ACC 100 Lecture Notes - Lecture 6: Gross Margin, Fifo (Computing And Electronics), Weighted Arithmetic Mean
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1)
Chang Industries has 1,900 defective units of product that havealready cost $13.90 each to produce. A salvage company willpurchase the defective units as they are for $4.90 each. Chang'sproduction manager reports that the defects can be corrected for$6.10 per unit, enabling them to be sold at their regular marketprice of $20.80. The incremental income or loss on reworking theunits is:
$18,620 loss.
$18,620 income.
$11,590 loss.
$30,210 income.
$27,930 income.
2)
Maxim manufactures a hamster food product called Green Health.Maxim currently has 10,000 bags of Green Health on hand. Thevariable production costs per bag are $2.40 and total fixed costsare $10,000. The hamster food can be sold as it is for $9.65 perbag or be processed further into Premium Green and Green Deluxe atan additional $2,600 cost. The additional processing will yield10,000 bags of Premium Green and 3,600 bags of Green Deluxe, whichcan be sold for $8.65 and $6.65 per bag, respectively. The netadvantage (incremental income) of processing Green Health furtherinto Premium Green and Green Deluxe would be: |
$110,440.
$107,840.
$13,940.
$11,340.
$2,600.
3)
Bluebird Mfg. has received a special one-time order for 15,000bird feeders at $3.10 per unit. Bluebird currently produces andsells 75,000 units at $7.10 each. This level represents 80% of itscapacity. Production costs for these units are $3.65 per unit,which includes $2.30 variable cost and $1.35 fixed cost. IfBluebird accepts this additional business, the effect on net incomewill be:
$46,500 increase.
$12,000 increase.
$34,500 increase.
$8,250 decrease.
$34,500 decrease.
4)
Markson Company had the following results of operations for thepast year:
| Sales (8,000 units at$19.60) | $156,800 | |
| Variable manufacturingcosts | $84,400 | |
| Fixed manufacturing costs | 14,600 | |
| Variable selling andadministrative expenses | 10,400 | |
| Fixed selling and administrativeexpenses | 19,600 | (129,000) |
| Operating income | $27,800 |
A foreign company whose sales will not affect Markson's marketoffers to buy 2,000 units at $13.40 per unit. In addition tovariable manufacturing costs, selling these units would increasefixed overhead by $1,560 for the purchase of special tools. IfMarkson accepts this additional business, its profits will:
Increase by $3,100.
Decrease by $5,450.
Decrease by $1,560.
Increase by $1,540.
Decrease by $4,660.
5)
A company is considering the purchase of a new piece ofequipment for $93,200. Predicted annual cash inflows from thisinvestment are $38,000 (year 1), $29,000 (year 2), $19,000 (year3), $13,000 (year 4) and $8,000 (year 5). The payback periodis: |
4.45 years.
3.55 years.
2.55 years.
4.21 years.
3.00 years.
6)
A company is planning to purchase a machine that will cost$30,600, have a six-year life, and be depreciated over a three-yearperiod with no salvage value. The company expects to sell themachine's output of 3,000 units evenly throughout each year. Aprojected income statement for each year of the asset's lifeappears below. What is the accounting rate of return for thismachine? |
| Sales | $123,000 | |
| Costs: | ||
| Manufacturing | $53,100 | |
| Depreciation onmachine | 5,100 | |
| Selling andadministrative expenses | 41,000 | (99,200) |
| Income beforetaxes | $23,800 | |
| Income tax(30%) | (7,140) | |
| Net income | $16,660 | |
108.89%.
50.00%.
54.44%.
33.33%.
5.10%.
7)
The following present value factors are provided for use in thisproblem.
| Periods | Present Value of $1 at 8% | Present Value of anAnnuity of $1 at8% |
| 1 | 0.9259 | 0.9259 |
| 2 | 0.8573 | 1.7833 |
| 3 | 0.7938 | 2.5771 |
| 4 | 0.7350 | 3.3121 |
Xavier Co. wants to purchase a machine for $37,100 with a four yearlife and a $1,100 salvage value. Xavier requires an 8% return oninvestment. The expected year-end net cash flows are $12,100 ineach of the four years. What is the machine's net present value(round to the nearest whole dollar)?
$3,785.
$2,976.
$40,885.
$(3,785).
$(2,976).
8)
Alfarsi Industries uses the net present value method to makeinvestment decisions and requires a 15% annual return on allinvestments. The company is considering two different investments.Each require an initial investment of $14,400 and will produce cashflows as follows:
| End ofYear | Investment | |
| A | B | |
| 1 | $9,600 | $0 |
| 2 | 9,600 | 0 |
| 3 | 9,600 | 28,800 |
The present value factors of $1 each year at 15% are:
| 1 | 0.8696 |
| 2 | 0.7561 |
| 3 | .6575 |
The present value of an annuity of $1 for 3 years at 15% is2.2832
The net present value of Investment A is:
$18,936.
$(14,400).
$14,400.
$(21,919).
$7,519.
9)
Paxton Company can produce a component of its product thatincurs the following costs per unit: direct materials, $10.80;direct labor, $14.80, variable overhead, $3.80 and fixed overhead,$8.80. An outside supplier has offered to sell the product to Axlefor $38.20. Compute the net incremental cost or savings of buyingthe component.
$8.80 savings per unit.
$3.80 cost per unit.
$0 cost or savings per unit.
$8.80 cost per unit.
$4 savings per unit.
10)
Granfield Company has a piece of manufacturing equipment with abook value of $36,000 and a remaining useful life of four years. Atthe end of the four years the equipment will have a zero salvagevalue. The market value of the equipment is currently $21,200.Granfield can purchase a new machine for $112,000 and receive$21,200 in return for trading in its old machine. The new machinewill reduce variable manufacturing costs by $18,200 per year overthe four-year life of the new machine. The total increase ordecrease in net income by replacing the current machine with thenew machine (ignoring the time value of money) is:
$18,000 increase
$72,800 decrease
$14,800 decrease
$49,200 increase
$18,000 decrease
The questions are to be answered based on the information ofdata below an dplease help to answer the question in detail.
The questions to concentrate on are as follows:
There are various costing methods available for companies toimplement. As a company grows, it may become beneficial to consideran alternate costing method.
A. Identify an alternative costing method that could benefitthis company, and describe the main characteristics of thatmethod.
B. What should a company look for when trying to determinewhether they should adopt such a system?
C. Should the company adopt this alternative costing method?Defend your response.
This is scenario :
The Hampshire Company manufactures umbrellas that sell for$12.50 each. In 2014, the company made and sold 60,000 umbrellas.The company had fixed manufacturing costs of $216,000. It also hadfixed costs for administration of $79,525. The per-unit costs ofeach umbrella are as follows:
Direct Materials:$3.00
Direct Labor: $1.50
Variable Manufacturing Overhead:$0.40
Variable Selling Expenses: $1.10
The data that is supposed to be usedto answer the questions mentioned on top is right below. Pleasehave a look at the calculations.
| Cost InformationFrom Instructions | ||||
| Stick | Collapsible | |||
| Units Sold | 60,000 | 3,000 | ||
| Selling Price | $12.50 | $14.00 | ||
| Direct Material Cost Per Unit | $3.00 | $3.10 | ||
| Direct Labor Cost Per Hour | $7.50 | $8.00 | ||
| Variable MO | $0.40 | $0.40 | ||
| Variable Selling Costs | $1.10 | $1.10 | ||
| Labor Hours Per Unit | 0.2 | 0.2 | ||
| Sales Orders | 120 | 1 | ||
| Purchase Orders | 50 | 3 | ||
| Production Runs | 45 | 6 | ||
| Material Moves | 86 | 10 | ||
| Machine Setups | 130 | 6 | ||
| Machine Hours | 525 | 32 | ||
| Inspections | 200 | 10 | ||
| Shipments | 60 | 3 | ||
| Activity Information fromInstructions | ||||
| Activity | Activity Cost | Activity Cost Driver | ||
| Order Processing | $35,000 | Number of Sales Orders | ||
| Purchasing | $36,000 | Number of Purchase Orders | ||
| Material Handing | $28,000 | Material Moves | ||
| Machine Setup | $14,000 | Machine Setups | ||
| Production | $99,000 | Production Runs | ||
| Assembly | $80,000 | Machine Hours | ||
| Inspecting | $11,000 | Number of Inspections | ||
| Shipping | $7,500 | Number of Shipments | ||
| Requirement 1 | ||||
| Activity | Total Costs | Quantity of Cost Allocation Base | Overhead Allocation Rate | |
| Order Processing | $35,000 | 121 | $289 | |
| Purchasing | $36,000 | 53 | $679 | |
| Material Handing | $28,000 | 96 | $292 | |
| Machine Setup | $14,000 | 136 | $103 | |
| Production | $99,000 | 51 | $1,941 | |
| Assembly | $80,000 | 557 | $144 | |
| Inspecting | $11,000 | 210 | $52 | |
| Shipping | $7,500 | 63 | $119 | |
| Requirement 2 | ||||
| Traditional Costing | ||||
| Stick Umbrella | Collapsible Umbrella | Total | ||
| Revenues | $750,000 | $42,000 | $792,000 | |
| Direct Materials | $180,000 | $9,300 | $189,300 | |
| Direct Labor | $90,000 | $4,800 | $94,800 | |
| Variable Overhead | $24,000 | $1,200 | $25,200 | |
| Variable Selling Costs | $66,000 | $3,300 | $69,300 | |
| Allocated Fixed Overhead | $295,714 | $14,786 | $310,500 | |
| Total Costs | $655,714 | $3,386 | $689,100 | |
| Operating Income | $94,286 | $8,614 | $102,900 | |
| Operating Income % | 13% | 21% | $13 | |
| Per Unit Operating Income | $1.57 | $2.87 | ||
| Requirement 3 | ||||
| Activity-Based Costing | ||||
| Stick Umbrella | Collapsible Umbrella | Total | ||
| Revenues | $750,000 | $42,000 | $792,000 | |
| Direct Materials | $180,000 | $9,300 | $189,300 | |
| Direct Labor | $90,000 | $4,800 | $94,800 | |
| Variable Overhead | $24,000 | $1,200 | $25,200 | |
| Variable Selling Costs | $66,000 | $3,300 | $69,300 | |
| Order Processing Costs | $34,711 | $289 | $35,000 | |
| Purchasing Costs | $33,963 | $2,038 | $36,000 | |
| Material Handing Costs | $25,084 | $2,917 | $28,000 | |
| Machine Setup Costs | $13,382 | $618 | $14,000 | |
| Production Costs | $87,353 | $11,647 | $99,000 | |
| Assembly Costs | $75,405 | $4,595 | $80,000 | |
| Inspecting Costs | $10,476 | $524 | $11,000 | |
| Shipping Costs | $7,143 | $357 | $7,500 | |
| Total Costs | $647,516 | $41,584 | $689,100 | |
| Operating Income | $102,484 | $416 | $102,900 | |
| Operating Income % | 14% | 1% | 12.99 | |
| Per Unit Operating Income | $1.71 | $0.14 | ||
| Requirement 4 | ||||
| Costs per Unit | Stick Umbrella | Collapsible Umbrella | ||
| Traditional | $10.93 | $11.13 | ||
| ABC | $10.79 | $13.86 | ||
| Difference | $0.14 | $($2.73) | ||
| Requirement 5 | ||||
| Calculation ofLabour Hours (note): 1) Labor hour per unit of stick umbrella is0.2 and it is the same for the collapsible umbrella. While theunits sold for the stick umbrella are 60,000 and for thecollapsible umbrella are 3,000. Then multiply the labor hour perunit with the units sold, then the total amount for the stickumbrella is $12,000 and for the collapsible umbrella is $600.Adding these both amounts will total $12,600 | ||||
| Wallyâs Widget Company (WWC) incorporated near the end of 2011. Operations began in January of 2012. WWC prepares adjusting entries and financial statements at the end of each month. Balances in the accounts at the end of January are as follows: |
| Cash | $ | 21,620 | Unearned Revenue (30 units) | $ | 5,350 | ||
| Accounts Receivable | $ | 12,650 | Accounts Payable (Jan Rent) | $ | 3,300 | ||
| Allowance for Doubtful Accounts | $ | (1,900) | Notes Payable | $ | 16,000 | ||
| Inventory (35 units) | $ | 2,800 | Contributed Capital | $ | 7,000 | ||
| Retained Earnings â Feb 1, 2012 | $ | 3,520 | |||||
| ⢠| WWC establishes a policy that it will sell inventory at $180 per unit. |
| ⢠| In January, WWC received a $5,350 advance for 30 units, as reflected in Unearned Revenue. |
| ⢠| WWCâs February 1 inventory balance consisted of 35 units at a total cost of $2,800. |
| ⢠| WWCâs note payable accrues interest at a 12% annual rate. |
| ⢠| WWC will use the FIFO inventory method and record COGS on a perpetual basis. |
| February Transactions | |
| 02/01 | Included in WWCâs February 1 Accounts Receivable balance is a $1,400 account due from Kit Kat, a WWC customer. Kit Kat is having cash flow problems and cannot pay its balance at this time. WWC arranges with Kit Kat to convert the $1,400 balance to a note, and Kit Kat signs a 6-month note, at 12% annual interest. The principal and all interest will be due and payable to WWC on August 1, 2012. |
| 02/02 | WWC paid a $650 insurance premium covering the month of February. The amount paid is recorded directly as an expense. |
| 02/05 | An additional 180 units of inventory are purchased on account by WWC for $13,500 â terms 2/15, n30. |
| 02/05 | WWC paid Federal Express $360 to have the 180 units of inventory delivered overnight. Delivery occurred on 02/06. |
| 02/10 | Sales of 150 units of inventory occurred during the period of 02/07 â 02/10. The sales terms are 2/10, net 30. |
| 02/15 | The 30 units that were paid for in advance and recorded in January are delivered to the customer. |
| 02/15 | 25 units of the inventory that had been sold on 2/10 are returned to WWC. The units are not damaged and can be resold. Therefore, they are returned to inventory. Assume the units returned are from the 2/05 purchase. |
| 02/16 | WWC pays the first 2 weeks wages to the employees. The total paid is $2,800. |
| 02/17 | Paid in full the amount owed for the 2/05 purchase of inventory. WWC records purchase discounts in the current period rather than as a reduction of inventory costs. |
| 02/18 | Wrote off a customerâs account in the amount of $2,000. |
| 02/19 | $6,600 of rent for January and February was paid. Because all of the rent will soon expire, the February portion of the payment is charged directly to expense. |
| 02/19 | Collected $10,000 of customersâ Accounts Receivable. Of the $10,000, the discount was taken by customers on $8,000 of account balances; therefore WWC received less than $10,000. |
| 02/26 | WWC recovered $600 cash from the customer whose account had previously been written off (see 02/18). |
| 02/27 | A $950 utility bill for February arrived. It is due on March 15 and will be paid then. |
| 02/28 | WWC declared and paid a $950 cash dividend. |
| Adjusting Entries: |
| 02/29 | Record the $2,800 employee salary that is owed but will be paid March 1. | ||
| 02/29 | WWC decides to use the aging method to estimate uncollectible accounts. WWC determines 8% of the ending balance is the appropriate end of February estimate of uncollectible accounts. | ||
| 02/29 | Record February interest expense accrued on the note payable. | ||
| 02/29 | Record one monthâs interest earned Kit Katâs note (see 02/01).
|
