Managerial AccountingFinal Exam

Part I

Chippen Corporation manufactures furniture, including tables. Selected costs are given below:

1. The tables are made of wood that costs $100 per table

2. The tables are assembled by workers, at a wage cost of $40 per table

3. Workers making the tables are supervised by a factory supervisor who is paid $38,000 per year

4. Electrical costs are $2 per machine hour. Four machine hours are required to produce a table

5. The depreciation on the machines used to make the tables totals $10,000 per year

6. The salary of the president of the company is $100,000 per year

7. The company spends $25,000 per year to advertise its products

8. Salespersons are paid a commission of $30 for each table sold

9. Instead of producing the tables, the company could rent its factory space for $50,000 per year

Required:

Variable CostFixed CostPeriod (Selling & Administrative) CostProduct Cost Direct MaterialsProduct Cost Direct LaborProduct Cost Manufacturing OverheadSunk CostOpportunity Cost

1.XX

2.XX

3.XX

4.XX

5.XXX

6.XX

7.XX

8.XX

9.X

Part II

Bieker & Cie of Altdorf, Switzerland, makes furniture using the latest automated technology. The company uses a job-order costing system and applies manufacturing overhead cost to products on the basis of machine hours. The currency in Switzerland is the Swiss franc, which is denoted by Sfr. The following estimates were used in preparing the predetermined overhead rate at the beginning of the year:Machine Hours75,000

Manufacturing overhead costSfr900,000

During the year, a glut of furniture on the market resulted in cutting back production and a buildup of furniture in the companys warehouse. The companys cost records revealed the following actual cost and operating data for the year:

Machine Hours60,000

Manufacturing Overhead CostSfr850,000

Inventories at year end:

Raw Materials

Work in process

Finished goods soldSfr 30,000

Sfr100,000

Sfr500,000

Cost of Goods SoldSfr 1,400,000

Required:

1. Compute the companys predetermined overhead rate

Companys predetermined overhead rate = Sfr900,000 / 75,000 = Sfr 12 per machine hour2. Compute the underapplied or overapplied overhead

Actual Manufacturing overhead cost

= Sfr 850,000Applied manufacturing overhead cost (60,000 x 12)

= Sfr 720,000Underapplied overhead

= Sfr 130,0003. Assume that the company closes any underapplied or overapplied overhead directly to Cost of Goods Sold. Prepare the appropriate journal entry.

Cost of goods sold

Sfr 130,000 Dr.

Manufacturing OverheadSfr 130,000 Cr.

Part III

Luxguard Home Paint Company produces exterior latex paint, which it sells in one gallon containers. The company has two processing departments Base Fab and Finishing. White paint which is used as a base for all the companys paints, is mixed from raw ingredients in the Base Fab Department. Pigments are then added to the basic white paint, the pigmented paint is squirted under pressure into one gallon containers, and the containers are labeled and packed for shipping in the Finishing Department. Information relating to the companys operations for April follow:Production Data:

Units (gallons) in process, April 1: materials 100% complete, conversion 60% complete 30,000

Units (gallons) started into production during April420,000

Units (gallons) completed and transferred to the Finishing Department370,000

Units (gallons) in process, April 30: materials 50% complete, conversion 25% complete 80,000

Cost Data:Work in process inventory, April 1:

Materials

Conversion$92,000

$58,000

Cost added during April:

Materials

Conversion$851,000

$995,000

Required:

Using the chart below, prepare a cost reconciliation report for April:

Equivalent Units of Production

MaterialsConversion

Units transferred to the next department370,000370,000

Ending work in process inventory40,00020,000

Equivalent units of production410,000390,000

Costs per Equivalent Unit

MaterialsConversion

Costs of beginning work in process inventory$92,000$58,000

Costs added during the period$851,000$995,000

Total Cost$943,000$1,053,000

Equivalent units of production410,000390,000

Cost per equivalent unit$2.30$2.70

Costs of Ending Work in Process Inventory and the Units Transferred Out:

MaterialsConversionTotal

Ending Work in Process Inventory:

Equivalent units of production

Cost per equivalent unit

Cost of ending work in process inventory40,000$2.30

$92,00020,000

$2.70

$54,000$146,000

Units Completed and Transferred Out:

Units transferred to the next department

Cost per equivalent unit

Cost of units completed and transferred out370,000$2.30

$851,000370,000

$2.70

$999,000$1,850,000

Cost Reconciliation

Costs to be accounted for:

Cost of beginning work in process inventory

Costs added to production during the period

Total cost to be accounted for$150,000

$1,846,000

$1,996,000

Costs accounted for as follows:

Cost of ending work in process inventory

Cost of units transferred out

Total cost accounted for$146,000

$1,850,000

$1,996,000

Part IV

The administrator of Azalea Hills Hospital would like a cost formula linking the administrative costs involved in admitting patients to the number of patients admitted during a month. The admitting departments costs and the number of patients admitted during the immediately preceding eight months are given in the following table:MonthNumber of Patients AdmittedAdmitting Department Costs

May1,800$14,700

June1,900$15,200

July1,700$13,700

August1,600$14,000

September1,600$14,300

October1,300$13,100

November1,100$12,800

December1,500$14,600

Required:

1. Use the high low method to establish the fixed and variable components of admitting costs.

Detail

Number of patients admittedadmitting department costsHigh activity level

1,900

$15,200

Low activity level

1,100

$12,800

Change

800

$2,400

Variable Cost = $2,400 / 800 = $3 per patient day

Fixed cost = $15,200 ($3 x 1,900)= $9,5002. Express the fixed and variable components of admitting costs as a cost formula in the form

Y = a + bX

Y = $9,500 + $3 XPart V

Voltar Company manufactures and sells a specialized cordless telephone for high electromagnetic radiation environments. The companys contribution format income statement for the most recent year is given below:

TotalPer UnitPercent of Sales

Sales (20,000 units)$1,200,000$60100%

Variable Expenses 900,000 45 ?%

Contribution Margin 300,000$15 ?%

Fixed Expenses 240,000

Net Operating Income$ 60,000

Required:1. Compute the companys CM ratio and variable expense ratio.

CM Ratio = $15 / $60 = 25%2. Compute the companys breakeven point in both units and sales dollars.

Breakeven point in units = Fixed cost / CM per unit = $240,000 / $15 = 16,000 unitsBreakeven point in sale dollars = Fixed cost / CM ratio = $240,000 / 25% = $960,0003. Assume that sales increase by $400,000 next year. If cost behavior patterns remain unchanged by how much will the companys net operating income increase?

Increase in operating income = $400,000 x 25% = $100,0004. Refer to the original data. Assume that next year management wants the company to earn a profit of at least $90,000. How many units will have to be sold to meet this target profit?

Units sold to meet this target profit = ($240,000 + $90,000) / $15 = 22,000 units5. In an effort to increase sales and profits, management is considering the use of a higher quality speaker. The higher quality speaker would increase variable costs by $3 per unit, but management could eliminate one quality inspector who is paid a salary of $30,000 per year. The sales manager estimates that the higher quality speaker would increase annual sales by at least 20%

a. Assuming that the changes are made as described above, prepare a projected contribution format income statement for next year.

TotalPer UnitPercent of Sales

Sales (24,000 units)$1,440,000$60100%

Variable Expenses$1,152,000$4880%

Contribution Margin$288,000$1220%

Fixed Expenses$210,000

Net Operating Income$78,000

Part VI:

Dexter Corporation produces and sells a single product, a wooden hand loom for weaving small items such as scarves. Selected cost and operating data relating to the product are given below:Selling price per unit$50

Manufacturing Costs:

Variable per unit produced:

Direct materials

Direct Labor

Variable overhead

Fixed per year$11

$6

$3

$120,000

Selling and administrative costs:

Variable per unit sold

Fixed per year$4

$70,000

Units in beginning inventory0

Units produced during the year10,000

Units sold during the year 8,000

Units in ending inventory 2,000

Required:

1) Assume the company uses absorption costing

a) Compute the unit product cost

Direct Material

= $11Direct Labor

= $6

Variable Manufacturing Overhead

= $3Fixed manufacturing overhead ($120,000/10,000)= $12Cost per unit

= $32b) Prepare an income statement

Sales(8,000 x $32)

= $400,000Less: Cost of goods sold (8,000 x $32)= $256,000Gross Margin

= $144,000

Selling & administrative expenses= $102,000(8,000 x $4 + $70,000)

Net operating income

= $42,0002) Assume the company uses variable costing

a) Compute the unit product cost

Direct Material

= $11

Direct Labor

= $6

Variable Manufacturing Overhead

= $3

Cost per unit

= $20b) Prepare an income statement

Sale

(8,000 x $50)

= $400,000Variable Expenses:

Variable cost of goods sold (8,000 x $20)

= $160,000Variable selling & administrative expenses (8,000 x $4)= $32,000Total variable expenses

= $192,000Contribution Margin

= $208,000

Fixed Expenses:Fixed Manufacturing overhead

= $120,000Fixed selling and administrative expenses

= $70,000Total Fixed Expenses

= $190,000

Net operating Income

= $18,0003. Reconcile the variable costing and absorption costing net operating income

Variable costing net operating income

= $18,000Add: Fixed Manufacturing overhead cost deferred in inventory (2,000 x $12)= $24,000Absorption Costing net operating income (loss)

= $42,000 Part VII:

Ferris Corporation makes a single product a fire resistant commercial filing cabinet that it sells to office furniture distributors. The company has a simple ABC system that it uses for internal decision making. The company has two overhead departments whose costs are listed below:

Manufacturing Overhead$500,000

Selling and administrative overhead 300,000

Total overhead costs$800,000

The companys ABC system has the following activity cost pools and activity measures:

Activity Cost PoolActivity Measure

Assembling unitsNumber of units

Processing ordersNumber of orders

Supporting customersNumber of customers

OtherNot applicable

Costs assigned to the Other activity cost pool have no activity measure, they consist of the costs of unused capacity and organization sustaining costs neither of which are assigned to orders, customers, or the product.

Ferris Corporation distributes the costs of manufacturing overhead and of selling and administrative overhead to the activity cost pools based on employee interviews, the results of which are reported below:

Distribution of Resource Consumption Across Activity Cost Pools

Assembling UnitsProcessing OrdersSupporting CustomersOtherTotal

Manufacturing Overhead50%35%5%10%100%

Selling and Administrative Overhead10%45%25%20%100%

Total Activity1,000 units250 orders100 customers

Required:1. Using the chart provided, perform the first stage allocation of overhead costs to the activity cost pools.

Assembling UnitsProcessing OrdersSupporting CustomersOtherTotal

Manufacturing Overhead$250,000$175,000$25,000$50,000$500,000

Selling & Administrative Expense$30,000$135,000$75,000$60,000$300,000

Total Cost$280,000$310,000$100,000$110,000$800,000

2. Using the chart provided below, compute the activity rates for the activity cost pools.

Activity Cost PoolsTotal CostTotal ActivityActivity Rate

Assembling Units$280,0001,000$280 per unit

Processing Orders$310,000250$1,240 per order

Supporting Customers$100,000100$1,000 per customer

3. OfficeMart is one of Ferris Corporations customers. Last year, OfficeMart ordered filing cabinets four different times. OfficeMart ordered a total of 80 filing cabinets during the year. Using the chart provided below, show the overhead costs attributable to Office Mart.

Activity Cost PoolsActivity RateActivityABC Cost

Assembling Units$28080 units$22,400

Processing Orders$1,2404 units$4,960

Supporting Customers$1,0001$1,000

Total ABC Cost$28,360

4. The selling price of a filing cabinet is $595. The cost of direct materials is $180 per filing cabinet and direct labor is $50 per filing cabinet. Using the chart provided below, determine the customer margin of OfficeMart.

Sales ($595 x 80)$47,600

Costs:

Direct Materials ($180 x 80) Direct labor ($50 x 80) Total ABC Cost$14,400

$4,000

$28,360$45,760

Customer Margin$1,840

Part VII

Mynor Corporation manufactures and sells a seasonal product that has peak sales in the third quarter. The following information concerns operations for Year 2 the coming year and for the first two quarters of Year 3.

a) The companies single product sells for $8 per unit. Budgeted sales in units for the next six quarters are as follows (all sales are on credit):

Year 2 Quarter 1Year 2 Quarter 2Year 2 Quarter 3Year 2 Quarter 4Year 3 Quarter 1Year 3 Quarter 2

Budgeted Unit Sales40,00060,000100,00050,00070,00080,000

b) Sales are collected in the following pattern: 75% in the quarter the sales are made, and the remaining 25% in the following quarter. On January 1, Year 2, the companys balance sheet showed $65,000 in accounts receivable, all of which will be collected in the first quarter of the year. Bad debts are negligible and can be ignored.

c) The company desires an ending finished goods inventory at the end of each quarter equal to 30% of the budgeted unit sales for the next quarter. On December 31, Year 1, the company had 12,000 units on hand.

Required:

1. Prepare a sales budget:

Year 2 Quarter 1Year 2 Quarter 2Year 2 Quarter 3Year 2 Quarter 4Year

Budgeted Unit Sales40,00060,000100,00050,000250,000

Selling price per unit$8$8$8$8$8

Total Sales$320,000$480,000$800,000$400,000$2,000,000

2. Prepare the schedule of expected cash collections:

Year 2 Quarter 1Year 2 Quarter 2Year 2 Quarter 3Year 2 Quarter 4Year

Accounts Receivable, beginning balance$65,000$65,000

First quarter sales$240,000$80,000$320,000

Second quarter sales$360,000$120,000$480,000

Third quarter sales$600,000$200,000$800,000

Fourth quarter sales$300,000$300,000

Total Cash Collections$305,000$440,000$720,000$500,000$1,965,000

3. Prepare the production budget

Year 2 Quarter 1Year 2 Quarter 2Year 2 Quarter 3Year 2 Quarter 4Year

Budgeted Unit Sales40,00060,000100,00050,000250,000

Add Desired ending finished goods inventory18,00030,00015,00021,00021,000

Total needs58,00090,000115,00071,000271,000

Less beginning finished goods inventory12,00018,00030,00015,00012,000

Required production46,00072,00085,00056,000259,000