1. 22 Abiqua Acres WIP Units 5,000 60,000 8,000 57,000 Out BI IN EI DM 100% CC 40% 50% WIP - $ (Wtd. Avg.) DM $20,000.00 CC 16,000.00 DM 250,000.00 CC.

22 Abiqua Acres WIP Units 5,000 60,000 8,000 57,000 Out BI IN EI DM 100% CC 40% 50% WIP - $ (Wtd. Avg.) DM $20,000.00 CC 16,000.00 DM 250,000.00 CC 450,000.00 DM $33,230.40 CC 30,557.20 $63,787.60 57,000 × $11.7932 = $672,212.40 = 8,000 × $4.1536 = 4,000 × $7.6393 E.U. DMCC 57,000 8,000 65,000 57,000 4,000 61,000 Costs to Account For $ 20,000 250,000 $270,000 $ 16,000 450,000 $466,000 BI IN Total $/EU $270,000 / 65,000 = $4.1538 $ 11.7932 per E.U. OUT EI: (DM) 8,000 × 100% EI: (CC) 8,000 × 50% E.U. WEIGHTED AVERAGE METHOD $466,000 / 61,000 = $7.6393 BI Out IN EI DM CC 1.2. 5. 6. 3.4.

33 Abiqua Acres (p. 2) WIP Units 5,000 60,000 8,000 57,000 Out BI IN EI DM 100% CC 40% 50% WIP - $ (FIFO) DM $ 20,000.00 CC 16,000.00 DM 250,000.00 CC 450,000.00 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 × $4.1667 = 4,000 × $7.6271 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 $20,000 DM ÷ (5,000×100%) $16,000 CC ÷ (5,000× 40%) Total $12.00 $4.1667 $7.6271 $ per EU $250,000 DM ÷ 60,000 E.U. $450,000 CC ÷ 59,000 E.U.$11.7938 $736,000Costs to Account For BI Out IN EI BI IN 1.2. 5. 6. 3. 4.

44 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 ⅓⅔ 1.

55 Abtex Electric (p. 2) 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 2.

66 Abtex Electric (p. 3) 2. (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

77 Adams’ Co. 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) Total available titanium 80,000 lbs. Contribution margin per unit Pounds of RM per unit CM per pound of RM $ 40.00 ÷ 8 $ 5.00 $ 32.00 ÷ 4 $ 8.00 Bicycle FramesGolf Clubs Adams’ Co. should make golf clubs in order to maximize income because the contribution margin per pound of raw material (the constraint) is the greatest.

88 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 = 7,000 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

99 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 (p. 2)

10 Andretti Company Variable cost per unit: Direct material Direct labor Variable OH Variable S&A $10.00 4.50 2.30 1.20 $18.00Total Fixed expenses: Fixed OH Fixed S&A $300,000 210,000 $510,000Total Before increase in selling expenses: Net Income: Sales Variable costs CM Fixed costs $1,920,000 (1,080,000) $840,000 $330,000Net Income (510,000) ($32*60,000 units) ($18*60,000 units) Variable cost per unit: Direct material Direct labor Variable OH Variable S&A $10.00 4.50 2.30 1.20 $18.00Total Fixed expenses: Fixed OH Fixed S&A $300,000 290,000 $590,000Total After increase in selling expenses: Net Income: Sales Variable costs CM Fixed costs $2,400,000 (1,350,000) $1,050,000 $460,000Net Income (590,000) ($32*75,000 units) ($18*75,000 units) Andretti should increase fixed selling expenses by $80,000 because it increases net income by $130,000 ($460,000 - $330,000). 1.

11 Andretti Company (p. 2) Variable expenses: Direct material Direct labor Variable OH Duties $10.00 4.50 2.30 1.70 $21.70Total Variable S&A 3.20 Minimum selling price should be set at breakeven point. Breakeven is when TR = TC. Let x equal unit selling price per unit: TR = TC (Quantity)*(Selling Price) = (Quantity)*(Variable expenses) + Fixed Costs Increased fixed expenses: Permits$9,000 Total 20,000x = (20,000) * ($21.70) + $9,000 20,000x = $443,000 x = $22.15 2.3. The relevant cost figure is $1.20 per unit, which is the variable selling expense per Dak. Since the irregular units have already been produced, all production costs (including the variable production costs) are sunk. The fixed selling expenses are not relevant since they will not change regardless of whether or not the irregular units are sold.

12 Andretti Company (p. 3) Continue producing: If the plant operates at 30% of normal levels then only 3,000 units will be produced and sold during the 12 month period: 60,000 units per year * 2/12 = 10,000 units 10,000 units * 30% = 3,000 units produced and sold Net Income: Sales Variable costs CM Fixed costs $96,000 (54,000) $42,000 ($43,000)Net Income (85,000) ($32 * 3,000 units) ($18 * 3,000 units) ($510,000 * 2/12) Shut down: CM Fixed costs ($30,000) ($58,000)Net Income (28,000) ($300,000 * 2/12 *.60) ($210,000 * 2/12 *.80) Shutting down the plant would cause a decrease in net income of $15,000 [($58,000)-($43,000)]. Therefore, the plant should continue to produce at the 30% production level. 4. Net Income:

13 Andretti Company (p. 4) Relevant costs avoided by purchasing from outside supplier: Direct material Direct labor Variable OH Variable S&A $10.00 4.50 2.30 0.40 $20.95Total Fixed OH Variable S&A 3.75 0.00 [($300,000*.75)/60,000] [$1.20*1/3] The outside supplier’s quote must be less than $20.95 per unit in order to purchase from it. 5.

14 Apple Appliances Relevant costs to make $ 5 4 1 $10 Relevant costs to buy Selling price $12 Total relevant cots $12 Direct material Direct labor Variable OH Total relevant costs It is $2 cheaper to make the timer assemblies ($12 – $10). Therefore, the offer should be rejected.

15 Arc Light & Sound Raw Materials $ 32,000BI $170,000Purch $144,000 $ 36,000 $22,000EI Work in Progress BI EI $ 20,000 $700,000 Finished Goods BI$ 48,000 $720,000 EI $28,000 $144,000 $200,000 $350,000 $700,000 $ 14,000 MOH $ 36,000 $ 82,000 $ 65,000 $ 18,000 $153,000 $350,000 COGS $720,000 $4,000 COGM I/S $724,000 $100,000 $ 90,000 $ 2,000 $ 27,000 $1,000,000Sales COGS Adver. Salary Insur. Depr. $ 57,000 OI IDM IDL Util. Fact. Ins. Fact. Depr. S&A Direct Labor $200,000 - 0 - $ 4,000 - 0 - $724,000 1. - 0 -

16 Arc Light & Sound (p. 2) Arc Light & Sound Income Statement For the Year Ended March 31 Sales$1,000,000 Less cost of goods sold ($720,000 + $4,000) 724,000 Gross Margin $ 276,000 Less selling and administrative expenses: Salary expense $90,000 Advertising expense 100,000 Insurance expense2,000 Depreciation expense27,000 219,000 Net Operating Income$ 57,000 2.

17 Archer Company 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, a. b.

18 $ 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

19 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

20 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

21 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

22 ACTIVITY: “N” Number of production runs : $400,000 / 50 = $8,000 per… “Q” Quality tests performed : $360,000 / 300 = $1,200 per… “S” Shipping orders processed : $120,000 / 150 = $ 800 per… Audio Basics Corp. Activity Based Costing 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. Allocated MOH Est. MOH Activity $880,000 $480,000 = $1.833 per DL$ $ 638,000 (= $348,000 × $1.833) $ 250,000 $ 348,000 $1,214,000 MOH DM DL Total MFG ÷ 320,000 units $3.8625 per unit $ 242,000 (= $132,000 × $1.833) $ 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 1. 2. b.

23 Axiom Products 1. Predetermined Overhead rate = Estimated total manufacturing overhead cost Estimated total amount of the allocation base = $170,000 85,000 machine-hours = $2.00 per machine-hour 2. The amount of overhead cost applied to Work in Process for the year would be: 80,000 machine-hours × $2.00 per machine hour = $160,000. This amount is shown in entry (a) below: Manufacturing Overhead (Utilities) (Insurance) (Maintenance) (Indirect materials) (Indirect labor) (Depreciation) Balance $14,000 9,000 33,000 7,000 65,000 40,000 $ 8,000 $160,000 (a) Work in Process (Direct materials) (Direct labor) (Overhead) $530,000 85,000 160,000 (a) $ 8,000 - 0 -

24 Axiom Products (p. 2) 3. Overhead is underapplied by $8,000 for the year, as shown in the Manufacturing Overhead account above. The entry to close out his balance to Cost of Goods Sold would be: Cost of Goods Sold………………………………... Manufacturing Overhead ……………………….. 8,000 4. When overhead is applied using a predetermined rate based on machine-hours, it is assumed that overhead cost is proportional to machine-hours. So when the actual level of activity turns out to be 80,000 machine-hours, the costing system assumes that the overhead will be 80,000 machine-hours × $2.00 per machine hour, or $160,000. This is a drop of $10,000 from the initial estimated total manufacturing overhead cost of $170,000. However, the actual total manufacturing overhead did not drop by this much. The actual total manufacturing overhead was $168,000—a drop of only $2,000 from the estimate. The manufacturing overhead did not decline by the full $10,000 because of the existence of fixed costs and/or because overhead spending was not under control.

25 The Baize Company PDOR = Estimated MOH Estimated Activity = $403,200 21,000 DLH = $19.20 per DLH Applied MOH = Actual Activity × PDOR 20,000 DLH × $19.20$384,000 MOH $378,000 $6,000 - 0 - to COGS Overapplied = = 1. 2. 3. $384,000

26 Bags and More Unit cost * (1-CMR) 2a. BE (units) FC + NI CMU = $360,000 $24 =15,000 units BE ($)=$900,000 FC + NI CMR = $360,000 0.40 $60 * (100% - 40%) $36 Variable expenses (per unit) = $60 - $36Contribution margin (per unit) = $24 = = Variable expenses (per unit) =1.

27 Bags and More (p. 2) 2b. BE (units) FC + NI CMU ==18,750 units BE ($)=$1,125,000 $360,000 + $90,000 $24 2c. BE (units) FC + NI CMU $360,000 $27 = 13,334 units (rounded) BE ($) $800,000 = FC + NI CMR $360,000 + $90,000 0.40 = $360,000 0.45 FC + NI CMR = = = = = =

28 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 Corp.

29 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)

30 Barbershop Company

31 Barefoot Books Hardbacks$18.00$12.00$ 6.007/10$4.200 Paperbacks$ 3.00$ 2.40$ 0.602/10$0.120 Magazines$ 3.20$ 2.00$ 1.201/10$0.120 $4.440 SPU VCUCMUMix Wtd. Avg. CMU FC $97,680 22,000 units CM per unit $4.440 HB PB Mag 70% 20% 10% 15,400 + 4,400 + 2,200 = 22,000 $277,200 + $13,200 + $7,040 = $297,440 HB PB Mag Rent Utilities Salaries Overhead Advertising Prof. Services Total $19,200 7,680 56,000 11,500 900 2,400 $97,680 Fixed Costs: 1. & 2. & 3. == = BE (units) 2. 1. 3.

32 Barefoot Books (p. 2) NIBT = NIAT (1- Tax Rate) 4. $26,640 (1-.40) NIBT$44,400 $97,680 + $44,400 $4.440 BE (units) = FC + NIBT BE (units)32,000 units= CM per unit HB PB Mag 70% 20% 10% 22,400 + 6,400 + 3,200 = 32,000 $403,200 + $19,200 + $10,240 = $432,640 HB PB Mag #4 = = =

33 Beachside Industries (A) SpendingEfficiency Actual CostAQ x SCSQ x SC $ 21,840 3,780 × $6 $ 22,680 (6,720)(0.5) × $6 $ 20,160 $ 840 F$ 2,520 U VARIABLE OVERHEAD SQ = Standard Allowed for Actual Output DLH $1,680 U $21,000 ÷ 3,500 DLH

34 Beachside Industries (B) ActualBudgetedApplied $ 128,800 $ 126,000(6,720)(0.5) × $36 $ 120,960 $ 2,800 U$ 5,040 U FIXED OVERHEAD SpendingVolume BQ x SCSQ x SC SQ = Standard Allowed for Actual Output $126,000 ÷ 3,500 DLH $ 7,840 U

35 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.

36 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

37 Bee-Cee’s Guitar (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

38 Bee-Cee’s Guitar (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

39 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

40 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%×200,000) 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

41 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

42 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)

43 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

44 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

45 Belly Rub (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

46 Belly Rub (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

47 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

48 B.G. Wip Company Step 1 DM CC 100% 60% BI 100% 33% EI WIP 2,000 9,000 3,300 7,700 Step 2 Wtd. Avg. Equivalent Units OUT EI 3300 × 100% 3300 × 33% 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 3,300 × 100% 3,300 × 33% E.U. DM CC - 0 - 800 5,7005,700 3,300 1,100 9,0007,600 FIFO Method FIFO Equivalent Units

49 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

50 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

51 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

52 Big League Inc. DIRECT LABOR PriceUsage AQ × ACAQ × SCSQ × SC DLH 3,050 × $2.00 = $6,100.00 9,100 × $1.10 = 10,010.00 1,650 × $1.95 = 3,217.50 $19,327.50 3,050 × $2.00 = $6,100 9,100 × $1.00 = 9,100 1,650 × $2.00 = 3,300 $18,500 2,800 × $6.00 =$16,800 400 × $6.25 = 2,500 $19,300 3,200 × $6.00 $19,200 (1,500)(2) × $6 $18,000 Standard Allowed for Actual Output $1,100 U$400 U $1,500 U DIRECT MATERIALS RateEfficiency AQ × ACAQ × SCSQ × SC 4,000 × $2.00 = $8,000 12,000 × $1.00 = 12,000 2,000 × $2.00 = 4,000 $24,000 $1,200 U $100 U $1,300 U 1 At the time of purchase. 23 45

53 Big League Inc. (p.2) VARIABLE OVERHEAD SpendingEfficiency AQ × ACAQ × SCSQ × SC $6,500 Standard Allowed for Actual Output $400 U$600 U $1,000 U FIXED OVERHEAD PriceUsage ActualBudgetedApplied $0 $500 U $10,0003,200 × $3 $9,600 (1,500)(2) × $3 $9,000 (1,500)(2) × $2 $6,000 3,000 × $2 $6,000 BQ × SCSQ × SC 2,800 + 400 DLH 67 8 9

54 Bob’s Beef Boy - 0 - $54,000 $6,750 $7,500 $9,250 $77,500 DM $66,400 DL $2,650 $2,400 $22,500 $7,000 $25,000 $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 COGS COGM $210,250 $53,000 $41,000 $3,250 $3,500 $478,800 $167,800 I/S - 0 - Purch - 0 - COGS ACOGS Period Costs Inventory Accounts Product Costs (BI + In = EI + Out)

55 Billy’s Boat Bonanza Direct Labor Direct Materials Manufacturing Overhead Marketing & Selling Admin. Cost 1. The wages of employees who build the sailboats. X 2. The cost of advertising in the local newspapers. X 3. The cost of an aluminum mast installed in a sailboat. X 4. The wages of the assembly shop’s supervisor. X 5. Rent on the boathouse. (Prorated on the basis of space occupied.) XXX 6. The wages of the company’s bookkeeper. X 7. Sales commissions paid to the company’s salespeople. X 8. Depreciation on power tools. X

56 Bohr, Inc. Relevant costs to producing: Direct materials Direct labor Variable overhead Total per unit Quantity Total $ 28 18 6 $ 52 x 2,000 $112,000 Total Cost Since the purchase price is greater than the production price by $12,000 ($124,000 - $112,000), Bohr Inc. should make the units. Since there is some urgency to the order Mr. Bohr may opt for the alternative which will allow him to deliver the product as quickly as possible. Quality, reliability, and capacity utilization are other considerations. Relevant costs to buying: Selling price Total $124,000 Total Cost

57 Absorption Costing Income Statement For the Year Ended Dec. 31, 2002 Rev. $630,000 COGS: Prime (252,000) VOH (84,000) FOH (100,000) GM $194,000 S&A: VSE (54,000) FSE (45,000) FAE (90,000) OI $5,000 Variable Costing Income Statement For the Year Ended Dec. 31, 2002 Rev.$630,000 VC: Prime(252,000) VOH (84,000) VSE (54,000) CM$240,000 FC: FOH(100,000) FSE (45,000) FAE (90,000) OI $5,000 Bojangle Dance Shoes

58 Bosna Corporation

59 Bowling Company 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)

60 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

61 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 BQ × 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

62 Brother’s Bakeries (A) WIP Units 30,000 480,000 20,000 490,000 Out BI IN EI DM 100% CC 55% 90% E.U. DMCC 490,000 20,000 510,000 490,000 18,000 508,000 OUT EI: (DM) 20,000 * 100% EI: (CC) 20,000 * 90% E.U. WEIGHTED AVERAGE METHOD

63 Brother’s Bakeries (B) E.U. DMCC 0 460,000 20,000 480,000 13,500 460,000 18,000 491,500 BI: (DM) 30,000 × 0% BI: (CC) 30,000 × 45% Start & Finish* EI: (DM) 20,000 × 100% EI: (CC) 20,000 × 90% E.U. FIFO METHOD WIP Units 30,000 480,000 20,000 490,000 Out BI IN EI DM 100% CC 55% 90% * 480,000 loaves started – 20,000 loaves in ending WIP = 460,000 loaves started and completed this month

64 Buffalo Broilers PDOR = Estimated MOH Estimated Activity = $500,000 100,000 DLH $5.00 per DLH= 1. PDOR = Estimated MOH Estimated Activity = $500,000 $800,000 of DL $0.625 per DL$= PDOR = Estimated MOH Estimated Activity = $500,000 80,000 MH $6.25 per MH=

65 Buffalo Broilers (p. 2) Actual Applied $5.00 * 120,000 $576,000 = $600,000 $24,000 overapplied Actual Applied.625 * $930,000 $576,000 = $581,250 $5,250 overapplied Actual Applied $6.25 * 90,000 $576,000 = $562,500 $13,500 2. 3. MOH (MH) MOH (DLH)MOH (DL$) underapplied Actual OH per DL Actual MOH Actual Activity = $576,000 120,000 DLH =$4.80 per DLH=

66 California Textbooks (A) Relevant costs to make $ 1 8 4 2 $15 Relevant costs to buy Selling price $16 Total relevant cots $16 Direct material Direct labor Variable OH Avoidable FOH Total relevant costs It is $10,000 cheaper to make the covers. Therefore, California should make the covers. Relevant costs to make $ 10,000 80,000 40,000 20,000 $150,000 Relevant costs to buy Selling price $160,000 Total relevant cots $160,000 Direct material Direct labor Variable OH Avoidable FOH Total relevant costs - OR - It is $1 per unit cheaper to make the covers. Therefore, California should make the covers.

67 California Textbooks (B) Relevant costs to buy and use facilities for other products $ 19,000 (160,000) ($141,000) CM (other products) Selling price Net relevant costs California should buy the covers and use the facilities for other products since the net relevant costs is the lowest for that option. Relevant costs to make ($ 10,000) (80,000) (40,000) (20,000) ($150,000) Relevant costs to buy and leave facilities idle Selling price ($160,000) Net relevant cots ($160,000) Direct material Direct labor Variable OH Avoidable FOH Net relevant costs Relevant costs to buy and rent the facilities $ 5,000 (160,000) ($155,000) Rent Revenue Selling price Net relevant costs

68 Candlelight Candles 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

69 Candlelight (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%

70 $ 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 Co. $ 255,500 $ 34,100Inc. Tax NI AT$ 221,400 - 0 - (to R/E)

71 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

72 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

73 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

74 Cardinal Manufacturing If Jocketty Division sells all components on the outside market, Cardinal Manufacturing’s contribution margin per unit will be the same as Jocketty’s, which follows: Sales revenues $80 Variable costs 50 Contribution margin per unit $30 If Jocketty Division sells to the LaRussa Division, Cardinal Manufacturing’s contribution margin per unit will be as follows: Estimated revenue from special order Variable costs Manufacturing, LaRussa Division Shipping, LaRussa Division Component, Jocketty Division Contribution margin per unit Cardinal Manufacturing’s overall contribution margin per unit will be $10 greater if Jocketty sells to LaRussa. Notice that fixed costs were excluded from the calculation, as they will not change with the special order and are therefore irrelevant to the decision. No, management should not force the transfer price down to $60 per unit. It should follow the present transfer price policy and transfer at market price. Corporate management should also ensure that LaRussa Division does not refuse the special order. Even at a transfer price of $80, the order will generate a contribution margin of $10 per unit of LaRussa. Although the LaRussa Division would prefer a higher contribution margin, its managers should realize that a $10 contribution margin per unit is better than a zero contribution margin. And that is the amount that would be generated by the idle facilities. $130 30 10 50 $40 2. 1.

75 Carolina Corp. $3.75 per gallon x 1,500 gallons = $5,625 % Applied to Total Joint Cost Sales Value at % of Allocated AdditionalTotal Product Split-Off Total NPVJoint Cost Costs Costs Coal Tar $11,250 0.3488 $2,386 $ -0- $2,386 Petroleum Tar 21,000 0.6512 4,454 5,625 10,079 $32,250 1.0000 $6,840 $5,625 $12,465

76 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

77 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

78 DM$210,000 DL 140,000 VOH 30,000 $380,000 Cass Company Absorption Costing Income Statement For the Year Ended Dec. 31, 1996 Rev. $500,000 COGS: Direct materials(210,000) Direct labor(140,000) Variable overhead (30,000) Fixed overhead (50,000) (430,000) GM $70,000 S&A: Variable S&A (20,000) Fixed S&A (60,000) OI($10,000) Variable Costing Income Statement For the Year Ended Dec. 31, 1996 Rev.$500,000 VC: Direct materials(210,000) Direct labor(140,000) Variable overhead (30,000) Variable S&A (20,000) CM$100,000 FC: Fixed overhead (50,000) Fixed S&A (60,000) OI($10,000) 78 1. 2. & 3. & 4. 2.3. 4.

79 Cass Company (p. 2) Operating Leverage 10 79 BE($) FC CM Ratio $110,000 $100,000 $500,000 $550,000 CM NI $100,000 $ 10,000 = = = == =5. 6.

80 Cattle Company (1997) $ 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 $ 71,000 190,000 130,000 $445,000 119,000 $65,000 $45,000 445,000$408,000 $82,000$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 - 0 - FG COGS WIPDM

81 Cattle Company (1998) $ 65,000 235,000 170,000$562,000 176,000 $84,000 $ 82,000 562,000$575,000 $69,000$575,000 - 0 - $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. Admin. Period Costs FG COGS I/S WIP Inventory Accounts Product Costs (BI + In = EI + Out)

82 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

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

84 Cheetah Company Cost Pools Activity CostsCost DriversOverhead Rate Machine setup$360,0003,000setup hours $120 Materials handling$100,00025,000pounds $ 4 Electric power$ 40,00040,000kilowatt hours $ 1 Direct materials Direct labor Factory overhead: Machine setup Materials handling Electric power Total product costs Production units Cost per Unit The Quick $40,000 24,000 4,000 2,000 $94,000 4,000 $ 23.50 $120 × 200 = $ 4 × 1,000 = $ 1 × 2,000 = ÷ The Dead $50,000 40,000 28,800 12,000 4,000 $134,800 20,000 $ 6.74 $120 × 240 = $ 4 × 3,000 = $ 1 × 4,000 = ÷ ÷ ÷ ÷ = = =

85 $12,000 *.60 Sales$9,000 x.60 CM$5,400 FC (6,000) OI ($600) Rev.$120,000(12,000 x $10) x.60(VCU = $4) CM $72,000 FC (18,000) OI $54,000 Rev.$144,000(18,000 X $8) 72,000(18,000 x $4 from “Before”) CM $72,000 FC (20,000) OI $52,000 Clear Toys OI Increase = Sales Increase * CM Ratio =$7,200= The additional advertising should not be purchased because it will decrease operating revenue. BE($) FC CM Ratio $3,000.60 $5,000=== Before After The selling price should not be reduced because it will decrease operating revenue. 1. 2. 3. 4.

86 CMSU Who Month of Sale Total Credit Sale Percentage to be Collected in October Budgeted Cash Collected in October October September August July $90,000 $80,000 $70,000 $60,000 70% 15% 10% 4% $63,000 $12,000 $ 7,000 $ 2,400 $84,400 Estimated Total Cash Collection in October 1.

87 CMSU Who (p. 2) Month of Sale Amount of Sale % Collected in Oct. Nov.Dec. Budgeted collection in the 4 th quarter from sales in the 4 th quarter October November December $ 90,000 100,000 85,000 70% 15% 70% 10% 15% 70% $ 63,000 13,500 9,000 70,000 15,000 59,500 Total budgeted collection in the fourth quarter$230,000 2.

88 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

89 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

90 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

91 Coxwain Company

92 Creamed Cornhusker RateEfficiency AQ × AC AQ × SC SQ × SC 11,000 × $30.00 11,000 × $33.00 12,000 × $33.00 $330,000 $363,000 $396,000 $33,000 F$33,000 F $66,000 F Std. Allowed for Actual Output (in units) 1. 2.

93 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 Sales Cost: Direct materials Direct labor Mfg. overhead Gross profit 53,000,000 (10,000,000) ( 6,000,000) (31,200,000) 5,800,000 The Carver (pesos) Sales Cost: Direct materials Direct labor Mfg. overhead Gross profit 19,500,000 (4,500,000) (1,200,000) (6,240,000) 7,560,000 The Hunter (pesos)

94 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

95 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 ÷ 15,000 1,203 Total mfg. overhead for 15,000 Hunters Number of 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 ÷ 100,000 290 Total mfg. overhead for 100,000 Carvers Number of Carvers Manufacturing overhead per cutter THE HUNTERTHE CARVER The Cutters (B) (p. 2) (Rounded)

96 The Cutters (B) (p. 3) PROFIT PER ACTIVITY-BASED COSTING The Cutters (B) PROFIT PER JOB-ORDER COSTING The Cutters (A) Sales Cost: Direct materials Direct labor Mfg. overhead Gross profit 53,000,000 (10,000,000) ( 6,000,000) (29,000,000) 8,000,000 The Carver (pesos) Sales Cost: Direct materials Direct labor Mfg. overhead Gross profit 19,500,000 ( 4,500,000) ( 1,200,000) (16,540,000) ( 2,740,000) The Hunter (pesos) Sales Cost: Direct materials Direct labor Mfg. overhead Gross profit 53,000,000 (10,000,000) ( 6,000,000) (31,200,000) 5,800,000 The Carver (pesos) Sales Cost: Direct materials Direct labor Mfg. overhead Gross profit 19,500,000 (4,500,000) (1,200,000) (6,240,000) 7,560,000 The Hunter (pesos)

97 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

98 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%

99 Cyclone Company FG – 2 nd Quarter 1,600 8,800 2,400 8,000 BI (8,000 * 20%) Budgeted Production EI (12,000 * 20%) Budgeted sales

100 WTD.AVG. SP VC CMMIX CM SP Boston$1,200 $700 $500 60% $300 $720 Deluxe$5,000$2,000$3,000 40%$1,200$2,000 $1,500$2,720 60% Boston = 1200 Boston = 1200 Boston 40% Deluxe = 800 Deluxe = 800 Deluxe 2000 units total @ BE 2,000 units -- OR --- 1200 x $1200 = $1,440,000 800 x $5000 = 4,000,000 $5,440,000 Deering Banjo Co. BE(units) BE($) FC CM per unit CM ratio $3,000,000 $1,500 $2,700 2,000 units $5,440,000 $3,000,000 $1,500 === === 1. 2.

101 Duncan’s Avionics 1. The cost of the memory chips used in a radar set. 2. Factory heating costs. 3. Factory equipment maintenance costs. 4. Training costs for new administrative employees. 5. The cost of the solder that is used in assembling the radar sets. 6. The travel costs of the company’s salespersons. 7. Wages and salaries of factory security personnel. 8. The cost of air-conditioning executive offices. 9. Wages and salaries in the department that handles billing customers. 10. Depreciation on the equipment in the fitness room used by factory workers. 11. Telephone expenses incurred by factory management. 12. The costs of shipping completed radar sets to customers. 13. The wages of the workers who assemble the radar sets. 15. Health insurance premiums for factory personnel. 14. The president’s salary. ProductPeriod X X X X X X X X X X X X X X X

102 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. Dunce Company

103 Earl Corporation Additional costs if processed further Increase in sales value if processed further Differential benefit (cost) $28,000 40,000 $ 12,000 $20,000 20,000 $ 0 AB $12,000 20,000 $ 8,000 C Earl Corporation is indifferent about the further processing for B since the net benefit is zero. There would be a positive benefit for further processing of A ($12,000) and C ($8,000).

104 East Meets West (A) 1.BE (units) = FC + NI CMU = $20,000 ($10 - $6) = 5,000 units BE ($) = FC + NI CMR = $20,000 $4 $10 = $50,000 2.BE (units) = FC + NI CMU = $20,000 + $15,000 ($10 - $6) = 8,750 units BE ($) = FC + NI CMR = $20,000 + $15,000 $4 $10 = $87,500

105 East Meets West (B) SP (x) = VCU (x) FC NI $10 (x) = $6 (x) $20,000 (.15) ($10) (x) $10 (x) = $6 (x) $20,000 $1.50 (x) $2.50 (x) = $20,000 x = 8,000 units + + + + + + TR = VC FC NI R =.6 R $20,000.15 R.25 R = $20,000 R = $80,000 + + + +

106 East Meets West (C) BE (units) = FC + NI CMU = $18,000 + $9,000 $10.40 - $6.80 = 7,500 units BE ($) == $18,000 + $9,000 $10.40 - $6.80 = $78,000 FC + NI CMR $10.40

107 East Meets West (D) 1. 2. BE (units) = FC + NI CMU = $20,000 + $12,000 $4 = 8,000 units BE ($) = FC + NI CMR = $20,000 + $12,000 0.4 = $80,000 NIBT = NIAT 1- Tax Rate = $8,400 1 - 0.30 First, … = $12,000

108 East Meets West (E) $20,000 + $12,000 0.4 $27,500 + $12,000 0.5 This seems better because EMW does not need earn as much revenue to achieve its target profit BUT! $20,000 0.4 $27,500 0.5 Actual Rev. – BE Rev. $80,000 - $50,000 Actual Rev. $80,000 Actual Rev. – BE Rev. $79,000 - $55,000 Actual Rev.$79,000 MORE RISKY = = = = = = = = = = = = FC + NI CMR FC + NI CMR FC + NI CMR FC + NI CMR Current NewBE ($) Current New BE ($) Current NewMS Ratio $80,000 $79,000 $50,000 $55,000.375.304 = = = = = =

109 Edwards Inc. WIP - $ (FIFO) DM $27,000 CC $13,000 DM $468,000 CC $357,000 DM $ 50,400 CC $ 19,600 $70,000 $ 40,000.00 from BI 21,600.00 Finished DM 60,000×40%×$0.90 29,400.00 Finished CC 60,000×70%×$0.70 704,000.00 S&F 440,000 × $1.60 $ 795,000.00 = 70,000 × 80% × $0.90 = 70,000 × 40% × $0.70 Out BI IN EI E.U. DMCC 24,000 440,000 56,000 520,000 42,000 440,000 28,000 510,000 Costs to Account For DMCC $0.75 $0.722 $ per EU BI: (DM) 60,000 × 40% BI: (CC) 60,000 × 70% Start & Finish EI: (DM) 70,000 × 80% EI: (CC) 70,000 × 40% E.U. FIFO METHOD BI $27,000 DM ÷ (60,000×60%) $13,000 CC ÷ (60,000×30%) Total $1.472 $0.90 $0.70 $ per EU IN $468,000 DM ÷ 520,000 E.U. $357,000 CC ÷ 510,000 E.U.$1.60 $865,000 Costs to Account For WIP Units 60,000 510,000 70,000 500,000 Out BI IN EI DM 60% 80% CC 30% 40% (Info we need to do problem)

110 Everything Inc. *Some of the listed businesses might user either process costing or a job-order costing system, depending on how operations are carried out and how homogeneous the final product is. For example, a plywood manufacturer might use job-order costing if plywoods are constructed of different woods or come in markedly different sizes. Job-Order CostingProcess Costing Custom yacht builderx Golf course designerx Potato chip manufacturerx Business consultantx Plywood manufacturer*x Soft-drink bottler*x Film studiox Bridge construction companyx Manufacturer of fine custom jewelryx Made-to-order garment factoryx Factory making one personal computer modelx Fertilizer factoryx

111 Case 1Case 2 RelevantNot Relevant Releva nt Not Relevant a. Sales revenue XX b. Direct materials XX c. Direct labor XX d. Variable manufacturing overhead XX e. Book value-Model A3000 machine XX f. Disposal value-Model A3000 machine XX g. Depreciation-Model A3000 machine XX h. Market value-Model B3800 machine (cost) XX i. Fixed manufacturing overhead (general) XX j. Variable selling expense XX k. Fixed selling expense XX l. General administrative overhead XX Fabulous Furniture

112 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

113 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

114 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

115 Foster’s Bar-B-Que Variable cost of each meal Fixed costs per meal ($1,200/600) Cost per meal $2 $4 $4 is a reasonable cost basis for long term pricing and Foster is getting a $1.00 margin on each meal. However, in a special order situation the fixed costs are irrelevant, and Foster should be willing to accept a customer for any price above the variable cost of $2. Thus, the tour operator’s deals is a good one for Barry. As long as there is space for the additional meals, and since daily fixed costs are unaffected by the additional patrons, any price about $2.00 should be acceptable. Selling price for each meal Variable cost for each meal Margin per meal Number of patrons gained/(lost) Revenue gained (lost) $5 $2 $3 × (100) ($300) $3 $2 $1 × 200 $200 Regular Patrons Bus Patrons The idea of agreeing to serve 200 patrons on any given day presents a problem with limited capacity. In this case, 100 of the regular customers would have to look elsewhere for lunch on the days, at a loss of $3.00 per meal or a total of $300 per day. The additional new patrons at $3.00 each would bring in a contribution of only $1.00 per meal or a total of $200. It turns out the single bus load is a better deal.

116 Frodo Company There are two ways to approach this problem: Method 1: CostsKeep OldBuy New Difference 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 Method 2: Incremental Method (as shown in class) 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 -= Frodo should buy the new machine as it will result in a savings of $17,000.

117 FOH Spending Volume Actual AQ × AC $7,890 Budgeted BQ × SC (3,100)(2.5) × $0.90 7,750 × $0.90 $6,975 $140 U$225 U Applied SQ x SC (3000)(2.5) × $0.90 7,500 × $0.90 $6,750 VOH Spending Efficiency AQ × AC 7,300 × $2.308 $16,850 AQ × SC 7,300 × $2.20 $16,060 $790 U$440 F SQ × SC (3000)(2.5) × $2.20 7,500 × $2.20 $16,500 Frostee Freeze Co.

118 The case will require three attorneys to stay four nights in a San Francisco hotel. The predicted hotel bill is $1,200. 1. Funk and Wagnall’s professional staff is paid $800 per day for out-of-town assignments. 2. Last year, depreciation on Funk and Wagnall’s office was $12,000. 3. Round-trip transportation to San Francisco is expected to cost $600 per person for the engagement. 4. The firm has recently accepted an engagement that will require partners to spend two weeks in Dallas. The predicted out-of-pocket costs of this engagement are $8,500. 5. The firm has a maintenance contract on its word processing equipment that will cost $2,200 next year. 6. If the firm accepts the engagement in San Francisco, it will have to decline a conflicting engagement in Orlando that would have provided a net cash inflow of $7,200. 7. The firm’s variable overhead is $40 per client-hour. 8. The firm pays $150 per year for Mr. Funk’s subscription to a law journal. 9. Last year the firm paid $7,500 to increase the insulation in its building. 10. Relevant CostsIrrelevant Costs OpportunityOutlay Sunk X X X X X X X X XX X Funk and Wagnall

119 Gamers Inc. Selling price per unit Variable cost per unit Contribution margin per unit Relative use of labor hours (GASH requries ½ as many as Bash) Contribution margin per labor hr. $200.00 164.00 $ 36.00 ÷ 2 $ 18.00 $140.00 121.00 $ 19.00 ÷ 1 $ 19.00 BASHGASH Since GASH requires ½ the labor time, and since labor capacity is a constraint, and since GASH’s relative contribution per labor hour is greater, as much production as possible should be devoted to GASH.

120 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

121 Georgetown, Inc. Absorption Costing I/S For the Y/E Dec. 31, 2005 Georgetown, Inc. Absorption Costing I/S For the Y/E Dec. 31, 2006 Rev$ 4,000 = 2,000 units × $2.00 - CoGS (1,400) = VC 2,000 units × $0.70 per unit (1,000) = FC 2,000 units × $0.50 per unit GM$ 1,600 - S&A (1,000) = 2,000 units sold × $0.50 per unit (300) = Fixed NI $ 300 Rev$ 4,800 = 2,400 units × $2.00 - CoGS (1,680) = VC 2,400 units × $0.70 per unit (1,200) = FC 2,400 units × $0.50 per unit GM$ 1,920 - S&A (1,200) = 2,400 units sold × $0.50 per unit (300) = Fixed NI $ 420 Fixed cost of production per unit: $1,100 / 2,200 = $0.50 per unit

122 Georgetown, Inc. (p. 2) Georgetown, Inc. Variable Costing I/S For the Y/E Dec. 31, 2005 Georgetown, Inc. Variable Costing I/S For the Y/E Dec. 31, 2006 Rev$ 4,000 = 2,000 units × $2.00 - VC (1,400) = CoGS (2,000 units × $0.70) (1,000) = S&A (2,000 units × $0.50) CM$ 1,600 - FC (1,100) = MOH (300) = S&A NI $200 Rev$ 4,800 = 2,400 units × $2.00 - VC (1,680) = CoGS (2,400 units × $0.70) (1,200) = S&A (2,400 units × $0.50) CM$ 1,920 - FC (1,100) = MOH (300) = S&A NI $520 Production > Sales Abs. NI is higher! Sales > Production VC NI is higher! The difference in NI 2005: Units mfg. - units sold × FOH per unit Difference in NI The difference in NI 2006: Units mfg. - units sold × FOH per unit Difference in NI 200 $0.50 $ 100 200 $0.50 $ 100

123 Gilligan’s Boat Rentals New boat Deduct current disposal price Rebuild of existing boat Margin $92,000 9,000 $ 83,000 $ - $ 75,000 ReplaceRebuild The difference is in favor of rebuilding by $8,000 ($83,000 - $75,000). The $90,000 purchase cost is irrelevant.

124 Global, Inc. * This particular item may cause some debate. Hopefully, advertising results in more demand for products and services by customers. So advertising costs are correlated with the amount of products and services provided. However, note the direction of causality. Advertising causes an increase in the amount of goods and services provided, but an increase in the amount of goods and services demanded by customers does not necessarily result in a proportional increase in advertising costs. Hence, advertising costs are fixed in the classical sense that the total amount spent on advertising is not proportional to what the unit sales turn out to be. 1. Small glass plates used for lab tests in a hospital 2. Straight-line depreciation of a building 3. Top-management salaries 4. Electrical costs of running machines 5. Advertising of products and services* 6. Batteries used in manufacturing trucks 7. Commissions to salespersons 8. Insurance on a dentist’s office 9. Leather used in manufacturing footballs 10. Rent on a medical center ProductPeriod X X X X X X X X X X Cost Behavior

125 Greasy Hands 1. Activity Levels a. Unit-level b. Unit-level c. Facility-sustaining d. Unit-level e. Unit-level f. Product-sustaining g. Facility-sustaining h. Facility-sustaining i. Batch-level j. Batch-level (one bag per customer) 2. Cost Driver a. Number of hamburgers b. Number of hours c. Square feet d. Number of hamburgers; Size of hamburgers e. Number of hamburgers f. Number of time advertising is run g. Number of hours store is open h. Square feet i. Number of coupons redeemed; Number of multiple orders; Number of hamburgers j. Number of customers

126 Green Soda 1. MS ($) = Actual Revenue - BE Revenue MS ($) = $900,000 - $791,500 MS ($) = $108,500 Act. Rev. = (SP) (Units Sold) Act. Rev. = ($4.50) (200,000) Act. Rev = $900,000 BE (units) = FC + NI CMU = $316,600 $1.80 = 175,889 BE ($) ==$791,500 MS ($) = $108,500 FC + NI CMU = $316,600 0.40

127 Green Soda (p. 2) Operating leverage = CM / NI NI = $360,000 – 316,600 NI = $43,400 CM = (SPU – VCU)(Units Sold) CM = ($4.50 - $2.70)(200,000) CM = $360,000 Operating leverage = $360,000 / $43,400 3. Proof using income statement approach: Sales ($4.50 * 200,000 units * 130%)$1,170,000 Var. Costs ($2.70 * 200,000 units * 130%) (702,000) CM$ 468,000 Fixed Costs (316,600) Net Income$ 151,400 (New NI – Old NI) ÷ Old NI = Increase in NI ($151,400 - $43,400) ÷ $43,400 = 249% 2. 8.29 * 30% = 249% Operating leverage ratio * Increase in Sales = Increase in NI Operating leverage = 8.29 NI = CM – FC

128 Green Soda (p. 3) 4. BE (units) FC + NI CMU = ($316,600 + $41,200) $1.80 198,778 BE ($) $894,500 7.37Operating leverage = FC + NI CMR = ($316,600 + $41,200) 0.40 Sales ($4.50 * 200,000 * 115%) VC ($2.70 * 200,000 * 115%) CM FC ($316,600 + $41,200) NI $1,035,000 (621,000) $ 414,000 (357,800) $ 56,200 Income Statement: CM NI $414,000 $56,200 = = = = ==

129 Grover Manufacturing Absorption Costing I/S For the Y/E Dec. 31, 2003 Grover Manufacturing Absorption Costing I/S For the Y/E Dec. 31, 2004 Rev.$ 82,500 = 1,100 units × $75 - CoGS (38,500) = VC 1,100 units × $35 per unit (19,800) = FC 1,100 units × $18 per unit (3,600) = Underapplied MOH (200 @ $53) GM$ 20,600 - S&A (11,000) = 1,100 units sold × $10 per unit (4,000) = Fixed NI $ 5,600 Rev$ 150,000 = 2,000 units × $75 - CoGS (70,000) = VC 2,000 units × $35 per unit (36,000) = FC 2,000 units × $18 per unit (-0-) = Underapplied MOH GM $ 44,000 - S&A (20,000) = 2,000 units sold × $10 per unit (4,000) = Fixed NI $ 20,000 Fixed cost of production per unit: $27,000 / 1,500 = $18 FC per unit $18 FC + 35 VC = $53 TC per unit Normal volume is 1,500 units of production. Underapplied MOH = 1,500 normal volume – 1,300 actual production = 200 units Normal volume is 1,500 units of production. Underapplied MOH = 1,500 normal volume – 1,500 actual production = 0 units

130 Grover Mfg. (p. 2) Grover Manufacturing Variable Costing I/S For the Y/E Dec. 31, 2003 Grover Manufacturing Variable Costing I/S For the Y/E Dec. 31, 2004 Rev$ 82,500 = 1,100 units × $75 - VC (38,500) = CoGS (1,100 units × $35) (11,000) = S&A (1,100 units × $10) CM$ 33,000 - FC (27,000) = MOH (4,000) = S&A NI $2,000 Rev$ 150,000 = 2,000 units × $75 - VC (70,000) = CoGS (2,000 units × $35) (20,000) = S&A (2,000 units × $10) CM $ 60,000 - FC (27,000) = MOH (4,000) = S&A NI $29,000 Production > Sales Abs. NI is higher! Sales > Production VC NI is higher! The difference in NI 2003: Units mfg. - units sold × FOH per unit Difference in NI The difference in NI 2004: Units mfg. - units sold × FOH per unit Difference in NI 200 $18 $ 3,600 500 $18 $ 9,000

131 Halo Products Company PDOR = Estimated MOH Estimated Activity = $200,000 32,000 DLH = $6.25 per DLH Applied MOH = Actual Activity × PDOR 36,400 DLH × $6.25$227,500= = 1. 2. 3.MOH $256,200 $227,000 $28,700 - 0 - to COGS Underapplied 4. Actual OH per DL Actual MOH Actual Activity = $256,200 36,400 DLH =$7.04 per DLH=

132 Hannibal Company DM $23,400 Purch 160,000 $33,400 $150,000 $100,000 DL $20,000 21,000 30,000 5,978 $76,978 $6,520 150,000 100,000 76,978 $7,498 $326,000 WIP $40,000 326,000 $57,050 $308,950 FG $308,950 COGS I/S $308,950 $55,000 38,000 61,000 $600,000 $137,050 OI MOH - 0 - COGS ACOGS COGM Period Costs Inventory Accounts Product Costs (BI + In = EI + Out)

133 Hassle Company Relevant costs to make $.60.40.10 $1.10 Relevant costs to buy Selling price $1.25 Total relevant cots $1.25 Direct material Direct labor Variable OH Total relevant costs It is $.15 ($1.25 - $1.10) cheaper to make the handles. Therefore, Hassle should make the handles.

134 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 = = = =

135 HBM Industries 1. Activity Levels a. Product-sustaining b. Product-sustaining c. Product-sustaining d. Product-sustaining e. Batch-level f. Batch-level g. Unit-level h. Facility-sustaining i. Product-sustaining j. Facility-sustaining 2. Cost Drivers a. Number of products b. Number of products c. Number of products d. Number of products e. Number of batches or setups f. Number of batches g. Number of units h. Purchase costs; Replacement costs; Book values i. Number of purchase orders; Number of products; Number of suppliers j. Square feet

136 Herding Cats, Inc.

137 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 Herry Company

138 Hollandaise Company

139 Hollandaise Co. (p. 2)

140 Holman Company 1. Predetermined overhead rate = Estimated total manufacturing overhead cost Estimated total amount of the allocation base = $170,000 71,000 direct labor-hours = $4.00 per direct labor-hour 2. Applied Overhead = Direct labor-hours × Predetermined overhead rate 75,000 DL hours × $4.00 =$300,000 =

141 Holman Company (p. 2) Utilities Depreciation Insurance Indirect labor Indirect material Salary $ 75,400 58,000 25,000 54,600 53,000 55,000 3. $21,000 underapplied Manufacturing Overhead $300,000 $21,000Balance Applied overhead from part 2

142 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.

143 $35 - $20 $35 FC + NI ($30,000 * 12) + $510,000 CM ratio $35 - $20 $35 Actual Rev. – BE Rev. $2,030,000 – ($70,000 x 12) $2,030,000 – $840,000 $1,190,000 $864,000 $360,000 + $1,440,000 Howard’s Limited $35 – $20 FC + NI CM per unit$35 – $20 FC BE(units) BE($) MS($) MS Ratio OI 2,000 units $70,000 $2,030,000 120,000 units annually $30,000 CM ratio FC $1,440,000 1 – TR1 –.4 10,000 units monthly NIAT = = = = = = = = = == = = = == = = = = $2,030,000 - $840,000 $2,030,000 58.6% == Act. Rev. – BE Rev. Act. Rev. 4. 3. 2. 1. CM per unit

144 Howdy Company PDOR = Estimated MOH Estimated Activity = $602,000 70,000 MH $8.60 per MH= 1. Department A PDOR = Estimated MOH Estimated Activity = $735,000 $420,000 of DL $1.75 per DL$= Department B = Applied MOH = Actual Activity × PDOR 110 MH × $8.60$946= 2. Department A = Applied MOH = Actual Activity × PDOR 680 DL$ × $1.75$1,190= Department A $2,136 total applied MOH DM DL MOH $470 290 946 $1,706 DM DL MOH 332 680 1,190 $2,202 3. $3,908 50 units $78.16 per unit= Department B

145 Howdy Company (p. 2) MOH (65,000 * $8.60) 559,000 $11,000 $570,000 $11,000 - 0 - MOH $750,000 $13,000 - 0 - ($436,000 * 1.75) $763,000 $13,000 4. overapplied Department BDepartment A To COGS underapplied

146 J.B. Goode Company PDOR Est. MOH Est. Activity $135,000 10,000 $13.50 per DLH==1. Applied MOHActual Activity PDOR 900 units10 DLH9,000 DLH $13.50$121,500 Actual ActivityProduction VolumeHrs. Per Unit 9,000 DLH ×==× ×=× = Standard = = = Applied MOHActual Activity PDOR 100 units10 DLH1,000 DLH $13.50$13,500 Actual ActivityProduction VolumeHrs. Per Unit 1,000 DLH ×==× ×=× = Custom = =

147 J.B. Goode Co. (p. 2) 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 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 2. Standard Custom Applied MOHAct. ActivityPDOR×= Applied MOHAct. ActivityPDOR×=

148 J.B. Goode Co. (p. 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, the $1,000 revenue is not covering the true cost of production. The single biggest reason for the higher overhead cost is the supervision required for the custom guitars. 3.

149 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.

150 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 × $1.09 = 4,000 × $1.33 E.U. DMCC 35,000 10,000 45,000 35,000 4,000 39,000 Costs to Account For $5,050 $44,000 $49,050 $3,270 $48,600 $51,870 BI IN Total $/EU $49,050 / 45,000 = $1.09 $ 2.42 OUT EI: (DM) 10,000 × 100% EI: (CC) 10,000 × 40% E.U. DMCC DMCC $51,870 / 39,000 = $1.33 WEIGHTED AVERAGE METHOD BIOut IN EI 1.

151 The John Co. (p.2) WIP Units 5,000 40,000 10,000 35,000 Out BI 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 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. $5,050 DM ÷ (5,000×100%) $3,270 CC ÷ (5,000× 60%) Total $2.10 $1.10 $1.35 $ per EU $44,000 DM ÷ 40,000 E.U. $48,600 CC ÷ 36,000 E.U.$2.45 $100,920Costs to Account For BIOut IN EI BI IN FIFO METHOD 2.

152 Johnson County Senior Services 1. No, the housekeeping program should not be discontinued. It is actually generating a positive program segment margin and is, of course, providing a valuable service to seniors. Contribution margin lost if the housekeeping program is dropped Fixed costs that could be avoided: Liability insurance Program administrator’s salary Decrease in net operating income for the organization as a whole $(80,000) 52,000 $(28,000) $15,000 37,000 Depreciation on the van is a sunk cost and the van has no salvage value since it would be donated to another organization. The general administrative overhead is allocated and none of it would be avoided if the program were dropped; thus it is not relevant to the decision. Relevant revenues and costs of the housekeeping program:

153 Johnson County (p. 2) 2. To give the administrator of the entire organization a clearer picture of the financial viability of each of the organization’s programs, the general administrative overhead should not be allocated. It is a common cost that should be deducted from the total program segment margin. Following the format for a segmented income statement, a better income statement would be: Revenues Less variable expenses Contribution margin Less traceable fixed expenses: Depreciation Liability insurance Program administrators’ salaries Total traceable fixed expenses Program segment margins General admin overhead Net operating income (loss) $900,000 490,000 $410,000 $ 68,000 42,000 115,000 225,000 185,000 180,000 $ 5,000 $260,000 120,000 $140,000 $ 8,000 20,000 40,000 68,000 $72,000 $400,000 210,000 $190,000 $ 40,000 7,000 38,000 85,000 $105,000 $240,000 160,000 $ 80,000 $20,000 15,000 37,000 72,000 $ 8,000 Total Home Nursing Meals on Wheels House- keeping

154 Jolly Roger Candies CM per unit FC + NI = $400 + $300 $1 = 700 units 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 NIBT = NIAT 1- TR = $300 1 – 40% = $500 BE(units) = CM per unit FC + NI = $400 + $500 $4.00 - $3.50 = 1,800 units BE(units) =1. 2. 3.

155 Jude Law & Associates Purchasing the new system will cause the following to 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 $24,500Savings by purchasing the new system Jude Law will save $24,500 by purchasing the new system. Therefore, the system should be purchased.

156 Judge Ely Jeans $29,500 98,400 $95,600 $32,300 $118,400 - 0 - $ 7,200 44,800 4,800 21,600* 10,400 15,200 35,200 $139,200 - 0 - $49,600 95,600 118,400 $340,400 139,200 $62,400 $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 OI 40% * $36,000 = $14,400 COGS ACOGS COGM FG Period Costs 60% * $36,000 = $21,600 * ** $222,460 WIPDM DL MOH Purch. Inventory Accounts Product Costs (BI + In = EI + Out)

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

158 Kennel Street Company

159 Kit Incorporated Cash - 2006 $ 10,000 $ 20,000 150,000 26,000 Beginning Cash Ending cash Collections from customers Financing needed DM purchases Operating Expense less depreciation ($50,000 - $20,000) Payroll Income taxes Machinery purchase 25,000 30,000 75,000 6,000 30,000

160 Knob Noster Hospital 1a. Hospital Wide Rate Based on Nurse-Hours PDOR Hospital total overhead Hospital total nurse hours = $69,120,000 1,152,000 $60 per nurse-hour Total CCU applied overhead costs = Per nurse-hour rate × Nurse-hours = $60 × 5,900 =$354,000 == PDOR Estimated MOH Estimated Activity = Applied MOH= PDOR × Actual Activity

161 Knob Noster (p. 2) 1b. The CCU Department Wide Rate Based on Patient-Day Total budgeted CCU overhead=Beds budget Equipment budgetNursing care budget Total budgeted CCU overhead=$810,000 $422,500$457,500 Total budgeted CCU overhead=$1,690,000 Overhead rate per patient-day=Total budget CCU Overhead Budgeted patient days÷ Overhead rate per patient-day=$1,690,000 845÷ Overhead rate per patient-day=$2,000 Total CCU applied overhead costs=Rate per patient day Actual patient days× Total CCU applied overhead costs=$2,000 870× Total CCU applied overhead costs=$1,740,000 + ++ +

162 Knob Noster (p. 3) 1c. Activity Cost Driver Rates Budgeted Cost Pool Budgeted Cost Budgeted Activity Budgeted MOH Rate Actual Activity Applied Overhead Beds $810,000900$900.00 900$ 810,000÷ =×= Equipment 422,500845500.00 870435,000÷ =×= Personnel 457,5006,00076.25 5,900449,875÷ =×= Total applied manufacturing overhead costs $1,694,875 2. The first method uses a hospital wide overhead rate, which likely bears no relationship with the overhead activities performed in the critical care unit (CCU). The second method uses the patient-day overhead rate for the CCU department. This is an improvement over the first method. But a single patient-day cost driver may not have direct relationships with some of the activities performed in the CCU department. The third method is the preferred method because it uses a cost driver for each of the cost pools that reflects the resources consumed by activities of the cost pool.

163 KSU Company RateEfficiency AQ × AC AQ × SC SQ × SC 40,000 × $25 40,000 × $24 42,000 × $24 $1,000,000 $960,000 $1,008,000 $40,000 U$48,000 F $8,000 F Std. Allowed for Actual Output (in units) 1. 2.

164 Landis Playhouses 1.NIBT NIAT 1 – TR $495,014 1 – 35% BE(units) CM per unit FC + NI $280,420 + $761,560 $1,200 869 units CM per unit =$3,000 – $1,200 – $400 – $150 – $50 2.After-tax equivalent of 20% increase: 20% ÷ (1 –.35) = 30.77% VC + FC + NI TR =.6 TR + $280,420 +.3077 TR.0923 TR = $280,420 TR = $3,038,137 (Rounded) CM per unit = Selling Price – all variable costs $1,200CM per unit = $761,560 Let TR = the level of revenue that generates a pretax return of 30.77% === = == =TR

165 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)

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

167 Marie Manufacturing Co 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 Overapplied MOH $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 - 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

168 Marshall Props Unlimited $25,000 80,000 $15,000 $85,000 5,000 DM BI Purch EI $ 30,000 85,000 120,000 96,000 $ 21,000 $310,000 BI EI WIP $ 45,000 310,000 $ 55,000 $300,000 BI EI FG $120,000 DL MOH $ 5,000 30,000 12,000 25,000 4,000 17,000 $93,000 $120,000 *.8 = $96,000 $ 3,000 IDM IDL Util. Depr Insurance Other COGS I/S $297,000 75,000 5,000 800 40,000 $450,000 $32,200 COGS S&A Salaries Depr Insurance Shipping Sales OI Est.OH Est Activity $80,000 $100,000 DL cost = 80% of DL 3,000 $297,000 $ 3,000 $300,000 $297,000 Adj. COGS PDOR = = COGS 1. & 2. overapplied COGM 2. - 0 -

169 Marshall Props (p. 2) Marshall Props Unlimited Schedule of Cost of Goods Manufactured For the Year Ended December 31, 2006 Raw material: Raw materials inventory, 1-1 Add: Purchases of raw materials Total materials available Deduct: Raw materials inventory, 12-31 Raw materials used in production Less: Indirect Materials Direct Labor Manufacturing overhead: Utilities...................................................................................... Indirect Labor.............................................................................. Indirect Materials.......................................................................... Depreciation................................................................................. Other……….............................................................................. Insurance…………………………………………………….. 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 $ 25,000 80,000 $105,000 (15,000) $ 90,000 (5,000) $ 85,000 120,000 $12,000 30,000 5,000 25,000 17,000 4,000 $93,000 3,000 96,000 $301,000 30,000 $331,000 (21,000) $310,000 3.

170 Marshall Props (p. 3) Marshall Props Unlimited Schedule of Cost of Goods Sold For the year ended December 31, 2006 Finished goods inventory, 1-1 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 $45,000 310,000 355,000 (55,000) $300,000 (3,000) $297,000 3.

171 Marshall Props (p. 4) Marshall Props Unlimited Income Statement For the Year Ended December 31, 2006 Sales Less: Cost of Goods Sold Gross Margin Less: Selling and administrative expenses: Salaries expense Depreciation expense Insurance expense Shipping expense Operating Income $450,000 (297,000) $153,000 $120,800 $32,000 $ 75,000 5,000 800 40,000 3.

172 McKay Mills Yarn455 × $811.55 = $369,255.25 Fabric420 × $811.55 = $340,851.00 Clothing750 × $811.55 = $608,662.50 PDOR = Estimated MOH Estimated Activity = $1,335,000 1,645 DLH $811.55 per DLH= (500 + 410 + 735) Actual Activity × PDOR = Applied MOH 2. 1. MOH $1,372,000.00 $1,318,768.75 $53,231.25 - 0 - to COGS Underapplied $1,318,768.75 172

173 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]

174 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

175 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:

176 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:

177 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]

178 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)

179 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

180 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

181 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

182 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

183 Mizzou Company 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 MizZou $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 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 Method1. 2. ÷ ÷ ÷ = = =

184 Mizzou Company (p. 2) Activities Machine set-ups Purchase orders General factory Total Overhead Cost 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 $85,150 MIZZOU Activity-Based Costing: Applying MOH to Products Activity-Based Costing: MOH per Unit Number of units produced400 units1,200 units MOH per unit$ 114.35$ 70.96 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 Activity-Based Costing: Unit Product Costs 3. (a) 3. (b) 3. (c) Total overhead cost$45,740 units$85,150 units ÷÷

185 Moehrle Manufacturing $ 45 30 5 $110 Direct material Direct labor Variable OH Special logo cost Total relevant costs Relevant costs to manufacture The minimum selling price for the special order is $110 since that is the total of relevant costs per unit.

186 Moore Computers Absorption Costing Income Statement For the Year Ended Dec. 31, 2003 Rev. $500,000 COGS: Direct materials (60,000) Direct labor (45,000) Indirect labor (25,000) Factory insurance (12,000) Depreciation—Factory (80,000) Repairs and maint.—Factory (15,000) GM $263,000 S&A: Marketing expenses (66,000) General and admin. expenses (55,000) OI$142,000 Variable Costing Income Statement For the Year Ended Dec. 31, 2003 Rev.$500,000 VC: Direct materials (60,000) Direct labor (45,000) Repairs and maint.—Factory (15,000) Marketing expenses (66,000) CM$314,000 FC: Indirect labor (25,000) Factory insurance (12,000) Depreciation—Factory (80,000) General and admin. expenses (55,000) OI$142,000

187 $ 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 $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 OI (LOSS!!) Rev. Admin. Period Costs $200,000 DMWIP Muleskinner Athletic Wear, Inc. - 0 - Inventory Accounts Product Costs (BI + In = EI + Out)

188 Narcissus Needles Utilities $10,000 Depr.15,000 Dupr. Sal. 30,000 Janitorial 6,000 Ins.9,000 Total MOH $70,000 Utilities $10,500 Depr.15,000 Supr. Sal. 30,000 Janitorial 5,200 Ins.8,500 1. 2. 3. PDOR = Estimated MOH Estimated Activity = $70,000 3,500 DLH = $20.00 per DLH Applied MOH = Actual Activity × PDOR 3,600 DLH × $20.00$72,000= = Total MOH$69,200 MOH Actual $69,200 $2,800 - 0 - to COGS Overapplied Applied $72,000

189 Oatman Company $ 16,000 200,000 $ 26,000 $190,000 DM BI Purch EI $ 10,000 190,000 160,000 170,000 $ 50,000 $480,000 BI EI WIP $ 30,000 480,000 $ 35,000 $475,000 BI EI FG $160,000 DL MOH $ 42,000 27,000 9,000 51,000 129,000 40,000 * $4.25 = $170,000 $ 41,000 Utilities IDL Insurance Depr. COGS I/S $434,000 36,000 80,000 1,000 50,000 9,000 $700,000 $ 90,000 COGS Sales comm. Admin Sal. Insurance Advertising Depreciation Sales OI Est.OH Est Activity $153,000 36,000 MH = $4.25 per MH $ 41,000 $434,000 $ 41,000 $475,000 $434,000 Adj. COGS PDOR = = COGS - 0 - 1. - 0 - COGM - 0 -

190 Oatman Company (p. 2) 2. Direct materials Accounts payable Work in process Direct materials Work in process Manufacturing overhead Sales commissions expense Administrative salaries expense Salaries and wages payable Manufacturing overhead Accounts payable Manufacturing overhead Insurance expense Prepaid insurance Advertising expense Accounts payable Manufacturing overhead Depreciation expense Accumulated depreciation Work in process Manufacturing overhead a. b. c. d. e. f. g. h. $200,000 $190,000 $160,000 27,000 36,000 80,000 $303,000 $ 42,000 $ 9,000 1,000 $ 10,000 $50,000 $ 51,000 9,000 $ 60,000 $170,000 Finished goods Work in process Accounts receivable Sales Cost of goods sold Finished goods Manufacturing overhead Cost of goods sold Income Summary Cost of goods sold i. j. $480,000 $700,000 $475,000 $ 41,000 $ 434,000

191 Oatman Company (p. 3) Oatman Company Income Statement For the Year Ended December 31, 2010 Sales Less: Cost of goods sold ($475,000 – $41,000) Gross margin Less: Selling and administrative expenses: Sales commissions Administrative salaries Insurance Advertising Depreciation Operating Income $700,000 (434,000) $266,000 176,000 $90,000 $ 36,000 80,000 1,000 50,000 9,000

192 Pacific Coast Home Furnishings DM DL MOH WIP FG COGS I/S Purch. $ 23,400 201,500 $ 192,400 $ 32,500 $633,100 - 0 - $ 57,200 37,700 44,200 114,400 32,500 85,800 $371,800 - 0 - $ 29,900 192,400 633,100 371,800 BI $ 11,700 $1,215,500 $19,500 BI 1,215,500$1,185,600 COGM $ 49,400 $1,185,600 - 0 - COGS $1,185,600 188,500 20,800 42,900 $1,950,000Sales $ 512,200OI EI ACOGS Period Costs Inventory Accounts Product Costs (BI + In = EI + Out)

193 Pacific Coast (p. 2) PACIFIC COAST HOME FURNISHINGS Schedule of Cost of Goods Manufactured For the Year Ended December 31, 2006 Direct materials: Direct materials inventory, 1-1-2006$ 23,400 Add: Purchases of direct materials 201,500 Total direct materials available$ 224,900 Deduct: Direct materials inventory, 12-31-2006 (32,500) Direct materials used in production$ 192,400 Direct labor$ 633,100 Manufacturing overhead  Heat, Light, & Power--Plant$ 57,200  Supplies—Plant 37,700  Property Taxes—Plant 44,200  Depreciation Expense—P&E 114,400  Indirect Labor—Wages 32,500  Supervisor’s Salary Plant 85,800 Total Factory Overhead$ 371,800 Total manufacturing costs incurred$ 1,197,300 Add: Beginning work in process inventory 29,900 Total manufacturing costs to account for$ 1,227,200 Deduct: Ending work in process inventory (11,700) Cost of Goods Manufactured$ 1,215,500

194 Pacific Coast (p. 3) PACFIC COAST HOME FURNISHINGS Income Statement For the Year Ended December 31, 2006 Sales$ 1,950,000 Cost of Goods Sold Finished Goods Inventory, Beginning$ 19,500 Cost of Goods Manufactured 1,215,500 Total Goods Available for Sale$ 1,235,000 Finished Goods Inventory, Ending 49,400 Less: Cost of goods sold (1,185,600) Gross margin$ 764,400 Less: Selling and administrative expenses:  Sales reps’ salaries$ 188,500  Supplies—Admin Office 20,800  Depr. Exp—Admin Office 42,900 Total Selling & Administrative Expenses (252,200) Operating Income $ 512,200

195 Paradise Company

196 Pauley’s Parts Co. Future revenues Deduct future costs Margin $30,000 25,000 $ 5,000 $2,500 RemachineScrap The difference is in favor of remachining by $2,500 ($5,000 - $2,500). The $50,000 inventory cost is irrelevant.

197 Penner Corporation FG – 2 nd Quarter 3,800 37,600 3,400 38,000 BI (38,000 * 10%) Budgeted Production EI (34,000 * 10%) Budgeted sales FG – 3 nd Quarter 3,400 35,400 4,800 34,000 BI (34,000 * 10%) Budgeted Production EI (48,000 * 10%) Budgeted sales DM – 2 nd Quarter 22,560 111,480 21,240 112,800 BI (112,800 * 20%) Budgeted DM Purch EI (106,200 * 20%) DM needed in production (37,600 * 3) DM – 3 nd Quarter 106,200 DM needed in production (35,400 * 3)

198 Phony Phones Co. Corded$30.00$24.00$ 6.005/10$3.00 2.4 GHz$32.00$24.00$ 8.004/10$3.20 5.8 GHz$40.00$36.00$ 4.001/10$0.40 $6.60 SPU VCUCMUMix Wtd. Avg. CMU FC $165,000 25,000 units CM per unit $6.60 Corded 2.4 GHz 5.8 GHz 50% 40% 10% 12,500 + 10,000 + 2,500 = 25,000 $375,000 + $320,000 + $100,000 = $795,000 Corded 2.4 GHz 5.8 GHz # 1 == = BE (units) #1

199 Phony Phones Co. (p. 2) NIBT = NIAT (1- Tax Rate) # 2 NIBT = $59,400 (1-.4) NIBT =$99,000 BE (units) = $165,000 + $99,000 $6.60 BE (units) = FC + NIBT BE (units)40,000= CM per unit Corded 2.4 GHz 5.8 GHz 50% 40% 10% 20,000 + 16,000 + 4,000 = 40,000 $610,500 + $512,000 + $160,000 = $1,282,500 Corded 2.4 GHz 5.8 GHz #2

200 Pipes Company WIP Units 70,000 350,000 40,000 380,000 Out BI IN EI DM 100% 75% CC 90% 25% WIP - $ (Wtd. Avg.) DM $86,000 CC $36,000 DM $447,000 CC 198,000 DM $39,000 CC $6,000 $45,000 380,000 * 1.90 = $722,000 = 40,000 * 75% * $1.30 = 40,000 * 25% * $0.60 Out BI IN EI E.U. DMCC 380,000 30,000 410,000 380,000 10,000 390,000 Costs to Account For DMCC $86,000 $447,000 $533,000 $36,000 $198,000 $234,000 BI IN Total $/EU DM CC $533,000 / 410,000 = $1.30 $234,000 / 390,000 = $0.60 $1.90 OUT EI: (DM) 40,000 * 75% EI: (CC) 40,000 * 25% E.U. WEIGHTED AVERAGE METHOD

201 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)

202 Plentiful Printing, Inc. $15,000 95,000 $20,000 $90,000 DM $ 3,000 90,000 40,000 60,000 $ 8,000 2,000 3,000 $13,000 $180,000 WIP $ 20,000 180,000 $ 15,000 $185,000 FG $40,000 2,500 * $16 $40,000 DL Actual $57,000 $ 3,000 Applied $40,000 * 1.5 = $60,000 $ 3,000 MOH $182,000 $ 3,000 $182,000 COGS $182,000 57,000 12,000 $285,000 $34,000 I/S PDOR = Est MOH / Est Activity = $600,000 / $400,000 = $1.50 per DL $ $2,000 / 125 hrs = $16 /hr DL Rate BI Purch EI BI EI Adj. COGS Selling Admin Sales OI COGM COGS Adj. COGS- 0 - $185,000

203 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 - $ 90,000 DL MOH $ 12,000 110,000 40,000 70,000 $232,000 30,000 * $8 = $240,000 $ 8,000 IDM IDL Depr. Other COGS I/S $472,000 54,000 42,000 $600,000COGS Selling Admin. Sales $ 8,000 - 0 - $480,000 $472,000 - 0 - Adj. COGS COGS $ 8,000 $472,000 COGM $ 32,000 OI

204 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] SalesDM Purch DL IDL Other MOH Selling Admin CF

205 Portland Pilots Association

206 Portland Pilots (p. 2)

207 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

208 Postmodern Prod. (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

209 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

210 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

211 Rainbow, Inc. The minimum transfer price is $30. The Yellow Division has idle capacity and so must cover only its incremental costs, which are the variable manufacturing costs. (Fixed costs are the same whether or not the internal transfer occurs; the variable selling expenses are avoidable.) The maximum transfer price is $56. The Green Division would not pay more for the part than it has to pay an external supplier. Yellow Division Operating Income Yes, an internal transfer should occur; the opportunity cost of the selling division is less than the opportunity cost of the buying division. The Yellow Division would earn an additional $150,000 ($6 × 25,000). The total joint benefit, however is $650,000 ($26 × 25,000). The manager of the Yellow Division should attempt to negotiate a more favorable outcome for that division. Sales Less expenses: Original production Added by the division Total Expenses Net operating income $5,250,000 = ($58 × 75,000) + ($36 × 25,000) 3,000,000 = $40 × 75,000 750,000 = $30 × 25,000 3,750,000 $1,500,000 1. 2. 3. 4.

212 Rebel Company

213 Rikki-Tikki-Tavi Taffy

214 Rikki-Tikki-Tavi (p. 2)

215 Robin Hood, Inc. MOH $2,400,000 $2,240,000 $160,000 - 0 - to COGS Underapplied PDOR = Estimated MOH Estimated Activity = $2,000,000 125,000 DLH = $16.00 per DLH Applied MOH = Actual Activity × PDOR 140,000 DLH × $16.00$2,240,000= = 1. 2. 3.

216 Rocky Mountain Bicycle Club Direct materials $ 60 Direct labor 70 Variable manufacturing OH 25 Fixed manufacturing OH ($300,000 ÷ 5,000 units) 60 Unit cost $ 215 Absorption Costing Rocky Mountain Bicycle Club Absorption Costing I/S For the Y/E Dec. 31, 2005 Rev$ 1,400,000 = 4,000 units × $350 per unit - CoGS (240,000) = VC DM 4,000 units × $60 per unit (280,000) = VC DL 4,000 units × $70 per unit (100,000) = VC MOH 4,000 units × $25 per unit (240,000) = FC MOH 4,000 units × $60 per unit GM $ 540,000 - S&A (40,000) = VC S&A 4,000 units × $10 per unit (400,000) = FC S&A NI $100,000

217 Rocky Mountain (p. 2) Variable Costing Direct materials $ 60 Direct labor 70 Variable manufacturing OH 25 Unit cost $ 155 Rocky Mountain Bicycle Club Variable Costing I/S For the Y/E Dec. 31, 2005 Rev $ 1,400,000 = 4,000 units × $350 - VC (240,000) = DM 4,000 units × $60 per unit (280,000) = DL 4,000 units × $70 per unit (100,000) = MOH 4,000 units × $25 per unit (40,000) = S&A 4,000 units × $10 per unit CM $ 740,000 - FC (300,000) = MOH (400,000) = S&A NI $40,000 The difference in NI 2005: Units mfg. - units sold × FOH per unit Difference in NI 1,000 $60 $60,000 Production > Sales Abs. NI is higher!

218 BI $131,400 PURCH. 319,700 EI $126,100 DM 1. $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 3. $5,660 PRIME COSTS DM $325,000 DL 293,480 $618,480 2. WIP BI $ 49,000 325,000 293,480 160,080 $ 73,900EI $753,660 4. FG $ 87,300 753,660 BI $763,660 $ 77,300 EI COGS $763,660 5,660 $769,320 6. $769,320 - 0 - I/S SOLO SALARIES ADU. PTY TAX FIRE INS. COMM. ADMIN. UTIL. RENT DEPR. MISC. R & ALLOW $1,281,700 Sales$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 7. NI AT - 0 - Roley Poley PER UNIT $753,660 / 920 5. = $819 - 0 -

219 Rondini Magic Company

220 Rondini Magic Co. (p. 2)

221 Sadly Corporation 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 = == = 1.

222 Sam Enterprises Units produced per hour CM per unit CM per hour (constraint) $ 3.00 x 3.00 $ 9.00 $ 1.00 x 6.00 $ 6.00 CansCan-ettes Sam should produce “Cans” because the contribution margin per hour (constraint) is greater.

223 Shockey Company PriceQty/Usage AQ × AC AQ × SCSQ × SC 3,350 × $30 3,350 × $25 $100,500 $83,750 $16,750 U AQ × SCSQ × SC 3,375 × $25 (900)(4) × $25 $84,375$90,000 $5,625 F CAN’T! Actual Cost > Standard Cost = UNFAVORABLE Actual Quantity < Standard Quantity = FAVORABLE Standard Allowed for Actual Output (in units) 1. RM – Alum (lbs.) 50 3,350 3,375 25

224 Shockey Co. (p. 2) RateEfficiency AQ × ACAQ × SC SQ × SC 4,200 × $42 4,200 × $40 (900)(5) × $40 $176,400 $168,000 $180,000 $8,400 U$12,000 F $3,600 F Std. Allowed for Actual Output (in units) 2.

225 Sleep Warm, Inc. $18,500 80,000 $81,700 $16,800 $40,500 $105,750 $12,000 81,700 40,500 $216,450 105,750 $23,500 $10,200 216,450 $217,550 $9,100 $217,550 Suppose: Revenue = $400,000 Selling & Admin.= $100,000 $ 82,450 $217,550 $400,000 100,000 DM DL MOH WIPFG COGS - 0 - I/S ACOGS COGS COGM Admin. Period Costs Purch. Inventory Accounts Product Costs (BI + In = EI + Out) OI

226 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]

227 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

228 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:

229 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!

230 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

231 Soap ‘N Suds Inc. Sales Value Less:Net Allocated of Production Separable Costs Realizable Value % NRV Joint Cost Mango $202,500 - 0 - $202,500 0.49 $102,900 Kiwi 210,000 - 0 - 210,000 0.51 107,100 Total $412,500 - 0 - $412,500 1.00 $210,000 Net Realizable Value Method (Sold at the Split-Off Point) 1. Gal. Produced x Selling Price Units of Production % Of Allocated (in gallons) Production Joint Cost Mango 90,000 0.60 $126,000 Kiwi 60,000 0.40 84,000 Total 150,000 1.00 $210,000 Physical Unit Method 2. 4.

232 Soap ‘N Suds Inc. (p. 2) Sales Value Less:Net Allocated of Production Separable Costs Realizable Value % NRV Joint Cost Mango $202,500 $117,000 $85,500 0.35 $ 73,500 Kiwi 210,000 48,000 162,000 0.65 136,500 Total $412,500 $165,000 $247,500 1.00 $210,000 Net Realizable Value Method (Sold Beyond the Split-Off Point) 3.

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

234 South Street Furniture 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

235 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

236 Southern Carpets (p. 2) 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:

237 Spartan Inc. Product Sales Value Additional Costs Net Realizable Value % of NRV Allocated Joint Cost Alpha $180,000 $20,000 $160,000 0.64 $76,800 Beta 100,000 20,000 80,000 0.32 38,400 Chi 20,000 10,000 10,000 0.04 4,800 $250,000 1.00 $120,000 Sales Value less Additional Costs % Applied to Total Joint Cost

238 Steinmueller Steins WEIGHTED AVERAGE METHOD

239 Steinmueller (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

240 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

241 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!

242 Stewart Company Relevant fixed cost of making ($20*50%) DM DL FOH Relevant cost per unit $10 35 11 19 $75 When you compare the cost to make of $75 to the cost of buy of $85; there is a $10 per unit savings. Stewart should make the product. Relevant costs to make: Selling price Relevant cost per unit $85 Relevant costs to buy:

243 Stiegl Corporation

244 Stone Monument (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 = $12,000,000 = 30% BE (units) Normal Capacity BE units as a % of normal capacity = 6,000 20,000 = $2,000

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

246 Stone Monument (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 + + + +

247 Stone Monument (D) 2. 1.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 = $6,000,000 x = 10,000 units + + + + + + Sales($) = Units SP Sales($) = 10,000 $2,000 Sales($) = $20,000,000 * *

248 Stone Monument (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

249 Stone Monument (F) 1. 2. MS ($) = Actual Revenue - BE Revenue MS ($) = $40,000,000* - $12,000,000** MS ($) = $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!! *($2,000 SP x 20,000 normal volume) ** (from (A))

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

251 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

252 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 ☺ +++

253 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%

254 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

255 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 =

256 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.

257 $ 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 Co. (for Cash) (on Acct.) $ 92,250 $ 20,000Inc. Tax (on Acct.) NI AT$ 72,250 - 0 - (Cash) (to R/E)

258 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..)

259 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.

260 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]

261 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:

262 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

263 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 DL MOH $ 63,000 90,000 54,000 76,000 102,000 385,000 21,400 * $18 = $385,200 $ 200 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 OI Est.OH Est Activity $360,000 20,000 DLH = $18 per DLH 200 $779,800 $ 200 $780,000 $779,800 Adj. COGS PDOR = = COGSCOGM - 0 -

264 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

265 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

266 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 Operating Income $1,200,000 (779,800) $420,200 $290,000 $130,200 $ 7,000 110,000 136,000 19,000 18,000

267 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)(1) × $30 $3,200,000 $3,000,000 $3,300,000 $200,000 U$300,000 F $100,000 F

268 Thor’s Hammer, Inc.

269 Tigér Boats $12,500 Selling price per boat (11,500) Variable cost per boat ($5,000 + $5,500 + $1,000) Fixed manufacturing overhead will not change and thus is not relevant. $ 1,000Contribution per boat Contribution margin per boat is positive, therefore the offer should be accepted.

270 Tillamook Cheese Co. Sales value if processed further Sales value at split off (raw milk) Cost of further processing Gain or (loss) from processing further $450,000 (400,000) ( 17,000) $ 33,000 CheeseIce CreamButter $679,000 (500,000) (103,000) $ 76,000 $110,000 (100,000) ( 14,000) ($ 4,000) The milk should be processed further into cheese and ice cream since the increased revenues are greater than the increased costs to produce those products. The milk should not be processed further into butter because increased revenues are less than the increased costs to produce butter.

271 Tina’s Best Choc. (A) $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 Tina should process the cocoa powder further because it will Increase operating income by $700.

272 Tina’s Best Choc. (B) Contribution margin per case Machine hours required per case Revenue per machine hour THE DARK $2.00.05 MH $40.00 THE LIGHT $1.00.02 MH $50.00 Tina should produce The Light because its revenue per machine hour (the constraint) is higher ($50 vs. $40).

273 Toledo Torpedo Co. Cost Comparison – Replacement of Machine, Including Relevant and Irrelevant Items Sales Variable Old machine (book value) Depreciation write-off -or Lump-sum write-off Disposal value New machine (purchase price) Total expenses Operating income Expenses: $400,000 320,000224,00096,000 40,000 4,000* 40,000* 4,000 $ -- -- 60,000(60,000) $360,000$320,000$40,000 $80,000 -- *In a formal income statement, these two items would be combined as a “loss on disposal of $36,000. KeepReplaceDifference Four Years Together Toledo should replace the machine because it will increase operating income by $40,000.

274 Traber Company DM DL MOH WIP FG COGS I/S Purch. $ 25,000 75,000 $ 56,250 $ 43,750 -0- $ 18,750 15,000 100,000 31,250 $165,000 -0- $ 41,250 56,250 43,750 165,000 $ 43,750 $ 275,000 $28,750 $ 275,000$ 278,750 COGM $ 25,000 -0- COGS $ 278,750 82,500 68,750 $ 625,000 $ 195,000OI $ 278,750 ACOGS Period Costs Inventory Accounts Product Costs (BI + In = EI + Out)

275 Traber Company (p. 2) Direct material: Direct materials inventory, 1-1-04 Add: Purchases of direct materials Total materials available Deduct: Direct materials inventory, 12-31-04 Direct materials used in production Direct Labor Manufacturing overhead: Repair and Maintenance.............................................................. Factory insurance........................................................................ Depreciation Expense—Plant...................................................... Indirect Labor--Wages................................................................. Total manufacturing costs Add: Beginning work in process inventory Deduct: Ending work in process inventory Cost of Goods Manufactured $25,000 75,000 $100,000 (43,750) $56,250 56,250 $18,750 15,000 100,000 31,250 165,000 $277,500 41,250 $318,750 (43,750) $275,000 Traber Company Schedule of Cost of Goods Manufactured For the Year Ended December 31, 2004

276 Traber Company (p. 3) Traber Company Income Statement For the Year Ended December 31, 2004 Sales $ 625,000 Cost of Goods Sold Finished Goods Inventory, Beginning $ 28,750 Cost of Goods Manufactured 275,000 Total Goods Available for Sale $ 303,750 Less: Finished Goods Inventory, Ending 25,000 Less: Cost of goods sold (278,750) Gross margin $ 346,250 Less: Selling and administrative expenses: Marketing Expenses $ 82,500 General and Administrative 68,750 Total Selling & Administrative Expenses (151,250) Operating Income $ 195,000

277 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

278 Tubber Company

279 Wabash Cannonball 1. $90,000 ÷ 30,000 units = $3.00 per unit 3. 2. PriceQty/Usage AQ × AC AQ × SCSQ × SC 30,000 × $3 30,000 × $3.25 $90,000 $97,500 $7,500 F AQ × SCSQ × SC 28,000 × $3.25 26,000 × $3.25 $91,000$84,500 $6,500 U CAN’T! Actual Cost < Standard Cost = FAVORABLE Actual Quantity > Standard Quantity = UNFAVORABLE Standard Allowed for Actual Output (in units)

280 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

281 Whiskers Products, Inc.

282 Whittle Company

283 Young Products

284 Young Products (cont.)

285 Zephyr Company a. The lowest acceptable transfer price from the perspective of the selling division, the Mechanics Division, is given by the following formula: Transfer price = Variable cost per unit + Contribution margin on lost sales Since there is enough idle capacity to fill the entire order from the Computer Division, there are no lost outside sales. And since the variable cost per unit is $42, the lowest acceptable transfer price as far as the selling division is concerned is also $42. Transfer price = $42 + $0 = $42 b. The Computer Division can buy a similar transformer from an outside supplier for $76. Therefore, the Computer Division would be unwilling to pay more than $76 per motor. Transfer price < Cost of buying from outside supplier = $76 c. Combining the requirements of both the selling division and the buying division, the acceptable range of transfer prices in this situation is: $42 < Transfer price < $76 Assuming that the managers understand their own businesses and that they are cooperative, they should be able to agree on a transfer price within this range and the transfer should take place. d. From the standpoint of the entire company, the transfer should take place. The cost of the motors transferred is only $42 and the company saves the $76 cost of the motors purchased from the outside supplier. 1.

286 Zephyr Company (p. 2) a. Each of the 5,000 units transferred to the Computer Division must displace a sale to an outsider at a price of $80. Therefore, the selling division would demand a transfer price of at least $80. This can also be computed using the formula for the lowest acceptable transfer price as follows: Transfer price = $42 + ($80 - $42) = $80 b. As before, the Computer Division would be unwilling to pay more than $76 per motor. c. The requirements of the selling and buying divisions in this instance are incompatible. The selling division must have a price of at least $80 whereas the buying division will not pay more than $76. An agreement to transfer the motors is extremely unlikely. d. From the standpoint of the entire company, the transfer should not take place. By transferring a motor internally, the company gives up revenue of $80 and saves $76, for a loss of $4. 2.

1. 22 Abiqua Acres WIP Units 5,000 60,000 8,000 57,000 Out BI IN EI DM 100% CC 40% 50% WIP - $ (Wtd. Avg.) DM $20,000.00 CC 16,000.00 DM 250,000.00 CC.

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1. 22 Abiqua Acres WIP Units 5,000 60,000 8,000 57,000 Out BI IN EI DM 100% CC 40% 50% WIP - $ (Wtd. Avg.) DM $20,000.00 CC 16,000.00 DM 250,000.00 CC.

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Presentation on theme: "1. 22 Abiqua Acres WIP Units 5,000 60,000 8,000 57,000 Out BI IN EI DM 100% CC 40% 50% WIP - $ (Wtd. Avg.) DM $20,000.00 CC 16,000.00 DM 250,000.00 CC."— Presentation transcript:

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