11,800,000
Direct labor. . . . . . . . . . . . . 288,000 480,000 1,080,000 1,848,000
Variable overhead
Machine setup. .468,000
Order processing. . . . . . . . . 1,152,000
Warehousing costs. . . . . . .1,674,000
Energy to run machines . . .756,000
Shipping. . . . . . . . . . . . . . .648,000
Contribution margin. . . . . . . . . 9,954,000
Fixed overhead
Plant administration. . . . . . .1,760,000
Other fixed overhead. . . . . .2,800,000
PMIs chief financial officer (CFO) hired a consultant to recommend cost allocation bases. The consultant recommended the following:
Activity Level
ActivityCost Driver Route 66 Main Street Alley Cat
Setting up machines . . Number of production runs 223 444
Processing orders . . . Number of sales orders received 400 600 600
Warehousing . . . . . . . Number of units held in inventory 200 200 400
Using energy. . . . . . . Machine-hours10000 16,000 24,000
Shipping. . . . . . . . . . . Number of units shipped1,000 4,000 10,000
The consultant found no basis for allocating the plant administration and other fixed overhead costs and recommended that these not be applied to products.
Required:
a. Using machine-hours to allocate production overhead, complete the income statement for Pickle Motorcycles. (See the "using energy" activity for machine-hours.) Do not attempt to allocate plant administration of other fixed overhead.
b. Complete the income statement using the bases recommended by the consultant.
c. How might activity-based costing result in better decisions by Pickle Motorcycles' management?
d. After hearing the consultant's recommendations, the CFO decides to adopt activity-based costing but expresses concern about not allocating some of the overhead to the products (plant administration and other fixed overhead). In the CFO's view, "Products have to bear a fair share of all overhead or we won't be covering all of the costs." How would you respond to this comment?
Click here for the solution: Pickle Motorcycles, Inc. (PMI), manufactures three motorcycle models
Three different plans for financing a $10,000,000 corporation are under consideration by its organizers
PR14-1A Three different plans for financing a $10,000,000 corporation are under consideration by its organizers. Under each of the following plans, the securities will be issued at their par or face amount, and the income tax rate is estimated at 40% of income
10%bonds= Plan1= blank, Plan2=blank, Plan3=$5,000,000
Preferred 10% stock,$40par Plan1=blank Plan2=$5,000,000 Plane3=2,500,000
Common stock,$10par= Plan1=$10,000,000 Plan2=5,000,000 Plan3=2,500,000
Total=Plan1=10,000,000 Plan2=10,000,000 Plan3=10,000,000
Required:
1. Determine for each plan the earnings per share of common stock, assuming that the income before bond interest and income tax is $2,000,000.
2. Determine for each plan the earnings per share of common stock, assuming that the income before bond interest and income tax is 950,000.
3. Discuss advantages and disadvantages of each plan.
Click here for the solution: Three different plans for financing a $10,000,000 corporation are under consideration by its organizers
10%bonds= Plan1= blank, Plan2=blank, Plan3=$5,000,000
Preferred 10% stock,$40par Plan1=blank Plan2=$5,000,000 Plane3=2,500,000
Common stock,$10par= Plan1=$10,000,000 Plan2=5,000,000 Plan3=2,500,000
Total=Plan1=10,000,000 Plan2=10,000,000 Plan3=10,000,000
Required:
1. Determine for each plan the earnings per share of common stock, assuming that the income before bond interest and income tax is $2,000,000.
2. Determine for each plan the earnings per share of common stock, assuming that the income before bond interest and income tax is 950,000.
3. Discuss advantages and disadvantages of each plan.
Click here for the solution: Three different plans for financing a $10,000,000 corporation are under consideration by its organizers
Sunday, September 13, 2015
Estimated cost and operating data for three companies for the upcoming year follow
Estimated cost and operating data for three companies for the upcoming year follow:
Company X Company Y Company Z
Direct labor-hours 80,000 45,000 60,000
Machine-hours 30,000 70,000 21,000
Direct materials cost $400,000 $290,000 $300,000
Manufacturing overhead cost $536,000 $315,000 $480,000
Predetermined overhead rates are computed using the following allocation bases in the three companies:
Allocation Base
Company X Direct labor-hours
Company Y Machine-hours
Company Z Direct materials cost
1. Compute each company's predetermined overhead rate.
2. Assume that Company X works on three jobs during the upcoming year. Direct labor-hours recorded by job are: Job 418, 12,000 hours; Job 419, 36,000 hours; and Job 420, 30,000 hours. How much overhead will the company apply to Work in Process for the year? If actual overhead costs total $530,000 for the year, will overhead be underapplied or overapplied? By how much?
Click here for the solution: Estimated cost and operating data for three companies for the upcoming year follow
Company X Company Y Company Z
Direct labor-hours 80,000 45,000 60,000
Machine-hours 30,000 70,000 21,000
Direct materials cost $400,000 $290,000 $300,000
Manufacturing overhead cost $536,000 $315,000 $480,000
Predetermined overhead rates are computed using the following allocation bases in the three companies:
Allocation Base
Company X Direct labor-hours
Company Y Machine-hours
Company Z Direct materials cost
1. Compute each company's predetermined overhead rate.
2. Assume that Company X works on three jobs during the upcoming year. Direct labor-hours recorded by job are: Job 418, 12,000 hours; Job 419, 36,000 hours; and Job 420, 30,000 hours. How much overhead will the company apply to Work in Process for the year? If actual overhead costs total $530,000 for the year, will overhead be underapplied or overapplied? By how much?
Click here for the solution: Estimated cost and operating data for three companies for the upcoming year follow
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
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