Cost accounting solutions

[Ieshulim]

Do not request to solve anything for you in this thread. Just share solutions for exercises which seem interesting to you.

The sales manager feels that an $7,900 increase in the monthly advertising budget, combined with an intensified effort by the sales staff, will result in a $70,000 increase in monthly sales. If the sales manager is right, what will the revised net operating income or loss? (Use the incremental approach in preparing your answer.) (Input the amount as a positive value. Omit the "$" sign in your response.)

Net operating income of 2900
Refer to the original data. The company’s advertising agency thinks that a new package would help sales. The new package being proposed would increase packaging costs by $0.40 per unit. Assuming no other changes, how many units would have to be sold each month to earn a profit of $4,800? (Round your intermediate calculations to 2 decimal places and final answer to the nearest whole number.)

Sales units 14837

Assume that the company expects to sell 20,600 units next month. Prepare two contribution format income statements, one assuming that operations are not automated and one assuming that they are. (Omit the "$" and "%" signs in your response.)

Operating income 126000 For automated 214000

[Ieshulim]

Problem 5-24 Sales Mix; Multiproduct Break-Even Analysis [LO9]

Topper Sports, Inc., produces high-quality sports equipment. The company's Racket Division manufactures three tennis rackets—the Standard, the Deluxe, and the Pro—that are widely used in amateur play. Selected information on the rackets is given below:

Standard Deluxe Pro
Selling price per racket $ 42.00 $ 68.00 $ 85.00
Variable expenses per racket:
Production $ 16.80 $ 23.80 $ 25.50
Selling (5% of selling price) $ 2.10 $ 3.40 $ 4.25

All sales are made through the company's own retail outlets. The Racket Division has the following fixed costs:

Per Month
Fixed production costs $ 105,000
Advertising expense 100,000
Administrative salaries 50,000

Total $ 255,000


Sales, in units, over the past two months have been as follows:

Standard Deluxe Pro Total
April 3,000 3,000 6,000 12,000
May 12,000 3,000 7,000 22,000


3.

Compute the Racket Division's break-even point in dollar sales for April

Solution:

[Ieshulim]

Problem 5-30 Break-Even and Target Profit Analysis [LO5, LO6]

The Marbury Stein Shop sells steins from all parts of the world. The owner of the shop, Clint Marbury, is thinking of expanding his operations by hiring college students, on a commission basis, to sell steins at the local college. The steins will bear the school emblem.

These steins must be ordered from the manufacturer three months in advance, and because of the unique emblem of each college, they cannot be returned. The steins would cost Marbury $16.00 each with a minimum order of 320 steins. Any additional steins would have to be ordered in increments of 50.

Because Marbury’s plan would not require any additional facilities, the only costs associated with the project would be the cost of the steins and the cost of sales commissions. The selling price of the steins would be $32.00 each. Marbury would pay the students a commission of $7.00 for each stein sold.

Required:
1.

To make the project worthwhile in terms of his own time, Marbury would require a $5,400 profit for the first six months of the venture. What level of sales in units and dollars would be required to attain this target net operating income? (Round your intermediate calculations to 2 decimal places and final answers to the nearest whole number. Omit the "$" sign in your response.)

Sales level in units 600 steins
Sales level in dollars 19200$

2.

Assume that the venture is undertaken and an order is placed for 320 steins. What would be Marbury's break-even point in units and in sales dollars? (Round your intermediate calculations to 2 decimal places and final answers to the nearest whole number. Omit the "$" sign in your response.)

Break even point in units 205 steins
Break even point in sales dollars 6560$

[Volk]

Is this universal system or this one is just for US?

[Ieshulim]

This subject is universal. 2+2=4

[Ieshulim]

The following cost data relate to the manufacturing activities of Black Company during the just completed year:


Manufacturing overhead costs:
Property taxes, factory $ 2,800
Utilities, factory 5,000
Indirect labor 9,900
Depreciation, factory 23,900
Insurance, factory 6,000

Total actual manufacturing overhead costs $ 47,600

Other costs incurred:
Purchases of raw materials $ 32,900
Direct labor cost $ 40,800
Inventories:
Raw materials, beginning $ 8,100
Raw materials, ending $ 6,700
Work in process, beginning
$ 5,000
Work in process, ending $ 7,000


The company uses a predetermined overhead rate to apply overhead cost to jobs. The rate for the year was $5 per machine-hour; a total of 11,500 machine-hours was recorded for the year. All raw materials ultimately become direct materials—none are classified as indirect materials.




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[Ieshulim]

Valenko Company provided the following account balances for the year ended December 31 (all raw materials are used in production as direct materials):


Selling expenses $ 214,000
Purchases of raw materials $ 265,000
Direct labor ?
Administrative expenses $ 153,000
Manufacturing overhead applied to work in process $ 335,000
Total actual manufacturing overhead costs $ 356,000

Inventory balances at the beginning and end of the year were as follows:

Beginning of Year End of Year
Raw materials $ 50,000 $ 30,000
Work in process ? $ 28,000
Finished goods $ 36,000 ?

The total manufacturing costs for the year were $675,000; the cost of goods available for sale totaled $735,000; the unadjusted cost of goods sold totaled $667,000; and the net operating income was $37,000. The company’s overapplied or underapplied overhead is closed entirely to cost of goods sold.



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[Ieshulim]

The Pacific Manufacturing Company operates a job-order costing system and applies overhead cost to jobs on the basis of direct labor cost. Its predetermined overhead rate was based on a cost formula that estimated $113,100 of manufacturing overhead for an estimated allocation base of $87,000 direct labor dollars. The company has provided the following data:

Beginning Ending
Raw Materials $ 24,000 $ 11,000
Work in Process $ 46,000 $ 37,000
Finished Goods $ 69,000 $ 61,000

The following actual costs were incurred during the year:


Purchase of raw materials (all direct) $ 138,000
Direct labor cost $ 83,000
Manufacturing overhead costs:
Insurance, factory $ 8,100
Depreciation of equipment $ 17,000
Indirect labor $ 37,100
Property taxes $ 8,800
Maintenance $ 11,000
Rent, building $ 30,000



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[Ieshulim]

Bohemian Links Inc. produces sausages in three production departments—Mixing, Casing and Curing, and Packaging. In the Mixing Department, meats are prepared and ground and then mixed with spices. The spiced meat mixture is then transferred to the Casing and Curing Department, where the mixture is force-fed into casings and then hung and cured in climate-controlled smoking chambers. In the Packaging Department, the cured sausages are sorted, packed, and labeled. The company uses the weighted-average method in its process costing system. Data for April for the Casing and Curing Department follow:



Percent Completed
Units Mixing Materials Conversion
Work in process inventory, April 1 5 100% 60% 50%
Work in process inventory, April 30 5 100% 20% 10%

Mixing Materials Conversion
Work in process inventory, April 1 $ 10,715 $ 295 $ 3,895
Cost added during April $ 310,465 $ 32,875 $ 263,390

Mixing cost represents the costs of the spiced meat mixture transferred in from the Mixing Department. The spiced meat mixture is processed in the Casing and Curing Department in batches; each unit in the above table is a batch, and one batch of spiced meat mixture produces a set amount of sausages that are passed on to the Packaging Department. During April, 154 batches (i.e., units) were completed and transferred to the Packaging Department.



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[Ieshulim]

Erte, Inc., manufactures two models of high-pressure steam valves, the XR7 model and the ZD5 model. Data regarding the two products follow:

Product Direct Labor-Hours Annual
Production Total Direct
Labor-Hours
XR7 0.4 DLHs per unit 22,000 Units 8,800 DLHs
ZD5 0.6 DLHs per unit 37,000 Units 22,200 DLHs

31,000 DLHs


Additional information about the company follows:
a. Product XR7 requires $30 in direct materials per unit, and product ZD5 requires $26.
b. The direct labor rate is $20 per hour.
c.

The company has always used direct labor-hours as the base for applying manufacturing overhead cost to products. Manufacturing overhead totals $2,412,200 per year.
d.

Product XR7 is more complex to manufacture than product ZD5 and requires the use of a special milling machine.
e.

Because of the special work required in (d) above, the company is considering the use of activity-based costing to apply overhead cost to products. Three activity cost pools have been identified and the first-stage allocations have been completed. Data concerning these activity cost pools appear below:



Estimated Total Activity
Activity Cost Pool Activity Measure Estimated
Total Cost XR7 ZD5 Total
Machine setups Number of setups $ 208,800 116 174 290
Special milling Machine-hours 343,400 1,010 0 1,010
General factory Direct labor-hours 1,860,000 8,800 22,200 31,000

$ 2,412,200



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[Ieshulim]

Denny Asbestos Removal Company removes potentially toxic asbestos insulation and related products from buildings. The company’s estimator has been involved in a long-simmering dispute with the on-site work supervisors. The on-site supervisors claim that the estimator does not adequately distinguish between routine work such as removal of asbestos insulation around heating pipes in older homes and nonroutine work such as removing asbestos-contaminated ceiling plaster in industrial buildings. The on-site supervisors believe that nonroutine work is far more expensive than routine work and should bear higher customer charges. The estimator sums up his position in this way: “My job is to measure the area to be cleared of asbestos. As directed by top management, I simply multiply the square footage by $6,000 per thousand square feet to determine the bid price. Since our average cost is only $3,000 per thousand square feet, that leaves enough cushion to take care of the additional costs of nonroutine work that shows up. Besides, it is difficult to know what is routine or nonroutine until you actually start tearing things apart.”

To shed light on this controversy, the company initiated an activity-based costing study of all of its costs. Data from the activity-based costing system follow:

Activity Cost Pool Activity Measure Total Activity
Removing asbestos Thousands of square feet 460 thousand square feet
Estimating and job setup Number of jobs 170 jobs*
Working on nonroutine jobs Number of nonroutine jobs 25 nonroutine jobs
Other (organization-sustaining
and idle capacity costs) None Not applicable

* The total number of jobs includes nonroutine jobs as well as routine jobs. Nonroutine jobs as well as routine jobs require estimating and setup work.

Costs for the Year
Wages and salaries $ 206,000
Disposal fees 593,000
Equipment depreciation 39,000
On-site supplies 68,000
Office expenses 194,000
Licensing and insurance 362,000

Total cost $ 1,462,000



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[Ieshulim]

Exercise 8-12 Direct Labor and Manufacturing Overhead Budgets [LO5, LO6]

The Production Department of Harveton Corporation has submitted the following forecast of units to be produced by quarter for the upcoming fiscal year.

1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
Units to be produced 14,000 13,000 12,000 13,000

Each unit requires 0.50 direct labor-hours and direct labor-hour workers are paid $11.00 per hour.

In addition, the variable manufacturing overhead rate is $1.50 per direct labor-hour. The fixed manufacturing overhead is $89,000 per quarter. The only noncash element of manufacturing overhead is depreciation, which is $28,000 per quarter.

Required:
1.

Prepare the company’s direct labor budget for the upcoming fiscal year, assuming that the direct labor workforce is adjusted each quarter to match the number of hours required to produce the forecasted number of units produced



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[Ieshulim]

Exercise 8-13 Production and Direct Materials Budgets [LO3, LO4]

Tonga Toys manufactures and distributes a number of products to retailers. One of these products, Playclay, requires two pounds of material A135 in the manufacture of each unit. The company is now planning raw materials needs for the third quarter—July, August, and September. Peak sales of Playclay occur in the third quarter of each year. To keep production and shipments moving smoothly, the company has the following inventory requirements:

a.

The finished goods inventory on hand at the end of each month must be equal to 8,000 units plus 32% of the next month’s sales. The finished goods inventory on June 30 is budgeted to be 23,360 units.
b.

The raw materials inventory on hand at the end of each month must be equal to one-half of the following month’s production needs for raw materials. The raw materials inventory on June 30 for material A135 is budgeted to be 51,200 pounds.
c. The company maintains no work in process inventories.

A sales budget for Playclay for the last six months of the year follows.

Budgeted Sales
in Units
July 48,000
August 58,000
September 78,000
October 43,000
November 28,000
December 18,000



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[Ieshulim]

Exercise 8-15 Cash Budget Analysis [LO8]

A cash budget, by quarters, is shown below for a retail company (000 omitted). The company requires a minimum cash balance of $5,000 to start each quarter. Fill in the missing amounts



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[Ieshulim]

Problem 8-26 Completing a Master Budget [LO2, LO4, LO7, LO8, LO9, LO10]
The following data relate to the operations of Picanuy Corporation, a wholesale distributor of consumer goods:


Current assets as of March 31:
Cash $ 6,800
Accounts receivable $ 36,600
Inventory $ 9,940
Buildings and equipment, net $ 119,200
Accounts payable $ 32,960
Capital stock $ 100,000
Retained earnings $ 39,580

a. The gross margin is 30% of sales. (In other words, cost of goods sold is 70% of sales.)
b. Actual and budgeted sales data are as follows:


December (actual) $61,000
January $71,000
February $86,800
March $90,000
April $58,300

c.

Sales are 40% for cash and 60% on credit. Credit sales are collected in the month following sale. The accounts receivable at December 31 are the result of December credit sales.
d. Each month’s ending inventory should equal 20% of the following month's budgeted cost of goods sold.
e.

One-quarter of a month’s inventory purchases is paid for in the month of purchase; the other three-quarters is paid for in the following month. The accounts payable at December 31 are the result of December purchases of inventory.
f.

Monthly expenses are as follows: commissions, $13,010; rent, $1,750; other expenses (excluding depreciation), 8% of sales. Assume that these expenses are paid monthly. Depreciation is $2,570 for the quarter and includes depreciation on new assets acquired during the quarter.
g. Equipment will be acquired for cash: $3,670 in January and $8,870 in February.
h.

Management would like to maintain a minimum cash balance of $5,000 at the end of each month. The company has an agreement with a local bank that allows the company to borrow in increments of $1,000 at the beginning of each month, up to a total loan balance of $50,000. The interest rate on these loans is 1% per month, and for simplicity, we will assume that interest is not compounded. The company would, as far as it is able, repay the loan plus accumulated interest at the end of the quarter.









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[Ieshulim]

Farrar University offers an extensive continuing education program in many cities throughout the state. For the convenience of its faculty and administrative staff and to save costs, the university operates a motor pool. The motor pool operated with 17 vehicles until February, when an additional automobile was acquired at the request of the university administration. The motor pool furnishes gasoline, oil, and other supplies for its automobiles. A mechanic does routine maintenance and minor repairs. Major repairs are performed at a nearby commercial garage. Each year, the supervisor of the motor pool prepares an annual budget, which is reviewed by the university and approved after suitable modifications.



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[Ieshulim]

Problem 10-11 Basic Variance Analysis [LO1, LO2, LO3]

Barberry, Inc., manufactures a product called Fruta. The company uses a standard cost system and has established the following standards for one unit of Fruta:

Standard Quantity Standard Price
or Rate Standard Cost
Direct materials 1.5 pounds $ 5.80 per pound $ 8.70
Direct labor 0.7 hours $ 11.50 per hour 8.05
Variable manufacturing overhead 0.7 hours $ 2.50 per hour 1.75

$ 18.50


During June, the company recorded this activity related to production of Fruta:
a.

The company produced 3,100 units during June.
b. A total of 8,290 pounds of material were purchased at a cost of $46,424.
c.

There was no beginning inventory of materials; however, at the end of the month, 2,400 pounds of material remained in ending inventory.
d.

The company employs 10 persons to work on the production of Fruta. During June, they worked an average of 177 hours at an average rate of $12.10 per hour.
e.

Variable manufacturing overhead is assigned to Fruta on the basis of direct labor-hours. Variable manufacturing overhead costs during June totaled $3,894.

The company's management is anxious to determine the efficiency of Fruta production activities.



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[Ieshulim]

Problem 10-13 Materials and Labor Variances; Computations from Incomplete Data [LO1, LO2]

Topaz Company makes one product and has set the following standards for materials and labor:

Direct Materials Direct Labor
Standard quantity or hours per unit ? pounds 2.10 hours
Standard price or rate ? per pound $ 8.50 per hour
Standard cost per unit ? $ 17.85

During the past month, the company purchased 6,600 pounds of direct materials at a cost of $18,150. All of this material was used in the production of 1,300 units of product. Direct labor cost totaled $20,070 for the month. The following variances have been computed:


Materials quantity variance $ 1,200 U
Total materials spending variance $ 450 F
Labor efficiency variance $ 4,250 F




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[Ieshulim]

Case 10-17 Working Backwards from Variance Data [LO1, LO2, LO3]

You have recently accepted a position with Lorthen Inc. As part of your duties, you review the variances that are reported for each period and make a presentation to the company's executive committee.

Earlier this morning you received the variances for one of the company's major products for the most recent period. After reviewing the variances and organizing the data for your presentation, you accidentally placed the material on top of some papers that were going to the shredder. In the middle of lunch you suddenly realized your mistake and dashed to the shredding room. There you found the operator busily feeding your pages through the machine. You managed to pull only part of one page from the feeding chute, which contains the following information:

Standard Cost Card
Direct materials, 2.40 meters at $16.50 per meter $ 39.60
Direct labor, 1.00 hours at $15.30 per hour $ 15.30
Variable overhead, 1.00 hours at $9.40 per hour $ 9.40

Total Standard Cost Quantity or Efficiency Variance Price or Rate Variance
Direct materials $ 633,600 $ 33,000 U $ 11,716 F
Direct labor $ 244,800 $ 15,300 U $ 3,400 U
Variable overhead $ 150,400 Ruined by shredder $ 4,900 F

The standard for variable overhead is based on direct labor-hours. All of the materials purchased during the period were used in production.

At lunch your supervisor said how pleased she was with your work and that she was looking forward to your presentation that afternoon. You realize that to avoid looking like a bungling fool you must somehow generate the necessary "backup" data for the variances before the executive committee meeting starts in one hour.



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[Ieshulim]

Problem 10A-11 Applying Overhead; Overhead Variances [LO3, LO4]

Wymont Company produces a single product that requires a large amount of labor time. Overhead cost is applied on the basis of standard direct labor-hours. Variable manufacturing overhead should be $7 per standard direct labor-hour and fixed manufacturing overhead should be $102,900 per year.

The company’s product requires 5 feet of direct material that has a standard cost of $5.5 per foot. The product requires 1.9 hours of direct labor time. The standard labor rate is $15 per hour.

During the year, the company had planned to operate at a denominator activity level of 34,300 direct labor-hours and to produce 22,500 units of product. Actual activity and costs for the year were as follows:


Number of units produced 24,500
Actual direct labor-hours worked 39,000
Actual variable manufacturing overhead cost incurred $ 63,000
Actual fixed manufacturing overhead cost incurred $ 379,000




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