ACCT 505 FINAL EXAM.

ACCT 505 FINAL EXAM. Question 1.1. (TCO E) Installing a custom logo on a boat is a(n) (Points : 10) batch-level activity. product-level activity. unit-level activity. organization sustaining activity. Question 2.2. (TCO G) Given the following data, what would ROI be? Sales $70,000 Net operating income $10,000 Contribution margin $20,000 Average operating assets $50,000 Stockholder's equity $25,000 (Points : 10) 28.6% 20.0% 40.0% 50.0% Page 2 Question 1.1. (TCO C) Aziz Corporation produces and sells a single product. Data concerning that product appear below. Selling price per unit $110.00 Variable expense per unit $38.50 Fixed expense per month $85,800 Required: Determine the monthly breakeven in either unit or total dollar sales. Show your work! (Points : 25) BEP (units) = fixed cost / contribution per unit = 85,800 / (110 - 38.50) = 1200 units (dollars) = 85,800 *110/71.5 = $132,000 Question 2.2. (TCO B) Carter Corporation uses the weighted-average method in its process costing system. Data concerning the first processing department for the most recent month are listed below. Work in process, beginning:Units in beginning work-in-process inventory 600 Materials costs $6,900 Conversion costs $2,500 Percentage complete for materials 80% Percentage complete for conversion 15% Units started into production during the month 6,300 Units transferred to the next department during the month 5,800 Materials costs added during the month $112,500 Conversion costs added during the month $210,300 Ending work in process: Units in ending work-in-process inventory 1,100 Percentage complete for materials 70% Percentage complete for conversion 40% Required: Calculate the equivalent units for materials (using the weighted-average method) for the month in the first processing department. (Points : 25) SOLUTION: To solve for units transferred: +WIP,beginning +Units started into production during the month -WIP,ending =Units completed and transferred out during the month Equivalent units of production Transferred to next department 5,800 WIP,ending (1,100 units*40%complete) 440Equivalent units of production 6,240 Cost per equivalent unit Cost of beginning WIP $2,500 Cost added during the period $112,500 Total cost(a) $115,000 Equivalent units of production(b) 6,240 Cost per equivalent unit=(a)/(b) $18.43 Page 3 Question 1.1. (TCO D) Topple Company produces a single product. Operating data for the company and its absorption costing income statement for the last year are presented below. Units in beginning inventory 0 Units produced 9,000 Units sold 7,000 Sales $100,000 Less cost of goods sold: Beginning inventory 0 Add cost of goods manufactured 54,000 Goods available for sale 54,000 Less ending inventory 12,000 Cost of goods sold 42,000 Gross margin 58,000 Less selling and admin. expenses 28,000 Net operating income $30,000Variable manufacturing costs are $4 per unit. Fixed manufacturing overhead totals $18,000 for the year. The fixed manufacturing overhead was applied at a rate of $2 per unit. Variable selling and administrative expenses were $1 per unit sold. Required: Prepare a new income statement for the year using variable costing. Comment on the differences between the absorption costing and the variable costing income statements. (Points : 30) Solution Sales $100,000 Less : Variable Cost Beginning Inventory 0 Add : Cost of Goods Manufactured $36,000 (9,000 x $4) Goods available for Sale $36,000 Less : Ending inv. 2,000 x $4 $8,000 Cost of goods Sold $28,000 Less : Variable Selling & admin. (7,000 x $1) $7,000 Total Variable costs $35,000 Contribution $65,000 Less : Fixed Costs Manufacturing overheads $18,000 Selling & admin.Exp.$28,000-$7,000 $21,000 $39,000 Net Operating Income $26,000 Net Operating Income under absorption costing is $30,000 w hereas under Variable costing it comes out as $26,000. The reason of this difference of $4,000 is due to Ending inventory charged @$6 under Absorption costing w hereas under Variable costing only variable cost $4 has been considered. The difference is Question 2.2. (TCO I) (Ignore income taxes in this problem.) Simpson Beauty Products Corporation is considering the production of a new conditioning shampoo that will require the purchase of new mixing machinery. The machinery will cost $700,000, is expected to have a useful life of 10 years, and is expected to have a salvage value of $70,000 at the end of 10 years. The machinery will also need a $45,000 overhaul at the end of Year 5. A $60,000 increase in working capital will be needed for this investment project. The working capital will be released at the end of the 10 years. The new shampoo is expected to generate net cash inflows of $150,000 per year for each of the 10 years. Simpson's discount rate is 18%. Required: Part A: What is the net present value of this investment opportunity? Part B: Based on your answer to (a) above, should Simpson go ahead with the new conditioning shampoo? (Points : 30) PART A: Net Present Value: Depreciation expense = (700,000 – 70,000)/10 = $63,000 per year Present Value of major Overhaul at year 5 = 45,000 x 1.18^-5 = $19,669.50 Present Value of w orking capital recovered = 60,000 x 1.18^-10 = $11,466 Present Value of salvage value = 70,000 x 1.18^-10 = $13,377 Net cash flow s generated per year = cash inflow s – depreciation = 150,000 – 63,000 = $87,000 Present value of net cash inflow s = 87,000 x 4.4941 (from annuity tables) = $390,986.70 NPV = Present value of cash inflow s – Present value of cash outflow s NPV = (390,986.70 + 11,466 + 13,377) – (700,000 + 19,669.50 + 60,000) = -$363,839.80 PART B: Simpson should not go ahead and purchase the shampoo machine since the NPV is negative. Question 3.3. (TCO A) The following data (in thousands of dollars) have been taken from the accounting records of Karmana Corporation for the just-completed year. Sales ........................................................................ $1,000 Raw materials inventory, beginning ........................$130 Raw materials inventory, ending ................................$90 Purchases of raw materials ........................................$220 Direct labor ..................................................................$240 Manufacturing overhead ..........................................$210 Administrative expenses ...........................................$200 Selling expenses ............................................... .........$240 Work-in-process inventory, beginning ....................$25 Work-in-process inventory, ending ..........................$45 Finished goods inventory, beginning .....................$200 Finished goods inventory, ending ...........................$160 Use these data to prepare (in thousands of dollars) a schedule of Cost of Goods Manufactured and a Schedule of Cost of Goods Sold for the year. In addition, elaborate on the relationship between these schedules as they relate to the flow of product costs in a manufacturing company. (Points : 30) SCHEDULE OF COST OF GOODS SOLD beginning finished goods inventory $ 200 Add: Cost of goods manufactured 690 Cost of goods available for sale 890 Deduct: Finished goods inventory, ending 190 cost of goods sold 700 Schedule of cost of goods manufactured direct materials: beginning raw materials 130 plus net purchases raw materials: 220 raw materials available 350 less ending raw materials 90 raw materials transferred to production 260 direct labor: 240 factory overhead 210 total manufacturing costs 710 add beginning w ork in process inventory 25 735 less ending w ork in process inventory 45 Question 4.4. (TCO F) Matuseski Corporation is preparing its cash budget for October. The budgeted beginning cash balance is $54,000. Budgeted cash receipts total $127,000 and budgeted cash disbursements total $99,000. The desired ending cash balance is $100,000. The company can borrow up to $150,000 at any time from a local bank, with interest not due until the following month. Required: Prepare the company's cash budget for October in good form. Make sure to indicate what borrowing, if any, would be needed to attain the desired ending cash balance. (Points : 25) Beginning cash balance $54,000 Add: Cash receipts $127,000 Available cash balance $181,000 Less: Cash disbursements $99,000 Total ending cash balance $82,000 Desire balance $100,000 Loan from local bank $18,000 Additional Funds Needed are $18,000 Question 5.5. (TCO F) Nic Saybin Enterprises' accounting department collects all pertinent monthly operating data. Correct Answer: Correct Answer: Selected data are presented below for the current month. From the data provided, please provide Saybin Enterprises' management with a flexible budget analysis to see how costs were controlled. Actual Costs Incurred Static Budget Activity level (in units) 755,000 746,500 Variable costs: Indirect materials $328,997 $325,640 Utilities $174,332 $171,890 Fixed costs: General and administrative $237,985 $244,908 Rent $135,500 $135,000 (Points : 25) Activity level (in units) 755,000 746,500 8,500 Variable costs: Indirect materials $328,997 $325,640 $3,357.00 Unfavorable Utilities $174,332 $171,890 $2,442.00 Unfavorable Fixed costs: General and administrative$237,985 $244,908 $(6,923.00) Favorable Rent $135,500 $135,000 $- Some of the variances w here favorable and unfavorable. The higher activity level decreased fixed costs (making them favorable), w hile increased variable costs (making them unfavorable). Question 6.6. (TCO H) Lindon Company uses 10,000 units of Part Y each year as a component in the assembly of one of its products. The company is presently producing Part Y internally at a total cost of $100,000 as follows. Direct materials............................................... $20,000 Direct labor...................................................... 40,000 Variable manufacturing overhead...................... 16,000 Fixed manufacturing overhead....................... 24,000 Total costs.......................................................100,000 An outside supplier has offered to provide Part Y at a price of $10 per unit. If Lindon stops producing the part internally, one third of the fixed manufacturing overhead would be eliminated. Required: Should Lindon Company make or buy the part? Prepare a make-or-buy analysis showing the annual advantage or disadvantage of accepting the outside supplier's offer. (Points : 25) Part Y $/unit $10 Units Used 10000 Direct materials $20,000 Direct labor 40,000 Variable manufacturing overhead 16,000 Fixed manufacturing overhead 24,000 Total costs $100,000 MAKE BUY Difference Direct Material $20,000 $0 $20,000 Direct Labor $40,000 $0 $40,000 Variable Manufacturing Overhead $16,000 $0 $16,000 Fixed Manufacturing Overhead $24,000 $16,000 $8,000 Cost of Purchase from outsider $100,000 ($100,000) Total $100,000 $116,000 Question 7.7. (TCO B) Escatel Corporation bases its predetermined overhead rate on the estimated labor hours for the upcoming year. Data for the most recently completed year appear below. Estimates made at the beginning of the year Estimated labor hours 25,000 Estimated variable manufacturing overhead $7.10 per labor hour Estimated total fixed manufacturing overhead $625,000 Actual labor hours for the year 28,000 Required: Compute the company's predetermined overhead rate for the recently completed year. (Points : 25) The predetermined overhead rate is computed as follows: Estimated total manufacturing overhead $625,000 ÷ Estimated total computer hours 25,000 hours = Predetermined overhead rate $25 per hou