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1. 2 Abiqua Acres WEIGHTED AVERAGE METHOD 3 Abiqua Acres (p. 2) WIP Units 5,000 60,000 8,000 57,000 OutBI IN EI DM 100% CC 40% 50% WIP - $ (FIFO) DM.

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Presentation on theme: "1. 2 Abiqua Acres WEIGHTED AVERAGE METHOD 3 Abiqua Acres (p. 2) WIP Units 5,000 60,000 8,000 57,000 OutBI IN EI DM 100% CC 40% 50% WIP - $ (FIFO) DM."— Presentation transcript:

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2 2 Abiqua Acres WEIGHTED AVERAGE METHOD

3 3 Abiqua Acres (p. 2) WIP Units 5,000 60,000 8,000 57,000 OutBI IN EI DM 100% CC 40% 50% WIP - $ (FIFO) DM $20,000 CC $16,000 DM $250,000 CC $450,000 DM $33,333.60 CC 30,508.40 $63,842.00 $ 36,000.00 from BI 22,881.30 Finished CC 5,000×60%×$7.6271 613,277.60 S&F 52,000 × $11.7938 $672,158.90 = 8,000 × 100% × $4.1667 = 8,000 × 50% × $7.6271 Out BI IN EI E.U. DMCC - 0 - 52,000 8,000 60,000 3,000 52,000 4,000 59,000 Costs to Account For DMCC $4.00 $8.00 $ per EU BI: (DM) 5,000× 0% BI: (CC) 5,000×60% Start & Finish EI: (DM) 8,000×100% EI: (CC) 8,000× 50% E.U. FIFO METHOD BI $20,000 DM ÷ (5,000×100%) $16,000 CC ÷ (5,000× 40%) Total $12.00 $4.1667 $7.6271 $ per EU IN $250,000 DM ÷ 60,000 E.U. $450,000 CC ÷ 59,000 E.U.$11.7938 (Info we need to do problem) $736,000 Costs to Account For

4 4 Abtex Electronics SPVCCMMix Wtd. Avg. CM Tape Recorders $15.00$8.00$7.001/3$2.33 Electronic Calculators $22.50$9.50$13.002/3$8.67 $11.00 BE(units) = FC CM per unit = $280,000+ $1,040,000 $11.00 = 120,000 units 40,000 Tape Recorders 80,000 Electronic Calculators 

5 5 Abtex Electronics (cont.) Tape RecordersElectronic Calculators DM $4.00 × 90% = DL $2.00 × 110% = VOH Total VC per unit DM $4.50 × 80% = DL $3.00 × 110% = VOH Total VC per unit $3.60 2.20 2.00 $7.80 $3.60 3.30 2.00 $8.90 Total Fixed Costs: $ 280,000 1,040,000 57,000 $1,377,000 Sales Mix Calculation: $750,000 I made up a big number for “revenue”, likely to be divisible by both $15.00 and $20.00, the 1998 selling prices 20%80% Estimated 1998 mix of revenue $600,000 Rev. SP $20 per unit 30,000 calculators $150,000 Rev. SP $15 per unit 10,000 recorders ¼¾ SALES MIX IN UNITS

6 6 Abtex Electronics (cont.) (Continued) SPVCCMMix Wtd. Avg. CM Tape Recorders $15.00$7.80$7.201/4$1.800 Electronic Calculators $20.00$8.90$11.103/4$8.325 $10.125 BE(units) = FC CM per unit = $1,377,000 $10.125 = 136,000 units 27,200 Tape Recorders 108,800 Electronic Calculators ¼¾

7 7 Adams Co. Has 80,000 lbs. of RM available No more can be purchased Bicycle Frames$40/unit CM, requires 8 lbs. of RM Set of Golf Clubs$32/unit CM, requires 4 lbs. of RM ** Everything they make can be sold!! Bike Frames$40 / 8 lbs. =$5.00 per lb. CM Golf Clubs $32 / 4 lbs. =$8.00 per lb. CM 80,000 lbs. of RM available ÷ 4 lbs. per Set of Golf Clubs = 20,000 Sets of Golf Clubs produced to maximize CM ** What if they can only sell 8,000 Sets of Golf Clubs?? Make 8,000 Sets of Golf Clubs  32,000 lbs. Make 6,000 Bicycle Frames  48,000 lbs. (= 48,000 lbs. / 8 lbs. per unit) 80,000 lbs.

8 8 1. Al$20$16$42/10$.80$ 4.00 Cat$50$36$143/10$4.20$15.00 Raz$40$28$125/10$6.00$20.00 $11.00$39.00 BE (units) = FC = $77,000 = 7000 units CM per unit $11 AL CAT RAZ 20% 30% 50% 1400 + 2100 + 3500 = $7000 $28,000 + $105,000 + $140,000 = $273,000 “Al” “Cat” “Raz” Alcatraz Artifacts SP VCCMMix Wtd. Avg. CM Wtd. Avg. SP

9 9 2. WTD. AVG. SPVCCMMIXCM Al$20$16$4.40$1.60 Cat$50$36$14.40$5.60 Raz$40$28$12.20$2.40 $9.60 BE (units) = FC = $77,000 = 8021 units CM per units $9.60 Al Cat Raz 40% + 40% + 20% 3,209 + 3208 + 1,604 $64,180 + $160,400 + $64,160 = $288,740 Increased BE point because more low profit “Al’s” were sold. Alcatraz Artifacts (cont.)

10 10 Andretti Company

11 11 Andretti Company (cont.)

12 12 Andretti Company (cont.)

13 13 Andretti Company (cont.)

14 14 Andretti Company (cont.)

15 15 Apple Appliances You should reject the offer. $10 Variable (relevant) cost to produce the timer assemblies ($5 + $4 + $1) $12 Cost to purchase the timer assemblies $ 2 Cheaper to make the timer assemblies

16 16 UNITSUNITSUNITSUNITS FG - MarFG - AprilFG - May FG - June 6000 32,000 8,000 (20% x 40,000) Produce 30,000 BI 8000 Produce 44,000 40,000 EI 12,000 (20% x 60,000) 60,000 RM UNITS RM - April RM UNITS RM - May RM UNITS FG - June 44,000 x 3 = 132,000 33,000 lbs. (25% x 132,000) 24,000 lbs. Purchase 105,000 lbs. 32,000 x 3 = 96,000 lbs, Archer Company a. b.

17 17 $ 9,000 $40,000 $11,000 $32,300 (85%) $ 5,700 (15%) RM BI Purch EI $ 20,000 32,300 45,000 64,200 $ 21,500 $140,000 BI EI WIP $ 32,000 140,000 $ 42,000 $ 130,000 BI EI FG $ 45,000 - 0 - DL MOH $ 5,700 19,100 27,000 10,000 2,400 64,200 $ 64,200 - 0 - IDM Mfg Utilities Mfg Depr IDL Prepd Insur COGS I/S $ 130,000 9,000 48,000 30,000 600 9500 $ 250,000 COGS Depr. Exp. Adv. Exp. Admin. Salaries Prepaid Ins. Misc. S&A Sales NI BT $ 130,000 - 0 - $ 130,000 COGS Astoria Company $ 22,900 $ 4,580Inc. Tax NI AT$ 18,320 - 0 - (to R/E) COGM

18 18 Astoria Co. (p. 2) $ 7,000 245,000 $34,820 $ 19,100 48,000 9,500 2,000 41,000 84,000 9,000 4,580 Beg End CASH Assets (aka: “Pete”) $ 18,000 250,000 $ 23,000 $ 245,000 Beg End A/R $ 290,000 9,000 $ 219,000 Beg End Property, Plant & Equip $ 53,000 36,000 $ 89,000 Beg End Accum. Depr. Cash from Customers ((A/R)) Util Advertsng Misc S&A Prepd Ins A/P W/P Purch PPE Inc Tax Liabilities & Owners’ Equity (aka: “Re-Pete”) $ 38,000 40,000 $ 37,000 Beg End Accounts Payable $ - 0 - 45,000 10,000 30,000 $ 1,000 Wages Payable $ 160,000 Beg End Capital Stock $ 49,000 18,320 $ 67,320 Beg End R/E $ 84,000 (to Cash)(Sales) (Depr. Exp.) (Net Income) $ 4,000 2,000 $ 3,000 Beg End Prepaid Insurance Beg. (implied) DL IDL Admin Salaries End (from Cash) Purch of Equip $ 3,000 $ 41,000 DM Purch(from Cash) OUT

19 19 Astoria Company (p. 3) Cannon Beach Sand Company Balance Sheet As of December 31, 2001 Assets Cash A/R Prepd Insur PPE Accum Depr RM WIP FG Total $ 34,820 23,000 3,000 219,000 (89,000) 11,000 21,500 42,000 $265,320 Liabilities & Owners’ Equity A/P W/P C/S R/E Total $ 37,000 1,000 160,000 67,320 $265,320

20 20 Astoria Company (p. 4) Astoria Company Statement of Cash Flows (Indirect Method) For the Year-Ended December 31, 2001 Net Income Depr. Exp ↑ A/R (use) ↓ Prepd Ins (source) ↑ DM (use) ↑ WIP (use) ↑ FG (use) ↓ A/P (use) ↑ W/P (source) Net Cash provided by Operating Activities Purch of Equipment Net Cash used by Investing Activities Net increase in cash Beg. Cash End Cash $ 18,320 + 36,000 - 5,000 + 1,000 - 2,000 - 1,500 - 10,000 - 1,000 + 1,000 $ 36,820 $ - 9,000 $ (9,000) $ 27,820 7,000 $ 34,820 Calculation of Free Cash Flows Cash from Operations Less: Capital Expenditures (net) Free Cash Flows $36,820 9,000 $27,820 Operating Activities Investing Activities

21 21 ACTIVITY: “N” Number of production runs : $400,000 / 50 = $8000 per… “Q” Quality tests performed : $360,000 / 300 = $1200 per… “S” Shipping orders processed : $120,000 / 150 = $800 per… Audio Basics Corporation 1. ----- ABC StandardHigh Grade “N” “Q” “S” 40 × $8,000 = 180 × $1,200 = 100 × $ 800 = $ 320,000 $ 216,000 $ 80,000 $ 616,000 $ 250,000 $ 348,000 $1,214,000 MOH DM DL Total MFG ÷ 320,000 units $3.79375 per unit “N” “Q” “S” 10 × $8,000 = 120 × $1,200 = 50 × $ 800 = $ 80,000 $ 144,000 $ 40,000 $ 264,000 $ 228,000 $ 132,000 $ 624,000 MOH DM DL Total MFG ÷ 100,000 units $6.24 per unit a. b. 2. ----- Allocated MOH Est. MOH Activity $880,000 $480,000 = $1.833333 per DL$ $ 638,000 (= $348,000 × $1.833333) $ 250,000 $ 348,000 $1,214,000 MOH DM DL Total MFG ÷ 320,000 units $3.8625 per unit $ 242,000 (= $132,000 × $1.833333) $ 228,000 $ 132,000 $ 602,000 MOH DM DL Total MFG ÷ 100,000 units $6.02 per unit StandardHigh Grade $ 616,000 + 264,000 $ 880,000

22 22 The Baize Company PDOR = Estimated MOH Estimated Activity = $403,200 21,000 DLH = $19.20 per DLH a. b. c. Applied MOH = Actual Activity × PDOR 20,000 DLH × $19.20 = $384,000 MOH $378,000 $384,000 $6,000 - 0 - to COGS Overapplied

23 23 1. 2. DM PriceQty AQ × AC 14,000 × $1.80 $25,200 AQ × SC 14,000 × $1.75 $24,500 SQ × SC × $1.75 $700 U AQ × SC 13,250 × $1.75 $23,187.50 SQ × SC 12,600 × $1.75 $22,050 (6300)(2) $1137.50 U DL AQ × AC 4,100 × $9.05 $37,105 AQ × SC 4,100 × $9.00 $36,900 SQ × SC (2000)(2) × $9.00 $36,000 $205 U Rate Efficiency $900 U Ballycanally Corporation

24 24 AQ × AC 27,750 × $1.22 $33,855 AQ × SC 27,750 × $1.20 $33,300 $555 U Spending Efficiency $300 F SQ × SC (Applied) 28,000 × $1.20 $33,600 VOH 3. $255 U 4. FOH Actual $155,500 Budget $144,000 $11,500 U Spending Volume $6,000 F $5,500 U Applied (SQ × SC) 60,000 × $2.50 $150,000 Ballycanally Corp. (p. 2)

25 25 Barber Company

26 26 Price Usage AQ × AC 25,000 × $2.60 $65,000 AQ × SC 25,000 × $2.50 $62,500 SQ × SC $2,500 U 1 AQ × SC 23,100 × $2.50 $57,750 SQ × SC 23,400 × $2.50 $58,500 (7800 units)(3lbs) $750 F 2 DM DL Rate Efficiency AQ × AC 40,100 × $7.30 $292,730 AQ × AC 40,100 × $7.50 $300,750 SQ x SC 39,000 × $7.50 $292,500 $8020 F$8250 U $230 U 3 4 (7800 units)(5 hrs) Beale Street Blues, Inc.

27 27 FOH Spending Volume Actual AQ × AC $170,000 Budgeted BQ × SC 40,000 × $4.00 $160,000 $10,000 U$4,000 U Applied SQ x SC (7800)(5) 39,000 × $4.00 $156,000 6 VOH Spending Efficiency Actual AQ × AC $130,000 AQ × SC 40,100 × $3.00 $120,300 $9,700 U$3,300U 5 SQ × SC (7800)(5) 39,000 × $3.00 $117,000 Beale Street Blues (p. 2) 7

28 28 Bee-Cee’s Guitar Emp. (A) JAN FEB MAR Dec. Jan. Feb. Mar. $100,000×20% $ 60,000×80% $ 60,000×20% $ 80,000×80% $ 80,000×20% $ 90,000×80% $20,000 48,000 $68,000 $12,000 64,000 $76,000 $16,000 72,000 $88,000 JANFEBMARTotal $232,000

29 29 Bee-Cee’s Guitar Emp. (B) JAN FEB MAR Dec. Jan. Feb. Mar. $70,000×90% $42,000×10% $42,000×90% $56,000×10% $56,000×90% $63,000×10% $63,000 4,200 $67,200 $37,800 5,600 $43,400 $50,400 6,300 $56,700 JANFEBMARTotal $167,300

30 30 Bee-Go Company FG – Jan.FG – Mar. FG – Feb.FG – Apr. 16,500 15,650 1,650 1,600 16,250 1,850 1,650 16,450 1,600 15,60018,50016,00016,500 15,650 16,450 16,250 48,350 Jan. Feb. Mar. Total (10%×16,500)(10%×18,500)(10%×16,000) Units Produced

31 31 Bee-Kill Chemical (A) RM – Q1RM – Q3 RM – Q2RM – Q4 45,000 189,400 50,400 60,000 186,800 46,800 50,400 177,600 60,000 184,000 189,400 177,600 186,800 166,800 720,600 Q1 Q2 Q3 Q4 (30%×168,000)(30%×156,000)(30%×184,000) RM – Q1 (2007) 46,800 166,800 57,600 168,000200,000156,000192,000 (30%×192,000) (46,000×4 lbs.)(48,000×4 lbs.) (39,000×4 lbs.) (50,000×4 lbs.)(42,000×4 lbs.) 57,600 × $4 $2,882,400 Total pounds of raw materials purchased Total cost of raw materials purchased RM Purchased Cost per pound of raw material

32 32 Bee-Kill Chemical (B) Quarter 1 Quarter 2 Quarter 3 Quarter 4 46,000 42,000 50,000 48,000 Units 115,000 105,000 125,000 97,500 442,500 DLH × 2.5 DLH per unit = DLH worked during 2006 × $20DL cost per hour $8,850,000 Cost of DLH worked during 2006 2006 Q1 Q2 Q3 Q4

33 33 Bee-Kill Chemical (C) Quarter 1, 2006 Quarter 2 Quarter 3 Quarter 4 Total 46,000 42,000 50,000 39,000 177,000 Units Production Information Indirect material Indirect labor Utilities Total $2.25 1.50 1.00 $4.75 Per unit Variable Costs Supervisor salaries Factory depreciation Other Total $80,000 30,000 4,100 $114,100 Fixed Costs per Quarter 1. 2. $218,500 199,500 237,500 185,250 $840,750 Variable costs Fixed costs Total mfg. overhead $ 840,750 456,400 $1,297,150 ( = $114,100 × 4 Qtrs.) Quarter 1, 2006 Quarter 2 Quarter 3 Quarter 4 Total Variable MOH by Qtr. Total MOH for 2006 ( = 46,000 units × $4.75) ( = 42,000 units × $4.75) ( = 50,000 units × $4.75) ( = 39,000 units × $4.75)

34 34 Bee-Safe Company First quarter Second quarter Third quarter Fourth quarter 21,000 26,000 25,000 30,000 2004 27,300 33,800 32,500 39,000 132,600 2005 × 130% = Unit sales during 2005 × $40Selling price per unit $5,304,000 Sales revenue during 2005

35 35 BELLY RUB PRODUCTIONS Unit Product Cost Data Years 2001 through 2004 Year 2001200220032004 Variable manufacturing costs: Direct materials………………………….. $ 6$ 6$ 7$ 8 Direct labor……………………………… 3 4 4 5 Variable MOH…………………………… 2 2 3 4 Product cost using variable costing………… $11$12$14$17 Add prorated fixed MOH cost……………… 5 6 7 8 Product cost using absorption costing……… $16 $18 $21 $25 BELLY RUB MANUFACTURING Absorption Costing Income Statement For Years 2001 through 2004 Sales…………………………………$200,000$243,000$390,000$350,000 Cost of goods sold………………….. 128,000 158,000 258,000 242,000 Underapplied (overapplied) overhead 0 (12,000) 0 16,000 Gross margin………………………. 72,000 97,000 132,000 92,000 Variable selling and administrative... 24,000 27,000 52,000 50,000 Fixed selling and administrative…… 30,000 35,000 40,000 50,000 Total operating expenses…………… 54,000 62,000 92,000 100,000 Net income………………………… $18,000 $35,000 $40,000 $ (8,000) Year 2001200220032004 Belly Rub Productions

36 36 Belly Rub Productions (p. 2) BELLY RUB MANUFACTURING Variable Costing Income Statement For Years 2001 through 2004 Sales ………………………………………..$200,000$243,000$390,000$350,000 Variable product cost ……………………. 88,000 106,000 172,000 164,000 Manufacturing contribution margin ……….. 112,000 137,000 218,000 186,000 Variable selling and administrative ……….. 24,000 27,000 52,000 50,000 Contribution margin ……………….………. 88,000 110,000 166,000 136,000 Fixed manufacturing overhead ……………. 50,000 60,000 70,000 80,000 Fixed selling and administrative…………… 30,000 35,000 40,000 50,000 Total fixed cost …………………………… 80,000 95,000 110,000 130,000 Net income ……………………………….. $ 8,000 $ 15,000 $ 56,000 $ 6,000 Year 2001200220032004 Belly Rub Productions Schedule of Product Costs with Absorption Costing Years 2001 through 2004 Year 2001 2002 2003 2004 Beginning Inventory - 0 - 2,000 units @ $16 5,000 units @ $18 2,000 units @ $21 ++++++++ Current Year Production 8,000 units @ $16 7,000 units @ $18 8,000 units @ $21 8,000 units @ $25 Total Product Cost $128,000 $158,000 $258,000 $242,000 Belly Rub Productions Schedule of Product Costs using Variable Costing Years 2001 through 2004 Year 2001 2002 2003 2004 Beginning Inventory - 0 - 2,000 units @ $11 5,000 units @ $12 2,000 units @ $14 ++++++++ Current Year Production 8,000 units @ $11 7,000 units @ $12 8,000 units @ $14 8,000 units @ $17 Total Product Cost $ 88,000 $106,000 $172,000 $164,000

37 37 Belly Rub Productions (p. 3) BELLY RUB PRODUCTIONS Schedule of Fixed Overhead Costs Included In Beginning and Ending Inventory Under Absorption Costing Year 2001200220032004 Units in beginning inventory … Applied fixed MOH per unit … Equals ………………………. Units in ending inventory …… Fixed MOH per unit …………. Equals ………………………. Causes absorption costing NI to be ………………………… - 0 - 2,000 $ 5 $10,000 Higher 2,000 $ 5 $10,000 5,000 $ 6 $30,000 $20,000 Higher 5,000 $ 6 $30,000 2,000 $ 7 $14,000 $16,000 Lower 2,000 $ 7 $14,000 - 0 - $14,000 Lower

38 38 AQ × AC $25,150 AQ × SC 3,010 × $8 $24,080 $1,070 U Spend Eff. $1,760 U N/A SQ × SC (310) (9) × $8 $22,320 SQ × SC VOH Actual $23,800 Budget $24,300 $500 F Spend N/A N/A Vol. $810 F Budget BQ × SC 2,700 × $9 $24,300 Applied SQ × SC (310) (9) × $9.00 $25,110 FOH $48,950 $570 U Spend Eff. $1760 U Vol. $810 F $1520 U $20,769 / $6.90 = 3010 DLH 310 units actual x 9 hrs. = 2790 hrs. $63 / 9 hrs. = $7 / hr. = DL cost per hr. $45,900 $8 + $9 =2,700 budgeted DL hrs. TOTAL Benton Company $47,430

39 39 B.G. Wip Company Step 1 DM CC 100% 60% 100% 1/3 WIP 2,000 9,000 3,300 7,700 Step 2 Wtd. Avg. Equivalent Units OUT EI 3300 × 100% 3300 × 1/3 E.U. DM CC7,700 3,300 1,100 11,0008,800 Weighted Average Method Step 2 BI 2,000 × 0% 2,000 × 40% S&F EI 3300 × 100% 3300 × 1/3 E.U. DM CC - 0 - 800 5,7005,700 3,300 1,100 9,0007,600 FIFO Method FIFO Equivalent Units

40 40 Big Dog Foods Standard Allowed for Actual Output PriceQuantity / Usage AQ × ACAQ × SCSQ × SC pounds 24,500 × $0.19 $4,655 (30)(800) × $0.20 24,000 × $0.20 $4,800 24,500 × $0.20 $4,900 $245 F $100 U $145 F DIRECT MATERIALS – Ground Brown Rice

41 41 Big Dog Foods (p. 2) Standard Allowed for Actual Output PriceQuantity / Usage AQ × ACAQ × SCSQ × SC pounds 5,900 × $0.41 $2,419 (30)(200) × $0.40 6,000 × $0.40 $2,400 5,900 × $0.40 $2,360 $59 U $40 F $19 U DIRECT MATERIALS – Chicken Meal

42 42 Big Dog Foods (p. 3) Standard Allowed for Actual Output RateEfficiency AQ × ACAQ × SCSQ × SC DLH 300 × $16.00 $4,800 (30)(8) × $15.00 240 × $15.00 $3,600 300 × $15.00 $4,500 $300 U $900 U $1,200 U DIRECT LABOR

43 43 Bob’s Beef Boy 0 Meat $54,000 Lettuce $6,750 Tomatoes $7,500 Kaiser rolls $9,250 0 $77,500 DM $66,400 DL Condiments $2,650 Paper $2,400 Utilities $22,500 Grill Depr. $7,000 Rent $25,000 Cleaning $6,800 $66,350 MOH 0 $77,500 66,400 66,350 0 $210,250 WIP 0 $210,250 0 $210,250 FG $210,250 0 $210,250 COGS COGM $210,250 Servers $53,000 Mgr. $41,000 Depr. Signs $3,250 Adv. $3,500 $311,000 $478,800 $167,800 I/S

44 44 Absorption Costing Income Statement For the Year Ended Dec. 31, 2002 Rev. $630,000 COGS: Prime (252,000) V.MOH (84,000) F.MOH (100,000) GM $194,000 S&A: V.Sell (54,000) F.Sell (45,000) F.Adm (90,000) NI $5,000 Variable Costing Income Statement For the Year Ended Dec. 31, 2002 Rev.$630,000 VC: Prime(252,000) V.MOH (84,000) V.Sell (54,000) CM$240,000 FC: F.MOH(100,000) F.Sell (45,000) F.Adm (90,000) NI $5,000 Bojangle Dance Shoes

45 45 Bosna Corporation

46 46 Bowly Company Absorption Costing I/S For the Y/E Dec. 31, 2005 Rev - CoGS GM - S&A NI $100,000 (60,000) $ 40,000 (15,000) (10,000) $ 15,000 = 5,000 × $20 = 5,000 × $12 = 5,000 × $3 Bowly Company Variable Costing I/S For the Y/E Dec. 31, 2005 Rev - VC CM - FC NI $100,000 (50,000) $ 50,000 (30,000) (10,000) $ 10,000 = 5,000 × $20 = 5,000 × $10 MOH S&A The difference in NI equals the change in FG Inventory times the fixed MOH per unit (1,000 × $5 = $5,000)

47 47 Brötchen Bakery Standard Allowed for Actual Output PriceUsage AQ × ACAQ × SCSQ × SC Pounds 30,000 × $2.20 $66,000 (1,450)(20) × $2.00 $58,000 30,000 × $2.00 $60,000 $6,000 U $2,000 U $8,000 U DIRECT MATERIALS RateEfficiency AQ × ACAQ × SCSQ × SC DLH 8,000 × $18.90 $151,200 (1,450)(5) × $18.00 $130,500 8,000 × $18.00 $144,000 $7,200 U $13,500 U $20,700 U DIRECT LABOR Qty purch = Qty used

48 48 Brötchen Bakery (p. 2) SpendingEfficiency AQ × ACAQ × SCSQ × SC DLH 8,000 × $1.375 $11,000 (1,450)(5) × $1.50 $10,875 8,000 × $1.50 $12,000 $1,000 F $1,125 U $125 U VARIABLE OVERHEAD SpendingVolume ActualBudgeted AQ × SC Applied SQ × SC DLH 8,000 × $3.25 $26,000 (1,450)(5) × $3.00 $21,750 8,333.33 × $3.00 $25,000 $1,000 U $3,250 U $4,250 U FIXED OVERHEAD $150,000 ÷ 100,000 DLH $300,000 ÷ 100,000 DLH Standard Allowed for Actual Output SQ = 100,000 DLH ÷ 12 months

49 49 Buffalo Broilers PDOR = Est. MOH / Est. Activity $500,000 / 100,000 DLH = $5.00 per DLH $500,000 / $800,000 = $0.625 per DL$ $500,000 / 80,000 MH = $6.25 per MH 1.

50 50 Buffalo Broilers (cont.) MOH (DLH) Actual Applied $5.00 * 120,000 $576,000 = $600,000 $24,000 overapplied MOH (DL$) Actual Applied.625 * $930,000 $576,000 = $581,250 $5250 overapplied MOH (MH) Actual Applied $6.25 * 90,000 $576,000 = $562,500 $13,500 underapplied 2. $576,000 / 120,000 DLH = $4.80 Actual MOH per Actual DLH 3.

51 51 California Textbooks (A) Relevant Benefit so better to MAKE than BUY

52 52 California Textbooks (B) Best choice is to buy textbook covers and use facilities for other products

53 53 Candlelight Candles Co. I have chosen to round to 2 decimal places WIP Units 25,000 510,000 12,000 523,000 Out BI IN EI DM 100% CC 40% 80% WIP - $ (Wtd. Avg.) DM $42,650 CC $17,152 DM $433,500 CC $339,690 DM $10,680 CC $ 6,432 $17,112 523,000 * $1.56 = $815,880 = 12000 * 100% * $0.89 = 12000 * 80% * $0.67 Out BI IN EI E.U. DMCC 523,000 12,000 535,000 523,000 9,600 532,600 OUT EI: (DM) 12000 * 100% EI: (CC) 12000 * 80% E.U. Costs to Account For DMCC $42,650 $433,500 $476,150 $17,152 $339,690 $356,842 BI IN Total $/EU DM CC $476,150 / 535,000 = $0.89 $356,842 / 532,600 = $0.67 $1.56 WEIGHTED AVERAGE METHOD

54 54 Candlelight Candles Co. (p. 2) WIP - $ (FIFO) DM $ 42,650 CC $ 17,152 DM $433,500 CC $339,690 DM $10,200 CC $ 6,240 $16,440 $ 59,802 from BI 9,750 Finished CC 25,000×60%×$0.65 747,000 S&F 498,000 × $1.50 $816,552 = 12,000 × 100% × $0.85 = 10,000 × 80% × $0.65 Out BI IN EI E.U. DMCC - 0 - 498,000 12,000 510,000 15,000 498,000 9,600 522,600 Costs to Account For DMCC $1.706 $1.715 $ per EU BI: (DM) 25,000× 0% BI: (CC) 25,000×60% Start & Finish EI: (DM) 10,000×100% EI: (CC) 10,000× 40% E.U. FIFO METHOD BI $42,650 DM ÷ (25,000×100%) $17,150 CC ÷ (25,000× 40%) Total $3.421 $0.85 $0.65 $ per EU IN $433,500 DM ÷ 510,000 E.U. $339,690 CC ÷ 522,600 E.U.$1.50 (Info we need to do problem) $773,190 Costs to Account For WIP Units 25,000 510,000 12,000 523,000 Out BI IN EI DM 100% CC 40% 80%

55 55 $ 30,000 $205,000 $20,000 $215,000 DM BI Purch EI $ 80,000 215,000 350,000 289,000 $ 50,000 $884,000 BI EI WIP $ 110,000 884,000 $ 120,000 $ 874,000 BI EI FG $ 350,000 - 0 - DL MOH $ 15,000 35,000 14,000 6,000 90,000 40,000 65,000 24,000 $ 289,000 - 0 - IDM Fact Mgr Sal Fact Ins Ptty Tax IDL Mach Rent Fact Util Fact Bldg Depr COGS I/S $ 874,000 150,000 300,000 100,000 17,500 3,000 $ 1,700,000 COGS Sales Comm Admin Exp Delivery Exp Interest Exp Loss on Sale of Equip Sales NI BT $ 874,000 - 0 - $ 874,000 COGS Cannon Beach Sand Co. $ 255,500 $ 34,100Inc. Tax NI AT$ 221,400 - 0 - (to R/E)

56 56 Cannon Beach (p. 2) $ 37,000 1,707,220 40,000 $245,020 $ 350,000 35,000 90,000 150,000 17,500 34,100 743,400 119,200 Beg End CASH Assets (aka: “Pete”) $ 127,220 1,700,000 $ 120,000 $1,707,220 Beg End A/R $720,000 119,200 $790,200 Beg End Factory Assets $ 264,000 24,000 $ 282,000 Beg End Accum. Depr. Cash from Customers ((A/R)) DL Fact Mgr IDL Sales Comm Int Exp Tax Exp A/P Purch of Equip Liabilities & Owners’ Equity (aka: “Re-Pete”) $ 350,000 Beg End Notes Payable $ 38,500 205,000 15,000 14,000 6,000 40,000 65,000 300,000 100,000 $ 40,100 A/P $ 250,000 Beg End Common Stock $ 240,720 221,400 $ 462,120 Beg End R/E $ 743,400 (to Cash)(Sales on Acct.) (Depr. Exp.) (Net Income) $ 39,000 Beg End Short Term Investments Beg. DM IDM Fact Ins Ppty Taxes Mach Rent Fact Util Admin Exp Delivery Exp End (to Cash) $ 6,000 Sale of Equip Purch of Equip $49,000 Sale of Equip

57 57 Cannon Beach (p. 3) Cannon Beach Sand Company Balance Sheet As of December 31, 2005 Assets Cash A/R S/T Investmts Plant Assets Accum Depr DM WIP FG Total $ 245,020 120,000 39,000 790,200 (282,000) 20,000 50,000 120,000 $1,102,220 Liabilities & Owners’ Equity N/P A/P C/S R/E Total $ 350,000 40,100 250,000 462,120 $1,102,220

58 58 Cannon Beach (p. 4) Cannon Beach Sand Company Statement of Cash Flows (Indirect Method) For the Year-Ended December 31, 2005 Net Income Depr. Exp ↓ A/R (source) ↑ A/P (source) ↓ DM (source) ↓ WIP (source) ↑ FG (use) Loss on Equip Sale Net Cash provided by Operating Activities Sale of Equipment Purch of Equipment Net Cash used by Investing Activities Net increase in cash Beg. Cash End Cash $ 221,400 + 24,000 + 7,220 + 1,600 + 10,000 + 30,000 - 10,000 + 3,000 $ 287,220 $ 40,000 - 119,200 $ (79,200) $ 208,020 37,000 $ 245,020 Not specifically requested by problem; already calculated CF using Direct Method. Calculation of Free Cash Flows Cash from Operations Less: Capital Expenditures (net) Free Cash Flows $287,220 (79,200) $208,020 Operating Activities Investing Activities

59 59 Carwash Company (A) Present 0 Year 1 Year 2 Year 3 Investment Savings Total PV Factor NPV Calc. $(100,000) $ 40,000 $(60,000) × 1.0000 $(60,000) $15,000 × 3.7908 $56,862 Year 4 Year 5 = $(3,138) < $0   + From PV of Annuity Table

60 60 Carwash Company (B) The higher the interest rate, the lower the Present Value Correct Answer: 12%YES, the investment should be made. Present 0 Year 1 Year 2 Year 3 Investment Savings Total PV Factor NPV Calc. $(15,403) × 1.0000 $(15,403) $4,000 × 0.8929 $3,571.60 Year 4 $4,000 × 0.7972 $3,188.80 $5,000 × 0.7118 $3,559.00 $8,000 × 0.6355 $5084.00 ≈ $0 difference $15,403.40

61 61 1. DM$210,000 DL 140,000 VOH 30,000 $380,000 2. Sales$500,000 Loss: COGS: DM$210,000 DL 140,000 VOH 30,000 2. FOH $50,000($430,000) GM 4. $ 70,000 VS&A ( 20,000) FS & A ( 60,000) Profit$( 10,000) 3. Sales$500,000 Less: VC: DM$210,000 DL 140,000 VOH 30,000 VS & A $20,000(400,000) CM$100,000 5. BE ($) = FCBE ($) = $110,000 = $110,000 CM Ratio $100,000/$500,000 1/5 6. Operating Leverage= CM/NI = $100,000/10,000 = 10 = $550,000 Cass Company

62 62 Cattle Company (1997) DM $96,000 $202,000 $190,000 $108,000 DL $130,000 MOH $15,000 104,000 $119,000 $119,000 - 0 - Purch Inventory Accounts Product Costs WIP $71,000 190,000 130,000 $445,000 119,000 $65,000 FG $45,000 $445,000$408,000 $82,000 COGS$408,000 0 I/S $408,000$566,000 $135,000 $23,000 COGS ACOGS COGM NI Rev. Admin. BI + In = EI + Out Period Costs

63 63 Cattle Company 1998 WIP $65,000 235,000 170,000$562,000 176,000 $84,000 FG $82,000 $562,000$575,000 $69,000 COGS$575,000 I/S $575,000$812,000 $161,000 $76,000 NI Rev. ACOGS COGS COGM DM $108,000 $229,000$235,000 $102,000 DL$170,000 0 MOH $18,000 158,000$176,000 0 Purch Inventory Accounts Product Costs BI + In = EI + Out Admin. Period Costs

64 64 1.Y= a + bxb = hi-low $ hi-low Activity b = $80,630 - $45,380 986 – 486 b = $70.50 per testing hour $80,630 = a + $70.50 (986) $80,630 = a + $69,513 a = $11,117 Cost Formula y = $11,170 + $70.50x 2. y = $11.17 + $70.50 (800) y= $11.17 + $56,400 y= $67,517 Chain Saw Company

65 65 Chain Saw Company (cont.) y = $61.50 x + $17,431.74 when x = 800 y = $66,631.74 Cost Function:

66 66 1. CM Ratio = CM = 60%VC = 40% of sales Sales $12,000 x.60 = $7,200 2. Sales$9,000 x.60 CM$5,400 FC (6,000) NI ($600) NO 3. BE ($) = FC = $3,000 = $5,000 = $5,000 CM Ratio.60 4. BeforeAfter Rev.$120,000[12,000 x $10] x.60 (VCU = $4) CM $72,000 FC 18,000 NI $54,000 Rev.$144,000[18,000 X $8] 72,000 (18,000 x $4 from “Before”) CM $72,000 FC (20,000) NI $52,000 NO Clair’s Toys

67 67 The Costume Company $800,000 ÷ $8.00 = 100,000 expected (budgeted) DLH … 4 DLH per unit FIXED OVERHEAD Spending Volume Actual FOH Budgeted FOHApplied FOH BQ × SP SQ × SP $802,000 $800,000 (25,250)(4) × $8 $808,000 $2,000 U$8,000 F $6,000 F Flexible Budget Variance = $2,000 U WHERE: BQ = Budgeted Qty. × Std. Allowed

68 68 Cowboy Boots Co. Standard Allowed for Actual Output PriceQuantity / Usage AQ × ACAQ × SCSQ × SC yards 10,000 × $8.00 $80,000 (7,000)(1.5) × $9.00 10,500 × $9.00 $94,500 10,000 × $9.00 $90,000 $10,000 F $4,500 U CAN’T! DIRECT MATERIALS 11,000 × $9.00 $99,000 DM Purchased ≠ DM Used

69 69 Cowboy Boots Co. (p.2) Standard Allowed for Actual Output RateEfficiency AQ × ACAQ × SCSQ × SC DLH 3,800 × $15.50 $58,900 (7,000)(0.5) × $15.00 3,500 × $15.00 $52,500 3,800 × $15.00 $57,000 $1,900 U $4,500 U $6,400 U DIRECT LABOR

70 70 Cox Company

71 71 The Cutters (A) PDOR = Est. MOH Est. Activity = 780,000,000 10,000 DLH = 78,000 per DLH ×80 DLH = 6,240,000 pesos applied to The Hunter 78,000 per DLH×400 DLH = 31,200,000 pesos applied to The Carver

72 72 The Cutters (B) Manufacturing Overhead Pool Cost Driver Allocation BaseApplication Rate Pool 1: 75,000,000 pesos750,000 Number of parts 75,000,000 ÷ 750,000 = 100 pesos per part Pool 2: 100,000,000 pesos25 Number of production runs 100,000,000 ÷ 25 = 4,000,000 pesos per production run Pool 3: 350,000,000 pesos2,000 Number of machine hours 350,000,000 ÷ 2,000 = 175,000 pesos per machine hour Pool 4: 100,000,000 pesos25,000 Number of components tested 100,000,000 ÷ 25,000 = 4,000 pesos per component tested Pool 5: 155,000,000 pesos10,000 Number of direct labor hours 155,000,000 ÷ 10,000 = 15,500 pesos per direct labor hour Use these rates to assign overhead to The Hunter and to The Carver

73 73 Allocation Rate Pool 1: 100 pesos per part Pool 2: 4,000,000 pesos per production run Pool 3: 175,000 pesos per machine hour Pool 4: 4,000 pesos per component tested Pool 5: 15,500 pesos per direct labor hour Activity 15,000 units × 3 parts per unit 1 production run 16 machine hours 1,000 components tested 80 direct labor hours Cost (pesos) 4,500,000 4,000,000 2,800,000 4,000,000 1,240,000 16,540,000 1,203 (Rounded) Total mfg. overhead for 15,000 Hunters Manufacturing overhead per cutter Allocation Rate Pool 1: 100 pesos per part Pool 2: 4,000,000 pesos per production run Pool 3: 175,000 pesos per machine hour Pool 4: 4,000 pesos per component tested Pool 5: 15,500 pesos per direct labor hour Activity 100,000 units × 1 part per unit 1 production run 48 machine hours 100 components tested 400 direct labor hours Cost (pesos) 10,000,000 4,000,000 8,400,000 400,000 6,200,000 29,000,000 290 Total mfg. overhead for 100,000 Carvers Manufacturing overhead per cutter THE HUNTERTHE CARVER The Cutters (B) (p. 2)

74 74 The Cutters (B) (p. 3) PROFIT PER ACTIVITY-BASED COSTING The Cutters (B) PROFIT PER JOB-ORDER COSTING The Cutters (A)

75 75 Cutting Edge Skis Shaping and Milling Dept. November 1997 (Round to 3 decimal places) WIP Units 200 5000 400 4800 Out BI IN EI DM 50% 40% CC 30% 25% WIP - $ (Wtd. Avg.) DM $3000 CC $1,000 DM $74,000 CC 70,000 DM $2,483.84 CC $1,449.00 $3,932.84 4800 * 30.014 = $144,067.20 = 400 * 40% * $15.524 = 400 * 25% * $14.490 Out BI IN EI E.U. DMCC 4800 160 4960 4800 100 4900 Costs to Account For DMCC $3,000 $74,000 $77,000 $1,000 $70,000 $71,000 BI IN Total $/EU DM CC $77,000 / 4960 = $15.524 $71,000 / 4900 = $14.490 $30.014 OUT EI: (DM) 400 * 40% EI: (CC) 400 * 25% E.U. WEIGHTED AVERAGE METHOD

76 76 Cutting Edge Skis (p. 2) WIP - $ (FIFO) DM $3,000 CC $1,000 DM $74,000 CC $70,000 DM $2,436.16 CC $1,446.30 $3,882.46 $ 4,000.00 from BI 1,522.60 Finished DM 200×50%×$15.226 2,024.82 Finished CC 200×70%×$14.463 136,569.40 S&F 4,600 × $29.689 $144,116.82 = 400 × 40% × $15.226 = 400 × 25% × $14.463 Out BI IN EI E.U. DMCC 100 4,600 160 4,860 140 4,600 100 4,840 Costs to Account For DMCC $30 $16.667 $ per EU BI: (DM) 200 × 50% BI: (CC) 200 × 70% Start & Finish EI: (DM) 400 × 40% EI: (CC) 400 × 25% E.U. FIFO METHOD BI $3,000 DM ÷ (200×50%) $1,000 CC ÷ (200×30%) Total $46.667 $15.226 $14.463 $ per EU IN $74,000 DM ÷ 4,860 E.U. $70,000 CC ÷ 4,840 E.U.$29.689 (Info we need to do problem) $148,000 Costs to Account For WIP Units 200 5000 400 4800 Out BI IN EI DM 50% 40% CC 30% 25%

77 77 WTD.AVG. SPVC CMMIXCMSP Boston$1200$700 $50060% $300 $720 Deluxe$50002000$300040%$1200$2000 $1500$2720 1. 60% Boston = 1200 Boston = 1200 Boston 40% Deluxe = 800 Deluxe = 800 Deluxe 2000 units total @ BE 2,000 units BE (units) = FC = $3,000,000 = 2,000 units BE CM per unit $1500 2. BE ($) = FC = $3,000,000 = $3,000,000 CM Ratio $1500/$2720.55 = $5,440,000 BE($) -- OR --- 1200 x $1200 = $1,440,000 800 x $5000 = 4,000,000 $5,440,000 Deering Banjo Company

78 78 Q=DLH $4.00 $900,000 (SP)1,500,000 × 150/1000 Rate Eff AQ x AP 190,000 x $4.00 $760,000 SQ x SP 180,000 X $4.00 $720,000 $760,000 ÷ 190,000 AQ x SP $0 $40,000 U 1,200,000 x 150/1000 = 1. FC $150,000 VC $720,000 $870,000 190,000 × $4.00 $760,000 GIVEN = 180,000 2. Duo Company

79 79 East Meets West (A)

80 80 East Meets West (B)

81 81 East Meets West (C)

82 82 East Meets West (D)

83 83 East Meets West (E) Current BE ($) = FC + NI = $20,000 + $12,000 = $80,000 CMR0.4 New BE ($) = FC + NI = $27,500 + $12,000 = $79,000 CMR 0.5 This seems better because EMW does not need earn as much revenue to achieve its target profit BUT! Current BE ($) = FC + NI = $20,000 = $50,000 CMR0.4 New BE ($) = FC + NI = $27,500 = $55,000 CMR 0.5 Current MS Ratio = Actual Rev. – BE Rev. = $80,000 - $50,000 =.375 Actual Rev. $80,000 New MS Ratio = Actual Rev. – BE Rev. = $79,000 - $55,000 =.304 Actual Rev.$79,000 MORE RISKY

84 84 Fast Company VARIABLE-COSTING INCOME STATEMENTS Sales Less variable expenses: Variable cost of goods sold a Variable selling and administrative b Contribution margin Less fixed expenses: Fixed overhead Fixed selling and administrative Net income $1,500,000 (900,000) (37,500) $ 562,500 (150,000) (50,000) $ 362,500 $1,000,000 (600,000) (25,000) $ 375,000 (150,000) (50,000) $ 175,000 $2,000,000 (1,200,000) (50,000) $ 750,000 (150,000) (50,000) $ 550,000 2002 20032004 a 2002: $6.00 × 150,000 = $ 900,000 2003: $6.00 × 100,000 = $ 600,000 2004: $6.00 × 200,000 = $1,200,000 b $0.25 per unit × Units sold $4.00 + $1.50 + $0.50 = $6.00

85 85 Fast Company (p. 2) ABSORPTION-COSTING INCOME STATEMENTS Sales Less cost of goods sold: Variable manufacturing expense a Fixed manufacturing expense b Gross margin Less selling and admin. expenses: Variable selling and admin. c Fixed selling and admin. Net income $1,500,000 (900,000) (150,000) $ 450,000 (37,500) (50,000) $ 362,500 $1,000,000 (600,000) (100,000) $ 300,000 (25,000) (50,000) $ 225,000 $2,000,000 (1,200,000) (200,000) $ 600,000 (50,000) $ 500,000 2002 20032004 a 2002: $6.00 × 150,000 = $ 900,000 2003: $6.00 × 100,000 = $ 600,000 2004: $6.00 × 200,000 = $1,200,000 b 2002: $1.00 × 150,000 = $ 150,000 2003: $1.00 × 100,000 = $ 100,000 2004: $1.00 × 200,000 = $ 200,000 c $0.25 per unit × Units sold FOH per unit = Est. FOH Normal volume = $150,000 150,000 = $1.00 per unit $4.00 + $1.50 + $0.50 = $6.00

86 86 Fools Gold Jewelry Standard Allowed for Actual Output PriceQuantity / Usage AQ × ACAQ × SCSQ × SC ounces 663 × $300 $198,900 (1,300)(0.5) × $295 650 × $295 $191,750 663 × $295 $195,585 $3,315 U $3,835 U $7,150 U DIRECT MATERIALS

87 87 Frodo Company There are two ways students can approach this problem.  CostsKeep OldBuy New Operating costs($75,000)($20,000) Depreciation (NOT RELEVANT)($30,000)($30,000) Resale of old $ 2,000 Purchase of new($40,000)_______ ($105,000)($88,000) $17,000 savings!  Incremental Change in operating cost $11,000 × 5 years =$ 55,000 Resale of old machine$ 2,000 Cost of new machine($40,000) (Cost) or Savings$ 17,000

88 88 Funk and Wagnall RelevantIrrelevant Opportunity Outlay Outlay Sunk X (1.) X (2.) X (3.) X (4.) X (5.) X (6.) X (7.) X (8.) XX (9.) X (10.) 1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

89 89 Gee-Whiz Shoes Standard Allowed for Actual Output RateEfficiency AQ × ACAQ × SCSQ × SC DLH 9,500 × $18.20 $172,900 (20,000)(0.5) × $18.00 650 × $295 $180,000 9,500 × $18.00 $171,000 $1,900 U $9,000 F $7,100 F DIRECT LABOR

90 90 Halo Products Company A. B. C. D. PDOR = Est. MOH Est. Activity = $200,000 32,000 = $6.25 Applied MOH = PDOR * Actual Activity = $6.25 * 36,400 = $227,500 MOH Actual $256,200 Applied $227,500 Underapplied $28,700 $256,200 / 36,400 = $7.04

91 91 Hannibal Company DM BI $23,400 Purch $160,000 $33,400 150,000 $100,000 0 DL IDL $20,000 Rent 21,000 Depr 30,000 Util. 5,978 76,978 0 $6,520 150,000 100,000 76,978 $7,498 326,000 WIP $40,000 326,000 57,050 308,950 FG 308,950 0 COGS I/S $308,950 Sales Sp;amoes $55,000 Sales Comm. 38,000 Admin. 61,000 $600,000 Sales Rev $137,050 NI MOH

92 92 Hassett Company 1998 budget requires 20,000 handles for use in the production of pots. Costs to manufacture the handles is as follows: DM$.60 DL$.40 VOH$.10 FOH$.20 Total$1.30 R&M Steel Co. has offered to supply handles for $1.25 each. Should Hassett MAKE or BUY? MAKE!$1.10 < $1.25 DM, DL, VOH = relevant costs that change

93 93 The Hat Source 1.BE(units) = CM per unit FC + NI = $150,000 + $0 $30 - $18 = 12,500 units BE($) = CM Ratio FC + NI = $150,000 +$0 40% = $375,000 2.BE(units) = CM per unit FC + NI = $30 - $18 = 15,000 units BE($) = CM Ratio FC + NI = $150,000 +$30,000 40% = $450,000 $150,000 + $30,000

94 94 Herd Company

95 95 VOH Spending Efficiency AQ x AP $131,000 AQ x SP 121,000 x $.50 $60,500 $3,000U SQ x SP 115,000 x $.50 $57,500 N/A SQ x SP 115,000 x $.50 FOH Actual Budgeted $110,000 Budgeted $110,000 Applied SQ x SP ($1) 115,000 Spending N/A Volume $5,000 F TOTAL $178,500 $179,500 $3,000U $172,500 SpendingEfficiency Volume $5,000 F $8000 U Herman Company

96 96 Holland Company

97 97 Holland Company (p. 2)

98 98 Home Quality Products Prevention Costs: b. Seminar costs for “Vendor Day”. Appraisal Costs: c. Costs of conformance tests at Charlotte plant. e. Costs of inspection tests at the Raleigh packaging plant. Internal Failure Costs: a. Labor and materials costs of reworking a batch of steam-iron handles. External Failure Costs: d. Replacement cost of 1,000 steam-irons sold in the Pittsburgh are. The cost of customer ill-will created by the sale of defective products has two components: (a)The volume of future lost sales, (b)The contribution margin on lost sales. Customer surveys and interviews with distributors and retailers can provide a way to estimate (a); (b) can be estimated using internal accounting information. 1. 2.

99 99 1. BE (units) = FC = $30,000 = 2000 units CM per unit $35-$20 BE ($)= FC= $30,000 =$70,000 CM ratio $35-$20 $35 2. BE ($)= FC + NI = ($30,000 X 12) + $510,000 = $2,030,000 CM ratio $35-$20 $35 3. MS ($)= Actual Rev. – BE Rev. = $2,030,000 – ($70,000 x 12) = $2,030,000 - $840,000 = $1,190,000 MS Ratio= Actual Rev. – BE Rev. Actual Rev. = $2,030,000 - $840,000 = 58.6% $2,030,000 4. Operating Income = NIAT = $864,000 = $1,440,000 I – TR = 1 -.4 BE (units) = FC + NI = $360,000 + $1,440,000 = 120,000 units annually, CM per unit $35-$20 10,000 units monthly Houghton’s Limited

100 100 The Hour Record Distance traveled is the ‘score,’ determining who wins and who doesn’t, and seems to be best considered a financial measure. Net income or cash flow if you will. This is a historical measure; at any point in time this measure only tells you what has occurred in the past. Bicycle speed is the predictive of what ‘score’ will be achieved. Measures that do this can be both financial (expected sales in dollars) and nonfinancial (expected sales in units). Heart Rate is a measure of current effort, such as the amount (in units or dollars) of materials, labor and/or overhead being used in production. In general, with heart rate and with materials usage, lower is better. Again, this is a historical measure but is predictive to the degree that heart rate this minute will be the same as heart rate the next minute. Human body efficiency decreases over time, so heart rate will increase over time, but business efficiency should increase over time, and the corresponding efficiency measures should improve. Can a target (or budgeted) distance be useful in this scenario? Or at least knowledge of the last record set? If after 30 minutes the rider is less than halfway toward the old record, someone should determine if the record can realistically be equaled or broken. If the record is unrealistic, the rider might as well cut his or her losses and save the energy for another task.

101 101 Howdy Company $602,000 / 70,000 = $8.60 / hr$735,000 / $420,000 = 1.75% 110 * $8.60 = $946.00$680 * 1.75 = $1,190.00$946 + $1190 = $2,136 DM DL MOH $470 290 946 $1,706 DM DL MOH 332 680 1190 $2,202 $1706 + $2202 = $3908 / 50 units = $78.16 MOH (65,000 * $8.60) 559,000 $4,000 0 $570,000 $11,000 underapplied COGS $11,000 MOH $750,000 $13,000 ($436,000 * 1.75) $763,000 $13,000 0 COGS $13,000 1. 2. 3. 4. A – machine hoursB – DL$ overapplied

102 102 J.B. Goode Company PDOR = Est. MOH = $135,000 = $13.50 per DLH Standard[Applied MOH = Actual Activity × PDOR] Custom[Applied MOH = Actual Activity × PDOR]  This part of the calculation is a little unusual because we are using actual MOH in the calculation rather than estimated MOH Est. Activity 10,000 900 units × 10 DLH = 9000 DLH ×$13.50 $121,500 Applied MOH 100 units × 10 DLH = 1000 DLH ×$13.50 $13,500 Applied MOH 1.

103 103 J.B. Goode Company (p. 2) 2. STANDARD [Applied MOH = Actual Activity × PDOR] Depr. Maint. Purch. Insp. IDM Super. Supplies 3,000 9,000 1,500 400 900 400 900 ×××××××××××××× $10.00 $ 1.50 $11.00 $12.00 $15.00 $28.00 $ 3.00 ============== $30,000 13,500 16,500 4,800 13,500 11,200 2,700 $92,200 Applied MOH÷ 900 Guitars = $102.45 each CUSTOM [Applied MOH = Actual Activity × PDOR] Depr. Maint. Purch. Insp. IDM Super. Supplies 1,000 500 600 100 600 100 ×××××××××××××× $10.00 $ 1.50 $11.00 $12.00 $15.00 $28.00 $ 3.00 ============== $10,000 1,500 5,500 7,200 1,500 16,800 300 $42,800 Applied MOH÷ 100 Guitars = $428 each

104 104 J.B. Goode Company (p. 3) 3. Custom OLD WAY Custom NEW WAY DM DL MOH TOTAL DM DL MOH TOTAL $375 $240 $135 $750 $ 375 $ 240 $ 428 $1,043 NO... $1,000 Revenue does not cover the manufacturing expense The single biggest reason for the higher overhead cost is the supervision required for the custom guitars.

105 105 Joe Slow R R R I R I R I R 1.__________ The cost of traveling the 250 miles to Finding Foodstore. 2.__________ The time he will spend on the road. 3.__________ The time he will spend visiting with Finding Foodstore executives. 4.__________ The amount of time already devoted to Finding Foodstore. 5.__________ The revenue potential from Finding Foodstore. 6.__________ The cost of his last visit to Finding Foodstore. 7.__________ The probability that his visit will result in new sales. 8.__________ The cost of lunch for himself if he visits Finding Foodstore. 9.__________ The cost of lunch he would buy for Finding Foodstore executives.

106 106 The John Company WIP Units 5,000 40,000 10,000 35,000 OutBI IN EI DM 100% CC 60% 40% WIP - $ (Wtd. Avg.) DM $5,050 CC $3,270 DM $44,000 CC $48,600 DM $10,900 CC 5,320 $16,220 35,000 × $2.42 = $84,700 = 10,000 × 100% × $1.09 = 10,000 × 40% × $1.33 Out BI IN EI E.U. DMCC 35,000 10,000 45,000 35,000 4,000 39,000 Costs to Account For DMCC $5,050 $44,000 $49,050 $3,270 $48,600 $51,870 BI IN Total $/EU DMCC $49,050 / 45,000 = $1.09 $51,870 / 39,000 = $1.33 $ 2.42 OUT EI: (DM) 10,000 × 100% EI: (CC) 10,000 × 40% E.U. WEIGHTED AVERAGE METHOD

107 107 The John Company (p.2) WIP Units 5,000 40,000 10,000 35,000 OutBI IN EI DM 100% CC 60% 40% WIP - $ (FIFO) DM $5,050 CC $3,270 DM $44,000 CC $48,600 DM $11,000 CC 5,400 $16,400 $ 8,320 from BI 2,700 Finished CC 5,000×40%×$1.35 73,500 S&F 30,000 × $2.45 $84,520 = 10,000 × 100% × $1.10 = 10,000 × 40% × $1.35 Out BI IN EI E.U. DMCC - 0 - 30,000 10,000 40,000 2,000 30,000 4,000 36,000 Costs per EU DMCC $1.01 $1.09 $ per EU BI: (DM) 5,000× 0% BI: (CC) 5,000×40% Start & Finish EI: (DM) 10,000×100% EI: (CC) 10,000× 40% E.U. FIFO METHOD BI $5,050 DM ÷ (5,000×100%) $3,270 CC ÷ (5,000× 60%) Total $2.10 $1.10 $1.35 $ per EU IN $44,000 DM ÷ 40,000 E.U. $48,600 CC ÷ 36,000 E.U.$2.45 (Info we need to do problem) $100,920 Costs to Account For

108 108 Jolly Candies 1.BE(units) = CM per unit FC + NI = $400 + $300 $1 = 700 units 2.BE(units) = CM per unit FC + NI = $400 + $0 $1 = 400 units 400 units × 120% = 480 units (volume 20% above breakeven volume) Rev (480 units × $4) - VC (480 units × $3) CM - FC NI $1,920 1,440 $ 480 400 $ 80 3.NIBT = NIAT 1- TR = $300 1 – 40% = $500 BE(units) = CM per unit FC + NI = $400 + $500 $4.00 - $3.50 = 1,800 units

109 109 Jude Law & Associates If the new system is purchased, what will occur?? $180,000 Labor cost savings on old system ($36,000 × 5 years) 10,000 Sale of old system (76,000) Cost of new system (90,000) Labor cost of new system ($18,000 × 5 years) 500 Higher residual value of new system $24,500 SAVINGS BY PURCHASING NEW SYSTEM

110 110 Judge Ely Jeans DM $29,500 98,400 95,600 $32,300 DL $118,400 0 MOH $ 7,200 44,800 4,800 $21,600 10,400 15,200 35,200 $139,200 0 60% * 36000 = WIP $49,600 95,600 118,400 340,400 139,200 $62,400 FG $37,600 340,400 326,000 $52,000 COGS $326,000 0 I/S $326,000 $715,200 $7,200 $14,400 4,000 2,640 123,200 15,300 166,740 492,740 $222,460 NI S&A 40% * $36,000 = COGS ACOGS COGM

111 111 Kaitlyn Korporation CASH $15,000 $90,000 $32,000 $12,000 $125,000 Beg. Collections Borrow End Disbursements

112 112 Kennedy Company

113 113 Lands End Men’s Suits PriceQty/Usage AQ × AC AQ × SCSQ × SC 10,000 × $5.00 10,000 × $6.00 $50,000 $60,000 $10,000 F AQ × SCSQ × SC (2700)(4) × $6.00 (2700)(3.5) × $6.00 $64,800$56,700 $8,100 U CAN’T! Actual Cost < Standard Cost = FAVORABLE Actual Quantity < Standard Quantity = FAVORABLE Standard Allowed for Actual Output (in units)

114 114 Mango Motors Absorption Costing Income Statement For the Year Ended Dec. 31, 1996 Rev.$810,000 COGS(540,000) (60,000) GM$210,000 S&A (67,500) (50,000) NI $92,500 Variable Costing Income Statement For the year Ended Dec. 31, 1996 Rev.$810,000 VC(540,000) (67,500) CM$202,500 FC (60,000) (50,000) NI $92,500

115 115 Marie Manufacturing Company BI $ 42,000 Purch. $850,000 EI $ 48,000 DM (a.) $844,000 $820,000 DL $820,000 MOH IDM Supplies Fact Depr Security Supplies Equip Dep $ 4,000 $ 6,200 $ 60,000 $ 12,000 $ 82,600 $560,000 $765,000 $724,800 OverappliedMOH $40,200 WIP BI $ 84,000 $844,000 $820,000 $765,000 $93,000EI $2,420,000 (d.) FG $ 124,000 $2,420,000 BI $2,411,000 $ 133,000 EI COGS $2,411,000 $2,370,800 (e.) $2,370,800 0 I/S Office Depr. Adm. Depr. Sales Sal. Office Depr. $3,335,000Sales$2,370,800 $ 4,000 $ 3,000 $120,000 $ 22,200 $2,520,000 $815,000 (f.) 0 0 PDOR = Estimated MOH Estimated Activity = $750,000 50,000 DLH = $15 per DLH Applied MOH = Actual Activity × PDOR 51,000 DLH × $15 =$765,000 (b.) (c.) $ 40,200

116 116 McKay Mills 1. 2. PDOR = Est. OH / Est. Activity = $1,335,000 / 1645 (500 + 410 + 735) PDOR = $811.55 per DLH Actuals: Yarn455 * $811.55 = $369,255.25 Fabric420 * $811.55 = $340,851.00 Clothing750 * $811.55 = $608,662.50 $1,318,768.75 MOH Actual $1,372,000.00 Applied $1,318,768.75 $53,231.25 underapplied

117 117 Mesa Verde Company MESA VERDE COMPANY Balance Sheet December 31, 2005 Assets Current Assets: Cash ………………………… Accounts receivable ………… Inventories ………………….. Total current assets ………… Noncurrent assets ……………. Total assets …………………… Liabilities Stockholders’ Equity Current liabilities..…………… Noncurrent liabilities ………… Total liabilities.……………….. Common stock..……………… Additional paid-in capital ……. Retained earnings.…………… Total stockholders’ equity …… Total liabilities and equity …… $ 10,250 46,000 86,250 $ 22,500 62,000 $142,500 280,000 $422,500 $ 84,500 $150,000 60,000 128,000 338,000 $422,500 Where? How? Note 8 [Plug] Note 5 Note 4 Note 7 [Plug] (Given) Note 6 [Calc. = Total L + SE] Note 9 Note 10 [Plug] Note 3 (Given) Note 2 [Calc.: Note 6]

118 118 Mesa Verde (p. 2) SUPPORTING COMPUTATIONS Note 1: Compute net income for 2005 Sales ………………….. Cost of goods sold …… Gross profit ………….. Operating expenses ….. Income before taxes …. Taxes expense ……….. Net income …………… $920,000 690,000 $230,000 180,000 $ 50,000 20,000 $ 30,000 (75% of sales (100% - Gross profit margin ratio)) (25% of sales (#) Gross profit margin ratio) (tax at 40% rate (#)) Note 2: Compute Stockholders’ Equity Common stock ($15 par × 10,000 sh.) Additional paid-in capital (($21-$15)×10,000 sh.) Retained earnings, Dec. 31, 2004 Net income Retained earnings, Dec. 31, 2005 Total stockholders’ equity $150,000 60,000 98,000 30,000 (#) — piece(s) of information provided in problem $210,000 128,000 $338,000 (#) Note 3: Total equity Total Debt $338,0000 ÷ 4 $ 84,500 (#) Shareholders’ equity to total debt

119 119 Mesa Verde (p. 3) SUPPORTING COMPUTATIONS Note 4: Inventory turnover = Cost of goods sold ÷ (Avg.) Inventory 8 = $690,000 (from Note 1) ÷ Inventory Inventory = $86,250 (#) or (#) — piece(s) of information provided in problem Precisely is “Avg.” Inv.., We will use as “End” (because it is all we have) 8 = 360 (#) ÷ 45 (#) Days sales in inventory An alternative calculation for Inventory turnover Days sales in receivables = Receivables ÷ (Credit sales ÷ 360 (#) ) 18 days (#) = Receivables ÷ ($920,000 (#) ÷360) Receivables = $46,000 “Ending” Note 6: Total assets = Total liabilies + Total equity = $338,000 (from Note 3) + $84,500 (from Note 3) = $422,500 Total assets = Current assets + Noncurrent assets $422,500 = Current assets + $280,000 (#) Current assets = $142, 500 Current assets = Cash + Receivables + Inventory Cash (plug) = Total assets – Receivables – Inventory = $142,500 - $46,000 (from Note 4) - $86,250 (from Note 4) = $10,250 Note 5: Note 7: Note 8:

120 120 Mesa Verde (p. 4) SUPPORTING COMPUTATIONS (#) or (#) — piece(s) of information provided in problem Note 9: Acid-test ratio = (Cash + Accounts receivable) ÷ Current liabilities 2.5 (#) = ($10,250 + $46,000) ÷ Current liabilities Current liabilities = $22,500 Total liabilities = Current liabilities + Noncurrent liabilities $84,500 (from Note 3) = $22,500 + Noncurrent liabilities Noncurrent liabilities = $62,000 Note 10:

121 121 Millstone Company MILLSTONE COMPANY Balance Sheet December 31, 2004 Assets Current Assets: Cash ………………………… Accounts receivable ………… Inventories ………………….. Total current assets ………… Noncurrent assets ……………. Total assets …………………… Liabilities Stockholders’ Equity Current liabilities..…………… Noncurrent liabilities ………… Total liabilities.……………….. Common stock..……………… Additional paid-in capital ……. Retained earnings.…………… Total stockholders’ equity …… Total liabilities and equity …… $ 61,700 115,000 161,000 $276,000 63,080 $337,700 510,000 $847,700 $339,080 $100,000 150,000 258,620 508,620 $847,700 Where? How? Note 7 Note 4 Note 3 Calculation: Cash+A/R+Inv. (Given) Calc: Note 8 Note 6 Note 10 [Plug] Note 9 (Given) Note 13 [Plug] Note 11 [ = Total assets]

122 122 Millstone (p. 2) SUPPORTING COMPUTATIONS Note 1: Compute net income for 2005 Sales ………………….. Cost of goods sold …… Gross profit ………….. Operating expenses ….. Income before taxes …. Taxes expense ……….. Net income …………… $1,840,000 1,288,000 $552,000 $ 92,000 (#) (70% of sales (100% - Gross profit margin ratio)) (30% of sales (#) Gross profit margin ratio) (5% Net operating profit margin ratio (#)) Note 2: Compute Stockholders’ Equity Common stock ($15 par × 10,000 sh.) Additional paid-in capital (($21-$15)×10,000 sh.) Retained earnings, Dec. 31, 2004 Net income Retained earnings, Dec. 31, 2005 Total stockholders’ equity $100,000 150,000 $166,620 92,000 (#) — piece(s) of information provided in problem $250,000 258,620 $508,620 (#) [Plug: Note 12] (Note 11) The Answer to Question #2 (Note 13) Note 3: Inventory turnover = Cost of goods sold ÷ (Avg.) Inventory 8 (#) = $1,288,000 (from Note 1) ÷ Inventory Inventory = $161,000 Precisely is “Avg.” Inv.., We will use as “End” (because it is all we have)

123 123 Millstone (p. 3) SUPPORTING COMPUTATIONS (#) — piece(s) of information provided in problem Accounts receivable turnover = Sales ÷ Average accounts receivable 16 (#) = $1,840,000 ÷ Avg. A/R Accounts receivable = $115,000 Note 5: Working capital = Current assets - Current liabilities = Cash + Accounts receivable + Inventories - Current liabilities $27,200 (#) = Cash + $115,000 (Note 4) + $161,000 (Note 3) - $276,000 (Note 6) Cash = $61,700 Note 4: Note 6: Note 7: Precisely is “Avg.” Inv.., We will use as “End” (because it is all we have) Operating cash flow to income = Operating cash flow ÷ Net income 3 (#) = Operating cash flow ÷ $92,000 (Note 1) Operating cash flow = $276,000 Cash flow to current liabilities ratio = Operating cash flow ÷ Current liabilities 1 (#) = $276,000 (Note 5) ÷ Current liabilities Current liabilities = $276,000 Note 8: Total assets = Cash + Accounts receivables + Inventories + Noncurrent assets = $61,700 (Note 7) + $115,000 (Note 4) + $161,000 (Note 3) + $510,000 (#) Total assets = $847,700

124 124 Total debt ratio = Total liabilities ÷ Total assets 0.4 (#) = Total liabilities ÷ $847,700 (Note 8) Total liabilities = $339,080 Millstone (p. 4) SUPPORTING COMPUTATIONS (#) — piece(s) of information provided in problem Note 9: Note 10:Total liabilities = Current liabilities + Noncurrent liabilities $339,080 (Note 9) = $276,000 (Note 6) + Noncurrent liabilities Noncurrent liabilities = $63,080 Note 11:Total assets = Total liabilities + Total equity $847,700 (Note 8) = $339,080 (Note 9) + Total equity Total equity = $508,620 Note 12:Total equity = Common stock + Add’l paid-in capital + Ending retained earnings $508,620 (Note 11) = $100,000 (#) + $150,000 (#) + Ending R/E Ending retained earnings = $258,620 Note 13: End retained earnings = Begin retained earnings + Net income $258,620 (Note 12) = Begin retained earnings + $92,000 (Note 1) Begin retained earnings = $166,620

125 125 Missouri Retailers (A) APR MAY JUN Feb Mar. Apr. Mar. Apr. May Apr. May Jun. $ 85,000×20% $ 95,000×30% $ 75,000×50% $ 95,000×20% $ 75,000×30% $ 85,000×50% $ 75,000×20% $ 85,000×30% $108,000×50% $17,000 28,500 37,500 $83,000 $19,000 22,500 42,500 $84,000 $15,000 25,500 54,000 $94,500 APRMAYJUNTotal $261,500

126 126 Missouri Retailers (B) Mar. Apr. May Jun. $50,000×70% $55,000×30% $55,000×70% $65,000×30% $65,000×70% $88,000×30% $35,000 16,500 $51,500 $38,500 19,500 $58,000 $45,500 26,400 $71,900 Total $181,400 APR MAY JUN APRMAYJUN

127 127 Mizzou Company 1. PDOR = Estimated Activity ÷ Estimated Activity = $130,890 ÷ 1,720 = $76.10 per DLH Unit Product Cost: Direct Materials Direct Labor Mfg. Overhead Total Unit Cost Miz Zou $10.70 11.20 53.27 * $75.17 $16.70 19.20 91.32 ** $127.22 * 0.7 DLH/unit × $76.10 = $53.27 ** 1.2 DLH/unit × $76.10 = $91.32 2. Activity-Based Costing: Activity Rates Activity Cost Pool Machine set-ups Purchase orders General factory Estimated MOH Estimated Activity Rates $13,570 91,520 25,800 230 setups 2,080 orders 1,720 DLH $59 per setup $44 per order $15 per DLH Traditional Method

128 128 Mizzou Company (p. 2) Activities Machine set-ups Purchase orders General factory Total Overhead Cost 3. (a) Activity Rates $59 per setup $44 per order $15 per DLH Estimated Activity 100 setups 810 orders 280 DLH MOH $ 5,900 35,640 4,200 $45,740 Estimated Activity 130 setups 1,270 orders 1,440 DLH MOH $ 7,670 55,880 21,600 $85,150 MIZ ZOU Activity-Based Costing: Applying MOH to Products 3. (b) Activity-Based Costing: MOH per Unit Number of units produced400 units1,200 units MOH per unit$114.35 per unit$70.96 per unit Unit Product Cost: Direct Materials Direct Labor Mfg. Overhead Total Unit Cost Miz Zou $ 10.70 11.20 114.35 $136.25 $16.70 19.20 79.96 $106.86 3. (c) Activity-Based Costing: Unit Product Costs

129 129 Moehrle Manufacturing Costs to manufacture: DM$45 DL$30 VOH$30 FOH$22 Total$127 A special order is received to produce monitors with a special logo that would increase production costs by $5.00 per monitor **What is the minimum selling price Moehrle should accept for this order? $105 + $5 $110minimum selling price for special order

130 130 $60,000 $250,000 $240,000 $70,000 DL $405,000 MOH $10,000 25,000 100,000 35,000 30,000 $200,000 - 0 - Purch Inventory Accounts Product Costs $120,000 240,000 405,000 $850,000 200,000 $115,000 FG $150,000 $850,000$835,000 $165,000 COGS$835,000 - 0 - I/S $835,000$940,000 $110,000 $ 5,000 COGS ACOGS COGM NI (LOSS!!) Rev. Admin. BI + In = EI + Out Period Costs $200,000 DMWIP Muleskinner Athletic Wear, Inc.

131 131 Narcissus Needles 1. 2. 3. Utilities $10,000 Depr.15,000 Dupr. Sal. 30,000 Janitorial 6,000 Ins.9,000 Total MOH $70,000 Est. DLH = 3,500 PDOR = Est. OH / Ect. Activity = $70,000 / 3,500 PDOR = $20 Apploied OH = PDOR * Activity = $20 * 3,600 DLH Applied OH = $72,000 Utilities $10,500 Depr.15,000 Supr. Sal. 30,000 Janitorial 5,200 Ins.8,500 Total MOH$69,200 Actual $69,200 Applied $72,000 MOH $2,800 Overapplied

132 132 Paradise Company

133 133 Pirates, Inc. RateEfficiency AQ × ACAQ × SC SQ × SC 28,000 × $11.70 28,000 × $12.00 (22,000)(1.25) × $12.00 $327,600 $336,000 $330,000 $8,400 F$6,000 U $2,400 F Std. Allowed for Actual Output (in units)

134 134 Plentiful Printing, Inc. $15,000 95,000 $20,000 90,000 DM $3,000 90,000 40,000 60,000 8000 2000 3000 $13,000 $180,000 WIP $20,000 180,000 $15,000 185,000 FG $40,000 2,500 * $16 $40,000 0 DL Actual $57,000 3000 Applied $40,000 * 1.5 = $60,000 3000 0 MOH $185,000 $182,000 0 3000 $182,000 COGS $182,000 57,000 12,000 $285,000 $34,000 I/S PDOR = Est OH / Est Activity = $600,000 / $400,000 = 1.5 per DL $ $2000 / 125 hrs = $16 /hrDirect Labor Rate BI Purch EI BI EI Adj. COGS Selling Admin Sales NI COGM COGS Adj. COGS

135 135 Polaris Company $ 10,000 $210,000 $ 34,000 $178,000 $ 12,000 DM BI Purch EI $ 42,000 $178,000 $ 90,000 $240,000 $ 30,000 $520,000 BI EI WIP $ 37,000 $520,000 $ 77,000 $480,000 BI EI FG $ 90,000 - 0 - DL MOH $ 12,000 $110,000 $ 40,000 $ 70,000 $232,000 30,000 * $8 = $240,000 $ 8,000 - 0 - IDM IDL Depr. Other COGS I/S $472,000 $ 54,000 $ 42,000 $600,000 $ 32,000 COGS Selling Admin. Sales NI$ 8,000 $480,000 $472,000 Adj. COGS COGS $ 8,000 $472,000 - 0 -

136 136 Polaris Company (p. 2) $600,000 $ 24,000 $210,000 $ 90,000 $110,000 $ 70,000 $ 54,000 $ 42,000 CASH $ 40,000 Accum. Depr. [Stmt. of Cash Flows]

137 137 Portland Pilots Association

138 138 Portland Pilots Assoc. (p. 2)

139 139 Postmodern Products Standard Allowed for Actual Output PriceQuantity / Usage AQ × ACAQ × SCSQ × SC feet 15,200 × $3.15 $47,880 (3,000)(5) × $3.00 45,000 × $3.00 $45,000 15,200 × $3.00 $45,600 $2,280 U $600 U $2,880 U DIRECT MATERIALS ANSWERS: 1(a) = $3.15 1(b) = $2,280 U 1(c) = $600 U

140 140 Postmodern Products (p. 2) Standard Allowed for Actual Output RateEfficiency AQ × ACAQ × SCSQ × SC DLH 5,400 × $11.40 $61,560 (3,000)(1.75) × $11.50 5,250 × $11.50 $60,375 5,400 × $11.50 $62,100 $540 F $1,725 U $1,185 U DIRECT LABOR ANSWERS: 2(a) = $11.50 2(b) = 5,250 2(c) = 1.75

141 141 P.W. Products Standard Allowed for Actual Output PriceQuantity / Usage AQ × ACAQ × SCSQ × SC pounds 350,000 × $4.12 $1,442,000 (12,000)(25) × $4.00 300,000 × $4.00 $1,200,000 350,000 × $4.00 $1,400,000 $42,000 U $16,000 U CAN’T! DIRECT MATERIALS 304,000 × $4.00 $1,216,000 DM Purchased ≠ DM Used

142 142 P.W. Products (p. 2) Standard Allowed for Actual Output RateEfficiency AQ × ACAQ × SCSQ × SC DLH 95,400 × $10.55 $1,006,470 (12,000)(8) × $10.00 96,000 × $10.00 $960,000 95,400 × $10.00 $954,000 $52,470 U $6,000 F $46,470 U DIRECT LABOR

143 143 Rex Company

144 144 Rikki-Tikki-Tavi Taffy

145 145 Rikki-Tikki-Tavi Taffy (p. 2)

146 146 Robin Hood, Inc. PDOR = Estimated MOH Estimated Activity = $2,000,000 125,000 DLH = $16.00 per MH a. b. c. Applied MOH = Actual Activity × PDOR 140,000 DLH × $16.00 = $2,240,000 MOH $2,400,000 $2,240,000 $160,000 - 0 - to COGS Underapplied

147 147 BI $131,400 PURCH. $319,700 EI $126,100 DM (a.) 325,000 $293,480 DL $293,480 MOH IDL DEPR. PTY TAX FIRE INS. IDM UTIL. DEPR. $22,700 $31,000 $12,600 $7,840 $11,600 $36,000 $44,000 920 x 29= 26,680 DLH 26,680 x $600 = $160,080 $165,740 Underapplied MOH $5,660 (c.) $5,660 PRIME COSTS DM $325,000 DL 293,480 $618,480 (b.) WIP BI $49,000 $325,000 $293,480 $160,080 $73,900EI $753,660 (d.) FG $87,300 $753,660 BI 763,660 $77,300 EI COGS $763,660 $5,660 $769,320 (f.) $769,320 0 I/S SOLO SALARIES ADU. PTY TAX FIRE INS. COMM. ADMIN. UTIL. RENT DEPR. MISC. R & ALLOW $1,281,700Sales$769,320 $85,000 $44,000 $5,400 $1,960 $28,500 $167,200 $9,000 $8,700 $17,400 $4,300 $36,100 $1,176,880 $104,820 X 40% = $41,928 $104,820 $62,892 NI BT (f.) NI AT 0 0 Roley Poley PER UNIT $753,660 / 920 = $819 (e.)

148 148 Rondini Magic Company

149 149 Rondini Magic Co. (p. 2)

150 150 S & P Corporation 1.BE(units) = CM per unit FC + NI = $300,000 + $0 $10 - $5 = 60,000 units 2.BE($) = CM Ratio FC + NI = $300,000 +$0 50% = $600,000

151 151 Sam Enterprises CansCan-ettes Units produced per hour31 Contribution margin per unit$ 3$ 6 Contribution margin per hour (the resource constraint) $ 9$ 6 Total contribution for 1,000 hours$9,000$6,000 THE WINNER!

152 152 Sleepwell, Inc. DM $18,500 80,00081,700 $16,800 DL$40,500 0 MOH$105,750 0 WIP $12,000 81,700 40,500$216,450 105,750 $23,500 FG $10,200 261,450217,550 $9,100 COGS $217,550217,550 0 I/S Suppose: Revenue = $400,000 Selling & Admin.= $100,000 $ 82,450 $400,000$217,550 100,000

153 153 Sly-Like-A-Fox, Inc. SLY-LIKE-A-FOX, INC. Balance Sheet December 31, 2002 Assets Current Assets: Cash ………………………… Accounts receivable ………… Inventories ………………….. Current Assets ………………... Noncurrent assets ……………. Total assets …………………… Liabilities and Equity Current liabilities..…………… Noncurrent liabilities ………… Total liabilities.……………….. Total equity ………………….. Total Liabilities and Equity ….. $ 75,000 75,000 50,000 $200,000 $300,000 $500,000 $100,000 150,000 $250,000 $500,000 Where? How? Note 10 [Plug] Note 4 Note 5 Note 7 [Plug] (Given) Note 6 [Calc. = Total L+E] Note 8 Note 9 [Plug] Note 3 Note 2 [Calc.: Note 6]

154 154 Sly-Like-A-Fox (p. 2) SUPPORTING COMPUTATIONS Note 1: Compute net income for 2005 Sales ………………….. Cost of goods sold …… Gross profit ………….. Operating expenses ….. Net income …………… $1,000,000 500,000 $ 500,000 450,000 $ 50,000 (50% of sales (100% - Gross profit margin ratio)) (50% of sales (#) Gross profit margin ratio) (With no information given about taxes, this is all we have.) Note 2: Return on end-of-year equity = Net income ÷ End of year equity 20% (#) = $50,000 (from Note 1) ÷ End of year equity Equity = $250,000 Note 3: Total debt to equity ratio = Total liabilities ÷ Stockholders’ equity 1 (#) = Total liabilities ÷ $250,000 (from Note 2) Total liabilities = $250,000 Note 4: Accounts receivable turnover = Sales ÷ Average accounts receivable 16 (#) = $1,000,000 (#) ($50,000 (#) + End A/R) ÷ 2 (#) or (#) — piece(s) of information provided in problem Ending accounts receivable = $75,000

155 155 Sly-Like-A-Fox (p. 3) Note 6: Total assets = Total liabilities + Total equity = $250,000 (from Note 3) + $250,000 (from Note 2) = $500,000 Total assets = Current assets + Noncurrent assets $500,000 = Current assets + $300,000 (#) Current assets = $200,000 Current ratio = Current assets ÷ Current liabilities 2 (#) = $200,000 ÷ Current liabilities Current liabilities = $100,000 Total liabilities = Current liabilities + Noncurrent liabilities $250,000 (from Note 3) = $100,000 + Noncurrent liabilities Noncurrent liabilities = $150,000 (#) or (#) — piece(s) of information provided in problem SUPPORTING COMPUTATIONS Note 10: Current assets = Cash + Accounts receivable + Inventory $200,000 = Cash (plug) + $75,000 (from Note 4) + $50,000 (from Note 5) Cash = $75,000 (This “formula” provided by problem information) Note 5: Days’ sales in inventory = (Inventory × 360) ÷ Cost of goods sold 36 (#) = (Inventory × 360) ÷ $500,000 (from Note 1) End Inventory = $50,000 Note 9: Note 8: Note 7:

156 156 Smith Company Price Qty AQ × AC AQ × SC SQ × SC 36,000 × $8.3536,000 × $8.25 $300,600 $297,000 $3,600 UStd. Allowed for Actual Output (Std. Amt. x Actual Units) AQ × SC SQ × SC 31,800 × $8.25 (3200)(10) × $8.25 $262,350 $264,000 $1,650 F CAN’T!

157 157 Smith Company (p. 2) Rate Efficiency AQ × ACAQ × SCSQ × SC 11,520 × $9.80 11,520 × $9.65 (3200)(3.5) × $9.65 $112,896$111,168 $108,080 $1,728 U $3,088 U $4,816 U Translating Dr. Fessler’s “picture” into Formulas: 1. AQ × (SC – AC) = Rate Variance 2. SC × (SQ – AQ) = Efficiency variance

158 158 SoMuch Stereos Absorption Costing Income Statement For the Year Ended Feb. 28, 2000 Rev.$89,000 COGS: DM(22,000) DC(14,000) VOH (9,000) FOH(10,000) GM$34,000 S&A: VSE (5,000) FSE(16,000) FAE(14,000) NI($1,000) Variable Costing Income Statement For the Year Ended Feb. 28, 2000 Rev.$89,000 VC: DM(22,000) DL(14,000) VOH (9,000) VSE (5,000) CM$39,000 FC: FOH(10,000) FSE(16,000) FAE(14,000) NI($1,000)

159 159 South Street Furniture Company Absorption Costing I/S For the Y/E Dec. 31, 2005 Rev - CoGS GM - S&A NI $3,600,000 (248,000) (2,176,000) (12,000) $1,164,000 (216,000) (340,000) $ 608,000 = 72,000 units × $20 = BI 8,000 units × $31 per unit = 64,000 units × $34 per unit Underapplied MOH (2,000 @ $6) = 72,000 units sold × $3 per unit Fixed South Street Furniture Company Variable Costing I/S For the Y/E Dec. 31, 2005 Rev - VC CM - FC NI $ 3,600,000 (208,000) (1,792,000) (216,000) $ 1,384,000 (480,000) (340,000) $ 564,000 = 72,000 units × $20 = BI 8,000 units × $26 per unit = 64,000 units × $28 per unit = 72,000 units × $ 3 per unit MOH S&A The difference in NI : FOH from BI FOH to EI Difference in NI PDOR = $480,000 ÷ 80,000 normal production = $6.00 per unit $(40,000) 84,000 $ 44,000 = 8,000 units @ $5 per unit = 14,000 units @ $6 per unit

160 160 1. y = a + bxb = hi-lo $ hi-lo activity b = $390,700 - $180,000 4,980 – 2,180 = $210,700 2,800 b = $75.25 per machine hour $390,000 = a + $75.25 (4,980) $390,700 = a + $374,745 a = $15,955 Cost Formula y = $15,955 + $75.25x y = $15,955 + $75.25 (3,500) y = $15,955 + $263,375 y = $279,330 2. Southern Carpets

161 161 Southern Carpets (cont.) y = $57.27 x + $86,152.89 when x = 3,500 y = $286,597.85 when x = 4,000 y = $315,232.89 Cost Function:

162 162 Steinmueller Steins, Inc. WEIGHTED AVERAGE METHOD

163 163 Steinmueller Steins (p. 2) WIP Units 5,000 20,000 2,000 23,000 OutBI IN EI DM 100% CC 70% 80% WIP - $ (FIFO) DM $6,000 CC $7,000 DM $18,000 CC $18,000 DM $1,800.00 CC 1,364.80 $3,164.80 $ 13,000.00 from BI 1,279.50 Finished CC 5,000×30%×$0.853 31,554.00 S&F 18,000 × $1.753 $45,833.50 = 2,000 × 100% × $0.90 = 2,000 × 80% × $0.853 Out BI IN EI E.U. DMCC - 0 - 18,000 2,000 20,000 1,500 18,000 1,600 21,100 Costs to Account For DMCC $1.20 $2.00 $ per EU BI: (DM) 5,000× 0% BI: (CC) 5,000×30% Start & Finish EI: (DM) 2,000×100% EI: (CC) 2,000× 80% E.U. FIFO METHOD BI $6,000 DM ÷ (5,000×100%) $7,000 CC ÷ (5,000× 70%) Total $3.20 $0.90 $0.853 $ per EU IN $18,000 DM ÷ 20,000 E.U. $18,000 CC ÷ 21,100 E.U.$1.753 (Info we need to do problem) $49,000 Costs to Account For

164 164 Stetson Company Absorption Costing I/S For the Y/E Dec. 31, 2001 Rev - CoGS GM - S&A NI $17,000 (- 0 -) (6,000) (4,000) $ 7,000 (1,000) (1,400) $ 4,600 = 2,000 units × $8.50 = BI ( - none - ) = 2,000 units × $3 per unit Underapplied MOH (4,000 @ $1) = 1,000 units sold × $0.50 per unit Fixed Normal volume is 10,000 units of production. Underapplied MOH = 10,000 – 6,000 actual production = 4,000 units Stetson Company Absorption Costing I/S For the Y/E Dec. 31, 2002 Rev - CoGS GM - S&A NI $25,500 (9,000) ( - 0 - ) (9,100) $ 7,400 (1,500) (1,400) $ 4,500 = 3,000 units × $8.50 = BI 3,000 units × $3 per unit = - 0 - units × $3 per unit Underapplied MOH (9,100 @ $1) = 3,000 units sold × $0.50 per unit Fixed Normal volume is 10,000 units of production. Underapplied MOH = 10,000 – 900 actual production = 9,100 units

165 165 Stetson Company (p. 2) Stetson Company Variable Costing I/S For the Y/E Dec. 31, 2002 Rev - VC CM - FC NI = 3,000 units × $8.50 CoGS (3,000 units × $2 per unit S&A (3,000 units × $0.50 per unit) MOH S&A The difference in NI 2001: Units mfg. - units sold × FOH per unit Difference in NI 4,000 $1.00 $ 4,000 $ 25,500 (6,000) (1,500) $ 18,000 (10,000) (1,400) $ 6,600 Stetson Company Variable Costing I/S For the Y/E Dec. 31, 2001 Rev - VC CM - FC NI = 2,000 units × $8.50 CoGS (2,000 units × $2.00 per unit) S&A (2,000 units × $0.50 per unit) MOH S&A $ 17,000 (4,000) (1,000) $ 12,000 (10,000) (1,400) $ 600 The difference in NI 2002: Units mfg. - units sold × FOH per unit Difference in NI 2,100 $1.00 $2,100 Production > Sales Abs. NI is higher! Sales > Production VC NI is higher!

166 166 Stiegl Corporation

167 167 Stone Monument Co. (A) 1. 2. BE (units) = FC + NI CMU = $6,000,000 $1,000 = 6,000 units BE ($) = FC + NI CMR = $6,000,000 $2,000 - $1,000 $2,000 = $12,000,000 6,000 units BE 20,000 units Normal capacity =30%

168 168 Stone Monument Co. (B) 1. 2. BE (units) = FC + NI CMU = $6,000,000 + $1,400,000 $1,000 = 7,400 units BE ($) = FC + NI CMR = $6,000,000 + $1,400,000 $2,000 - $1,000 $2,000 = $14,800,000

169 169 Stone Monument Co. (C) 1. 2. SP (x) = VCU (x) + FC + NI $2,000 (x) = $1,000 (x) + $6,000,000 + (.25) ($2,000) (x) $2,000 x = $1,000 x + $6,000,000 + $500 x $500 x = $6,000,000 x = 12,000 units TR = VC + FC + NI R =.5 R + $6,000,000 +.25R.25 R = $6,000,000 R = $24,000,000

170 170 Stone Monument Co. (D) 1. 2. SP (x) = VCU (x) + FC + NI $2,000 (x) = $1,000 (x) + $6,000,000 + (.25) ($2,000) (x) $2,000 x = $1,000 x + $6,000,000 + $400 x $600 x = $6,000,000 x = 10,000 units 10,000 units x $2,000 SP $20,000,000

171 171 Stone Monument Co. (E) SP (x) = VCU (x) + FC + NI SP (20,000) = $1,000 (20,000) + $6,000,000 + $21,000,000 SP = $47,000,000 20,000 SP = $2,350

172 172 Stone Monument Co. (F) 1. 2. MS ($) = Actual Revenue - BE Revenue MS ($) = $40,000,000 - $12,000,000 ($2,000 SP x 20,000 normal volume) (from (A)) MS ($) = $28,000,000 MS Ratio = Actual Revenue - BE Revenue MS Ratio = $40,000,000 - $12,000,000 Actual Revenue $40,000,000 MS Ratio = 70% Quite Good!!

173 173 Stone Monument Co. (G) 1. 2. BE (units) = FC + NI CMU = $6,000,000 + $2,000,000 $1,000 = 8,000 units BE ($) = FC + NI CMR = $6,000,000 + $2,000,000 $2,000 - $1,000 $2,000 = $16,000,000 NIBT = NIAT 1- Tax Rate = $1,400,000 1 - 0.30 First, … = $2,000,000

174 174 Strange Fire, P.C. Variable Overhead Spending Efficiency N/A Actual VOH AQ × SC SQ × SC 2900 × $20 2800 × $20 $54,000 $58,000 $56,000 $4,000 F $2,000 U 2,000 F Flexible Budget Variance = $2,000 F

175 175 Stuffing Company (A) Present 0 Year 1 Year 2 Year 3 Purchase Savings Total PV Factor NPV Calc. $(60,000) × 1.0000 $(60,000) $25,000 × 0.9091 $22,727.50 $25,000 × 0.7513 $18,782.50 $25,000 × 0.8264 $20,660.00 = $2,170 From PV Table ≥ $0  ☺ OR use Annuity Table Purchase Savings PV Factor NPV Calc. $25,000 × 2.4869 $62,172.50 per year for 3 years $(60,000) × 1.0000 $(60,000) = $2,172.50 ☺ +++

176 176 Stuffing Company (B) TRIAL & ERROR THE HIGHER THE INTEREST RATE, THE LOWER THE PV We know 10% is TOO LOW (why, because it yields a positive NPV) So we try 11% …$25,000 × 2.4437 $61,092.50 (11% for 3 yr. annuity) vs. $(60,000)STILL TOO LOW So we try 12% …$25,000 × 2.4018 $60,200 (12% for 3 yr. annuity) vs. $(60,000)Still A BIT too low So we try 13% …$25,000 × 2.3612 $59,025 (13% for 3 yr. annuity) vs. $(60,000)Now A BIT too HIGH Closer to 12% than 13%

177 177 Stuffing Company (C) Investment A: 2 years $ 20,000 in Year 1 80,000 in Year 2 $100,000 Total Investment B: 2 years $ 90,000 in Year 1 10,000 in Year 2 $100,000 Total Investment B BETTER because get money sooner Payback Period = Original Investment ÷ Periodic Cash Flow Investment C: 3 years $100,000 ÷ $39,000 = 2.5641 years

178 178 Stuffing Company (D) Accounting Rate of Return (ARR) = Avg. NI ÷ Investment [ARR aka Simple Rate of Return] Avg. NI= $80,000 5 yrs. =$16,000 NI per year Average NI Investment = $16,000 $100,000 =16%ARRARR =

179 179 Stuffing Company (E) Profitability Index = PV of CF Investment Project 1: Project 2: Project 3: $567,270 ÷ $480,000 = 1.182 $336,140 ÷ $270,000 = 1.245 $379,760 ÷ $400,000 = 0.949 RANKING: NPV PI IRR Project 1 1 2 Project 2 2 1 Project 3 3 1. 2.

180 180 $ 16,700 $152,500 $22,800 185,000 DM BI Purch (for Cash) EI $ 18,400 146,400 175,600 54,800 $ 25,200 $370,000 BI EI WIP $ 24,600 370,000 $ 19,500 $375,100 BI EI FG $175,600 - 0 - DL MOH $ 14,300 12,600 10,100 9,440 8360 $ 54,800 - 0 - IDL Fact. Repairs Fact. Utilities Depr., Fact. Fact. Ins. COGS I/S $375,100 114,900 92,600 5,150 $680,000COGS Selling Exp. Admin. Exp. Interest Exp. Sales NI BT $375,100 - 0 - $375,100 COGS Sven’s Sweets Company (for Cash) (on Acct.) $ 92,250 $ 20,000Inc. Tax (on Acct.) NI AT$ 72,250 - 0 - (Cash) (to R/E)

181 181 Sven’s Sweets (p. 2) $ 42,500 671,900 $ 104,290 $ 14,300 12,600 10,100 8,360 212,500 19,000 152,500 175,600 5,150 Beg End CASH Assets (aka: “Pete”) $ 71,900 680,000 $ 80,000 $671,900 Beg End A/R (net) $724,000 Beg End Plant Assets $ 278,400 9,440 $ 287,400 Beg End Accum. Depr. Cash from Customers ((A/R)) IDL Repairs Util. Ins. A/P Tax Pay. DM DL Int. Exp. Liabilities & Owners’ Equity (aka: “Re-Pete”) $ 100,000 Beg End Notes Payable $ 5,000 20,000 $ 6,000 Beg End Inc. Taxes Payable $ 40,000 114,900 92,600 $ 35,000 Beg End A/P $ 269,600 Beg End Common Stock $ 205,100 72,250 $ 277,350 Beg End R/E $ 19,000 $ 212,500 (Inc. Tax Exp.)(to Cash) (Sales on Acct.) (Depr. Exp.) (Net Income) (Selling Exp.) (Adm. Exp..)

182 182 Sven’s Sweets (p. 3) Sven’s Sweets Company Balance Sheet As of December 31, 2005 Assets Cash A/R Plant Assets Accum Depr DM WIP FG Total $ 104,290 80,000 724,000 (287,840) 22,800 25,200 19,500 $687,950 Liabilities & Owners’ Equity N/P IT/P A/P C/S R/E Total $ 100,000 6,000 35,000 269,600 277,350 $687,950 Sven’s Sweets Company Statement of Cash Flows (Indirect Method) For the Year-Ended December 31, 2005 Net Income Depr. Exp A/R IT/P A/P DM WIP FG Net Cash Inflows Beg. Cash End Cash $ 72,250 + 9,440 - 8,100 + 1,000 - 5,000 - 6,100 - 6,800 + 5,100 $ 61,790 42,500 $104,290 Not specifically requested by problem; already calculated CF using Direct Method.

183 183 Sweet Surrender, Inc. SWEET SURRENDER, INC. Balance Sheet December 31, 2003 Assets Current Assets: Cash ………………………… Accounts receivable ………… Inventories ………………….. Current Assets ………………... Noncurrent assets ……………. Total assets …………………… Liabilities and Equity Current liabilities..…………… Noncurrent liabilities ………… Total liabilities.……………….. Total equity ………………….. Total Liabilities and Equity ….. $ 85,000 125,000 75,000 $285,000 $495,000 $780,000 $237,500 22,500 $260,000 $520,000 $780,000 Where? How? (Given) Note 5 Note 4 [Calc.: Note 7] Note 8 [Plug] Note 6 [Calc. = Total L+E] Note 9 Note 10 [Plug] Note 3 Note 2 [Calc.: Note 6]

184 184 Return on end-of-year equity = Net income ÷ End of year equity 0.5 (#) = $260,000 (from Note 1) ÷ End of year equity Equity = $520,000 Total debt to equity ratio = Total liabilities ÷ Stockholders’ equity 0.5 (#) = Total liabilities ÷ $520,000 (from Note 2) Total liabilities = $260,000 Days’ sales in inventory = (Inventory × 360) ÷ Cost of goods sold 15 days (#) = (Inventory × 360) ÷ $1,800,000 (from Note 1) End Inventory = $75,000 Days’ sales in receivables = (Accounts receivable × 360) ÷ Sales 15 days (#) = (Inventory × 360) ÷ $3,000,000 (from Note 1) End Accounts receivable = $125,000 Note 1: Compute net income for 2003 Sales ………………….. Cost of goods sold …… Gross profit ………….. Operating expenses ….. Income before taxes …. Taxes expense ……….. Net income …………… $3,000,000 1,800,000 $1,200,000 800,000 $ 400,000 140,000 $ 260,000 (= COGS + Gross profit) (#) (60% of sales (100% - Gross profit margin ratio)) (40% of sales (#) Gross profit margin ratio) (#) (Calculation) (tax at 35% rate (#)) Sweet Surrender (p. 2) SUPPORTING COMPUTATIONS Note 2: Note 3: Note 4: (#) — piece(s) of information provided in problem Note 5:

185 185 Note 10: Total liabilities = Current liabilities + Noncurrent liabilities $260,000 (Note 3) = $237,500 (Note 9) + Noncurrent liabilities Noncurrent liabilities = $22,500 Current assets = Cash + Accounts receivable + Inventories Current assets = $85,000 (#) + $125,000 (Note 5) + $75,000 (Note 4) Current assets = $285,000 Current ratio = Current assets ÷ Current liabilities 1.2 (#) = $285,000 (Note 7) ÷ Current liabilities Current liabilities = $237,500 Sweet Surrender (p. 3) Note 7: Total assets = Current assets + Noncurrent assets $780,000 (Note 6) = $285,000 (Note 7) + Noncurrent assets (plug) Noncurrent assets = $495,000 SUPPORTING COMPUTATIONS Note 9: Note 8: Total assets = Total liabilities + Total equity = $260,000 (Note 3) + $520,000 (Note 2) = $780,000 Note 6: (#) or (#) — piece(s) of information provided in problem

186 186 The Swizzle Manufacturing Co. 10,000 $200,000 $25,000 185,000 DM BI Purch EI $15,000 185,000 230,000 385,200 $22,000 793,200 BI EI WIP $30,000 793,200 $43,200 $780,000 BI EI FG $230,000 (21,400 hrs) $230,000 0 DL MOH 63,000 90,000 54,000 76,000 102,000 385,000 21,400 * $18 = $385,200 $ 200 0 Utilities IDL Maint. Depr. Rental COGS I/S 779,800 7,000 110,000 136,000 19,000 18,000 1,200,000 $130,200 COGS Utilities S&A Salaries Advertising Depr. Rental Sales NI Est.OH Est Activity $360,000 20,000 DLH = $18 per DLH 200 $779,800 $ 200 $780,000 $779,800 Adj. COGS PDOR = = COGS

187 187 Swizzle (p. 2) The Swizzle Manufacturing Company Schedule of Cost of Goods Manufactured For the Year Ended December 31,1994 Direct material: Raw materials inventory, 1-1-94 Add: Purchases of raw materials Total materials available Deduct: Raw materials inventory, 12-31-94 Raw materials used in production Direct Labor Manufacturing overhead: Utilities...................................................................................... Indirect Labor.............................................................................. Maintenance................................................................................. Depreciation................................................................................. Building rent.............................................................................. Actual overhead costs Add: Overapplied overhead Manufacturing overhead applied to WIP Total manufacturing costs Add: Beginning work in process inventory Deduct: Ending work in process inventory Cost of Goods Manufactured $10,000 200,000 $210,000 (25,000) $185,000 230,000 $63,000 90,000 54,000 76,000 102,000 $385,000 200 385,200 $800,200 15,000 $815,200 (22,000) $793,200

188 188 Swizzle (p. 3) The Swizzle Manufacturing Company Schedule of Cost of Goods Sold For the year ended December 31, 1994 Finished goods inventory, 1-1-94 Add: Cost of goods manufactured Goods available for sale Less: Ending finished goods inventory Cost of goods sold Deduct: Overapplied overhead Adjusted cost of goods sold $30,000 793,200 823,200 (43,200) $780,000 (200) $779,800

189 189 Swizzle (p. 4) The Swizzle Manufacturing Company Income Statement For the Year Ended December 31, 1994 Sales Less: Cost of Goods Sold Gross Margin Less: Selling and administrative expenses: Utilities Salaries Advertising Depreciation Building rental Net Income $1,200,000 (779,800) $420,200 $290,000 $130,200 $ 7,000 110,000 136,000 19,000 18,000

190 190 Tallyho Company $3,000,000 budgeted FOH ÷ 100,000 budgeted units = $30 per unit (SC) FIXED OVERHEAD Spending Volume Actual FOH Budgeted FOHApplied FOH BQ × SC SQ × SC 110,000 × $30 $3,200,000 $3,000,000 $3,300,000 $200,000 U$300,000 F $100,000 F

191 191 Thorp Company

192 192 Tigér Boats Bill Bird should accept the offer. $12,500 Selling price per boat (11,500) Variable cost per boat ($5,000 + $5,500 + $1,000) $ 1,000 Contribution per boat Fixed manufacturing overhead will not change and thus is not relevant.

193 193 …can sell just milk, or can process the milk further into cheese, ice cream and yogurt Product:CheeseIce CreamButter Sales value at split off (i.e., milk)$400,000$500,000$100,000 Sales value if processed further$450,000$679,000$110,000 Cost of further processing$ 17,000$103,000$ 14,000 Joint costs$150,000 Joint costs are allocated by the sales value at split off Relevant! Cost $400,000 $17,000 $450,000 Cheese :o) Raw Milk- Joint Costs $150,000 $500,000 $103,000 $679,000 Ice Cream :o) $100,000 $14,000 $110,000 Butter :o( $1,000,000 revenue from selling product just as milk Tillamook Cheese Co.  Cost to produce butter from milk higher than the increased revenue

194 194 Tina’s Best Chocolate (A) Tina should process the cocoa powder further into an instant cocoa mix. $2,000 Selling price of Instant Cocoa (500) Selling price of Cocoa powder $1,500 Additional revenue from processing further (800) Additional cost of processing further $700 Additional profit per ¼ ton from processing further

195 195 Tina’s Best Chocolate (B) Contribution margin per case Machine hours required per case Cost per machine hour THE LIGHT $1.00.02 MH $50.00 THE DARK $2.00.05 MH $40.00 Tina’s best product is The Light

196 196 Toledo Torpedo Company Cost Comparison – Replacement of Machine, Including Relevant and Irrelevant Items RELEVANT Benefit (purchase new machine)

197 197 True Blue Corporation Variable Overhead Spending Efficiency N/A Actual VOH AQ × SC SQ × SC 400 × $3.85 420 × $3.85 $1,600 $1,540 $1,617 $60 U$77 F $17 F Flexible Budget Variance = $17 F

198 198 Tub Company

199 199 Ward Company PART 1 PART 2 July: Aug: Sept: $50,000 × 80% × 15% = $70,000 × 80% × 50% = $60,000 × 80% × 30% = $60,000 × 20% = $ 6,000 $28,000 $14,400 $12,000 $60,400 20% of sales collected as cash in month of sale 80% of sales are on account and collected later

200 200 Whiskers Products, Inc.

201 201 Womack Company

202 202 Young Products

203 203 Young Products (cont.)


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