1
Abiqua Acres
WEIGHTED AVERAGE METHOD
E.U.
DM
WIP Units
CC
100% 40%
BI
DM
5,000
IN 60,000
OUT
57,000 Out
CC
57,000
57,000
EI: (DM) 8,000 × 100%
8,000
EI: (CC) 8,000 × 50%
100% 50%
EI
8,000
E.U.
4,000
65,000
1.
61,000
2.
Costs to Account For
DM
WIP - $ (Wtd. Avg.)
BI
DM $20,000.00
CC
16,000.00
BI
Out
IN
57,000 × $11.7932
= $672,212.40
5.
Total
CC
$ 20,000
$ 16,000
250,000
450,000
$270,000
$466,000
$/EU
IN
DM 250,000.00
CC 450,000.00
EI
DM $33,230.40 = 8,000 × $4.1536
CC
DM
CC
$270,000 / 65,000 = $4.1538
3. $466,000 / 61,000 = $7.6393 4.
30,557.20 = 4,000 × $7.6393
6. $63,787.60
$ 11.7932 per E.U.
2
Abiqua Acres (p. 2)
FIFO METHOD
DM
E.U.
WIP Units
CC
100% 40%
BI
DM
5,000
IN 60,000
BI: (DM) 5,000× 0%
57,000 Out
-0-
BI: (CC) 5,000×60%
3,000
Start & Finish
100% 50%
EI
CC
8,000
52,000
EI: (DM) 8,000×100%
52,000
8,000
EI: (CC) 8,000× 50%
4,000
E.U.
WIP - $ (FIFO)
BI
16,000.00
CC
450,000.00
613,277.60 S&F 52,000 × $11.7938
$672,158.90
59,000
DM
$ 36,000.00 from BI
2.
5.
Out
CC
Total
$8.00
$12.00
$ per EU
22,881.30 Finished CC 5,000×60%×$7.6271
DM 250,000.00
1.
Costs to Account For
DM $ 20,000.00
CC
IN
60,000
BI
$20,000 DM ÷ (5,000×100%)
$4.00
$16,000 CC ÷ (5,000× 40%)
$ per EU
EI
DM $33,333.60 = 8,000 × $4.1667
IN $250,000 DM ÷ 60,000 E.U.
30,508.40 = 4,000 × $7.6271
$450,000 CC ÷ 59,000 E.U.
CC
6.
$63,842.00
$4.1667
3.
$7.6271
4. $11.7938
$736,000 Costs to Account For
3
Abtex Electronics
1.
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
⅓
40,000
Tape
Recorders
⅔
80,000
Electronic
Calculators
4
Abtex Electric (p. 2)
2.
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 Electric (p. 3)
2. (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.
Contribution margin per unit
Pounds of RM per unit
CM per pound of RM
Bicycle Frames
$ 40.00
÷
8
$ 5.00
Golf Clubs
$ 32.00
÷
4
$ 8.00
Adams’ Co. should make golf clubs in order to maximize income
because the contribution margin per pound of raw material (the constraint) is the greatest.
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)
Total available titanium
80,000 lbs.
7
Alcatraz Artifacts
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
1.
BE (units)
= FC
CM per unit
=
$77,000
=
Wtd.
Avg.
SP
7,000 units
$11
AL
CAT
RAZ
20%
30%
50%
1400
$28,000
“Al”
+ 2100
+
3500 = $7000
+ $105,000 + $140,000 = $273,000
“Cat”
“Raz”
8
Alcatraz Artifacts (p. 2)
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
Cat
Raz
40%
+
40%
+
20%
3,209
+
3208
+
1,604
$64,180
+
$160,400
+ $64,160 = $288,740
Increased BE point because more low profit
“Al’s” were sold.
9
Andretti Company
1.
Before increase in selling expenses:
Variable cost per unit:
Direct material
$10.00
Direct labor
4.50
Variable OH
2.30
Variable S&A
Total
1.20
$18.00
Fixed expenses:
Fixed OH
$300,000
Fixed S&A
210,000
Total
$510,000
Net Income:
Sales
$1,920,000
Variable costs
(1,080,000)
CM
$840,000
Fixed costs
Net Income
($32*60,000 units)
($18*60,000 units)
(510,000)
$330,000
After increase in selling expenses:
Variable cost per unit:
Direct material
$10.00
Direct labor
4.50
Variable OH
2.30
Variable S&A
1.20
Total
$18.00
Fixed expenses:
Fixed OH
$300,000
Fixed S&A
290,000
Total
$590,000
Net Income:
Sales
$2,400,000
Variable costs
(1,350,000)
CM
$1,050,000
Fixed costs
(590,000)
Net Income
$460,000
($32*75,000 units)
($18*75,000 units)
Andretti should increase fixed selling expenses by $80,000 because it increases net income by $130,000 ($460,000 - $330,000).
10
Andretti Company (p. 2)
2.
3.
Variable expenses:
Direct material
$10.00
Direct labor
4.50
Variable OH
2.30
Duties
Variable S&A
Total
1.70
3.20
$21.70
Increased fixed expenses:
Permits
$9,000
Total
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 relevant since they will
not change regardless of whether or not the irregular
units are sold.
$9,000
Minimum selling price should be set at breakeven point.
Breakeven is when TR = TC.
Let x equal unit selling price per unit:
TR
=
TC
(Quantity)*(Selling Price) = (Quantity)*(Variable expenses) + Fixed Costs
20,000x
= (20,000) *
($21.70)
+ $9,000
20,000x
=
$443,000
x
=
$22.15
11
Andretti Company (p. 3)
4.
Continue producing:
If the plant operates at 30% of normal levels then only 3,000 units will be produced
and sold during the 12 month period:
60,000 units per year * 2/12 = 10,000 units
10,000 units * 30% = 3,000 units produced and sold
Net Income:
Sales
Variable costs
CM
$96,000
(54,000)
$42,000
($32 * 3,000 units)
($18 * 3,000 units)
Fixed costs
Net Income
(85,000)
($43,000)
($510,000 * 2/12)
($30,000)
(28,000)
($300,000 * 2/12 * .60)
($210,000 * 2/12 * .80)
Shut down:
Net Income:
CM
Fixed costs
Net Income
($58,000)
Shutting down the plant would cause a decrease in net income of $15,000 [($58,000)-($43,000)].
Therefore, the plant should continue to produce at the 30% production level.
12
Andretti Company (p. 4)
5.
Relevant costs avoided by purchasing
from outside supplier:
Direct material
Direct labor
Variable OH
Variable S&A
Fixed OH
Variable S&A
Total
$10.00
4.50
2.30
0.40
3.75
0.00
[$1.20*1/3]
[($300,000*.75)/60,000]
$20.95
The outside supplier’s quote must be less than $20.95
per unit in order to purchase from it.
13
Apple Appliances
Relevant costs to make
Direct material
Direct labor
Variable OH
Total relevant costs
$ 5
4
1
$10
Relevant costs to buy
Selling price
$12
Total relevant cots
$12
It is $2 cheaper to make the timer assemblies ($12 – $10).
Therefore, the offer should be rejected.
14
Arc Light & Sound
1.
Raw Materials
BI
Purch
EI
Work in Progress
$ 32,000
$144,000
$170,000 $ 36,000
BI $ 20,000
COGM
BI
$ 48,000
$700,000 $720,000
$144,000
$200,000
$22,000
$700,000
Finished Goods
EI
$28,000
$350,000
Direct Labor
COGS
EI $ 14,000
$200,000
$720,000
$4,000
$200,000
-0-
$724,000
-0-
MOH
IDM
$ 36,000
IDL
$ 82,000
Util.
$ 65,000
Fact. Ins.
$ 18,000
$350,000
Fact. Depr. $153,000
$ 4,000
I/S
COGS
S&A Adver.
$724,000
$100,000
S&A Salary
$ 90,000
S&A Insur.
$
S&A Depr.
$ 27,000
$1,000,000 Sales
2,000
$ 4,000
$ 57,000 OI
-0-
15
Arc Light & Sound (p. 2)
2.
Arc Light & Sound
Income Statement
For the Year Ended March 31
Sales
Less cost of goods sold ($720,000 + $4,000)
Gross Margin
Less selling and administrative expenses:
Salary expense
Advertising expense
Insurance expense
Depreciation expense
Net Operating Income
$1,000,000
724,000
$ 276,000
$90,000
100,000
2,000
27,000
219,000
$
57,000
16
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
17
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-
18
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
19
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
20
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
21
Audio Basics Corp.
ACTIVITY:
“N” Number of production runs : $400,000 / 50 = $8,000 per…
“Q” Quality tests performed :
$360,000 / 300 = $1,200 per…
“S” Shipping orders processed : $120,000 / 150 = $ 800 per…
1.
Activity Based Costing
Standard
“N”
“Q”
“S”
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
b. $6.24 per unit
a.
$ 616,000
+ 264,000
$ 880,000
Allocated MOH
Est. MOH
Activity
MOH
DM
DL
Total MFG
$880,000 = $1.833 per DL$
$480,000
Standard
$ 638,000 (= $348,000 × $1.833)
$ 250,000
$ 348,000
$1,214,000
÷ 320,000 units
$3.8625 per unit
MOH
DM
DL
Total MFG
High Grade
$ 242,000 (= $132,000 × $1.833)
$ 228,000
$ 132,000
$ 602,000
÷ 100,000 units
$6.02 per unit
22
Axiom Products
1.
2.
Predetermined
Overhead rate
Estimated total manufacturing overhead cost
Estimated total amount of the allocation base
=
=
$170,000
85,000 machine-hours
=
$2.00 per machine-hour
The amount of overhead cost applied to Work in Process for the year would be:
80,000 machine-hours × $2.00 per machine hour = $160,000. This amount is shown
in entry (a) below:
Manufacturing Overhead
(Utilities)
(Insurance)
(Maintenance)
(Indirect materials)
(Indirect labor)
(Depreciation)
$14,000
9,000
33,000
7,000
65,000
40,000
Balance
$ 8,000
$160,000 (a)
Work in Process
(Direct materials) $530,000
(Direct labor)
85,000
(Overhead)
(a) 160,000
$ 8,000
-0-
23
Axiom Products (p. 2)
3.
Overhead is underapplied by $8,000 for the year, as shown in the Manufacturing
Overhead account above. The entry to close out his balance to Cost of Goods
Sold would be:
Cost of Goods Sold………………………………...
Manufacturing Overhead ………………………..
4.
8,000
8,000
When overhead is applied using a predetermined rate based on machine-hours, it is assumed that
overhead cost is proportional to machine-hours. So when the actual level of activity turns out to be
80,000 machine-hours, the costing system assumes that the overhead will be
80,000 machine-hours × $2.00 per machine hour, or $160,000. This is a drop of $10,000 from the
initial estimated total manufacturing overhead cost of $170,000. However, the actual total manufacturing
overhead did not drop by this much. The actual total manufacturing overhead was $168,000—a drop of
only $2,000 from the estimate. The manufacturing overhead did not decline by the full $10,000 because
of the existence of fixed costs and/or because overhead spending was not under control.
24
The Baize Company
Estimated MOH
1.
$403,200
=
PDOR =
Estimated Activity
2.
Applied MOH = Actual Activity × PDOR
3.
=
$19.20 per DLH
21,000 DLH
= 20,000 DLH × $19.20
=
$384,000
MOH
$378,000
$384,000
$6,000 Overapplied
$6,000
to COGS
-0-
25
Bags and More
1.
2a.
Variable expenses (per unit)
=
Unit cost * (1-CMR)
Variable expenses (per unit)
=
$60 * (100% - 40%)
Variable expenses (per unit)
=
$36
Contribution margin (per unit) =
$60 - $36
Contribution margin (per unit) =
$24
FC + NI
BE (units)
=
$360,000
=
CMU
=
=
$900,000
$360,000
=
CMR
15,000 units
$24
FC + NI
BE ($)
=
0.40
26
Bags and More (p. 2)
FC + NI
2b.
BE (units) =
BE ($)
$360,000 + $90,000
=
CMU
$24
FC + NI
$360,000 + $90,000
=
=
CMR
CMU
=
=
13,334 units
(rounded)
$360,000
=
CMR
$1,125,000
$27
FC + NI
BE ($)
=
$360,000
=
BE (units) =
18,750 units
0.40
FC + NI
2c.
=
=
$800,000
0.45
27
1.
Ballycanally Corp.
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
28
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
29
Barbershop 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
30
Barefoot Books
1. & 2. & 3.
SPU
VCU
CMU
Mix
Wtd.
Avg.
CMU
Hardbacks
$18.00
$12.00
$ 6.00
7/10
$4.200
Paperbacks
$ 3.00
$ 2.40
$ 0.60
2/10
$0.120
Magazines
$ 3.20
$ 2.00
$ 1.20
1/10
$0.120
$4.440
1.
Fixed Costs:
Rent
$19,200
Utilities
7,680
Salaries
56,000
Overhead
11,500
Advertising
900
Prof. Services
2,400
Total
$97,680
BE (units)
=
FC
CM per unit
=
$97,680
=
22,000 units
$4.440
HB
PB
Mag
70%
20%
10%
15,400
+ 4,400
2.
$277,200
HB
+ $13,200
PB
+
2,200 =
22,000
+ $7,040 = $297,440
Mag
31
3.
Barefoot Books (p. 2)
NIAT
4.
NIBT
$26,640
=
=
(1- Tax Rate)
(1- .40)
NIBT
=
FC + NIBT
$44,400
$97,680 + $44,400
BE (units) =
=
CM per unit
BE (units)
$4.440
=
HB
PB
Mag
70%
20%
10%
22,400
$403,200
HB
32,000 units
+
6,400 +
3,200 =
32,000
+ $19,200 + $10,240 = $432,640
PB
Mag
#4
32
Beachside Industries (A)
SQ =
Standard Allowed
for Actual Output
VARIABLE OVERHEAD
DLH
Spending
Efficiency
Actual Cost
AQ x SC
$ 21,840
3,780 × $6
$ 22,680
$ 840 F
SQ x SC
(6,720)(0.5) × $6
$ 20,160
$ 2,520 U
$21,000 ÷ 3,500 DLH
$1,680 U
33
Beachside Industries (B)
SQ =
Standard Allowed
for Actual Output
FIXED OVERHEAD
Spending
Actual
$ 128,800
Volume
Budgeted
Applied
BQ x SC
SQ x SC
$ 126,000
(6,720)(0.5) × $36
$ 120,960
$ 2,800 U
$ 5,040 U
$126,000 ÷ 3,500 DLH
$ 7,840 U
34
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
35
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
36
Bee-Cee’s Guitar (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
37
Bee-Cee’s Guitar (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
38
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
39
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%×200,000)
(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
40
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
41
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.)
42
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
43
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) 44
Belly Rub (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
45
Belly Rub (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
46
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.
47
B.G. Wip Company
Step 1
DM
CC
100%
60% BI
WIP
2,000
9,000
100%
33% EI
7,700
3,300
FIFO Method
Weighted Average Method
Step 2
FIFO Equivalent Units
Step 2
Wtd. Avg. Equivalent Units
DM
CC
OUT
7,700
7,700
EI 3300 × 100%
3,300
3300 × 33%
E.U.
11,000
DM
BI
2,000 × 0%
-0-
2,000 × 40%
1,100
S&F
8,800
EI
800
5,700
3,300 × 100%
5,700
3,300
1,100
3,300 × 33%
E.U.
CC
9,000
7,600
48
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
49
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
50
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
51
Big League Inc.
DIRECT MATERIALS
Price
AQ × AC
Usage
AQ × SC
3,050 × $2.00 = $6,100.00
9,100 × $1.10 = 10,010.00
1,650 × $1.95 = 3,217.50
$19,327.50
3,050 × $2.00 = $6,100
9,100 × $1.00 = 9,100
1,650 × $2.00 = 3,300
$18,500
2 $1,100 U
1
3
$400 U
Standard Allowed
for Actual Output
$1,500 U
At the time of purchase.
Rate
DLH
DIRECT LABOR
SQ × SC
4,000 × $2.00 = $8,000
12,000 × $1.00 = 12,000
2,000 × $2.00 = 4,000
$24,000
AQ × AC
2,800 × $6.00 =$16,800
400 × $6.25 = 2,500
$19,300
4
Efficiency
AQ × SC
SQ × SC
3,200 × $6.00
$19,200
(1,500)(2) × $6
$18,000
$100 U
5
$1,300 U
$1,200 U
52
Big League Inc. (p.2)
VARIABLE OVERHEAD
2,800 + 400 DLH
Spending
Efficiency
AQ × AC
AQ × SC
SQ × SC
$10,000
3,200 × $3
$9,600
(1,500)(2) × $3
$9,000
6
$400 U
Standard Allowed
for Actual Output
$600 U
7
$1,000 U
Price
FIXED OVERHEAD
Actual
Usage
Budgeted
BQ × SC
3,000 × $2
$6,000
$6,500
8
$500 U
Applied
SQ × SC
(1,500)(2) × $2
$6,000
9
$500 U
$0
53
Product
Costs
Inventory
Accounts
Bob’s Beef Boy
(BI + In = EI + Out)
DM
WIP
-0-
-0-
$54,000
Purch
FG
-0COGM
$77,500
$77,500
$6,750
66,400
$7,500
66,350
$9,250
-0-
$210,250
$210,250
$210,250
COGS
-0-
COGS
-0DL
$210,250
$210,250
ACOGS
-0$66,400
$66,400
-0MOH
I/S
$2,650
$210,250
$2,400
$53,000
$478,800
$41,000
$22,500
Period
Costs
$7,000
$3,250
$3,500
$25,000
$167,800
$6,800
$66,350
$66,350
-0-
54
Billy’s Boat Bonanza
Direct
Labor
1. The wages of employees who
build the sailboats.
Direct
Materials
Manufacturing
Overhead
X
X
4. The wages of the assembly
shop’s supervisor.
X
5. Rent on the boathouse.
(Prorated on the basis of space
occupied.)
X
X
6. The wages of the company’s
bookkeeper.
X
X
7. Sales commissions paid to the
company’s salespeople.
8. Depreciation on power tools.
Admin.
Cost
X
2. The cost of advertising in the
local newspapers.
3. The cost of an aluminum mast
installed in a sailboat.
Marketing
& Selling
X
X
55
Bohr, Inc.
Relevant costs to producing:
Direct materials
Direct labor
Variable overhead
Total per unit
Quantity
Total
Total Cost
$
28
18
6
$
52
x 2,000
$112,000
Relevant costs to buying:
Selling price
Total
Total Cost
$124,000
$124,000
Since the purchase price is greater than the production price by $12,000 ($124,000 - $112,000),
Bohr Inc. should make the units. Since there is some urgency to the order Mr. Bohr may opt for
the alternative which will allow him to deliver the product as quickly as possible. Quality,
reliability, and capacity utilization are other considerations.
56
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)
VOH
(84,000)
VOH
(84,000)
FOH
(100,000)
VSE
(54,000)
GM
$194,000
CM
$240,000
S&A: VSE
(54,000)
FC: FOH
(100,000)
FSE
(45,000)
FSE
(45,000)
FAE
(90,000)
FAE
(90,000)
OI
$5,000
OI
$5,000
57
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
58
Bowling 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)
59
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
60
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
BQ × 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
61
Brother’s Bakeries (A)
WEIGHTED AVERAGE METHOD
WIP Units
DM
CC
100%
55%
100%
90%
BI
30,000
IN
480,000
EI
20,000
490,000 Out
E.U.
DM
OUT
EI: (DM) 20,000 * 100%
490,000
490,000
20,000
EI: (CC) 20,000 * 90%
E.U.
CC
18,000
510,000
508,000
62
Brother’s Bakeries (B)
FIFO METHOD
E.U.
DM
WIP Units
DM
CC
100%
55%
BI
30,000
IN
480,000
BI: (DM) 30,000 ×
490,000 Out
0%
100%
90%
EI
20,000
0
BI: (CC) 30,000 × 45%
Start & Finish*
EI: (DM) 20,000 × 100%
13,500
460,000
460,000
20,000
EI: (CC) 20,000 × 90%
E.U.
CC
18,000
480,000
491,500
* 480,000 loaves started – 20,000 loaves in ending WIP
= 460,000 loaves started and completed this month
63
Buffalo Broilers
Estimated MOH
1.
$500,000
=
PDOR =
Estimated Activity
Estimated MOH
Estimated Activity
$0.625 per DL$
=
$6.25 per MH
$500,000
=
Estimated Activity
=
$800,000 of DL
Estimated MOH
PDOR =
$5.00 per DLH
$500,000
=
PDOR =
=
100,000 DLH
80,000 MH
64
Buffalo Broilers (p. 2)
2.
MOH (DLH)
Actual
Actual
Applied
MOH (DL$)
Applied
.625 * $930,000
$5.00 * 120,000
$576,000
$576,000
= $600,000
$24,000 overapplied
= $581,250
$5,250 overapplied
MOH (MH)
Actual
Applied
$6.25 * 90,000
$576,000
= $562,500
$13,500
underapplied
3.
Actual OH
per DL
Actual MOH
$576,000
=
=
Actual Activity
=
$4.80 per DLH
120,000 DLH
65
California Textbooks (A)
Relevant costs to make
Direct material
Direct labor
Variable OH
Avoidable FOH
Total relevant costs
Relevant costs to buy
$ 1
8
4
2
$15
Selling price
$16
Total relevant cots
$16
It is $1 per unit cheaper to make the covers.
Therefore, California should make the covers.
- OR Relevant costs to make
Direct material
Direct labor
Variable OH
Avoidable FOH
Total relevant costs
$ 10,000
80,000
40,000
20,000
$150,000
Relevant costs to buy
Selling price
$160,000
Total relevant cots $160,000
It is $10,000 cheaper to make the covers.
Therefore, California should make the covers.
66
California Textbooks (B)
Relevant costs to buy and use
facilities for other products
CM (other products)
Selling price
Net relevant costs
$ 19,000
(160,000)
($141,000)
Relevant costs to make
Direct material
Direct labor
Variable OH
Avoidable FOH
Net relevant costs
($ 10,000)
(80,000)
(40,000)
(20,000)
($150,000)
Relevant costs to buy and rent
the facilities
Rent Revenue
Selling price
Net relevant costs
$ 5,000
(160,000)
($155,000)
Relevant costs to buy
and leave facilities idle
Selling price
($160,000)
Net relevant cots
($160,000)
California should buy the covers and use the facilities for other
products since the net relevant costs is the lowest for that option.
67
Candlelight Candles
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
68
Candlelight (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)
69
Cannon Beach 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-
70
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
71
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
72
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.
73
Cardinal Manufacturing
1.
If Jocketty Division sells all components on the outside market, Cardinal Manufacturing’s contribution margin
per unit will be the same as Jocketty’s, which follows:
Sales revenues
Variable costs
Contribution margin per unit
$80
50
$30
If Jocketty Division sells to the LaRussa Division, Cardinal Manufacturing’s contribution margin per unit will be
as follows:
Estimated revenue from special order
Variable costs
Manufacturing, LaRussa Division
Shipping, LaRussa Division
Component, Jocketty Division
Contribution margin per unit
$130
30
10
50
$40
Cardinal Manufacturing’s overall contribution margin per unit will be $10 greater if Jocketty sells to LaRussa.
Notice that fixed costs were excluded from the calculation, as they will not change with the special order and are
therefore irrelevant to the decision.
2.
No, management should not force the transfer price down to $60 per unit. It should follow the present transfer
price policy and transfer at market price. Corporate management should also ensure that LaRussa Division does
not refuse the special order. Even at a transfer price of $80, the order will generate a contribution margin of $10
per unit of LaRussa. Although the LaRussa Division would prefer a higher contribution margin, its managers
should realize that a $10 contribution margin per unit is better than a zero contribution margin. And that is the
amount that would be generated by the idle facilities.
74
Carolina Corp.
Product
Sales Value at
Split-Off
% of
Total NPV
Allocated
Joint Cost
Coal Tar
$11,250
0.3488
$2,386
21,000
0.6512
4,454
5,625
10,079
$32,250
1.0000
$6,840
$5,625
$12,465
Petroleum Tar
Additional
Costs
$ -0-
Total
Costs
$2,386
% Applied to
Total Joint Cost
$3.75 per gallon x 1,500 gallons = $5,625
75
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  
76
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
77
Cass Company
1.
DM
$210,000
DL
140,000
VOH
30,000
$380,000
2. & 3. & 4.
Absorption Costing
Variable Costing
Income Statement
Income Statement
For the Year Ended Dec. 31, 1996
For the Year Ended Dec. 31, 1996
Rev.
$500,000
COGS: Direct materials
Direct labor
OI
$500,000
VC: Direct materials
(210,000)
(140,000)
Variable overhead
(30,000)
Fixed overhead
(50,000)
4.
GM
S&A:
(210,000)
Rev.
Direct labor
(430,000) 2.
Variable overhead
(30,000)
Variable S&A
(20,000)
$70,000
CM
Variable S&A
(20,000)
FC: Fixed overhead
Fixed S&A
(60,000)
($10,000)
$100,000
Fixed S&A
OI
(140,000)
(50,000)
(60,000)
($10,000)
7878
3.
Cass Company (p. 2)
5.
BE($)
=
FC
=
CM Ratio
6.
Operating Leverage
=
CM
NI
$110,000
=
$550,000
=
10
$100,000
$500,000
=
$100,000
$ 10,000
7979
Cattle Company (1997)
Inventory (BI + In = EI + Out)
Accounts
Product
Costs
DM
WIP
$ 96,000
Purch.
202,000
$190,000
$108,000
$ 71,000
190,000
130,000
119,000
FG
$45,000
COGM
445,000
$445,000
$408,000
COGS
$82,000
$65,000
COGS
DL
$130,000
$408,000
$408,000
ACOGS
$130,000
-0-
-0MOH
I/S
$ 15,000
$408,000
104,000
Period
Costs
$119,000
Admin.
$566,000 Rev.
135,000
$119,000
$23,000
-0-
NI
80
Cattle Company (1998)
Product
Costs
Inventory (BI + In = EI + Out)
Accounts
DM
WIP
$108,000
$ 65,000
Purch. 229,000
235,000
$235,000
170,000
$ 82,000
COGM
DL
562,000
COGS
$575,000
$562,000
$69,000
176,000
$102,000
$170,000
FG
$84,000
COGS
$170,000
$575,000
-0-
ACOGS
$575,000
-0I/S
MOH
$18,000
$575,000
158,000
Period
Costs
$176,000
$176,000
$812,000
Rev.
$76,000
NI
Admin. 161,000
-0-
81
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
82
Chain Saw Co. (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
83
Cheetah Company
Cost Pools
Machine setup
Materials handling
Electric power
Activity Costs
$360,000
$100,000
$ 40,000
Cost Drivers
÷
÷
÷
Overhead Rate
3,000 setup hours
25,000 pounds
40,000 kilowatt hours
The Quick
$40,000
24,000
Direct materials
Direct labor
Factory overhead:
$120 × 200 = 24,000
Machine setup
4,000
Materials handling $ 4 × 1,000 =
$ 1 × 2,000 =
2,000
Electric power
$94,000
Total product costs
Production units
÷ 4,000
$ 23.50
Cost per Unit
=
=
=
$120
$ 4
$ 1
The Dead
$50,000
40,000
$120 × 240 =
$ 4 × 3,000 =
$ 1 × 4,000 =
28,800
12,000
4,000
$134,800
÷ 20,000
$ 6.74
84
Clear Toys
1.
OI Increase
2.
Sales
=
Sales Increase * CM Ratio
=
$12,000 * .60
=
$7,200
=
$5,000
$9,000
x .60
3.
CM
$5,400
FC
(6,000)
OI
($600)
BE($)
=
4.
The additional advertising should not be purchased
because it will decrease operating revenue.
FC
CM Ratio
=
.60
After
Before
Rev.
$120,000
x .60
$3,000
(12,000 x $10)
Rev.
(VCU = $4)
$144,000
72,000
CM
$72,000
CM
$72,000
FC
(18,000)
FC
(20,000)
OI
$54,000
OI
$52,000
(18,000 X $8)
(18,000 x $4 from “Before”)
The selling price should not be reduced
because it will decrease operating revenue.
85
CMSU Who
1.
Month of
Sale
Total
Credit Sale
Percentage to be
Collected in October
Budgeted Cash
Collected in October
October
$90,000
70%
$63,000
September
$80,000
15%
$12,000
August
$70,000
10%
$ 7,000
July
$60,000
4%
$ 2,400
Estimated Total Cash Collection in October
$84,400
86
CMSU Who (p. 2)
2.
Month of
Sale
October
Amount
of Sale
$ 90,000
% Collected in
Oct. Nov. Dec.
Budgeted collection
in the 4th quarter from
sales in the 4th quarter
70%
10%
$ 63,000
13,500
9,000
15%
70,000
15,000
70%
59,500
15%
November
December
100,000
85,000
70%
Total budgeted collection in the fourth quarter
$230,000
87
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
88
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
89
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
90
Coxwain 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
91
Creamed Cornhusker
Rate
AQ × AC
11,000 × $30.00
$330,000
Std. Allowed for
Actual Output
(in units)
Efficiency
AQ × SC
11,000 × $33.00
$363,000
$33,000 F
1.
SQ × SC
12,000 × $33.00
$396,000
$33,000 F
$66,000 F
2.
92
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
The Carver
(pesos)
19,500,000
(4,500,000)
(1,200,000)
(6,240,000)
7,560,000
Sales
Cost:
Direct materials
Direct labor
Mfg. overhead
Gross profit
53,000,000
(10,000,000)
( 6,000,000)
(31,200,000)
5,800,000
93
The Cutters (B)
Use these rates to assign overhead to The Hunter and to The Carver
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
Manufacturing Overhead Pool
94
The Cutters (B) (p. 2)
THE HUNTER
Allocation Rate
Cost (pesos)
Allocation Rate
Activity
Cost (pesos)
15,000 units
× 3 parts per unit
4,500,000
Pool 1: 100
pesos per part
100,000 units
× 1 part per unit
10,000,000
Pool 2: 4,000,000
pesos per production run
1
production run
4,000,000
Pool 2: 4,000,000
pesos per production run
1
production run
4,000,000
Pool 3: 175,000
pesos per machine hour
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
Pool 1: 100
pesos per part
Activity
THE CARVER
80
direct labor hours
Total mfg. overhead for 15,000 Hunters 16,540,000
Number of Hunters
Manufacturing overhead per cutter
÷ 15,000
1,203
(Rounded)
400
direct labor hours
400,000
6,200,000
Total mfg. overhead for 100,000 Carvers
29,000,000
Number of Carvers
÷ 100,000
Manufacturing overhead per cutter
290
95
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
The Carver
(pesos)
19,500,000
( 4,500,000)
( 1,200,000)
(16,540,000)
( 2,740,000)
Sales
Cost:
Direct materials
Direct labor
Mfg. overhead
Gross profit
53,000,000
(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
The Carver
(pesos)
19,500,000
(4,500,000)
(1,200,000)
(6,240,000)
7,560,000
Sales
Cost:
Direct materials
Direct labor
Mfg. overhead
Gross profit
53,000,000
(10,000,000)
( 6,000,000)
(31,200,000)
5,800,000
96
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
97
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)
98
Cyclone Company
FG – 2nd Quarter
BI (8,000 * 20%)
1,600
Budgeted Production 8,800
EI (12,000 * 20%)
8,000
Budgeted sales
2,400
99
Deering Banjo Co.
SP
VC
CM
MIX
WTD.
AVG.
CM
WTD.
AVG.
SP
Boston
$1,200
$700
$500
60%
$300
$720
Deluxe
$5,000
$2,000
$3,000
40%
$1,200
$2,000
$1,500
$2,720
1.
BE(units) =
FC
=
$3,000,000
CM per unit
=
60% Boston = 1200 Boston = 1200
2,000 units
2,000 units
$1,500
40% Deluxe = 800 Deluxe =
800
Boston
Deluxe
2000 units total @ BE
2.
BE($)
=
FC
CM ratio
=
$3,000,000
=
$5,440,000
$1,500
$2,700
-- OR --1200 x $1200 = $1,440,000
800 x $5000 = 4,000,000
$5,440,000
100
Duncan’s Avionics
1. The cost of the memory chips used in a radar set.
2. Factory heating costs.
Product
X
X
3. Factory equipment maintenance costs.
4. Training costs for new administrative employees.
X
5. The cost of the solder that is used in assembling the radar sets.
6. The travel costs of the company’s salespersons.
7. Wages and salaries of factory security personnel.
8. The cost of air-conditioning executive offices.
X
9. Wages and salaries in the department that handles billing customers.
10. Depreciation on the equipment in the fitness room used by factory workers.
11. Telephone expenses incurred by factory management.
12. The costs of shipping completed radar sets to customers.
13. The wages of the workers who assemble the radar sets.
14. The president’s salary.
15. Health insurance premiums for factory personnel.
Period
X
X
X
X
X
X
X
X
X
X
X
101
Dunce 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
102
Earl Corporation
Additional costs if processed further
Increase in sales value if processed further
Differential benefit (cost)
A
B
$28,000
40,000
$ 12,000
$20,000
20,000
$0
C
$12,000
20,000
$ 8,000
Earl Corporation is indifferent about the further processing for B since the net benefit is zero.
There would be a positive benefit for further processing of A ($12,000) and C ($8,000).
103
East Meets West (A)
1.
BE (units) =
FC + NI
=
CMU
BE ($)
=
FC + NI
BE (units) =
FC + NI
=
=
FC + NI
CMR
5,000 units
$20,000
=
$50,000
=
8,750 units
=
$87,500
$4
$10
=
CMU
BE ($)
=
($10 - $6)
CMR
2.
$20,000
$20,000 + $15,000
($10 - $6)
=
$20,000 + $15,000
$4
$10
104
East Meets West (B)
SP (x) = VCU (x)
+
$10 (x) = $6 (x)
+
$20,000
+
(.15) ($10) (x)
$10 (x) = $6 (x)
+
$20,000
+
$1.50 (x)
TR = VC
+
FC
+
NI
R = .6 R
+
+
.15 R
FC
+
NI
$2.50 (x) = $20,000
x
= 8,000 units
$20,000
.25 R = $20,000
R = $80,000
105
East Meets West (C)
FC + NI
BE (units) =
BE ($)
$18,000 + $9,000
=
CMU
$10.40 - $6.80
FC + NI
$18,000 + $9,000
=
=
CMR
=
7,500 units
=
$78,000
$10.40 - $6.80
$10.40
106
East Meets West (D)
First, …
NIAT
=
$8,400
=
$12,000
=
8,000 units
=
$80,000
NIBT =
1- Tax Rate
1 - 0.30
FC + NI
1.
2.
BE (units) =
$20,000 + $12,000
=
CMU
$4
FC + NI
$20,000 + $12,000
BE ($) =
=
CMR
0.4
107
East Meets West (E)
Current
BE ($)
=
FC + NI
CMR
= $20,000 + $12,000 =
0.4
$80,000
New
BE ($) =
FC + NI
CMR
= $27,500 + $12,000 =
0.5
$79,000
This seems better because EMW does not
need earn as much revenue to achieve its
target profit
BUT!
Current
BE ($) =
FC + NI
CMR
=
$20,000
0.4
=
$50,000
New
BE ($) =
FC + NI
CMR
=
$27,500
0.5
=
$55,000
=
.375
=
.304
Current
MS Ratio = Actual Rev. – BE Rev. = $80,000 - $50,000
Actual Rev.
$80,000
New
MS Ratio =
Actual Rev. – BE Rev.
Actual Rev.
=
$79,000 - $55,000
$79,000
MORE RISKY
108
Edwards Inc.
FIFO METHOD
E.U.
DM
CC
WIP Units
DM
CC
60%
30%
BI: (DM) 60,000 × 40%
BI
60,000
IN
510,000
EI
70,000
BI: (CC) 60,000 × 70%
Out
500,000
Start & Finish
40%
CC $13,000
$ 40,000.00 from BI
DM $468,000
CC $357,000
510,000
Costs to Account For
21,600.00 Finished DM 60,000×40%×$0.90
704,000.00 S&F 440,000 × $1.60
DM
BI
CC
Total
$0.722
$1.472
$0.70
$1.60
$ per EU
$27,000 DM ÷ (60,000×60%)
$0.75
$13,000 CC ÷ (60,000×30%)
$ 795,000.00
IN
EI
28,000
Out
29,400.00 Finished CC 60,000×70%×$0.70
IN
56,000
520,000
WIP - $ (FIFO)
DM $27,000
440,000
EI: (CC) 70,000 × 40%
E.U.
BI
42,000
440,000
EI: (DM) 70,000 × 80%
80%
24,000
$ per EU
DM $ 50,400
= 70,000 × 80% × $0.90
$468,000 DM ÷ 520,000 E.U.
CC $ 19,600
= 70,000 × 40% × $0.70
$357,000 CC ÷ 510,000 E.U.
$0.90
$70,000
$865,000 Costs to Account For
(Info we need to do problem)
109
Everything Inc.
Job-Order Costing
Custom yacht builder
x
Golf course designer
x
Potato chip manufacturer
Business consultant
Process Costing
x
x
Plywood manufacturer*
x
Soft-drink bottler*
x
Film studio
x
Bridge construction company
x
Manufacturer of fine custom jewelry
x
Made-to-order garment factory
x
Factory making one personal computer model
x
Fertilizer factory
x
* Some of the listed businesses might user either process costing or a job-order
costing system, depending on how operations are carried out and how
homogeneous the final product is. For example, a plywood manufacturer might
use job-order costing if plywoods are constructed of different woods or come
in markedly different sizes.
110
Fabulous Furniture
Case 1
Relevant
Case 2
Not
Relevant
Releva
nt
Not
Relevant
a. Sales revenue
X
X
b. Direct materials
X
c. Direct labor
X
X
d. Variable manufacturing overhead
X
X
X
e. Book value-Model A3000 machine
X
f. Disposal value-Model A3000 machine
X
g. Depreciation-Model A3000 machine
X
h. Market value-Model B3800 machine (cost)
X
X
X
X
X
i. Fixed manufacturing overhead (general)
X
X
j. Variable selling expense
X
X
k. Fixed selling expense
X
X
l. General administrative overhead
X
X
111
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
112
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
113
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
114
Foster’s Bar-B-Que
Variable cost of each meal
Fixed costs per meal ($1,200/600)
Cost per meal
$2
$2
$4
$4 is a reasonable cost basis for long term pricing and Foster is getting a $1.00 margin on each meal.
However, in a special order situation the fixed costs are irrelevant, and Foster should be willing to accept
a customer for any price above the variable cost of $2. Thus, the tour operator’s deals is a good one for
Barry. As long as there is space for the additional meals, and since daily fixed costs are unaffected by the
additional patrons, any price about $2.00 should be acceptable.
Selling price for each meal
Variable cost for each meal
Margin per meal
Number of patrons gained/(lost)
Revenue gained (lost)
Regular
Patrons
$5
$2
$3
× (100)
($300)
Bus
Patrons
$3
$2
$1
× 200
$200
The idea of agreeing to serve 200 patrons on any given day presents a problem with limited capacity.
In this case, 100 of the regular customers would have to look elsewhere for lunch on the days, at a loss of
$3.00 per meal or a total of $300 per day. The additional new patrons at $3.00 each would bring in a
contribution of only $1.00 per meal or a total of $200. It turns out the single bus load is a better deal.
115
Frodo Company
There are two ways to approach this problem:
Method 1:
Costs
Operating costs
Depreciation (not relevant)
Resale of old
Purchase of new
_______ _______
Keep Old
($75,000)
($30,000)
($105,000)
Method 2:
Incremental Method (as shown in class)
Change in operating cost $11,000 × 5 years =
Resale of old machine
Cost of new machine
(Cost) or Savings
Buy New
($20,000)
($30,000)
$ 2,000
($40,000)
-
($88,000)
Difference
=
$17,000
$ 55,000
$ 2,000
($40,000)
$ 17,000
Frodo should buy the new machine as it will result in a savings of $17,000.
116
116
Frostee Freeze Co.
VOH
Efficiency
Spending
AQ × AC
AQ × SC
7,300 × $2.308
7,300 × $2.20
$16,850
$16,060
SQ × SC
(3000)(2.5) × $2.20
7,500 × $2.20
$16,500
$790 U
$440 F
FOH
Volume
Spending
Actual
Budgeted
Applied
AQ × AC
BQ × SC
SQ x SC
(3,100)(2.5) × $0.90
(3000)(2.5) × $0.90
7,750 × $0.90
7,500 × $0.90
$6,975
$6,750
$7,890
$140 U
$225 U
117
Funk and Wagnall
Relevant Costs
Opportunity
Irrelevant Costs
Outlay
1. The case will require three attorneys to stay four nights in
a San Francisco hotel. The predicted hotel bill is $1,200.
X
2. Funk and Wagnall’s professional staff is paid $800
per day for out-of-town assignments.
X
Outlay
3. Last year, depreciation on Funk and Wagnall’s
office was $12,000.
X
4. Round-trip transportation to San Francisco is expected
to cost $600 per person for the engagement.
X
5. The firm has recently accepted an engagement that will
require partners to spend two weeks in Dallas. The
predicted out-of-pocket costs of this engagement are $8,500.
X
6. The firm has a maintenance contract on its word processing
equipment that will cost $2,200 next year.
X
7. If the firm accepts the engagement in San Francisco, it will
have to decline a conflicting engagement in Orlando that
would have provided a net cash inflow of $7,200.
8. The firm’s variable overhead is $40 per client-hour.
9. The firm pays $150 per year for Mr. Funk’s subscription
to a law journal.
10. Last year the firm paid $7,500 to increase the insulation
in its building.
Sunk
X
X
X
X
X118
Gamers Inc.
BASH
$200.00
164.00
$ 36.00
÷
2
Selling price per unit
Variable cost per unit
Contribution margin per unit
Relative use of labor hours
(GASH requries ½ as many as Bash)
Contribution margin per labor hr.
$ 18.00
GASH
$140.00
121.00
$ 19.00
÷
1
$ 19.00
Since GASH requires ½ the labor time, and since labor capacity is a constraint,
and since GASH’s relative contribution per labor hour is greater, as much production
as possible should be devoted to GASH.
119
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
120
Georgetown, Inc.
Georgetown, Inc.
Absorption Costing I/S
For the Y/E Dec. 31, 2005
Rev
- CoGS
GM
- S&A
NI
$ 4,000 = 2,000 units × $2.00
Georgetown, Inc.
Absorption Costing I/S
For the Y/E Dec. 31, 2006
Rev
(1,400) = VC 2,000 units × $0.70 per unit
(1,000) = FC 2,000 units × $0.50 per unit
$ 1,600
- CoGS
(1,000) = 2,000 units sold × $0.50 per unit
(300) = Fixed
- S&A
$ 300
GM
NI
$ 4,800 = 2,400 units × $2.00
(1,680) = VC 2,400 units × $0.70 per unit
(1,200) = FC 2,400 units × $0.50 per unit
$ 1,920
(1,200) = 2,400 units sold × $0.50 per unit
(300) = Fixed
$ 420
Fixed cost of production per unit:
$1,100 / 2,200 = $0.50 per unit
121
Georgetown, Inc. (p. 2)
Georgetown, Inc.
Variable Costing I/S
For the Y/E Dec. 31, 2005
Rev
- VC
CM
- FC
NI
Georgetown, Inc.
Variable Costing I/S
For the Y/E Dec. 31, 2006
$ 4,000 = 2,000 units × $2.00
Rev
(1,400) = CoGS (2,000 units × $0.70)
(1,000) = S&A (2,000 units × $0.50)
$ 1,600
- VC
(1,100) = MOH
(300) = S&A
- FC
$200
NI
The difference in NI 2005:
Units mfg. - units sold
× FOH per unit
Difference in NI
Production > Sales
Abs. NI is higher!
CM
$ 4,800 = 2,400 units × $2.00
(1,680) = CoGS (2,400 units × $0.70)
(1,200) = S&A (2,400 units × $0.50)
$ 1,920
(1,100) = MOH
(300) = S&A
$520
The difference in NI 2006:
200
$0.50
$ 100
Units mfg. - units sold
× FOH per unit
Difference in NI
Sales > Production
VC NI is higher!
200
$0.50
$ 100
122
Gilligan’s Boat Rentals
Replace
New boat
$92,000
Deduct current disposal price
9,000
Rebuild of existing boat
Margin
$ 83,000
Rebuild
$
$ 75,000
$ 75,000
The difference is in favor of rebuilding by $8,000 ($83,000 - $75,000).
The $90,000 purchase cost is irrelevant.
123
Global, Inc.
1. Small glass plates used for lab tests in a hospital
Cost Behavior
Product
Period
X
2. Straight-line depreciation of a building
3. Top-management salaries
4. Electrical costs of running machines
X
X
5. Advertising of products and services*
6. Batteries used in manufacturing trucks
7. Commissions to salespersons
8. Insurance on a dentist’s office
X
9. Leather used in manufacturing footballs
10. Rent on a medical center
X
X
X
X
X
X
* This particular item may cause some debate. Hopefully, advertising results in more demand for
products and services by customers. So advertising costs are correlated with the amount of
products and services provided. However, note the direction of causality. Advertising causes an
increase in the amount of goods and services provided, but an increase in the amount of goods
and services demanded by customers does not necessarily result in a proportional increase in
advertising costs. Hence, advertising costs are fixed in the classical sense that the total amount
spent on advertising is not proportional to what the unit sales turn out to be.
124
Greasy Hands
1.
Activity Levels
a. Unit-level
b. Unit-level
c. Facility-sustaining
d. Unit-level
e. Unit-level
2.
f. Product-sustaining
g. Facility-sustaining
h. Facility-sustaining
i. Batch-level
j. Batch-level (one bag per customer)
Cost Driver
a. Number of hamburgers
b. Number of hours
c. Square feet
d. Number of hamburgers;
Size of hamburgers
e. Number of hamburgers
f. Number of time advertising is run
g. Number of hours store is open
h. Square feet
i. Number of coupons redeemed;
Number of multiple orders;
Number of hamburgers
j. Number of customers
125
Green Soda
1.
FC + NI
Act. Rev. = (SP) (Units Sold)
BE (units) =
Act. Rev. = ($4.50) (200,000)
Act. Rev = $900,000
BE ($)
$316,600
=
=
CMU
$1.80
FC + NI
$316,600
=
=
CMU
175,889
= $791,500
0.40
MS ($) = Actual Revenue - BE Revenue
MS ($) = $900,000
MS ($) = $108,500
- $791,500
MS ($) = $108,500
126
Green Soda (p. 2)
2.
CM = (SPU – VCU)(Units Sold)
3. Operating leverage ratio * Increase in Sales = Increase in NI
8.29
CM = ($4.50 - $2.70)(200,000)
*
30%
=
249%
CM = $360,000
Proof using income statement approach:
NI = CM – FC
NI = $360,000 – 316,600
NI = $43,400
Operating leverage =
CM
/
NI
Operating leverage = $360,000 / $43,400
Operating leverage = 8.29
Sales
($4.50 * 200,000 units * 130%) $1,170,000
Var. Costs ($2.70 * 200,000 units * 130%)
(702,000)
CM
$ 468,000
Fixed Costs
(316,600)
Net Income
$ 151,400
(New NI – Old NI) ÷ Old NI = Increase in NI
($151,400 - $43,400) ÷ $43,400 = 249%
127
Green Soda (p. 3)
4.
FC + NI
BE (units) =
BE ($)
($316,600 + $41,200)
=
CMU
$1.80
FC + NI
($316,600 + $41,200)
=
=
CMR
=
198,778
=
$894,500
0.40
Income Statement:
Sales ($4.50 * 200,000 * 115%)
VC
($2.70 * 200,000 * 115%)
CM
FC
$1,035,000
(621,000)
$ 414,000
($316,600 + $41,200)
(357,800)
NI
Operating leverage =
$
CM
NI
=
56,200
$414,000
$56,200
=
7.37
128
Grover Manufacturing
Grover Manufacturing
Absorption Costing I/S
For the Y/E Dec. 31, 2003
Rev.
- CoGS
GM
- S&A
NI
$ 82,500 = 1,100 units × $75
Grover Manufacturing
Absorption Costing I/S
For the Y/E Dec. 31, 2004
Rev
(38,500) = VC 1,100 units × $35 per unit
(19,800) = FC 1,100 units × $18 per unit
(3,600) = Underapplied MOH (200 @ $53)
$ 20,600
- CoGS
(11,000) = 1,100 units sold × $10 per unit
(4,000) = Fixed
- S&A
$ 5,600
$ 150,000 = 2,000 units × $75
GM
NI
Normal volume is 1,500 units of production.
Underapplied MOH = 1,500 normal volume – 1,300 actual production
= 200 units
(70,000) = VC 2,000 units × $35 per unit
(36,000) = FC 2,000 units × $18 per unit
(-0-) = Underapplied MOH
$ 44,000
(20,000) = 2,000 units sold × $10 per unit
(4,000) = Fixed
$ 20,000
Normal volume is 1,500 units of production.
Underapplied MOH = 1,500 normal volume – 1,500 actual production
= 0 units
Fixed cost of production per unit:
$27,000 / 1,500 = $18 FC per unit
$18 FC + 35 VC = $53 TC per unit
129
Grover Mfg. (p. 2)
Grover Manufacturing
Variable Costing I/S
For the Y/E Dec. 31, 2003
Rev
- VC
CM
- FC
NI
$ 82,500 = 1,100 units × $75
Grover Manufacturing
Variable Costing I/S
For the Y/E Dec. 31, 2004
Rev
(38,500) = CoGS (1,100 units × $35)
(11,000) = S&A (1,100 units × $10)
$ 33,000
- VC
(27,000) = MOH
(4,000) = S&A
- FC
$2,000
NI
The difference in NI 2003:
Units mfg. - units sold
× FOH per unit
Difference in NI
Production > Sales
Abs. NI is higher!
CM
$ 150,000 = 2,000 units × $75
(70,000) = CoGS (2,000 units × $35)
(20,000) = S&A (2,000 units × $10)
$ 60,000
(27,000) = MOH
(4,000) = S&A
$29,000
The difference in NI 2004:
200
$18
$ 3,600
Units mfg. - units sold
× FOH per unit
Difference in NI
Sales > Production
VC NI is higher!
500
$18
$ 9,000
130
Halo Products Company
Estimated MOH
1.
$200,000
=
PDOR =
Estimated Activity
2.
Applied MOH = Actual Activity × PDOR
3.
=
$6.25 per DLH
=
$227,500
32,000 DLH
=
36,400 DLH × $6.25
MOH
$227,000
$256,200
Underapplied
$28,700
$28,700
to COGS
-0-
4.
Actual OH
per DL
Actual MOH
$256,200
=
=
Actual Activity
=
$7.04 per DLH
36,400 DLH
131
Hannibal Company
Inventory
Accounts
Product
Costs
(BI + In = EI + Out)
DM
WIP
$6,520
$23,400
Purch 160,000
FG
$150,000
150,000
$40,000
COGM
$326,000
100,000
$33,400
326,000
$308,950
COGS
$57,050
76,978
$7,498
DL
$100,000
-0-
COGS
$100,000
$308,950
$308,950
ACOGS
-0-
MOH
$20,000
21,000
30,000
I/S
5,978
$308,950
$76,978
$55,000
$76,978
-0-
$600,000
Period
Costs
38,000
61,000
$137,050 OI
132
Hassle Company
Relevant costs to make
Direct material
Direct labor
Variable OH
Total relevant costs
$ .60
.40
.10
$1.10
Relevant costs to buy
Selling price
$1.25
Total relevant cots
$1.25
It is $.15 ($1.25 - $1.10) cheaper to make the handles.
Therefore, Hassle should make the handles.
133
The Hat Source
1.
BE(units) =
BE($)
2.
FC + NI
CM per unit
= FC + NI
CM Ratio
FC + NI
BE(units) =
CM per unit
BE($)
= FC + NI
CM Ratio
=
=
$150,000 + $0
$30 - $18
$150,000 + $0
40%
=
12,500 units
=
$375,000
=
15,000 units
=
$450,000
$150,000 + $30,000
=
$30 - $18
$150,000 + $30,000
=
40%
134
HBM Industries
1.
Activity Levels
a. Product-sustaining
b. Product-sustaining
c. Product-sustaining
d. Product-sustaining
e. Batch-level
2.
f. Batch-level
g. Unit-level
h. Facility-sustaining
i. Product-sustaining
j. Facility-sustaining
Cost Drivers
a. Number of products
b. Number of products
c. Number of products
d. Number of products
e. Number of batches or setups
f. Number of batches
g. Number of units
h. Purchase costs;
Replacement costs;
Book values
i. Number of purchase orders;
Number of products;
Number of suppliers
j. Square feet
135
Herding Cats, Inc.
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
136
Herry 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
137
Hollandaise 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
138
Hollandaise Co. (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
139
Holman Company
1.
Predetermined
=
overhead rate
Estimated total manufacturing overhead cost
Estimated total amount of the allocation base
=
$170,000
71,000 direct labor-hours
=
$4.00 per direct labor-hour
2. Applied Overhead = Direct labor-hours × Predetermined overhead rate
=
75,000 DL hours ×
=
$300,000
$4.00
140
Holman Company (p. 2)
3.
Manufacturing Overhead
Utilities
$
Depreciation
Insurance
Indirect labor
Indirect material
Salary
Balance
75,400
58,000
25,000
54,600
53,000
55,000
$300,000
Applied overhead
from part 2
$21,000
$21,000 underapplied
141
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.
142
Howard’s Limited
1.
BE(units)
=
FC
CM per unit
=
$30,000
$35 – $20
=
2,000 units
BE($)
=
FC
CM ratio
=
$30,000
=
$70,000
=
$2,030,000
=
58.6%
$1,440,000
$35 - $20
$35
2.
3.
4.
BE($)
MS($)
=
FC + NI
CM ratio
=
=
Actual Rev. – BE Rev.
=
$2,030,000 – ($70,000 x 12)
=
$2,030,000 – $840,000
=
$1,190,000
Act. Rev. – BE Rev.
Act. Rev.
=
($30,000 * 12) + $510,000
$35 - $20
$35
$2,030,000 - $840,000
$2,030,000
MS Ratio
=
OI
=
NIAT
1 – TR
=
$864,000
1 – .4
=
BE(units)
=
FC + NI
CM per unit
=
$360,000 + $1,440,000
$35 – $20
=
120,000 units annually
10,000 units monthly
143
143
Howdy Company
1.
Department A
Estimated MOH
$602,000
=
PDOR =
=
Estimated Activity
$8.60 per MH
70,000 MH
Department B
Estimated MOH
$735,000
=
PDOR =
=
Estimated Activity
$1.75 per DL$
$420,000 of DL
Department A
2.
Applied MOH = Actual Activity × PDOR
110 MH × $8.60
=
=
$946
$2,136 total applied MOH
Department B
Applied MOH = Actual Activity × PDOR
3.
Department A
DM
DL
MOH
680 DL$ × $1.75
=
=
$1,190
Department B
DM
DL
MOH
$470
290
946
$1,706
332
680
1,190
$2,202
$3,908
50 units
=
$78.16 per unit
144
Howdy Company (p. 2)
4.
Department A
Department B
MOH
MOH
(65,000 * $8.60)
$570,000
($436,000 * 1.75)
559,000
$750,000
underapplied $11,000
$763,000
$13,000 overapplied
$11,000
$13,000
-0-
-0To COGS
145
J.B. Goode Company
1.
PDOR
=
Est. MOH
Est. Activity
=
$135,000
10,000
= $13.50 per DLH
Standard
Actual Activity = Production Volume ×
Applied MOH =
Actual Activity
×
Hrs. Per Unit =
PDOR
900 units × 10 DLH
= 9,000 DLH × $13.50
=
9,000 DLH
=
$121,500
=
1,000 DLH
=
$13,500
Custom
Actual Activity = Production Volume ×
Applied MOH =
Actual Activity
×
Hrs. Per Unit =
PDOR
100 units × 10 DLH
= 1,000 DLH × $13.50
146
J.B. Goode Co. (p. 2)
2.
Standard
Act. Activity ×
Depr.
Maint.
Purch.
Insp.
IDM
Super.
Supplies
3,000
9,000
1,500
400
900
400
900
×
×
×
×
×
×
×
PDOR = Applied MOH
$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
Act. Activity ×
Depr.
Maint.
Purch.
Insp.
IDM
Super.
Supplies
1,000
1,000
500
600
100
600
100
×
×
×
×
×
×
×
PDOR = Applied MOH
$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
147
J.B. Goode Co. (p. 3)
3.
Custom
OLD WAY
DM
DL
MOH
TOTAL
$375
240
135
$750
Custom
NEW WAY
DM
$ 375
DL
240
MOH
428
TOTAL $1,043
No, the $1,000 revenue is not covering the true cost of production.
The single biggest reason for the higher overhead cost
is the supervision required for the custom guitars.
148
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.
149
The John Company
WEIGHTED AVERAGE METHOD
E.U.
DM
WIP Units
CC
100% 60%
100% 40%
BI
5,000
Out
IN 40,000
35,000
DM
EI 10,000
OUT
35,000
EI: (DM) 10,000 × 100%
10,000
CC
35,000
EI: (CC) 10,000 × 40%
E.U.
4,000
39,000
45,000
Costs to Account For
WIP - $ (Wtd. Avg.)
BI
DM $ 5,050
CC
3,270
Out
35,000 × $2.42
= $84,700
IN
DM
44,000
CC
48,600
1.
DM
CC
BI
$5,050
$3,270
IN
$44,000
$48,600
Total
$49,050
$51,870
$/EU
DM
EI
CC
DM $10,900 = 10,000 × $1.09
CC
5,320 = 4,000 × $1.33
$49,050 / 45,000 = $1.09
$51,870 / 39,000 = $1.33
1. $16,220
$ 2.42
150
The John Co. (p.2)
FIFO METHOD
E.U.
DM
DM
CC
100% 60%
BI
BI: (DM) 5,000× 0%
5,000
IN 40,000
100% 40%
CC
WIP Units
Out
35,000
EI 10,000
-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
Costs per EU
Out
$ 8,320 from BI
2,700 Finished CC 5,000×40%×$1.35
IN
DM
44,000
CC
48,600
73,500 S&F 30,000 × $2.45
$84,520
36,000
DM
CC
Total
$ per EU
BI $5,050 DM ÷ (5,000×100%)
$1.01
$3,270 CC ÷ (5,000× 60%)
$1.09
$2.10
$1.35
$2.45
2.
$ per EU
EI
2.
DM $11,000
= 10,000 × 100% × $1.10
IN $44,000 DM ÷ 40,000 E.U.
CC
= 10,000 × 40% × $1.35
$48,600 CC ÷ 36,000 E.U.
5,400
$16,400
$1.10
$100,920 Costs to Account For
151
Johnson County Senior Services
1.
Relevant revenues and costs of the housekeeping program:
Contribution margin lost if the housekeeping program is dropped
Fixed costs that could be avoided:
Liability insurance
Program administrator’s salary
Decrease in net operating income for the organization as a whole
$(80,000)
$15,000
37,000
52,000
$(28,000)
No, the housekeeping program should not be discontinued. It is actually generating a positive program
segment margin and is, of course, providing a valuable service to seniors.
Depreciation on the van is a sunk cost and the van has no salvage value since it would be donated to
another organization. The general administrative overhead is allocated and none of it would be avoided if the
program were dropped; thus it is not relevant to the decision.
152
Johnson County (p. 2)
2.
To give the administrator of the entire organization a clearer picture of the financial viability of each of the
organization’s programs, the general administrative overhead should not be allocated. It is a common cost that
should be deducted from the total program segment margin. Following the format for a segmented income
statement, a better income statement would be:
Total
$900,000
Revenues
490,000
Less variable expenses
$410,000
Contribution margin
Less traceable fixed expenses:
$ 68,000
Depreciation
42,000
Liability insurance
115,000
Program administrators’ salaries
225,000
Total traceable fixed expenses
185,000
Program segment margins
180,000
General admin overhead
$ 5,000
Net operating income (loss)
Home
Nursing
Meals on
Wheels
Housekeeping
$260,000
120,000
$140,000
$400,000
210,000
$190,000
$240,000
160,000
$ 80,000
$ 8,000
20,000
40,000
68,000
$72,000
$ 40,000
7,000
38,000
85,000
$105,000
$20,000
15,000
37,000
72,000
$ 8,000
153
Jolly Roger Candies
1. BE(units) =
2. BE(units) =
FC + NI
=
CM per unit
$400 + $300
FC + NI
=
CM per unit
$400 + $0
$1
=
700 units
=
400 units
$1
Rev (480 units × $4)
VC (480 units × $3)
400 units × 120% = 480 units
(volume 20% above breakeven volume) CM
- FC
NI
3.
NIBT
=
BE(units) =
NIAT
1- TR
=
FC + NI
=
CM per unit
$300
1 – 40%
=
$1,920
1,440
$ 480
400
$ 80
$500
$400 + $500
= 1,800 units
$4.00 - $3.50
154
Jude Law & Associates
Purchasing the new system will cause the following to 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 the new system
Jude Law will save $24,500 by purchasing the new system.
Therefore, the system should be purchased.
155
Judge Ely Jeans
Inventory
Accounts
Product
Costs
(BI + In = EI + Out)
DM
$49,600
$29,500
Purch.
FG
WIP
98,400
$95,600
118,400
$32,300
COGM
95,600
$37,600
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
$715,200
7,200
44,800
14,400**
4,800
Period
Costs
21,600*
10,400
4,000
2,640
123,200
15,200
15,300
35,200
$139,200
$222,460 OI
$139,200
-0-
* 60% * $36,000 = $21,600
** 40% * $36,000 = $14,400
156
Kaitlyn Korporation
CASH
Beg.
Collections
$15,000
$90,000
Borrow
$32,000
End
$12,000
$125,000
Disbursements
157
Kennel Street 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
158
Kit Incorporated
Cash - 2006
Beginning Cash
Collections from customers
$ 10,000
150,000
25,000
DM purchases
30,000
Operating Expense less
depreciation
($50,000 - $20,000)
75,000
Payroll
6,000
30,000
Financing needed
Ending cash
Income taxes
Machinery purchase
26,000
$ 20,000
159
Knob Noster Hospital
1a.
Hospital Wide Rate Based on Nurse-Hours
PDOR
=
PDOR
=
Estimated MOH
Estimated Activity
Hospital total overhead
=
Hospital total nurse hours
Applied MOH
=
PDOR
×
Actual Activity
Total CCU applied
overhead costs
=
Per nurse-hour rate
×
Nurse-hours =
$69,120,000
1,152,000
$60
×
=
5,900
$60 per nurse-hour
=
$354,000
160
Knob Noster (p. 2)
1b.
The CCU Department Wide Rate Based on Patient-Day
Total budgeted CCU overhead = Beds budget + Equipment budget + Nursing care budget
Total budgeted CCU overhead =
$810,000
+
Total budgeted CCU overhead =
$422,500
$457,500
+
$1,690,000
Overhead rate per patient-day = Total budget CCU Overhead ÷ Budgeted patient days
Overhead rate per patient-day =
$1,690,000
Overhead rate per patient-day =
845
$2,000
Total CCU applied overhead costs =
Rate per patient day
Total CCU applied overhead costs =
$2,000
Total CCU applied overhead costs =
÷
× Actual patient days
×
870
$1,740,000
161
Knob Noster (p. 3)
1c.
Budgeted
Cost Pool
Activity Cost Driver Rates
Budgeted
Cost
Budgeted
Activity
Actual
Activity
Budgeted
MOH Rate
Applied
Overhead
$810,000
÷
900
=
$900.00
×
900
=
$ 810,000
Equipment
422,500
÷
845
=
500.00
×
870
=
435,000
Personnel
457,500
÷
6,000
=
76.25
×
5,900
=
449,875
Beds
Total applied manufacturing overhead costs
$1,694,875
2.
The first method uses a hospital wide overhead rate, which likely bears no relationship with the overhead
activities performed in the critical care unit (CCU). The second method uses the patient-day overhead rate
for the CCU department. This is an improvement over the first method. But a single patient-day cost driver
may not have direct relationships with some of the activities performed in the CCU department. The third
method is the preferred method because it uses a cost driver for each of the cost pools that reflects the resources
consumed by activities of the cost pool.
162
KSU Company
Rate
AQ × AC
40,000 × $25
$1,000,000
Efficiency
AQ × SC
40,000 × $24
$960,000
$40,000 U
1.
Std. Allowed for
Actual Output
(in units)
SQ × SC
42,000 × $24
$1,008,000
$48,000 F
2.
$8,000 F
163
Landis Playhouses
1.
=
NIBT
NIAT
1 – TR
$495,014
=
1 – 35%
= $761,560
CM per unit = Selling Price – all variable costs
CM per unit = $3,000 – $1,200 – $400 – $150 – $50
CM per unit =
BE(units)
2.
=
$1,200
FC + NI
$280,420 + $761,560
=
CM per unit
=
869 units
$1,200
After-tax equivalent of 20% increase:
20% ÷ (1 – .35) = 30.77%
Let TR = the level of revenue that generates a pretax
return of 30.77%
TR = VC + FC
+ NI
TR = .6 TR + $280,420 + .3077 TR
.0923 TR = $280,420
TR = $3,038,137
(Rounded)
164
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
165
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
VC
(540,000)
VC
(540,000)
FC
(60,000)
GM
$210,000
VS&A
CM
(67,500)
$202,500
VS&A
(67,500)
FC
(60,000)
FS&A
(50,000)
FS&A
(50,000)
OI
$92,500
OI
$92,500
166
Marie Manufacturing Co
DM
WIP
BI
BI
$ 42,000
Purch.
EI
$844,000
850,000
FG
$ 84,000
(a.)
$ 48,000
BI
844,000
(d.)
820,000
$2,420,000
$
124,000
2,420,000
EI
$2,411,000
$ 133,000
765,000
EI $ 93,000
DL
COGS
$2,411,000
$820,000
$820,000
-0-
$
40,200
$2,370,800
$2,370,800
-0-
MOH
IDM
$ 4,000
Supplies
6,200
Fact Depr
60,000
Security
12,000
Supplies
82,600
Equip Dep
(e.)
I/S
$2,370,800
Applied MOH = Actual Activity × PDOR
51,000 DLH × $15 =
$765,000
(b.)
Office Depr.
4,000
Adm. Depr.
3,000
Sales Sal.
560,000
Office Depr.
$724,800
$3,335,000 Sales
120,000
22,200
$765,000
$2,520,000
$ 40,200 Overapplied MOH
(c.)
$40,200
$815,000
(f.)
-0-
PDOR =
Estimated MOH
Estimated Activity
$750,000
=
50,000 DLH
=
$15 per DLH
167
Marshall Props Unlimited
1. & 2.
DM
BI
Purch
WIP
$25,000
$85,000
80,000
5,000
BI
FG
$ 30,000
BI
85,000
$ 45,000
310,000
COGM
$300,000
COGS
120,000
EI
$15,000
96,000
EI
DL
$310,000
EI
$ 55,000
$ 21,000
COGS
$120,000
$120,000
$300,000
3,000
-0-
Adj. COGS
$297,000
$297,000
MOH
IDM
$ 5,000
IDL
30,000
Util.
12,000
Depr
25,000
Insurance
Other
-0I/S
COGS
S&A Salaries
4,000
Est.OH
17,000
$93,000
$120,000 * .8
PDOR =
= $96,000
Est Activity
$80,000
$ 3,000
overapplied
=
$450,000 Sales
75,000
5,000
Insurance
800
Shipping
40,000
$100,000 DL cost
$32,200
$ 3,000
-0-
Depr
$297,000
2.
OI
= 80% of DL
168
Marshall Props (p. 2)
Marshall Props Unlimited
Schedule of Cost of Goods Manufactured
3.
For the Year Ended December 31, 2006
Raw material:
Raw materials inventory, 1-1
Add: Purchases of raw materials
Total materials available
Deduct: Raw materials inventory, 12-31
Raw materials used in production
Less: Indirect Materials
$ 25,000
80,000
$105,000
(15,000)
$ 90,000
(5,000)
$ 85,000
Direct Labor
120,000
Manufacturing overhead:
Utilities......................................................................................
$12,000
Indirect Labor..............................................................................
30,000
Indirect Materials..........................................................................
5,000
Depreciation.................................................................................
25,000
Other………..............................................................................
17,000
Insurance……………………………………………………..
Actual overhead costs
Add: Overapplied overhead
Manufacturing overhead applied to WIP
Total manufacturing costs
Add: Beginning work in process inventory
4,000
$93,000
3,000
96,000
$301,000
30,000
$331,000
Deduct: Ending work in process inventory
Cost of Goods Manufactured
(21,000)
$310,000
169
Marshall Props (p. 3)
3.
Marshall Props Unlimited
Schedule of Cost of Goods Sold
For the year ended December 31, 2006
Finished goods inventory, 1-1
$45,000
Add: Cost of goods manufactured
310,000
Goods available for sale
355,000
Less: Ending finished goods inventory
(55,000)
Cost of goods sold
Deduct: Overapplied overhead
Adjusted cost of goods sold
$300,000
(3,000)
$297,000
170
Marshall Props (p. 4)
3.
Marshall Props Unlimited
Income Statement
For the Year Ended December 31, 2006
Sales
$450,000
Less: Cost of Goods Sold
(297,000)
Gross Margin
$153,000
Less: Selling and administrative expenses:
Salaries expense
Depreciation expense
$
75,000
5,000
Insurance expense
800
Shipping expense
40,000
Operating Income
$120,800
$32,000
171
171
McKay Mills
Estimated MOH
1.
$1,335,000
=
PDOR =
Estimated Activity
=
$811.55 per DLH
1,645 DLH
(500 + 410 + 735)
2.
Actual Activity ×
PDOR = Applied MOH
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
$1,372,000.00
$1,318,768.75
Underapplied $53,231.25
$53,231.25
to COGS
-0-
172
172
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
173
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
174
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
175
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
176
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
177
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)
178
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
179
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
180
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
181
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
182
Mizzou Company
1.
Traditional Method
PDOR = Estimated Activity ÷ Estimated Activity
= $130,890
÷ 1,720
= $76.10 per DLH
Miz
$10.70
11.20
53.27 *
$75.17
Unit Product Cost:
Direct Materials
Direct Labor
Mfg. Overhead
Total Unit Cost
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
2.
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
183
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
Total overhead cost
Number of units produced
MOH per unit
3. (c)
ZOU
$45,740 units
÷ 400 units
$ 114.35
$85,150 units
÷ 1,200 units
$
70.96
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
184
Moehrle Manufacturing
Relevant costs to manufacture
Direct material
$ 45
Direct labor
30
Variable OH
30
Special logo cost
5
Total relevant costs
$110
The minimum selling price for the special order is $110 since
that is the total of relevant costs per unit.
185
Moore Computers
Absorption Costing
Variable Costing
Income Statement
Income Statement
For the Year Ended Dec. 31, 2003
For the Year Ended Dec. 31, 2003
Rev.
$500,000
COGS: Direct materials
OI
$500,000
VC: Direct materials
(60,000)
Direct labor
(45,000)
Direct labor
(45,000)
Indirect labor
(25,000)
Repairs and maint.—Factory
(15,000)
Factory insurance
(12,000)
Marketing expenses
(66,000)
Depreciation—Factory
(80,000)
Repairs and maint.—Factory
(15,000)
GM
S&A:
(60,000)
Rev.
$263,000
CM
$314,000
FC: Indirect labor
(25,000)
Factory insurance
(12,000)
Marketing expenses
(66,000)
Depreciation—Factory
(80,000)
General and admin. expenses
(55,000)
General and admin. expenses
(55,000)
$142,000
OI
$142,000
186
Muleskinner Athletic Wear, Inc.
Inventory (BI + In = EI + Out)
Accounts
Product
Costs
DM
WIP
$ 60,000
Purch
250,000
$240,000
$70,000
$120,000
240,000
405,000
200,000
FG
COGM
$150,000
850,000
$850,000
$835,000
COGS
$165,000
$115,000
COGS
DL
$405,000
$405,000
$835,000
$835,000
ACOGS
-0-
-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
OI (LOSS!!)
$200,000
$200,000
-0-
187
Narcissus Needles
1.
Utilities
$10,000
Depr.
15,000
Dupr. Sal.
30,000
Janitorial
6,000
Ins.
9,000
Total MOH
$70,000
Estimated MOH
$70,000
=
PDOR =
Estimated Activity
2. Applied MOH = Actual Activity × PDOR
3.
Utilities
$10,500
Depr.
15,000
Supr. Sal.
30,000
Janitorial
5,200
Ins.
8,500
Total MOH
$69,200
=
$20.00 per DLH
3,500 DLH
= 3,600 DLH × $20.00
=
$72,000
MOH
Actual
$69,200
Applied
$72,000
$2,800 Overapplied
$2,800
to COGS
-0-
188
Oatman Company
1.
DM
BI
Purch
$ 16,000
WIP
$190,000
BI
200,000
FG
$ 10,000
BI
190,000
$ 30,000
480,000
COGM
$475,000
160,000
EI
$ 26,000
170,000
EI
DL
COGS
$480,000
EI
$ 35,000
$ 50,000
COGS
$160,000
$475,000
$160,000
$ 41,000
-0-
$434,000
$434,000
-0Adj. COGS
MOH
Utilities
IDL
Insurance
Depr.
$ 42,000
27,000
I/S
9,000
COGS
51,000
129,000
40,000 * $4.25
PDOR =
= $170,000
$ 41,000
Est.OH
Sales comm.
36,000
Est Activity
Admin Sal.
80,000
$153,000
=
$434,000
36,000 MH
$ 41,000
Insurance
$700,000 Sales
1,000
Advertising
50,000
Depreciation
9,000
= $4.25 per MH
-0-
$ 90,000 OI
189
Oatman Company (p. 2)
2.
a. Direct materials
Accounts payable
$200,000
i. Finished goods
$200,000
Work in process
$480,000
$480,000
b. Work in process
Direct materials
$190,000
j. Accounts receivable
$190,000
Sales
$700,000
$700,000
c. Work in process
Manufacturing overhead
Sales commissions expense
Administrative salaries expense
Salaries and wages payable
$160,000
27,000
36,000
80,000
$303,000
Cost of goods sold
Finished goods
$475,000
$475,000
Manufacturing overhead
Cost of goods sold
$ 41,000
$ 41,000
Income Summary
Cost of goods sold
$ 434,000
$434,000
d. Manufacturing overhead
Accounts payable
e. Manufacturing overhead
Insurance expense
Prepaid insurance
f. Advertising expense
Accounts payable
g. Manufacturing overhead
Depreciation expense
Accumulated depreciation
h. Work in process
Manufacturing overhead
$ 42,000
$ 42,000
$ 9,000
1,000
$ 10,000
$50,000
$ 50,000
$ 51,000
9,000
$ 60,000
$170,000
$170,000
190
Oatman Company (p. 3)
Oatman Company
Income Statement
For the Year Ended December 31, 2010
Sales
$700,000
Less: Cost of goods sold ($475,000 – $41,000)
(434,000)
Gross margin
$266,000
Less: Selling and administrative expenses:
Sales commissions
Administrative salaries
Insurance
$
36,000
80,000
1,000
Advertising
50,000
Depreciation
9,000
Operating Income
176,000
$90,000
191
Pacific Coast Home Furnishings
Inventory
Accounts
Product
Costs
(BI + In = EI + Out)
DM
$ 23,400
Purch.
WIP
BI $
$ 192,400
201,500
29,900
192,400
633,100
371,800
FG
$ 32,500
$
$19,500
BI
$1,215,500 COGM
1,215,500
EI
11,700
$
$1,185,600
COGS
49,400
COGS
DL
$1,185,600
$633,100 $633,100
ACOGS
$1,185,600
-0-
-0MOH
I/S
$ 57,200
37,700
44,200
114,400
32,500
85,800
Period
Costs
$ 512,200
$371,800
$371,800
-0-
$1,185,600 $1,950,000
188,500
20,800
42,900
Sales
OI
192
Pacific Coast (p. 2)
PACIFIC COAST HOME FURNISHINGS
Schedule of Cost of Goods Manufactured
For the Year Ended December 31, 2006
Direct materials:
Direct materials inventory, 1-1-2006
Add: Purchases of direct materials
Total direct materials available
Deduct: Direct materials inventory, 12-31-2006
Direct materials used in production
Direct labor
Manufacturing overhead
Heat, Light, & Power--Plant
Supplies—Plant
Property Taxes—Plant
Depreciation Expense—P&E
Indirect Labor—Wages
Supervisor’s Salary Plant
Total Factory Overhead
Total manufacturing costs incurred
Add: Beginning work in process inventory
Total manufacturing costs to account for
Deduct: Ending work in process inventory
Cost of Goods Manufactured
$
$
$
23,400
201,500
224,900
(32,500)
$
$
192,400
633,100
$
$
371,800
1,197,300
29,900
1,227,200
(11,700)
1,215,500
57,200
37,700
44,200
114,400
32,500
85,800
$
$
193
Pacific Coast (p. 3)
PACFIC COAST HOME FURNISHINGS
Income Statement
For the Year Ended December 31, 2006
Sales
Cost of Goods Sold
Finished Goods Inventory, Beginning
Cost of Goods Manufactured
Total Goods Available for Sale
Finished Goods Inventory, Ending
Less: Cost of goods sold
Gross margin
Less: Selling and administrative expenses:
 Sales reps’ salaries
 Supplies—Admin Office
 Depr. Exp—Admin Office
Total Selling & Administrative Expenses
Operating Income
$
$
$
1,950,000
19,500
1,215,500
1,235,000
49,400
(1,185,600)
$
764,400
$
188,500
20,800
42,900
$
(252,200)
512,200
194
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
195
Pauley’s Parts Co.
Future revenues
Deduct future costs
Margin
Remachine
$30,000
25,000
$ 5,000
Scrap
$2,500
$2,500
The difference is in favor of remachining by $2,500 ($5,000 - $2,500).
The $50,000 inventory cost is irrelevant.
196
Penner Corporation
FG – 2nd Quarter
BI (38,000 * 10%)
3,800
Budgeted Production 37,600
EI (34,000 * 10%)
FG – 3nd Quarter
BI (34,000 * 10%)
38,000
Budgeted sales
3,400
BI (112,800 * 20%)
34,000
Budgeted sales
4,800
DM – 3nd Quarter
22,560
Budgeted DM Purch 111,480
EI (106,200 * 20%)
Budgeted Production 35,400
EI (48,000 * 10%)
DM – 2nd Quarter
3,400
112,800
DM needed in
production
(37,600 * 3)
DM needed in
106,200 production
(35,400 * 3)
21,240
197
Phony Phones Co.
#1
SPU
VCU
CMU
Mix
Wtd.
Avg.
CMU
Corded
$30.00
$24.00
$ 6.00
5/10
$3.00
2.4 GHz
$32.00
$24.00
$ 8.00
4/10
$3.20
5.8 GHz
$40.00
$36.00
$ 4.00
1/10
$0.40
$6.60
BE (units)
=
FC
CM per unit
=
$165,000
25,000 units
=
$6.60
Corded
2.4 GHz
5.8 GHz
50%
40%
10%
12,500
$375,000
Corded
+
10,000
+ $320,000
2.4 GHz
+
2,500 =
25,000
+ $100,000 = $795,000
#1
5.8 GHz
198
Phony Phones Co. (p. 2)
#2
NIAT
NIBT =
$59,400
NIBT =
(1- Tax Rate)
(1- .4)
NIBT =
BE (units) =
FC + NIBT
$99,000
BE (units) =
$165,000 + $99,000
$6.60
CM per unit
BE (units)
=
Corded
50%
20,000
40,000
2.4 GHz
5.8 GHz
40%
10%
+ 16,000 +
4,000
= 40,000
$610,500 + $512,000 + $160,000 = $1,282,500
Corded
2.4 GHz
#2
5.8 GHz
199
Pipes Company
WEIGHTED AVERAGE METHOD
E.U.
WIP Units
DM
WIP - $ (Wtd. Avg.)
CC
100% 90%
BI
70,000
IN
350,000
Out
380,000
BI
DM $86,000
CC $36,000
380,000 * 1.90
= $722,000
75%
25%
EI
40,000
CC
OUT
380,000
380,000
EI: (DM) 40,000 * 75%
30,000
EI: (CC) 40,000 * 25%
IN DM $447,000
CC
DM
Out
E.U.
198,000
10,000
410,000
390,000
Costs to Account For
EI
DM $39,000
= 40,000 * 75% * $1.30
CC $6,000
= 40,000 * 25% * $0.60
$45,000
DM
BI
IN
Total
CC
$86,000
$36,000
$447,000
$198,000
$533,000
$234,000
$/EU
DM
CC
$533,000 / 410,000 = $1.30
$234,000 / 390,000 = $0.60
$1.90
200
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
201
Plentiful Printing, Inc.
DM
BI
Purch
WIP
$15,000
95,000
BI $ 3,000
$90,000
$20,000
$ 20,000
90,000
40,000
EI
FG
COGM
COGS
180,000
$185,000
$180,000
60,000
$ 15,000
PDOR = Est MOH / Est Activity
= $600,000 / $400,000
= $1.50 per DL $
$2,000 / 125 hrs = $16 /hr DL Rate
$ 8,000
2,000
3,000
EI $13,000
DL
COGS
$185,000
2,500 * $16
$40,000
$ 3,000
$40,000
$182,000
-0-
-0-
MOH
Actual
$57,000
$182,000
Applied
Adj. COGS
I/S
Adj. COGS
$182,000
$40,000 * 1.5
Selling
57,000
= $60,000
Admin
12,000
$285,000
Sales
$ 3,000
$ 3,000
-0-
$34,000 OI
202
Polaris Company
DM
BI
Purch
$ 10,000
WIP
$178,000
210,000
BI
FG
$ 42,000
BI
178,000
12,000
$ 37,000
520,000
COGM
$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
$ 8,000
$472,000
-0-
$472,000
Adj. COGS
-0MOH
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
8,000
$ 32,000
OI
-0-
203
Polaris Company (p. 2)
[Stmt. of Cash Flows]
CASH
Sales
CF
$600,000
$210,000
DM Purch
90,000
DL
110,000
IDL
70,000
Other MOH
54,000
Selling
42,000
Admin
$ 24,000
Accum. Depr.
$ 40,000
204
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
205
Portland Pilots (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
206
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
207
Postmodern Prod. (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
208
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
209
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
210
Rainbow, Inc.
1.
The minimum transfer price is $30. The Yellow Division has idle capacity and so must cover only its incremental
costs, which are the variable manufacturing costs. (Fixed costs are the same whether or not the internal transfer
occurs; the variable selling expenses are avoidable.)
2.
The maximum transfer price is $56. The Green Division would not pay more for the part than it has to pay an
external supplier.
3.
Yellow Division Operating Income
Sales
$5,250,000 = ($58 × 75,000) + ($36 × 25,000)
Less expenses:
Original production
3,000,000 = $40 × 75,000
Added by the division
750,000 = $30 × 25,000
Total Expenses
3,750,000
Net operating income
$1,500,000
4.
Yes, an internal transfer should occur; the opportunity cost of the selling division is less than the opportunity cost of
the buying division. The Yellow Division would earn an additional $150,000 ($6 × 25,000). The total joint benefit,
however is $650,000 ($26 × 25,000). The manager of the Yellow Division should attempt to negotiate a more
favorable outcome for that division.
211
Rebel 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
212
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
213
Rikki-Tikki-Tavi (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
214
Robin Hood, Inc.
Estimated MOH
1.
=
PDOR =
Estimated Activity
2.
$2,000,000
Applied MOH = Actual Activity × PDOR
3.
=
$16.00 per DLH
125,000 DLH
= 140,000 DLH × $16.00
=
$2,240,000
MOH
$2,400,000
$2,240,000
Underapplied $160,000
$160,000
to COGS
-0-
215
Rocky Mountain Bicycle Club
Absorption Costing
Direct materials
Direct labor
Variable manufacturing OH
Fixed manufacturing OH
($300,000 ÷ 5,000 units)
Unit cost
Rocky Mountain Bicycle Club
Absorption Costing I/S
For the Y/E Dec. 31, 2005
$ 60
70
25
Rev
60
$ 215
- CoGS
GM
- S&A
NI
$ 1,400,000 = 4,000 units × $350 per unit
(240,000) = VC DM 4,000 units × $60 per unit
(280,000) = VC DL 4,000 units × $70 per unit
(100,000) = VC MOH 4,000 units × $25 per unit
(240,000) = FC MOH 4,000 units × $60 per unit
$ 540,000
(40,000) = VC S&A 4,000 units × $10 per unit
(400,000) = FC S&A
$100,000
216
Rocky Mountain (p. 2)
Variable Costing
Direct materials
Direct labor
Variable manufacturing OH
Unit cost
Rocky Mountain Bicycle Club
Variable Costing I/S
For the Y/E Dec. 31, 2005
$ 60
70
25
$ 155
Rev
- VC
CM
$ 1,400,000 = 4,000 units × $350
(240,000) = DM 4,000 units × $60 per unit
(280,000) = DL 4,000 units × $70 per unit
(100,000) = MOH 4,000 units × $25 per unit
(40,000) = S&A 4,000 units × $10 per unit
$ 740,000
The difference in NI 2005:
- FC
Units mfg. - units sold
× FOH per unit
Difference in NI
1,000
$60
$60,000
NI
(300,000) = MOH
(400,000) = S&A
$40,000
Production > Sales
Abs. NI is higher!
217
Roley Poley
DM
WIP
BI
1. BI
$131,400
$ 49,000
325,000
$325,000
PURCH. 319,700
293,480
EI
160,080
$126,100
FG
BI
$ 87,300
4.
753,660
$753,660
EI
$763,660
$ 77,300
COGS
EI $ 73,900
$763,660
DL
5,660
$769,320
$293,480
$293,480
$769,320
6.
-0-0-
I/S
MOH
$769,320
$22,700
IDL
SOLO SALARIES
85,000
44,000
DEPR.
31,000 920 x 29= 26,680 DLH
ADU.
PTY TAX
12,600
PTY TAX
5,400
FIRE INS.
1,960
FIRE INS.
7,840
IDM
11,600
UTIL.
DEPR.
26,680 x $600
= $160,080
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
3.
MOH
$5,660
-0-
R & ALLOW
PER UNIT
PRIME COSTS
DM $325,000
DL 293,480
2. $618,480
$753,660 / 920
= $819
5.
36,100
$1,176,880
$104,820 X 40% = $41,928
$1,281,700 Sales
7.
$104,820 NI BT
$62,892 NI AT
218
218
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
219
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
$64,800
220
Sadly Corporation
1.
BE(units) =
2.
BE($)
=
FC + NI
CM per unit
=
$300,000 + $0
=
$10 - $5
60,000 units
FC + NI
CM Ratio
=
$300,000 + $0
=
50%
$600,000
221
Sam Enterprises
Units produced per hour
CM per unit
CM per hour (constraint)
Cans
$ 3.00
x 3.00
$ 9.00
Can-ettes
$ 1.00
x 6.00
$ 6.00
Sam should produce “Cans” because the contribution margin per
hour (constraint) is greater.
222
1.
Shockey Company
Price
AQ × AC
3,350 × $30
$100,500
Qty/Usage
AQ × SC
3,350 × $25
$83,750
SQ × SC
Standard Allowed
for Actual Output
(in units)
$16,750 U
RM – Alum (lbs.)
50
3,350
AQ × SC
3,375 × $25
$84,375
SQ × SC
(900)(4) × $25
$90,000
3,375
$5,625 F
25
CAN’T!
Actual Cost > Standard Cost = UNFAVORABLE
Actual Quantity < Standard Quantity = FAVORABLE
223
Shockey Co. (p. 2)
2.
Rate
AQ × AC
4,200 × $42
$176,400
Efficiency
AQ × SC
4,200 × $40
$168,000
$8,400 U
Std. Allowed for
Actual Output
(in units)
SQ × SC
(900)(5) × $40
$180,000
$12,000 F
$3,600 F
224
Sleep Warm, Inc.
Inventory
Accounts
Product
Costs
(BI + In = EI + Out)
DM
WIP
Purch. $18,500
FG
$12,000
80,000
$81,700
$16,800
$10,200
81,700
40,500
COGM
216,450
$217,550
COGS
$216,450
105,750
$9,100
$23,500
DL
$40,500
COGS
$40,500
$217,550
-0-
$217,550
ACOGS
-0-
I/S
MOH
$217,550
$105,750
$105,750
$105,750
-0-
Period
Costs
$400,000
Admin. 100,000
$ 82,450 OI
225
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]
226
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
227
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
228
(#) 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!
229
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
230
Soap ‘N Suds Inc.
Gal. Produced x Selling Price
Net Realizable Value Method
(Sold at the Split-Off Point)
Sales Value
of Production
Less:
Separable Costs
Net
Realizable Value
% NRV
Allocated
Joint Cost
$202,500
-0-
$202,500
0.49
$102,900
Kiwi
210,000
-0-
210,000
0.51
107,100
Total
$412,500
-0-
$412,500
1.00
$210,000
Mango
Units of
Production
(in gallons)
% Of
Production
Allocated
Joint Cost
Mango
90,000
0.60
$126,000
4.
Kiwi
60,000
0.40
84,000
2.
Total
150,000
1.00
$210,000
Physical Unit Method
231
1.
Soap ‘N Suds Inc. (p. 2)
Net Realizable Value Method
(Sold Beyond the Split-Off Point)
Sales Value
of Production
Less:
Separable Costs
Net
Realizable Value
% NRV
Allocated
Joint Cost
$202,500
$117,000
$85,500
0.35
$ 73,500
Kiwi
210,000
48,000
162,000
0.65
136,500
Total
$412,500
$165,000
$247,500
1.00
$210,000
Mango
3.
232
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)
DL
(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)
OI
($1,000)
OI
($1,000)
233
South Street Furniture
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
234
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
235
Southern Carpets (p. 2)
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
236
Spartan Inc.
Sales Value less
Additional Costs
Product
Sales Value
Additional Costs
$180,000
$20,000
Beta
100,000
Chi
20,000
Alpha
Net Realizable Value
% of NRV
Allocated Joint Cost
$160,000
0.64
$76,800
20,000
80,000
0.32
38,400
10,000
10,000
0.04
4,800
$250,000
1.00
$120,000
% Applied to
Total Joint Cost
237
Steinmueller Steins
WEIGHTED AVERAGE METHOD
Step 1
DM
100%
Step 5
CC
70%
100%
WIP-Molding (units)
5,000
20,000
2,000
80%
23,000
DM
CC
Step 2
EU
DM
23,000
2,000
2000*100%
2000*80%
E.U.
25,000
WIP-Molding ($)
$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
238
$1.98
Steinmueller (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)
239
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
240
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
241
Stewart Company
Relevant costs to make:
Relevant fixed cost of making ($20*50%)
DM
DL
FOH
Relevant cost per unit
Relevant costs to buy:
$10
35
11
19
$75
Selling price
$85
Relevant cost per unit
$85
When you compare the cost to make of $75 to the cost of buy of $85; there is
a $10 per unit savings. Stewart should make the product.
242
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
$3,500 u
243
Stone Monument (A)
1.
BE (units) =
FC + NI
=
CMU
BE ($)
=
FC + NI
$6,000,000
=
6,000 units
=
$12,000,000
=
30%
$1,000
=
$6,000,000
$2,000 - $1,000
CMR
$2,000
2.
BE units
as a % of =
normal
capacity
BE (units)
Normal
Capacity
=
6,000
20,000
244
Stone Monument (B)
1.
BE (units) =
FC + NI
$6,000,000 + $1,400,000
=
CMU
2.
BE ($)
=
7,400 units
=
$14,800,000
$1,000
FC + NI
$6,000,000 + $1,400,000
=
CMR
=
$2,000 - $1,000
$2,000
245
Stone Monument (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.
TR
R
.25 R
= 12,000 units
=
VC
+
FC
+
NI
= .5 R
+
$6,000,000
+
.25R
= $6,000,000
R = $24,000,000
246
Stone Monument (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 = $6,000,000
x
2.
= 10,000 units
Sales($)
= Units
*
SP
Sales($)
= 10,000
*
$2,000
Sales($)
= $20,000,000
247
Stone Monument (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 = $2,350
248
Stone Monument (F)
1.
MS ($) = Actual Revenue - BE Revenue
MS ($) = $40,000,000*
- $12,000,000**
MS ($) = $28,000,000
*($2,000 SP x 20,000 normal volume)
** (from (A))
2.
MS Ratio = Actual Revenue - BE Revenue
Actual Revenue
MS Ratio = $40,000,000
- $12,000,000
$40,000,000
MS Ratio = 70%
Quite Good!!
249
Stone Monument (G)
First, …
NIAT
$1,400,000
NIBT =
1.
=
1- Tax Rate
1 - 0.30
FC + NI
$6,000,000 + $2,000,000
BE (units) =
=
CMU
2.
=
8,000 units
=
$16,000,000
$6,000,000 + $2,000,000
=
CMR
$2,000,000
$1,000
FC + NI
BE ($) =
=
$2,000 - $1,000
$2,000
250
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
251
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
☺
252
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%
253
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
254
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
255
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:
256
Sven’s Sweets Co.
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
257
-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
258
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.
259
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]
260
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
261
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
262
(#) or
(#)
— piece(s) of information provided in problem
The Swizzle Manufacturing Co.
DM
BI
Purch
WIP
$ 10,000
BI
$ 15,000
185,000
200,000
FG
BI
185,000
$ 30,000
793,200
COGM
$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
-0MOH
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
OI
263
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
264
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
$30,000
Add: Cost of goods manufactured
793,200
Goods available for sale
823,200
Less: Ending finished goods inventory
(43,200)
Cost of goods sold
Deduct: Overapplied overhead
Adjusted cost of goods sold
$780,000
(200)
$779,800
265
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
$
7,000
Salaries
110,000
Advertising
136,000
Depreciation
19,000
Building rental
18,000
Operating Income
$290,000
$130,200
266
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)(1) × $30
$3,300,000
$300,000 F
$100,000 F
267
Thor’s Hammer, Inc.
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
268
Tigér Boats
$12,500 Selling price per boat
(11,500) Variable cost per boat ($5,000 + $5,500 + $1,000)
$ 1,000
Contribution per boat
Contribution margin per boat is positive, therefore the offer should
be accepted.
Fixed manufacturing overhead will not change and thus is
not relevant.
269
Tillamook Cheese Co.
Cheese
Ice Cream
Butter
Sales value if processed further
Sales value at split off (raw milk)
Cost of further processing
$450,000
(400,000)
( 17,000)
$679,000
(500,000)
(103,000)
$110,000
(100,000)
( 14,000)
Gain or (loss) from processing further
$ 33,000
$ 76,000
($ 4,000)
The milk should be processed further into cheese and ice cream since the increased revenues
are greater than the increased costs to produce those products. The milk should not be processed
further into butter because increased revenues are less than the increased costs to produce butter.
270
Tina’s Best Choc. (A)
$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
Tina should process the cocoa powder further because it will
Increase operating income by $700.
271
Tina’s Best Choc. (B)
Contribution margin per case
Machine hours required per case
Revenue per machine hour
THE LIGHT
THE DARK
$1.00
$2.00
.02 MH
$50.00
.05 MH
$40.00
Tina should produce The Light because its revenue per
machine hour (the constraint) is higher ($50 vs. $40).
272
Toledo Torpedo Co.
Cost Comparison – Replacement of Machine, Including Relevant and Irrelevant Items
Four Years Together
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
Keep
Replace
$400,000
$400,000
320,000
224,000
96,000
40,000
--
-40,000*
4,000*
60,000
$320,000
--4,000
(60,000)
$40,000
$80,000
$40,000
---
$360,000
$40,000
Difference
$
--
Toledo should replace the machine because it will
increase operating income by $40,000.
*In a formal income statement, these two items would be combined as a “loss on
disposal of $36,000.
273
Traber Company
Inventory
Accounts
Product
Costs
(BI + In = EI + Out)
DM
$ 25,000
Purch.
WIP
$
$ 56,250
75,000
$ 43,750
$
41,250
56,250
43,750
165,000
FG
$28,750
COGM
$ 275,000
$ 275,000
$ 278,750
COGS
$
43,750
25,000
COGS
DL
$ 278,750
$ 43,750 $ 43,750
$ 278,750
ACOGS
-0-
-0MOH
I/S
$ 18,750
15,000
100,000
31,250
Period
Costs
$165,000
$165,000
$ 278,750
82,500
68,750
$ 625,000
$ 195,000
OI
-0-
274
Traber Company (p. 2)
Traber Company
Schedule of Cost of Goods Manufactured
For the Year Ended December 31, 2004
Direct material:
Direct materials inventory, 1-1-04
$25,000
Add: Purchases of direct materials
75,000
Total materials available
Deduct: Direct materials inventory, 12-31-04
$100,000
(43,750)
$56,250
Direct materials used in production
56,250
Direct Labor
Manufacturing overhead:
Repair and Maintenance..............................................................
$18,750
Factory insurance ........................................................................
15,000
Depreciation Expense—Plant......................................................
100,000
Indirect Labor--Wages.................................................................
31,250
Total manufacturing costs
Add: Beginning work in process inventory
165,000
$277,500
41,250
$318,750
Deduct: Ending work in process inventory
Cost of Goods Manufactured
(43,750)
$275,000
275
Traber Company (p. 3)
Traber Company
Income Statement
For the Year Ended December 31, 2004
Sales
$ 625,000
Cost of Goods Sold
Finished Goods Inventory, Beginning
$
Cost of Goods Manufactured
Total Goods Available for Sale
28,750
275,000
$ 303,750
Less: Finished Goods Inventory, Ending
25,000
Less: Cost of goods sold
(278,750)
Gross margin
$ 346,250
Less: Selling and administrative expenses:
Marketing Expenses
General and Administrative
Total Selling & Administrative Expenses
Operating Income
$
82,500
68,750
(151,250)
$ 195,000
276
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
277
Tubber 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
278
Wabash Cannonball
1.
$90,000 ÷ 30,000 units = $3.00 per unit
Price
AQ × AC
30,000 × $3
$90,000
Qty/Usage
AQ × SC
30,000 × $3.25
$97,500
SQ × SC
Standard Allowed
for Actual Output
(in units)
$7,500 F
2.
AQ × SC
28,000 × $3.25
$91,000
3.
SQ × SC
26,000 × $3.25
$84,500
$6,500 U
CAN’T!
Actual Cost < Standard Cost = FAVORABLE
Actual Quantity > Standard Quantity = UNFAVORABLE
279
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
280
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
281
Whittle Company
FG-Units
650
PRODUCTION:
10%*5000=
4,450
4,600
500
282
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
283
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
284
Zephyr Company
1.
a. The lowest acceptable transfer price from the perspective of the selling division, the Mechanics Division, is
given by the following formula:
Transfer price = Variable cost per unit + Contribution margin on lost sales
Since there is enough idle capacity to fill the entire order from the Computer Division, there are no lost outside
sales. And since the variable cost per unit is $42, the lowest acceptable transfer price as far as the selling division
is concerned is also $42.
Transfer price = $42 + $0 = $42
b. The Computer Division can buy a similar transformer from an outside supplier for $76. Therefore, the
Computer Division would be unwilling to pay more than $76 per motor.
Transfer price < Cost of buying from outside supplier = $76
c. Combining the requirements of both the selling division and the buying division, the acceptable range of transfer
prices in this situation is:
$42 < Transfer price < $76
Assuming that the managers understand their own businesses and that they are cooperative, they should be able to
agree on a transfer price within this range and the transfer should take place.
d. From the standpoint of the entire company, the transfer should take place. The cost of the motors transferred is
only $42 and the company saves the $76 cost of the motors purchased from the outside supplier.
285
Zephyr Company (p. 2)
2.
a. Each of the 5,000 units transferred to the Computer Division must displace a sale to an outsider
at a price of $80. Therefore, the selling division would demand a transfer price of at least $80.
This can also be computed using the formula for the lowest acceptable transfer price as follows:
Transfer price = $42 + ($80 - $42) = $80
b. As before, the Computer Division would be unwilling to pay more than $76 per motor.
c. The requirements of the selling and buying divisions in this instance are incompatible. The
selling division must have a price of at least $80 whereas the buying division will not pay more
than $76. An agreement to transfer the motors is extremely unlikely.
d. From the standpoint of the entire company, the transfer should not take place. By transferring a
motor internally, the company gives up revenue of $80 and saves $76, for a loss of $4.
286