5. The Acme Corporation buys 300 units of merchandise in January at $5 each. In February, The Arme Acme buys 500 units at $6 each and in March it buys 200 units at $7 each. Acme sells 350 units during this quarter. What is the cost of goods sold under the LIFO method? A. $2,100 B. $2,300 C. $2,375 D. $2,450
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25 Bowling R Us Ltd. leases the building in which it operates its bowling alleys. Bowling revenues for the year just ended were $27,000. The lease agreement calls for an annual rental fee equal to 10% of the annual bowling revenues, with $200 payable on the 1st day of each month. If all required monthly payments for the year were made and debited to the rent expense account, the adjusting journal entry at year-end would be? a. Debit rent expense $300 Credit rent payable $300 b. Debit rent payable $300 Credit rent expense $300 Debit rent expense $240 Credit rent payable $240 d. Debit rent payable $240 Credit rent expense $240 e. None of the above The correct answer is 'a'
EXERCISE 3-14 Computing Predetermined Overhead Rates and Job Costs [LO3-1, L03-2, L03-3, LO3-7] Moody Corporation uses a job-order costing system with a plantwide overhead rate based on machine-hours. At the beginning of the year, the company made the following estimates: Machine-hours required to support estimated production ...... Fixed manufacturing overhead cost .... Variable manufacturing overhead cost per machine-hour ....... 100,000 $650,000 $3.00 Required: 1. Compute the predetermined overhead rate. 2. During the year, Job 400 was started and completed. The following information was available with respect to this job: $450 Direct materials requisitioned ..... Direct labor cost ... Machine-hours used ...... $210 40 Compute the total manufacturing cost assigned to Job 400. During the year, the company worked a total of 146,000 machine-hours on all jobs and incurred actual manufacturing overhead costs of $1,350,000. What is the amount of underap- plied or overapplied overhead for the year? If this amount were closed out entirely to Cost of Goods Sold would the journal entry increase or decrease net operating income?
EXERCISE 12-12 Utilization of a Constrained Resource [L012-5] Benoit Company produces three products, A, B, and C. Data concerning the three products follow (per unit): Product 1 A ....... 2. $70 Selling price.......... Variable expenses: Direct materials Other variable expenses ..... Total variable expenses ........ Contribution margin .......... Contribution margin ratio .... de $21 30% 40% 25% Demand for the company's products is very strong, with far more orders each month than the com- pany can produce with the available raw materials. The same material is used in each product. The material costs $3 per pound with a maximum of 5,000 pounds available each month. Required: Which orders would you advise the company to accept first, those for A, for B, or for C? Which orders second? Third?
EXERCISE 2-5 High-Low Method [LO2-5] The Cheyenne Hotel in Big Sky, Montana, has accumulated records of the total electrical costs of the hotel and the number of occupancy-days over the last year. An occupancy-day represents a room rented out for one day. The hotel's business is highly seasonal, with peaks occurring during the ski season and in the summer. Month Occupancy-Days Electrical Costs January ........ February ...... March April ........ May .......... June .. July ..........- August September October November ..... December ...... 1,736 1,904 2,356 960 360 744 2,108 2,406 840 124 720 1,364 $4,127 $4,207 $5,083 $2,857 $1,871 $2,696 $4,670 $5,148 $2,691 $1,588 $2,454 $3,529 Required: 1. Using the high-low method, estimate the fixed cost of electricity per month and the variable cost of electricity per occupancy-day. Round off the fixed cost to the nearest whole dollar and the variable cost to the nearest whole cent. 2. What other factors other than occupancy-days are likely to affect the variation in electrical costs from month to month?
EXERCISE 2-14 High-Low Method; Predicting Cost [L02-4, LO2-5] The Lakeshore Hotel's guest-days of occupancy and custodial supplies expense over the last seven months were: Guest-Days of Occupancy Custodial Supplies Expense Month March ....... April May June ...... July ........ August September ...... 4,000 6,500 8,000 10,500 12,000 9,000 7,500 $7,500 $8,250 $10,500 $12,000 $13,500 $10,750 $9,750 . . . . . . Guest-days is a measure of the overall activity at the hotel. For example, a guest who stays at the hotel for three days is counted as three guest-days. Required: 1. Using the high-low method, estimate a cost formula for custodial supplies expense. 2. Using the cost formula you derived above, what amount of custodial supplies expense would you expect to be incurred at an occupancy level of 11,000 guest-days? 3. Prepare a scattergraph using the data given above. Plot custodial supplies expense on the ver- tical axis and the number of guest-days occupied on the horizontal axis. Draw a straight line 4. through the two data points that correspond to the high and low levels of activity. Make sure your line intersects the Y-axis. Comment on the accuracy of your high-low estimates assuming a least-squares regression analysis estimated the total fixed costs to be $3,973.10 per month and the variable cost to be $0.77 per guest-day. How would the straight line that you drew in requirement 3 differ from a straight line that minimizes the sum of the squared errors? Using the least-squares regression estimates given in requirement 4, what custodial supplies expense would you expect to be incurred at an occupancy level of 11,000 guest-days? 5. Net operating income. $ 6,000 $ 18,000 $ 30,000 Required: 1. Identify each of the company's expenses (including cost of goods sold) as either variable, fixed, or mixed. 2. Using the high-low method, separate each mixed expense into variable and fixed elements. State the cost formula for each mixed expense. 3. Redo the company's income statement at the 5,000-unit level of activity using the contribution format.
EXERCISE 2-3 Classification of Costs as Product or Perlod Cost [LO2-3] Suppose that you have been given a summer job as an intern at Issac Aircams, a company that man- ufactures sophisticated spy cameras for remote-controlled military reconnaissance aircraft. The company, which is privately owned, has approached a bank for a loan to help it finance its growth. The bank requires financial statements before approving such a loan. You have been asked to help prepare the financial statements and were given the following list of costs: 1. Depreciation on salespersons' cars. 2. Rent on equipment used in the factory. 3. Lubricants used for machine maintenance. 4. Salaries of personnel who work in the finished goods warehouse. 5. Soap and paper towels used by factory workers at the end of a shift. 6. Factory supervisors' salaries. 7. Heat, water, and power consumed in the factory. 8. Materials used for boxing products for shipment overseas. (Units are not normally boxed.) 9. Advertising costs. 10. Workers' compensation insurance for factory employees. 11. Depreciation on chairs and tables in the factory lunchroom. 12. The wages of the receptionist in the administrative offices. 13. Cost of leasing the corporate jet used by the company's executives. 14. The cost of renting rooms at a Florida resort for the annual sales conference. 15. The cost of packaging the company's product. Required: Classify the above costs as either product costs or period costs for the purpose of preparing the financial statements for the bank.
EXERCISE 7-5 Product and Customer Profitability Analysis [LO7-4, L07-5] Thermal Rising, Inc., makes paragliders for sale through specialty sporting goods stores. The com- pany has a standard paraglider model, but also makes custom-designed paragliders. Management has designed an activity-based costing system with the following activity cost pools and activity rates: Activity Cost Pool Activity Rate Supporting direct labor ........ Order processing ........ Custom design processing. Customer service ........ $26 per direct labor-hour $284 per order $186 per custom design $379 per customer Management would like an analysis of the profitability of a particular customer, Big Sky Outfit- ters, which has ordered the following products over the last 12 months: Standard Model Custom Design 20 Number of gliders ......... Number of orders Number of custom designs ..... Direct labor-hours per glider ....... Selling price per glider ... Direct materials cost per glider ..... www 26.35 $1,850 28.00 $2,400 $634 $564 The company's direct labor rate is $19.50 per hour. Required: Using the company's activity-based costing system, compute the customer margin of Big Sky Outfitters.
EXERCISE 15-8 Selected Financial Ratios (L015-2, LO15-3, L015-4] The financial statements for Castile Products, Inc., are given below: Castile Products, Inc. Balance Sheet December 31 Assets Current assets: Cash.. Accounts receivable, net ................ Merchandise inventory ................. Prepaid expenses ..................... Total current assets ...................... Property and equipment, net ............... Total assets $ 6,500 35,000 70,000 3,500 115,000 185,000 $300,000 $ 50,000 80,000 130,000 Liabilities and Stockholders' Equity Liabilities: Current liabilities .......... Bonds payable, 10% .......... Total liabilities ................. Stockholders' equity: Common stock, $5 per value ............. Retained earnings .... Total stockholders' equity ................. Total liabilities and equity ................. $ 30,000 140,000 170,000 $300,000 Castile Products, Inc. Income Statement For the Year Ended December 31 Sales ..... Cost of goods sold... Gross margin Selling and administrative expenses......... Net operating income ....... Interest expense......................... Net income before taxes .................. Income taxes (30%) Net income ............ ................ $420,000 292,500 127,500 89,500 38,000 8,000 30,000 9,000 $ 21,000 Account balances at the beginning of the year were: accounts receivable, $25,000; and inven tory, $60,000. All sales were on account. EXERCISE 15-10 Financial Ratios for Assessing Market Performance [LO15-6] Refer to the financial statements for Castile Products, Inc., in Exercise 15-8. In addition to the data in these statements, assume that Castile Products, Inc., paid dividends of $2.10 per share during the year. Also assume that the company's common stock had a market price of $42 at the end of the year and there was no change in the number of outstanding shares of common stock during the year. Required: Compute financial ratios as follows: 1. Earnings per share. 2. Dividend payout ratio. 3. Dividend yield ratio. 4. Price-earnings ratio. 5. Book value per share.
PROBLEM 2-17 High-Low Method; Predicting Cost [LO2-4, LO2-5] Sawaya Co., Ltd., of Japan is a manufacturing company whose total factory overhead costs fluctu- ate considerably from year to year according to increases and decreases in the number of direct labor-hours worked in the factory. Total factory overhead costs at high and low levels of activity for recent years are given below: Level of Activity High Direct labor-hours ................. Total factory overhead costs ........ Low 50,000 $14,250,000 75,000 $17,625,000 The factory overhead costs above consist of indirect materials, rent, and maintenance. The com- pany has analyzed these costs at the 50,000-hour level of activity as follows: Indirect materials (variable) ...... Rent (fixed) .... Maintenance (mixed) ...... Total factory overhead costs ..... $ 5,000,000 6,000,000 3,250,000 $14,250,000 To have data available for planning, the company wants to break down the maintenance cost into its variable and fixed cost elements. Required: 1. Estimate how much of the $17,625,000 factory overhead cost at the high level of activity con- sists of maintenance cost. (Hint: To do this, it may be helpful to first determine how much of the $17,625,000 consists of indirect materials and rent. Think about the behavior of variable and fixed costs!) 2. Using the high-low method, estimate a cost formula for maintenance. 3. What total factory overhead costs would you expect the company to incur at an operating level of 70,000 direct labor-hours?
EXERCISE 6-7 Segmented Income Statement [L06-4] Shannon Company segments its income statement into its North and South Divisions. The com- pany's overall sales, contribution margin ratio, and net operating income are $500,000, 46%, and $10,000, respectively. The North Division's contribution margin and contribution margin ratio are $150,000 and 50%, respectively. The South Division's segment margin is $30,000. The company has $90,000 of common fixed expenses that cannot be traced to either division. Required: Prepare an income statement for Shannon Company that uses the contribution format and is seg- mented by divisions. In addition, for the company as a whole and for each segment, show each item on the segmented income statements as a percent of sales.
EXERCISE 6-13 Inferring Costing Method; Unit Product Cost [L06-1] Sierra Company incurs the following costs to produce and sell a single product. Variable costs per unit: Direct materials. Direct labor ....... Variable manufacturing overhead ........ Variable selling and administrative expenses ....... Fixed costs per year: Fixed manufacturing overhead ................... Fixed selling and administrative expenses .......... 26% $150,000 $400,000 During the last year, 25,000 units were produced and 22,000 units were sold. The Finished Goods inventory account at the end of the year shows a balance of $72,000 for the 3,000 unsold units. Required: 1. Is the company using absorption costing or variable costing to cost units in the Finished Goods inventory account? Show computations to support your answer. 2. Assume that the company wishes to prepare financial statements for the year to issue to its stockholders. a. Is the $72,000 figure for Finished Goods inventory the correct amount to use on these statements for external reporting purposes? Explain. b. At what dollar amount should the 3,000 units be carried in the inventory for external reporting purposes?
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