Blanchard Company manufactures a single product that sells for $184 per unit and whose total variable costs are $138 per unit. The company’s annual fixed costs are $632,000. The sales manager predicts that annual sales of the company’s product will soon reach 40,200 units and its price will increase to $202 per unit. According to the production manager, the variable costs are expected to increase to $142 per unit but fixed costs will remain $632,000. The income tax rate is 30%. What amounts of pretax and after-tax income can the company expect to earn from these predicted changes?

February 13, 2015, 5:15 pm

≫ Next: Bill Thompson expects to invest $8,000 at 15% and, at the end of a certain period, receive $74,861. How many years will it be before Thompson receives the payment? (Use table B.2.) (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.)

≪ Previous: Blanchard Company manufactures a single product that sells for $240 per unit and whose total variable costs are $180 per unit. The company targets an annual after-tax income of $900,000. The company is subject to a 40% income tax rate. Assume that fixed costs remain at $954,000.

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Blanchard Company manufactures a single product that sells for $184 per unit and whose total variable costs are $138 per unit. The company’s annual fixed costs are $632,000. The sales manager predicts that annual sales of the company’s product will soon reach 40,200 units and its price will increase to $202 per unit. According to the production manager, the variable costs are expected to increase to $142 per unit but fixed costs will remain $632,000. The income tax rate is 30%. What amounts of pretax and after-tax income can the company expect to earn from these predicted changes?



 

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Bill Thompson expects to invest $8,000 at 15% and, at the end of a certain period, receive $74,861. How many years will it be before Thompson receives the payment? (Use table B.2.) (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.)

February 13, 2015, 5:27 pm

≫ Next: Ed Summers expects to invest $25,000 for 10 years, after which he wants to receive $49,180.00. What rate of interest must Summers earn? (Use table B.2.) (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.)

≪ Previous: Blanchard Company manufactures a single product that sells for $184 per unit and whose total variable costs are $138 per unit. The company’s annual fixed costs are $632,000. The sales manager predicts that annual sales of the company’s product will soon reach 40,200 units and its price will increase to $202 per unit. According to the production manager, the variable costs are expected to increase to $142 per unit but fixed costs will remain $632,000. The income tax rate is 30%. What amounts of pretax and after-tax income can the company expect to earn from these predicted changes?

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Bill Thompson expects to invest $8,000 at 15% and, at the end of a certain period, receive $74,861. How many years will it be before Thompson receives the payment? (Use table B.2.) (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.)

Ed Summers expects to invest $25,000 for 10 years, after which he wants to receive $49,180.00. What rate of interest must Summers earn? (Use table B.2.) (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.)

February 13, 2015, 5:32 pm

≫ Next: Sam Weber finances a new automobile by paying $6,700 cash and agreeing to make 40 monthly payments of $480 each, the first payment to be made one month after the purchase. The loan bears interest at an annual rate of 12%. What is the cost of the automobile?

≪ Previous: Bill Thompson expects to invest $8,000 at 15% and, at the end of a certain period, receive $74,861. How many years will it be before Thompson receives the payment? (Use table B.2.) (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.)

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Ed Summers expects to invest $25,000 for 10 years, after which he wants to receive $49,180.00. What rate of interest must Summers earn? (Use table B.2.) (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.)

Sam Weber finances a new automobile by paying $6,700 cash and agreeing to make 40 monthly payments of $480 each, the first payment to be made one month after the purchase. The loan bears interest at an annual rate of 12%. What is the cost of the automobile?

February 13, 2015, 5:37 pm

≫ Next: Spiller Corp. plans to issue 10%, 6-year, $570,000 par value bonds payable that pay interest semiannually on June 30 and December 31. The bonds are dated December 31, 2013, and are issued on that date. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided. Round your answers to nearest whole dollar.) If the market rate of interest for the bonds is 8% on the date of issue, what will be the total cash proceeds from the bond issue?

≪ Previous: Ed Summers expects to invest $25,000 for 10 years, after which he wants to receive $49,180.00. What rate of interest must Summers earn? (Use table B.2.) (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.)

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Sam Weber finances a new automobile by paying $6,700 cash and agreeing to make 40 monthly payments of $480 each, the first payment to be made one month after the purchase. The loan bears interest at an annual rate of 12%. What is the cost of the automobile?

Spiller Corp. plans to issue 10%, 6-year, $570,000 par value bonds payable that pay interest semiannually on June 30 and December 31. The bonds are dated December 31, 2013, and are issued on that date. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided. Round your answers to nearest whole dollar.) If the market rate of interest for the bonds is 8% on the date of issue, what will be the total cash proceeds from the bond issue?

February 13, 2015, 5:40 pm

≫ Next: McAdams Company expects to earn 6% per year on an investment that will pay $601,773 ten years from now. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided. Round your answers to nearest whole dollar.) Compute the present value of this investment.

≪ Previous: Sam Weber finances a new automobile by paying $6,700 cash and agreeing to make 40 monthly payments of $480 each, the first payment to be made one month after the purchase. The loan bears interest at an annual rate of 12%. What is the cost of the automobile?

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0

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Spiller Corp. plans to issue 10%, 6-year, $570,000 par value bonds payable that pay interest semiannually on June 30 and December 31. The bonds are dated December 31, 2013, and are issued on that date. (PV of $1, FV of $1, PVA of $1, and FVA of $1)(Use appropriate factor(s) from the tables provided. Round your answers to nearest whole dollar.)

  

If the market rate of interest for the bonds is 8% on the date of issue, what will be the total cash proceeds from the bond issue?

McAdams Company expects to earn 6% per year on an investment that will pay $601,773 ten years from now. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided. Round your answers to nearest whole dollar.) Compute the present value of this investment.

February 13, 2015, 5:51 pm

≫ Next: On January 1, 2013, a company agrees to pay $22,000 in nine years. If the annual interest rate is 8%, determine how much cash the company can borrow with this agreement.

≪ Previous: Spiller Corp. plans to issue 10%, 6-year, $570,000 par value bonds payable that pay interest semiannually on June 30 and December 31. The bonds are dated December 31, 2013, and are issued on that date. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided. Round your answers to nearest whole dollar.) If the market rate of interest for the bonds is 8% on the date of issue, what will be the total cash proceeds from the bond issue?

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McAdams Company expects to earn 6% per year on an investment that will pay $601,773 ten years from now. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided. Round your answers to nearest whole dollar.)
Compute the present value of this investment.

On January 1, 2013, a company agrees to pay $22,000 in nine years. If the annual interest rate is 8%, determine how much cash the company can borrow with this agreement.

February 13, 2015, 5:58 pm

≫ Next: Xcite Equipment Co. manufactures and markets a number of rope products. Management is considering the future of Product XT, a special rope for hang gliding, that has not been as profitable as planned. Since Product XT is manufactured and marketed independently of the other products, its total costs can be precisely measured. Next year’s plans call for a $330 selling price per 100 yards of XT rope. Its fixed costs for the year are expected to be $211,200, up to a maximum capacity of 550,000 yards of rope. Forecasted variable costs are $264 per 100 yards of XT rope.

≪ Previous: McAdams Company expects to earn 6% per year on an investment that will pay $601,773 ten years from now. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided. Round your answers to nearest whole dollar.) Compute the present value of this investment.

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On January 1, 2013, a company agrees to pay $22,000 in nine years. If the annual interest rate is 8%, determine how much cash the company can borrow with this agreement.

Xcite Equipment Co. manufactures and markets a number of rope products. Management is considering the future of Product XT, a special rope for hang gliding, that has not been as profitable as planned. Since Product XT is manufactured and marketed independently of the other products, its total costs can be precisely measured. Next year’s plans call for a $330 selling price per 100 yards of XT rope. Its fixed costs for the year are expected to be $211,200, up to a maximum capacity of 550,000 yards of rope. Forecasted variable costs are $264 per 100 yards of XT rope.

February 13, 2015, 6:06 pm

≫ Next: Sahtlam Ltd. (Sahtlam) is a small construction company in northern Ontario. Sahtlam recently signed a contract to build a new town hall in one of the region’s larger cities. Sahtlam will receive $26,600,000 from the city for building the town hall and will have to pay the costs of construction from that amount.

≪ Previous: On January 1, 2013, a company agrees to pay $22,000 in nine years. If the annual interest rate is 8%, determine how much cash the company can borrow with this agreement.

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Xcite Equipment Co. manufactures and markets a number of rope products. Management is considering the future of Product XT, a special rope for hang gliding, that has not been as profitable as planned. Since Product XT is manufactured and marketed independently of the other products, its total costs can be precisely measured. Next year’s plans call for a $330 selling price per 100 yards of XT rope. Its fixed costs for the year are expected to be $211,200, up to a maximum capacity of 550,000 yards of rope. Forecasted variable costs are $264 per 100 yards of XT rope.

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Sahtlam Ltd. (Sahtlam) is a small construction company in northern Ontario. Sahtlam recently signed a contract to build a new town hall in one of the region’s larger cities. Sahtlam will receive $26,600,000 from the city for building the town hall and will have to pay the costs of construction from that amount.

February 27, 2015, 7:24 pm

≫ Next: Smoky Mountain Corporation makes two types of hiking boots—Xtreme and the Pathfinder. Data concerning these two product lines appear below:

≪ Previous: Xcite Equipment Co. manufactures and markets a number of rope products. Management is considering the future of Product XT, a special rope for hang gliding, that has not been as profitable as planned. Since Product XT is manufactured and marketed independently of the other products, its total costs can be precisely measured. Next year’s plans call for a $330 selling price per 100 yards of XT rope. Its fixed costs for the year are expected to be $211,200, up to a maximum capacity of 550,000 yards of rope. Forecasted variable costs are $264 per 100 yards of XT rope.

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Sahtlam Ltd. (Sahtlam) is a small construction company in northern Ontario. Sahtlam recently signed a contract to build a new town hall in one of the region’s larger cities. Sahtlam will receive $26,600,000 from the city for building the town hall and will have to pay the costs of construction from that amount.

Construction will begin in September 2017 and is expected to be completed in March 2019. Sahtlam’s year-end is December 31. Sahtlam estimates that construction costs in each year will be:

	2017	2018	2019	Total
Estimated costs	$4,000,000	$9,600,000	$5,000,000	$18,600,000

The city paid $8,000,000 when the contract was signed and will pay $6,200,000 on January 1, 2018, 2019, and 2020.

Required:

Calculate the amount of revenue and expense that Sahtlam would recognize in each year of the contract using the percentage-of-completion and zero-profit methods. Assume the actual costs incurred equal the estimated costs. (Do not round intermediate calculations and round final answers to nearest whole dollar amount. Enter your percentage answers to 2 decimal places.)

Smoky Mountain Corporation makes two types of hiking boots—Xtreme and the Pathfinder. Data concerning these two product lines appear below:

April 1, 2015, 12:00 pm

≫ Next: Gallatin Carpet Cleaning is a small, family-owned business operating out of Bozeman, Montana. For its services, the company has always charged a flat fee per hundred square feet of carpet cleaned.

≪ Previous: Sahtlam Ltd. (Sahtlam) is a small construction company in northern Ontario. Sahtlam recently signed a contract to build a new town hall in one of the region’s larger cities. Sahtlam will receive $26,600,000 from the city for building the town hall and will have to pay the costs of construction from that amount.

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Smoky Mountain Corporation makes two types of hiking boots—Xtreme and the Pathfinder. Data concerning these two product lines appear below:

  

	Xtreme			Pathfinder
Selling price per unit	$	121.00		$	86.00
Direct materials per unit	$	65.30		$	52.00
Direct labor per unit	$	13.50		$	9.00
Direct labor-hours per unit		1.5	DLHs		1.0	DLHs
Estimated annual production and sales		31,000	units		65,000	units

  

The company has a traditional costing system in which manufacturing overhead is applied to units based on direct labor-hours. Data concerning manufacturing overhead and direct labor-hours for the upcoming year appear below:

   

Estimated total manufacturing overhead	$2,230,000
Estimated total direct labor-hours	111,500 DLHs

  

Required:

1.

Compute the product margins for the Xtreme and the Pathfinder products under the company’s traditional costing system.   3. Prepare a quantitative comparison of the traditional and activity-based cost assignments. (Do not round intermediate calculations. Round your "Percentage" answer to 1 decimal place. (i.e. .1234 should be entered as 12.3)) Explanation: 1. Under the traditional direct labor-hour based costing system, manufacturing overhead is applied to products using the predetermined overhead rate computed as follows:   Predetermined overhead rate = Estimated total manufacturing overhead cost Estimated total direct labor-hours   = $2,230,000 = $20.00 per DLH 111,500 DLHs* *31,000 units of Xtreme @ 1.5 DLH per unit + 65,000 units of the Pathfinder @ 1 DLH per unit = 46,500 DLHs + 65,000 DLHs = 111,500 DLHs Consequently, the product margins using the traditional approach would be computed as follows:     Xtreme    Pathfinder   Total   Sales $ 3,751,000   $ 5,590,000   $ 9,341,000       Direct materials   2,024,300     3,380,000     5,404,300     Direct labor   418,500     585,000     1,003,500     Manufacturing overhead     applied @ $20.00 per direct labor-hour   930,000     1,300,000     2,230,000       Total manufacturing cost   3,372,800     5,265,000     8,637,800       Product margin $ 378,200   $ 325,000   $ 703,200     Note that all of the manufacturing overhead cost is applied to the products under the company’s traditional costing system. 2. The first step is to determine the activity rates:   (a) (b) (a) ÷ (b)   Activity Cost Pool Total cost Total activity Activity Rate   Supporting direct labor $ 724,750   111,500  DLH $ 6.50  per DLH   Batch setups $ 975,000   750  setups $ 1,300  per setup   Product sustaining $ 470,000   2  products $ 235,000  per product *The Other activity cost pool is not shown above because it includes organization-sustaining and idle capacity costs that should not be assigned to products. Under the activity-based costing system, the product margins would be computed as follows:     Xtreme   Pathfinder   Total   Sales $ 3,751,000   $ 5,590,000   $ 9,341,000       Direct materials   2,024,300     3,380,000     5,404,300     Direct labor   418,500     585,000     1,003,500     Supporting direct labor   302,250     422,500     724,750     Batch setups   546,000     429,000     975,000     Product sustaining   235,000     235,000     470,000       Total cost   3,526,050     5,051,500     8,577,550       Product margin $ 224,950   $ 538,500   $ 763,450     3. The quantitative comparison is as follows: Traditional Cost System Xtreme Pathfinder Direct materials $2,024,300 / $5,404,300 = 37.5% $3,380,000 / $5,404,300 = 62.5% Direct labor $418,500 / $1,003,500 = 41.7% $585,000 / $1,003,500 = 58.3% Manufacturing overhead $930,000 / $2,230,000 = 41.7% $1,300,000 / $2,230,000 = 58.3%       Activity-Based Costing System     Direct costs:       Direct materials $2,024,300 / $5,404,300 = 37.5% $3,380,000 / $5,404,300 = 62.5%   Direct labor $418,500 / $1,003,500 = 41.7% $585,000 / $1,003,500 = 58.3% Indirect costs:       Supporting direct labor $302,250 / $724,750 = 41.7% $422,500 / $724,750 = 58.3%   Batch setups $546,000 / $975,000 = 56.0% $429,000 / $975,000 = 44.0%   Product sustaining $235,000 / $470,000 = 50.0% $235,000 / $470,000 = 50.0%

Gallatin Carpet Cleaning is a small, family-owned business operating out of Bozeman, Montana. For its services, the company has always charged a flat fee per hundred square feet of carpet cleaned.

April 1, 2015, 12:05 pm

≫ Next: Ida Sidha Karya Company is a family-owned company located in the village of Gianyar on the island of Bali in Indonesia. The company produces a handcrafted Balinese musical instrument called a gamelan

≪ Previous: Smoky Mountain Corporation makes two types of hiking boots—Xtreme and the Pathfinder. Data concerning these two product lines appear below:

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Gallatin Carpet Cleaning is a small, family-owned business operating out of Bozeman, Montana. For its services, the company has always charged a flat fee per hundred square feet of carpet cleaned. The current fee is $22.70 per hundred square feet. However, there is some question about whether the company is actually making any money on jobs for some customers—particularly those located on remote ranches that require considerable travel time. The owner’s daughter, home for the summer from college, has suggested investigating this question using activity-based costing. After some discussion, a simple system consisting of four activity cost pools seemed to be adequate. The activity cost pools and their activity measures appear below:

Activity Cost Pool	Activity Measure	Activity for the Year
Cleaning carpets	Square feet cleaned (00s)	11,500	hundred square feet
Travel to jobs	Miles driven	435,000	miles
Job support	Number of jobs	1,600	jobs
Other (costs of idle capacity and     organization-sustaining costs)	None	Not applicable

The total cost of operating the company for the year is $353,000, which includes the following costs:

Wages	$	138,000
Cleaning supplies		29,000
Cleaning equipment depreciation		15,000
Vehicle expenses		28,000
Office expenses		67,000
President’s compensation		76,000
Total cost	$	353,000

Resource consumption is distributed across the activities as follows:

Distribution of Resource Consumption Across Activities

	Cleaning Carpets		Travel to Jobs		Job Support		Other		Total
Wages	79	%	10	%	0	%	11	%	100	%
Cleaning supplies	100	%	0	%	0	%	0	%	100	%
Cleaning equipment depreciation	73	%	0	%	0	%	27	%	100	%
Vehicle expenses	0	%	77	%	0	%	23	%	100	%
Office expenses	0	%	0	%	63	%	37	%	100	%
President’s compensation	0	%	0	%	31	%	69	%	100	%

Job support consists of receiving calls from potential customers at the home office, scheduling jobs, billing, resolving issues, and so on.

Required:

1.

Prepare the first-stage allocation of costs to the activity cost pools. Explanation: 1. The first-stage allocation of costs to activity cost pools appears below: Wages: Cleaning Carpets = 79% × $138,000 = $109,020 Travel to Jobs = 10% × $138,000 = $13,800 Job Support = 0% × $138,000 = $0 Other = 11% × $138,000= $15,180   Cleaning supplies: Cleaning Carpets = 100% × $29,000 = $29,000 Travel to Jobs = 0% × $29,000 = $0 Job Support = 0% × $29,000 = $0 Other = 0% × $29,000 = $0   Cleaning equipment depreciation: Cleaning Carpets = 73% × $15,000 = $10,950 Travel to Jobs = 0% × $15,000 = $0 Job Support= 0% × $15,000 = $0 Other = 27% × $15,000 = $4,050 Vehicle expenses: Cleaning Carpets = 0% × $28,000 = $0 Travel to Jobs = 77% × $28,000 = $21,560 Job Support = 0% × $28,000 = $0 Other = 23% × $28,000 = $6,440 Office expenses: Cleaning Carpets = 0% × $67,000 = $0 Travel to Jobs = 0% × $67,000 = $0 Job Support = 63% × $67,000 = $42,210 Other = 37% × $67,000 = $24,790 President's compensation: Cleaning Carpets = 0% × $76,000 = $0 Travel to Jobs = 0% × $76,000 = $0 Job Support = 31% × $76,000 = $23,560 Other = 69% × $76,000 = $52,440 2. The activity rates are computed as follows:   Activity Cost Pool (a) Total Cost (b) Total Activity (a) ÷ (b) Activity Rate   Cleaning carpets $ 148,970   11,500  hundred square feet $ 12.95  per hundred square feet   Travel to jobs $ 35,360   435,000  miles $ .08  per mile     Job support $ 65,770   1,600  jobs $ 41.11  per job 3. The cost for the Flying N Ranch job is computed as follows:   Activity Cost Pool (a) Activity Rate (b) Activity  (a) × (b) ABC Cost   Cleaning carpets  $ 12.95  per hundred square feet 6  hundred square feet   $  77.70     Travel to jobs  $ .08  per mile 58  miles    4.64     Job support  $ 41.11  per job 1  job   41.11                 Total             $ 123.45

Ida Sidha Karya Company is a family-owned company located in the village of Gianyar on the island of Bali in Indonesia. The company produces a handcrafted Balinese musical instrument called a gamelan

April 1, 2015, 12:47 pm

≫ Next: Ida Sidha Karya Company is a family-owned company located in the village of Gianyar on the island of Bali in Indonesia.

≪ Previous: Gallatin Carpet Cleaning is a small, family-owned business operating out of Bozeman, Montana. For its services, the company has always charged a flat fee per hundred square feet of carpet cleaned.

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Ida Sidha Karya Company is a family-owned company located in the village of Gianyar on the island of Bali in Indonesia. The company produces a handcrafted Balinese musical instrument called a gamelan that is similar to a xylophone. The gamelans are sold for $940. Selected data for the company’s operations last year follow:

 

Units in beginning inventory		0
Units produced		13,000
Units sold		9,000
Units in ending inventory		4,000
Variable costs per unit:
Direct materials		$ 220
Direct labor		$ 500
Variable manufacturing overhead		$ 59
Variable selling and administrative		$ 24
Fixed costs:
Fixed manufacturing overhead		$ 790,000
Fixed selling and administrative		$ 580,000

 

Required:

1.

Assume that the company uses absorption costing. Compute the unit product cost for one gamelan.   Explanation: 1. Under absorption costing, all manufacturing costs (variable and fixed) are included in product costs.           Direct materials $ 220     Direct labor   500     Variable manufacturing overhead   59     Fixed manufacturing overhead      ($790,000 ÷ 13,000 units)   61       Absorption costing unit product cost $ 840       2. Under variable costing, only the variable manufacturing costs are included in product costs.           Direct materials $ 220     Direct labor   500     Variable manufacturing overhead   59       Variable costing unit product cost $ 779       Note that selling and administrative expenses are not treated as product costs under either absorption or variable costing. These expenses are always treated as period costs and are charged against the current period’s revenue.

Ida Sidha Karya Company is a family-owned company located in the village of Gianyar on the island of Bali in Indonesia.

April 1, 2015, 12:55 pm

≫ Next: During Heaton Company’s first two years of operations, the company reported absorption costing net operating income as follows:

≪ Previous: Ida Sidha Karya Company is a family-owned company located in the village of Gianyar on the island of Bali in Indonesia. The company produces a handcrafted Balinese musical instrument called a gamelan

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Ida Sidha Karya Company is a family-owned company located in the village of Gianyar on the island of Bali in Indonesia. The company produces a handcrafted Balinese musical instrument called a gamelan that is similar to a xylophone. The gamelans are sold for $840. Selected data for the company’s operations last year follow:

Units in beginning inventory		0
Units produced		300
Units sold		275
Units in ending inventory		25
Variable costs per unit:
Direct materials	$	100
Direct labor	$	310
Variable manufacturing overhead	$	30
Variable selling and administrative	$	35
Fixed costs:
Fixed manufacturing overhead	$	66,000
Fixed selling and administrative	$	31,000

The absorption costing income statement prepared by the company’s accountant for last year appears below:

Sales	$	231,000
Cost of goods sold		181,500
Gross margin		49,500
Selling and administrative expense		40,625
Net operating income	$	8,875

Required:

1.

Determine how much of the ending inventory consists of fixed manufacturing overhead cost deferred in inventory to the next period.   Explanation: 1. 25 units in ending inventory × $220 per unit fixed manufacturing overhead per unit = $5,500 2. Variable cost of goods sold (275 units sold × $440 per unit) = $121,000 Variable selling and administrative expenses (275 units × $35 per unit) = $9,625

During Heaton Company’s first two years of operations, the company reported absorption costing net operating income as follows:

April 1, 2015, 1:01 pm

≫ Next: High Country, Inc., produces and sells many recreational products. The company has just opened a new plant to produce a folding camp cot that will be marketed throughout the United States.

≪ Previous: Ida Sidha Karya Company is a family-owned company located in the village of Gianyar on the island of Bali in Indonesia.

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During Heaton Company’s first two years of operations, the company reported absorption costing net operating income as follows:

 

	Year 1		Year 2
Sales (@ $63 per unit)	$	1,260,000	$	1,890,000
Cost of goods sold (@ $34 per unit)		680,000		1,020,000
Gross margin		580,000		870,000
Selling and administrative expenses*		312,000		342,000
Net operating income	$	268,000	$	528,000

  

* $3 per unit variable; $252,000 fixed each year.

 

The company’s $34 unit product cost is computed as follows:

 

Direct materials	$	5
Direct labor		11
Variable manufacturing overhead		4
Fixed manufacturing overhead ($350,000 ÷ 25,000 units)		14
Absorption costing unit product cost	$	34

Forty percent of fixed manufacturing overhead consists of wages and salaries; the remainder consists of depreciation charges on production equipment and buildings.

 

Production and cost data for the two years are:

 

	Year 1	Year 2
Units produced	25,000	25,000
Units sold	20,000	30,000

 

Required:

1.	Prepare a variable costing contribution format income statement for each year.

Explanation:

1.

The unit product cost under variable costing is computed as follows:

 

Direct materials	$	5
Direct labor		11
Variable manufacturing overhead		4
Variable costing unit product cost	$	20

  

	Year 1		Year 2
Variable cost of goods sold (@ $20 per unit)	$	400,000	$	600,000
Variable selling and administrative expenses (@ $3 per unit)	$	60,000	$	90,000

 
2.

	Year 1	Year 2
Units in beginning inventory	0	5,000
+ Units produced	25,000	25,000
− Units sold	20,000	30,000
= Units in ending inventory	5,000	0

Add (deduct) fixed manufacturing overhead deferred in (released from) inventory under absorption costing (5,000 units × $14 per unit in Year 1; 5,000 units × $14 per unit in Year 2) = $70,000

 

High Country, Inc., produces and sells many recreational products. The company has just opened a new plant to produce a folding camp cot that will be marketed throughout the United States.

April 1, 2015, 1:09 pm

≫ Next: Tami Tyler opened Tami’s Creations, Inc., a small manufacturing company, at the beginning of the year. Getting the company through its first quarter of operations placed a considerable strain on Ms. Tyler’s personal finances. The following income statement for the first quarter was prepared by a friend who has just completed a course in managerial accounting at State University.

≪ Previous: During Heaton Company’s first two years of operations, the company reported absorption costing net operating income as follows:

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High Country, Inc., produces and sells many recreational products. The company has just opened a new plant to produce a folding camp cot that will be marketed throughout the United States. The following cost and revenue data relate to May, the first month of the plant’s operation:

  

Beginning inventory		0
Units produced		46,000
Units sold		41,000
Selling price per unit		$82
Selling and administrative expenses:
Variable per unit		$4
Fixed per month	$	555,000
Manufacturing costs:
Direct materials cost per unit		$17
Direct labor cost per unit		$9
Variable manufacturing overhead cost per unit		$2
Fixed manufacturing overhead cost per month	$	828,000

 

Management is anxious to see how profitable the new camp cot will be and has asked that an income statement be prepared for May.

 

Required:

1.	Assume that the company uses absorption costing.

 

a.	Determine the unit product cost.

Explanation:

1-a.
The unit product cost under absorption costing is:
  

Direct materials	$	17
Direct labor		9
Variable manufacturing overhead		2
Fixed manufacturing overhead (828,000 ÷ 46,000 units)		18
Absorption costing unit product cost	$	46

 
b.

Sales (41,000 units × $82 per unit) = $3,362,000

Cost of goods sold (41,000 units × $46 per unit) = $1,886,000

Selling and administrative expenses (41,000 units × $4 per unit) + $555,000 = $719,000

 
2-a.
The unit product cost under variable costing is:
  

Direct materials	$	17
Direct labor		9
Variable manufacturing overhead		2
Variable costing unit product cost	$	28

  
b.

Sales (41,000 units × $82 per unit) = $3,362,000

Variable cost of goods sold (41,000 units × $28 per unit) = $1,148,000

Variable selling expense (41,000 units × $4 per unit) = $164,000

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Tami Tyler opened Tami’s Creations, Inc., a small manufacturing company, at the beginning of the year. Getting the company through its first quarter of operations placed a considerable strain on Ms. Tyler’s personal finances. The following income statement for the first quarter was prepared by a friend who has just completed a course in managerial accounting at State University.

April 1, 2015, 1:15 pm

≫ Next: Whirly Corporation’s most recent income statement is shown below:

≪ Previous: High Country, Inc., produces and sells many recreational products. The company has just opened a new plant to produce a folding camp cot that will be marketed throughout the United States.

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Tami Tyler opened Tami’s Creations, Inc., a small manufacturing company, at the beginning of the year. Getting the company through its first quarter of operations placed a considerable strain on Ms. Tyler’s personal finances. The following income statement for the first quarter was prepared by a friend who has just completed a course in managerial accounting at State University.

 

Tami’s Creations, Inc. Income Statement For the Quarter Ended March 31
Sales (22,000 units)			$	798,600
Variable expenses:
Variable cost of goods sold	$	259,600
Variable selling and administrative		169,400		429,000
Contribution margin				369,600
Fixed expenses:
Fixed manufacturing overhead		205,000
Fixed selling and administrative		215,000		420,000
Net operating loss			$	( 50,400)

 

Ms. Tyler is discouraged over the loss shown for the quarter, particularly because she had planned to use the statement as support for a bank loan. Another friend, a CPA, insists that the company should be using absorption costing rather than variable costing and argues that if absorption costing had been used the company would probably have reported at least some profit for the quarter.

 

At this point, Ms. Tyler is manufacturing only one product, a swimsuit. Production and cost data relating to the swimsuit for the first quarter follow:

 

Units produced		25,000
Units sold		22,000
Variable costs per unit:
Direct materials	$	7.50
Direct labor	$	2.60
Variable manufacturing overhead	$	1.70
Variable selling and administrative	$	7.70

 

Required:

1.	Complete the following:

 

a.	Compute the unit product cost under absorption costing. (Round your intermediate and final answers to 2 decimal places.)

Explanation:

1-a.
Absorption costing unit product cost is:

Direct materials	$	7.50
Direct labor		2.60
Variable manufacturing overhead		1.70
Fixed manufacturing overhead ($205,000 ÷ 25,000 units)		8.20
Absorption costing unit product cost	$	20.00

 
b.

The absorption costing income statement is:

Cost of goods sold (22,000 units × $20.00 per unit) = $440,000

Selling and administrative expenses ($215,000 + 22,000 units × $7.70 per unit) = $384,400

 
c.

Units in ending inventory = Units in beginning inventory + Units produced – Units sold = 0 units +  25,000 units – 22,000 units = 3,000 units

Fixed manufacturing overhead cost deferred in inventory under absorption costing (3,000 units × $8.20 per unit) = $24,600

 
3-a.

Sales (28,000 units × $36.30 per unit) = $1,016,400

Variable cost of goods sold (28,000 units × $11.80 per unit) = $330,400

Variable selling and administrative expenses (28,000 units × $7.70 per unit) = $215,600

 
b.

The absorption costing unit product cost will remain at $20.00, the same as in part (1).

Sales (28,000 units × $36.30 per unit) = $1,016,400

Cost of goods sold (28,000 units × $20.00 per unit) = $560,000

Selling and administrative expenses (28,000 units × $7.70 per unit + $215,000) = $430,600

 
c.

Units in ending inventory = Units in beginning inventory + Units produced – Units sold = 3,000 units +  25,000 units – 28,000 units = 0 units

Fixed manufacturing overhead cost released from inventory under absorption costing (3,000 units × $8.20 per unit) = $(24,600)

 

Whirly Corporation’s most recent income statement is shown below:

April 3, 2015, 2:57 am

≫ Next: Klumper Corporation is a diversified manufacturer of industrial goods. The company’s activity based costing system contains the following six activity cost pools and activity rates:

≪ Previous: Tami Tyler opened Tami’s Creations, Inc., a small manufacturing company, at the beginning of the year. Getting the company through its first quarter of operations placed a considerable strain on Ms. Tyler’s personal finances. The following income statement for the first quarter was prepared by a friend who has just completed a course in managerial accounting at State University.

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Whirly Corporation’s most recent income statement is shown below:

	Total		Per Unit
Sales (7,900 units)	$	244,900	$	31.00
Variable expenses		150,100		19.00
Contribution margin		94,800	$	12.00
Fixed expenses		55,000
Net operating income	$	39,800

Required:

Prepare a new contribution format income statement under each of the following conditions (consider each case independently):

1.	The sales volume increases by 40 units.

2. The sales volume decreases by 40 units.   3. The sales volume is 6,900 units. Explanation: 1. Sales (7,940 × $31.00) = $246,140 2. Sales (7,860 × $31.00) = $243,660 3. Sales (6,900 × $31.00) = $213,900

Klumper Corporation is a diversified manufacturer of industrial goods. The company’s activity based costing system contains the following six activity cost pools and activity rates:

April 1, 2015, 11:53 am

≫ Next: Presented below is income statement information of the Schefter Corporation for the year ended December 31, 2013.

≪ Previous: Whirly Corporation’s most recent income statement is shown below:

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Klumper Corporation is a diversified manufacturer of industrial goods. The company’s activity based
costing system contains the following six activity cost pools and activity rates:

 

Activity Cost Pool	Activity Rates
Supporting direct labor		$7.00	per direct labor-hour
Machine processing		$3.00	per machine-hour
Machine setups		$35.00	per setup
Production orders		$170.00	per order
Shipments		$125.00	per shipment
Product sustaining		$800.00	per product

 

Activity data have been supplied for the following two products:

 

	Total Expected Activity
	K425	M67
Number of units produced per year	200	2,000
Direct labor-hours	1,125	30
Machine-hours	3,200	20
Machine setups	17	1
Production orders	17	1
Shipments	34	1
Product sustaining	1	1

 

Required:

Determine the total overhead cost that would be assigned to each of the products listed above in the activity-based costing system.   Explanation:   Activity Cost Pool Activity Rate            Activity ABC Cost   K425                 Supporting direct labor   $7  per direct labor-hour 1,125  direct labor-hours $ 7,875       Machine processing   $3  per machine-hour 3,200  machine-hours   9,600       Machine setups   $35  per setup 17  setups   595       Production orders   $170  per order 17  orders   2,890       Shipments   $125  per shipment 34  shipments   4,250       Product sustaining   $800  per product 1  product   800                    Total overhead cost           $ 26,010                   M67                 Supporting direct labor   $7  per direct labor-hour 30  direct labor-hours $ 210        Machine processing   $3  per machine-hour 20  machine-hours   60        Machine setups   $35  per setup 1  setups   35        Production orders   $170  per order 1  order   170        Shipments   $125  per shipment 1  shipment   125        Product sustaining   $800  per product 1  product   800                   Total overhead cost           $ 1,400

Presented below is income statement information of the Schefter Corporation for the year ended December 31, 2013.

May 7, 2015, 3:28 pm

≫ Next: The Righter Shoe Store Company prepares monthly financial statements for its bank. The November 30 and December 31, 2013, trial balances contained the following account information:

≪ Previous: Klumper Corporation is a diversified manufacturer of industrial goods. The company’s activity based costing system contains the following six activity cost pools and activity rates:

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Presented below is income statement information of the Schefter Corporation for the year ended December 31, 2013.

Sales revenue	$	492,000
Salaries expense		80,000
Interest revenue		6,000
Advertising expense		10,000
Gain on sale of investments		8,000
Cost of goods sold		284,000
Insurance expense		12,000
Interest expense		4,000
Income tax expense		30,000
Depreciation expense		20,000

Required:

Prepare the necessary closing entries at December 31, 2013. (If no entry is required for a particular transaction, select "No journal entry required" in the first account field.)   Explanation: Income summary ($506,000 – 440,000) = $66,000

The Righter Shoe Store Company prepares monthly financial statements for its bank. The November 30 and December 31, 2013, trial balances contained the following account information:

May 7, 2015, 3:32 pm

≫ Next: Pastina Company manufactures and sells various types of pasta to grocery chains as private label brands. The company’s fiscal year-end is December 31. The unadjusted trial balance as of December 31, 2013, appears below.

≪ Previous: Presented below is income statement information of the Schefter Corporation for the year ended December 31, 2013.

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The Righter Shoe Store Company prepares monthly financial statements for its bank. The November 30 and December 31, 2013, trial balances contained the following account information:

  

	Nov. 30		Dec. 31
	Dr.	Cr.	Dr.	Cr.
Supplies	1,500		3,000
Prepaid insurance	6,000		4,500
Wages payable		10,000		15,000
Unearned rent revenue		2,000		1,000

  

The following information also is known:
a.	The December income statement reported $2,000 in supplies expense.
b.	No insurance payments were made in December.
c.	$10,000 was paid to employees during December for wages.
d.	On November 1, 2013, a tenant paid Righter $3,000 in advance rent for the period November through January. Unearned rent revenue was credited.

 

Explanation: 1. Cost of supplies purchased = $3,000 + 2,000 – 1,500 = $3,500   2. Insurance expense for December = $6,000 – 4,500 = $1,500   4. Rent revenue recognized each month = $3,000 × 1/3 = $1,000