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 inventory2,000Units produced9,000Units sold10,000Sales$100,000
Less cost of goods sold:Beginning inventory12,000Add cost of goods manufactured54,000Goods available for sale66,000Less ending inventory6,000Cost of goods sold60,000Gross margin40,000Less selling and admin. expenses28,000Net operating income$12,000
Variable 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)
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)
Question 3. 3. (TCO A) The following data (in thousands of dollars) have been taken from the accounting records of the Maroon Corporation for the just-completed year.Sales1,700Raw materials inventory, beginning50Raw materials inventory, ending25Purchases of raw materials210Direct labor360Manufacturing overhead330Administrative expenses400Selling expenses200Work-in-process inventory, beginning120Work-in-process inventory, ending150Finished goods inventory, beginning80Finished goods inventory, ending120
Use the above 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, what is the impact on the financial statements if the ending finished goods inventory is overstated or understated? (Points : 25)
Question 4. 4. (TCO F) Walker Corporation is preparing its cash budget for November. The budgeted beginning cash balance is $43,000. Budgeted cash receipts total $117,000 and budgeted cash disbursements total $122,000. The desired ending cash balance is $55,000. The company can borrow up to $100,000 at any time from a local bank, with interest not due until the following month.Required:Prepare the company’s cash budget for November in good form. Make sure to indicate what borrowing, if any, would be needed to attain the desired ending cash balance (Points : 25)
Question 5. 5. (TCO F) Bella Lugosi Holdings, Inc. (BLH), has collected the following operating information for its current month’s activity. Using this information, prepare a flexible budget analysis to determine how well BLH performed in terms of cost control.
Actual Costs IncurredStatic BudgetActivity level (in units)5,2505,178Variable costs:Indirect materials$24,182$23,476Utilities$22,356$22,674Fixed costs:Administration$63,450$65,500Rent$65,317$63,904(Points : 25)
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 : 30)
Question 7. 7. (TCO B) Sandler Corporation bases its predetermined overhead rate on the estimated machine hours for the upcoming year. Data for the upcoming year appear below.Estimated machine hours75,000Estimated variable manufacturing overhead$4.50per machine hourEstimated total fixed manufacturing overhead$825,000
The actual machine hours for the year turned out to be 77,000.Required:Compute the company’s predetermined overhead rate. (Points : 25)
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 inventory2,000Units produced9,000Units sold10,000Sales$100,000
Less cost of goods sold:Beginning inventory12,000Add cost of goods manufactured54,000Goods available for sale66,000Less ending inventory6,000Cost of goods sold60,000Gross margin40,000Less selling and admin. expenses28,000Net operating income$12,000
Variable 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)
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)
Question 3. 3. (TCO A) The following data (in thousands of dollars) have been taken from the accounting records of the Maroon Corporation for the just-completed year.Sales1,700Raw materials inventory, beginning50Raw materials inventory, ending25Purchases of raw materials210Direct labor360Manufacturing overhead330Administrative expenses400Selling expenses200Work-in-process inventory, beginning120Work-in-process inventory, ending150Finished goods inventory, beginning80Finished goods inventory, ending120
Use the above 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, what is the impact on the financial statements if the ending finished goods inventory is overstated or understated? (Points : 25)
Question 4. 4. (TCO F) Walker Corporation is preparing its cash budget for November. The budgeted beginning cash balance is $43,000. Budgeted cash receipts total $117,000 and budgeted cash disbursements total $122,000. The desired ending cash balance is $55,000. The company can borrow up to $100,000 at any time from a local bank, with interest not due until the following month.Required:Prepare the company’s cash budget for November in good form. Make sure to indicate what borrowing, if any, would be needed to attain the desired ending cash balance (Points : 25)
Question 5. 5. (TCO F) Bella Lugosi Holdings, Inc. (BLH), has collected the following operating information for its current month’s activity. Using this information, prepare a flexible budget analysis to determine how well BLH performed in terms of cost control.
Actual Costs IncurredStatic BudgetActivity level (in units)5,2505,178Variable costs:Indirect materials$24,182$23,476Utilities$22,356$22,674Fixed costs:Administration$63,450$65,500Rent$65,317$63,904(Points : 25)
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 : 30)
Question 7. 7. (TCO B) Sandler Corporation bases its predetermined overhead rate on the estimated machine hours for the upcoming year. Data for the upcoming year appear below.Estimated machine hours75,000Estimated variable manufacturing overhead$4.5
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