1. 1

2. 2 Abiqua Acres

3. 3 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 

4. 4 Abtex Electronics (cont.) Tape RecordersElectronic Calculators DM $4.00 × 90% = DL $2.00 × 110% = VOH Total VC per unit DM $4.50 × 80% = DL $3.00 × 110% = VOH Total VC per unit $3.60 2.20 2.00 $7.80 $3.60 3.30 2.00 $8.90 Total Fixed Costs: $ 280,000 1,040,000 57,000 $1,377,000 Sales Mix Calculation: $750,000 I made up a big number for “revenue”, likely to be divisible by both $15.00 and $20.00, the 1998 selling prices 20%80% Estimated 1998 mix of revenue $600,000 Rev. SP $20 per unit 30,000 calculators $150,000 Rev. SP $15 per unit 10,000 recorders ¼¾ SALES MIX IN UNITS

5. 5 Abtex Electronics (cont.) (Continued) SPVCCMMix Wtd. Avg. CM Tape Recorders $15.00$7.80$7.201/4$1.800 Electronic Calculators $20.00$8.90$11.103/4$8.325 $10.125 BE(units) = FC CM per unit = $1,377,000 $10.125 = 136,000 units 27,200 Tape Recorders 108,800 Electronic Calculators ¼¾

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

7. 7 1. Al$20$16$42/10$.80$ 4.00 Cat$50$36$143/10$4.20$15.00 Raz$40$28$125/10$6.00$20.00 $11.00$39.00 BE (units) = FC = $77,000 = 7000 units CM per unit $11 AP 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

8. 8 2. WTD. AVG. SPVCCMMIXCM Al$20$16$4.40$1.60 Cat$50$36$14.40$5.60 Raz$40$28$12.20$2.40 $9.60 BE (units) = FC = $77,000 = 8021 units CM per units $9.60 Al Cat Raz 40% + 40% + 20% 3,209 + 3208 + 1,604 $64,180 + $160,400 + $64,160 = $288,740 Increased BE point because more low profit “Al’s” were sold. Alcatraz Artifacts (cont.)

9. 9 Andretti Company

10. 10 Andretti Company (cont.)

11. 11 Andretti Company (cont.)

12. 12 Andretti Company (cont.)

13. 13 Andretti Company (cont.)

14. 14 UNITSUNITSUNITSUNITS FG - MarFG - AprilFG - May FG - June 6000 32,000 8,000 (20% x 40,000) Produce 30,000 BI 8000 Produce 44,000 40,000 EI 12,000 (20% x 60,000) 60,000 RM UNITS RM - April RM UNITS RM - May RM UNITS FG - June 44,000 x 3 = 132,000 33,000 lbs. (25% x 132,000) 24,000 lbs. Purchase 105,000 lbs. 32,000 x 3 = 96,000 lbs, Archer Company a. b.

15. 15 ACTIVITY: “N” Number of production runs : $400,000 / 50 = $8000 per… “Q” Quality tests performed : $360,000 / 300 = $1200 per… “S” Shipping orders processed : $120,000 / 150 = $800 per… Audio Basics Corporation 1. ----- ABC StandardHigh Grade “N” “Q” “S” 40 × $8,000 = 180 × $1,200 = 100 × $ 800 = $ 320,000 $ 216,000 $ 80,000 $ 616,000 $ 250,000 $ 348,000 $1,214,000 MOH DM DL Total MFG ÷ 320,000 units $3.79375 per unit “N” “Q” “S” 10 × $8,000 = 120 × $1,200 = 50 × $ 800 = $ 80,000 $ 144,000 $ 40,000 $ 264,000 $ 228,000 $ 132,000 $ 624,000 MOH DM DL Total MFG ÷ 100,000 units $6.24 per unit a. b. 2. ----- Allocated MOH Est. MOH Activity $880,000 $480,000 = $1,833333 per DL$ $ 638,000 (= $348,000 × $1.833333) $ 250,000 $ 348,000 $1,214,000 MOH DM DL Total MFG ÷ 320,000 units $3.8625 per unit $ 242,000 (= $132,000 × $1.833333) $ 228,000 $ 132,000 $ 602,000 MOH DM DL Total MFG ÷ 100,000 units $6.02 per unit StandardHigh Grade $ 616,000 + 264,000 $ 880,000

16. 16 B.G. Wip Company Step 1 DM CC 100% 60% 100% 1/3 WIP 2,000 9,000 3,300 7,700 Step 2 Wtd. Avg. Equivalent Units OUT EI 3300*100% 3300*1/3 E.U. DM CC7,700 3,300 1,100 11,0008,800

17. 17 1. 2. DM PriceQty AQ × AC 14,000 × $1.80 $25,200 AQ × SC 14,000 × $1.75 $24,500 SQ × SC × $1.75 $700 U AQ × SC 13,250 × $1.75 $23,187.50 SQ × SC 12,600 × $1.75 $22,050 (6300)(2) $1137.50 U DL AQ × AC 4,100 × $9.05 $37,105 AQ × SC 4,100 × $9.00 $36,900 SQ × SC (2000)(2) × $9.00 $36,000 $205 U Rate Efficiency $900 U Ballycanally Corporation

18. 18 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)

19. 19 Barber Company

20. 20 Price Usage AQ × AC 2500 × $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.

21. 21 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 40,000 × $3.00 $120,300 $9,700 U$3,300U 5 SQ × SC (7800)(5) 39,000 × $3.00 $117,000 Beale Street (p. 2)

22. 22 BURT MANUFACTURING Unit Product Cost Data Years 1 through 4 Year 12341234 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 BURT MANUFACTURING Absorption Costing Income Statement For Years 1 through 4 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 12341234 Belly Rub Productions

23. 23 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

24. 24 Bob’s Beef Boy 0 Meat $54,000 Lettuce $6,750 Tomatoes $7,500 Kaiser rolls $9,250 0 $77,500 DM $66,400 DL Condiments $2,650 Paper $2,400 Utilities $22,500 Grill Depr. $7,000 Rent $25,000 Cleaning $6,800 $66,260 MOH 0 $77,500 66,400 66,260 0 $210,160 WIP 0 $210,160 0 $210,160 FG $210,160 0 $210,160 COGS COGM $210,160 Servers $53,000 Mgr. $41,000 Depr. Signs $3,250 Adv. $3,500 $310,910 $478,800 $167,890 I/S

25. 25 Absorption Costing Income Statement For the Year Ended Dec. 31, 2002 Rev. $630,000 COGS: Prime (252,000) V.MOH (84,000) F.MOH (100,000) GM $194,000 S&A: V.Sell (54,000) F.Sell (45,000) F.Adm (90,000) NI $5,000 Variable Costing Income Statement For the Year Ended Dec. 31, 2002 Rev.$630,000 VC: Prime(252,000) V.MOH (84,000) V.Sell (54,000) CM$240,000 FC: F.MOH(100,000) F.Sell (45,000) F.Adm (90,000) NI $5,000 Bojangle Dance Shoes

26. 26 Bosna Corporation

27. 27 Buffalo Broilers PDOR = Est. MOH / Est. Activity $500,000 / 100,000 DLH = $5.00 per DLH $500,000 / $800,000 = $0.625 per DL$ $500,000 / 80,000 MH = $6.25 per MH 1.

28. 28 Buffalo Broilers (cont.) MOH (DLH) Actual Applied $5.00 * 120,000 $576,000 = $600,000 $24,000 overapplied MOH (DL$) Actual Applied.625 * $930,000 $576,000 = $581,250 $5250 overapplied MOH (MH) Actual Applied $6.25 * 90,000 $576,000 = $562,500 $13,500 underapplied 2. $576,000 / 120,000 DLH = $4.80 Actual MOH per Actual DLH 3.

29. 29 California Textbooks (A) Relevant Benefit so better to MAKE than BUY

30. 30 California Textbooks (B) Best choice is to buy textbook covers and use facilities for other products

31. 31 Candlelight Candles Co. I have chosen to round to 2 decimal places WIP Units 25,000 510,000 12,000 523,000 Out BI IN EI DM 100% 80% 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

32. 32 1. DM$210,000 DL 140,000 VOH 30,000 $380,000 2. Sales$500,000 Loss: COGS: DM$210,000 DL 140,000 VOH 30,000 2. FOH $50,000($430,000) 4.$70,000 GM FS & A(60,000) $10,000 3. Sales$500,000 Less: VC: DM$210,000 DL 140,000 VOH 30,000 VS & A $20,000(400,000) CM$100,000 5. BE ($) = FCBF ($) = $110,000 = $110,000 CM Ratio $100,000/$500,000 1/5 6. Operating Leverage= CM/NI = $70,000/10,000 = 7 = $550,000 Cass Company

33. 33 Cattle Company (1997) DM $96,000 $202,000 $190,000 $108,000 DL $130,000 MOH $15,000 104,000 $119,000 $119,000 - 0 - Purch Inventory Accounts Product Costs WIP $71,000 190,000 130,000 $445,000 119,000 $65,000 FG $45,000 $445,000$408,000 $82,000 COGS$408,000 0 I/S $408,000$566,000 $135,000 $23,000 COGS ACOGS COGM NI Rev. Admin. BI + In = EI + Out Period Costs

34. 34 Cattle Company 1998 WIP $65,000 235,000 170,000$562,000 176,000 $84,000 FG $82,000 $562,000$575,000 $69,000 COGS$575,000 I/S $575,000$812,000 $161,000 $76,000 NI Rev. ACOGS COGS COGM DM $108,000 $229,000$235,000 $102,000 DL$170,000 0 MOH $18,000 158,000$176,000 0 Purch Inventory Accounts Product Costs BI + In = EI + Out Admin. Period Costs

35. 35 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

36. 36 Chain Saw Company (cont.) y = $61.50 x + $17,431.74 when x = 800 y = $66,631.74 Cost Function:

37. 37 1. CM Ratio = CM = 60%VC = 40% of sales Sales $12,000 x.60 = $7,200 2. Sales$9,000 x.60 CM$5,400 FC (6,000) NI ($600) NO 3. BE ($) = FC = $3,000 = $5,000 = $5,000 CM Ratio.60 4. BeforeAfter Rev.$120,000[12,000 x $10] x.60 CM $72,000 FC 18,000 NI $54,000 Rev.$144,000[18,000 X $8] x.60 CM $86,400 FC (20,000) NI $66,400 YES Clair’s Toys

38. 38 The Costume Company $800,000 ÷ $8.00 = 100,000 expected (budgeted) DLH … 4 DLH per unit FIXED OVERHEAD Spending N/A Volume Actual FOH Budgeted FOHBudgeted FOH Applied FOH BQ × SP SQ × SP $802,000 $800,000$800,000 (25,250)(4) × $8 $808,000 $2,000 U $8,000 F $6,000 F Flexible Budget Variance = $2,000 WHERE: BQ = Budgeted Qty. × Std. Allowed

39. 39 Cox Company

40. 40 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

41. 41 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

42. 42 Allocation Rate Pool 1: 100 pesos per part Pool 2: 4,000,000 pesos per production run Pool 3: 175,000 pesos per machine hour Pool 4: 4,000 pesos per component tested Pool 5: 15,500 pesos per direct labor hour Activity 15,000 units × 3 parts per unit 1 production run 16 machine hours 1,000 components tested 80 direct labor hours Cost (pesos) 4,500,000 4,000,000 2,800,000 4,000,000 1,240,000 16,540,000 1,203 (Rounded) Total mfg. overhead for 15,000 Hunters Manufacturing overhead per cutter Allocation Rate Pool 1: 100 pesos per part Pool 2: 4,000,000 pesos per production run Pool 3: 175,000 pesos per machine hour Pool 4: 4,000 pesos per component tested Pool 5: 15,500 pesos per direct labor hour Activity 100,000 units × 1 part per unit 1 production run 48 machine hours 100 components tested 400 direct labor hours Cost (pesos) 10,000,000 4,000,000 8,400,000 400,000 6,200,000 29,000,000 290 Total mfg. overhead for 100,000 Carvers Manufacturing overhead per cutter THE HUNTERTHE CARVER The Cutters (B) (p. 2)

43. 43 The Cutters (B) (p. 3) PROFIT PER ACTIVITY-BASED COSTING The Cutters (B) PROFIT PER JOB-ORDER COSTING The Cutters (A)

44. 44 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.

45. 45 WTD.AVG. SPVC CMMIXCMSP Boston$1200$700 $50060% $300 $720 Deluxe$50002000$300040%$1200$2000 $1500$2720 1. 60% Boston = 1200 Boston = 1200 Boston 40% Deluxe = 800 Deluxe = 800 Deluxe 2000 units total @ BE 2,000 units BE (units) = FC = $3,000,000 = 2,000 units BE CM per unit $1500 2. BE ($) = FC = $3,000,000 = $3,000,000 CM Ratio $1500/$2720.55 = $5,440,000 BE($) -- OR --- 1200 x $1200 = $1,440,000 800 x $5000 = 4,000,000 $5,440,000 Deering Banjo Company

46. 46 Q=DLH $4.00 $900,000 (SP)1,500,000 × 150/1000 Rate Eff AQ x AP 190,000 x $4.00 $760,000 SQ x SP 180,000 X $4.00 $720,000 $760,000 ÷ 190,000 AQ x SP $0 $40,000 U 1,200,000 x 150/1000 = 1. FC $150,000 VC $720,000 $870,000 190,000 × $4.00 $760,000 GIVEN = 180,000 2. Duo Company

47. 47 East Meets West (A)

48. 48 East Meets West (B)

49. 49 East Meets West (C)

50. 50 East Meets West (D)

51. 51 East Meets West (E)

52. 52 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

53. 53 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

54. 54 Frodo Company There are two ways students can approach this problem.  CostsKeep OldBuy New Operating costs($75,000)($20,000) Depreciation (NOT RELEVANT)($30,000)($30,000) Resale of old$2,000 Purchase of new($40,000)_______ ($105,000)($88,000) $17,000 savings!  Incremental Change in operating cost $11,000 × 5 years =$55,000 Resale of old machine$2,000 Cost of new machine($40,000) (Cost) or Savings$17,000

55. 55 Funk and Wagnall RelevantIrrelevant Opportunity Outlay Outlay Sunk X (1.) X (2.) X (3.) X (4.) X (5.) X (6.) X (7.) X (8.) XX (9.) X (10.) 1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

56. 56 Halo Products Company A. B. C. D. PDOR = Est. MOH Est. Activity = $200,000 32,000 = $6.25 Applied MOH = PDOR * Actual Activity = $6.25 * 36,400 = $227,500 MOH Actual $256,200 Applied $227,500 Underapplied $28,700 $256,200 / 36,400 = $7.04

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

58. 58 Hassett Company 1998 budget requires 20,000 handles for use in the production of pots. Costs to manufacture the handles is as follows: DM$.60 DL$.40 VOH$.10 FOH$.20 Total$1.30 R&M Steel Co. has offered to supply handles for $1.25 each. Should Hassett MAKE or BUY? MAKE!$1.10 < $1.25 DM, DL, VOH = relevant costs that change

59. 59 Herd Company

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

61. 61 Holland Company

62. 62 Holland Company (cont.)

63. 63 1. BE (units) = FC = $30,000 = 2000 units CM per unit $35-$20 BE ($)= FC= $30,000 =$70,000 CM ratio $35-$20 $35 2. BE ($)= FC + NI = ($30,000 X 12) + $510,000 = $2,030,000 CM ratio $35-$20 $35 3. MS ($)= Actual Rev. – BE Rev. = $2,030,000 – ($70,000 x 12) = $2,030,000 - $840,000 = $1,190,000 MS Ratio= Actual Rev. – BE Rev. Actual Rev. = $2,030,000 - $840,000 = 58.6% $2,030,000 4. Operating Income = NIAT = $864,000 = $1,440,000 I – TR = 1 -.4 BE (units) = FC + NI = $360,000 + $1,440,000 = 120,000 units annually, CM per unit $35-$20 10,000 units monthly Houghton’s Limited

64. 64 The Hour Record Distance traveled is the ‘score,’ determining who wins and who doesn’t, and seems to be best considered a financial measure. Net income or cash flow if you will. This is a historical measure; at any point in time this measure only tells you what has occurred in the past. Bicycle speed is the predictive of what ‘score’ will be achieved. Measures that do this can be both financial (expected sales in dollars) and nonfinancial (expected sales in units). Heart Rate is a measure of current effort, such as the amount (in units or dollars) of materials, labor and/or overhead being used in production. In general, with heart rate and with materials usage, lower is better. Again, this is a historical measure but is predictive to the degree that heart rate this minute will be the same as heart rate the next minute. Human body efficiency decreases over time, so heart rate will increase over time, but business efficiency should increase over time, and the corresponding efficiency measures should improve. Can a target (or budgeted) distance be useful in this scenario? Or at least knowledge of the last record set? If after 30 minutes the rider is less than halfway toward the old record, someone should determine if the record can realistically be equaled or broken. If the record is unrealistic, the rider might as well cut his or her losses and save the energy for another task.

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

66. 66 J.B. Goode Company PDOR = Est. MOH = $135,000 = $13.50 per DLH Standard[Applied MOH = Actual Activity × PDOR] Custom[Applied MOH = Actual Activity × PDOR]  This part of the calculation is a little unusual because we are using actual MOH in the calculation rather than estimated MOH Est. Activity 10,000 900 units × 10 DLH = 9000 DLH ×$13.50 $121,500 Applied MOH 100 units × 10 DLH = 1000 DLH ×$13.50 $13,500 Applied MOH 1.

67. 67 J.B. Goode Company (p. 2) 2. STANDARD [Applied MOH = Actual Activity × PDOR] Depr. Maint. Purch. Insp. IDM Super. Supplies 3,000 9,000 1,500 400 900 400 900 ×××××××××××××× $10.00 $ 1.50 $11.00 $12.00 $15.00 $28.00 $ 3.00 ============== $30,000 13,500 16,500 4,800 13,500 11,200 2,700 $92,200 Applied MOH÷ 900 Guitars = $102.45 each CUSTOM [Applied MOH = Actual Activity × PDOR] Depr. Maint. Purch. Insp. IDM Super. Supplies 1,000 500 600 100 600 100 ×××××××××××××× $10.00 $ 1.50 $11.00 $12.00 $15.00 $28.00 $ 3.00 ============== $10,000 1,500 5,500 7,200 1,500 16,800 300 $42,800 Applied MOH÷ 100 Guitars = $428 each

68. 68 J.B. Goode Company (p. 3) 3. Custom OLD WAY Custom NEW WAY DM DL MOH TOTAL DM DL MOH TOTAL $375 $240 $135 $750 $ 375 $ 240 $ 428 $1,043 NO... $1,000 Revenue does not cover the manufacturing expense The single biggest reason for the higher overhead cost is the supervision required for the custom guitars.

69. 69 Jolly Candies 1.BE(units) = CM per unit FC + NI = $400 + $300 $1 = 700 units 2.BE(units) = CM per unit FC + NI = $400 + $0 $1 = 400 units 400 units × 120% = 480 units (volume 20% above breakeven volume) Rev (480 units × $4) - VC (480 units × $3) CM - FC NI $1,920 1,440 $ 480 400 $ 80 3.NIBT = NIAT 1- TR = $300 1 – 40% = $500 BE(units) = CM per unit FC + NI = $400 + $500 $4.00 - $3.50 = 1,800 units

70. 70 Judge Ely Jeans DM $29,500 98,400 95,600 $32,300 DL $118,400 0 MOH $ 7,200 44,800 4,800 $21,600 10,400 15,200 35,200 $139,200 0 60% * 36000 = WIP $49,600 95,600 118,400 340,400 139,200 $62,400 FG $37,600 340,400 326,000 $52,000 COGS $326,000 0 I/S $326,000 $715,200 $7,200 $14,400 4,000 2,640 123,200 15,300 166,740 492,740 $222,460 NI S&A 40% * $36,000 = COGS ACOGS COGM

71. 71 Kaitlyn Korporation Beg$1,500 Collections$90,000$125,000 Disbursements Borrow End$12,000 Cash $32,000

72. 72 Kennedy Company

73. 73 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)

74. 74 Mango Motors Absorption Costing Income Statement For the Year Ended Dec. 31, 1996 Rev.$810,000 COGS(540,000) (60,000) GM$210,000 S&A (67,500) (50,000) NI $92,500 Variable Costing Income Statement For the year Ended Dec. 31, 1996 Rev.$810,000 VC(540,000) (67,500) CM$202,500 FC (60,000) (50,000) NI $92,500

75. 75 McKay Mills 1. 2. PDOR = Est. OH / Est. Activity = $1,335,000 / 1645 (500 + 410 + 735) PDOR = $811.55 per DLH Actuals: Yarn455 * $811.55 = $369,255.25 Fabric420 * $811.55 = $340,851.00 Clothing750 * $811.55 = $608,662.50 $1,318,768.75 MOH Actual $1,372,000.00 Applied $1,318,768.75 $53,231.25 underapplied

76. 76 Moehrle Manufacturing Costs to manufacture: DM$45 DL$30 VOH$30 FOH$22 Total$127 A special order is received to produce monitors with a special logo that would increase production costs by $5.00 per monitor **What is the minimum selling price Moehrle should accept for this order? $105 + $5 $110minimum selling price for special order

77. 77 Narcissus Needles 1. 2. 3. Utilities $10,000 Depr.15,000 Dupr. Sal. 30,000 Janitorial 6,000 Ins.9,000 Total MOH $70,000 Est. DLH = 3,500 PDOR = Est. OH / Ect. Activity = $70,000 / 3,500 PDOR = $20 Apploied OH = PDOR * Activity = $20 * 3,600 DLH Applied OH = $72,000 Utilities $10,500 Depr.15,000 Supr. Sal. 30,000 Janitorial 5,200 Ins.8,500 Total MOH$69,200 Actual $69,200 Applied $72,000 MOH $2,800 Overapplied

78. 78 Paradise Company

79. 79 Pirates, Inc. RateEfficiency AQ × ACAQ × SC SQ × SC 28,000 × $11.70 28,000 × $12.00 (22,000)(1.25) × $12.00 $8,400 F$6,000 U $2,400 F Std. Allowed for Actual Output (in units)

80. 80 Plentiful Printing, Inc. $15,000 95,000 $20,000 90,000 DM $3,000 90,000 40,000 60,000 8000 2000 3000 $13,000 $180,000 WIP $20,000 180,000 $15,000 185,000 FG $40,000 2,500 * $16 $40,000 0 DL Actual $57,000 3000 Applied $40,000 * 1.5 = $60,000 3000 0 MOH $185,000 $182,000 0 3000 $182,000 COGS $182,000 57,000 12,000 $285,000 $34,000 I/S PDOR = Est OH / Est Activity = $600,000 / $400,000 = 1.5 per DL $ $2000 / 125 hrs = $16 /hrDirect Labor Rate BI Purch EI BI EI Adj. COGS Selling Admin Sales NI COGM COGS Adj. COGS

81. 81 Portland Pilots Association

82. 82 Portland Pilots Assoc. (p. 2)

83. 83 Rex Company

84. 84 Rikky-Tikky-Tavy Taffy

85. 85 Rikky-Tikky-Tavi Taffy (p. 2)

86. 86 BI $131,400 PURCH. $319,700 EI $126,100 DM (a.) 325,000 $293,480 DL $293,480 MOH IOL DEPR. PTY TAX FIRE INS. IDM UTIL. DEPR. $22,700 $31,000 $12,600 $7,840 $11,600 $36,000 $44,000 920 x 29= 26,680 DLH 26,680 x $600 = $160,080 $165,740 Underapplied MOH $5,660 (c.) $5,660 PRIME COSTS DM $325,000 DL 293,480 $618,480 (b.) WIP BI $49,000 $325,000 $293,480 $160,080 $73,900EI $753,660 (d.) FG $87,300 $753,660 BI 763,660 $77,300 EI COGS $763,660 $5,660 $769,320 (f.) $769,320 0 I/S SOLO SALARIES ADU. PTY TAX FIRE INS. COMM. ADMIN. UTIL. RENT DEPR. MISC. R & ALLOW $1,281,700Sales$769,320 $85,000 $44,000 $5,400 $1,960 $28,500 $167,200 $9,000 $8,700 $17,400 $4,300 $36,100 $1,177,200 $104,820 X 40% = $41,928 $104,820 $62,892 NI BT (f.) NI AT 0 0 Roley Poley PER UNIT $753,660 / 920 = $819 (e.)

87. 87 Rondini Magic Company

88. 88 Rondini Magic Co. (p. 2)

89. 89 S & P Corporation 1.BE(units) = CM per unit FC + NI = $300,000 + $0 $10 - $5 = 60,000 units 2.BE($) = CM Ratio FC + NI = $300,000 +$0 50% = $600,000

90. 90 Sam Enterprises CansCan-ettes Units produced per hour31 Contribution margin per unit$ 3$ 6 Contribution margin per hour (the resource constraint) $ 9$ 6 Total contribution for 1,000 hours$9,000$6,000 THE WINNER!

91. 91 Sleepwell, Inc. DM $18,500 80,00081,700 $16,800 DL$40,500 0 MOH$105,750 0 WIP $12,000 81,700 40,500$216,400 105,750 $23,500 FG $10,200 261,450217,550 $9,100 COGS $217,550217,550 0 I/S Suppose: Revenue = $400,000 Selling & Admin.= $100,000 $ 82,450 $400,000$217,550 100,000

92. 92 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 $64,800 $56,700 $1,650 F CAN’T!

93. 93 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

94. 94 SoMuch Stereos Absorption Costing Income Statement For the Year Ended Feb. 28, 2000 Rev.$89,000 COGS: DM(22,000) DC(14,000) VOH (9,000) FOH(10,000) GM$34,000 S&A: VSE (5,000) FSE(16,000) FAE(14,000) NI($1,000) Variable Costing Income Statement For the Year Ended Feb. 28, 2000 Rev.$89,000 VC: DM(22,000) DL(14,000) VOH (9,000) VSE (5,000) CM$39,000 FC: FOH(10,000) FSE(16,000) FAE(14,000) NI($1,000)

95. 95 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

96. 96 Southern Carpets (cont.) y = $57.27 x + $86,152.89 when x = 3,500 y = $286,597.85 when x = 4,000 y = $315,232.89 Cost Function:

97. 97 Steinmueller Steins, Inc.

98. 98 Stiegl Corporation

99. 99 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

100. 100 The Swizzle Manufacturing Co. 10,000 $200,000 $25,000 185,000 DM BI Purch EI $15,000 185,000 230,000 385,200 $22,000 793,200 BI EI WIP $30,000 793,200 $43,200 $780,000 BI EI FG $230,000 (21,400 hrs) $230,000 0 DL MOH 63,000 90,000 54,000 76,000 102,000 385,000 21,400 * $18 = $385,200 $ 200 0 Utilities IDL Maint. Depr. Rental COGS I/S 779,800 7,000 110,000 136,000 19,000 18,000 1,200,000 $130,200 COGS Utilities S&A Salaries Advertising Depr. Rental Sales NI Est.OH Est Activity $360,000 20,000 DLH = $18 per DLH 200 $779,800 $ 200 $780,000 $779,800 Adj. COGS PDOR = = COGS

101. 101 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

102. 102 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

103. 103 Swizzle (p. 4) The Swizzle Manufacturing Company Income Statement For the Year Ended December 31, 1994 Sales Less: Cost of Goods Sold Gross Margin Less: Selling and administrative expenses: Utilities Salaries Advertising Depreciation Building rental Net Income $1,200,000 (779,800) $420,000 $290,000 $130,200 7,000 110,000 136,000 19,000 18,000

104. 104 Thorp Company

105. 105 …can sell just milk, or can process the milk further into cheese, ice cream and yogurt Product:CheeseIce CreamButter Sales value at split off (i.e., milk)$400,000$500,000$100,000 Sales value if processed further$450,000$679,000$110,000 Cost of further processing$ 17,000$103,000$ 14,000 Joint costs$150,000 Joint costs are allocated by the sales value at split off Relevant! Cost $400,000 $17,000 $450,000 Cheese :o) Raw Milk- Joint Costs $150,000 $500,000 $103,000 $679,000 Ice Cream :o) $100,000 $14,000 $110,000 Butter :o( $1,000,000 revenue from selling product just as milk Tillamook Cheese Co.  Cost to produce butter from milk higher than the increased revenue

106. 106 Toledo Torpedo Company Cost Comparison – Replacement of Machine, Including Relevant and Irrelevant Items RELEVANT Benefit (purchase new machine)

107. 107 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

108. 108 Tub Company

109. 109 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

110. 110 Whiskers Products, Inc.

111. 111 Womack Company

112. 112 Young Products

113. 113 Young Products (cont.)