1
Units to be
accounted for:
DM
100%
CC
40%
BI
100%
50%
IN
EI
WIP-Units
5,000
BI
60,000 57,000 out
8,000
IN
WIP-$$
DM
$20,000
CC
$16,000 57,000*$11.7932
= $672,212.4 out
DM
$250,000
CC
$450,000
DM $33,230.40
8,000*100%*$4.1538
CC $30,557.20
8,000*50%*$7.6393
$63,787.60
BI + IN = EI + Out (?)
$36,000 + $700,000 = $672,212.40 + $67,787.60
$736,000 = $736,000
Wtd. Avg. E.U.
Out
EI
EU
8,000*100%
8,000*50%
DM
57,000
8,000
65,000
CC
57,000
4,000
61,000
WEIGHTED AVERAGE METHOD
$ to Acct. for
BI
IN
Total
$20,000
$250,000
$270,000
$16,000
$450,000
$466,000
$/E.U.
Abiqua Acres
$270,000/65,000
=$4.1538
$466,000/61,000
=$7.6393
2
$11.7932 per E.U.
Abiqua Acres (p. 2)
FIFO METHOD
E.U.
DM
WIP Units
CC
100% 40%
BI
5,000
IN 60,000
DM
Out
57,000
BI: (DM) 5,000× 0%
-0-
BI: (CC) 5,000×60%
3,000
Start & Finish
100% 50%
EI
8,000
CC
52,000
EI: (DM) 8,000×100%
52,000
8,000
EI: (CC) 8,000× 50%
4,000
E.U.
60,000
WIP - $ (FIFO)
BI
DM $20,000
CC $16,000
CC $450,000
Costs to Account For
Out
DM
$ 36,000.00 from BI
22,881.30 Finished CC 5,000×60%×$7.6271
IN DM $250,000
613,277.60 S&F 52,000 × $11.7938
$672,158.90
BI
Total
$8.00
$12.00
$4.00
$16,000 CC ÷ (5,000× 40%)
$ per EU
DM $33,333.60
= 8,000 × 100% × $4.1667
$250,000 DM ÷ 60,000 E.U.
CC
= 8,000 × 50% × $7.6271
$450,000 CC ÷ 59,000 E.U.
30,508.40
CC
$ per EU
$20,000 DM ÷ (5,000×100%)
IN
EI
59,000
$4.1667
$7.6271
$11.7938
$63,842.00
$736,000 Costs to Account For
(Info we need to do problem)
3
Abtex Electronics
SP
VC
CM
Mix
Wtd. Avg.
CM
Tape
Recorders
$15.00
$8.00
$7.00
1/3
$2.33
Electronic
Calculators
$22.50
$9.50
$13.00
2/3
$8.67
$11.00
$280,000+ $1,040,000
FC
=
BE(units) =
CM per unit
=
$11.00
120,000 units

40,000
Tape
Recorders

80,000
Electronic
Calculators
4
Abtex Electronics (cont.)
Tape Recorders
DM $4.00 × 90% =
DL $2.00 × 110% =
VOH
Total VC per unit
Electronic Calculators
$3.60
2.20
2.00
$7.80
DM $4.50 × 80% =
DL $3.00 × 110% =
VOH
Total VC per unit
$3.60
3.30
2.00
$8.90
Total Fixed Costs:
$ 280,000
1,040,000
57,000
$1,377,000
I made up a big number for “revenue”,
likely to be divisible by both $15.00 and $20.00,
the 1998 selling prices
Sales Mix Calculation:
$750,000
20%
80%
$150,000 Rev.
SP $15 per unit
$600,000 Rev.
SP $20 per unit
10,000 recorders
30,000 calculators
¼
¾
Estimated 1998 mix of revenue
SALES MIX IN UNITS
5
Abtex Electronics (cont.)
(Continued)
SP
VC
CM
Mix
Wtd. Avg.
CM
Tape
Recorders
$15.00
$7.80
$7.20
1/4
$1.800
Electronic
Calculators
$20.00
$8.90
$11.10
3/4
$8.325
$10.125
FC
$1,377,000
=
BE(units) =
CM per unit
=
$10.125
136,000 units
¼
27,200
Tape
Recorders
¾
108,800
Electronic
Calculators
6
Adams Co.
Has 80,000 lbs. of RM available
No more can be purchased
Bicycle Frames
Set of Golf Clubs
$40/unit CM, requires 8 lbs. of RM
$32/unit CM, requires 4 lbs. of RM
** Everything they make can be sold!!
Bike Frames
Golf Clubs
$40 / 8 lbs. =
$32 / 4 lbs. =
$5.00 per lb. CM
$8.00 per lb. CM
80,000 lbs. of RM available ÷ 4 lbs. per Set of Golf Clubs
= 20,000 Sets of Golf Clubs produced to maximize CM
** What if they can only sell 8,000 Sets of Golf Clubs??
Make 8,000 Sets of Golf Clubs  32,000 lbs.
Make 6,000 Bicycle Frames  48,000 lbs. (= 48,000 lbs. / 8 lbs. per unit)
80,000 lbs.
7
Alcatraz Artifacts
1.
SP
VC
CM
Mix
Wtd.
Avg.
CM
Al
$20
$16
$4
2/10
$.80
$ 4.00
Cat
$50
$36
$14
3/10
$4.20
$15.00
Raz
$40
$28
$12
5/10
$6.00
$20.00
$11.00
$39.00
BE (units)
= FC
CM per unit
=
$77,000
=
Wtd.
Avg.
SP
7000 units
$11
AL
CAT
RAZ
20%
30%
50%
1400
+ 2100
$28,000 + $105,000 +
“Al”
“Cat”
+
3500 = $7000
$140,000 = $273,000
“Raz”
8
Alcatraz Artifacts (cont.)
2.
SP
$20
$50
$40
Al
Cat
Raz
BE (units)
=
VC
$16
$36
$28
FC
CM per units
=
CM
$4
$14
$12
$77,000
WTD.
AVG.
CM
$1.60
$5.60
$2.40
$9.60
MIX
.40
.40
.20
=
8021 units
$9.60
Al
40%
Cat
+
Raz
40% +
3,209
+
3208
$64,180
+
$160,400
+
20%
1,604
+ $64,160 = $288,740
Increased BE point because more low profit
“Al’s” were sold.
9
Andretti Company
1.
Variable Expenses
DM
DL
VOH
VS&A
Total
$10.00
4.50
2.30
1.20
$18.00
Fixed Expenses
OH
S&A
Total
Variable Expenses
$300,000
210,000
$510,000
TODAY
Sales
Vbl
CM
Fixd
NI
$1,920,000
(1,080,000)
$840,000
(510,000)
$330,000
[$32*60,000]
[$18*60,000]
TOMORROW
Sales
Vbl
CM
Fixd
NI
$2,400,000
(1,350,000)
$1,050,000
(590,000)
$460,000
$130,000
[$32*75,000]
[$18*75,000]
[$510,000+$80,000]
Yes, the increase in fixed selling
expense would be justified.
10
Andretti Company (cont.)
2.
Variable Expenses
DM
DL
VOH
Duties
Selling
Total
$10.00
4.50
2.30
1.70
3.20
$21.70
A foreign company wants to
purchase 20,000 Daks.
Breakeven: TR = TC
20,000 x = 20,000 ($21.70) + $9,000
where x is unit selling price
20,000 x = $434,000 + $9,000
20,000 x = $443,000
x = $22.15 selling price / unit
11
Andretti Company (cont.)
3.
The relevant cost figure is $1.20 per unit, which is the variable
selling expense per Dak. Since the irregular units have already
been produced, all production costs (including the variable
production costs) are sunk. The fixed selling expenses are not
relevent since they will not change regardless of whether or not
the irregular units are sold.
12
Andretti Company (cont.)
4.
If the plant operates at 30% of normal levels, then only 3,000
units will be produced and sold during the two-month period:
60,000 units per year * 2/12 = 10,000 units sold
10,000 units * 30% = 3,000 units produced and sold.
Continue Producing
Sales
Vbl
CM
Fixd
NI
$96,000 [$32*3,000]
(54,000) [$18*3,000]
$42,000
(85,000) [$510,000*2/12]
($43,000)
Shut Down
FOH
FS&A
Total
($30,000) [$300,000*2/12*.60]
(28,000) [$210,000*2/12*.80]
($58,000)
Net disadvantage of closing plant:
($15,000)
13
Andretti Company (cont.)
5.
The relevant costs are those that can be avoided by
purchasing from the outside manufacturer. These costs are:
DM
DL
VOH
FOH
VS&A
FS&A
Total
$10.00
4.50
2.30
3.75
0.40
0.00
$20.95
[($300,000*.75)/60,000]
[$1.20*1/3]
To be acceptable, the ouside manufacturer's quotation must be
less than $20.95 per unit.
14
Apple Appliances
You should reject the offer.
$10 Variable (relevant) cost to produce the timer assemblies ($5 + $4 + $1)
$12 Cost to purchase the timer assemblies
$ 2 Cheaper to make the timer assemblies
15
Archer Company
a.
UNITS
UNITS
UNITS
UNITS
FG - Mar
FG - April
6000
FG - May
FG - June
Produce
6000
32,000
30,000
8,000
(20% x 40,000)
b.
RM UNITS
RM - April
24,000
lbs. 32,000 x 3
Purchase 105,000 lbs. = 96,000 lbs,
33,000
lbs.
(25% x 132,000)
BI
8000
Produce
44,000 40,000
60,000
12,000
(20% x 60,000)
EI
RM UNITS
RM UNITS
RM - May
FG - June
44,000 x 3
= 132,000
16
Astoria Company
RM
WIP
BI
$ 9,000
$32,300 (85%)
Purch
$40,000
$ 5,700 (15%)
BI
FG
$ 20,000
BI
32,300
$ 32,000
140,000
COGM
$ 130,000
COGS
45,000
EI
$11,000
64,200
EI
DL
$140,000
EI
$ 42,000
$ 21,500
COGS
$ 45,000
$ 45,000
$ 130,000
$ 130,000
-0-
-0-
MOH
IDM
$ 5,700
Mfg Utilities
19,100
Mfg Depr
27,000
IDL
10,000
Prepd Insur
I/S
2,400
64,200
$ 64,200
COGS
$ 130,000
Depr. Exp.
9,000
Adv. Exp.
48,000
Admin. Salaries
30,000
Prepaid Ins.
600
Misc. S&A
9500
$ 250,000
Sales
$ 22,900 NI BT
Inc. Tax
-0-
$ 4,580
$ 18,320 NI AT
(to R/E)
$ 18,320
-0-
17
Assets (aka: “Pete”)
Astoria Co. (p. 2)
CASH
A/R
Beg
$ 19,100 Util
Cash from
Customers
((A/R))
Property, Plant & Equip
$ 7,000
245,000
48,000 Advertsng
Beg
$ 18,000
250,000
(Sales)
$ 245,000 (to Cash)
Beg $ 290,000
Purch of
9,000
Equip
9,500 Misc S&A
2,000 Prepd Ins
End
$ 23,000
End
$ 219,000
41,000 A/P
Prepaid Insurance
84,000 W/P
9,000 Purch PPE
Beg
4,580 Inc Tax
End
Accum. Depr.
$ 4,000
2,000
$ 53,000 Beg
$ 3,000
36,000 (Depr. Exp.)
$34,820
End
$ 3,000
$ 89,000 End
Liabilities & Owners’ Equity (aka: “Re-Pete”)
Accounts Payable
Wages Payable
$ 38,000 Beg
40,000
OUT (from Cash) $ 41,000
DM Purch
$ 37,000 End
$
(from Cash)
$ 84,000
-045,000
DL
10,000
IDL
30,000
Admin Salaries
$ 1,000
Capital Stock
$ 160,000 Beg
Beg. (implied)
End
R/E
$ 49,000 Beg
18,320 (Net Income)
$ 160,000 End
$ 67,320 End
18
Astoria Company (p. 3)
Cannon Beach Sand Company
Balance Sheet
As of December 31, 2001
Assets
Liabilities
&
Owners’
Equity
Cash
$ 34,820
A/R
23,000
Prepd Insur
3,000
PPE
219,000
Accum Depr
(89,000)
RM
11,000
WIP
21,500
FG
42,000
Total
$265,320
A/P
W/P
C/S
R/E
$ 37,000
1,000
160,000
67,320
Total
$265,320
19
Astoria Company (p. 4)
Astoria Company
Statement of Cash Flows (Indirect Method)
For the Year-Ended December 31, 2001
Operating Activities
Net Income
$ 18,320
Depr. Exp
↑ A/R (use)
↓ Prepd Ins (source)
↑ DM (use)
↑ WIP (use)
↑ FG (use)
↓ A/P (use)
↑ W/P (source)
+ 36,000
- 5,000
+ 1,000
- 2,000
- 1,500
- 10,000
- 1,000
+ 1,000
Net Cash provided by
Operating Activities
$ 36,820
Investing Activities
Purch of Equipment
$ - 9,000
Net Cash used by
Investing Activities
$ (9,000)
Net increase in cash
$ 27,820
Beg. Cash
7,000
End Cash
$ 34,820
Calculation of Free Cash Flows
Cash from Operations
Less: Capital Expenditures (net)
$36,820
9,000
Free Cash Flows
$27,820
20
Audio Basics Corporation
ACTIVITY:
“N” Number of production runs : $400,000 / 50 = $8000 per…
“Q” Quality tests performed : $360,000 / 300 = $1200 per…
“S” Shipping orders processed : $120,000 / 150 = $800 per…
1.
----- ABC
“N”
“Q”
“S”
a.
Standard
40 × $8,000 = $ 320,000
180 × $1,200 = $ 216,000
100 × $ 800 = $ 80,000
MOH
DM
DL
Total MFG
b.
2.
High Grade
“N”
“Q”
“S”
$ 616,000
$ 250,000
$ 348,000
$1,214,000
÷ 320,000 units
$3.79375 per unit
10 × $8,000 = $ 80,000
120 × $1,200 = $ 144,000
50 × $ 800 = $ 40,000
MOH
DM
DL
Total MFG
$ 264,000
$ 228,000
$ 132,000
$ 624,000
÷ 100,000 units
$6.24 per unit
$ 616,000
+ 264,000
$ 880,000
----- Allocated MOH
Est. MOH
Activity
$880,000 = $1.833333 per DL$
$480,000
Standard
MOH
DM
DL
Total MFG
High Grade
$ 638,000 (= $348,000 × $1.833333)
$ 250,000
$ 348,000
$1,214,000
÷ 320,000 units
$3.8625 per unit
MOH
DM
DL
Total MFG
$ 242,000 (= $132,000 × $1.833333)
$ 228,000
$ 132,000
$ 602,000
÷ 100,000 units
$6.02 per unit
21
The Baize Company
$403,200
Estimated MOH
a.
=
PDOR =
Estimated Activity
b.
=
$19.20 per DLH
21,000 DLH
Applied MOH = Actual Activity × PDOR
20,000 DLH × $19.20 =
$384,000
MOH
c.
$378,000
$384,000
$6,000
Overapplied
$6,000
to COGS
-0-
22
1.
Ballycanally Corporation
DM
Price
AQ × AC
14,000 × $1.80
$25,200
Qty
AQ × SC
14,000 × $1.75
$24,500
SQ × SC
× $1.75
(6300)(2)
$700 U
AQ × SC
13,250 × $1.75
$23,187.50
SQ × SC
12,600 × $1.75
$22,050
$1137.50 U
Rate
2.
Efficiency
DL
AQ × AC
4,100 × $9.05
$37,105
$205 U
AQ × SC
4,100 × $9.00
$36,900
SQ × SC
(2000)(2) × $9.00
$36,000
$900 U
23
Ballycanally Corp. (p. 2)
3.
Spending
VOH
Efficiency
AQ × AC
AQ × SC
27,750 × $1.22
$33,855
27,750 × $1.20
$33,300
SQ × SC
(Applied)
28,000 × $1.20
$33,600
$300 F
$555 U
$255 U
4.
FOH
Spending
Volume
Actual
Budget
$155,500
$144,000
Applied
(SQ × SC)
60,000 × $2.50
$150,000
$6,000 F
$11,500 U
$5,500 U
24
Barber Company
Rate
AQ * AP
34,500 * ?
Eff
AQ * SP
34,500 * ?
SQ * SP
35,000 * ?
? = $6.40
$241,500
$220,800
$20,700 u
$3,200 F
$3,200 / 500 hours
= $6.40
25
Beale Street Blues, Inc.
DM
Price
Usage
SQ × SC
AQ × AC
AQ × SC
25,000 × $2.60
25,000 × $2.50
$65,000
$62,500
(7800 units)(3lbs)
$2,500 U
1
AQ × SC
SQ × SC
23,100 × $2.50
23,400 × $2.50
$57,750
$58,500
DL
$750 F
Efficiency
Rate
2
(7800 units)(5 hrs)
AQ × AC
AQ × AC
SQ x SC
40,100 × $7.30
40,100 × $7.50
39,000 × $7.50
$292,730
$300,750
$292,500
3
$8020 F
$8250 U
$230 U
4
26
Beale Street Blues (p. 2)
VOH
Efficiency
Spending
Actual
SQ × SC
AQ × SC
AQ × AC
(7800)(5)
40,100 × $3.00
39,000 × $3.00
$120,300
$117,000
$130,000
$9,700 U
$3,300U
5
FOH
Volume
Spending
Actual
Budgeted
AQ × AC
BQ × SC
Applied
SQ x SC
(7800)(5)
40,000 × $4.00
$170,000
39,000 × $4.00
$160,000
$156,000
$10,000 U
6
$4,000 U
7
27
Bee-Cee’s Guitar Emp. (A)
JAN
JAN
Dec.
Jan.
$100,000×20%
$ 60,000×80%
FEB
Jan.
Feb.
$ 60,000×20%
$ 80,000×80%
MAR
Feb.
Mar.
$ 80,000×20%
$ 90,000×80%
FEB
MAR
Total
$20,000
48,000
$68,000
$12,000
64,000
$76,000
$16,000
72,000
$88,000
$232,000
28
Bee-Cee’s Guitar Emp. (B)
JAN
JAN
Dec.
Jan.
$70,000×90%
$42,000×10%
FEB
Jan.
Feb.
$42,000×90%
$56,000×10%
MAR
Feb.
Mar.
$56,000×90%
$63,000×10%
FEB
MAR
Total
$63,000
4,200
$67,200
$37,800
5,600
$43,400
$50,400
6,300
$56,700
$167,300
29
Bee-Go Company
FG – Feb.
FG – Jan.
16,500
15,650
1,650
16,450
15,600
FG – Mar.
FG – Apr.
1,600
16,500
16,250
1,650
1,600
1,850
(10%×16,500)
(10%×16,000)
(10%×18,500)
16,000
18,500
Units Produced
Jan.
15,650
Feb.
16,450
Mar.
16,250
Total
48,350
30
Bee-Kill Chemical (A)
RM – Q2
RM – Q1
45,000
50,400
(46,000×4 lbs.)
189,400
184,000
60,000
(42,000×4 lbs.)
177,600
RM – Q4
RM – Q3
(50,000×4 lbs.)
186,800
168,000
46,800
200,000
166,800
50,400
60,000
46,800
57,600
(30%×168,000)
(30%×184,000)
(30%×156,000)
(30%×192,000)
RM – Q1 (2007)
57,600
(39,000×4 lbs.)
(48,000×4 lbs.)
156,000
192,000
RM Purchased
Q1
Q2
Q3
Q4
189,400
177,600
186,800
166,800
720,600
× $4
$2,882,400
Total pounds of raw materials purchased
Cost per pound of raw material
Total cost of raw materials purchased
31
Bee-Kill Chemical (B)
2006
Units
Quarter 1
Quarter 2
Quarter 3
Quarter 4
46,000
42,000
50,000
48,000
DLH
× 2.5 DLH per unit =
115,000
105,000
125,000
97,500
442,500
× $20
$8,850,000
Q1
Q2
Q3
Q4
DLH worked during 2006
DL cost per hour
Cost of DLH worked during 2006
32
Bee-Kill Chemical (C)
Production Information
Quarter 1, 2006 46,000
Quarter 2
42,000
Quarter 3
50,000
Quarter 4
39,000
Total
177,000
1.
Units
Units
Units
Units
Units
Indirect material
Indirect labor
Utilities
Total
$2.25
1.50
1.00
$4.75
Fixed Costs per Quarter
Per unit
Per unit
Per unit
Per unit
Supervisor salaries
Factory depreciation
Other
Total
$80,000
30,000
4,100
$114,100
Variable MOH by Qtr.
Quarter 1, 2006
Quarter 2
Quarter 3
Quarter 4
Total
2.
Variable Costs
$218,500
199,500
237,500
185,250
( = 46,000 units × $4.75)
( = 42,000 units × $4.75)
( = 50,000 units × $4.75)
( = 39,000 units × $4.75)
$840,750
Total MOH for 2006
Variable costs
Fixed costs
$ 840,750
456,400
Total mfg. overhead
$1,297,150
( = $114,100 × 4 Qtrs.)
33
Bee-Safe Company
2004
First quarter
Second quarter
Third quarter
Fourth quarter
21,000
26,000
25,000
30,000
2005
× 130% =
27,300
33,800
32,500
39,000
132,600
× $40
$5,304,000
Unit sales during 2005
Selling price per unit
Sales revenue during 2005
34
Belly Rub Productions
BELLY RUB PRODUCTIONS
Unit Product Cost Data
Years 2001 through 2004
2001
Year
2002
2003
2004
Variable manufacturing costs:
Direct materials…………………………..
$6
$6
$7
$8
Direct labor………………………………
3
4
4
5
Variable MOH……………………………
2
2
3
4
Product cost using variable costing…………
$11
$12
$14
$17
Add prorated fixed MOH cost………………
5
6
7
8
Product cost using absorption costing………
$16
$18
$21
$25
BELLY RUB MANUFACTURING
Absorption Costing Income Statement
For Years 2001 through 2004
2001
2002
Year
2003
Sales…………………………………
$200,000
$243,000
$390,000
$350,000
Cost of goods sold…………………..
128,000
158,000
258,000
242,000
Underapplied (overapplied) overhead
0
(12,000)
0
16,000
Gross margin……………………….
72,000
97,000
132,000
92,000
Variable selling and administrative...
24,000
27,000
52,000
50,000
Fixed selling and administrative……
30,000
35,000
40,000
50,000
Total operating expenses……………
54,000
62,000
92,000
100,000
Net income…………………………
$18,000
$35,000
$40,000
2004
$ (8,000) 35
Belly Rub Productions (p. 2)
BELLY RUB MANUFACTURING
Variable Costing Income Statement
For Years 2001 through 2004
2001
2002
$200,000
$243,000
$390,000
$350,000
88,000
106,000
172,000
164,000
Manufacturing contribution margin ………..
112,000
137,000
218,000
186,000
Variable selling and administrative ………..
24,000
27,000
52,000
50,000
Contribution margin ……………….……….
88,000
110,000
166,000
136,000
Fixed manufacturing overhead …………….
50,000
60,000
70,000
80,000
Fixed selling and administrative……………
30,000
35,000
40,000
50,000
Total fixed cost ……………………………
80,000
95,000
110,000
130,000
Net income ………………………………..
$ 8,000
$ 15,000
$ 56,000
$ 6,000
Sales ………………………………………..
Variable product cost …………………….
Year
2001
2002
2003
2004
Year
2003
Belly Rub Productions
Schedule of Product Costs with Absorption Costing
Years 2001 through 2004
Total
Beginning
Current Year
Product
Inventory
Production
Cost
- 0 - + 8,000 units @ $16 $128,000
2,000 units @ $16 + 7,000 units @ $18 $158,000
5,000 units @ $18 + 8,000 units @ $21 $258,000
2,000 units @ $21 + 8,000 units @ $25 $242,000
Year
2001
2002
2003
2004
2004
Belly Rub Productions
Schedule of Product Costs using Variable Costing
Years 2001 through 2004
Total
Beginning
Current Year
Product
Inventory
Production
Cost
- 0 - + 8,000 units @ $11 $ 88,000
2,000 units @ $11 + 7,000 units @ $12 $106,000
5,000 units @ $12 + 8,000 units @ $14 $172,000
2,000 units @ $14 + 8,000 units @ $17 $164,000
36
Belly Rub Productions (p. 3)
BELLY RUB PRODUCTIONS
Schedule of Fixed Overhead Costs Included
In Beginning and Ending Inventory Under Absorption Costing
Year
2001
2002
2003
2004
Units in beginning inventory …
Applied fixed MOH per unit …
Equals ……………………….
-0-
2,000
$
5
$10,000
5,000
$
6
$30,000
2,000
$
7
$14,000
Units in ending inventory ……
Fixed MOH per unit ………….
Equals ……………………….
2,000
$
5
$10,000
5,000
$
6
$30,000
2,000
$
7
$14,000
-0-
Causes absorption costing NI
to be …………………………
$10,000
Higher
$20,000
Higher
$16,000
Lower
$14,000
Lower
37
Spend
VOH
AQ × AC
Benton Company
N/A
Eff.
$25,150
$1,760 U
$1,070 U
Spend
SQ × SC
SQ × SC
(310) (9) × $8
$22,320
AQ × SC
3,010 × $8
$24,080
N/A
Vol.
N/A
FOH
Actual
Budget
$23,800
$24,300
N/A
$500 F
Spend
TOTAL
Applied
SQ × SC
(310) (9) × $9.00
$25,110
Budget
BQ × SC
2,700 × $9
$24,300
$810 F
Vol.
Eff.
$48,950
$47,430
$1760 U
$570 U
$810 F
$1520 U
$20,769 / $6.90 = 3010 DLH
310 units actual x 9 hrs. = 2790 hrs.
$63 / 9 hrs. = $7 / hr. = DL cost per hr.
$45,900
$8 + $9
=
2,700 budgeted DL hrs.
38
B.G. Wip Company
Step 1
WIP
DM
CC
100%
60%
2,000
9,000
100%
1/3
7,700
3,300
Weighted Average Method
FIFO Method
Step 2
Step 2
FIFO Equivalent Units
Wtd. Avg. Equivalent Units
OUT
EI 3300 × 100%
DM
CC
7,700
7,700
BI
3,300
3300 × 1/3
E.U.
DM
11,000
2,000 × 0%
-0-
2,000 × 40%
1,100
S&F
8,800
EI
800
5,700
3300 × 100%
5,700
3,300
1,100
3300 × 1/3
E.U.
CC
9,000
7,600
39
Big Dog Foods
Standard Allowed
for Actual Output
pounds
Price
AQ × AC
Quantity / Usage
AQ × SC
SQ × SC
(30)(800) × $0.20
24,000 × $0.20
$4,800
24,500 × $0.20
$4,900
24,500 × $0.19
$4,655
$245 F
$100 U
$145 F
DIRECT MATERIALS – Ground Brown Rice
40
Big Dog Foods (p. 2)
Standard Allowed
for Actual Output
pounds
Price
AQ × AC
Quantity / Usage
AQ × SC
SQ × SC
(30)(200) × $0.40
6,000 × $0.40
$2,400
5,900 × $0.40
$2,360
5,900 × $0.41
$2,419
$59 U
$40 F
$19 U
DIRECT MATERIALS – Chicken Meal
41
Big Dog Foods (p. 3)
Standard Allowed
for Actual Output
DLH
Rate
AQ × AC
Efficiency
AQ × SC
SQ × SC
(30)(8) × $15.00
240 × $15.00
$3,600
300 × $15.00
$4,500
300 × $16.00
$4,800
$300 U
$900 U
$1,200 U
DIRECT LABOR
42
Bob’s Beef Boy
DM
WIP
0
0
Meat
$54,000
$77,500
Lettuce
$6,750
Tomatoes
$7,500
Kaiser rolls
$9,250
$77,500
66,400
FG
0
COGM
$210,250
$210,250
$210,250
66,350
0
0
0
DL
$66,400
COGS
$210,250
$66,400
$210,250
0
MOH
I/S
Condiments
$2,650
Paper
$2,400
Utilities
$22,500
Grill Depr.
$7,000
Rent
Cleaning
$210,250
$25,000
$6,800
$66,350
Servers
$53,000
Mgr.
$41,000
Depr. Signs
$3,250
Adv.
$3,500
$478,800
$311,000
$66,350
$167,800
43
Bojangle Dance Shoes
Absorption Costing
Variable Costing
Income Statement
Income Statement
For the Year Ended Dec. 31, 2002
For the Year Ended Dec. 31, 2002
Rev.
$630,000
Rev.
$630,000
COGS: Prime
(252,000)
VC: Prime
(252,000)
V.MOH (84,000)
V.MOH
(84,000)
F.MOH (100,000)
V.Sell
(54,000)
GM
$194,000
CM
$240,000
S&A: V.Sell
(54,000)
F.Sell
(45,000)
F.Sell
(45,000)
F.Adm
(90,000)
F.Adm
(90,000)
NI
$5,000
FC: F.MOH (100,000)
NI
$5,000
44
Bosna Corporation
Spend
Eff
AQ * AP
AQ * SP
$2,450,000 * .5%
$12,500
$12,250
$250 u
N/A
SQ * SP
$2,000,000 * .5%
SQ * SP
$10,000
$2,250 u
$2,500 u
If you are asked for a "variance" this is it
45
Bowly Company
Bowly Company
Variable Costing I/S
For the Y/E Dec. 31, 2005
Bowly Company
Absorption Costing I/S
For the Y/E Dec. 31, 2005
Rev
$100,000
= 5,000 × $20
Rev
$100,000
= 5,000 × $20
- CoGS
(60,000)
= 5,000 × $12
- VC
(50,000)
= 5,000 × $10
GM
$ 40,000
CM
$ 50,000
- S&A
(15,000)
(10,000)
- FC
(30,000)
(10,000)
NI
$ 15,000
NI
$ 10,000
= 5,000 × $3
MOH
S&A
The difference in NI equals the change in FG Inventory
times the fixed MOH per unit (1,000 × $5 = $5,000)
46
Brötchen Bakery
DIRECT MATERIALS
Standard Allowed
for Actual Output
Pounds
Price
AQ × AC
Usage
Qty purch
=
Qty used
30,000 × $2.20
$66,000
AQ × SC
SQ × SC
30,000 × $2.00
$60,000
$6,000 U
(1,450)(20) × $2.00
$58,000
$2,000 U
$8,000 U
DIRECT LABOR
DLH
Rate
AQ × AC
Efficiency
AQ × SC
8,000 × $18.90
$151,200
SQ × SC
8,000 × $18.00
$144,000
$7,200 U
(1,450)(5) × $18.00
$130,500
$13,500 U
$20,700 U
47
Brötchen Bakery (p. 2)
VARIABLE OVERHEAD
DLH
Spending
Efficiency
AQ × AC
AQ × SC
8,000 × $1.375
$11,000
8,000 × $1.50
$12,000
$1,000 F
SQ × SC
$150,000 ÷ 100,000 DLH
(1,450)(5) × $1.50
$10,875
$1,125 U
SQ = Standard Allowed
for Actual Output
$125 U
$300,000 ÷ 100,000 DLH
FIXED OVERHEAD
DLH
Spending
Volume
Actual
Budgeted
AQ × SC
8,000 × $3.25
$26,000
8,333.33 × $3.00
$25,000
$1,000 U
Applied
SQ × SC
(1,450)(5) × $3.00
$21,750
$3,250 U
100,000 DLH ÷ 12 months
$4,250 U
48
Buffalo Broilers
1.
PDOR = Est. MOH / Est. Activity
$500,000 / 100,000 DLH = $5.00 per DLH
$500,000 / $800,000 = $0.625 per DL$
$500,000 / 80,000 MH = $6.25 per MH
49
Buffalo Broilers (cont.)
MOH (DLH)
2.
Actual
Applied
MOH (DL$)
Actual
Applied
.625 * $930,000
$5.00 * 120,000
$576,000
= $600,000
$576,000
$24,000 overapplied
= $581,250
$5250 overapplied
MOH (MH)
Actual
Applied
$6.25 * 90,000
$576,000
= $562,500
3.
$13,500
underapplied
$576,000 / 120,000 DLH =
$4.80 Actual MOH per Actual DLH
50
California Textbooks (A)
TOTAL COSTS
RELEVANT ITEMS
Outside purchase of parts
Direct materials
Direct labor
Variable overhead
Fixed overhead that can be
avoided not making
Total relevant costs
Difference in favor of making
Make
Buy
$160,000
$10,000
$80,000
$40,000
$20,000
$150,000
$160,000
PER-UNIT COSTS
Make
Buy
$16
$1
$8
$4
$2
$15
$10,000
$16
$1
Relevant Benefit
so better to MAKE than BUY
51
California Textbooks (B)
Rent revenue
Contribution margin from
other products
Buying parts
Net relevant costs
Make
$ ---
Buy
and leave
facilities
idle
$ ---
Buy and use
facilities
for other
products
$ ---
Buy
and
rent
$5,000
---(150,000)
($150,000)
---(160,000)
($160,000)
19,000
(160,000)
($141,000)
---(160,000)
($155,000)
Best choice is to buy textbook covers
and use facilities for other products
52
Candlelight Candles Co.
WEIGHTED AVERAGE METHOD
E.U.
WIP Units
DM
WIP - $ (Wtd. Avg.)
CC
100% 40%
BI
25,000
IN 510,000
Out
523,000
BI
DM $42,650
CC $17,152
523,000 * $1.56
= $815,880
100% 80%
EI
12,000
DM
CC
Out
OUT
523,000
523,000
EI: (DM) 12000 * 100%
12,000
9,600
EI: (CC) 12000 * 80%
IN DM $433,500
E.U.
CC $339,690
532,600
535,000
Costs to Account For
EI
DM $10,680
= 12000 * 100% * $0.89
CC $ 6,432
= 12000 * 80% * $0.67
$17,112
DM
BI
IN
Total
CC
$42,650
$17,152
$433,500
$339,690
$476,150
$356,842
$/EU
DM
I have chosen to
round to
2 decimal places
CC
$476,150 / 535,000 = $0.89
$356,842 / 532,600 = $0.67
$1.56
53
Candlelight Candles Co. (p. 2)
FIFO METHOD
E.U.
DM
CC
WIP Units
DM
CC
100% 40%
BI: (DM) 25,000× 0%
BI
25,000
Out
523,000
IN 510,000
BI: (CC) 25,000×60%
Start & Finish
EI
12,000
CC $ 17,152
CC $339,690
522,600
Costs to Account For
DM
$ 59,802 from BI
747,000 S&F 498,000 × $1.50
$816,552
BI
CC
Total
$1.715
$3.421
$0.65
$1.50
$ per EU
$42,650 DM ÷ (25,000×100%)
$1.706
$17,150 CC ÷ (25,000× 40%)
IN
EI
9,600
Out
9,750 Finished CC 25,000×60%×$0.65
IN DM $433,500
12,000
510,000
WIP - $ (FIFO)
DM $ 42,650
498,000
EI: (CC) 10,000× 40%
E.U.
BI
15,000
498,000
EI: (DM) 10,000×100%
100% 80%
-0-
$ per EU
DM $10,200
= 12,000 × 100% × $0.85
$433,500 DM ÷ 510,000 E.U.
CC $ 6,240
= 10,000 × 80% × $0.65
$339,690 CC ÷ 522,600 E.U.
$0.85
$16,440
$773,190 Costs to Account For
(Info we need to do problem)
54
Cannon Beach Sand Co.
DM
BI
Purch
WIP
$ 30,000
BI
$215,000
$205,000
FG
$ 80,000
BI
215,000
$ 110,000
884,000
$ 874,000
COGS
350,000
EI
$20,000
289,000
EI
DL
$884,000
EI
$ 120,000
$ 50,000
COGS
$ 350,000
$ 350,000
$ 874,000
$ 874,000
-0-
-0-
MOH
IDM
$ 15,000
Fact Mgr Sal
35,000
Fact Ins
14,000
Ptty Tax
6,000
IDL
90,000
Mach Rent
40,000
Fact Util
65,000
Fact Bldg Depr
24,000
I/S
$ 289,000
COGS
$ 874,000
Sales Comm
150,000
Admin Exp
300,000
Delivery Exp
100,000
Interest Exp
17,500
Loss on Sale of Equip
3,000
$ 1,700,000
Sales
$ 255,500 NI BT
$ 289,000
Inc. Tax
$ 34,100
$ 221,400 NI AT
-0-
(to R/E)
$ 221,400
-0-
55
Assets (aka: “Pete”)
Cannon Beach (p. 2)
CASH
A/R
Factory Assets
Accum. Depr.
Beg $ 37,000
$ 350,000 DL
Cash from 1,707,220
Customers
((A/R))
Sale of
Equip
40,000
35,000 Fact Mgr
Beg $ 127,220
(Sales on Acct.) 1,700,000
$1,707,220 (to Cash)
Beg $720,000
Purch of 119,200
Equip
Beg
$ 264,000
24,000 (Depr.
Exp.)
$49,000 Sale of Equip $ 6,000
90,000 IDL
150,000 Sales Comm
End $ 120,000
End $790,200
End
$ 282,000
17,500 Int Exp
Short Term Investments
34,100 Tax Exp
743,400 A/P
Beg
$ 39,000
End
$ 39,000
119,200 Purch of Equip
End $245,020
Liabilities & Owners’ Equity (aka: “Re-Pete”)
Notes Payable
Beg
A/P
$ 350,000
(to Cash)
End
Common Stock
Beg
$ 250,000
$ 350,000
R/E
Beg
$ 240,720
221,400 (Net Income)
$ 743,400
$ 38,500
Beg.
205,000
DM
15,000
IDM
14,000
Fact Ins
6,000
Ppty Taxes
40,000
Mach Rent
65,000
Fact Util
300,000
Admin Exp
100,000
Delivery Exp
$ 40,100
End
$ 250,000
End
$ 462,120
End
56
Cannon Beach (p. 3)
Cannon Beach Sand Company
Balance Sheet
As of December 31, 2005
Assets
Liabilities
&
Owners’
Equity
Cash
$
A/R
S/T Investmts
Plant Assets
Accum Depr
DM
WIP
FG
245,020
120,000
39,000
790,200
(282,000)
20,000
50,000
120,000
Total
$1,102,220
N/P
A/P
C/S
R/E
$ 350,000
40,100
250,000
462,120
Total
$1,102,220
57
Cannon Beach (p. 4)
Cannon Beach Sand Company
Statement of Cash Flows (Indirect Method)
For the Year-Ended December 31, 2005
Operating Activities
Net Income
$ 221,400
Depr. Exp
↓ A/R (source)
↑ A/P (source)
↓ DM (source)
↓ WIP (source)
↑ FG (use)
Loss on Equip Sale
+ 24,000
+ 7,220
+ 1,600
+ 10,000
+ 30,000
- 10,000
+ 3,000
Net Cash provided by
Operating Activities
Calculation of Free Cash Flows
Cash from Operations
Less: Capital Expenditures (net)
$287,220
(79,200)
Free Cash Flows
$208,020
$ 287,220
Investing Activities
Sale of Equipment
Purch of Equipment
$ 40,000
- 119,200
Net Cash used by
Investing Activities
$ (79,200)
Net increase in cash
$ 208,020
Beg. Cash
37,000
End Cash
$ 245,020
Not specifically requested by problem;
already calculated CF using Direct Method.
58
Carwash Company (A)
Present
0
Investment
Year
1
Year
2
Year
3
Year
4
Year
5
$(100,000)
$ 40,000
$15,000
Savings
Total
$(60,000)
$15,000
PV Factor
× 1.0000
× 3.7908
NPV Calc.
$(60,000)
+ $56,862
From PV of Annuity Table
=
$(3,138) < $0  
59
Carwash Company (B)
The higher the interest rate, the lower the Present Value
Correct Answer: 12%
Present
0
Investment
YES, the investment should be made.
Year
1
Year
2
Year
3
Year
4
$4,000
$4,000
$5,000
$8,000
$(15,403)
Savings
Total
$(15,403)
$4,000
$4,000
$5,000
$8,000
PV Factor
× 1.0000
× 0.8929
× 0.7972
× 0.7118
× 0.6355
NPV Calc.
$(15,403)
$3,571.60
$3,188.80
$3,559.00
$5084.00
≈ $0 difference
$15,403.40
60
Cass Company
1.
DM
$210,000
DL
140,000
VOH
2.
Sales
$500,000
Loss: COGS:
30,000
$380,000
3.
Sales
$500,000
Less: VC:
$210,000
DL
140,000
VOH
30,000
2.
FOH
$50,000
($430,000)
GM
4.
$ 70,000
DM
$210,000
DL
140,000
VS&A
( 20,000)
30,000
FS & A
( 60,000)
VOH
VS & A
5.
DM
$20,000
Profit
(400,000)
CM
$100,000
BE ($) = FC
BE ($) =
CM Ratio
$110,000
$( 10,000)
= $110,000
$100,000/$500,000
= $550,000
1/5
6.
Operating Leverage
=
CM/NI
=
$100,000/10,000
=
10
61
Cattle Company (1997)
Inventory
Accounts
Product
Costs
BI + In = EI + Out
DM
$96,000
Purch
$202,000
$190,000
WIP
$71,000
190,000
130,000
119,000
FG
COGM
$45,000
$445,000
$408,000
COGS
$445,000
$82,000
$65,000
$108,000
COGS
DL
$130,000
$130,000
$408,000
$408,000
ACOGS
0
MOH
I/S
$15,000
104,000
$119,000
$408,000
$119,000
Period
Costs
Admin.
$566,000 Rev.
$135,000
-0$23,000
NI
62
Cattle Company 1998
Inventory
Accounts
Purch
Product
Costs
DM
BI + In = EI + Out
WIP
$108,000
$65,000
$229,000
235,000
$235,000
170,000
FG
COGM
$562,000
$82,000
$562,000
COGS
$575,000
$69,000
176,000
$102,000
COGS
DL
$84,000
$575,000
$170,000
$575,000
ACOGS
$170,000
I/S
0
$575,000
MOH
Period
Costs
$812,000
Rev.
Admin. $161,000
$18,000
$76,000
158,000
$176,000
0
NI
$176,000
63
Chain Saw Company
1.
Y= a + bx
b = hi-low $
hi-low Activity
b = $80,630 - $45,380
986 – 486
b = $70.50 per testing hour
$80,630 = a + $70.50 (986)
$80,630 = a + $69,513
a = $11,117
Cost Formula
y = $11,170 + $70.50x
2.
y = $11.17 + $70.50 (800)
y= $11.17 + $56,400
y= $67,517
64
Chain Saw Company (cont.)
CHAIN SAW COMPANY
Regression Analysis
SUMMARY OUTPUT
J
F
M
A
M
J
J
A
S
O
N
D
Y = Costs X = Hours
$54,235
640
$59,520
722
$45,380
486
$64,000
886
$59,235
634
$73,060
812
$81,625
927
$80,630
986
$75,105
958
$63,970
819
$67,350
856
$55,285
546
Regression Statistics
Multiple R
0.915652697
R Square
0.838419862
Adjusted R Square
0.822261848
Standard Error
4677.027055
Observations
12
ANOVA
df
Regression
Residual
Total
Intercept
X = Hours
Cost Function:
1
10
11
SS
MS
1135045702 1135045702
218745820.7 21874582.07
1353791523
Coefficients Standard Error
t Stat
17431.74361
6733.347046 2.588867542
61.49849834
8.537441076 7.203387736
F
Significance F
51.88879487
2.91444E-05
P-value
0.027002373
2.91444E-05
Lower 95%
Upper 95%
2428.90886 32434.57837
42.47589089 80.52110579
y = $61.50 x + $17,431.74
when x = 800
y = $66,631.74
65
CM Ratio
=
CM =
Sales
1.
Clair’s Toys
60%
VC = 40% of sales
$12,000 x .60 = $7,200
2.
Sales
$9,000
NO
x .60
3.
CM
$5,400
FC
(6,000)
NI
($600)
BE ($)
=
FC
=
$3,000
=
$5,000
CM Ratio
4.
=
.60
Before
Rev.
$5,000
After
$120,000
x .60
[12,000 x $10]
Rev.
$144,000
72,000
(VCU = $4)
CM
$72,000
CM
$72,000
FC
18,000
FC
(20,000)
NI
$54,000
NI
$52,000
NO
[18,000 X $8]
(18,000 x $4 from “Before”)
66
The Costume Company
$800,000 ÷ $8.00 = 100,000 expected (budgeted) DLH
… 4 DLH per unit
FIXED OVERHEAD
WHERE: BQ = Budgeted Qty. × Std. Allowed
Spending
Actual FOH
$802,000
Volume
Budgeted FOH
BQ × SP
$800,000
$2,000 U
Applied FOH
SQ × SP
(25,250)(4) × $8
$808,000
$8,000 F
$6,000 F
Flexible Budget Variance = $2,000 U
67
Cowboy Boots Co.
Standard Allowed
for Actual Output
yards
Price
AQ × AC
Quantity / Usage
AQ × SC
10,000 × $8.00
10,000 × $9.00
$80,000
$90,000
SQ × SC
$10,000 F
11,000 × $9.00
(7,000)(1.5) × $9.00
10,500 × $9.00
$94,500
$99,000
$4,500 U
CAN’T!
DIRECT MATERIALS
DM Purchased ≠ DM Used
68
Cowboy Boots Co. (p.2)
Standard Allowed
for Actual Output
DLH
Rate
AQ × AC
Efficiency
AQ × SC
3,800 × $15.50
3,800 × $15.00
$58,900
$57,000
$1,900 U
SQ × SC
(7,000)(0.5) × $15.00
3,500 × $15.00
$52,500
$4,500 U
$6,400 U
DIRECT LABOR
69
Cox Company
Price
AQ * AP
18,000 * $3.60
Quantity/ Usage
AQ * SP
SQ * SP
SP = $3.40
18,000 * SP
$61,200
$64,800
$3,600 u
AQ * SP
15,000 * $3.40
$51,000
SQ * SP
16,000 * $3.40
$54,400
$3,400 F
70
The Cutters (A)
Est. MOH
PDOR =
780,000,000
=
Est. Activity
=
78,000 per DLH
10,000 DLH
78,000 per DLH
×
80 DLH = 6,240,000 pesos applied to The Hunter
78,000 per DLH
×
400 DLH = 31,200,000 pesos applied to The Carver
The Hunter
(pesos)
Sales
Cost:
Direct materials
Direct labor
Mfg. overhead
Gross profit
19,500,000
(4,500,000)
(1,200,000)
(6,240,000)
7,560,000
The Carver
(pesos)
53,000,000
Sales
Cost:
Direct materials
Direct labor
Mfg. overhead
Gross profit
(10,000,000)
( 6,000,000)
(31,200,000)
5,800,000
71
The Cutters (B)
Use these rates to assign overhead to The Hunter and to The Carver
Manufacturing Overhead Pool
Cost Driver
Allocation Base
Application Rate
Pool 1: 75,000,000 pesos
750,000
Number of parts
75,000,000 ÷ 750,000 =
100 pesos per part
Pool 2: 100,000,000 pesos
25
Number of production runs
100,000,000 ÷ 25 =
4,000,000 pesos per production run
Pool 3: 350,000,000 pesos
2,000
Number of machine hours
350,000,000 ÷ 2,000 =
175,000 pesos per machine hour
Pool 4: 100,000,000 pesos
25,000
Number of components tested
100,000,000 ÷ 25,000 =
4,000 pesos per component tested
Pool 5: 155,000,000 pesos
10,000
Number of direct labor hours
155,000,000 ÷ 10,000 =
15,500 pesos per direct labor hour
72
The Cutters (B) (p. 2)
THE HUNTER
Allocation Rate
Activity
Pool 1: 100
pesos per part
15,000 units
× 3 parts per unit
Pool 2: 4,000,000
pesos per production run
Pool 3: 175,000
pesos per machine hour
THE CARVER
Allocation Rate
Activity
Cost (pesos)
4,500,000
Pool 1: 100
pesos per part
100,000 units
× 1 part per unit
10,000,000
1
production run
4,000,000
Pool 2: 4,000,000
pesos per production run
1
production run
4,000,000
16
machine hours
2,800,000
Pool 3: 175,000
pesos per machine hour
48
machine hours
8,400,000
Pool 4: 4,000
1,000
pesos per component tested components tested
4,000,000
Pool 4: 4,000
100
pesos per component tested components tested
Pool 5: 15,500
pesos per direct labor hour
1,240,000
Pool 5: 15,500
pesos per direct labor hour
80
direct labor hours
Total mfg. overhead for 15,000 Hunters
Manufacturing overhead per cutter
Cost (pesos)
16,540,000
1,203
(Rounded)
400
direct labor hours
400,000
6,200,000
Total mfg. overhead for 100,000 Carvers 29,000,000
Manufacturing overhead per cutter
290
73
The Cutters (B) (p. 3)
PROFIT PER ACTIVITY-BASED COSTING
The Cutters (B)
The Hunter
(pesos)
Sales
Cost:
Direct materials
Direct labor
Mfg. overhead
Gross profit
19,500,000
(4,500,000)
(1,200,000)
(16,540,000)
(2,740,000)
The Carver
(pesos)
53,000,000
Sales
Cost:
Direct materials
Direct labor
Mfg. overhead
Gross profit
(10,000,000)
( 6,000,000)
(29,000,000)
8,000,000
PROFIT PER JOB-ORDER COSTING
The Cutters (A)
The Hunter
(pesos)
Sales
Cost:
Direct materials
Direct labor
Mfg. overhead
Gross profit
19,500,000
(4,500,000)
(1,200,000)
(6,240,000)
7,560,000
The Carver
(pesos)
53,000,000
Sales
Cost:
Direct materials
Direct labor
Mfg. overhead
Gross profit
(10,000,000)
( 6,000,000)
(31,200,000)
5,800,000
74
Cutting Edge Skis
WEIGHTED AVERAGE METHOD
E.U.
WIP Units
DM
50%
WIP - $ (Wtd. Avg.)
CC
30%
BI
200
IN
5000
BI
Out
4800
DM $3000
CC $1,000
4800 * 30.014
= $144,067.20
40%
25%
EI
400
CC
OUT
4800
4800
EI: (DM) 400 * 40%
160
100
EI: (CC) 400 * 25%
IN DM $74,000
CC
DM
Out
E.U.
70,000
4900
4960
Costs to Account For
EI
DM $2,483.84
= 400 * 40% * $15.524
CC $1,449.00
= 400 * 25% * $14.490
$3,932.84
DM
BI
IN
Total
CC
$3,000
$1,000
$74,000
$70,000
$77,000
$71,000
$/EU
Shaping and
Milling Dept.
November 1997
(Round to 3
decimal places)
DM
CC
$77,000 / 4960 = $15.524
$71,000 / 4900 = $14.490
$30.014
75
Cutting Edge Skis (p. 2)
FIFO METHOD
E.U.
DM
CC
WIP Units
DM
CC
50%
30%
BI: (DM) 200 × 50%
BI
200
IN
5000
EI
400
100
BI: (CC) 200 × 70%
Out
4800
140
Start & Finish
4,600
EI: (DM) 400 × 40%
40%
25%
160
EI: (CC) 400 × 25%
100
E.U.
4,860
WIP - $ (FIFO)
BI
DM $3,000
CC $1,000
$ 4,000.00 from BI
CC $70,000
4,840
Costs to Account For
Out
1,522.60 Finished DM 200×50%×$15.226
2,024.82 Finished CC 200×70%×$14.463
IN DM $74,000
4,600
136,569.40 S&F 4,600 × $29.689
DM
BI
CC
Total
$16.667
$46.667
$14.463
$29.689
$ per EU
$3,000 DM ÷ (200×50%)
$30
$1,000 CC ÷ (200×30%)
$144,116.82
IN
$ per EU
EI DM $2,436.16
= 400 × 40% × $15.226
$74,000 DM ÷ 4,860 E.U.
CC $1,446.30
= 400 × 25% × $14.463
$70,000 CC ÷ 4,840 E.U.
$15.226
$3,882.46
$148,000 Costs to Account For
(Info we need to do problem)
76
Deering Banjo Company
CM
MIX
WTD.
AVG.
CM
$700
$500
60%
$300
$720
2000
$3000
40%
$1200
$2000
$1500
$2720
SP
VC
Boston
$1200
Deluxe
$5000
1.
BE (units) = FC =
$3,000,000
CM per unit
2,000 units
=
WTD.
AVG.
SP
2,000 units BE
$1500
60% Boston = 1200 Boston = 1200
Boston
40% Deluxe = 800
Deluxe
Deluxe = 800
2000 units total @ BE
2.
BE ($) = FC
CM Ratio
=
$3,000,000
=
$1500/$2720
$3,000,000
.55
= $5,440,000 BE($)
-- OR --1200 x $1200 = $1,440,000
800 x $5000 = 4,000,000
$5,440,000
77
Duo Company
2.
$4.00
(SP)
Q=DLH
Eff
Rate
$760,000 ÷ 190,000
AQ x AP
190,000 x $4.00
$760,000
$900,000
1,500,000 × 150/1000
1,200,000 x 150/1000
=
AQ x SP
190,000 × $4.00
GIVEN
=
180,000
SQ x SP
$760,000
180,000 X $4.00
$720,000
$0
$40,000 U
1.
FC $150,000
VC $720,000
$870,000
78
East Meets West (A)
1.
BE (units) =
BE ($)
2.
=
BE (units) =
BE ($)
=
FC + NI
=
CM per Units
FC + NI
CMR
=
$20,000
($10 - $6)
=
5,000 units
$20,000
( $4 / $10)
=
$50,000
=
8,750 units
=
$87,500
FC + NI
= $20,000 + $15,000
CM per Units
$4
FC + NI
CMR
= $20,000 + $15,000
0.4
79
East Meets West (B)
1. SP(X) = FC + VC(X) + NI
$10(X) = $20,000 + $6(X) + .15($10)(X)
$10(X) = $20,000 + $6(X) + $1.50(X)
$2.50(X) = $20,000
X=
8000 units
* $10ea. = $80,000
Sales = FC + VC + NI
Sales = $20,000 + .60(Sales) + .15(Sales)
.25(Sales) = $20,000
Sales =
$80,000
80
East Meets West (C)
1. BE(units) =
FC + NI
= $18,000 + $9,000 = $27,000
CM per unit
$10.40 - $6.80
$3.60
=
BE ($)
=
FC + NI
CMR
7500 units
= $18,000 + $9,000 = $27,000
$10.40 - $6.80
0.346
$10.40
=
$78,000
81
East Meets West (D)
1.
NIBT
=
BE(units) =
BE ($)
=
NI AT
1 - TR
=
$8,400
0.7
= $12,000 NIBT
FC + NI
= $20,000 + $12,000 =
CM per unit
$4
FC + NI
CMR
= $20,000 + $12,000 =
0.4
8000 units
$80,000
82
East Meets West (E)
Current
BE ($) = FC + NI = $20,000 + $12,000 = $80,000
CMR
0.4
New
BE ($) = FC + NI = $27,500 + $12,000 = $79,000
0.5
CMR
This seems better because EMW does not
need earn as much revenue to achieve its
target profit
BUT!
Current
BE ($) = FC + NI =
CMR
$20,000
0.4
= $50,000
New
BE ($) = FC + NI =
CMR
$27,500
0.5
= $55,000
Current
MS Ratio = Actual Rev. – BE Rev. = $80,000 - $50,000 = .375
Actual Rev.
$80,000
New
MS Ratio = Actual Rev. – BE Rev. = $79,000 - $55,000 = .304
Actual Rev.
MORE RISKY
$79,000
83
Fast Company
VARIABLE-COSTING INCOME STATEMENTS
2002
Sales
$1,500,000
Less variable expenses:
Variable cost of goods sold a
(900,000)
Variable selling and administrative b
(37,500)
Contribution margin
$ 562,500
Less fixed expenses:
Fixed overhead
(150,000)
Fixed selling and administrative
(50,000)
Net income
$ 362,500
a
2002: $6.00 × 150,000 = $ 900,000
2003: $6.00 × 100,000 = $ 600,000
2004: $6.00 × 200,000 = $1,200,000
b
$0.25 per unit × Units sold
2003
2004
$1,000,000
$2,000,000
(600,000)
(25,000)
$ 375,000
(1,200,000)
(50,000)
$ 750,000
(150,000)
(50,000)
$ 175,000
(150,000)
(50,000)
$ 550,000
$4.00 + $1.50 + $0.50 = $6.00
84
Fast Company (p. 2)
ABSORPTION-COSTING INCOME STATEMENTS
Sales
Less cost of goods sold:
Variable manufacturing expense a
Fixed manufacturing expense b
Gross margin
Less selling and admin. expenses:
Variable selling and admin.c
Fixed selling and admin.
Net income
a
2002: $6.00 × 150,000 = $ 900,000
2003: $6.00 × 100,000 = $ 600,000
2004: $6.00 × 200,000 = $1,200,000
b
2002: $1.00 × 150,000 = $ 150,000
2003: $1.00 × 100,000 = $ 100,000
2004: $1.00 × 200,000 = $ 200,000
c
2002
2003
2004
$1,500,000
$1,000,000
$2,000,000
(900,000)
(150,000)
$ 450,000
(600,000)
(100,000)
$ 300,000
(1,200,000)
(200,000)
$ 600,000
(37,500)
(50,000)
$ 362,500
(25,000)
(50,000)
$ 225,000
(50,000)
(50,000)
$ 500,000
FOH per unit =
Est. FOH
=
Normal volume
$150,000
150,000
=
$1.00 per unit
$0.25 per unit × Units sold
$4.00 + $1.50 + $0.50 = $6.00
85
Fools Gold Jewelry
Standard Allowed
for Actual Output
ounces
Price
AQ × AC
Quantity / Usage
AQ × SC
663 × $300
663 × $295
$198,900
$195,585
$3,315 U
SQ × SC
(1,300)(0.5) × $295
650 × $295
$191,750
$3,835 U
$7,150 U
DIRECT MATERIALS
86
Frodo Company
There are two ways students can approach this problem.

Costs
Operating costs
Depreciation (NOT RELEVANT)
Resale of old
Purchase of new
_______ _______
Keep Old
($75,000)
($30,000)
Buy New
($20,000)
($30,000)
$ 2,000
($40,000)
($105,000)
($88,000)

Incremental
Change in operating cost $11,000 × 5 years =
Resale of old machine
Cost of new machine
(Cost) or Savings
$17,000 savings!
$ 55,000
$ 2,000
($40,000)
$ 17,000
87
Funk and Wagnall
Relevant
Opportunity
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Outlay
Irrelevant
Outlay
Sunk
X (1.)
X (2.)
X (3.)
X (4.)
X (5.)
X (6.)
X (7.)
X (8.)
X
X (9.)
X (10.)
88
Gee-Whiz Shoes
Standard Allowed
for Actual Output
DLH
Rate
AQ × AC
Efficiency
AQ × SC
9,500 × $18.00
$171,000
9,500 × $18.20
$172,900
$1,900 U
SQ × SC
(20,000)(0.5) × $18.00
650 × $295
$180,000
$9,000 F
$7,100 F
DIRECT LABOR
89
Halo Products Company
A.
$200,000
Est. MOH
PDOR =
=
32,000
Est. Activity
=
$6.25
B.
Applied MOH
= PDOR *
Actual Activity
=
36,400
$6.25
*
=
$227,500
C.
MOH
Actual
Applied
$256,200
Underapplied
$227,500
$28,700
D.
$256,200 / 36,400 =
$7.04
90
Hannibal Company
WIP
DM
BI
FG
$6,520
$23,400
Purch $160,000
150,000
$40,000
150,000
100,000
326,000
308,950
326,000
76,978
$33,400
57,050
$7,498
DL
$100,000
COGS
$100,000
0
308,950
MOH
IDL
$20,000
Rent
21,000
Depr
30,000
Util
. 5,978
308,950
0
I/S
$308,950
76,978
Sales Sp;amoes
$55,000
76,978
Sales Comm.
38,000
0
Admin.
61,000
$600,000 Sales Rev
$137,050 NI
91
Hassett Company
1998 budget requires 20,000 handles for use in the production of pots.
Costs to manufacture the handles is as follows:
DM
$.60
DL
$.40
VOH
$.10
FOH
$.20
Total
$1.30
R&M Steel Co. has offered to supply handles for $1.25 each.
Should Hassett MAKE or BUY?
MAKE!
$1.10 < $1.25
DM, DL, VOH = relevant costs that change
92
The Hat Source
1.
BE(units) =
BE($) =
2.
FC + NI
CM per unit
FC + NI
CM Ratio
=
12,500 units
$30 - $18
$150,000 +$0
FC + NI
CM Ratio
FC + NI
BE(units) =
CM per unit
BE($) =
$150,000 + $0
=
=
=
$375,000
40%
$150,000 + $30,000
=
=
15,000 units
$30 - $18
$150,000 +$30,000
=
=
$450,000
40%
93
Herd Company
Spend
Eff
N/A
VOH
AQ * AP
AQ * SP
Spend
SQ * SP
N/A
SQ * SP
$3.00
Volume
FOH
Actual
Budgeted
Budgeted
50,000 * $6,000
$300,000
SQ * SP
Applied
42,000 $6.00
$252,000
$48,000 u
94
Herman Company
VOH
Efficiency
Spending
N/A
SQ x SP
AQ x AP
AQ x SP
121,000 x $.50
$131,000
SQ x SP
115,000 x $.50
115,000 x $.50
$57,500
$60,500
$3,000U
FOH
Spending
Actual
N/A
Volume
Budgeted
Budgeted
$110,000
$110,000
Applied
SQ x SP ($1)
115,000
$5,000 F
TOTAL
Spending
$178,500
Efficiency
Volume
$179,500
$8000 U
$172,500
$3,000U
$5,000 F
95
Holland Company
The cost of a single unit of product under the two costing
methods would be:
Absorption Variable
Costing Costing
$5.00
$5.00
DM, DL & Vbl MOH
Fixed MOH
($15,000/5,000 units)
Total cost per unit
Absorption costing
Sales (@ $15.00)
Less COGS:
Beg. Inv. (@ $8.00)
COGM (@ $8.00)
CGAS
End. Inv. (@ $8.00)
COGS
Gross Margin
Less S&A
Net Income
$3.00
$8.00
$5.00
Year 1
Year 2
Year 3
Total
$75,000
$60,000
$90,000
$225,000
0
40,000
40,000
0
40,000
35,000
26,000
$9,000
0
40,000
40,000
8,000
32,000
28,000
25,000
$3,000
8,000
40,000
48,000
0
48,000
42,000
27,000
$15,000
0
120,000
120,000
0
120,000
105,000
78,000
$27,000
96
Holland Company (p. 2)
Variable costing
Year 1
Year 2
Year 3
Total
Sales (@ $15.00)
Less vbl. exp:
Vbl COGS (@ $5.00)
Vbl S&A (@ $1.00)
Total vbl. exp.
Contribution margin
Less fixed exp:
MOH
S&A exp.
Total fixed exp.
Net income
$75,000
$60,000
$90,000
$225,000
25,000
5,000
30,000
45,000
20,000
4,000
24,000
36,000
30,000
6,000
36,000
54,000
75,000
15,000
90,000
135,000
15,000
21,000
36,000
$9,000
15,000
21,000
36,000
$0
15,000
21,000
36,000
$18,000
45,000
63,000
108,000
$27,000
A reconciliation of the net income figures for the two methods
over the three year period follows:
Year 1
Variable costing NI
Add: FOH cost deferred in
inv. under absorp. costing
(1,000 units x $3.00)
Less: FOH cost released
from inv. under absorption
costing (1,000 x $3.00)
Absorption costing NI
$9,000
Year 2
$0
Year 3
$18,000
3,000
$9,000
$3,000
(3,000)
$15,000
97
Home Quality Products
1.
Prevention Costs:
b. Seminar costs for “Vendor Day”.
Appraisal Costs:
c. Costs of conformance tests at Charlotte plant.
e. Costs of inspection tests at the Raleigh packaging plant.
Internal Failure Costs:
a. Labor and materials costs of reworking a batch of steam-iron handles.
External Failure Costs:
d. Replacement cost of 1,000 steam-irons sold in the Pittsburgh are.
2.
The cost of customer ill-will created by the sale of defective products has two components:
(a)
(b)
The volume of future lost sales,
The contribution margin on lost sales.
Customer surveys and interviews with distributors and retailers can provide a way to estimate (a);
(b) can be estimated using internal accounting information.
98
Houghton’s Limited
1.
BE (units)
=
FC
=
$30,000
CM per unit
BE ($)
=
2.
BE ($)
3.
MS ($)
FC
CM ratio
=
MS Ratio
=
2000 units
=
$70,000
$35-$20
=
$30,000
$35-$20
$35
FC + NI
CM ratio
=
($30,000 X 12) + $510,000
=
$2,030,000
$35-$20
$35
=
Actual Rev. – BE Rev.
=
$2,030,000 – ($70,000 x 12)
=
$2,030,000 - $840,000
=
$1,190,000
=
Actual Rev. – BE Rev.
Actual Rev.
=
$2,030,000 - $840,000
=
58.6%
=
$1,440,000
$2,030,000
4.
Operating Income
=
BE (units) = FC + NI
CM per unit
NIAT
=
$864,000
I – TR
=
1 - .4
=
$360,000 + $1,440,000
=
120,000 units annually,
99
$35-$20
10,000 units monthly
The Hour Record
Distance traveled is the ‘score,’ determining who wins and who doesn’t, and
seems to be best considered a financial measure. Net income or cash flow if you
will. This is a historical measure; at any point in time this measure only tells you
what has occurred in the past.
Bicycle speed is the predictive of what ‘score’ will be achieved. Measures that do
this can be both financial (expected sales in dollars) and nonfinancial (expected
sales in units).
Heart Rate is a measure of current effort, such as the amount (in units or dollars)
of materials, labor and/or overhead being used in production. In general, with
heart rate and with materials usage, lower is better. Again, this is a historical
measure but is predictive to the degree that heart rate this minute will be the same
as heart rate the next minute. Human body efficiency decreases over time, so
heart rate will increase over time, but business efficiency should increase over
time, and the corresponding efficiency measures should improve.
Can a target (or budgeted) distance be useful in this scenario? Or at least
knowledge of the last record set? If after 30 minutes the rider is less than halfway
toward the old record, someone should determine if the record can realistically be
equaled or broken. If the record is unrealistic, the rider might as well cut his or
100
her losses and save the energy for another task.
Howdy Company
A – machine hours
1.
2.
3.
B – DL$
$602,000 / 70,000 = $8.60 / hr
$735,000 / $420,000 = 1.75%
110 * $8.60 = $946.00
$680 * 1.75 = $1,190.00
DM
$470
DL
290
MOH
946
DM
332
DL
680
MOH
1190
$2,202
$1,706
MOH
4.
$1706 + $2202 = $3908 / 50 units = $78.16
MOH
(65,000 * $8.60)
$570,000
$946 + $1190 = $2,136
559,000
($436,000 * 1.75)
$750,000
$763,000
$11,000
$13,000 overapplied
underapplied
$4,000
$13,000
0
COGS
$11,000
0
COGS
$13,000
101
J.B. Goode Company
1.
PDOR = Est. MOH = $135,000 = $13.50 per DLH
Est. Activity
Standard
10,000
[Applied MOH = Actual Activity × PDOR]
900 units × 10 DLH = 9000 DLH
×$13.50
$121,500 Applied MOH
Custom
[Applied MOH = Actual Activity × PDOR]
100 units × 10 DLH = 1000 DLH
×$13.50
$13,500 Applied MOH
 This part of the calculation is a little unusual because we are using actual MOH in the calculation
rather than estimated MOH
102
J.B. Goode Company (p. 2)
2.
STANDARD [Applied MOH = Actual Activity × PDOR]
Depr.
Maint.
Purch.
Insp.
IDM
Super.
Supplies
3,000
9,000
1,500
400
900
400
900
×
×
×
×
×
×
×
$10.00
$ 1.50
$11.00
$12.00
$15.00
$28.00
$ 3.00
=
=
=
=
=
=
=
$30,000
13,500
16,500
4,800
13,500
11,200
2,700
$92,200 Applied MOH
÷ 900 Guitars = $102.45 each
CUSTOM [Applied MOH = Actual Activity × PDOR]
Depr.
Maint.
Purch.
Insp.
IDM
Super.
Supplies
1,000
1,000
500
600
100
600
100
×
×
×
×
×
×
×
$10.00
$ 1.50
$11.00
$12.00
$15.00
$28.00
$ 3.00
=
=
=
=
=
=
=
$10,000
1,500
5,500
7,200
1,500
16,800
300
$42,800 Applied MOH
÷ 100 Guitars = $428 each
103
J.B. Goode Company (p. 3)
3.
Custom
OLD WAY
DM
DL
MOH
TOTAL
$375
$240
$135
$750
Custom
NEW WAY
DM
DL
MOH
TOTAL
$ 375
$ 240
$ 428
$1,043
NO ... $1,000 Revenue does not cover the manufacturing expense
The single biggest reason for the higher overhead cost
is the supervision required for the custom guitars.
104
Joe Slow
R
1.__________
2.__________
R
R
3.__________
I
4.__________
R
5.__________
I
6.__________
R
7.__________
I
8.__________
R
9.__________
The cost of traveling the 250 miles to Finding Foodstore.
The time he will spend on the road.
The time he will spend visiting with Finding Foodstore executives.
The amount of time already devoted to Finding Foodstore.
The revenue potential from Finding Foodstore.
The cost of his last visit to Finding Foodstore.
The probability that his visit will result in new sales.
The cost of lunch for himself if he visits Finding Foodstore.
The cost of lunch he would buy for Finding Foodstore executives.
105
The John Company
WEIGHTED AVERAGE METHOD
DM
WIP Units
CC
100% 60%
E.U.
BI
5,000
DM
Out
IN 40,000
35,000
OUT
35,000
EI: (DM) 10,000 × 100%
10,000
CC
35,000
EI: (CC) 10,000 × 40%
100% 40%
EI 10,000
E.U.
4,000
39,000
45,000
Costs to Account For
DM
WIP - $ (Wtd. Avg.)
BI DM $5,050
CC $3,270
Out
35,000 × $2.42
= $84,700
BI
IN
Total
CC
$5,050
$3,270
$44,000
$48,600
$49,050
$51,870
$/EU
IN DM $44,000
DM
CC $48,600
CC
$49,050 / 45,000 = $1.09
EI
DM $10,900
= 10,000 × 100% × $1.09
CC
= 10,000 × 40% × $1.33
5,320
$51,870 / 39,000 = $1.33
$16,220
$ 2.42
106
The John Company (p.2)
FIFO METHOD
E.U.
DM
WIP Units
CC
100% 60%
BI
5,000
Out
IN 40,000
100% 40%
DM
35,000
EI 10,000
BI: (DM) 5,000× 0%
CC
-0-
BI: (CC) 5,000×40%
2,000
Start & Finish
30,000
EI: (DM) 10,000×100%
10,000
30,000
EI: (CC) 10,000× 40%
4,000
E.U.
40,000
WIP - $ (FIFO)
BI
DM $5,050
CC $3,270
CC $48,600
Costs per EU
Out
DM
$ 8,320 from BI
2,700 Finished CC 5,000×40%×$1.35
IN DM $44,000
73,500 S&F 30,000 × $2.45
$84,520
BI
Total
$1.01
$3,270 CC ÷ (5,000× 60%)
$1.09
$2.10
$1.35
$2.45
$ per EU
DM $11,000
= 10,000 × 100% × $1.10
$44,000 DM ÷ 40,000 E.U.
CC
= 10,000 × 40% × $1.35
$48,600 CC ÷ 36,000 E.U.
5,400
CC
$ per EU
$5,050 DM ÷ (5,000×100%)
IN
EI
36,000
$1.10
$16,400
$100,920 Costs to Account For
(Info we need to do problem)
107
Jolly Candies
1.
BE(units) =
2.
BE(units) =
FC + NI
CM per unit
$400 + $300
=
= 700 units
$1
$400 + $0
FC + NI
CM per unit
=
= 400 units
$1
Rev (480 units × $4)
- VC (480 units × $3)
CM
- FC
NI
NIAT
3.
NIBT =
$1,920
1,440
$ 480
400
$ 80
$300
=
= $500
1 – 40%
1- TR
BE(units) =
400 units × 120% = 480 units
(volume 20% above breakeven volume)
FC + NI
CM per unit
$400 + $500
=
= 1,800 units
$4.00 - $3.50
108
Jude Law & Associates
If the new system is purchased, what will occur??
$180,000
10,000
(76,000)
(90,000)
500
Labor cost savings on old system ($36,000 × 5 years)
Sale of old system
Cost of new system
Labor cost of new system ($18,000 × 5 years)
Higher residual value of new system
$24,500 SAVINGS BY PURCHASING NEW SYSTEM
109
Judge Ely Jeans
WIP
DM
FG
$49,600
$29,500
98,400
95,600
118,400
$32,300
$37,600
COGM
95,600
340,400
326,000
340,400
COGS
139,200
$52,000
$62,400
DL
COGS
$118,400
$118,400
$326,000
$326,000
0
ACOGS
0
MOH
I/S
$326,000
$ 7,200
$7,200
44,800
60% *
36000 =
40% * $36,000 =
4,800
2,640
10,400
123,200
15,200
S&A
35,200
0
$14,400
4,000
$21,600
$139,200
$715,200
$139,200
15,300
166,740
492,740
$222,460
NI
110
Kaitlyn Korporation
CASH
Beg.
Collections
$15,000
$90,000
Borrow
$32,000
End
$12,000
$125,000
Disbursements
111
Kennedy Company
Price
AQ * AP
1,600 * AP
Quantity
AQ * SP
AP = $3.45
$5,520
SQ * SP
1,600 * $3.60
$5,760
$240 F
AQ * SP
* $3.60
SQ * SP
1,450 * $3.60
112
Lands End Men’s Suits
Price
AQ × AC
10,000 × $5.00
$50,000
Qty/Usage
AQ × SC
10,000 × $6.00
$60,000
SQ × SC
Standard Allowed
for Actual Output
(in units)
$10,000 F
AQ × SC
(2700)(4) × $6.00
$64,800
SQ × SC
(2700)(3.5) × $6.00
$56,700
$8,100 U
CAN’T!
Actual Cost < Standard Cost = FAVORABLE
Actual Quantity < Standard Quantity = FAVORABLE
113
Mango Motors
Absorption Costing
Variable Costing
Income Statement
Income Statement
For the Year Ended Dec. 31, 1996
For the year Ended Dec. 31, 1996
Rev.
$810,000
Rev.
$810,000
COGS
(540,000)
VC
(540,000)
(60,000)
GM
S&A
$210,000
(67,500)
(67,500)
CM
FC
(50,000)
NI
$92,500
$202,500
(60,000)
(50,000)
NI
$92,500
114
Marie Manufacturing Company
DM
BI
WIP
BI $ 84,000
(a.)
$844,000
$ 42,000
$844,000
Purch.
$850,000
$820,000
EI
$ 48,000
$765,000
FG
BI $ 124,000
(d.)
$2,420,000 $2,411,000
EI $ 133,000
$2,420,000
COGS
EI $93,000
DL
$820,000
$820,000
$2,411,000
$ 40,200
$2,370,800
(e.)
$2,370,800
0
0
I/S
MOH
IDM
$ 4,000
Supplies
$ 6,200
Fact Depr $ 60,000
Security
$ 12,000
Supplies
$ 82,600
$2,370,800
Applied MOH = Actual Activity × PDOR
51,000 DLH × $15 =
$ 4,000
Adm. Depr.
$ 3,000
$765,000
(b.)
Sales Sal.
$120,000
Office Depr.
$ 22,200
$2,520,000
Equip Dep $560,000
$724,800
Office Depr.
$3,335,000 Sales
$765,000
$815,000
(f.)
$40,200 OverappliedMOH
$40,200
0
PDOR =
(c.)
Estimated MOH
Estimated Activity
$750,000
=
50,000 DLH
=
$15 per DLH
115
McKay Mills
1.
PDOR
=
Est. OH / Est. Activity
=
$1,335,000 / 1645
(500 + 410 + 735)
PDOR = $811.55 per DLH
2.
Actuals:
Yarn
455 * $811.55 = $369,255.25
Fabric
420 * $811.55 = $340,851.00
Clothing
750 * $811.55 = $608,662.50
$1,318,768.75
MOH
Actual
Applied
$1,372,000.00
$1,318,768.75
$53,231.25 underapplied
116
Mesa Verde Company
MESA VERDE COMPANY
Balance Sheet
December 31, 2005
Assets
Current Assets:
Cash …………………………
Accounts receivable …………
Inventories …………………..
Total current assets …………
Noncurrent assets …………….
Total assets ……………………
$ 10,250
46,000
86,250
Liabilities
Current liabilities ..……………
Noncurrent liabilities …………
Total liabilities.………………..
$ 22,500
62,000
$142,500
280,000
$422,500
Where? How?
Note 8 [Plug]
Note 5
Note 4
Note 7 [Plug]
(Given)
Note 6 [Calc. = Total L + SE]
$ 84,500
Note 9
Note 10 [Plug]
Note 3
338,000
$422,500
(Given)
(Given)
Note 2
Note 2
[Calc.: Note 6]
Stockholders’ Equity
Common stock ..………………
Additional paid-in capital …….
Retained earnings .……………
Total stockholders’ equity ……
Total liabilities and equity ……
$150,000
60,000
128,000
117
SUPPORTING
COMPUTATIONS
Mesa Verde (p. 2)
Note 1: Compute net income for 2005
Sales …………………..
Cost of goods sold ……
Gross profit …………..
Operating expenses …..
Income before taxes ….
Taxes expense ………..
Net income ……………
$920,000
690,000 (75% of sales (100% - Gross profit margin ratio))
$230,000 (25% of sales (#) Gross profit margin ratio)
180,000
$ 50,000
20,000 (tax at 40% rate (#))
$ 30,000
Note 2: Compute Stockholders’ Equity
Common stock ($15 par × 10,000 sh.)
Additional paid-in capital (($21-$15)×10,000 sh.)
Retained earnings, Dec. 31, 2004
Net income
Retained earnings, Dec. 31, 2005
Total stockholders’ equity
Note 3: Total equity
Total Debt
$150,000 (#)
60,000 (#)
$210,000 (#)
98,000 (#)
30,000
128,000
$338,000
$338,0000
÷ 4 (#) Shareholders’ equity to total debt
$ 84,500
(#) — piece(s) of information provided in problem
118
SUPPORTING
COMPUTATIONS
Mesa Verde (p. 3)
Precisely is “Avg.” Inv..,
We will use as “End”
(because it is all we have)
Note 4: Inventory turnover = Cost of goods sold ÷ (Avg.) Inventory
8 = $690,000 (from Note 1) ÷ Inventory
Inventory = $86,250
8 = 360(#) ÷ 45(#) Days sales in inventory
An alternative calculation for Inventory turnover
“Ending”
Note 5: Days sales in receivables = Receivables ÷ (Credit sales ÷ 360(#))
18 days (#)
= Receivables ÷ ($920,000(#)÷360)
Receivables = $46,000
Note 6: Total assets = Total liabilies + Total equity
= $338,000 (from Note 3) + $84,500 (from Note 3)
= $422,500
Note 7: Total assets = Current assets + Noncurrent assets
$422,500 = Current assets + $280,000 (#)
Current assets = $142, 500
Note 8: Current assets = Cash + Receivables + Inventory
Cash (plug) = Total assets – Receivables – Inventory
= $142,500 - $46,000 (from Note 4) - $86,250 (from Note 4)
= $10,250
(#) or (#) — piece(s) of information provided in problem
119
SUPPORTING
COMPUTATIONS
Mesa Verde (p. 4)
Note 9: Acid-test ratio = (Cash + Accounts receivable) ÷ Current liabilities
2.5 (#)
= ($10,250 + $46,000) ÷ Current liabilities
Current liabilities = $22,500
Note 10: Total liabilities = Current liabilities + Noncurrent liabilities
$84,500 (from Note 3) = $22,500 + Noncurrent liabilities
Noncurrent liabilities = $62,000
(#) or (#) — piece(s) of information provided in problem
120
Millstone Company
MILLSTONE COMPANY
Balance Sheet
December 31, 2004
Assets
Current Assets:
Cash …………………………
Accounts receivable …………
Inventories …………………..
Total current assets …………
Noncurrent assets …………….
Total assets ……………………
$ 61,700
115,000
161,000
Liabilities
Current liabilities ..……………
Noncurrent liabilities …………
Total liabilities.………………..
$276,000
63,080
$337,700
510,000
$847,700
Where? How?
Note 7
Note 4
Note 3
Calculation: Cash+A/R+Inv.
(Given)
Calc: Note 8
$339,080
Note 6
Note 10 [Plug]
Note 9
508,620
$847,700
(Given)
(Given)
Note 13 [Plug]
Note 11
[ = Total assets]
Stockholders’ Equity
Common stock ..………………
Additional paid-in capital …….
Retained earnings .……………
Total stockholders’ equity ……
Total liabilities and equity ……
$100,000
150,000
258,620
121
SUPPORTING
COMPUTATIONS
Millstone (p. 2)
Note 1: Compute net income for 2005
Sales …………………..
Cost of goods sold ……
Gross profit …………..
Operating expenses …..
Income before taxes ….
Taxes expense ………..
Net income ……………
$1,840,000 (#)
1,288,000 (70% of sales (100% - Gross profit margin ratio))
$552,000 (30% of sales (#) Gross profit margin ratio)
$ 92,000 (5% Net operating profit margin ratio (#))
Note 2: Compute Stockholders’ Equity
Common stock ($15 par × 10,000 sh.)
Additional paid-in capital (($21-$15)×10,000 sh.)
$100,000 (#)
150,000 (#)
Retained earnings, Dec. 31, 2004
Net income
Retained earnings, Dec. 31, 2005
Total stockholders’ equity
$166,620
92,000
Note 3: Inventory turnover = Cost of goods sold ÷ (Avg.) Inventory
8 (#)
= $1,288,000 (from Note 1) ÷ Inventory
Inventory = $161,000
(#) — piece(s) of information provided in problem
$250,000 (#)
The Answer to
Question #2
(Note 13)
258,620 [Plug: Note 12]
$508,620 (Note 11)
Precisely is “Avg.” Inv..,
We will use as “End”
(because it is all we have)
122
SUPPORTING
COMPUTATIONS
Millstone (p. 3)
Note 4: Accounts receivable turnover = Sales ÷ Average accounts receivable
16 (#)
= $1,840,000 ÷ Avg. A/R
Accounts receivable = $115,000
Precisely is “Avg.” Inv..,
We will use as “End”
(because it is all we have)
Note 5: Operating cash flow to income = Operating cash flow ÷ Net income
3 (#)
= Operating cash flow ÷ $92,000 (Note 1)
Operating cash flow = $276,000
Note 6: Cash flow to current liabilities ratio = Operating cash flow ÷ Current liabilities
1 (#)
= $276,000 (Note 5) ÷ Current liabilities
Current liabilities = $276,000
Note 7: Working capital = Current assets - Current liabilities
= Cash + Accounts receivable + Inventories - Current liabilities
$27,200 (#) = Cash + $115,000 (Note 4) + $161,000 (Note 3) - $276,000 (Note 6)
Cash = $61,700
Note 8: Total assets = Cash + Accounts receivables + Inventories + Noncurrent assets
= $61,700 (Note 7) + $115,000 (Note 4) + $161,000 (Note 3) + $510,000 (#)
Total assets = $847,700
(#) — piece(s) of information provided in problem
123
SUPPORTING
COMPUTATIONS
Note 9:
Millstone (p. 4)
Total debt ratio = Total liabilities ÷ Total assets
0.4 (#)
= Total liabilities ÷ $847,700 (Note 8)
Total liabilities = $339,080
Note 10: Total liabilities = Current liabilities + Noncurrent liabilities
$339,080 (Note 9) = $276,000 (Note 6) + Noncurrent liabilities
Noncurrent liabilities = $63,080
Note 11: Total assets = Total liabilities + Total equity
$847,700 (Note 8) = $339,080 (Note 9) + Total equity
Total equity = $508,620
Note 12: Total equity = Common stock + Add’l paid-in capital + Ending retained earnings
$508,620 (Note 11) = $100,000 (#) + $150,000 (#) + Ending R/E
Ending retained earnings = $258,620
Note 13: End retained earnings = Begin retained earnings + Net income
$258,620 (Note 12) = Begin retained earnings + $92,000 (Note 1)
Begin retained earnings = $166,620
(#) — piece(s) of information provided in problem
124
Missouri Retailers (A)
APR
APR
Feb
Mar.
Apr.
$ 85,000×20%
$ 95,000×30%
$ 75,000×50%
MAY
Mar.
Apr.
May
$ 95,000×20%
$ 75,000×30%
$ 85,000×50%
JUN
Apr.
May
Jun.
$ 75,000×20%
$ 85,000×30%
$108,000×50%
MAY
JUN
Total
$17,000
28,500
37,500
$83,000
$19,000
22,500
42,500
$84,000
$15,000
25,500
54,000
$94,500
$261,500
125
Missouri Retailers (B)
APR
APR
Mar.
Apr.
$50,000×70%
$55,000×30%
MAY
Apr.
May
$55,000×70%
$65,000×30%
JUN
May
Jun.
$65,000×70%
$88,000×30%
MAY
JUN
Total
$35,000
16,500
$51,500
$38,500
19,500
$58,000
$45,500
26,400
$71,900
$181,400
126
Mizzou Company
1.
Traditional Method
PDOR = Estimated Activity ÷ Estimated Activity
= $130,890 ÷ 1,720
= $76.10 per DLH
Unit Product Cost:
Direct Materials
Direct Labor
Mfg. Overhead
Total Unit Cost
2.
Miz
$10.70
11.20
53.27 *
$75.17
Zou
$16.70
19.20
91.32 **
$127.22
* 0.7 DLH/unit × $76.10 = $53.27
** 1.2 DLH/unit × $76.10 = $91.32
Activity-Based Costing: Activity Rates
Activity Cost Pool
Machine set-ups
Purchase orders
General factory
Estimated
MOH
$13,570
91,520
25,800
Estimated
Activity
230 setups
2,080 orders
1,720 DLH
Activity
Rates
$59 per setup
$44 per order
$15 per DLH
127
Mizzou Company (p. 2)
3. (a)
Activity-Based Costing: Applying MOH to Products
MIZ
Activity
Rates
Activities
Machine set-ups $59 per setup
Purchase orders $44 per order
$15 per DLH
General factory
Total Overhead Cost
3. (b)
Estimated
Activity
100 setups
810 orders
280 DLH
MOH
$ 5,900
35,640
4,200
$45,740
Estimated
Activity
130 setups
1,270 orders
1,440 DLH
MOH
$ 7,670
55,880
21,600
$85,150
Activity-Based Costing: MOH per Unit
Number of units produced
400 units
MOH per unit
3. (c)
ZOU
$114.35 per unit
1,200 units
$70.96 per unit
Activity-Based Costing: Unit Product Costs
Unit Product Cost:
Direct Materials
Direct Labor
Mfg. Overhead
Total Unit Cost
Miz
$ 10.70
11.20
114.35
$136.25
Zou
$16.70
19.20
79.96
$106.86
128
Moehrle Manufacturing
Costs to manufacture:
DM
$45
DL
$30
VOH
$30
FOH
$22
Total
$127
A special order is received to produce monitors with a special logo that would
increase production costs by $5.00 per monitor
*
*What is the minimum selling price Moehrle should accept for this order?
$105
+ $5
$110
minimum selling price for special order
129
Muleskinner Athletic Wear, Inc.
Inventory
Accounts
Product
Costs
DM
WIP
$60,000
Purch
$250,000
BI + In = EI + Out
$240,000
$120,000
240,000
405,000
200,000
FG
COGM
$850,000
$850,000
$835,000
COGS
$165,000
$115,000
$70,000
$150,000
COGS
DL
$405,000
$405,000
$835,000
$835,000
ACOGS
-0MOH
I/S
$10,000
25,000
$835,000
100,000
Period
Costs
35,000
30,000
Admin.
$940,000 Rev.
$110,000
$ 5,000
NI (LOSS!!)
$200,000
$200,000
-0-
130
Narcissus Needles
1.
Utilities
$10,000
Depr.
15,000
Dupr. Sal.
30,000
Janitorial
6,000
Ins.
9,000
Total MOH
Est. DLH
PDOR
$70,000
=
3,500
=
Est. OH / Ect. Activity
=
$70,000 / 3,500
PDOR
= $20
2.
Apploied OH
=
PDOR
=
$20
Applied OH
=
*
*
Activity
3,600 DLH
$72,000
3.
Utilities
$10,500
Depr.
15,000
Supr. Sal.
30,000
Janitorial
5,200
Ins.
8,500
Total MOH
$69,200
MOH
Actual
$69,200
Applied
$72,000
$2,800 Overapplied
131
Paradise Company
RM (RM-lbs.)
40,000
WIP (RM-lbs.)
10,000
FG (RM-lbs.)
80,000
1,010,000
Purch.
1,000,000
50,000
1,000,000 1,000,000
10,000
1,000,000
50,000
132
Pirates, Inc.
Rate
AQ × AC
28,000 × $11.70
$327,600
Efficiency
AQ × SC
28,000 × $12.00
$336,000
$8,400 F
Std. Allowed for
Actual Output
(in units)
SQ × SC
(22,000)(1.25) × $12.00
$330,000
$6,000 U
$2,400 F
133
Plentiful Printing, Inc.
WIP
DM
BI
Purch
$15,000
BI
95,000
90,000
$3,000
$20,000
90,000
40,000
EI
FG
$20,000
COGM
180,000
185,000
$180,000
60,000
$15,000
COGS
8000
2000
3000
DL
EI $13,000
COGS
2,500 * $16
$40,000
$40,000
$185,000
$2000 / 125 hrs = $16 /hr
Direct
3000
Labor
$182,000
$182,000
Rate
0
Adj. COGS
0
MOH
Actual
$57,000
I/S
Applied
Adj. COGS
$182,000
$40,000 * 1.5
Selling
57,000
= $60,000
Admin
12,000
$285,000
Sales
$34,000
NI
3000
3000
0
PDOR = Est OH / Est Activity = $600,000 / $400,000 = 1.5 per DL $
134
Polaris Company
DM
BI
$ 10,000
Purch
$210,000
WIP
$178,000
BI
FG
$ 42,000
BI
$178,000
$ 12,000
$ 37,000
$520,000
$480,000
COGS
$ 90,000
EI
$ 34,000
$240,000
EI
DL
$520,000
EI
$ 77,000
$ 30,000
COGS
$ 90,000
$ 90,000
$480,000
-0-
$472,000
$ 8,000
$472,000
Adj. COGS
-0-
MOH
IDM
$ 12,000
IDL
$110,000
Depr.
$ 40,000
Other
$ 70,000
$232,000
I/S
30,000 * $8
COGS
$472,000
Selling
$ 54,000
Admin.
$ 42,000
$600,000
Sales
= $240,000
$ 8,000
$ 32,000
$ 8,000
NI
-0-
135
Polaris Company (p. 2)
[Stmt. of Cash Flows]
CASH
$600,000
$210,000
$ 90,000
$110,000
$ 70,000
$ 54,000
$ 42,000
$ 24,000
Accum. Depr.
$ 40,000
136
Portland Pilots Association
Portland Pilots Association
Comparative Balance Sheets
31-Dec
Assets
Cash
Accounts receivable
Prepaid expenses
Land
Building
Accumulated depreciation - building
Equipment
Accumulated depreciation -- equipment
Total
2004
$67,200
$24,000
$4,800
$156,000
$192,000
($13,200)
$32,400
($3,600)
$459,600
2003
$40,800
$36,000
$0
$0
$0
$0
$12,000
$0
$88,800
Liabilities and Stockholders' Equity
Accounts payable
Bonds payable
Common stock
Retained earnings
Total
$70,800
$156,000
$60,000
$172,800
$459,600
$4,800
$0
$60,000
$24,000
$88,800
Change
Increase/Decrease
$26,400 Increase
(12,000) Decrease
4,800 Increase
156,000 Increase
192,000 Increase
(13,200) Increase
20,400 Increase
(3,600) Increase
$66,000 Increase
156,000 Increase
0
148,800 Increase
137
Portland Pilots Assoc. (p. 2)
PORTLAND PILOTS COMPANY
Statement of Cash Flows -- Indirect Method
For the Year Ended December 31, 2004
Operating Activities
Net income
Adjustments to convert net income to a cash basis:
Depreciation expense
Loss on sale of equipment
Decrease in accounts receivable
Increase in prepaid expenses
Increase in accounts payable
Net cash provided by operating activities
Investing Activities
Purchase of building
Purchase of equipment
Sale of equipment
Net cash used by investing activies
Financing Activities
Payment of cash dividends
Net cash used by financing activities
$166,800
$18,000
3,600
12,000
(4,800)
66,000
94,800
$261,600
($192,000)
(30,000)
4,800
(217,200)
(18,000)
(18,000)
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
$26,400
40,800
$67,200
Noncash investing and financing activities
Issuance of bonds payable to purchase land
$156,000
138
Postmodern Products
Standard Allowed
for Actual Output
feet
Price
AQ × AC
Quantity / Usage
AQ × SC
SQ × SC
(3,000)(5) × $3.00
45,000 × $3.00
$45,000
15,200 × $3.00
$45,600
15,200 × $3.15
$47,880
$2,280 U
$600 U
$2,880 U
DIRECT MATERIALS
ANSWERS:
1(a) = $3.15
1(b) = $2,280 U
1(c) = $600 U
139
Postmodern Products (p. 2)
Standard Allowed
for Actual Output
DLH
Rate
AQ × AC
Efficiency
AQ × SC
5,400 × $11.50
$62,100
5,400 × $11.40
$61,560
$540 F
SQ × SC
(3,000)(1.75) × $11.50
5,250 × $11.50
$60,375
$1,725 U
$1,185 U
DIRECT LABOR
ANSWERS:
2(a) = $11.50
2(b) = 5,250
2(c) = 1.75
140
P.W. Products
Standard Allowed
for Actual Output
pounds
Price
AQ × AC
Quantity / Usage
AQ × SC
SQ × SC
350,000 × $4.00
$1,400,000
350,000 × $4.12
$1,442,000
$42,000 U
(12,000)(25) × $4.00
300,000 × $4.00
$1,200,000
304,000 × $4.00
$1,216,000
$16,000 U
CAN’T!
DIRECT MATERIALS
DM Purchased ≠ DM Used
141
P.W. Products (p. 2)
Standard Allowed
for Actual Output
DLH
Rate
AQ × AC
Efficiency
AQ × SC
95,400 × $10.00
$954,000
95,400 × $10.55
$1,006,470
$52,470 U
SQ × SC
(12,000)(8) × $10.00
96,000 × $10.00
$960,000
$6,000 F
$46,470 U
DIRECT LABOR
142
Rex Company
Price
Quantity
AQ * AP
30,000 * $2.80
AQ * SP
30,000 * $3.00
SQ * SP
29,000 * $3.00
$84,000
$90,000
$87,000
$3,000 u
$6,000 F
$3,000 / 1,000
in Q = $3.00
$3,000 F
143
Rikki-Tikki-Tavi Taffy
Rikky-Tikky-Tavi Taffy
Comparative Balance Sheets
31-Dec
Assets
Current Assets:
Cash
Accounts receivable
Inventory
Prepaid expenses
Total current assets
Long-term investments
Plant and equipment
Less: Accumulated depreciation
Net plant and equipment
Total assets
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable
Accrued liabilities
Total current liabilities
Bonds payable
Deferred income taxes
Stockholders’ equity:
Preferred stock
Common stock
Retained earnings
Total stockholders’ equity
Total liabilities and stockholders’ equity
2002
2001
$3,600
144,000
129,600
6,000
283,200
64,800
523,200
72,000
451,200
$799,200
$26,400
98,400
102,000
9,600
236,400
88,800
336,000
60,000
276,000
$601,200
($22,800)
$45,600
$27,600
($3,600)
$46,800
($24,000)
$187,200
$12,000
$175,200
$198,000
Decrease
Increase
Increase
Decrease
Increase
Decrease
Increase
Increase
Increase
Increase
$86,400
22,800
109,200
156,000
14,400
$72,000 $14,400 Increase
21,600
$1,200 Increase
93,600 $15,600 Increase
0 $156,000 Increase
12,000
$2,400 Increase
98,400
318,000
103,200
519,600
$799,200
114,000 ($15,600) Decrease
285,600 $32,400 Increase
96,000
$7,200 Increase
495,600 $24,000 Increase
$601,200 $198,000 Increase
144
Rikki-Tikki-Tavi Taffy (p. 2)
RIKKY-TIKKY-TAVI TAFFY
Statement of Cash Flows -- Indirect Method
For the Year Ended December 31, 2002
Operating Activities
Net income
Adjustments to convert net income to a cash basis:
Depreciation expense
Increase in accounts receivable
Increase in inventory
Decrease in prepaid expenses
Increase in accounts payable
Increase in accrued liabilities
Gain on sale of investments
Gain on sale of equipment
Increase in deferred income taxes
Net cash provided by operating activities
$37,200
$33,600
(45,600)
(27,600)
3,600
14,400
1,200
(12,000)
(3,600)
2,400
Investing Activities
Sale of investments
Sale of equipment
Purchase of plant and equipment
Net cash used by investing activies
$36,000
12,000
(217,200)
Financing Activities
Increase in bonds payable
Increase in common stock
Payment of cash dividends
Net cash used by financing activities
$156,000
16,800
(30,000)
(33,600)
$3,600
(169,200)
142,800
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
($22,800)
26,400
$3,600
Noncash investing and financing activities
Preferred stock converted to common stock
$15,600
145
Robin Hood, Inc.
$2,000,000
Estimated MOH
a.
=
PDOR =
=
Estimated Activity
b.
$16.00 per MH
125,000 DLH
Applied MOH = Actual Activity × PDOR
140,000 DLH × $16.00 =
$2,240,000
MOH
c.
$2,400,000
Underapplied
$2,240,000
$160,000
$160,000
to COGS
-0-
146
DM
Roley Poley
WIP
BI $49,000
(a.) BI
PURCH. $319,700
(d.)
$325,000
$753,660
$293,480
EI
$160,080
$131,400
325,000
$126,100
FG
BI $87,300
$753,660 763,660
EI $77,300
COGS
EI $73,900
$763,660
DL
$5,660
(f.)
$769,320
$293,480 $293,480
$769,320
0
0
I/S
MOH
$769,320
IDL
$22,700
SOLO SALARIES $85,000
DEPR.
$31,000 920 x 29= 26,680 DLH
ADU.
PTY TAX
$12,600
PTY TAX
$5,400
FIRE INS.
$1,960
FIRE INS.
26,680 x $600
$7,840
IDM
$11,600
UTIL.
DEPR.
= $160,080
$44,000
COMM.
$28,500
$36,000
ADMIN.
$167,200
$44,000
UTIL.
$9,000
RENT
$8,700
DEPR.
$17,400
MISC.
$4,300
$165,740
Underapplied $5,660
(c.)
MOH
$5,660
0
PER UNIT
PRIME COSTS
(b.)
DM $325,000
DL 293,480
$618,480
(e.)
$753,660 / 920
= $819
R & ALLOW
$1,281,700 Sales
$36,100
$1,176,880
$104,820 X 40% = $41,928
(f.)
$104,820 NI BT
$62,892 NI AT
147
Rondini Magic Company
Rondini Magic Company
Comparative Balance Sheets
December 31
Assets
Cash
Accounts receivable
Inventories
Prepaid expenses
Land
Building
Accumulated depreciation – building
Equipment
Accumulated depreciation – equipment
Total
2004
$ 64,800
81,600
64,800
4,800
54,000
240,000
(25,200)
231,600
(33,600)
$ 682,800
2003
$ 44,400
31,200
-07,200
84,000
240,000
(13,200)
81,600
(12,000)
$ 463,200
Liabilities and Stockholders’ Equity
Accounts payable
Accrued liabilities
Bonds payable
Common stock ($1 par)
Retained earnings
Total
$ 27,600
12,000
132,000
264,000
247,200
$ 682,800
$ 48,000
-0180,000
72,000
163,200
$ 463,200
Change
Increase/Decrease
$ 20,400 Increase
50,400 Increase
64,800 Increase
2,400 Decrease
30,000 Decrease
-012,000 Increase
150,000 Increase
21,600 Increase
$ 20,400 Decrease
12,000 Increase
48,000 Decrease
192,000 Increase
84,000 Increase
148
Rondini Magic Co. (p. 2)
RONDINI MAGIC COMPANY
Statement of Cash Flows -- Indirect Method
For the Year Ended December 31, 2004
Operating Activities
Net income
Adjustments to convert net income to a cash basis:
Depreciation expense
Increase in accounts receivable
Increase in inventories
Decrease in prepaid expenses
Decrease in accounts payable
Increase in accrued liabilities
Loss on sale of equipment
Net cash provided by operating activities
$150,000
$39,600
(50,400)
(64,800)
2,400
(20,400)
12,000
2,400
Investing Activities
Sale of land
Sale of equipment
Purchase of equipment
Net cash used by investing activies
$30,000
40,800
(199,200)
Financing Activities
Redemption of bonds
Sale of common stock
Payment of cash dividends
Net cash used by financing activities
(12,000)
156,000
(66,000)
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
(79,200)
$70,800
(128,400)
78,000
$20,400
44,400
$64,800
149
S & P Corporation
1.
2.
BE(units) =
BE($) =
FC + NI
CM per unit
FC + NI
CM Ratio
$300,000 + $0
=
=
60,000 units
$10 - $5
$300,000 +$0
=
=
$600,000
50%
150
Sam Enterprises
Cans
Can-ettes
Units produced per hour
3
1
Contribution margin per unit
$
3
$
6
Contribution margin per hour
(the resource constraint)
$
9
$
6
Total contribution for 1,000 hours
$9,000
$6,000
THE WINNER!
151
Sleepwell, Inc.
DM
$18,500
80,000
81,700
$16,800
FG
WIP
$12,000
$10,200
81,700
261,450
40,500
105,750
217,550
$216,450
$9,100
$23,500
COGS
DL
$40,500
$40,500
$217,550
217,550
0
0
I/S
MOH
$105,750
0
$105,750
$217,550
100,000
$400,000
$ 82,450
152
Sly-Like-A-Fox, Inc.
SLY-LIKE-A-FOX, INC.
Balance Sheet
December 31, 2002
Assets
Current Assets:
Cash …………………………
Accounts receivable …………
Inventories …………………..
Current Assets ………………...
Noncurrent assets …………….
Total assets ……………………
$ 75,000
75,000
50,000
$200,000
$300,000
$500,000
Where? How?
Note 10 [Plug]
Note 4
Note 5
Note 7 [Plug]
(Given)
Note 6 [Calc. = Total L+E]
Liabilities and Equity
Current liabilities ..……………
Noncurrent liabilities …………
Total liabilities.………………..
$100,000
150,000
$250,000
Note 8
Note 9 [Plug]
Note 3
Total equity …………………..
Total Liabilities and Equity …..
$250,000
$500,000
Note 2
[Calc.: Note 6]
153
SUPPORTING
COMPUTATIONS
Sly-Like-A-Fox (p. 2)
Note 1: Compute net income for 2005
Sales …………………..
Cost of goods sold ……
Gross profit …………..
Operating expenses …..
Net income ……………
$1,000,000
500,000 (50% of sales (100% - Gross profit margin ratio))
$ 500,000 (50% of sales (#) Gross profit margin ratio)
450,000
$ 50,000 (With no information given about taxes, this is all we have.)
Note 2: Return on end-of-year equity = Net income ÷ End of year equity
20% (#)
= $50,000 (from Note 1) ÷ End of year equity
Equity = $250,000
Note 3: Total debt to equity ratio = Total liabilities ÷ Stockholders’ equity
1 (#)
= Total liabilities ÷ $250,000 (from Note 2)
Total liabilities = $250,000
Note 4: Accounts receivable turnover = Sales ÷ Average accounts receivable
16 (#) =
$1,000,000 (#)
($50,000(#) + End A/R) ÷ 2
Ending accounts receivable = $75,000
(#) or (#) — piece(s) of information provided in problem
154
SUPPORTING
COMPUTATIONS
Sly-Like-A-Fox (p. 3)
Note 5: Days’ sales in inventory = (Inventory × 360) ÷ Cost of goods sold
36 (#)
= (Inventory × 360) ÷ $500,000 (from Note 1)
End Inventory = $50,000
Note 6: Total assets = Total liabilities + Total equity
= $250,000 (from Note 3) + $250,000 (from Note 2)
= $500,000
Note 7: Total assets = Current assets + Noncurrent assets
$500,000 = Current assets + $300,000 (#)
Current assets = $200,000
Note 8: Current ratio = Current assets ÷ Current liabilities
2 (#)
= $200,000 ÷ Current liabilities
Current liabilities = $100,000
Note 9: Total liabilities = Current liabilities + Noncurrent liabilities
$250,000 (from Note 3) = $100,000 + Noncurrent liabilities
Noncurrent liabilities = $150,000
(This “formula” provided by problem information)
Note 10: Current assets = Cash + Accounts receivable + Inventory
$200,000
= Cash (plug) + $75,000 (from Note 4) + $50,000 (from Note 5)
Cash = $75,000
155
(#) or
(#)
— piece(s) of information provided in problem
Smith Company
Price
AQ × AC
36,000 × $8.35
$300,600
Qty
AQ × SC
36,000 × $8.25
$297,000
$3,600 U
SQ × SC
Std. Allowed for Actual Output
(Std. Amt. x Actual Units)
AQ × SC
31,800 × $8.25
$262,350
SQ × SC
(3200)(10) × $8.25
$264,000
$1,650 F
CAN’T!
156
Smith Company (p. 2)
Rate
AQ × AC
11,520 × $9.80
$112,896
Efficiency
AQ × SC
11,520 × $9.65
$111,168
$1,728 U
SQ × SC
(3200)(3.5) × $9.65
$108,080
$3,088 U
$4,816 U
TranslaTing Dr. Fessler’s “picTure” inTo Formulas:
1. AQ × (SC – AC) = Rate Variance
2. SC × (SQ – AQ) = Efficiency variance
157
SoMuch Stereos
Absorption Costing
Variable Costing
Income Statement
Income Statement
For the Year Ended Feb. 28, 2000
For the Year Ended Feb. 28, 2000
Rev.
Rev.
$89,000
VC: DM
(22,000)
DL
(14,000)
$89,000
COGS: DM (22,000)
DC
(14,000)
VOH (9,000)
VOH
(9,000)
FOH (10,000)
VSE
(5,000)
GM
$34,000
CM
$39,000
S&A: VSE
(5,000)
FC: FOH
(10,000)
FSE
(16,000)
FSE
(16,000)
FAE
(14,000)
FAE
(14,000)
NI
($1,000)
NI
($1,000)
158
South Street Furniture Company
South Street Furniture Company
Variable Costing I/S
For the Y/E Dec. 31, 2005
South Street Furniture Company
Absorption Costing I/S
For the Y/E Dec. 31, 2005
Rev
$3,600,000
= 72,000 units × $20
- CoGS
(248,000)
(2,176,000)
(12,000)
$1,164,000
= BI 8,000 units × $31 per unit
= 64,000 units × $34 per unit
Underapplied MOH (2,000 @ $6)
GM
- S&A
(216,000)
(340,000)
NI
$ 608,000
Rev
- VC
CM
= 72,000 units sold × $3 per unit
Fixed
- FC
NI
$ 3,600,000
= 72,000 units × $20
(208,000) = BI 8,000 units × $26 per unit
(1,792,000) = 64,000 units × $28 per unit
(216,000) = 72,000 units × $ 3 per unit
$ 1,384,000
(480,000) MOH
(340,000) S&A
$ 564,000
The difference in NI :
PDOR = $480,000 ÷ 80,000 normal production
= $6.00 per unit
FOH from BI
FOH to EI
Difference in NI
$(40,000)
84,000
$ 44,000
= 8,000 units @ $5 per unit
= 14,000 units @ $6 per unit
159
Southern Carpets
1.
y = a + bx
b = hi-lo $
hi-lo activity
b = $390,700 - $180,000
4,980 – 2,180
= $210,700
2,800
b = $75.25 per machine hour
$390,000 = a + $75.25 (4,980)
$390,700 = a + $374,745
a = $15,955
Cost Formula
y = $15,955 + $75.25x
2.
y = $15,955 + $75.25 (3,500)
y = $15,955 + $263,375
y = $279,330
160
Southern Carpets (cont.)
SOUTHERN CARPETS
Regression Analysis
SUMMARY OUTPUT
J
F
M
A
M
J
J
A
S
O
N
D
Y = Costs X = Hours
$341,062
3,467
$346,471
4,426
$287,328
3,103
$262,828
3,625
$220,843
3,081
$390,700
4,980
$337,924
3,948
$180,000
2,180
$376,246
4,121
$295,041
4,762
$215,121
3,402
$275,343
2,469
Regression Statistics
Multiple R
0.740754563
R Square
0.548717323
Adjusted R Square
0.503589056
Standard Error
46999.24973
Observations
12
ANOVA
df
Regression
Residual
Total
Intercept
X = Hours
Cost Function:
1
10
11
SS
MS
26858506459 26858506459
22089294751 2208929475
48947801211
Coefficients Standard Error
t Stat
86152.88975
61152.29174 1.408825202
57.27371965
16.42500026 3.486984399
F
Significance F
12.1590602
0.005852441
P-value
0.18921362
0.005852441
Lower 95%
Upper 95%
-50102.93094 222408.7104
20.6765321 93.87090721
y = $57.27 x + $86,152.89
when x = 3,500
when x = 4,000
y = $286,597.85
y = $315,232.89
161
Steinmueller Steins, Inc.
WEIGHTED AVERAGE METHOD
Step 1
DM
100%
Step 5
CC
70%
100%
WIP-Molding (units)
5,000
20,000
2,000
80%
23,000
DM
CC
Step 2
EU
DM
23,000
2,000
2000*100%
2000*80%
E.U.
25,000
WIP-Molding ($)
$6,000
$7,000
23,000*$1.98
$13,000
$45,540
$18,000
$18,000
$36,000
CC
out
EI
DM
CC
23,000
DM
CC
$1,920
$1,632
$3,552
2000*100%*$.96
2000*80%*$1.02
1,600
24,600
Step 3
BI + IN = EI + Out
Total Costs To Account For:
BI
IN
$6,000
$18,000
$24,000
$7,000
$18,000
$25,000
Step 4
Compute E.U. Costs
$24,000/25,000
=$.96
$25,000/24,600
=$1.01626 = $1.02
162
$1.98
Steinmueller Steins (p. 2)
FIFO METHOD
E.U.
DM
WIP Units
CC
100% 70%
BI
5,000
DM
Out
IN 20,000
23,000
BI: (DM) 5,000× 0%
-0-
BI: (CC) 5,000×30%
1,500
Start & Finish
100% 80%
EI
2,000
CC
18,000
EI: (DM) 2,000×100%
18,000
2,000
EI: (CC) 2,000× 80%
1,600
E.U.
20,000
WIP - $ (FIFO)
BI
DM $6,000
CC $7,000
CC $18,000
Costs to Account For
Out
DM
$ 13,000.00 from BI
1,279.50 Finished CC 5,000×30%×$0.853
IN DM $18,000
31,554.00 S&F 18,000 × $1.753
$45,833.50
BI
Total
$1.20
$7,000 CC ÷ (5,000× 70%)
$2.00
$3.20
$0.853
$1.753
$ per EU
DM $1,800.00
= 2,000 × 100% × $0.90
$18,000 DM ÷ 20,000 E.U.
CC
= 2,000 × 80% × $0.853
$18,000 CC ÷ 21,100 E.U.
1,364.80
CC
$ per EU
$6,000 DM ÷ (5,000×100%)
IN
EI
21,100
$0.90
$3,164.80
$49,000 Costs to Account For
(Info we need to do problem)
163
Stetson Company
Stetson Company
Absorption Costing I/S
For the Y/E Dec. 31, 2001
Rev
$17,000
= 2,000 units × $8.50
- CoGS
(- 0 -)
(6,000)
(4,000)
$ 7,000
= BI ( - none - )
= 2,000 units × $3 per unit
Underapplied MOH (4,000 @ $1)
- S&A
(1,000)
(1,400)
= 1,000 units sold × $0.50 per unit
Fixed
NI
$ 4,600
GM
Stetson Company
Absorption Costing I/S
For the Y/E Dec. 31, 2002
Rev
$25,500
= 3,000 units × $8.50
- CoGS
(9,000)
(-0-)
(9,100)
$ 7,400
= BI 3,000 units × $3 per unit
=
- 0 - units × $3 per unit
Underapplied MOH (9,100 @ $1)
(1,500)
(1,400)
= 3,000 units sold × $0.50 per unit
Fixed
GM
Normal volume is 10,000 units of production.
Underapplied MOH = 10,000 – 6,000 actual production
= 4,000 units
- S&A
NI
$ 4,500
Normal volume is 10,000 units of production.
Underapplied MOH = 10,000 – 900 actual production
= 9,100 units
164
Stetson Company (p. 2)
Stetson Company
Variable Costing I/S
For the Y/E Dec. 31, 2001
Rev
- VC
CM
- FC
NI
$ 17,000
Stetson Company
Variable Costing I/S
For the Y/E Dec. 31, 2002
= 2,000 units × $8.50
(4,000) CoGS (2,000 units × $2.00 per unit)
(1,000) S&A (2,000 units × $0.50 per unit)
$ 12,000
(10,000) MOH
(1,400) S&A
$
CM
NI
The difference in NI 2001:
Production > Sales
Abs. NI is higher!
- VC
- FC
600
Units mfg. - units sold
× FOH per unit
Difference in NI
Rev
4,000
$1.00
$ 4,000
$ 25,500
= 3,000 units × $8.50
(6,000) CoGS (3,000 units × $2 per unit
(1,500) S&A (3,000 units × $0.50 per unit)
$ 18,000
(10,000) MOH
(1,400) S&A
$ 6,600
The difference in NI 2002:
Units mfg. - units sold
× FOH per unit
Difference in NI
Sales > Production
VC NI is higher!
2,100
$1.00
$2,100
165
Stiegl Corporation
Spend
Eff
N/A
AQ * AP
15,000 *
AQ * SP
15,000 * $2.00
SQ * SP
12,000 * $2.00
$27,500
$30,000
$24,000
$2,500 F
SQ * SP
$6,000 u
$3,500 u
166
Stone Monument Co. (A)
1.
BE (units) =
FC + NI
=
CMU
BE ($) =
FC + NI
CMR
2.
$6,000,000
6,000 units
=
$1,000
=
$6,000,000
=
$12,000,000
$2,000 - $1,000
$2,000
6,000 units BE
=
20,000 units Normal capacity
30%
167
Stone Monument Co. (B)
1.
BE (units) =
FC + NI
=
CMU
2.
BE ($) =
FC + NI
CMR
$6,000,000 + $1,400,000
=
7,400 units
$1,000
=
$6,000,000 + $1,400,000
=
$14,800,000
$2,000 - $1,000
$2,000
168
Stone Monument Co. (C)
1.
SP (x)
= VCU (x) +
FC
+
NI
$2,000 (x) = $1,000 (x) + $6,000,000 + (.25) ($2,000) (x)
$2,000 x = $1,000 x + $6,000,000 + $500 x
$500 x = $6,000,000
x
2.
= 12,000 units
TR = VC +
FC
+
NI
R = .5 R + $6,000,000 + .25R
.25 R = $6,000,000
R = $24,000,000
169
Stone Monument Co. (D)
1.
SP (x)
= VCU (x) +
FC
+
NI
$2,000 (x) = $1,000 (x) + $6,000,000 + (.25) ($2,000) (x)
$2,000 x = $1,000 x + $6,000,000 + $400 x
$600 x = $6,000,000
x
2.
x
= 10,000 units
10,000 units
$2,000 SP
$20,000,000
170
Stone Monument Co. (E)
SP (x)
= VCU (x) +
FC
+
NI
SP (20,000) = $1,000 (20,000) + $6,000,000 + $21,000,000
SP
= $47,000,000
20,000
SP
= $2,350
171
Stone Monument Co. (F)
1.
MS ($) = Actual Revenue - BE Revenue
MS ($) =
MS ($) =
2.
$40,000,000
($2,000 SP x 20,000 normal volume)
$12,000,000
(from (A))
$28,000,000
MS Ratio = Actual Revenue - BE Revenue
Actual Revenue
MS Ratio = $40,000,000 - $12,000,000
$40,000,000
MS Ratio = 70%
Quite Good!!
172
Stone Monument Co. (G)
First, …
NIAT
$1,400,000
1- Tax Rate
1.
BE (units) =
FC + NI
1 - 0.30
=
CMU
2.
BE ($) =
FC + NI
CMR
$2,000,000
=
=
NIBT =
$6,000,000 + $2,000,000
=
8,000 units
$1,000
=
$6,000,000 + $2,000,000
=
$16,000,000
$2,000 - $1,000
$2,000
173
Strange Fire, P.C.
Variable Overhead
Spending
Actual VOH
$54,000
$4,000 F
Efficiency
AQ × SC
2900 × $20
$58,000
N/A
SQ × SC
2800 × $20
$56,000
$2,000 U
2,000 F
Flexible Budget Variance = $2,000 F
174
Stuffing Company (A)
Present
0
Year
1
Year
2
Year
3
$25,000
$25,000
$25,000
$(60,000)
Purchase
Savings
Total
$(60,000)
$25,000
$25,000
$25,000
PV Factor
× 1.0000
× 0.9091
× 0.8264
× 0.7513
NPV Calc.
$(60,000)
$22,727.50
+
$20,660.00
+
$18,782.50
=
$2,170
≥ $0  ☺
use Annuity Table
OR
Purchase
Savings
PV Factor
NPV Calc.
+
From PV Table
$(60,000)
× 1.0000
$(60,000)
$25,000 per year for 3 years
× 2.4869
$62,172.50
=
$2,172.50
☺
175
Stuffing Company (B)
•TRIAL & ERROR
•THE HIGHER THE INTEREST RATE, THE LOWER THE PV
We know 10% is TOO LOW (why, because it yields a positive NPV)
So we try 11% …
So we try 12% …
So we try 13% …
$25,000
× 2.4437 (11% for 3 yr. annuity)
$61,092.50
vs. $(60,000)
STILL TOO LOW
$25,000
× 2.4018 (12% for 3 yr. annuity)
$60,200
vs. $(60,000)
Still A BIT too low
$25,000
× 2.3612 (13% for 3 yr. annuity)
$59,025
vs. $(60,000)
Now A BIT too HIGH
Closer to 12% than 13%
176
Stuffing Company (C)
Payback Period = Original Investment ÷ Periodic Cash Flow
Investment A: 2 years
Investment B: 2 years
$ 20,000 in Year 1
80,000 in Year 2
$100,000 Total
$ 90,000 in Year 1
10,000 in Year 2
$100,000 Total
Investment B BETTER because get money sooner
Investment C: 3 years
$100,000 ÷ $39,000 = 2.5641 years
177
Stuffing Company (D)
Accounting Rate of Return (ARR) = Avg. NI ÷ Investment
[ARR aka Simple Rate of Return]
Avg. NI
ARR =
=
Average NI
Investment
$80,000
5 yrs.
=
=
$16,000
$100,000
$16,000 NI per year
=
16% ARR
178
Stuffing Company (E)
1.
2.
Profitability Index =
PV of CF
Investment
Project 1:
$567,270 ÷ $480,000 = 1.182
Project 2:
$336,140 ÷ $270,000 = 1.245
Project 3:
$379,760 ÷ $400,000 = 0.949
Project 1
Project 2
Project 3
NPV
1
2
3
PI
2
1
3
IRR
2
1
3
RANKING:
179
Sven’s Sweets Company
DM
BI
Purch
(for Cash)
EI
WIP
$ 16,700
BI
185,000
$152,500
FG
$ 18,400
BI
146,400
$ 24,600
370,000
$375,100
COGS
175,600
$22,800
54,800
EI
DL
$370,000
EI
$ 19,500
$ 25,200
COGS
$175,600
$175,600
$375,100
$375,100
-0-
-0-
MOH
IDL
$ 14,300
Fact. Repairs
12,600
Fact. Utilities
10,100
I/S
Depr., Fact.
9,440
COGS
Fact. Ins.
8360
Selling Exp.
114,900
Admin. Exp.
92,600
(Cash) Interest Exp.
5,150
$ 54,800
$ 54,800
-0-
Inc. Tax
(to R/E)
$375,100
$680,000
Sales
$ 92,250
NI BT
$ 72,250
NI AT
$ 20,000
$ 72,250
180
-0-
Sven’s Sweets (p. 2)
Assets (aka: “Pete”)
CASH
Beg $ 42,500
$ 14,300
Cash from
Customers
((A/R))
671,900
IDL
12,600
Repairs
10,100
Util.
8,360
Ins.
212,500
A/P
19,000
Plant Assets
Beg $ 71,900
(Sales on Acct.) 680,000
Accum. Depr.
Beg $724,000
Beg
$ 278,400
9,440 (Depr.
Exp.)
$671,900 (to Cash)
End $ 80,000
End $724,000
End
$ 287,400
Tax Pay.
152,500
DM
175,600
DL
5,150
A/R (net)
Int. Exp.
End $ 104,290
Liabilities & Owners’ Equity (aka: “Re-Pete”)
Notes Payable
Beg
Inc. Taxes Payable
$ 100,000
Beg
(to Cash)
$ 5,000
A/P
Beg
20,000 (Inc. Tax Exp.)
$ 19,000
$ 40,000
$ 212,500
114,900 (Selling Exp.)
92,600 (Adm. Exp..)
End
$ 100,000
End
Common Stock
Beg
$ 269,600
$ 6,000
End
$ 35,000
R/E
Beg
$ 205,100
72,250 (Net Income)
End
$ 269,600
End
$ 277,350
181
Sven’s Sweets (p. 3)
Sven’s Sweets Company
Sven’s Sweets Company
Balance Sheet
As of December 31, 2005
Statement of Cash Flows (Indirect Method)
For the Year-Ended December 31, 2005
Assets
Cash
$ 104,290
A/R
80,000
Plant Assets
724,000
Accum Depr (287,840)
DM
22,800
WIP
25,200
FG
19,500
Total
Liabilities
&
Owners’
Equity
$687,950
N/P
IT/P
A/P
C/S
R/E
$ 100,000
6,000
35,000
269,600
277,350
Total
$687,950
Net Income
$ 72,250
Depr. Exp
A/R
IT/P
A/P
DM
WIP
FG
+ 9,440
- 8,100
+ 1,000
- 5,000
- 6,100
- 6,800
+ 5,100
Net Cash
Inflows
$ 61,790
Beg. Cash
42,500
End Cash
$104,290
Not specifically requested by problem;
already calculated CF using Direct Method.
182
Sweet Surrender, Inc.
SWEET SURRENDER, INC.
Balance Sheet
December 31, 2003
Assets
Current Assets:
Cash …………………………
Accounts receivable …………
Inventories …………………..
Current Assets ………………...
Noncurrent assets …………….
Total assets ……………………
$ 85,000
125,000
75,000
$285,000
$495,000
$780,000
Where? How?
(Given)
Note 5
Note 4
[Calc.: Note 7]
Note 8 [Plug]
Note 6 [Calc. = Total L+E]
Liabilities and Equity
Current liabilities ..……………
Noncurrent liabilities …………
Total liabilities.………………..
$237,500
22,500
$260,000
Note 9
Note 10 [Plug]
Note 3
Total equity …………………..
Total Liabilities and Equity …..
$520,000
$780,000
Note 2
[Calc.: Note 6]
183
SUPPORTING
COMPUTATIONS
Sweet Surrender (p. 2)
Note 1: Compute net income for 2003
Sales …………………..
Cost of goods sold ……
Gross profit …………..
Operating expenses …..
Income before taxes ….
Taxes expense ………..
Net income ……………
$3,000,000
1,800,000
$1,200,000
800,000
$ 400,000
140,000
$ 260,000
(= COGS + Gross profit)
(#) (60% of sales (100% - Gross profit margin ratio))
(40% of sales (#) Gross profit margin ratio)
(#)
(Calculation)
(tax at 35% rate (#))
Note 2: Return on end-of-year equity = Net income ÷ End of year equity
0.5 (#)
= $260,000 (from Note 1) ÷ End of year equity
Equity = $520,000
Note 3: Total debt to equity ratio = Total liabilities ÷ Stockholders’ equity
0.5 (#)
= Total liabilities ÷ $520,000 (from Note 2)
Total liabilities = $260,000
Note 4: Days’ sales in inventory = (Inventory × 360) ÷ Cost of goods sold
15 days (#)
= (Inventory × 360) ÷ $1,800,000 (from Note 1)
End Inventory = $75,000
Note 5: Days’ sales in receivables = (Accounts receivable × 360) ÷ Sales
15 days (#)
= (Inventory × 360) ÷ $3,000,000 (from Note 1)
End Accounts receivable = $125,000
(#) — piece(s) of information provided in problem
184
SUPPORTING
COMPUTATIONS
Sweet Surrender (p. 3)
Note 6: Total assets = Total liabilities + Total equity
= $260,000 (Note 3) + $520,000 (Note 2)
= $780,000
Note 7: Current assets = Cash + Accounts receivable + Inventories
Current assets = $85,000 (#) + $125,000 (Note 5) + $75,000 (Note 4)
Current assets = $285,000
Note 8: Total assets = Current assets + Noncurrent assets
$780,000 (Note 6) = $285,000 (Note 7) + Noncurrent assets (plug)
Noncurrent assets = $495,000
Note 9: Current ratio = Current assets ÷ Current liabilities
1.2 (#)
= $285,000 (Note 7) ÷ Current liabilities
Current liabilities = $237,500
Note 10: Total liabilities = Current liabilities + Noncurrent liabilities
$260,000 (Note 3) = $237,500 (Note 9) + Noncurrent liabilities
Noncurrent liabilities = $22,500
185
(#) or
(#)
— piece(s) of information provided in problem
The Swizzle Manufacturing Co.
DM
BI
Purch
WIP
10,000
BI
185,000
$200,000
FG
$15,000
BI
185,000
$30,000
793,200
$780,000
COGS
230,000
EI
$25,000
385,200
EI
DL
793,200
EI
$43,200
$22,000
COGS
(21,400 hrs)
$230,000
$230,000
$780,000
200
$779,800
0
Adj. COGS
$779,800
MOH
Utilities
63,000
IDL
90,000
Maint.
54,000
Depr.
76,000
Rental
102,000
385,000
I/S
COGS
Est.OH
21,400 * $18
PDOR =
Est Activity
= $385,200
$ 200
$360,000
=
20,000 DLH
$ 200
Utilities
779,800
1,200,000
Sales
7,000
S&A Salaries
110,000
Advertising
136,000
Depr.
19,000
Rental
18,000
= $18 per DLH
0
$130,200
NI
186
Swizzle (p. 2)
The Swizzle Manufacturing Company
Schedule of Cost of Goods Manufactured
For the Year Ended December 31,1994
Direct material:
Raw materials inventory, 1-1-94
$10,000
Add: Purchases of raw materials
200,000
Total materials available
Deduct: Raw materials inventory, 12-31-94
$210,000
(25,000)
Raw materials used in production
$185,000
Direct Labor
230,000
Manufacturing overhead:
Utilities......................................................................................
$63,000
Indirect Labor..............................................................................
90,000
Maintenance.................................................................................
54,000
Depreciation.................................................................................
76,000
Building rent..............................................................................
102,000
Actual overhead costs
$385,000
Add: Overapplied overhead
Manufacturing overhead applied to WIP
Total manufacturing costs
Add: Beginning work in process inventory
200
385,200
$800,200
15,000
$815,200
Deduct: Ending work in process inventory
Cost of Goods Manufactured
(22,000)
$793,200
187
Swizzle (p. 3)
The Swizzle Manufacturing Company
Schedule of Cost of Goods Sold
For the year ended December 31, 1994
Finished goods inventory, 1-1-94
Add: Cost of goods manufactured
Goods available for sale
Less: Ending finished goods inventory
Cost of goods sold
Deduct: Overapplied overhead
Adjusted cost of goods sold
$30,000
793,200
823,200
(43,200)
$780,000
(200)
$779,800
188
Swizzle (p. 4)
The Swizzle Manufacturing Company
Income Statement
For the Year Ended December 31, 1994
Sales
$1,200,000
Less: Cost of Goods Sold
(779,800)
Gross Margin
$420,200
Less: Selling and administrative expenses:
Utilities
Net Income
$
7,000
Salaries
110,000
Advertising
136,000
Depreciation
19,000
Building rental
18,000
$290,000
$130,200
189
Tallyho Company
$3,000,000 budgeted FOH ÷ 100,000 budgeted units = $30 per unit (SC)
FIXED OVERHEAD
Spending
Volume
Actual FOH
Budgeted FOH
BQ × SC
$3,200,000
$3,000,000
$200,000 U
Applied FOH
SQ × SC
110,000 × $30
$3,300,000
$300,000 F
$100,000 F
190
Thorp Company
Rate
Eff
AQ * AP
2,000 * $5.00
AQ * SP
2,000 * $5.50
SQ * SP
1,727 *$5.50
$10,000
$11,000
$9,500
$1,000 F
$1,500 u
191
Tigér Boats
Bill Bird should accept the offer.
$12,500 Selling price per boat
(11,500) Variable cost per boat ($5,000 + $5,500 + $1,000)
$ 1,000 Contribution per boat
Fixed manufacturing overhead will not change and thus is not relevant.
192
Tillamook Cheese Co.
…can sell just milk, or can process the milk further into cheese, ice cream and yogurt
Product:
Cheese
Ice Cream Butter
Sales value at split off (i.e., milk)
$400,000 $500,000 $100,000
Sales value if processed further
$450,000 $679,000 $110,000
Cost of further processing
$ 17,000 $103,000 $ 14,000
Joint costs $150,000
Joint costs are allocated by the sales value at split off
Raw Milk - Joint Costs $150,000
Relevant!
$400,000
Cost
$17,000
$450,000 Cheese :o)
$500,000
$103,000
$679,000 Ice Cream :o)
$100,000
$14,000
$110,000 Butter :o(
Cost to produce
butter from milk
higher than the
increased revenue
$1,000,000 revenue from selling product just as milk
193
Tina’s Best Chocolate (A)
Tina should process the cocoa powder further into an instant cocoa mix.
$2,000 Selling price of Instant Cocoa
(500) Selling price of Cocoa powder
$1,500 Additional revenue from processing further
(800) Additional cost of processing further
$700 Additional profit per ¼ ton from processing further
194
Tina’s Best Chocolate (B)
Contribution margin per case
Machine hours required per case
Cost per machine hour
THE LIGHT
THE DARK
$1.00
$2.00
.02 MH
$50.00
.05 MH
$40.00
Tina’s best product is The Light
195
Toledo Torpedo Company
Cost Comparison – Replacement of Machine, Including Relevant and Irrelevant Items
FOUR YEARS TOGETHER
Keep
Replace
Difference
Sales
Expenses:
Variable
Old machine (book value)
Depreciation write-off
-or- Lump-sum write-off
Disposal value
New machine (purchase price)
Total expenses
Operating income
$400,000
$400,000
$
---
320,000
224,000
96,000
40,000
------$360,000
$40,000
--40,000*
4,000*
60,000
$320,000
$80,000
----4,000
(60,000)
$40,000
$40,000
* In a formal income statement, these two items would be combined
as a "loss on disposal" of $36,000.
RELEVANT Benefit
(purchase new machine)
196
True Blue Corporation
Variable Overhead
Spending
Actual VOH
$1,600
$60 U
Efficiency
AQ × SC
400 × $3.85
$1,540
N/A
SQ × SC
420 × $3.85
$1,617
$77 F
$17 F
Flexible Budget Variance = $17 F
197
Tub Company
Rate
Eff
AQ * AP
2,200 * $8.40
AQ * SP
2,200 * $8.00
SQ * SP
2,000 * $8.00
$18,480
$17,600
$16,000
$880 u
$1,600 u
198
Ward Company
PART 2
PART 1
June
April:
May:
June:
?
?
$30,000 * 30%
July
May:
June:
July:
?
$30,000 * 50%
$50,000 * 30%
August
June:
July:
Aug:
$30,000 * 15%
$50,000 * 50%
$70,000 * 30%
June
September
July:
$50,000 * 15%
Aug:
$70,000 * 50%
Sept:
$60,000 * 30%
July
August September
July:
Aug:
Sept:
Sept:
$50,000 × 80% × 15% =
$70,000 × 80% × 50% =
$60,000 × 80% × 30% =
$60,000 × 20%
=
$ 6,000
$28,000
$14,400
$12,000
$60,400
20% of sales collected as cash in month of sale
80% of sales are on account and collected later
$7,500
$35,000
$18,000
$60,500
199
Whiskers Products, Inc.
2ND Quarter Cash Receipts
April
Feb:
Mar:
Apr:
$55,000
$60,000
$50,000
* 20%
* 30%
* 50%
May
Mar:
Apr:
May:
$60,000
$50,000
$60,000
* 20%
* 30%
* 50%
$50,000
$60,000
$55,000
* 20%
* 30%
* 50%
June
Apr:
May:
June:
Total:
April
$11,000
$18,000
$25,000
May
June
Total
Quarter
$54,000
$12,000
$15,000
$30,000
$57,000
$10,000
$18,000 $55,500
$27,500
$54,000 $57,000 $55,500 $166,500
200
Womack Company
FG-Units
650
PRODUCTION:
10%*5000=
4,450
4,600
500
201
Young Products
Young Products
Sales budget
For the First Quarter
Units
Unit price
Sales
100,000
x
$15.00
$1,500,000
Young Products
Production Budget
For the First Quarter
Sales (in units)
100,000
Desired end. inv.
12,000
202
Young Products (cont.)
Young Products
Direct Materials
For the First Quarter
Units to be produced
DM per unit (lbs)
x
Production needs (lbs)
Desired end. inv.
Total needs (lbs)
Less: Beg. inv. (lbs)
Materials to be purch. (lbs)
Young Products
104,000
4
416,000
6,000
422,000
(4,000)
418,000
Direct Labor Budget
For the First Quarter
Units to be produced
104,000
Labor: Time per unit
x
0.5
Total hours needed
52,000
203