OC userin Accounting·21 Nov 2017PROBLEM 2-17 High-Low Method; Predicting Cost [LO2-4, LO2-5] Sawaya Co., Ltd., of Japan is a manufacturing company whose total factory overhead costs fluctu- ate considerably from year to year according to increases and decreases in the number of direct labor-hours worked in the factory. Total factory overhead costs at high and low levels of activity for recent years are given below: Level of Activity High Direct labor-hours ................. Total factory overhead costs ........ Low 50,000 $14,250,000 75,000 $17,625,000 The factory overhead costs above consist of indirect materials, rent, and maintenance. The com- pany has analyzed these costs at the 50,000-hour level of activity as follows: Indirect materials (variable) ...... Rent (fixed) .... Maintenance (mixed) ...... Total factory overhead costs ..... $ 5,000,000 6,000,000 3,250,000 $14,250,000 To have data available for planning, the company wants to break down the maintenance cost into its variable and fixed cost elements. Required: 1. Estimate how much of the $17,625,000 factory overhead cost at the high level of activity con- sists of maintenance cost. (Hint: To do this, it may be helpful to first determine how much of the $17,625,000 consists of indirect materials and rent. Think about the behavior of variable and fixed costs!) 2. Using the high-low method, estimate a cost formula for maintenance. 3. What total factory overhead costs would you expect the company to incur at an operating level of 70,000 direct labor-hours?
OC userin Accounting·22 Nov 2017EXERCISE 6-7 Segmented Income Statement [L06-4] Shannon Company segments its income statement into its North and South Divisions. The com- pany's overall sales, contribution margin ratio, and net operating income are $500,000, 46%, and $10,000, respectively. The North Division's contribution margin and contribution margin ratio are $150,000 and 50%, respectively. The South Division's segment margin is $30,000. The company has $90,000 of common fixed expenses that cannot be traced to either division. Required: Prepare an income statement for Shannon Company that uses the contribution format and is seg- mented by divisions. In addition, for the company as a whole and for each segment, show each item on the segmented income statements as a percent of sales.
OC userin Accounting·23 Nov 2017EXERCISE 6-13 Inferring Costing Method; Unit Product Cost [L06-1] Sierra Company incurs the following costs to produce and sell a single product. Variable costs per unit: Direct materials. Direct labor ....... Variable manufacturing overhead ........ Variable selling and administrative expenses ....... Fixed costs per year: Fixed manufacturing overhead ................... Fixed selling and administrative expenses .......... 26% $150,000 $400,000 During the last year, 25,000 units were produced and 22,000 units were sold. The Finished Goods inventory account at the end of the year shows a balance of $72,000 for the 3,000 unsold units. Required: 1. Is the company using absorption costing or variable costing to cost units in the Finished Goods inventory account? Show computations to support your answer. 2. Assume that the company wishes to prepare financial statements for the year to issue to its stockholders. a. Is the $72,000 figure for Finished Goods inventory the correct amount to use on these statements for external reporting purposes? Explain. b. At what dollar amount should the 3,000 units be carried in the inventory for external reporting purposes?
OC userin Accounting·23 Nov 201715-7 The president of a plastics company was quoted in a business journal as stating, "We haven't had a dollar of interest-paying debt in over 10 years. Not many companies can say that." As a stockholder in this company, how would you feel about its policy of not taking on debt?
OC userin Accounting·21 Nov 2017EXERCISE 12-3 Make or Buy a Component [LO12-3] Troy Engines, Ltd., manufactures a variety of engines for use in heavy equipment. The company has always produced all of the necessary parts for its engines, including all of the carburetors. An outside supplier has offered to sell one type of carburetor to Troy Engines, Ltd., for a cost of $35 per unit. To evaluate this offer, Troy Engines, Ltd., has gathered the following information relating to its own cost of producing the carburetor internally:
OC userin Accounting·22 Nov 2017EXERCISE 7-11 Second-Stage Allocation and Margin Calculations [LO7-4, L07-5] Foam Products, Inc., makes foam seat cushions for the automotive and aerospace industries. The company's activity-based costing system has four activity cost pools, which are listed below along with their activity measures and activity rates: Activity Measure Activity Rate Activity Cost Pool Supporting direct labor ....... Batch processing ...... Order processing ....... ... Customer service ........... Number of direct labor-hours Number of batches Number of orders Number of customers $5.55 per direct labor-hour $107.00 per batch $275.00 per order $2,463.00 per customer The company just completed a single order from Interstate Trucking for 1.000 custom seat cushions. The order was produced in two batches. Each seat cushion required 0.25 direct labor-hours. The selling price was $20 per unit, the direct materials cost was $8.50 per unit, and the direct labor cost was $6.00 per unit. This was Interstate Trucking's only order during the year. Required: Using Exhibit 7-12 as a guide, prepare a report showing the customer margin on sales to Interstate Trucking for the year.
OC userin Accounting·20 Nov 2017PROBLEM 6-19 Variable Costing Income Statement; Reconciliation (L06-2, L06-3] During Heaton Company's first two years of operations, the company reported absorption costing net operating income as follows: Sales (@$25 per unit) ........ Cost of goods sold (@$18 per unit) Year 1 $1,000,000 720,000 280,000 210,000 $ 70,000 Year 2 $1,250,000 900,000 350,000 230,000 $ 120,000 Gross margin ..... Selling and administrative expenses Net operating income ........... *$2 per unit variable: $130,000 fixed each year. The company's $18 unit product cost is computed as follows: Direct materials .......... Direct labor Variable manufacturing overhead .... Fixed manufacturing overhead ($270,000 = 45,000 units) .. Absorption costing unit product cost ........ Forty percent of fixed manufacturing overhead consists of wages and salaries; the remainder con- sists of depreciation charges on production equipment and buildings. Production and cost data for the two years are: Units produced.......... Units sold ............. Year 1 45,000 40,000 Year 2 45,000 50,000 Required: 1. Prepare a variable costing contribution format income statement for each year. 2. Reconcile the absorption costing and the variable costing net operating income figures for each year.
OC userin Accounting·21 Nov 20172-4 Distinguish between (a) a variable cost, (b) a fixed cost, and (c) a mixed cost.
OC userin Accounting·20 Nov 2017EXERCISE 5-12 Multiproduct Break-Even Analysis (L05-9] Olongapo Sports Corporation distributes two premium golf balls—the Flight Dynamic and the Sure Shot. Monthly sales and the contribution margin ratios for the two products follow: Product Flight Dynamic Sure Shot $150,000 $250,000 80% 36% Total $400,000 Sales ......... CM ratio ....... Fixed expenses total $183,750 per month. Required: 1. Prepare a contribution format income statement for the company as a whole. Carry computa- tions to one decimal place. 2. Compute the break-even point for the company based on the current sales mix. 3. If sales increase by $100,000 a month, by how much would you expect net operating income to increase? What are your assumptions?
OC userin Accounting·17 Nov 2017EXERCISE 7-14 Calculating and Interpreting Activity-Based Costing Data [LO7-3, L07-4] Hiram's Lakeside is a popular restaurant located on Lake Washington in Seattle. The owner of the restaurant has been trying to better understand costs at the restaurant and has hired a student intern to conduct an activity-based costing study. The intern, in consultation with the owner, identified three major activities and then completed the first stage allocations of costs to the activity cost pools. The results appear below. Activity Cost Pool Activity Measure Total Cost Total Activity Serving a party of diners ........ Serving a diner ......... Serving drinks ..... Number of parties served Number of diners served Number of drinks ordered $33,000 $138,000 $24,000 6,000 parties 15,000 diners 10,000 drinks The above costs include all of the costs of the restaurant except for organization-sustaining costs such as rent, property taxes, and top-management salaries. A group of diners who ask to sit at the same table are counted as a party. Some costs, such as the costs of cleaning linen, are the same whether one person is at a table or the table is full. Other costs, such as washing dishes, depend on the number of diners served. Prior to the activity-based costing study, the owner knew very little about the costs of the restaurant. She knew that the total cost for the month (including organization-sustaining costs) was $240,000 and that 15.000 diners had been served. Therefore, the average cost per diner was $16. Required: 1. According to the activity-based costing system, what is the total cost of serving each of the following parties of diners? a. A party of four diners who order three drinks in total. b. A party of two diners who do not order any drinks. c. A lone diner who orders two drinks. 2. Convert the total costs you computed in (1) above to costs per diner. In other words, what is the average cost per diner for serving each of the following parties? a. A party of four diners who order three drinks in total. b. A party of two diners who do not order any drinks. c. A lone diner who orders two drinks. 3. Why do the costs per diner for the three different parties differ from each other and from the overall average cost of $16 per diner?
OC userin Accounting·17 Nov 2017EXERCISE 2-1 Identifying Direct and Indirect Costs (L02-1] Northwest Hospital is a full-service hospital that provides everything from major surgery and emergency room care to outpatient clinics. Required: For each cost incurred at Northwest Hospital, indicate whether it would most likely be a direct cost or an indirect cost of the specified cost object by placing an X in the appropriate column. Cost Direct Cost Indirect Cost Ex. Catered food served to patients 1. The wages of pediatric nurses 2. Prescription drugs 3. Heating the hospital 4. The salary of the head of pediatrics 5. The salary of the head of pediatrics 6. Hospital chaplain's salary 7. Lab tests by outside contractor 8. Lab tests by outside contractor Cost Object A particular patient The pediatric department A particular patient The pediatric department The pediatric department A particular pediatric patient A particular patient A particular patient A particular department
OC userin Accounting·17 Nov 2017EXERCISE 12-11 Make or Buy a Component (L012-3] Han Products manufactures 30,000 units of part S-6 each year for use on its production line. At this level of activity, the cost per unit for part S-6 is: Direct materials ..................... Direct labor ........................ Variable manufacturing overhead ....... Fixed manufacturing overhead .......... Total cost per part $ 3.60 10.00 2.40 9.00 $25.00 An outside supplier has offered to sell 30,000 units of part S-6 each year to Han Products for $21 per part. If Han Products accepts this offer, the facilities now being used to manufacture part S-6 could be rented to another company at an annual rental of $80,000. However, Han Products has determined that two-thirds of the fixed manufacturing overhead being applied to part S-6 would continue even if part S-6 were purchased from the outside supplier. Required: Prepare computations showing how much profits will increase or decrease if the outside supplier's offer is accepted.
OC userin Accounting·13 Nov 2017EXERCISE 5-3 Prepare a Profit Graph [L05-2] Jaffre Enterprises distributes a single product whose selling price is $16 and whose variable expense is $11 per unit. The company's fixed expense is $16,000 per month. Required: 1. Prepare a profit graph for the company up to a sales level of 4,000 units. 2. Estimate the company's break-even point in unit sales using your profit graph.
OC userin Accounting·14 Nov 20177-6 Why are there two stages of allocation in activity-based costing?
