MANGO MOTORS
Let’s Take Notes ... ON THE FIRST DAY OF CLASS?
What is accounting?
What is an accountant?
What is accounting used for?
DESIGNATED DOODLE ZONE
Let’s Take Notes ... ON THE FIRST DAY OF CLASS?
How management accounting is different than financial accounting, tax, or audit:
Don’t be afraid to take a big step if one is indicated. You can’t cross a chasm in two small jumps.
-- David Lloyd George (1863-1945), Statesman
Let’s Take Notes ... ON THE FIRST DAY OF CLASS?
Choose always the way that seems best, however rough it may be; custom will soon render it easy and agreeable.
-- Pythagoras (c. 580-c. 500 B.C.), Philosopher and mathematician
DESIGNATED DOODLE ZONE
Let’s Take Notes ... ON THE FIRST DAY OF CLASS?
Nothing is particularly hard if you divide it into small jobs.
-- Henry Ford (1863-1947), Founder of the Ford Motor Company
REVIEW / SELF-QUIZ
Do you know the answers to these questions??
• What are the four Financial Statements?
• How do you increase an Asset account?
… a Liability account?
… a Revenue account?
… an Expense account?
• What is the Accounting Equation?
• How is “profit” calculated (most simply)?
• How does Managerial Accounting differ from Financial Accounting, Tax, and Auditing?
Note:
We may or may not cover all of this material on this day of class, but we should cover the material before the next exam. So, if we have not covered this material, be sure to ask about it during the exam review.
Let’s Take Notes ... TERMS AND FLOWS
Terms:
See next page for more noteworthy space for terms …
Let’s Take Notes ... TERMS AND FLOWS
[More] Terms: (if you need additional space)
See next page for Income Statement formats …
A certain amount of opposition is a great help to a person. Kites rise against, not with the wind.
-- John Neal (1793-1870), Writer
Let’s Take Notes ... TERMS AND FLOWS
Variable Costing Income Statement
Absorption Costing Income Statement
Balance Sheet
More noteworthy space on the next page …
Let’s Take Notes ... TERMS AND FLOWS
More Space …
Youth is the best time to be rich and the best time to be poor.
-- Euripides (c. 485-406 B.C.), Playwright
Let’s Take Notes ... TERMS AND FLOWS
And even more space …
You will soon break the bow if you
Keep it always stretched.
-- Phaedrus (c. 15 B.C. – 50 A.D.),
Fabulist
|** NOTE TO “SELF”! ** |
| |
|See problem: ____________________________ |
| |
|On page _________ of the Handy Handouts |
| |
|For an example of t-accounts and cost flows. |
Let’s Take Notes ... TERMS AND FLOWS
What would you describe as the theme of these quotes?
The harder you work, the harder it is to surrender.
-- Vince Lombardi
I pray hard, work hard, and leave the rest to God.
-- Florence Griffith Joyner
Work is a good word. When we work hard at something we enjoy and feel good about it, we feel good about ourselves again and again and again.
-- Mike Krzyzewski
Work Hard. There is no short cut.
-- Alfred P. Sloan, Jr. (1875-1966), Business leader and philanthropist
Nothing will work unless you do.
-- John Wooden
The road to happiness lies in two simple principles: find what it is that interests you and that you can do well, and when you find it, put your whole soul into it, every bit of energy and ambition and natural ability you have.
-- John D. Rockefeller, III
If the power to do hard work is not talent, it is the best possible substitute for it.
-- James A. Garfield
Let’s Take Notes ... TERMS AND FLOWS
DESIGNATED DOODLE ZONE
Let’s Take Notes ... TERMS AND FLOWS
REVIEW / SELF-QUIZ
Do you know the answers to these questions??
• What are Fixed Costs?
• … Variable Costs?
• What are Product Costs?
• … Period Costs?
• What are Prime Costs?
• … Conversion Costs?
• What is Revenue? Expense? Profit?
• What is Cost of Goods Manufactured?
• What is Cost of Goods Sold?
• What are the t-accounts down the left side?
• What is true of all of them?
• What are the t-accounts across the top?
• What is true of all of them?
• What are the t-accounts down the right side?
• What is true of all of them?
• What kind of account is COGS? COGM? I/S? DM? WIP? DL? MOH?
• What phrase appears at the top of every Income Statement? Why?
• … every Balance Sheet? Why?
Note:
We may or may not cover all of this material on this day of class, but we should cover the material before the next exam. So, if we have not covered this material, be sure to ask about it during the exam review.
Mango Motors
(Variable and Fixed Costs)
Mango Motors has incurred the following expenses during the 1996 calendar year.
Sales revenue $810,000
Fixed manufacturing costs 60,000
Fixed selling and administrative costs 50,000
Variable manufacturing costs 540,000
Variable selling and administrative costs 67,500
Required:
Calculate net income using both the absorption costing and the variable costing income statement formats.
SoMuch STEReos
(Variable and Fixed Costs)
As the chief financial officer of SoMuch Stereos, headquartered in Timbuktoo, Tennessee, you have summarized the financial information for the fiscal year ending February 2000.
Direct materials $22,000
Direct labor 14,000
Variable manufacturing overhead 9,000
Fixed manufacturing overhead 10,000
Variable selling expense 5,000
Fixed selling expense 16,000
Fixed administrative expense 14,000
Sales revenue 89,000
Required:
The CEO has asked you to provide her with income statements using both the absorption costing format and the variable costing format.
Bojangle Dance Shoes
(Variable and Fixed Costs)
A partial list of sales and cost data is presented below for the Bojangle Dance Shoes Co. for the calendar year 2002.
Sales (18,000 units) $630,000
Manufacturing costs:
Prime costs $252,000
Variable MOH 84,000
Budgeted and actual fixed MOH 100,000
Operating expenses:
Variable selling expense 54,000
Fixed selling expense 45,000
Fixed administrative 90,000
Required:
Calculate Bojangle’s cost of goods sold, contribution margin, and net income using both the absorption costing format and the variable costing format.
Cattle Company
(Cost Flows)
Below are summarized financial data of the Cattle Company for two consecutive years.
1997 1998
Administrative expenses $135,000 $161,000
Beginning finished goods 45,000 82,000
Beginning work in process 71,000 65,000
Beginning direct materials 96,000 108,000
Sales 566,000 812,000
Ending finished goods - 69,000
Ending work in process - 84,000
Ending direct materials - 102,000
Cost of goods manufactured 445,000 562,000
Direct materials requisitioned 190,000 235,000
Direct labor 130,000 170,000
Indirect materials 15,000 18,000
All other manufacturing overhead costs 104,000 158,000
Required:
a. Use T-accounts to show the flow of costs and revenues.
b. Prepare income statements for both years.
Cattle Company
Calculations ...
Judge Ely Jeans
(Cost Flows)
The December 31, 1999 ledger account balances are presented below for Judge Ely Jeans. Beginning inventories on January 1, 1999 were $37,600 for finished goods inventory, $49,600 for work in process inventory, and $29,500 for direct materials inventory.
Sales $715,200
Insurance on production inventories 7,200
Factory supervision 44,800
Indirect materials 4,800
Office equipment depreciation 7,200
Utilities (60 percent factory) 36,000
Delivery expense for finished products 4,000
Direct labor 118,400
Direct materials purchased 98,400
Office fire insurance 2,640
Finished goods inventory 52,000
Indirect labor 10,400
Administrative and marketing salaries 123,200
Factory property tax 15,200
Advertising 15,300
Production equipment lease cost 35,200
Work in process inventory 62,400
Direct materials inventory 32,300
Required:
Calculate cost of goods manufactured, cost of good sold, and net income.
Judge Ely Jeans
Calculations ...
Bob’s Beef Boy
(Cost Flows)
Bob, the owner and sole proprietor of Bob’s Beef Boy, sells hamburgers for carry out or drive through only. The restaurant is known for the high quality of the meat used in the burgers, and for the kaiser roll used in place of the normal hamburger bun.
Each Hamburger sells for $3.99. Bob employs several part-time employees and a full-time manager. He leases the building and hires a cleaning company to provide services on a weekly basis. The manager, who is paid a monthly salary, carries out all administrative functions such as hiring, scheduling, and counting cash. Bob purchases the ingredients needed to make hamburgers on a weekly basis to ensure its freshness; thus, there were no inventory balances at the beginning or the end of the year.
During the year 1997 the following expenses were incurred:
Ground meat $54,000 (No accusations here about “Where’s the beef!?”)
Lettuce 6,750 Manager’s salary $41,000
Tomatoes 7,500 Utilities 22,500
Kaiser rolls 9,250 Depreciation, grill 7,000
Condiments 2,650 Depreciation, signs 3,250
Part-time labor, cooks 66,400 Advertising 3,500
Part-time labor, servers 53,000 Rent 25,000
Wrapping paper and bags 2,400 Cleaning services 6,800
Bob’s restaurant sold 120,000 hamburgers during 1997.
Required:
1. Classify each cost as being a product cost (specify either direct materials, direct labor, or manufacturing overhead) or as being a period cost.
2. Use T-accounts to show the flow of costs and revenues for Bob’s Beef Boy.
3. Prepare an income statement for the year.
Bob’s Beef Boy
Calculations ...
Sleepwell Incorporated
(Cost Flows)
The following data is available for Sleepwell, Inc. for the month of August:
Beginning of August:
Direct Materials inventory $18,500
Work in Process inventory $12,000
Finished Goods inventory $10,200
During August:
Direct Labor cost $40,500
Direct Materials purchases $80,000
Total Overhead cost $105,750
Sales Revenue $400,000
Selling & Admin. Exp. $100,000
End of August:
Direct Materials inventory $16,800
Work in Process inventory $23,500
Finished Goods inventory $9,100
Required:
Calculate the cost of goods manufactured, the cost of goods sold, and net income for Sleepwell, Inc. in August.
Sleepwell Incorporated
Calculations ...
Hannibal Company
(Cost Flows)
The following information is available for Hannibal Company:
Raw materials purchased $160,000
Raw materials inventory, 1-1-1993 $23,400
Raw materials inventory, 12-31-1993 $33,400
Direct labor $100,000
Indirect labor $20,000
Factory rent $21,000
Depreciation, factory equipment $30,000
Factory utilities $5,978
Sales salaries $55,000
Sales commissions $38,000
Administrative costs $61,000
Sales revenue $600,000
Work in process inventory, 1-1-1993 $6,520
Work in process inventory, 12-31-1993 $7,498
Finished goods inventory, 1-1-1993 $40,000
Finished goods inventory, 12-31-1993 $57,050
Required:
Calculate the cost of goods manufactured, cost of goods sold, and net income for Hannibal Co.
Hannibal Company
Calculations ...
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Let’s Take Notes ... BREAKEVEN (C-V-P)
What is the GOAL of any business?
C-V-P analysis seeks the most profitable combination of …
Love itself is love’ chief nourishment.
-- Sextus Propertius (c. 50-16 B.C.), Poet
Let’s Take Notes ... BREAKEVEN (C-V-P)
How do costs behave … In Total
How do costs behave … Per Unit
Let’s Take Notes ... BREAKEVEN (C-V-P)
More … How do costs behave …
There will always be a conflict between “good” and “good enough”.
-- Henry Martyn Leland (1843-1932), Engineer
Let’s Take Notes ... BREAKEVEN (C-V-P)
Even more … how do costs behave …
Chance favours only those who know how to court her.
-- Charles Nicholle (1866-1936), Physician and Scientist
Let’s Take Notes ... BREAKEVEN (C-V-P)
Variable Costing information is necessary for breakeven calculations!
Do the common thing in an uncommon way.
-- Booker T. Washington (1856-1943), Educator
Let’s Take Notes ... BREAKEVEN (C-V-P)
C-V-P Intuition:
Let’s Take Notes ... BREAKEVEN (C-V-P)
Let’s think a little more about what we just learned …
DESIGNATED DOODLE ZONE
Let’s Take Notes ... BREAKEVEN (C-V-P)
Just a few more notes …
You have your way. I have my way. As for the right way, the correct way, and the only way, it does not exist.
-- Friedrich Nietzche (1844-1900), Philosopher
Let’s Take Notes ... BREAKEVEN (C-V-P)
|NOTE TO “SELF”! |
|[Cost Acccounting Students Only] |
| |
|See problem: ____________________________ |
| |
|On page _________ of the Handy Handouts |
| |
|For an example of multi-product breakeven. |
Let’s Take Notes ... BREAKEVEN (C-V-P)
REVIEW / SELF-QUIZ
Do you know the answers to these questions??
• Can you draw a graph of Fixed Costs in total?
• … Fixed Costs per unit?
• … Variable Costs in total?
• … Variable Costs per unit?
• … Mixed Costs in total?
• What formula can we use to draw a line in XY space?
• What is the Variable Costing income statement format?
• How does one calculate the VC Ratio in total?
• … per unit?
• How does one calculate the CM Ratio in total?
• … per unit?
• Does is CM calculated in total?
• … per unit?
• The following formulas are important:
(why don’t you fill them in here)
• BE(units) =
• BE($) =
• SP(x) =
• TR =
• MS($) =
• MS Ratio =
• NIBT =
East Meets West Company (A)
(Breakeven)
East Meets West Company plans to start manufacturing a new compass. The firm has been able to determine that fixed costs are $20,000 per year and the variable cost is $6 per compass. The company expects to set selling price at $10 per unit.
Required:
1. Determine the breakeven point in units and dollars.
2. If East Meets West Company wants to earn a $15,000 profit on the sale of its compasses, find the number of units and sales revenue required to achieve this goal.
East Meets West Company (B)
(Breakeven)
East Meets West Company plans to start manufacturing a new compass. The firm has been able to determine that fixed costs are $20,000 per year and the variable cost is $6 per compass. The company expects to set selling price at $10 per unit.
Management has decided that the number calculated in (A) is not realistic. That is, demand for the compasses is not strong enough and competition is too strong to allow East Meets West company to sell 8,750 units. Instead, management wants to determine how many units would be required to achieve a profit of 15 percent of sales revenue. Notice above that variable cost is 60 percent of selling price and that management wants profit to be 15 percent of sales revenue.
Required:
1. Calculate the number of units and the sales revenue necessary to reach management’s goal.
East Meets West Company (C)
(Breakeven)
East Meets West Company plans to start manufacturing a new compass. The firm has been able to determine that fixed costs are $20,000 per year and the variable cost is $6 per compass. The company expects to set selling price at $10 per unit.
East Meets West Company is faced with $.80 per unit increase in labor cost and wants to compensate for this by decreasing its fixed cost. It decides to give up some rented space and move all of its operations into its own plant, reducing fixed cost by $2,000. At the same time management believes that increasing the selling price of each unit by $.40 will not adversely affect demand for its product, and that a target profit of $9,000 can be maintained.
Required:
1. If all these changes are incorporated in the analysis, what is the number of units that must be produced and sold?
East Meets West Company (D)
(Breakeven)
East Meets West Company plans to start manufacturing a new compass. The firm has been able to determine that fixed costs are $20,000 per year and the variable cost is $6 per compass. The company expects to set selling price at $10 per unit.
Income taxes are a percentage of net income. East Meets West is subject to a 30 percent tax rate and management seeks an after-tax profit of $8,400.
Required:
1. Determine the breakeven point in units and dollars.
2. Determine the unit sales and revenue necessary to earn an after-tax income of $8,400.
East Meets West Company (E)
(Breakeven)
East Meets West Company plans to start manufacturing a new compass. The firm has been able to determine that fixed costs are $20,000 per year and the variable cost is $6 per compass. The company expects to set selling price at $10 per unit.
The company’s managers want to determine the level of operations required to earn a profit of $12,000 before taxes. They also want to know if it would be more profitable to change the method of operations by automating part of the compass assembly and eliminating some of the direct labor currently required.
The company faces two alternatives: maintain its current production operations or use the more automated production process. Selling price of the compass is $10 and East Meets West Company’s management has no plans to change the price. By changing the production process, the company would incur fixed costs of $27,500 per year and variable costs of $5 per compass.
Required:
1. Determine which of the two production alternatives is preferable by examining the margin of safety ratio for both alternatives.
S & P CORPORATION
(Breakeven)
The following data are expected for S & P Corporation’s in 2003:
Sales price (SP) per unit $10
Fixed costs (FC) $300,000
Contribution margin (CM) 50% of sales
Required:
1. Determine the breakeven point in units.
2. Determine the breakeven point in dollars.
JOLLY CANDIES
(Breakeven)
The following information is available for Jolly Candies and the Valentine Candy production process.
Per Unit
Price of item $4
Variable costs 3
Contribution margin $1
Total fixed costs $400
Required:
1. How many units must be sold in order to make a profit before taxes of $300?
2. What would the profit before taxes be if the sale volume increased 20% above the breakeven point?
3. If the variable costs (VC) increase to $3.50 per unit, how many units must be sold to make a profit after taxes of $300 (assume a 40% tax rate).
Houghton's Limited
(Breakeven)
The management of Houghton's Ltd. is involved in the preliminary analysis of a potential new product. The product will sell for $35 per unit and requires variable costs of $20 per unit. Fixed costs are anticipated to be $30,000 per month.
Required:
Answer each of the following independent questions:
1. What is the breakeven point in units? In dollars?
2. What annual dollar sales volume would be needed to earn $510,000 before taxes?
3. What is the margin of safety ratio for question 2?
4. How many units must be sold each month to earn an annual after tax profit of $864,000? The tax rate is 40%.
Clair's Toys
(Breakeven)
Clair's Toys is preparing next year's budget for one of their stores. The store has a contribution margin ratio of 60% and its fixed costs are $18,000.
Required:
(Treat each part separately)
1. If sales increase by $12,000 above the breakeven point, how much will income increase?
2. If the advertising budget is increased by $6,000, it is estimated that sales will increase by $9,000. Should the additional advertising be purchased?
3. If salaries are increased by $3,000, how much must sales be increased to cover the increased cost?
4. It is estimated that sales will increase from 12,000 to 18,000 units if the unit sales price is reduced from $10 to $8 and advertising is increased by $2,000. Is it profitable to do so?
Cass Company
(Breakeven)
Cass Company makes a deluxe product CC1 for special orders. The following are the actual results of operations in 1996.
Sales revenue $ 500,000
Direct materials used 210,000
Direct labor costs 140,000
Variable overhead cost 30,000
Contribution margin 100,000
Gross margin 70,000
Total fixed costs 110,000
Fixed overhead ?
Variable selling and administrative costs ?
Required:
1. Determine the total variable costs of production.
2. Determine the full manufacturing costs for 1996.
3. What is the total variable selling and administrative costs?
4. What is the fixed overhead costs for 1996?
5. Determine the breakeven sales dollars for 1996.
6. What is the operating leverage for 1996?
Cass Company
Calculations ...
Deering Banjo Company
(Multiple-Product Breakeven)
Deering Banjo Company manufactures two basic models of banjos: the Boston and the Deluxe. The Deluxe is Deering's professional model of banjo and uses higher quality materials and is more carefully crafted. More information on these products is provided below.
Selling Variable
Price Costs
Boston $1,200 $700
Deluxe $5,000 $2000
Fixed costs of $3,000,000 are incurred annually.
The expected mix of the banjos is 60% Boston and 40% Deluxe.
Required:
1. Calculate breakeven in units for the Deering Banjo Company.
2. Calculate breakeven revenue for the Deering Banjo Company.
Alcatraz Artifacts
(Multiple-Product Breakeven)
Alcatraz inmates produce three artifacts, the “Al”, the “Cat”, and the “Raz”. More information is provided below.
| |Artifacts | |
| |“Al” |“Cat” |“Raz” |Total |
|Sales in units |2,000 |3,000 |5,000 |10,000 |
|Selling price per unit |$20 |$50 |$40 | |
|Variable cost per unit |$16 |$36 |$28 | |
|Total fixed cost | | | |$77,000 |
Required:
1. Calculate the breakeven point in units and dollars.
2. What is the breakeven point if the sales mix of artifacts “Al” and “Cat” is 40% each, leaving “Raz” with 20% of total sales?
[Based on a homework problem that Dr. Fessler completed as a cost accounting student (CMA, adapted)]
AbTEX Electronics
(Multiple-Product Breakeven)
Abtex Electronics manufactures two products -- tape recorders and electronic calculators -- and sells them nationally to wholesalers and retailers. Abtex management is very pleased with the company’s performance for the current fiscal year. Projected sales through December 31, 1997, indicate that 70,000 tape recorders and 140,000 electronic calculators will be sold this year. The projected earnings statement, which appears below, shows that Abtex will exceed its earnings goal of 9% on sales after taxes.
|ABTEX ELECTRONICS |
|Projected Earnings Statement for the Year Ended December 31, 1997 |
| |TAPE |ELECTRONIC | |
| |RECORDERS |CALCULATORS | |
| |Total | |Total | | |
| |Amount |Per |Amount |Per |Total |
| |(000s) |Unit |(000s) |Unit |(000s) |
|Sales |$1,050 |$15.00 |$3,150 |$22.50 |$4,200.0 |
|Production Costs: | | | | | |
| Materials |$ 280 |$ 4.00 |$ 630 |$ 4.50 |$ 910.0 |
| Direct labor |140 |2.00 |420 |3.00 |560.0 |
| Variable overhead |140 |2.00 |280 |2.00 |420.0 |
| Fixed overhead | 70 | 1.00 | 210 | 1.50 | 280.0 |
| Total prod. costs |$ 630 |$ 9.00 |$1,540 |$11.00 |$2,170.0 |
|Gross margin |$ 420 |$ 6.00 |$1,610 |$11.50 |$2,030.0 |
|Fixed selling and admin. | | | | | 1,040.0 |
|NI before income taxes | | | | |$ 990.0 |
|Income taxes (55%) | | | | | 544.5 |
|Net income | | | | |$ 445.5 |
The tape recorder business has been fairly stable the last few years, and the company does not intend to change the tape recorder price. However, the competition among manufacturers of electronic calculators has been increasing. Abtex’s calculators have been very popular with consumers. In order to sustain this interest in its calculators and to meet the price reductions expected from competitors, management has decided to reduce the wholesale price of its calculator from $22.50 to $20.00 per unit effective January 1, 1998. At the same time the company plans to spend an additional $57,000 on advertising during fiscal year 1998. As a consequence of these actions, management estimates that 80% of its total revenue will be derived from calculator sales as compared with 75% in 1997. As in prior years, the sales mix is assumed the same at all volume levels. (That is, the sales mix in units will not necessarily be the same as in 1997; however, the sales mix in 1998 will be constant no matter what volume levels occur.)
The total fixed overhead costs will not change in 1998, nor will the variable overhead cost rates (applied on a direct-labor-hour base). However, the cost of materials and direct labor is expected to change. The cost of solid state electronic components will be cheaper in 1998. Abtex estimates that material costs will drop 10% for the tape recorders and 20% for the calculators in 1998. However, direct labor costs for both products will increase 10% in the coming year. Variable overhead rates will be unchanged at $2.00 per unit.
Required:
1. How many tape recorder and electronic calculator units did Abtex Electronics have to sell in 1997 to break even?
2. How many tape recorder and electronic calculator units will Abtex have to sell in 1998 to break even?
ABTEX ELECTRONICS
Calculations ...
ABTEX ELECTRONICS
Calculations ...
Let’s Take Notes ... RELEVANT COSTS
Relevant Cost
Sunk Cost
Opportunity Cost
The main idea in golf as in life, I suppose, is to learn to accept what cannot be altered, and to keep on doing one’s reasoned and resolute best whether the prospect be bleak or rosy.
-- Bobby Jones (1902-1971), Professional golfer
Let’s Take Notes ... RELEVANT COSTS
Examples of decisions:
(
(
(
(
(
(
IN A NUTSHELL …
I believe that every right implies a responsibility; every opportunity, an obligation; every possession, a duty.
-- John D. Rockefeller, Jr. (1874-1960), Business executive and philanthropist
Let’s Take Notes ... RELEVANT COSTS
Vitality shows in not only the ability to
persist but the ability to start over.
-- F. Scott Fitzgerald (1896-1940), Writer
Let’s Take Notes ... RELEVANT COSTS
REVIEW / SELF-QUIZ
Do you know the answers to these questions??
• What is a Relevant Cost?
• What is a Sunk Cost?
• Are sunk costs relevant?
• What is an Opportunity Cost?
• Are opportunity costs relevant?
• What types of decisions can be/are made using relevant cost thought?
(
(
(
(
(
(
Unshared joy is an unlighted candle.
-- Spanish Proverb
Funk and Wagnall
(Classifying Relevant and Irrelevant Items)
Funk and Wagnall, attorneys at law, have been asked to represent a local client in proceedings to be held in San Francisco, California. Classify each of the following items on the basis of their relationship to this engagement. Items may have multiple classifications.
| |Relevant Costs |Irrelevant Costs |
| |Opportunity |Outlay* |Outlay* |Sunk |
|The case will require three attorneys to stay four nights| | | | |
|in a San Francisco hotel. The predicted hotel bill is | | | | |
|$1,200. | | | | |
|Funk and Wagnall’s professional staff is paid $800 per | | | | |
|day for out-of-town assignments. | | | | |
|Last year, depreciation on Funk and Wagnall’s office was | | | | |
|$12,000. | | | | |
|Round-trip transportation to San Francisco is expected to| | | | |
|cost $600 per person for the engagement. | | | | |
|The firm has recently accepted an engagement that will | | | | |
|require partners to spend two weeks in Dallas. The | | | | |
|predicted out-of-pocket costs of this engagement are | | | | |
|$8,500. | | | | |
|The firm has a maintenance contract on its word | | | | |
|processing equipment that will cost $2,200 next year. | | | | |
|If the firm accepts the engagement in San Francisco, it | | | | |
|will have to decline a conflicting engagement in Orlando | | | | |
|that would have provided a net cash inflow of $7,200. | | | | |
|The firm’s variable overhead is $40 per client-hour. | | | | |
|The firm pays $150 per year for Mr. Funk’s subscription | | | | |
|to a law journal. | | | | |
|Last year the firm paid $7,500 to increase the insulation| | | | |
|in its building. | | | | |
* An outlay cost is a cost that requires a cash disbursement sooner or later.
Frodo Company
(Relevant Costs)
MACHINE REPLACEMENT
Frodo Company is trying to determine whether or not to replace an old machine with a brand new machine with lower annual operating costs.
Old Machine New Machine
Book value/cost $30,000 $40,000
Salvage value in 5 yrs. $0 $0
Annual operating cost $15,000 $4,000
Current resale value $2,000 N/A
Remaining life 5 yrs. 5 yrs.
Required:
Should Frodo Company keep the old machine or purchase the new one?
TOLEDO TORPEDO Company
(Relevant Costs)
MACHINE REPLACEMENT
Toledo Torpedo Company is considering replacement of an existing machine used for finishing products. Annual revenue of $100,000 will not change regardless of the decision. Summary data on the existing machine and the new machine are as follows:
Existing Machine
1. Initial cost of $120,000 (purchase made eight years ago)
2. Current book value of $40,000 ($120,000 minus accumulated depreciation of $80,000 using the straight-line method
3. Current disposal value of $4,000
4. Estimated remaining useful life of four years with zero terminal disposal value
5. Variable operating costs per year of $80,000
New Machine
1. Current purchase price of $60,000
2. Estimated useful life of four years with zero terminal disposal value
3. Variable operating costs per year of $56,000
Required:
Should Toledo Torpedo Company keep the old machine or purchase the new one?
Hassett Company
(Relevant Costs)
MAKE OR BUY
Hassett Company produces ceramic teapots with wooden handles, and its production facility in Patchogue, NY has idle capacity (i.e., no opportunity cost). The 1998 budget specifies that 20,000 wooden handles will be required so the company can produce the same number of teapots.
Costs to manufacture the handles are as follows:
Direct Material $ .60
Direct Labor $ .40
Variable Mfg. Overhead $ .10
Fixed Mfg. Overhead $ .20
Total $1.30
R&M Handle Co. specializes in the production of wooden handles for ceramic teapots. R&M has offered to supply handles for $1.25 each.
Required:
Should Hassett Company MAKE the handles for use in teapot production, or BUY them from R&M Handle Co.?
California TextBooks (A)
(Relevant Costs)
MAKE OR BUY
California Textbooks produces high-quality textbooks, and incurs the following costs for making the book covers.
| |COST OF MAKING COVERS |
| |Total Costs for |Costs |
| |10,000 units |per Unit |
|Direct materials |$ 10,000 |$ 1 |
|Direct labor |80,000 |8 |
|Variable overhead applied |40,000 |4 |
|Fixed overhead applied | 50,000 | 5 |
|Total costs |$180,000 |$18 |
If the textbook covers are purchased, $20,000 of fixed costs will be saved.
Required:
Should California Textbooks make or buy the textbook covers?
California TextBooks (B)
(Relevant Costs)
MAKE OR BUY
California Textbooks produces high-quality textbooks, and incurs the following costs for making the book covers.
| |COST OF MAKING COVERS |
| |Total Costs for |Costs |
| |10,000 units |per Unit |
|Direct materials |$ 10,000 |$ 1 |
|Direct labor |80,000 |8 |
|Variable overhead applied |40,000 |4 |
|Fixed overhead applied | 50,000 | 5 |
|Total costs |$180,000 |$18 |
If the textbook covers are purchased, $20,000 of fixed costs will be saved.
Additionally, if the textbook covers are purchased, the released production facilities can be used to manufacture other products with a contribution margin of $19,000 or can be rented out for $5,000. California Textbooks now has four options: (1) Make, (2) Buy and leave facilities idle, (3) Buy and use facilities for other products, or (4) Buy and rent.
Required:
Which option is best for California Textbooks?
Adams Company
(Relevant Costs)
SCARCE RESOURCES
Adams Company specializes in manufacturing titanium into bicycle frames and golf clubs, their only two product lines. A recent strike in Russia has stopped all production of this rare metal, but Adams foresaw this event occurring and has stockpiled 80,000 lbs. of titanium in inventory. No more titanium can be purchased for the foreseeable future and the managers at Adams Company must decide whether to use their titanium inventory to produce bicycle frames or to produce golf clubs.
Bicycle Frames ------ $40/unit contribution margin, each frame requires 8 lbs. of titanium to produce
Set of Golf Clubs ---- $32/unit contribution margin, each set of clubs requires 4 lbs. of titanium to produce
Fortunately for Adams Company, everything they make can be sold regardless of which product they produce.
Required:
How many of each product should Adams Co. make to maximize Income?
SAM Enterprises
(Relevant Costs)
SCARCE RESOURCES
Sam Enterprises manufactures two products, Cans and Can-ettes. More information regarding these two products can be found below.
| |Cans |Can-ettes |
|Selling price per unit |$10 |$15 |
|Variable expenses per unit | 7 | 9 |
|Contribution margin per unit |$ 3 |$ 6 |
|Contribution-margin ratio |30% |40% |
Additionally, as the owner of Sam Enterprises, you know that you only have 1,000 hours of production capacity available. You can produce three Cans per hour but only one Can-ette per hour.
Required:
Which product should you choose to produce, Cans or Can-ettes? Show all supporting calculations.
Moehrle Manufacturing
(Relevant Costs)
SPECIAL ORDER
Moehrle Manufacturing makes computer monitors which sell for $150 each. Steve, the CEO of Moehrle Manufacturing, has received a special order to produce monitors with a special logo. The special logo would increase the production cost of each monitor by $5.00 over and above the normal costs to manufacture these computer monitors, as detailed below.
Costs to manufacture:
Direct materials $45
Direct labor $30
Variable mfg. overhead $30
Fixed mfg. overhead $22
Total $127
Required:
What is the minimum selling price Steve should accept for this order?
TILLAMOOK CHEESE Co.
(Relevant Costs)
SELL NOW OR PROCESS FURTHER
Tillamook Cheese Co. (TCC) produces not only cheese but also ice cream and butter in its facility in Tillamook, Oregon. Raw milk is the primary direct material used to produce all three products. Currently 40% of the TCC’s production is cheese, 50% is ice cream, and 10% is butter. You were recently hired as an accountant and were asked to determine if it would be more profitable instead to sell any of the raw milk as milk rather than use it to produce cheese, ice cream, or butter.
Which products should be processed further??
Product: Cheese Ice Cream Butter
Sales value at split off (i.e., raw 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 (milk truck) $150,000
Joint costs are allocated by the sales value at split off
Required:
What product or products should Tillamook Cheese Co. continue to produce?
TILLAMOOK CHEESE Co.
Calculations ...
Note: Tillamook Cheese Co. is the name of a real company, but all of the data in this problem are purely fictional.
Andretti Company
(Relevant Costs)
Andretti Company has a single product called a Dak. The company normally produces and sells 60,000 Daks each year at a selling price of $32 per unit. The company's unit costs at this level of activity are given below:
Direct materials $10.00
Direct labor 4.50
Variable overhead 2.30
Fixed overhead 5.00 ($300,000)
Variable selling expenses 1.20
Fixed selling expenses 3.50 ($210,000)
Total cost per unit $26.50
Required:
A number of questions relating to the production and sale of Daks are given below. Each question is independent.
1. Assume that Andretti Company has sufficient capacity to produce 90,000 Daks each year. The company could increase sales by 25 percent above the present 60,000 units each year if it were willing to increase the fixed selling expenses by $80,000. Would the increased fixed expenses be justified?
2. Assume again that Andretti Company has sufficient capacity to produce 90,000 Daks each year. A customer in a foreign market wants to purchase 20,000 Daks. Import duties on the Daks would b $1.70 per unit, and costs for permits and licenses would be $9,000. The only selling costs that would be associated with the order would be $3.20 per unit shipping cost. You have been asked by the president to compute the per unit break-even price on this order.
3. The company has 1,000 Daks on hand that have some irregularities and are therefore considered to be "seconds". Due to the irregularities, it will be impossible to sell these units at the regular price. If the company wishes to sell them through regular distribution channels, what unit cost figure is relevant for setting a minimum selling price?
4. Due to a strike in its supplier's plant, Andretti Company is unable to purchase more material for the production of Daks. The strike is expected to last for two months. Andretti Company has enough material on hand to continue to operate at 30 percent of normal levels for the two-month period. As an alternative, Andretti could close it plant down entirely for the two months. If the plant were closed, fixed overhead costs would continue at 60 percent of their normal level during the two-month period; the fixed selling costs would be reduced by 20 percent while the plant was closed. What would be the dollar advantage or disadvantage of closing the plant for the two month period?
5. An outside manufacturer has offered to produce Daks for Andretti Company and to ship them directly to Andretti's customers If Andretti Company accepts this offer, the facilities that is uses to produce Daks would be idle; however, fixed overhead costs would be reduced by 75 percent from their present level. Since the outside manufacturer would pay for all the costs of shipping, the variable selling costs would be only two-thirds of their present amount. Compute the unit cost figure that is relevant for the comparison against whatever quoted price is received from the outside manufacturer.
Andretti Company
Calculations ...
Andretti Company
Calculations ...
Let’s Take Notes ... JOB-ORDER COSTING
The Cost/Managerial Accounting Problem:
DESIGNATED DOODLE ZONE
Let’s Take Notes ... JOB-ORDER COSTING
What is the Matching Principle?
Be willing to make decisions. That’s the most important quality in a good leader. Don’t fall victim to what I call the “ready-aim-aim-aim-aim syndrome.” You must be willing to fire.
-- T. Boone Pickens, Financier
I owe all of my success in life to having been always a quarter of an hour beforehand.
-- Horatio Nelson (1758-1805), Vice Admiral of the Royal Navy
Let’s Take Notes ... JOB-ORDER COSTING
Two Income Statement Formats:
Absorption Costing Income Statement
Variable Costing Income Statement
DESIGNATED DOODLE ZONE
Let’s Take Notes ... JOB-ORDER COSTING
How Can Unit Costs Be Calculated?
Egg Yolk Yummies
Applying Overhead
Egg Yolk Yummies manufactures hard yellow candies. The company’s production process is largely automated, and the company incurs monthly expenses of $25,000 for depreciation and factory leases. In addition, on January 1st, 1999, Egg Yolk paid $48,000 for fire insurance covering the entire production facility for the months January 1st through December 31st, 1999. Also, Egg Yolk paid $36,000 on December 15th to maintain and refurbish the production machines and facilities.
Required:
When calculating monthly net income, how much manufacturing overhead expense should Egg Yolk Yummies use for each of the months of 1999, January through December?
Jan. Feb. Mar. Apr. May June July Aug. Sept. Oct. Nov. Dec. Total
$384,000
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Let’s Take Notes ... APPLYING OVERHEAD
PDOR =
Applied MOH =
As I think back and look forward, I see how nothing is unambiguous; nothing is without risk. Salvation does not come through simplicities.
-- A. Bartlett Giamatti (1938-1989), Educator and baseball executive
Halo Products Company
(Applying Overhead)
The Halo Products Company uses direct labor hours as the basis for applying overhead to products. Estimated manufacturing overhead costs for 1997 are $200,000, and estimated direct labor hours for the year are 32,000 hours. During 1997, 36,400 actual direct labor hours were worked and the Manufacturing Overhead Control account had a year end balance of $256,200.
Required:
a. Compute the manufacturing overhead rate for 1997.
b. Compute the amount of applied manufacturing overhead for 1997.
c. Compute the amount of underapplied or overapplied overhead for the year.
d. Compute the actual overhead cost per direct labor hour.
Narcissus Needles
(Applying Overhead)
Narcissus Needles allocates overhead on the basis of direct labor hours (DLH). The management of Narcissus has estimated the following costs for the 1997 fiscal year, all related to factory and production processes:
Factory Utilities $10,000
Depreciation on factory equipment 15,000
Supervisors' salaries 30,000
Janitorial supplies 6,000
Factory Insurance 9,000
Management has also estimated that 3,500 direct labor hours will be worked during the year.
Required:
1. What is the predetermined overhead rate (PDOR) that Narcissus should use to apply overhead?
2. If 3,600 direct labor hours were actually worked during the fiscal year, what would be applied overhead?
3. If 3,600 direct labor hours were worked and actual costs incurred were as follows, how much overhead was overapplied or underapplied?
Factory Utilities $10,500
Depreciation on factory equipment 15,000
Supervisors' salaries 30,000
Janitorial supplies 5,200
Factory Insurance 8,500
McKay Mills
(Applying Overhead)
Suppose McKay Mills at the beginning of the year expected to incur $1,335,000 of overhead expenses in 1995. McKay has a policy of allocating overhead on the basis of direct labor hours using a plant-wide rate. McKay has three departments -- Yarn, Fabric and Clothing -- which expect to incur 500, 410 and 735 hours (respectively) of direct labor hours in 1995.
Required: What predetermined overhead rate (PDOR) should McKay Mills use?
McKay Mills departments actually incurred direct labor hours as follows: Yarn (455), Fabric (420) and Clothing (750).
Required: How much overhead should be applied to each department when $1,372,000 of overhead costs were actually incurred?
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BUffalo Broilers
(Applying Overhead)
Buffalo Broilers is the manufacturer of a countertop oven-broiler and estimates overhead costs of $500,000 for 1992. Three possible overhead application bases are being considered by management; they are direct labor hours, direct labor cost, and machine hours. Estimated 1992 activity levels for each of the potential application bases are given below:
Direct labor hours 100,000 hours
Direct labor cost $800,000
Machine hours 80,000 hours
The broiler requires two direct labor hours, $18.00 of direct labor cost, and 1.2 hours of machine time. The balance in the manufacturing overhead account was $576,000 on December 31, 1992. During 1992, 120,000 direct labor hours were worked at a cost of $930,000, and 90,000 machine hours were used. There were 60,000 oven-broilers manufactured in 1992.
Required:
1. Compute the 1992 manufacturing overhead rate using each of the three potential application bases.
2. Compute the underapplied or overapplied overhead that would have occurred in 1992 using each of the application bases.
3. Assume direct labor hours was used as the application base. Compute the unit cost of overhead using actual overhead cost and actual activity for the year.
BUffalo Broilers
Calculations ...
howdy Company
(Applying Overhead)
Morris Company manufactures products to customer specifications and employs a job-order costing system. Predetermined overhead rates are used to apply manufacturing overhead cost to jobs. The predetermined overhead rate in department A is based on machine hours, and the rate in department B is based on direct labor cost. At the beginning of 1995, the company's management made the following estimates:
| |Department |
| |A |B |
|Direct labor-hours |12,000 |60,000 |
|Machine-hours |70,000 |8,000 |
|Direct materials cost |$510,000 |$650,000 |
|Direct labor cost |$130,000 |$420,000 |
|Manufacturing overhead cost |$602,000 |$735,000 |
Job 205 was initiated into production on August 1 and completed on August 10. The company's cost records show the following information on the job:
| |Department |
| |A |B |
|Direct labor-hours |30 |85 |
|Machine-hours |110 |20 |
|Direct materials cost |$470 |$332 |
|Direct labor cost |$290 |$680 |
Required:
1. Compute the predetermined overhead rate that should be used during the year in department A. Compute the rate that should be used in department B.
2. Compute the total overhead cost applied to job 205.
3. What would be the total cost of job 205? If the job contains 50 units, what would be the cost per unit?
4. At the end of 1995, the records of Morris Company revealed the following actual cost and operating data for all jobs worked on during the year. What was the amount of under- or overapplied overhead in each department at the end of 1995?
| |Department |
| |A |B |
|Direct labor-hours |10,000 |62,000 |
|Machine-hours |65,000 |9,000 |
|Direct materials cost |$430,000 |$680,000 |
|Direct labor cost |$108,000 |$436,000 |
|Manufacturing overhead cost |$570,000 |$750,000 |
howdy Company
Calculations ...
Let’s Take Notes ... [EVEN MORE] JOB-ORDER COSTING
|** NOTE TO “SELF”! ** |
| |
|See this problem ____________________________ |
| |
|On page _________ of the Handy Handouts |
| |
|For an example of cost flows with applied MOH. |
Knowledge is food for the soul.
-- Plato (c. 427-347 B.C.), Philosopher
Saddle your dreams afore you ride ‘em.
-- Mary Webb (1881-1927), Novelist
Plentiful Printing, Inc.
(Job-Order Costing)
You are asked to bring the following incomplete accounts of one of Plentiful Printing's printing plants up to date through January 31, 1992. Also consider the data that appears below.
Materials (12/31/91 Balance) $15,000
Factory Department Overhead (total January charges) $57,000
Finished Goods (12/31/91 Balance) $20,000
Additional Information:
1. The overhead is applied using a budgeted rate that is set every December by forecasting the following year's overhead and relating it to forecast direct labor costs. The budget for 1992 called for $400,000 of direct labor and $600,000 of factory overhead.
2. The only job unfinished on January 31, 1992, was No. 419, on which total production costs were $13,000 (direct labor cost of $2,000 --125 direct labor hours--, direct materials cost of $8,000, and manufacturing overhead costs of $3,000).
3. Total materials placed into production during January were $90,000.
4. Cost of goods manufactured during January was $180,000.
5. Materials inventory as of January 31 was $20,000.
6. Finished goods inventory as of January 31 was $15,000.
7. All factory workers earn the same rate of pay. Direct labor hours for January totaled 2,500.
8. Sales during January of $285,000 were made.
9. Selling costs of $57,000 and administrative costs of $12,000 were incurred during January.
Required:
a. Materials purchased during January
b. Cost of Goods Sold during January
c. Direct labor costs incurred during January
d. Overhead applied during January
e. Balance, Work in Process, December 31, 1991
f. Balance, Work in Process, January 31, 1992
g. Overapplied or underapplied overhead for January
h. Net income for January
Plentiful Printing, Inc.
Calculations ...
Roley Poley Company
(Job-Order Costing)
Below are data for Roley Poley Company as of year-end, December 31, 2002.
Sales salaries ……… $ 85,000
Advertising ……… 44,000
Direct materials inventory ……… 126,100
Direct materials used ……… 325,000
Work in process ……… 73,900
Indirect labor ……… 22,700
Depreciation, factory ……… 31,000
Property taxes (70 percent production plant) 18,000
Fire insurance (80 percent production plant) 9,800
Sales commissions ……… 28,500
Administrative salaries ……… 167,200
Finished goods ……… 77,300
Direct labor ……… 293,480
Indirect material ……… 11,600
Direct materials purchased ……… 319,700
Utilities (80 percent factory) ……… 45,000
Rent, office equipment ……… 8,700
Depreciation, office ……… 17,400
Depreciation, factory equipment ……… 44,000
Sales ……… 1,281,700
Miscellaneous office expense ……… 4,300
Sales returns and allowances ……… 36,100
All accounts have normal balances. Beginning work in process was $49,000 and beginning finished goods was $87,300. Roley Poley pays income taxes at a rate of 40% of pretax income.
Roley Poley’s 2002 budget called for production of 800 unicycles. On average it takes 26 hours of direct labor per unicycle at a wage rate of $11 per hour. The manufacturing overhead rate is $6.00 per direct labor hour. During 2002, 920 unicycles were produced. Actual direct labor hours averaged 3 per unit more than expected.
Required:
a. Calculate the beginning balance of direct materials inventory
b. Calculate the total prime cost for 2002.
c. Calculate the underapplied or overapplied overhead for the year.
d. Calculate the cost of goods manufactured.
e. Calculate the average unit cost of unicycles completed during 2002.
f. Calculate the cost of goods sold, and net income before and after taxes.
Roley Poley Company
Calculations ...
The Swizzle Manufacturing Company
(Job-Order Costing)
The Swizzle Manufacturing Company is a manufacturer of custom-made equipment and relies heavily on direct labor in the completion of its jobs. The company uses a job-order costing system and applies manufacturing overhead cost to jobs on the basis of direct labor hours. At the beginning of 1994, the following estimates were made as a basis for computing a predetermined overhead rate for the year:
Manufacturing overhead cost .......... $360,000
Direct labor hours .......................... 20,000 hours
The following transactions took place during the year (all purchases and services were acquired on account):
1. Raw materials were purchased for use in production, $200,000
2. Raw materials were requisitioned for use in production (all direct materials), $185,000
3. Utility bills were incurred, $70,000 (90% related to factory operations, and the remainder related to selling and administrative activities)
4. Salary and wage costs were incurred:
Direct labor (21,400 hours) ...................... $230,000
Indirect labor .......................................... 90,000
Selling and administrative salaries ............ 110,000
5. Maintenance costs were incurred in the factory, $54,000
6. Advertising costs were incurred, $136,000
7. Depreciation was recorded for the year, $95,000 (80% related to factory equipment, and the remainder related to selling and administrative equipment)
8. Rental cost incurred on buildings, $120,000 (85% related to factory operations, and the remainder related to selling and administrative facilities)
9. Manufacturing overhead cost was applied to jobs, $ __?___
10. Sales for the year (all on account) totaled $1,200,000. These goods cost $780,000 to manufacture.
The balances in the inventory accounts at the beginning of the year were:
Raw Material $10,000
Work in Process 15,000
Finished Goods 30,000
Work in Process at December 31, 1994, totaled $22,000
Required:
Prepare a schedule of cost of goods manufactured, a schedule of cost of goods sold, and a statement of net income (in good form) for the year ended December 31, 1994.
Helpful Hint:
First prepare the calculations using t-accounts, then prepare the required schedules using the information from the t-accounts. Please turn in all your work (t-accounts and statements).
The Swizzle Manufacturing Company
Calculations ...
The Swizzle Manufacturing Company
Schedule of Cost of Goods Manufactured
For the Year Ended December 31, 1994
Direct materials:
Direct materials inventory, 1-1-1994 $
Add: Purchases of direct materials ____________
Total materials available $
Deduct: Direct materials inventory, 12-31-1994 (___________)
Direct materials used in production $
Direct labor $
Manufacturing overhead
( $
(
(
(
(
( ____________
Actual overhead costs $
Add / (Deduct): Over (Under) applied overhead ____________
Manufacturing overhead applied to Work In Process $___________
Total manufacturing costs incurred $
Add: Beginning work in process inventory ____________
Total manufacturing costs to account for $
Deduct: Ending work in process inventory (___________)
Cost of Goods Manufactured $ .
The Swizzle Manufacturing Company
Schedule of Cost of Goods Sold
For the Year Ended December 31, 1994
Finished goods inventory, 1-1-1994 $
Add: Cost of goods manufactured ___________
Goods available for sale $
Less: Finished goods inventory, 12-31-1994 (___________)
Cost of goods sold $
Add / (Deduct): Under (Over) applied overhead ____________
Adjusted cost of goods sold $ .
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:
( $
(
(
(
(
( ____________ (___________)
Net Income $ .
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Let’s Take Notes ... ACTIVITY-BASED COSTING
How can unit costs be calculated? (Some review, some new.)
Let’s Take Notes ... ACTIVITY-BASED COSTING
How might PERRY MASON define ABC?
DESIGNATED DOODLE ZONE
Let’s Take Notes ... ACTIVITY-BASED COSTING
Two ways ABC differs from Job-Order Costing:
(
(
It is what you are inside that matters. You, yourself, are your only real capital.
-- Vladimir Zworykin (1889-1982), Physicist
It often takes more courage to change one’s opinion than to stick to it.
-- Georg Christoph Lichtenberg (1742-1799), Physicist and philosopher
Let’s Take Notes ... ACTIVITY-BASED COSTING
ABC Steps:
(
(
(
(
It is easy to learn something about everything,
but difficult to learn everything about something.
-- Nathaniel Emmons (1745-1840), Clergyman
|** NOTE TO “SELF”! ** |
| |
|See problem: |
| |
|____________________________ |
| |
|On page _________ |
|of the Handy Handouts |
| |
|For an example of ABC. |
ARE YOU EVERYTHING YOU COULD BE?
People the world over came to the museum to walk across Marble Floor and gaze adoringly at Marble Statue. Soon Marble Floor began to resent being treated like a doormat and said as much to Marble Statue.
“It’s not fair!” Floor complained. “We started at the same place, but you’re revered while I’m ignored.”
“My friend,” Statue replied. “You have a short memory. We originated in the same cave, but don’t you remember what happened after that?”
“No,” Floor pouted.
“Let me remind you. When the designer cut us from the cave, you resisted his tools and efforts to shape you.”
“Of course I did!” Floor shouted. “It hurt! I didn’t need to be shaped.”
“When you fought being shaped, he worked on me,” Statue said. “I was willing to endure the hardship because it takes work to reach toward your potential.”
“I never thought of it that way,” Floor said.
“You gave up halfway,” said Statue. “So don’t blame the people who step on you now.”
-- Adapted from The Motivational Manager, Lawrence Ragan Communications
Audio Basics Corporation
(Activity-Based Costing)
Audio Basics Corporation manufactures two types of video cassettes: standard and high-grade. The standard cassettes are primarily for home use. The high-grade version is used for television commercials.
Management believes the accounting system may not be accurately allocating costs to products, particularly since sales of the high-grade video tapes have been increasing. Management asked you to investigate the cost allocation problem. You find that manufacturing overhead is currently assigned to products based on the direct labor costs in the products. For your investigation, you have data from last year. Last year's manufacturing overhead was $880,000 based on production of 320,000 standard cassettes and 100,000 high-grade cassettes. Direct labor and direct materials costs were as follows:
Standard High-Grade Total
Direct labor $348,000 $132,000 $480,000
Direct materials $250,000 $228,000 $478,000
Management determined that overhead costs are caused by three cost drivers. The cost drivers and their costs for last year were as follows:
| | | |Activity Level | |
|Cost Pool |Costs Assigned |Cost Driver |Standard |High-Grade |Total |
|Production Run Setup |$400,000 |Number of production runs |40 |10 |50 |
|Quality Testing |$360,000 |Quality tests performed |180 |120 |300 |
|Packing Activities |$120,000 |Shipping orders processed |100 |50 |150 |
| Total overhead |$880,000 | | | | |
Required:
1. (a) How much of the overhead will be assigned to each product if the above three cost drivers are used to allocate overhead?
(b) What is the total cost per unit produced for each product?
2. (a) How much of the overhead will be assigned to each product if direct labor cost had been used to allocate overhead?
b) What would the total cost per unit produced be for each product?
Audio Basics Corporation
Calculations ...
J.B. Goode Company
(Activity-Based Costing)
J.B. Goode Company produces two models of guitars. One is a standard acoustic guitar model that sells for $600 and is constructed from medium-grade materials. The other model is a custom-made acoustic-electric guitar with pearl inlays and a body constructed from special woods. The custom guitar sells for $1,000. Both guitars require 10 hours of direct labor to produce, but the custom guitar is manufactured by more experienced workers who are paid at a higher rate.
Most of J.B. Goode’s sales come from the standard guitar, but sales of the custom model have been growing. Here is the company’s sales, production, and cost information for last year.
Standard Custom
Guitar Guitar
Sales and production volume in units 900 100
Unit costs:
Direct materials $ 150 $ 375
Direct labor 180 240
Manufacturing overhead 135 135
Total unit costs $465 $750
Manufacturing Standard Custom
Overhead Cost Amount Cost Driver Guitar Guitar
Building rent $40,000 Square footage 3,000 1,000
Maintenance 15,000 Direct labor hours 9,000 1,000
Purchasing 22,000 Number of purchase orders 1,500 500
Inspection 12,000 Number of inspections 400 600
Indirect materials 15,000 Number of units 900 100
Supervision 28,000 Number of inspections 400 600
Supplies 3,000 Number of units 900 100
Total Overhead $135,000
The company allocates overhead costs using the traditional method with an activity base of direct labor hours. Normal production in the facility utilizes 10,000 direct labor hours.
Chuck B., president of J.B. Goode, is concerned that the traditional cost-allocation system the company is using may not be generating accurate information and that the selling prices of the guitar may not be covering its true cost.
Required:
1. Using the traditional method, how much overhead is allocated to the standard guitars, and how much to the custom guitars? Discuss why this might not be an accurate way to assign overhead costs to products.
2. J.B. Goode’s controller developed the cost driver and activity data presented above. Use activity-based costing to assign the total cost of overhead to each model of guitar.
3. Calculate the cost of one custom guitar using activity-based costing. Why is the cost different from the cost calculated using the traditional allocation method? At the current selling price, is the company covering its true cost of production? Explain your answers.
J.B. Goode Company
Calculations ...
The Cutters, inc. (A)
(Activity-Based Costing)
Chase Gardner is an expatriate product manager for The Cutters, Inc., a manufacturer of hunting blades and knives. Its production facilities are located in Argentina. In recent years profits have begun to decline and Chase is trying to improve the situation by focusing the company’s sales efforts on the most profitable products. Chase’s reports generally indicate that complex, low volume products (such as The Hunter) are much more profitable than simple, high volume products (such as The Carver).
The Cutters currently uses a job-order costing and allocates manufacturing overhead to product lines using direct labor hours. 780,000,000 Pesos (Argentine) of manufacturing overhead costs were incurred during 2003, and 10,000 direct labor hours occurred producing all of the company’s many product lines.
Additional information about The Hunter and The Carver product lines is provided below.
| |The Hunter |The Carver |
|Sales |19,500,000 Pesos |53,000,000 Pesos |
|Cost: | | |
| Direct material cost |4,500,000 Pesos |10,000,000 Pesos |
| Direct labor cost | 1,200,000 Pesos | 6,000,000 Pesos |
| | | |
|Units produced |15,000 |100,000 |
|Total direct labor hours worked |80 |400 |
Required:
Using job-order costing, apply overhead to The Hunter and The Carver and calculate the gross profit of these two product lines.
The Cutters, inc. (A)
Calculations ...
The Cutters, inc. (B)
(Activity-Based Costing)
Sales and direct costs remain as described in The Cutters, Inc. (A). However, rather than allocating indirect manufacturing costs to product lines using a single rate, Chase is considering the use of more sophisticated costing methods. With activity-based costing in mind, he has collected the following information.
|COST DRIVER |OVERHEAD COST POOL |OVERHEAD COST |
|Number of parts |POOL 1 | |
| |Materials purchasing and handling cost |75,000,000 Pesos |
|Number of production runs |POOL 2 | |
| |Production engineering and design |60,000,000 Pesos |
| |Production machine setup |40,000,000 Pesos |
|Number of machine hours |POOL 3 | |
| |Production machine depreciation |300,000,000 Pesos |
| |Production machine maintenance |50,000,000 Pesos |
|Number of components tested |POOL 4 | |
| |Quality testing |100,000,000 Pesos |
|Direct labor hours |POOL 5 | |
| |Plant security |25,000,000 Pesos |
| |Plant supervision |70,000,000 Pesos |
| |Building maintenance |10,000,000 Pesos |
| |Factory supplies |20,000,000 Pesos |
| |Factory insurance | 30,000,000 Pesos |
| |Total Manufacturing Overhead |780,000,000 Pesos |
The Cutters, Inc., experienced the following levels of activity:
|Number of parts |750,000 |
|Number of production runs |25 |
|Number of machine hours |2,000 |
|Number of components tested |25,000 |
|Number of direct labor hours |10,000 |
Additional information regarding the The Hunter and The Carver can be found below.
| |The Hunter |The Carver |
|Number of units produced |15,000 |100,000 |
|Number of parts per unit |3 |1 |
|Number of production runs |1 |1 |
|Number of machine hours |16 |48 |
|Number of components tested |1,000 |100 |
|Number of direct labor hours |80 |400 |
Required:
Using activity-based costing, apply overhead to The Hunter and The Carver and calculate the gross profit of these two product lines.
The Cutters, inc. (B)
Calculations ...
The Cutters, inc. (B)
Calculations ...
Let’s Take Notes ... THE ABC PRESENTATION
DESIGNATED DOODLE ZONE
Let’s Take Notes ... THE ABC PRESENTATION
DESIGNATED DOODLE ZONE
Let’s Take Notes ... THE ABC PRESENTATION
DESIGNATED DOODLE ZONE
Let’s Take Notes ... THE ABC PRESENTATION
DESIGNATED DOODLE ZONE
Let’s Take Notes ... THE ABC PRESENTATION
DESIGNATED DOODLE ZONE
Let’s Take Notes ... THE ABC PRESENTATION
DESIGNATED DOODLE ZONE
Let’s Take Notes ... THE ABC PRESENTATION
DESIGNATED DOODLE ZONE
Let’s Take Notes ... THE ABC PRESENTATION
REVIEW / SELF-QUIZ (Job-Order Costing and ABC)
Do you know the answers to these questions??
• Job-order costing is used for what type(s) of products?
• How is cost-per-unit calculated in job-order costing?
• Both ABC and job-order costing are trying to answer the same question: what is it?
• How does one calculate PDOR?
• How does one calculate Applied MOH?
• Where does Applied MOH go in the t-accounts?
• Where does Over- or Under-Applied MOH go in the t-accounts?
• Where do period costs go in the t-accounts?
• How might Perry Mason define ABC?
• How is ABC different than job-order costing?
• What steps are performed when calculating activity-based costs?
• Can you draw the ABC Cross?
• Can you draw the Profitability Profile? (Gary describes this as the “fishing pole diagram.)
• What else to you remember from the ABC Presentation? For instance, would all companies benefit from ABC?
Note:
We have covered this material over several days of classes.
Let’s Take Notes ... PROCESS COSTING
We are still answering what question?
Process costing is used for what types of products?
When a company uses process costing, costs are accumulated by … _____________________
DESIGNATED DOODLE ZONE
Let’s Take Notes ... PROCESS COSTING
How can unit costs be calculated? (Some review material, some new.)
DESIGNATED DOODLE ZONE
Let’s Take Notes ... PROCESS COSTING
Parallel and Sequential Processing
When you get to the end of your rope, tie a knot and hang on.
-- Franklin D. Roosevelt (1882-1945). 32nd U.S. President
Let’s Take Notes ... PROCESS COSTING
What is an EQUIVALENT UNIT? (“EU,” for short)
DESIGNATED DOODLE ZONE
Let’s Take Notes ... PROCESS COSTING
Process Costing Steps:
(
(
(
|** NOTE TO “SELF”! ** |
| |
|See problem: ____________________________ |
| |
|On page _________ |
|of the Handy Handouts |
| |
|For an example of process costing, |
|including EU calculations. |
Let’s Take Notes ... PROCESS COSTING
REVIEW / SELF-QUIZ
Do you know the answers to these questions??
• Job-order costing, ABC and process costing are trying to answer the same question: what is it?
• On what types of products would you generally use Process Costing?
• What is an EU?
• How do you calculate EU using the weighted-average method?
• In what t-account do you calculate EU?
• What is sequential processing?
• What is parallel processing?
• What steps are performed when calculating process costs?
Good has two meanings: It means that which is good absolutely and that which is good for somebody.
-- Aristotle (384-322 B.C), Philosopher
B. G. Wip Company
(Process Costing)
B. G. Wip Company manufactures and sells buggy whips as novelty items. A continuous flow production operation is necessary to satisfy demand. The company is relatively new and the accountant hired last month worked only for a job order manufacturing company before this position. The accountant is familiar with what costs to accumulate as product costs, but is having difficulty determining the amount of output for the month so that unit costs can be computed. Below are some notes the accountant has gathered to help determine the output for the last process center in the manufacturing process.
2,000 units were in beginning inventory.
9,000 units were transferred in from the preceding process center during the month.
7,700 units were completed and transferred to finished goods inventory during the month.
Both the beginning and ending work in process inventory had all material added. Conversion was 60 percent complete on the beginning work in process inventory but only 1/3 complete on the ending inventory.
Required:
Prepare a schedule for the new accountant showing the amount of production for the period in the department. Use both the weighted average and FIFO methods.
Cutting Edge Skis
(Process Costing)
The following is data for the November, 1997, operations of the shaping and milling department of Cutting Edge Skis.
Work in process inventory, beginning:
Units in process 200
Percent complete with respect to materials 50%
Percent complete with respect to conversion 30%
Costs in the beginning inventory:
Materials $3,000
Conversion 1,000
Total $4,000
Units started into production during November 5,000
Units completed and transferred out 4,800
Costs added to production during November
Materials $74,000
Conversion 70,000
Total $144,000
Work in process inventory, ending:
Units in process 400
Percent complete with respect to materials 40%
Percent complete with respect to conversion 25%
Required:
Calculate the value of goods transferred-out and ending inventory using both the weighted average and FIFO methods.
Cutting Edge Skis
Calculations ...
Steinmueller Steins, Inc.
(Process Costing)
The following information is available for the Molding Department of Steinmueller Steins for the month of July:
Units Costs
Work in process, July 1
(70% complete for conversion costs) 5,000
Direct materials $ 6,000
Direct labor 3,000
Manufacturing overhead 4,000
Total work in process, July 1 $13,000
Started in production during July 20,000
Costs added:
Direct materials $18,000
Direct labor 8,000
Manufacturing overhead 10,000
Total costs added during July $36,000
Work in process, July 31
(80% complete for conversion costs) 2,000
Materials are added at the beginning of the process. Round unit costs to 2 decimal places.
Required:
1. What would be the equivalent units of production for materials using the weighted average method?
2. What would be the equivalent units of production for conversion costs using the weighted average method?
3. What would be the cost per equivalent unit of production for materials using the weighted average method?
4. What would be the cost per equivalent unit of production for conversion costs using the weighted average method?
5. What would be the cost of goods transferred out using the weighted average method?
6. What would be the cost of ending work in process using the weighted average method?
7. What would be the equivalent units of production for materials using the FIFO method?
8. What would be the equivalent units of production for conversion costs using the FIFO method?
Steinmueller Steins, Inc.
Calculations ...
Abiqua Acres
(Process Costing)
The following information is available for the Pasteurization Department of the Abiqua Acres dairy farm for the year 1996:
Units Costs
Work in process, January 1
(100% complete as to direct materials,
40% complete for conversion costs) 5,000
Direct materials $20,000
Conversion costs 16,000
Total work in process, January 1 $36,000
Started in production during the year 60,000
Costs added:
Direct materials $250,000
Conversion costs 450,000
Total costs added during 1996 $700,000
Work in process, December 31
(100% complete as to direct materials,
50% complete as to conversion costs)
Units transferred out during the year 57,000
Materials are added at the beginning of the process. Round unit costs to 4 decimal places.
Required:
1. What would be the equivalent units of production for materials using the weighted average method?
2. What would be the equivalent units of production for conversion costs using the weighted average method?
3. What would be the cost per equivalent unit of production for materials using the weighted average method?
4. What would be the cost per equivalent unit of production for conversion costs using the weighted average method?
5. What would be the cost of goods transferred out using the weighted average method?
6. What would be the cost of ending work in process using the weighted average method?
7. What would be the equivalent units of production for materials using the FIFO method?
8. What would be the equivalent units of production for conversion costs using the FIFO method?
Abiqua Acres
Calculations ...
Candlelight Candles Co.
(Process Costing)
The following is data for the August 2001 operations of the production department of Candlelight Candles.
Beginning inventory:
Units in process 25,000
Percent complete with respect to materials 100%
Percent complete with respect to conversion 40%
Costs in the beginning inventory:
Materials $42,650
Conversion 17,152
Total $59,802
Units started into production during August 510,000
Units completed and transferred out 523,000
Costs added to production during November
Materials $433,500
Conversion 339,690
Total $773,190
Work in process inventory, ending:
Units in process 12,000
Percent complete with respect to materials 100%
Percent complete with respect to conversion 80%
Required:
Calculate the value of goods transferred-out and ending inventory using both the weighted average and FIFO methods.
Candlelight candles Co.
Calculations ...
DESIGNATED DOODLE ZONE
What we hope ever to do with ease, we must first learn to do with diligence.
-- Samuel Johnson (1709-1784), Lexicographer and writer
Failure is the condiment that gives success its flavor.
-- Truman Capote (1924-1984), Writer
Let’s Take Notes ... BUDGETING
THE FIRM
Let’s Take Notes ... BUDGETING
What is a “BUDGET”?
Budgets are used for TWO major purposes:
(
(
Let’s Take Notes ... BUDGETING
Budgets are generally prepared in this order:
(
(
(
(
The Master Budget =
Let’s Take Notes ... BUDGETING
Punctuality is the politeness of kings.
-- Louis XVIII (1755-1824) King of France
Let’s Take Notes ... BUDGETING
REVIEW / SELF-QUIZ
Do you know the answers to these questions??
• What is a budget?
• Budgets are used for what two major purposes in organizations?
• In what order are the budgets prepared?
• What do the words “pro-forma” mean?
• What is the master budget?
[N]o legacy is so rich as honesty.
-- William Shakespeare, All’s Well That Ends Well
Character is long-standing habit.
-- Plutarch (c. 46-120 A.D.), Biographer
Grant me the courage not to give up even though I think it is hopeless.
-- Chester W. Nimitz (1885-1966), U.S. Navy Admiral
Womack Company
(Budgeting)
Womack Company plans to sell 4,600 units in October and 5,000 units in November of 1997. The beginning inventory of finished goods on October 1 is expected to be 650 units. Womack has a policy of wanting to have 10% of next month's sales as ending inventory.
Required: How much production should Womack schedule for the month of October?
Paradise Company
(Budgeting)
Paradise Company forcasted the following information about its inventories for the fiscal year ending June 30, 1995.
7/1/94 6/30/95
Raw Material 40,000 lbs. 50,000 lbs.
Work In Process 10,000 lbs. 10,000 lbs.
Finished Goods 80,000 lbs. 50,000 lbs.
During the manufacturing process, 2 lbs. of raw material is used to produce one finished unit of product.
Required:
If 500,000 units are expected to be manufactured during the fiscal year, how much raw material should Paradise Company plan on purchasing?
Whiskers Products, Inc.
(Budgeting)
Whiskers Products expects the following sales to occur during 1996:
Sales Volume Sales Revenue
February 110,000 $55,000
March 120,000 $60,000
April 100,000 $50,000
May 120,000 $60,000
June 110,000 $55,000
Whiskers Products makes all sales on account. Fifty percent of the sales is collected in the month of the sale, thirty percent is collected in the following month, and the remaining twenty percent is collected two months after the sale.
Required: Calculate the second quarter cash budget for Whisker Products, Inc.
Kaitlyn Korporation
(Budgeting)
The cash balance of Kaitlyn Korp. at the beginning of the month is $15,000, the balance required in the cash account at the end of the month is $12,000, cash disbursements are $125,000, and cash collections from customers for the month are $90,000.
Required: How much money should Kaitlyn Korp. borrow?
Archer Company
(Budgeting)
Archer Company has budgeted sales of 30,000 units in April, 40,000 units in May, and 60,000 units in June. The company has 6,000 units on hand on April 1.
Required:
If the company requires an ending inventory equal to 20 percent of the following month's sales, what should be Archer Company's production in May?
Refer to the data for Archer Company above. Each unit requires 3 pounds of material X. Some 24,000 pounds of material X were on hand April 1, and the company requires materials on hand at the end of each month equal to 25 percent of the following month's production needs.
Required: For April, the company should purchase how many pounds of material X?
Ward Company
(Budgeting)
Actual sales in Ward Company were: June, $30,000; July, $50,000; and August, $70,000.
Sales in September are expected to be $60,000.
Required Part 1:
If all sales are made on account and 30 percent of a month's sales are collected in the month of sale, 50 percent in the first month after sale, and 15 percent in the second month after sale, then what are cash receipts for September budgeted to be?
Required Part 2:
If twenty percent of sales are cash sales, then the remaining 80 percent of sales are on account. If 30 percent of a month's account sales are collected in the month of sale, 50 percent in the first month after sale, and 15 percent in the second month after sale, then what are cash receipts for September budgeted to be?
Young Products
(Budgeting)
Young Products produces coat racks. The projected sales for the first quarter of the coming year and the beginning and ending inventory data are as follows:
Sales (units) 100,000
Unit price $15
Beginning inventory (units) 8,000
Targeted ending inventory (units) 12,000
The coat racks are molded and then painted. Each rack requires four pounds of metal, which costs $2.50 per pound. The beginning inventory of raw materials is 4,000 pounds. Young Products wants to have 6,000 pounds of metal in inventory at the end of the quarter. Each rack produced required thirty minutes of direct labor time, which is billed at $9.00 per hour.
Required: For the first quarter prepare a:
1. Sales budget
2. Production budget
3. Direct materials purchases budget
4. Direct labor budget
Young Products
Calculations ...
Sincerity and truth are the basis of every virtue.
-- Confucius (551-479 B.C.), Philosophoer
Logic is a machine of the mind,
and if it is used honestly it ought to bring out an honest conclusion.
-- G. K. Chesterton (1874-1936), Journalist and essayist
Let’s Take Notes ... STANDARD COSTS and FLEXIBLE BUDGETING
DAY #1
What I hope you always remember (BOOK BUYING EXAMPLE):
What two reasons can be used to explain literally any variance?
#1.
#2.
It is not the mountain we conquer but ourselves.
-- Edmund Hillary, Explorer
Let’s Take Notes ... STANDARD COSTS and FLEXIBLE BUDGETING
Static Budget =
Flexible Budget =
Budget =
Standard =
We will learn how to calculate four variances:
(
(
(
(
Let’s Take Notes ... STANDARD COSTS and FLEXIBLE BUDGETING
DAY #2
Normal Cost System: Extended Normal Cost System:
Small opportunities are often the beginning of great enterprises.
-- Demosthenes (384-322), Orator and statesman
Let’s Take Notes ... STANDARD COSTS and FLEXIBLE BUDGETING
IF you wouldn’t write it and sign it, don’t say it.
-- Earl Wilson (1907-1987), Columnist
Living well and beautifully and justly are all one thing.
-- Socrates (c. 470-399 B.C.), Philosopher
REVIEW / SELF-QUIZ
Do you know the answers to these questions??
• What is the difference between a budget and a standard?
• What is a static budget?
• What is a flexible budget?
• What four variances should you be able to calculate?
• When utilizing standard costs, what is another name for the PDOR?
• When utilizing standard costs, how is the “activity” calculated?
• Know Thy Calculations!
Lands End Men’s Suits
(Standard Costs and Flexible Budgeting)
The following information is available:
Std. DM cost per yard = $6.00
DM qty. std. = 2.8 yards of material
.6 yards of waste how the standard was established
.1 yards of rejects
(Std. Qty.) = 3.5 yards per suit
Actual price per yard $5.00
Actual quantity used per suit 4 yards
Yards purchased 10,000
Units produced 2,700
Required:
Calculate all variances.
Pirates, Inc.
(Standard Costs and Flexible Budgeting)
Pirates, Inc. uses a standard cost system. Pirates has established the following standards for the cost of one unit of product.
Std. Qty. Std. Price or Rate
Direct labor 1.25 hours $12.00 per hour
During June, Pirates incurred total factory direct labor wages for June of $327,600. Pirates manufactured 22,000 units of product during June, using 28,000 direct labor hours.
Required:
1. What is the direct labor rate variance for June?
2. What is the direct labor efficiency variance for June?
3. What was the actual direct labor rate for June?
[This page left blank]
Smith Company
(Standard Costs and Flexible Budgeting)
Let’s do this example:
Standards:
DM 10 lbs. at @ $8.25 / lb.
DL 3.5 hrs at @ $9.65 / hour
Actuals:
Units produced 3,200
DM purchased 36,000 @ $8.35 / lb.
DM used 31,800 lbs.
DL 11,520 hours
DL cost $112,896
Required:
1. Compute material price and usage variances
2. Compute labor rate and efficiency variances
Smith Company
Calculations ...
[This page left blank]
True-Blue Corporation
(Standard Costs and Flexible Budgeting)
True-Blue Corporation has the following information available for December, 2003:
VOH Std. Rate $3.85 per DLH
Actual VOH $1,600
Actual DLH 400 hours
Std. Hours Allowed 420 hours
Required:
Calculate all variances.
Strange Fire, P.C.
(Standard Costs and Flexible Budgeting)
Strange Fire, P.C., has the following information available for the first quarter of 2004:
Actual VOH $54,000
Standard OH Applied $56,000
Actual “hours” incurred 2,900 hours
Variable OH Rate $20 per hour
Required:
What is the Standard Quantity?
The Costume Company
(Standard Costs and Flexible Budgeting)
The Costume Company incurred the following during the fiscal year ending January 31, 2002:
Budgeted FOH $800,000
Expected Production 25,000 units
Std. FOH Rate $8 per DLH
Actual Production 25,250 units
Actual FOH $802,000
Actual Hours 102,000
Required:
Calculate all variances.
Benton Company
(Standard Costs and Flexible Budgeting)
Benton Co. provides the following information from their cost system. Benton records standard overhead based on direct labor hours.
Actual units completed 310
Actual labor cost (@ $6.90) $20,769
Budgeted total overhead $45,900
Actual variable overhead $25,150
Actual fixed overhead $23,800
Standard specification per unit of finished product:
Direct labor (9 hrs./unit) $63.00
Variable overhead $72.00
Fixed overhead $81.00
Required:
Calculate the standard hours, manufacturing overhead rate, and the variances.
Benton Company
Calculations ...
Beale Street Blues, Inc.
(Standard Costs and Flexible Budgeting)
At the beginning of 1987, Beale Street Blues, Inc., adopted the following standards:
Total Input
Direct materials 3 lbs. @ $2.50 per lb. $ 7.50
Direct labor 5 hrs. @ $7.50 per hr. $37.50
Factory overhead:
Variable $3.00 per direct labor hour $15.00
Fixed $4.00 per direct labor hour $20.00
Standard cost
per unit $80.00
Normal volume per month is 40,000 standard labor hours. Beale’s January 1987 budget was based on normal volume. During January Beale produced 7,800 units, with records indicating the following:
Direct materials purchased 25,000 lbs. @ $2.60
Direct materials used 23,100 lbs.
Direct labor 40,100 hrs. @ $7.30
Factory overhead $300,000
Variable overhead $130,000
Required:
For the month of January 1987, compute the following variances, indicating whether each is favorable or unfavorable:
1. Direct materials price variance, based on purchases.
2. Direct materials usage variance.
3. Direct labor rate variance.
4. Direct labor efficiency variance.
5. Variable factory overhead efficiency variance.
6. Fixed factory overhead spending variance.
7. Factory overhead volume variance.
Beale Street Blues, Inc.
Calculations ...
Ballycanally Corporation
(Standard Costs and Flexible Budgeting)
The following information is available for Ballycanally's operations for the latest calendar year. Treat each variance calculation independently.
Materials Variances
AX-89: Standard Actual
Material Price $1.75 $1.80
Sheets Requisitioned 13,000 13,250
Sheets Purchased 14,000
Units Produced 6,500 6,300
Labor Variances
Deluxe Model: Standard Actual
Labor Hours 4,100
Labor Costs $36,000 $37,105
Units Produced 2,000
Standard Hours Per Unit 2
Variable Overhead Variances
Supplies Expense: Standard Actual
Cost Per Labor Hour $1.20 $1.22
Labor Hours 27,750
Standard Allowable Hours 28,000
Fixed Overhead Variances
Standard Units Allowed 60,000
Volume Variance $6,000 F
Standard Fixed Cost Rate $2.50 per unit
Total Fixed Cost Variance $5,500 U
Required:
1. Materials variances: Calculate the standard allowable sheets per unit and all variances.
2. Labor variances: Calculate the actual labor rate per hour and all variances.
3. Variable overhead variances: Calculate the actual supplies expense and all variances.
4. Fixed overhead variances: Calculate actual and budgeted fixed overhead and all variances.
Ballycanally Corporation
Calculations ...
Cox Company
(Standard Costs and Flexible Budgeting)
Information on Cox Company's direct materials costs for the month of January 1983 was as follows:
Actual quantity purchased 18,000
Actual unit purchase price $ 3.60
Materials purchase price variance — unfavorable (based on purchases) $ 3,600
Standard quantity allowed for actual production 16,000
Actual quantity used 15,000
Required: What was the direct material usage variance for January 1983?
Kennedy Company
(Standard Costs and Flexible Budgeting)
Information on Kennedy Company's direct material costs is as follows:
Standard unit price $3.60
Actual quantity purchased 1,600
Standard quantity allowed for actual production 1,450
Materials purchase price variance — favorable $ 240
Required: What was the actual purchase price per unit, rounded to the nearest penny?
Rex Company
(Standard Costs and Flexible Budgeting)
Information on Rex Co.'s direct material costs for May 1985 is as follows:
Actual quantity of direct materials purchased and used 30,000 lbs.
Actual cost of direct materials $ 84,000
Unfavorable direct materials usage variances $ 3,000
Standard quantity of direct materials allowed for May production 29,000 lbs.
Required: For the month of May, what was Rex's direct materials price variance?
Barber Company
(Standard Costs and Flexible Budgeting)
Information on Barber Company's direct labor costs for the month of January 1981 is as follows:
Actual direct-labor hours 34,500
Standard direct-labor hours 35,000
Total direct-labor payroll $ 241,500
Direct-labor efficiency variance — favorable $ 3,200
Required: What is Barber's direct labor rate variance?
Tub Company
(Standard Costs and Flexible Budgeting)
Tub Co. uses a standard cost system. The following information pertains to direct labor for Product B for the month of October:
Actual rate paid $ 8.40 per hour
Standard rate $ 8.00 per hour
Standard hours allowed for actual production 2,000 hours
Labor efficiency variance $ 1,600 unfavorable
Required: What were the actual hours worked?
Thorp Company
(Standard Costs and Flexible Budgeting)
For the month of April, Thorp Co.'s records disclosed the following data relating to direct labor:
Actual costs $10,000
Rate variance 1,000 favorable
Efficiency variance 1,500 unfavorable
Standard cost $ 9,500
For the month of April, actual direct labor hours amounted to 2,000.
Required: In April, what was Thorp's standard direct labor rate per hour?
Duo Company
(Standard Costs and Flexible Budgeting)
The following processing standards have been set for Duo Co.'s clerical workers:
Number of hours per 1,000 paper processed 150
Number of papers processed per year 1,500,000
Wage rate per 1,000 papers $600
Standard variable cost of processing 1,500,000 papers $900,000
Fixed costs per year $150,000
The following information pertains to the 1,200,000 papers that were processed during 1986:
Total cost $915,000
Labor cost $760,000
Labor hours 190,000
Required:
1. Assuming standard performance, what should be Duo's expected total cost to process the 1,200,000 papers be for 1986?
2. What would be Duo's labor rate variance for 1986?
Herman Company
(Standard Costs and Flexible Budgeting)
The following information relates to a given department of Herman Company for the fourth quarter 1974:
Actual total overhead (fixed plus variable) $178,500
Budget formula $110,000 plus $0.50/hr.
Total overhead application rate $1.50/hr.
Spending variance $8,000 unfavorable
Volume variance $5,000 favorable
The total overhead variance is divided into three variances — spending, efficiency, and volume.
Required:
1. What were the actual hours worked in this department during the quarter?
2. What were the standard hours allowed for good output in this department during the quarter?
Herd Company
(Standard Costs and Flexible Budgeting)
Herd Company reported the following data for 1992:
Actual hours 40,000
Denominator hours 50,000
Standard hours allowed for output 42,000
The predetermined overhead rate was $9.00 per hour, of which $3.00 was variable and $6.00 was fixed.
Required: Given these data, what was the company's volume variance for the year?
Bosna Corporation
(Standard Costs and Flexible Budgeting)
The following information is available for the variable overhead expense of Bosna Corporation:
Estimated 1995 sales $2,000,000
Bad debt 0.5% of sales
Budgeted bad debt ??
Actual 1995 sales $2,450,000
Actual bad debt $12,500
Required: Calculated budgeted bad debt expense and the bad debt variance.
Stiegl Corporation
(Standard Costs and Flexible Budgeting)
The following information is available for the variable overhead expense of Stiegl Corporation:
Budgeted indirect labor per direct labor hour $2 / DLH
Budgeted indirect labor for 1995 $24,000
Total (actual) indirect labor hours for 1995 15,000
Total (actual) indirect labor cost for 1995 $27,500
Required: Calculate the variable overhead spending variance for indirect labor.
Let’s Take Notes ... ABSORPTION COSTING AND VARIABLE COSTING
Absorption Costing Variable Costing
Income Statement Income Statement
DESIGNATED DOODLE ZONE
Let’s Take Notes ... ABSORPTION COSTING AND VARIABLE COSTING
Dr. Fessler’s Handy Notes:
Advantages of Variable Costing Income Statement Format:
1. Dovetails with C-V-P
2. More useful information for pricing decisions
3. Changes in inventory don’t affect NI
4. Managers find it easier to understand
5. Impact of fixed costs on NI emphasized
6. More difficult to “game”
Check out in your textbook some conceptual differences between income calculated using the absorption costing and variable costing formats.
Let’s Take Notes ... ABSORPTION COSTING AND VARIABLE COSTING
When will Net Income be the same for both approaches?
When will Net Income be different??
DESIGNATED DOODLE ZONE
To be good is noble; but to show others how to be good is nobler and no trouble
-- Mark Twain “Following the Equator” Dover
Let’s Take Notes ... ABSORPTION COSTING AND VARIABLE COSTING
A conceptual discussion about “gaming” …
To have ideas is to gather flowers; to think, is to weave them into garlands.
-- Anne-Sophie Swetchine (1782-1857), Writer
Let’s Take Notes ... ABSORPTION COSTING AND VARIABLE COSTING
You have brains in your head. You have feet in your shoes. You can steer yourself any direction you choose.
-- Dr. Seuss Oh, the Places You’ll Go! Random House
REVIEW / SELF-QUIZ
Do you know the answers to these questions??
• How do you calculate NI using absorption and variable costing?
• What are the advantages of variable costing?
• When will Absorption NI = Variable NI?
• When will Absorption NI ( Variable NI? Which will be higher? When?
• Why is Absorption NI easier to “game”?
• Know Thy Calculations!
Holland Company
(Absorption Costing and Variable Costing Income Statements)
Holland company produces a single product.
Number of units produced annually 5,000
Variable costs per unit:
Direct material, direct labor, and
variable manufacturing overhead $5
Selling and administrative expense $1
Fixed costs per year:
Manufacturing overhead $15,000
Selling and administrative expense $21,000
Selling price per unit $15.00
| |Year 1 |Year 2 |Year 3 |
|Units Produced |5,000 |5,000 |5,000 |
|Units Sold |5,000 |4,000 |6,000 |
Required:
1. Calculate the production cost of a single unit of product under the absorption and variable costing methods.
2. Calculate net income for years 1, 2 and 3 with under the absorption and variable costing methods.
3. Reconcile any differences between net income calculated using both methods.
Holland Company
Calculations ...
FAST COMPANY
(Absorption Costing and Variable Costing Income Statements)
Presented below is the operating data of Fast Company in the years 2002, 2003 and 2004.
Variable costs per unit:
Direct materials $4.00
Direct labor 1.50
Variable overhead (estimated and actual) 0.50
Variable selling and administrative 0.25
Estimated fixed overhead was $150,000 each year. Actual fixed overhead was also $150,000. Normal production volume was 150,000 units per year. The sales price each year was $10 per unit. Fixed selling and administrative expenses were $50,000 per year. Other operating data were as follows:
| |2002 |2003 |2004 |
|Beginning inventory |----- |----- |50,000 |
|Production |150,000 |150,000 |150,000 |
|Sales |150,000 |100,000 |200,000 |
|Ending inventory |----- |50,000 |----- |
Required:
Prepare variable-costing and absorption-costing income statements for 2002, 2003 and 2004.
FAST Company
Calculations ...
Belly rub productions
(Absorption Costing and Variable Costing Income Statements)
Below are the Production, sales and cost data for Belly Rub Productions’ only product.
Belly Rub Productions
Calendar Years 2001 through 2004
| |2001 |2002 |2003 |2004 |
|Sales in units |8,000 |9,000 |13,000 |10,000 |
|Production in units |10,000 |12,000 |10,000 |8,000 |
|Direct materials per unit |$ 6 |$ 6 |$ 7 |$ 8 |
|Direct labor per unit |$ 3 |$ 4 |$ 4 |$ 5 |
|Variable MOH per unit |$ 2 |$ 2 |$ 3 |$ 4 |
|Fixed MOH |$50,000 |$60,000 |$70,000 |$80,000 |
|Variable S&A per unit |$ 3 |$ 3 |$ 4 |$ 5 |
|Fixed S&A |$30,000 |$35,000 |$40,000 |$50,000 |
|Sales price per unit |$25 |$27 |$30 |$35 |
|Beg. Inventory in units |0 |2,000 |5,000 |2,000 |
Required:
1. Calculate the production cost of a single unit of product under the absorption and variable costing methods.
2. Calculate net income for 2001, 2002 and 2003 using both the absorption and variable costing methods.
3. Reconcile any differences between net income calculated using both methods.
Belly rub productions
Calculations ...
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Let’s Take Notes ... COST BEHAVIOR
Why do we study the past???
DESIGNATED DOODLE ZONE
Never grow a wishbone…where your backbone ought to be.
-- Clementine Paddleford (1900-1967), Food editor
Let’s Take Notes ... COST BEHAVIOR
Four GRAPHS
If you want to feel proud of yourself, you’ve got to DO things you can be proud of. Feelings follow actions.
-- Oseolo McCarty (1908-1999), Domestic worker and philanthropist
Obstacles cannot crush me, every obstacle yields to stern resolve. He who is fixed to a star does not change his mind.
-- Leonardo Da Vinci (1452-1519), Artist, architect, and engineer
Let’s Take Notes ... COST BEHAVIOR
Four More GRAPHS
Dr. Fessler’s Handy Notes:
1. Committed Fixed Costs = relate to investments in plant and equipment and are difficult to adjust
2. Discretionary Fixed Costs = arise from annual decisions by management
There are two ways to live your life. One is as though nothing is a miracle. The other is as though everything is a miracle.
-- Albert Einstein (1879-1955), Physicist
Let’s Take Notes ... COST BEHAVIOR
Is the trend in manufacturing toward greater fixed costs or greater variable costs?
What Is The “Relevant Range”?
DESIGNATED DOODLE ZONE
I wish I could stand on a busy street corner, hat in hand, and beg people to throw me all their wasted hours.
-- Bernard Berenson (1865-1959), Art critic
Let’s Take Notes ... COST BEHAVIOR
We shall draw yet another graph, and then contemplate what it describes …
Let’s Take Notes ... COST BEHAVIOR
Three Methods of Predicting the Future:
1.
2.
3.
Dr. Fessler’s Handy Notes:
How to calculate a regression using Excel:
1. Choose TOOLS
2. Choose DATA ANALYSIS … REGRESSION
3. Input Y Range [(D.V.) “Effect”]
4. Input X Range [(I.V.) “Cause”]
The truth is that all of us attain the greatest success and happiness possible in this life whenever we use our native capacities to their greatest extent.
-- Smiley Blanton (1882-1966), Speech pathologist
Let’s Take Notes ... COST BEHAVIOR
The HIGH-LOW METHOD
High-Low Steps:
1. m =
2. Solve …
3. Create …
4. Predict …
It is evident that many great and useful objects can be attained in this world only by cooperation.
-- Thomas Babington MacAulay (1800-1859), Statesman and historian
What hunger is in relation to food, zest is in relation to life.
-- Bertrand Russell (1872-1970), Philosopher and mathematician
Let’s Take Notes ... COST BEHAVIOR
A genuine leader is not a searcher for consensus but a molder of consensus.
-- Martin Luther King, Jr. (1929-1968), Civil rights activist
REVIEW / SELF-QUIZ
Do you know the answers to these questions??
• Do you know how to graph FC and VC? Per unit and in total?
• What are the two types of fixed costs?
• Is the trend toward greater FC or VC?
• What is the relevant range?
• Can you graph Mixed Costs?
• What algebraic formula can we use to describe a line on an X-Y plane?
• What three ways can be used to predict the future?
• Know Thy Calculations!
Southern Carpets
(Cost Estimation)
Southern Carpets weaves carpets for houses and offices. Its manufacturing plant is highly automated with state-of-the-art weaving machines. The report below shows monthly (time-series) data for the most recent year. Note that the data are paired. For example, December has indirect manufacturing costs of $275,343 and 2,469 machine hours.
| |Indirect |Cost Driver: |
| |Manufacturing Costs |Machine |
|Month | |Hours |
|January |$341,062 |3,467 |
|February |346,471 |4,426 |
|March |287,328 |3,103 |
|April |262,828 |3,625 |
|May |220,843 |3,081 |
|June |390,700 |4,980 |
|July |337,924 |3,948 |
|August |180,000 |2,180 |
|September |376,246 |4,121 |
|October |295,041 |4,762 |
|November |215,121 |3,402 |
|December |275,343 |2,469 |
Required:
1. Use the above information and the high-low method to estimate the cost function of Southern Carpets.
2. If for the following month it is estimated that 3,500 machine hours will be used, what are the total indirect manufacturing costs associated with this estimate?
Chain Saw Company
(Cost Estimation)
The following information is from the quality-testing area of the Chain Saw Company (CSC). After assembly, each chain saw passes through the quality testing area. Each chain saw receives a minimum of 10 minutes testing to examine its ability to cut lumber and to operate under differing conditions. Deluxe brands receive a minimum of 15 minutes testing. Several special customers have requested testing that requires over 30 minutes.
The schedule below presents monthly data for the quality-testing activity area. The costs in the schedule are the direct costs of the activity area: the cost of lumber used in testing and the cost of labor working in this area. Personal computers monitor each test and provide the data. Operating personnel believe that the single most important driver of month-to-month cost levels in the quality-testing activity area is hours of test time.
| | |Hours of Testing Time in |
| |Activity-Area |Activity Area |
|Month |Costs | |
|January |$54,235 |640 |
|February |59,520 |722 |
|March |45,380 |486 |
|April |64,000 |886 |
|May |59,235 |634 |
|June |73,060 |812 |
|July |81,625 |927 |
|August |80,630 |986 |
|September |75,105 |958 |
|October |63,970 |819 |
|November |67,350 |856 |
|December |55,285 |546 |
Required:
1. Estimate the cost function for the quality-testing activity area using the data provided and the high-low method.
2. If 800 hours of activity are estimated for the next month, how much expense should be forecast?
Let’s Take Notes ... COST OF QUALITY
Some terms:
QUALITY =
Grade =
Quality of design =
Quality of conformance =
Let’s Take Notes ... COST OF QUALITY
COST OF QUALITY
– Prevention and Appraisal Costs keep poor quality from occurring …
Prevention Costs
Appraisal Costs
Let’s Take Notes ... COST OF QUALITY
COST OF QUALITY
– Internal and External Failure costs are incurred because poor quality occurred …
Internal Failure Costs
External Failure Costs
Let’s Take Notes ... COST OF QUALITY
Who tells more friends about their experiences,
those who are happy or those who are unhappy?
DESIGNATED DOODLE ZONE
I believe that all of us have the capacity for one adventure inside us, but great adventure is facing responsibility day after day.
-- Charles William Gordon (1960-1937), Clergyman and novelist
Let’s Take Notes ... COST OF QUALITY
Notes on Ford Motor Company’s Cost of Quality Report:
DESIGNATED DOODLE ZONE
Let’s Take Notes ... COST OF QUALITY
More/Other Notes:
DESIGNATED DOODLE ZONE
Let’s Take Notes ... COST OF QUALITY
Let’s Take Notes ... COST OF QUALITY
DESIGNATED DOODLE ZONE
REVIEW / SELF-QUIZ
Do you know the answers to these questions??
• What is “quality”?
• What is a Grade?
• What is Quality of Design? Quality of Conformance?
• What are the four categories in a Cost of Quality report?
• What types of costs are placed in each category?
• What did you learn from Ford’s Cost of Quality report?
Gilroy Foods
(Cost of Quality)
Gilroy Foods (a real company) has implemented a quality cost reporting system. On the following page is listed the cost categories identified and utilized by Gilroy Foods, along with associated fictional dollar amounts. Your task is to properly classify these costs as prevention, appraisal, internal failure or external failure costs, and construct a Quality Cost Report for Gilroy Foods. That is, under each of the four cost of quality report headings list the appropriate cost categories and sum the associated quality costs.
Information about Gilroy Foods:
Gilroy Foods regards all quality costs as “nonvalue added”. Because these costs do not add value to the product or process, the goal of Gilroy Foods is to eliminate them.
Some of the areas measured by Gilroy Foods that represent a nuance from traditional Quality Cost Reporting are:
• Workers’ Compensation. If you have no accidents, you have no cost.
• Worker Safety. This is the cost of preventive programs to influence worker safety.
• Overtime. While this cost is debatable because many will argue passionately that some overtime is appropriate, Gilroy Foods believes the majority can be explained by poor productivity or poor planning, scheduling, or forecasting.
• Excess Waste Water Cost. This cost is a symptom of a suboptimum water conservation program.
• Plant Throughputs. Gilroy Foods records shortfalls as a cost and positives as a credit.
• Capital Project Overruns. For some reason many people in the corporation do not look at a capital dollar the same as a cost of production dollar or an administrative expense. This tendency is influenced by the accounting deferral of capital costs over the depreciable life of the asset. Gilroy Foods considers a capital dollar to have equal value and highlight project overruns on the Quality Cost Report.
Required:
Given the cost of quality report items from the following page, construct a Quality Cost Report for Gilroy Foods.
Gilroy Foods, continued
Quality Cost Report Items for 1993
• Capital Project Overruns $262,540
• Customer Complaints $50,500
• Excess Waste Water Cost $13,230
• Excessive Product Movement $19,740
• Freight on Returned Goods $2,350
• Overtime $16,840
• Purchase Price Premium $6,800
• Quality Assurance Administration $3,220
• Quality Assurance Analytical $4,000
• Quality Assurance Fabens $2,980
• Quality Assurance Geothermal $1,990
• Quality Assurance Inspection $12,680
• Quality Assurance Micro $7,750
• Quality Assurance Sanitation $5,230
• Quality Assurance Tech Services $3,850
• Returns--Lost Sales/Other $172,990
• Rework Costs:
Gilroy Plant $15,220
Gentry Plant $10,110
Fabens Plant $8,550
Umatilla Plant $6,780
Grind Down Costs $10,390
Total Rework Costs $51,050
• Scrap $36,110
• Some Quality Assurance Hold Area Costs $3,580
• Supplier Inspections $41,330
• Throughputs ()=Favorable:
Gilroy Plant $11,800
Gentry Plant ($6,150)
Fabens Plant ($4,660)
Geothermal Plant $1,280
Umatilla Plant $3,550
Total Throughputs $5,820
• Total Quality Process $26,800
• Total Quality Training $20,970
• Union Grievances $2,600
• Worker Safety $4,900
• Workers Compensation:
Gilroy Plant & Field $0
Gentry Plant $15,050
Fabens Plant $7,000
Geothermal Plant $1,160
Umatilla Plant $2,880
Total Workers Compensation $26,090
Total Quality Costs $805,940
Names: ________________________________ ________________________________
________________________________ ________________________________
Gilroy Foods
Calculations...
These pages can be torn out and turned in.
Gilroy Foods
Calculations...
Names: ________________________________ ________________________________
________________________________ ________________________________
Gilroy Foods
Calculations...
These pages can be torn out and turned in.
Gilroy Foods
Calculations...
Let’s Take Notes ... CASH FLOWS
What, again, are the four financial statements?
Statement Phrase at Top General Calculation
1.
2.
3.
4.
Let’s Take Notes ... CASH FLOWS
Types of Cash Inflows and Outflows …
Operating Activities
Investing Activities
Financing Activities
Let’s Take Notes ... CASH FLOWS
We will only be learning the _________________________ method!
Check out your textbook – what percent of companies use this method? ___________________
It’s not what you are, it’s what you don’t become that hurts.
-- Oscar Levant (1906-1972), Musician and actor
Take rest; a field that has rested gives a bountiful crop.
-- Ovid (c. 43 B.C-18 A.D.), Poet
Let’s Take Notes ... CASH FLOWS
What is the effect do these events have upon cash?
Decrease in accounts receivable?
Increase in accounts receivable?
Increase in prepaid expenses?
Decrease in prepaid expenses?
Increase in accounts payable?
Let’s Take Notes ... CASH FLOWS
HOW/WHY can Cash Flow be different than Net Income? Are differences important?
You never find yourself until you face the truth.
-- Pearl Bailey (1918-1990), Entertainer
Let’s Take Notes ... CASH FLOWS
Let’s Take Notes ... CASH FLOWS
REVIEW / SELF-QUIZ
Do you know the answers to these questions??
• What are the four financial statements?
• What three categories of cash flows are used on the Statement of Cash Flows?
• Do most companies use the direct or indirect method for preparing the statement of cash flows?
• What effect does an decrease in A/R have on Cash?
• … an increase in A/R?
• … an increase in prepaid expenses?
• … a decrease in prepaid expenses?
• … an increase in A/P?
• Know thy calculations! Can you prepare a Statement of Cash Flows?
• Are differences between Net Income and Cash Flow important?
Portland Pilots Association
(Cash Flows)
Below is information related to the second year of operations for Portland Pilots Association.
Portland Pilots Association
Comparative Balance Sheets
December 31
| | | |Change |
|Assets |2004 |2003 |Increase/Decrease |
|Cash |$ 67,200 |$40,800 | |
|Accounts receivable |24,000 |36,000 | |
|Prepaid expenses |4,800 |- 0 - | |
|Land |156,000 |- 0 - | |
|Building |192,000 |- 0 - | |
|Accumulated depreciation – building |(13,200) |- 0 - | |
|Equipment |32,400 |12,000 | |
|Accumulated depreciation -- equipment | (3,600) | - 0 - | |
|Total |$ 459,600 |$88,800 | |
| | | | |
|Liabilities and Stockholders’ Equity | | | |
|Accounts payable |$ 70,800 |$ 4,800 | |
|Bonds payable |156,000 |- 0 - | |
|Common stock |60,000 |60,000 | |
|Retained earnings | 172,800 | 24,000 | |
|Total |$459,600 |$88,800 | |
Portland Pilots Association
Income Statement
For the Year Ended December 31, 2004
| | | |
|Revenues | |$608,400 |
|Operating expenses (excluding depreciation) |$313,200 | |
|Depreciation expense |18,000 | |
|Loss on sale of equipment | 3,600 | 334,800 |
|Income from operations | |$273,600 |
|Income tax expense | | 106,800 |
|Net income | |$166,800 |
Additional information:
1. In 2004, the association declared and paid an $18,000 cash dividend.
2. The association obtained land through the issuance of $156,000 of long-term bonds.
3. A building costing $192,000 was purchased for cash. Equipment costing $30,000 was also purchased for cash.
4. During 2004, the association sold equipment with a book valued of $8,400 (cost $9,600, less accumulated depreciation $1,200) for $4,800 cash.
Required:
Prepare a statement of cash flows, using the indirect method.
Portland Pilots ASSociation
Calculations ...
RONDINI MAGIC Company
(Cash Flows)
Below is information related to the operations of Rondini Magic Company.
Rondini Magic Company
Comparative Balance Sheets
December 31
| | | |Change |
|Assets |2004 |2003 |Increase/Decrease |
|Cash |$ 64,800 |$ 44,400 | |
|Accounts receivable |81,600 |31,200 | |
|Inventories |64,800 |- 0 - | |
|Prepaid expenses |4,800 |7,200 | |
|Land |54,000 |84,000 | |
|Building |240,000 |240,000 | |
|Accumulated depreciation – building |(25,200) |(13,200) | |
|Equipment |231,600 |81,600 | |
|Accumulated depreciation – equipment | (33,600) | (12,000) | |
|Total |$ 682,800 |$ 463,200 | |
| | | | |
|Liabilities and Stockholders’ Equity | | | |
|Accounts payable |$ 27,600 |$ 48,000 | |
|Accrued liabilities |12,000 |- 0 - | |
|Bonds payable |132,000 |180,000 | |
|Common stock ($1 par) |264,000 |72,000 | |
|Retained earnings | 247,200 | 163,200 | |
|Total |$ 682,800 |$ 463,200 | |
Rondini Magic Company
Income Statement
For the Year Ended December 31, 2004
| | | |
|Revenues | |$1,068,000 |
|Less: Cost of goods sold | | 558,000 |
|Gross margin | | $ 510,000 |
|Less: Operating expenses | | 265,200 |
|Net operating income | |$ 244,800 |
|Nonoperating items: | | |
| Interest expense |$ (14,400) | |
| Loss on sale of equipment | ( 2,400) | (16,800) |
|Income from operations | |$ 228,000 |
|Income tax expense | | 78,000 |
|Net income | |$ 150,000 |
Additional information:
1. Operating expenses include depreciation expense of $39,600 and charges from prepaid expenses of $2,400.
2. Land was sold at it book value for cash.
3. Cash dividends of $66,000 were declared and paid in 2004.
4. Interest expense of $14,400 was paid in cash.
5. Equipment with a cost of $199,200 was purchased for cash. Equipment with a cost of $49,200 and a book value of $43,200 was sold for $40,800 cash.
6. Bonds of $12,000 were redeemed at their book value for cash. Bonds of $36,000 were converted into common stock.
7. Common stock ($1 par) of $156,000 was issued for cash.
8. Accounts payable pertain to merchandise suppliers.
Rondini Magic Company
Calculations ...
Required:
Prepare a statement of cash flows, using the indirect method.
Rikky-tikky-tavi taffy
(Cash Flows)
Below is information related to the operations of Rikky-Tikky-Tavi Taffy.
Rikky-Tikky-Tavi Taffy
Comparative Balance Sheets
December 31
| | | |
|Assets |2002 |2001 |
|Current Assets: | | |
| Cash |$ 3,600 |$ 26,400 |
| Accounts receivable |144,000 |98,400 |
| Inventory |129,600 |102,000 |
| Prepaid expenses | 6,000 | 9,600 |
|Total current assets | 283,200 | 236,400 |
|Long-term investments | 64,800 | 88,800 |
|Plant and equipment |523,200 |336,000 |
|Less: Accumulated depreciation | 72,000 | 60,000 |
|Net plant and equipment | 451,200 | 276,000 |
|Total assets |$ 799,200 |$ 601,200 |
| | | |
|Liabilities and Stockholders’ Equity | | |
|Current liabilities: | | |
| Accounts payable |$ 86,400 |$ 72,000 |
| Accrued liabilities | 22,800 | 21,600 |
|Total current liabilities |109,200 |93,600 |
|Bonds payable |156,000 |- 0 - |
|Deferred income taxes | 14,400 | 12,000 |
|Stockholders’ equity: | | |
| Preferred stock |98,400 |114,000 |
| Common stock |318,000 |285,600 |
| Retained earnings | 103,200 | 96,000 |
|Total stockholders’ equity | 519,600 | 495,600 |
|Total liabilities and stockholders’ equity |$ 799,200 |$ 601,200 |
Rikky-Tikky-Tavi Taffy
Income Statement
For the Year Ended December 31, 2002
| | | |
|Revenues | |$ 602,400 |
|Less: Cost of goods sold | | 372,000 |
|Gross margin | | $ 230,400 |
|Less: Operating expenses | | 187,200 |
|Net operating income | |$ 43,200 |
|Nonoperating items: | | |
| Interest expense |$ 12,000 | |
| Loss on sale of equipment | 3,600 | 15,600 |
|Income from operations | |$ 58,800 |
|Income tax expense | | 21,600 |
|Net income | |$ 37,200 |
Additional information:
1. Dividends totaling $30,000 were declared and paid in cash.
2. Equipment was sold during the year for $12,000. The equipment had originally cost $30,000 and had accumulated depreciation of $21,600.
3. The decrease in the Preferred Stock account is the result of a conversion of preferred stock into an equal dollar amount of common stock.
4. Long-term investments that had cost $24,000 were sold during the year for $36,000.
Rikky-tikky-tavi taffy
Calculations ...
Required:
Prepare a statement of cash flows, using the indirect method.
THE LOST ART OF HENRY JONES
A critic, an artist, and a scholar were assembled on a panel for an art history presentation at a university. During the question and answer portion of the lecture, a student asked the panel to name the greatest artist who ever lived.
“Michelangelo,” responded the critic.
“Monet,” said the artist.
“Henry Jones,” replied the scholar.
“Henry Jones?” questioned the student. “Who is Henry Jones?”
“Many years ago, he was a janitor at this very institution.”
“How can you compare a janitor to great artists like Monet and Michelangelo?”
“Henry Jones has more talent than either of those men,” said the scholar.
“Then why have we never heard of him?” asked the student.
“Because he never thought he was good enough, so he never cultivated his talents nor shared them with the world,” the scholar sighed. “Henry Jones is lost to us forever, because he never lived up to his potential.”
-- Adapted from American Scandal!, Pat Williams, Destiny Image Publishers
I don’t paint things. I only paint the difference between things.
-- Henri Matisse (1869-1954), Artist
Anyone can hold the helm when the sea is calm.
-- Publilius Syrus (c. 42 B.C.), Writer
Let’s Take Notes ... THE COST OF UNETHICAL BEHAVIOR
DESIGNATED DOODLE ZONE
One man practicing sportsmanship is far better than 50 preaching it.
-- Knute K. Rockne (1888-1931), College football coach
Let’s Take Notes ... THE COST OF UNETHICAL BEHAVIOR
Really great people always see the best in others; it is the little man who looks for the worst
– and finds it.
-- Samuel Coleridge-Taylor (1875-1912), Composer and conductor
Let’s Take Notes ... THE COST OF UNETHICAL BEHAVIOR
DESIGNATED DOODLE ZONE
Never bend your head. Always hold it high. Look the world straight in the face.
-- Hellen Keller (1880-1968), Writer and lecturer
Let’s Take Notes ... THE COST OF UNETHICAL BEHAVIOR
Fame is something which must be won; honor is something which must not be lost.
-- Arthur Schopenhauer (1788-1860), Philosopher
Let’s Take Notes ... THE COST OF UNETHICAL BEHAVIOR
DESIGNATED DOODLE ZONE
If you get hung up on everybody else’s hang-ups,
then the whole world’s going to be nothing more than one huge gallows.
-- Richard Brautigan (1935-1984), Writer and poet
Let’s Take Notes ... THE COST OF UNETHICAL BEHAVIOR
Your honesty influences others to be honest.
-- George Washington (1732-1799), 1st U.S. President
Let’s Take Notes ... THE COST OF UNETHICAL BEHAVIOR
DESIGNATED DOODLE ZONE
The less you do, the better you do it.
-- Marcello Mastroianni (1924-1996), Actor
Let’s Take Notes ... THE COST OF UNETHICAL BEHAVIOR
REVIEW / SELF-QUIZ
Were you paying attention??
If I asked you to prepare some review questions, what would you ask?
•
•
•
•
•
•
Let’s Take Notes ... MISCELLANEOUS
Let’s Take Notes ... MISCELLANEOUS
Let’s Take Notes ... MISCELLANEOUS
Let’s Take Notes ... MISCELLANEOUS
[pic]
Common sense is not so common.
-- Voltaire (1694-1778),
Philosopher and writer
We cannot all do GREAT THINGS,
but we can do SMALL THINGS
WITH GREAT LOVE.
-- Mother Teresa
... INDEX ...
Problem Topic Page
Let’s Take Notes ... ON THE FIRST DAY OF CLASS? 1
Let’s Take Notes ... TERMS AND FLOWS 5
MANGO MOTORS (Variable and Fixed Costs) 13
SOMUCH STEROES (Variable and Fixed Costs) 14
Bojangle Dance Shoes (Variable and Fixed Costs) 15
Cattle Company (Cost Flows) 16
Judge Ely Jeans (Cost Flows) 18
Bob’s Beef Boy (Cost Flows) 20
Sleepwell Incorporated (Cost Flows) 22
Hannibal Company (Cost Flows) 24
Let’s Take Notes ... BREAKEVEN (C-V-P) 27
East Meets West Company (A) (Breakeven) 37
East Meets West Company (B) (Breakeven) 38
East Meets West Company (C) (Breakeven) 39
East Meets West Company (D) (Breakeven) 40
East Meets West Company (E) (Breakeven) 41
S & P Corporation (Breakeven) 42
Jolly Candies (Breakeven) 43
Houghton’s Limited (Breakeven) 44
Clair’s Toys (Breakeven) 45
Cass Company (Breakeven) 46
Deering Banjo Company (Multi-Product Breakeven) 48
Alcatraz Artifacts (Multi-Product Breakeven) 49
ABTEX ELectronics (Multi-Product Breakeven) 50
Let’s Take Notes ... RELEVANT COSTS 53
Funk and Wagnall (Classifying Relevant and Irrelevant Items) 57
Frodo Company (Relevant Costs) 58
TOLEDO TORPEDO COMPANY (Relevant Costs) 59
Hassett Company (Relevant Costs) 60
CALIFORNIA TEXTBOOKS (A) (Relevant Costs) 61
CALIFORNIA TEXTBOOKS (B) (Relevant Costs) 62
Adams Company (Relevant Costs) 63
SAM ENTERPRISES (Relevant Costs) 64
Moehrle Manufacturing (Relevant Costs) 65
TILLAMOOK CHEESE Co. (Relevant Costs) 66
Andretti Company (Relevant Costs) 68
Let’s Take Notes ... JOB-ORDER COSTING 71
Egg Yolk Yummies (Applying Overhead) 75
Let’s Take Notes ... APPLYING OVERHEAD 77
Halo Products Company (Applying Overhead) 78
Narcissus Needles (Applying Overhead) 79
McKAY MILLS (Applying Overhead) 80
Buffalo Broilers (Applying Overhead) 82
Howdy Company (Applying Overhead) 84
... INDEX ...
Problem Topic Page
Let’s Take Notes ... [EVEN MORE] JOB-ORDER COSTING 86
Plentiful Printing (Job-Order Costing) 88
Roley Poley Company (Job-Order Costing) 90
The Swizzle Manufacturing Co. (Job-Order Costing) 92
Let’s Take Notes ... ACTIVITY-BASED COSTING 97
Audio Basics Corporation (Activity-Based Costing) 102
J.B. Goode Company (Activity-Based Costing) 104
THE CUTTERS, INC. (A) (Activity-Based Costing) 106
THE CUTTERS, INC. (B) (Activity-Based Costing) 108
Let’s Take Notes ... THE ABC PRESENTATION 111
Let’s Take Notes ... PROCESS COSTING 119
B.G. Wip Company (Process Costing) 125
Cutting Edge Skis (Process Costing) 126
Steinmueller Steins (Process Costing) 128
Abiqua Acres (Process Costing) 130
Candlelight Candles Co. (Process Costing) 132
Let’s Take Notes ... BUDGETING 135
Womack Company (Budgeting) 140
Paradise Company (Budgeting) 141
Whiskers Products, Inc. (Budgeting) 142
Kaitlyn Korporation (Budgeting) 143
Archer Company (Budgeting) 144
Ward Company (Budgeting) 145
Young Products (Budgeting) 146
... INDEX ...
Problem Topic Page
Let’s Take Notes ... STANDARD COSTS and FLEXIBLE BUDGETING 149
Lands End Mens Suits (Standard Costs and Flexible Budgeting) 153
Pirates, Inc. (Standard Costs and Flexible Budgeting) 154
Smith Company (Standard Costs and Flexible Budgeting) 156
True-Blue Corporation (Standard Costs and Flexible Budgeting) 159
Strange Fire, P.C. (Standard Costs and Flexible Budgeting) 160
The Costume Company (Standard Costs and Flexible Budgeting) 161
Benton Company (Standard Costs and Flexible Budgeting) 162
Beale street blues, inc. (Standard Costs and Flexible Budgeting) 164
Ballycanally Corporation (Standard Costs and Flexible Budgeting) 166
Cox Company (Standard Costs and Flexible Budgeting) 168
Kennedy Company (Standard Costs and Flexible Budgeting) 169
Rex Company (Standard Costs and Flexible Budgeting) 170
Barber Company (Standard Costs and Flexible Budgeting) 171
Tub Company (Standard Costs and Flexible Budgeting) 172
Thorp Company (Standard Costs and Flexible Budgeting) 173
Duo Company (Standard Costs and Flexible Budgeting) 174
Herman Company (Standard Costs and Flexible Budgeting) 175
Herd Company (Standard Costs and Flexible Budgeting) 176
Bosna Corporation (Standard Costs and Flexible Budgeting) 177
Stiegl Corporation (Standard Costs and Flexible Budgeting) 178
Let’s Take Notes ... ABSORPTION COSTING AND VARIABLE COSTING 179
Holland Company (Absorption and Variable Costing Income Statements) 184
FASt Company (Absorption and Variable Costing Income Statements) 186
Belly Rub Productions (Absorption and Variable Costing Income Statements) 188
Let’s Take Notes ... COST BEHAVIOR 191
Southern Carpets (Cost Behavior) 199
Chain Saw Company (Cost Behavior) 200
Let’s Take Notes ... COST OF QUALITY 201
Gilroy Foods (Cost of Quality) 209
Let’s Take Notes ... CASH FLOWS 215
Portland pilots company (Cash Flows) 222
RONDINI MAGIC COMPANY (Cash Flows) 224
rikky-tikky-tavi taffy (Cash Flows) 226
Let’s Take Notes ... THE COST OF UNETHICAL BEHAVIOR 229
Let’s Take Notes ... MISCELLANEOUS 237
OBSERVATIONS FROM THE ANCIENTS …
Hope is a waking dream.
-- Aristotle (384-322 B.C.),
Philosopher
Fate leads the willing, drags the unwilling.
-- Cleanthes (c. 331-231 B.C.),
Philosopher
Human behavior flows from three main sources: desire, emotion, and knowledge.
-- Plato (c. 428-348 B.C.),
Philosopher
I hold this as a rule of life:
Too much of anything is bad.
-- Terence (c. 186-159 B.C.),
Dramatist
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