Accounting homework Questions

1.
Kristopher Manufacturing produces two types of entry doors: Deluxe and Standard.
The allocation basis for support costs has been direct labor dollars. For 2009,
Kristopher compiled the following data for the two products:

		Deluxe		Standard
Sales in units		50,000		400,000
Sales price per unit		$650		$475
Direct material and labor costs per unit		$180		$130
Manufacturing overhead costs per unit		$80		$120

Last
year, Kristopher purchased an expensive robotics system to allow for more
decorative door products in the deluxe product line. The CFO suggested that an
activity-based costing (ABC) analysis could be valuable to help evaluate a
product mix and promotion strategy for the next sales campaign. She obtained
the following ABC information for 2009:

Activity		Cost		Cost Driver		Total		Deluxe		Standard
Setups		$500,000		# of setups		500		400		100
Machine-related		$44,000,000		# of machine hours		600,000		300,000		300,000
Packing		$5,000,000		# of shipments		250,000		50,000		200,000

Required
(15 points):

a. Using
the current system, what is the estimated

1. total
cost of manufacturing one unit for each type of door?

2. profit
per unit for each type of door?

b. Using
the activity-based costing data presented above,

1.
compute the cost-driver rate for each overhead activity.

2.
compute the revised manufacturing overhead cost per unit for each type of entry
door.

3.
compute the revised total cost to manufacture one unit of each type of entry
door.

4.
compute the profit per unit for each type of door.

c. Is the
deluxe door as profitable as the original data estimated? Why or why not?

Question 2

The
Sterling Company uses a standard cost system in which manufacturing overhead
costs are applied to the units of the company’s single product on the basis of
direct labor-hours (DLHs). The standard cost card for the product follows:

Standard
Cost Card-per unit of product:

Direct
materials, 4 yards at $3.50 per yard $14

Direct
labor, 1.5 DLHs at $8 per DLH 12

Variable
overhead, 1.5 DLHs at $2 per DLH 3

Fixed
overhead, 1.5 DLHs at $6 per DLH 9

The
following data pertain to last year’s activities:

– The
company manufactured 18,000 units of product during the year.

– A total
of 70,200 yards of material was purchased during the year at a cost of $3.75
per yard. All of this material was used to manufacture the 18,000 units.

– The
company worked 29,250 direct labor hours during the year at a cost of $7.80 per
hour.

– The
denominator activity level was 22,500 direct labor hours.

–
Budgeted fixed manufacturing overhead costs were $135,000 while actual
manufacturing overhead costs were $133,200.

– Actual
variable manufacturing overhead costs were $61,425.

Required
(15 points):

a.
Compute the direct materials price and quantity variances for the year.

b.
Compute the direct labor rate and efficiency variances for the year.

c.
Compute the variable overhead spending and efficiency variances for the year.

d.
Compute the fixed overhead budget and volume variances for the year.

e.
Discuss some possible reasons for the direct labor variances that you computed.

Question
3

Pal Corporation is contemplating
purchasing equipment that would increase sales revenues by $438,000 per year
and cash operating expenses by $258,000 per year. The equipment would cost
$504,000 and have a 9 year life with no salvage value. The annual depreciation
would be $56,000.

Required:

Determine
the simple rate of return on the investment to the nearest tenth of a percent.
Show your work!

Question
4

The management of Dulcinea Corporation is considering
a project that would require an initial investmentof $331,000 and would last for
8 years. The net operating income of the project is $54,000 including
deperecation of $40,000. The scrap value of the project’s assets at the end of
the project would be $11,000.

Calculate
payback period.

Question
5

Vaden Company produces a single
product. The cost of producing and selling a single unit of this product at the
company’s normal activity level of 50,000 units per month is as follows:

Direct materials $32.50Direct labor 7.20Variable manufacturing overhead
1.30Fixed manufacturing overhead 20.90Variable selling & administrative
expense 1.90Fixed selling & administrative expense 7.30
The normal selling price of the product is
$75.00 per unit.
An order has been received from an overseas
customer for 3,000 units to be delivered this month at a special discounted
price. This order would have no effect on the company’s normal sales price and
would not change the total amount of the company’s fixed costs. The variable
selling and administrative expense would be $0.30 less per unit on this order
than on normal sales.
Direct labor is a variable cost in this
company.
Required (10 points):
a. Suppose there is ample idle capacity to produce the units required by the
overseas customer and the special discounted price on the special order is
$65.60 per unit. By how much would this special order increase (decrease) the
company’s net operating income for the month?
b. Suppose the company is already operating at capacity when the special order
is received from the overseas customer. What would be the opportunity cost of
each unit delivered to the overseas customer?

Question 6

Kristopher Limos, Inc., is considering the
purchase ofa limousine that would cost $149,868, would have a useful
life of 9 years, and would have no salvage value. The limousine
would bring in cash
inflows of $36,000 per year in excess of its cash operating costs.

Determine the internal rate of return on the investment in
the new limousine. Show work.

Question 7

EKH, Inc.
is considering the purchase of a machine that would cost $430,000 and would
last for 6 years, at the end of which, the machine would have a salvage value
of $47,000. The machine would reduce labor and other costs by $109,000 per
year. Additional working capital of $4,000 would be needed immediately, all of
which would be recovered at the end of 6 years. The company requires a minimum
pretax return of 17% on all investment projects. (Ignore income taxes in this
problem.)

(a)
Determine the net present value of the project.

Question
8

The Hayes Company manufactures and sells
several products, one of which is called a slip differential. The company
normally sells 30,000 units of the slip differential each month. At this
activity level, unit costs are:

Direct
materials……………………….
$4

Direct
labor…………………………….
3

Variable
manufacturing overhead…..
4

Fixed
manufacturing overhead………
5

Variable
selling…………………………
3

Fixed
selling……………………………
1

An
outside supplier has offered to produce the slip differentials for the Hayes
Company, and to ship them directly to the Hayes Company’s customers. This
arrangement would permit the Hayes Company to reduce its variable selling
expenses by one third (due to elimination of freight costs). The facilities now
being used to produce the slip differentials would be idle and fixed
manufacturing overhead would continue at 60 percent of its present level. The
total fixed selling expenses of the company would be unaffected by this
decision.

Required:

What
is the maximum acceptable price quotation for the slip differentials from the
outside supplier?

Question 10

Harris
Corp. manufactures three products from a common input in a joint processing
operation. Joint processing costs up to the split-off point total $200,000 per
year. The company allocates these costs to the joint products on the basis of
their total sales value at the split-off point.
Each product may be sold at the split-off point or processed further. The
additional processing costs and sales value after further processing for each
product (on an annual basis) are:

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The “Further Processing Costs” consist of variable and avoidable
fixed costs.

Required:
Which product or products should be sold at the split-off point, and which
product or products should be processed further? Show computations.

Question
11

Brink
Tech is a for-profit vocational school. The school bases its budgets on two
measures of activity (i.e., cost drivers), namely student and course. The
school uses the following data in its budgeting:

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In June, the school budgeted for 1,710 students and 110 courses. The school’s
income statement showing the actual results for the month appears below:

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Required:

Prepare a flexible budget performance report showing both the school’s sales-volume
variances and flexible-budget variances for June. Label each variance as
favorable (F) or unfavorable (U).

Question
12

Mr. Earl Pearl, accountant for
Margie Knall Co., Inc., has prepared the following product-line income data:

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The following additional information is available:

* The factory rent of $1,500 assigned to Product C is avoidable if the product
were dropped.
* The company’s total depreciation would not be affected by dropping C.
* Eliminating Product C will reduce the monthly utility bill from $1,500 to
$800.
* All supervisors’ salaries are avoidable.
* If Product C is discontinued, the maintenance department will be able to
reduce monthly expenses from $3,000 to $2,000.
* Elimination of Product C will make it possible to cut two persons from the
administrative staff; their combined salaries total $3,000.

Required:

Prepare an analysis showing whether Product C should be eliminated.