Handy Handouts:

2

Abiqua Acres

DM CC WIP-$$100% 40% BI 5,000 DM $20,000

CC $16,000 57,000*$11.7932IN 60,000 57,000 out = $672,212.4

100% 50% EI 8,000 DM $250,000CC $450,000DM $33,230.40 8,000*100%*$4.1538

CC $30,557.20 8,000*50%*$7.6393

$63,787.60

BI + IN = EI + Out (?)$36,000 + $700,000 = $672,212.40 + $67,787.60

$736,000 = $736,000

DM CCOut 57,000 57,000EI 8,000*100% 8,000EU 8,000*50% 4,000

65,000 61,000

BI $20,000 $16,000IN $250,000 $450,000

Total $270,000 $466,000

Uni

ts t

o be

ac

coun

ted

for: WIP-Units

BI

INout

Wtd. Avg. E.U.

$ to Acct. for

$270,000/65,000 $466,000/61,000

=$4.1538 =$7.6393

$11.7932 per E.U.

$/E.U.

WEIGHTED AVERAGE METHOD

3

Abiqua Acres (p. 2)

WIP Units

5,000

60,000

8,000

57,000

OutBI

IN

EI

DM

100%

100%

CC

40%

50%

WIP - $ (FIFO)

DM $20,000

CC $16,000

DM $250,000

CC $450,000

DM $33,333.60

CC 30,508.40

$63,842.00

$ 36,000.00 from BI

22,881.30 Finished CC 5,000×60%×$7.6271

613,277.60 S&F 52,000 × $11.7938

$672,158.90

= 8,000 × 100% × $4.1667

= 8,000 × 50% × $7.6271

OutBI

IN

EI

E.U.

DM CC

- 0 -

52,000

8,000

60,000

3,000

52,000

4,000

59,000

Costs to Account For

DM CC

$4.00

$8.00

$ per EU

BI: (DM) 5,000× 0%

BI: (CC) 5,000×60%

Start & Finish

EI: (DM) 8,000×100%

EI: (CC) 8,000× 50%

E.U.

FIFO METHOD

BI

$20,000 DM ÷ (5,000×100%)

$16,000 CC ÷ (5,000× 40%)

Total

$12.00

$4.1667

$7.6271

$ per EUIN

$250,000 DM ÷ 60,000 E.U.

$450,000 CC ÷ 59,000 E.U. $11.7938

(Info we need to do problem)

$736,000 Costs to Account For

4

Abtex Electronics

SP VC CM Mix

Wtd. Avg.

CM

TapeRecorders

$15.00 $8.00 $7.00 1/3 $2.33

Electronic

Calculators$22.50 $9.50 $13.00 2/3 $8.67

$11.00

BE(units) =FC

CM per unit=

$280,000+ $1,040,000

$11.00= 120,000 units

40,000TapeRecorders

80,000ElectronicCalculators

5

Abtex Electronics (cont.)

Tape Recorders Electronic Calculators

DM $4.00 × 90% =DL $2.00 × 110% =VOH Total VC per unit

DM $4.50 × 80% =DL $3.00 × 110% =VOH Total VC per unit

$3.60 2.20 2.00$7.80

$3.60 3.30 2.00$8.90

Total Fixed Costs:$ 280,000 1,040,000 57,000$1,377,000

Sales Mix Calculation:

$750,000

I made up a big number for “revenue”,likely to be divisible by both $15.00 and $20.00,the 1998 selling prices

20% 80% Estimated 1998 mix of revenue

$600,000 Rev.SP $20 per unit

30,000 calculators

$150,000 Rev.SP $15 per unit

10,000 recorders

¼ ¾SALES MIX IN UNITS

6

Abtex Electronics (cont.)(Continued)

SP VC CM Mix

Wtd. Avg.

CM

TapeRecorders

$15.00 $7.80 $7.20 1/4 $1.800

Electronic

Calculators$20.00 $8.90 $11.10 3/4 $8.325

$10.125

BE(units) =FC

CM per unit=

$1,377,000

$10.125

= 136,000 units

27,200TapeRecorders

108,800ElectronicCalculators

¼ ¾

7

Adams Co.Has 80,000 lbs. of RM availableNo more can be purchased Bicycle Frames $40/unit CM, requires 8 lbs. of RMSet of Golf Clubs $32/unit CM, requires 4 lbs. of RM ** Everything they make can be sold!! Bike Frames $40 / 8 lbs. = $5.00 per lb. CMGolf Clubs $32 / 4 lbs. = $8.00 per lb. CM 80,000 lbs. of RM available ÷ 4 lbs. per Set of Golf Clubs= 20,000 Sets of Golf Clubs produced to maximize CM ** What if they can only sell 8,000 Sets of Golf Clubs?? Make 8,000 Sets of Golf Clubs 32,000 lbs.Make 6,000 Bicycle Frames 48,000 lbs. (= 48,000 lbs. / 8 lbs. per unit)

80,000 lbs.

8

1.

Al $20 $16 $4 2/10 $.80 $ 4.00

Cat $50 $36 $14 3/10 $4.20 $15.00

Raz $40 $28 $12 5/10 $6.00 $20.00

$11.00 $39.00

BE (units) = FC = $77,000 = 7000 units

CM per unit $11

AL CAT RAZ

20% 30% 50%

1400 + 2100 + 3500 = $7000

$28,000 + $105,000 + $140,000 = $273,000

“Al” “Cat” “Raz”

Alcatraz ArtifactsSP VC CM Mix

Wtd.Avg.CM

Wtd.Avg.SP

9

2. WTD.AVG.

SP VC CM MIX CMAl $20 $16 $4 .40 $1.60Cat $50 $36 $14 .40 $5.60Raz $40 $28 $12 .20 $2.40

$9.60BE (units) = FC = $77,000 = 8021 units

CM per units $9.60

Al Cat Raz

40% + 40% + 20%

3,209 + 3208 + 1,604

$64,180 + $160,400 + $64,160 = $288,740

Increased BE point because more low profit “Al’s” were sold.

Alcatraz Artifacts (cont.)

10

Andretti Company1.

Variable Expenses Fixed Expenses Variable Expenses

DM $10.00 OH $300,000DL 4.50 S&A 210,000VOH 2.30 Total $510,000

VS&A 1.20Total $18.00

TODAY

Sales $1,920,000 [$32*60,000]

Vbl (1,080,000) [$18*60,000]CM $840,000Fixd (510,000)

NI $330,000

TOMORROW

Sales $2,400,000 [$32*75,000]Vbl (1,350,000) [$18*75,000]

CM $1,050,000Fixd (590,000) [$510,000+$80,000]NI $460,000

Yes, the increase in fixed selling$130,000 expense would be justified.

11

Andretti Company (cont.)2.

Variable Expenses

DM $10.00DL 4.50 A foreign company wants toVOH 2.30 purchase 20,000 Daks.

Duties 1.70Selling 3.20

Total $21.70

Breakeven: TR = TC

20,000 x = 20,000 ($21.70) + $9,000where x is unit selling price

20,000 x = $434,000 + $9,000

20,000 x = $443,000

x = $22.15 selling price / unit

12

Andretti Company (cont.)

3.

The relevant cost figure is $1.20 per unit, which is the variableselling expense per Dak. Since the irregular units have alreadybeen produced, all production costs (including the variableproduction costs) are sunk. The fixed selling expenses are notrelevent since they will not change regardless of whether or not

the irregular units are sold.

13


If the plant operates at 30% of normal levels, then only 3,000units will be produced and sold during the two-month period:

60,000 units per year * 2/12 = 10,000 units sold10,000 units * 30% = 3,000 units produced and sold.

Continue Producing

Sales $96,000 [$32*3,000]Vbl (54,000) [$18*3,000]

CM $42,000Fixd (85,000) [$510,000*2/12]NI ($43,000)

Shut Down

FOH ($30,000) [$300,000*2/12*.60]FS&A (28,000) [$210,000*2/12*.80]

Total ($58,000)

Net disadvantage of closing plant:

($15,000)

14


The relevant costs are those that can be avoided bypurchasing from the outside manufacturer. These costs are:

DM $10.00

DL 4.50VOH 2.30

FOH 3.75 [($300,000*.75)/60,000]

VS&A 0.40 [$1.20*1/3]FS&A 0.00Total $20.95

To be acceptable, the ouside manufacturer's quotation must be

less than $20.95 per unit.

15

Apple Appliances

You should reject the offer.

$10 Variable (relevant) cost to produce the timer assemblies ($5 + $4 + $1)

$12 Cost to purchase the timer assemblies

$ 2 Cheaper to make the timer assemblies

16

UNITS UNITS UNITS UNITS

FG - Mar FG - April FG - May FG - June

6000

6000

32,000

8,000(20% x 40,000)

Produce30,000

BI 8000Produce 44,000 40,000

EI 12,000(20% x 60,000)

60,000

RM UNITS

RM - April

RM UNITS

RM - May

RM UNITS

FG - June

44,000 x 3

= 132,000

33,000 lbs.(25% x 132,000)

24,000 lbs.Purchase 105,000 lbs.

32,000 x 3= 96,000 lbs,

Archer Companya.

b.

17

$ 9,000

$40,000

$11,000

$32,300 (85%)

$ 5,700 (15%)

RM

BI

Purch

EI

$ 20,000

32,300

45,000

64,200

$ 21,500

$140,000

BI

EI

WIP

$ 32,000

140,000

$ 42,000

$ 130,000

BI

EI

FG

$ 45,000 $ 45,000

- 0 -

DL

MOH

$ 5,700

19,100

27,000

10,000

2,400

64,200 $ 64,200

- 0 -

IDM

Mfg Utilities

Mfg Depr

IDL

Prepd Insur

COGS

I/S

$ 130,000

9,000

48,000

30,000

600

9500

$ 250,000COGS

Depr. Exp.

Adv. Exp.

Admin. Salaries

Prepaid Ins.

Misc. S&A

Sales

NI BT

$ 130,000

- 0 -

$ 130,000

COGS

Astoria Company

$ 22,900$ 4,580Inc. Tax

NI AT$ 18,320$ 18,320

- 0 -

(to R/E)

COGM

18

Astoria Co. (p. 2)$ 7,000

245,000

$34,820

$ 19,100

48,000

9,500

2,000

41,000

84,000

9,000

4,580

Beg

End

CASH

Assets (aka: “Pete”)

$ 18,000

250,000

$ 23,000

$ 245,000

Beg

End

A/R

$ 290,000

9,000

$ 219,000

Beg

End

Property, Plant & Equip

$ 53,000

36,000

$ 89,000

Beg

End

Accum. Depr.

Cash fromCustomers

((A/R))

Util

Advertsng

Misc S&A

Prepd Ins

A/P

W/P

Purch PPE

Inc Tax

Liabilities & Owners’ Equity (aka: “Re-Pete”)

$ 38,000

40,000

$ 37,000

Beg

End

Accounts Payable

$ - 0 -

45,000

10,000

30,000

$ 1,000

Wages Payable

$ 160,000

$ 160,000

Beg

End

Capital Stock

$ 49,000

18,320

$ 67,320

Beg

End

R/E

$ 84,000

(to Cash)(Sales)

(Depr. Exp.)

(Net Income)

$ 4,000

2,000

$ 3,000

Beg

End

Prepaid Insurance

Beg. (implied)

DL

IDL

Admin Salaries

End

(from Cash)

Purch ofEquip

$ 3,000

$ 41,000 DM Purch(from Cash)OUT

19

Astoria Company (p. 3)Cannon Beach Sand Company

Balance SheetAs of December 31, 2001

Assets CashA/RPrepd InsurPPEAccum DeprRMWIPFG

Total

$ 34,820 23,000 3,000

219,000 (89,000)11,000 21,500 42,000

$265,320

Liabilities& Owners’Equity

A/PW/PC/SR/E

Total

$ 37,000 1,000

160,000 67,320

$265,320

20

Astoria Company (p. 4)Astoria Company

Statement of Cash Flows (Indirect Method)For the Year-Ended December 31, 2001

Net Income

Depr. Exp↑ A/R (use)↓ Prepd Ins (source)↑ DM (use)↑ WIP (use)↑ FG (use)↓ A/P (use)↑ W/P (source)

Net Cash provided byOperating Activities

Purch of Equipment

Net Cash used byInvesting Activities

Net increase in cash

Beg. Cash

End Cash

$ 18,320

+ 36,000 - 5,000 + 1,000 - 2,000 - 1,500 - 10,000 - 1,000 + 1,000

$ 36,820

$ - 9,000

$ (9,000)

$ 27,820

7,000

$ 34,820

Calculation of Free Cash Flows

Cash from OperationsLess: Capital Expenditures (net)

Free Cash Flows

$36,8209,000

$27,820

Operating Activities

Investing Activities

21

ACTIVITY:“N” Number of production runs : $400,000 / 50 = $8000 per…“Q” Quality tests performed : $360,000 / 300 = $1200 per…“S” Shipping orders processed : $120,000 / 150 = $800 per…

Audio Basics Corporation

1. ----- ABC Standard High Grade

“N”“Q”“S”

40 × $8,000 =180 × $1,200 =100 × $ 800 =

$ 320,000$ 216,000$ 80,000

$ 616,000$ 250,000$ 348,000$1,214,000

MOHDMDLTotal MFG

÷ 320,000 units

$3.79375 per unit

“N”“Q”“S”

10 × $8,000 =120 × $1,200 = 50 × $ 800 =

$ 80,000$ 144,000$ 40,000

$ 264,000$ 228,000$ 132,000$ 624,000

MOHDMDLTotal MFG

÷ 100,000 units

$6.24 per unit

a.

b.

2. ----- Allocated MOHEst. MOH Activity

$880,000$480,000

= $1.833333 per DL$

$ 638,000 (= $348,000 × $1.833333)$ 250,000$ 348,000$1,214,000

MOHDMDLTotal MFG

÷ 320,000 units

$3.8625 per unit

$ 242,000 (= $132,000 × $1.833333)$ 228,000$ 132,000$ 602,000

MOHDMDLTotal MFG

÷ 100,000 units

$6.02 per unit

Standard High Grade

$ 616,000+ 264,000$ 880,000

22

The Baize Company

PDOR = Estimated MOH

Estimated Activity=

$403,200

21,000 DLH= $19.20 per DLH

a.

b.

c.

Applied MOH = Actual Activity × PDOR

20,000 DLH × $19.20 = $384,000

MOH

$378,000 $384,000

$6,000

$6,000

- 0 -to COGS

Overapplied

23

1.

2.

DMPrice Qty

AQ × AC14,000 × $1.80 $25,200

AQ × SC14,000 × $1.75 $24,500

SQ × SC × $1.75

$700 U

AQ × SC13,250 × $1.75 $23,187.50

SQ × SC12,600 × $1.75 $22,050

(6300)(2)

$1137.50 U

DL

AQ × AC4,100 × $9.05 $37,105

AQ × SC4,100 × $9.00 $36,900

SQ × SC(2000)(2) × $9.00 $36,000

$205 U

Rate Efficiency

$900 U

Ballycanally Corporation

24

AQ × AC

27,750 × $1.22 $33,855

AQ × SC

27,750 × $1.20 $33,300

$555 U

Spending Efficiency

$300 F

SQ × SC (Applied)28,000 × $1.20 $33,600

VOH3.

$255 U

4. FOH

Actual

$155,500

Budget

$144,000

$11,500 U

Spending Volume

$6,000 F

$5,500 U

Applied (SQ × SC)60,000 × $2.50

$150,000

Ballycanally Corp. (p. 2)

25

Barber Company

Rate

AQ * AP AQ * SP SQ * SP34,500 * ? 34,500 * ? 35,000 * ?

$241,500 $220,800

$3,200 / 500 hours = $6.40

Eff

$3,200 F

? = $6.40

$20,700 u

26

Price Usage

AQ × AC

25,000 × $2.60

$65,000

AQ × SC

25,000 × $2.50

$62,500

SQ × SC

$2,500 U

1AQ × SC

23,100 × $2.50

$57,750

SQ × SC

23,400 × $2.50

$58,500

(7800 units)(3lbs)

$750 F 2

DM

DL

Rate Efficiency

AQ × AC

40,100 × $7.30

$292,730

AQ × AC

40,100 × $7.50

$300,750

SQ x SC

39,000 × $7.50

$292,500

$8020 F $8250 U

$230 U

3 4

(7800 units)(5 hrs)

Beale Street Blues, Inc.

27

FOH

Spending Volume

Actual

AQ × AC

$170,000

Budgeted

BQ × SC

40,000 × $4.00

$160,000

$10,000 U $4,000 U

Applied

SQ x SC

(7800)(5)

39,000 × $4.00

$156,000

6

VOH

Spending Efficiency

Actual

AQ × AC

$130,000

AQ × SC

40,100 × $3.00

$120,300

$9,700 U $3,300U

5

SQ × SC

(7800)(5)

39,000 × $3.00

$117,000

Beale Street Blues (p. 2)

7

28

Bee-Cee’s Guitar Emp. (A)

JAN

FEB

MAR

Dec.Jan.

Jan.Feb.

Feb.Mar.

$100,000×20%$ 60,000×80%

$ 60,000×20%$ 80,000×80%

$ 80,000×20%$ 90,000×80%

$20,000 48,000$68,000

$12,000 64,000$76,000

$16,000 72,000$88,000

JAN FEB MAR Total

$232,000

29

Bee-Cee’s Guitar Emp. (B)

JAN

FEB

MAR

Dec.Jan.

Jan.Feb.

Feb.Mar.

$70,000×90%$42,000×10%

$42,000×90%$56,000×10%

$56,000×90%$63,000×10%

$63,000 4,200$67,200

$37,800 5,600$43,400

$50,400 6,300$56,700

JAN FEB MAR Total

$167,300

30

Bee-Go Company

FG – Jan. FG – Mar.FG – Feb. FG – Apr.

16,500

15,650

1,650

1,600

16,250

1,850

1,650

16,450

1,600

15,600 18,50016,00016,500

15,65016,45016,250

48,350

Jan.Feb.Mar.

Total

(10%×16,500) (10%×18,500)(10%×16,000)

Units Produced

31

Bee-Kill Chemical (A)

RM – Q1 RM – Q3RM – Q2 RM – Q4

45,000

189,400

50,400

60,000

186,800

46,800

50,400

177,600

60,000

184,000

189,400177,600186,800166,800

720,600

Q1Q2Q3Q4

(30%×168,000) (30%×156,000)(30%×184,000)

RM – Q1 (2007)

46,800

166,800

57,600

168,000 200,000 156,000 192,000

(30%×192,000)

(46,000×4 lbs.) (48,000×4 lbs.)(39,000×4 lbs.)(50,000×4 lbs.)(42,000×4 lbs.)

57,600

× $4

$2,882,400

Total pounds of raw materials purchased

Total cost of raw materials purchased

RM Purchased

Cost per pound of raw material

32

Bee-Kill Chemical (B)

Quarter 1Quarter 2Quarter 3Quarter 4

46,00042,00050,00048,000

Units

115,000105,000125,000 97,500

442,500

DLH

× 2.5 DLH per unit =

DLH worked during 2006

× $20 DL cost per hour

$8,850,000 Cost of DLH worked during 2006

2006

Q1Q2Q3Q4

33

Bee-Kill Chemical (C)

Quarter 1, 2006Quarter 2Quarter 3Quarter 4 Total

46,00042,00050,000

39,000177,000

UnitsUnitsUnitsUnitsUnits

Production Information

Indirect materialIndirect laborUtilities Total

$2.251.501.00

$4.75

Per unitPer unitPer unitPer unit

Variable Costs

Supervisor salariesFactory depreciationOther Total

$80,00030,000

4,100$114,100

Fixed Costs per Quarter

1.

2.

$218,500199,500237,500

185,250

$840,750

Variable costsFixed costs

Total mfg. overhead

$ 840,750 456,400

$1,297,150

( = $114,100 × 4 Qtrs.)

Quarter 1, 2006Quarter 2Quarter 3Quarter 4

Total

Variable MOH by Qtr.

Total MOH for 2006

( = 46,000 units × $4.75)( = 42,000 units × $4.75)( = 50,000 units × $4.75)( = 39,000 units × $4.75)

34

Bee-Safe Company

First quarterSecond quarterThird quarterFourth quarter

21,00026,00025,00030,000

2004

27,30033,80032,500

39,000

132,600

2005

× 130% =

Unit sales during 2005

× $40 Selling price per unit

$5,304,000 Sales revenue during 2005

35

BELLY RUB PRODUCTIONSUnit Product Cost Data

Years 2001 through 2004 Year2001 2002 2003 2004

Variable manufacturing costs:

Direct materials………………………….. $ 6 $ 6 $ 7 $ 8

Direct labor……………………………… 3 4 4 5

Variable MOH…………………………… 2 2 3 4

Product cost using variable costing………… $11 $12 $14 $17

Add prorated fixed MOH cost……………… 5 6 7 8

Product cost using absorption costing……… $16 $18 $21 $25

BELLY RUB MANUFACTURINGAbsorption Costing Income Statement

For Years 2001 through 2004

Sales………………………………… $200,000 $243,000 $390,000 $350,000

Cost of goods sold………………….. 128,000 158,000 258,000 242,000

Underapplied (overapplied) overhead 0 (12,000) 0 16,000

Gross margin………………………. 72,000 97,000 132,000 92,000

Variable selling and administrative... 24,000 27,000 52,000 50,000

Fixed selling and administrative…… 30,000 35,000 40,000 50,000

Total operating expenses…………… 54,000 62,000 92,000 100,000

Net income………………………… $18,000 $35,000 $40,000 $ (8,000)

Year2001 2002 2003 2004

Belly Rub Productions

36

Belly Rub Productions (p. 2)BELLY RUB MANUFACTURINGVariable Costing Income Statement

For Years 2001 through 2004

Sales ……………………………………….. $200,000 $243,000 $390,000 $350,000

Variable product cost ……………………. 88,000 106,000 172,000 164,000

Manufacturing contribution margin ……….. 112,000 137,000 218,000 186,000

Variable selling and administrative ……….. 24,000 27,000 52,000 50,000

Contribution margin ……………….………. 88,000 110,000 166,000 136,000

Fixed manufacturing overhead ……………. 50,000 60,000 70,000 80,000

Fixed selling and administrative…………… 30,000 35,000 40,000 50,000

Total fixed cost …………………………… 80,000 95,000 110,000 130,000

Net income ……………………………….. $ 8,000 $ 15,000 $ 56,000 $ 6,000

Year2001 2002 2003 2004

Belly Rub ProductionsSchedule of Product Costs with Absorption CostingYears 2001 through 2004

Year2001200220032004

Beginning Inventory - 0 -2,000 units @ $165,000 units @ $182,000 units @ $21

++++

Current Year Production8,000 units @ $167,000 units @ $188,000 units @ $218,000 units @ $25

Total Product Cost$128,000$158,000$258,000$242,000

Belly Rub ProductionsSchedule of Product Costs using Variable CostingYears 2001 through 2004

Year2001200220032004

Beginning Inventory - 0 -2,000 units @ $115,000 units @ $122,000 units @ $14

++++

Current Year Production8,000 units @ $117,000 units @ $128,000 units @ $148,000 units @ $17

Total Product Cost$ 88,000$106,000$172,000$164,000

37

Belly Rub Productions (p. 3)

BELLY RUB PRODUCTIONSSchedule of Fixed Overhead Costs Included

In Beginning and Ending Inventory Under Absorption Costing

Year

2001 2002 2003 2004

Units in beginning inventory …Applied fixed MOH per unit … Equals ……………………….

Units in ending inventory ……Fixed MOH per unit …………. Equals ……………………….

Causes absorption costing NI to be …………………………

- 0 -

2,000$ 5$10,000

$10,000Higher

2,000$ 5$10,000

5,000$ 6$30,000

$20,000Higher

5,000$ 6$30,000

2,000$ 7$14,000

$16,000Lower

2,000$ 7$14,000

- 0 -

$14,000Lower

38

AQ × AC

$25,150

AQ × SC3,010 × $8 $24,080

$1,070 U

Spend Eff.

$1,760 U

N/A

N/A

SQ × SC(310) (9) × $8 $22,320

SQ × SCVOH

Actual

$23,800

Budget

$24,300

$500 F

Spend N/A

N/A

Vol.

$810 F

Budget BQ × SC2,700 × $9 $24,300

Applied SQ × SC(310) (9) × $9.00 $25,110

FOH

$48,950

$570 U

Spend Eff.

$1760 U

Vol.

$810 F

$1520 U

$20,769 / $6.90 = 3010 DLH

310 units actual x 9 hrs. = 2790 hrs.

$63 / 9 hrs. = $7 / hr. = DL cost per hr.

$45,900

$8 + $9= 2,700 budgeted DL hrs.

TOTAL

Benton Company

$47,430

39

B.G. Wip CompanyStep 1

DM CC

100% 60%

100% 1/3

WIP

2,000

9,000

3,300

7,700

Step 2

Wtd. Avg. Equivalent Units

OUT

EI 3300 × 100%

3300 × 1/3

E.U.

DM CC

7,700 7,700

3,300

1,100

11,000 8,800

Weighted Average Method

Step 2

BI 2,000 × 0%

2,000 × 40%

S&F

EI 3300 × 100%

3300 × 1/3

E.U.

DM CC

- 0 -

800

5,700 5,700

3,300

1,100

9,000 7,600

FIFO Method

FIFO Equivalent Units

40

Big Dog FoodsStandard Allowedfor Actual Output

Price Quantity / Usage

AQ × AC AQ × SC SQ × SC

pounds

24,500 × $0.19$4,655

(30)(800) × $0.2024,000 × $0.20

$4,80024,500 × $0.20

$4,900

$245 F $100 U

$145 F

DIRECT MATERIALS – Ground Brown Rice

41

Big Dog Foods (p. 2)Standard Allowedfor Actual Output



pounds

5,900 × $0.41$2,419

(30)(200) × $0.406,000 × $0.40

$2,4005,900 × $0.40

$2,360

$59 U $40 F

$19 U

DIRECT MATERIALS – Chicken Meal

42

Big Dog Foods (p. 3)Standard Allowedfor Actual Output

Rate Efficiency


DLH

300 × $16.00$4,800

(30)(8) × $15.00240 × $15.00

$3,600300 × $15.00

$4,500

$300 U $900 U

$1,200 U

DIRECT LABOR

43

Bob’s Beef Boy0

Meat $54,000

Lettuce $6,750

Tomatoes $7,500

Kaiser rolls $9,250

0

$77,500

DM

$66,400 $66,400

DL

Condiments $2,650

Paper $2,400

Utilities $22,500

Grill Depr. $7,000

Rent $25,000

Cleaning $6,800

$66,350 $66,350

MOH

0

$77,500

66,400

66,350

0

$210,250

WIP

0

$210,250

0

$210,250

FG

$210,250

0

$210,250

COGS

COGM

$210,250

Servers $53,000

Mgr. $41,000

Depr. Signs $3,250

Adv. $3,500

$311,000

$478,800

$167,800

I/S

44

Absorption Costing

Income Statement

For the Year Ended Dec. 31, 2002

Rev. $630,000

COGS: Prime (252,000)

V.MOH (84,000)

F.MOH (100,000)

GM $194,000

S&A: V.Sell (54,000)

F.Sell (45,000)

F.Adm (90,000)

NI $5,000

Variable Costing

Income Statement


Rev. $630,000

VC: Prime (252,000)

V.MOH (84,000)

V.Sell (54,000)

CM $240,000

FC: F.MOH (100,000)

F.Sell (45,000)

F.Adm (90,000)

NI $5,000

Bojangle Dance Shoes

45

Bosna Corporation

Spend N/A

AQ * AP AQ * SP SQ * SP SQ * SP$2,450,000 * .5% $2,000,000 * .5%

$12,500 $12,250 $10,000

$2,250 u

$2,500 u

If you are asked for a "variance" this is it

Eff

$250 u

46

Bowly Company

Bowly Company Absorption Costing I/SFor the Y/E Dec. 31, 2005

Rev

- CoGS

GM

- S&A

NI

$100,000

(60,000)

$ 40,000

(15,000) (10,000)

$ 15,000

= 5,000 × $20

= 5,000 × $12

= 5,000 × $3

Bowly Company Variable Costing I/SFor the Y/E Dec. 31, 2005

Rev

- VC

CM

- FC

NI

$100,000

(50,000)

$ 50,000

(30,000) (10,000)

$ 10,000

= 5,000 × $20

= 5,000 × $10

MOHS&A

The difference in NI equals the change in FG Inventorytimes the fixed MOH per unit (1,000 × $5 = $5,000)

47

Brötchen Bakery Standard Allowedfor Actual Output

Price Usage


Pounds

30,000 × $2.20$66,000

(1,450)(20) × $2.00$58,000

30,000 × $2.00$60,000

$6,000 U $2,000 U

$8,000 U

DIRECT MATERIALS

Rate Efficiency


DLH

8,000 × $18.90$151,200

(1,450)(5) × $18.00$130,500

8,000 × $18.00$144,000

$7,200 U $13,500 U

$20,700 U

DIRECT LABOR

Qty purch=

Qty used

48

Brötchen Bakery (p. 2)Spending Efficiency


DLH

8,000 × $1.375$11,000

(1,450)(5) × $1.50$10,875

8,000 × $1.50$12,000

$1,000 F $1,125 U

$125 U

VARIABLE OVERHEAD

Spending Volume

Actual BudgetedAQ × SC

AppliedSQ × SC

DLH

8,000 × $3.25$26,000

(1,450)(5) × $3.00$21,750

8,333.33 × $3.00$25,000

$1,000 U $3,250 U

$4,250 U

FIXED OVERHEAD

$150,000 ÷ 100,000 DLH

$300,000 ÷ 100,000 DLH

Standard Allowedfor Actual Output

SQ =

100,000 DLH ÷ 12 months

49

Buffalo BroilersPDOR = Est. MOH / Est. Activity

$500,000 / 100,000 DLH = $5.00 per DLH

$500,000 / $800,000 = $0.625 per DL$

$500,000 / 80,000 MH = $6.25 per MH

1.

50

Buffalo Broilers (cont.)MOH (DLH)

Actual Applied

$5.00 * 120,000

$576,000 = $600,000

$24,000 overapplied

MOH (DL$)

Actual Applied

.625 * $930,000

$576,000 = $581,250

$5250 overapplied

MOH (MH)

Actual Applied

$6.25 * 90,000

$576,000 = $562,500

$13,500

underapplied

2.

$576,000 / 120,000 DLH =

$4.80 Actual MOH per Actual DLH

3.

51

California Textbooks (A)

RELEVANT ITEMS Make Buy Make BuyOutside purchase of parts $160,000 $16Direct materials $10,000 $1Direct labor $80,000 $8Variable overhead $40,000 $4Fixed overhead that can be avoided not making $20,000 $2 Total relevant costs $150,000 $160,000 $15 $16Difference in favor of making $10,000 $1

TOTAL COSTS PER-UNIT COSTS

Relevant Benefitso better to MAKE than BUY

52

California Textbooks (B)

Best choice is to buy textbook coversand use facilities for other products

Buy Buy and useand leave facilities Buyfacilities for other and

Make idle products rentRent revenue $ --- $ --- $ --- $5,000Contribution margin from other products ---- ---- 19,000 ----Buying parts (150,000) (160,000) (160,000) (160,000)Net relevant costs ($150,000) ($160,000) ($141,000) ($155,000)

53

Candlelight Candles Co.

I have chosen to round to

2 decimal places

WIP Units

25,000

510,000

12,000

523,000Out

BI

IN

EI

DM

100%

100%

CC

40%

80%

WIP - $ (Wtd. Avg.)

DM $42,650

CC $17,152

DM $433,500

CC $339,690

DM $10,680

CC $ 6,432

$17,112

523,000 * $1.56

= $815,880

= 12000 * 100% * $0.89

= 12000 * 80% * $0.67

OutBI

IN

EI

E.U.

DM CC

523,000

12,000

535,000

523,000

9,600

532,600

OUT

EI: (DM) 12000 * 100%

EI: (CC) 12000 * 80%

E.U.


DM CC

$42,650

$433,500

$476,150

$17,152

$339,690

$356,842

BI

IN

Total

$/EU

DMCC

$476,150 / 535,000 = $0.89

$356,842 / 532,600 = $0.67

$1.56


54

Candlelight Candles Co. (p. 2)

WIP - $ (FIFO)

DM $ 42,650

CC $ 17,152

DM $433,500

CC $339,690

DM $10,200

CC $ 6,240

$16,440

$ 59,802 from BI

9,750 Finished CC 25,000×60%×$0.65

747,000 S&F 498,000 × $1.50

$816,552

= 12,000 × 100% × $0.85

= 10,000 × 80% × $0.65

OutBI

IN

EI

E.U.

DM CC

- 0 -

498,000

12,000

510,000

15,000

498,000

9,600

522,600


DM CC

$1.706

$1.715

$ per EU

BI: (DM) 25,000× 0%

BI: (CC) 25,000×60%

Start & Finish

EI: (DM) 10,000×100%

EI: (CC) 10,000× 40%

E.U.

FIFO METHOD

BI

$42,650 DM ÷ (25,000×100%)

$17,150 CC ÷ (25,000× 40%)

Total

$3.421

$0.85

$0.65

$ per EUIN

$433,500 DM ÷ 510,000 E.U.

$339,690 CC ÷ 522,600 E.U. $1.50



WIP Units

25,000

510,000

12,000

523,000Out

BI

IN

EI

DM

100%

100%

CC

40%

80%

55

$ 30,000

$205,000

$20,000

$215,000

DM

BI

Purch

EI

$ 80,000

215,000

350,000

289,000

$ 50,000

$884,000

BI

EI

WIP

$ 110,000

884,000

$ 120,000

$ 874,000

BI

EI

FG

$ 350,000 $ 350,000

- 0 -

DL

MOH

$ 15,000

35,000

14,000

6,000

90,000

40,000

65,000

24,000

$ 289,000

$ 289,000

- 0 -

IDM

Fact Mgr Sal

Fact Ins

Ptty Tax

IDL

Mach Rent

Fact Util

Fact Bldg Depr

COGS

I/S

$ 874,000

150,000

300,000

100,000

17,500

3,000

$ 1,700,000COGS

Sales Comm

Admin Exp

Delivery Exp

Interest Exp

Loss on Sale of Equip

Sales

NI BT

$ 874,000

- 0 -

$ 874,000

COGS

Cannon Beach Sand Co.

$ 255,500$ 34,100Inc. Tax

NI AT$ 221,400$ 221,400

- 0 -

(to R/E)

56

Cannon Beach (p. 2)$ 37,000

1,707,220

40,000

$245,020

$ 350,000

35,000

90,000

150,000

17,500

34,100

743,400

119,200

Beg

End

CASH


$ 127,220

1,700,000

$ 120,000

$1,707,220

Beg

End

A/R

$720,000

119,200

$790,200

Beg

End

Factory Assets

$ 264,000

24,000

$ 282,000

Beg

End

Accum. Depr.

Cash fromCustomers

((A/R))

DL

Fact Mgr

IDL

Sales Comm

Int Exp

Tax Exp

A/P

Purch of Equip


$ 350,000

$ 350,000

Beg

End

Notes Payable

$ 38,500

205,000

15,000

14,000

6,000

40,000

65,000

300,000

100,000

$ 40,100

A/P

$ 250,000

$ 250,000

Beg

End

Common Stock

$ 240,720

221,400

$ 462,120

Beg

End

R/E

$ 743,400

(to Cash)(Sales on Acct.)(Depr.Exp.)

(Net Income)

$ 39,000

$ 39,000

Beg

End

Short Term Investments

Beg.

DM

IDM

Fact Ins

Ppty Taxes

Mach Rent

Fact Util

Admin Exp

Delivery Exp

End

(to Cash)

$ 6,000Sale of EquipPurch of

Equip$49,000

Sale of Equip

57

Cannon Beach (p. 3)Cannon Beach Sand Company


Assets CashA/RS/T InvestmtsPlant AssetsAccum DeprDMWIPFG

Total

$ 245,020 120,000 39,000

790,200 (282,000)

20,000 50,000

120,000

$1,102,220


N/PA/PC/SR/E

Total

$ 350,000 40,100

250,000 462,120

$1,102,220

58

Cannon Beach (p. 4)Cannon Beach Sand Company

Statement of Cash Flows (Indirect Method)For the Year-Ended December 31, 2005

Net Income

Depr. Exp↓ A/R (source)↑ A/P (source)↓ DM (source)↓ WIP (source)↑ FG (use)Loss on Equip Sale

Net Cash provided byOperating Activities

Sale of EquipmentPurch of Equipment

Net Cash used byInvesting Activities

Net increase in cash

Beg. Cash

End Cash

$ 221,400

+ 24,000 + 7,220 + 1,600 + 10,000 + 30,000 - 10,000 + 3,000

$ 287,220

$ 40,000 - 119,200

$ (79,200)

$ 208,020

37,000

$ 245,020

Not specifically requested by problem;already calculated CF using Direct Method.

Calculation of Free Cash Flows

Cash from OperationsLess: Capital Expenditures (net)

Free Cash Flows

$287,220 (79,200)

$208,020

Operating Activities

Investing Activities

59

Carwash Company (A)

Present0

Year1

Year2

Year3

Investment

Savings

Total

PV Factor

NPV Calc.

$(100,000)$ 40,000

$(60,000)

× 1.0000

$(60,000)

$15,000

$15,000

× 3.7908

$56,862

Year4

Year5

= $(3,138) < $0 +

From PV of Annuity Table

60

Carwash Company (B)The higher the interest rate, the lower the Present Value

Correct Answer: 12% YES, the investment should be made.

Present0

Year1

Year2

Year3

Investment

Savings

Total

PV Factor

NPV Calc.

$(15,403)

$(15,403)

× 1.0000

$(15,403)

$4,000

$4,000

× 0.8929

$3,571.60

Year4

$4,000

$4,000

× 0.7972

$3,188.80

$5,000

$5,000

× 0.7118

$3,559.00

$8,000

$8,000

× 0.6355

$5084.00 ≈ $0 difference

$15,403.40

61

1. DM $210,000

DL 140,000

VOH 30,000

$380,000

2. Sales $500,000

Loss: COGS:

DM $210,000

DL 140,000

VOH 30,000 2.

FOH $50,000 ($430,000)

GM 4. $ 70,000

VS&A ( 20,000)

FS & A ( 60,000)

Profit $( 10,000)

3. Sales $500,000

Less: VC:

DM $210,000

DL 140,000

VOH 30,000

VS & A $20,000 (400,000)

CM $100,000

5. BE ($) = FC BE ($) = $110,000 = $110,000

CM Ratio $100,000/$500,000 1/5

6.Operating Leverage = CM/NI = $100,000/10,000 = 10

= $550,000

Cass Company

62

Cattle Company (1997)

DM

$96,000

$202,000 $190,000

$108,000

DL

$130,000 $130,000

MOH

$15,000

104,000

$119,000 $119,000

- 0 -

Purch

Inventory Accounts

Product Costs

WIP

$71,000 190,000 130,000 $445,000 119,000

$65,000

FG

$45,000

$445,000 $408,000

$82,000

COGS

$408,000 $408,000

0

I/S

$408,000 $566,000

$135,000

$23,000

COGS

ACOGS

COGM

NI

Rev.

Admin.

BI + In = EI + Out

PeriodCosts

63

Cattle Company 1998WIP

$65,000

235,000

170,000 $562,000

176,000

$84,000

FG

$82,000

$562,000 $575,000

$69,000

COGS

$575,000 $575,000

I/S

$575,000 $812,000

$161,000

$76,000NI

Rev.

ACOGS

COGSCOGM

DM

$108,000

$229,000 $235,000

$102,000

DL

$170,000 $170,000

0

MOH

$18,000

158,000

$176,000 $176,000

0

Purch

Inventory Accounts

Product Costs

BI + In = EI + Out

Admin.PeriodCosts

64

1. Y= a + bx b = hi-low $

hi-low Activity

b = $80,630 - $45,380

986 – 486

b = $70.50 per testing hour

$80,630 = a + $70.50 (986)

$80,630 = a + $69,513

a = $11,117

Cost Formula

y = $11,170 + $70.50x

2.y = $11.17 + $70.50 (800)

y= $11.17 + $56,400

y= $67,517

Chain Saw Company

65

Chain Saw Company (cont.)CHAIN SAW COMPANYRegression Analysis

SUMMARY OUTPUTY = Costs X = Hours

J $54,235 640 Regression StatisticsF $59,520 722 Multiple R 0.915652697M $45,380 486 R Square 0.838419862A $64,000 886 Adjusted R Square 0.822261848M $59,235 634 Standard Error 4677.027055J $73,060 812 Observations 12J $81,625 927A $80,630 986 ANOVAS $75,105 958 df SS MS F Significance FO $63,970 819 Regression 1 1135045702 1135045702 51.88879487 2.91444E-05N $67,350 856 Residual 10 218745820.7 21874582.07D $55,285 546 Total 11 1353791523

Coefficients Standard Error t Stat P-value Lower 95% Upper 95%Intercept 17431.74361 6733.347046 2.588867542 0.027002373 2428.90886 32434.57837X = Hours 61.49849834 8.537441076 7.203387736 2.91444E-05 42.47589089 80.52110579

y = $61.50 x + $17,431.74

when x = 800 y = $66,631.74

Cost Function:

66

1.CM Ratio = CM = 60% VC = 40% of sales Sales

$12,000 x .60 = $7,200

2. Sales $9,000

x .60

CM $5,400

FC (6,000)

NI ($600)

NO

3. BE ($) = FC = $3,000 = $5,000 = $5,000

CM Ratio .60

4. Before After

Rev. $120,000 [12,000 x $10]

x .60 (VCU = $4)

CM $72,000

FC 18,000

NI $54,000

Rev. $144,000 [18,000 X $8]

72,000 (18,000 x $4 from “Before”)

CM $72,000

FC (20,000)

NI $52,000

NO

Clair’s Toys

67

The Costume Company

$800,000 ÷ $8.00 = 100,000 expected (budgeted) DLH… 4 DLH per unit

FIXED OVERHEAD Spending Volume Actual FOH Budgeted FOH Applied FOH BQ × SP SQ × SP $802,000 $800,000 (25,250)(4) × $8

$808,000

$2,000 U $8,000 F

$6,000 F

Flexible Budget Variance = $2,000 U

WHERE: BQ = Budgeted Qty. × Std. Allowed

68

Cowboy Boots Co.Standard Allowedfor Actual Output



yards

10,000 × $8.00

$80,000

(7,000)(1.5) × $9.0010,500 × $9.00

$94,500

10,000 × $9.00

$90,000

$10,000 F

$4,500 U

CAN’T!

DIRECT MATERIALS

11,000 × $9.00

$99,000

DM Purchased ≠ DM Used

69

Cowboy Boots Co. (p.2)Standard Allowedfor Actual Output

Rate Efficiency


DLH

3,800 × $15.50

$58,900

(7,000)(0.5) × $15.003,500 × $15.00

$52,500

3,800 × $15.00

$57,000

$1,900 U $4,500 U

$6,400 U

DIRECT LABOR

70

Cox Company

Price

AQ * AP AQ * SP SQ * SP18,000 * $3.60 SP = $3.40

18,000 * SP$64,800 $61,200

AQ * SP SQ * SP15,000 * $3.40 16,000 * $3.40

$51,000 $54,400

$3,600 u

Quantity/ Usage

$3,400 F

71

The Cutters (A)

PDOR =Est. MOH

Est. Activity=

780,000,000

10,000 DLH= 78,000 per DLH

78,000 per DLH × 80 DLH = 6,240,000 pesos applied to The Hunter

78,000 per DLH × 400 DLH = 31,200,000 pesos applied to The Carver

The Hunter (pesos)

The Carver (pesos)

Sales 19,500,000 Sales 53,000,000 Cost: Cost: Direct materials (4,500,000) Direct materials (10,000,000) Direct labor (1,200,000) Direct labor ( 6,000,000) Mfg. overhead (6,240,000) Mfg. overhead (31,200,000) Gross profit 7,560,000 Gross profit 5,800,000

72

The Cutters (B)

Manufacturing Overhead Pool

Cost Driver

Allocation Base Application Rate

Pool 1: 75,000,000 pesos 750,000

Number of parts

75,000,000 ÷ 750,000 =

100 pesos per part

Pool 2: 100,000,000 pesos 25

Number of production runs

100,000,000 ÷ 25 =

4,000,000 pesos per production run

Pool 3: 350,000,000 pesos 2,000

Number of machine hours

350,000,000 ÷ 2,000 =

175,000 pesos per machine hour

Pool 4: 100,000,000 pesos 25,000

Number of components tested

100,000,000 ÷ 25,000 =

4,000 pesos per component tested

Pool 5: 155,000,000 pesos 10,000

Number of direct labor hours

155,000,000 ÷ 10,000 =

15,500 pesos per direct labor hour

Use these rates to assign overhead to The Hunter and to The Carver

73

Allocation Rate

Pool 1: 100 pesos per part

Pool 2: 4,000,000 pesos per production run

Pool 3: 175,000pesos per machine hour

Pool 4: 4,000pesos per component tested

Pool 5: 15,500pesos per direct labor hour

Activity

15,000 units × 3 parts per unit

1production run

16machine hours

1,000components tested

80direct labor hours

Cost (pesos)

4,500,000

4,000,000

2,800,000

4,000,000

1,240,000

16,540,000

1,203 (Rounded)

Total mfg. overhead for 15,000 Hunters

Manufacturing overhead per cutter

Allocation Rate

Pool 1: 100 pesos per part

Pool 2: 4,000,000 pesos per production run

Pool 3: 175,000pesos per machine hour

Pool 4: 4,000pesos per component tested

Pool 5: 15,500pesos per direct labor hour

Activity

100,000 units × 1 part per unit

1production run

48machine hours

100components tested

400direct labor hours

Cost (pesos)

10,000,000

4,000,000

8,400,000

400,000

6,200,000

29,000,000

290

Total mfg. overhead for 100,000 Carvers

Manufacturing overhead per cutter

THE HUNTER THE CARVER

The Cutters (B) (p. 2)

74

The Cutters (B) (p. 3)

The Hunter (pesos)

The Carver (pesos)

Sales 19,500,000 Sales 53,000,000 Cost: Cost: Direct materials (4,500,000) Direct materials (10,000,000) Direct labor (1,200,000) Direct labor ( 6,000,000) Mfg. overhead (16,540,000) Mfg. overhead (29,000,000) Gross profit (2,740,000) Gross profit 8,000,000

PROFIT PER ACTIVITY-BASED COSTINGThe Cutters (B)

The Hunter (pesos)

The Carver (pesos)

Sales 19,500,000 Sales 53,000,000 Cost: Cost: Direct materials (4,500,000) Direct materials (10,000,000) Direct labor (1,200,000) Direct labor ( 6,000,000) Mfg. overhead (6,240,000) Mfg. overhead (31,200,000) Gross profit 7,560,000 Gross profit 5,800,000

PROFIT PER JOB-ORDER COSTING The Cutters (A)

75

Cutting Edge Skis

Shaping and Milling Dept.

November 1997

(Round to 3 decimal places)

WIP Units

200

5000

400

4800Out

BI

IN

EI

DM

50%

40%

CC

30%

25%

WIP - $ (Wtd. Avg.)

DM $3000

CC $1,000

DM $74,000

CC 70,000

DM $2,483.84

CC $1,449.00

$3,932.84

4800 * 30.014

= $144,067.20

= 400 * 40% * $15.524

= 400 * 25% * $14.490

OutBI

IN

EI

E.U.

DM CC

4800

160

4960

4800

100

4900


DM CC

$3,000

$74,000

$77,000

$1,000

$70,000

$71,000

BI

IN

Total

$/EU

DMCC

$77,000 / 4960 = $15.524

$71,000 / 4900 = $14.490

$30.014

OUT

EI: (DM) 400 * 40%

EI: (CC) 400 * 25%

E.U.


76

Cutting Edge Skis (p. 2)

WIP - $ (FIFO)

DM $3,000

CC $1,000

DM $74,000

CC $70,000

DM $2,436.16

CC $1,446.30

$3,882.46

$ 4,000.00 from BI

1,522.60 Finished DM 200×50%×$15.226

2,024.82 Finished CC 200×70%×$14.463

136,569.40 S&F 4,600 × $29.689

$144,116.82

= 400 × 40% × $15.226

= 400 × 25% × $14.463

OutBI

IN

EI

E.U.

DM CC

100

4,600

160

4,860

140

4,600

100

4,840


DM CC

$30

$16.667

$ per EU

BI: (DM) 200 × 50%

BI: (CC) 200 × 70%

Start & Finish

EI: (DM) 400 × 40%

EI: (CC) 400 × 25%

E.U.

FIFO METHOD

BI

$3,000 DM ÷ (200×50%)

$1,000 CC ÷ (200×30%)

Total

$46.667

$15.226

$14.463

$ per EUIN

$74,000 DM ÷ 4,860 E.U.

$70,000 CC ÷ 4,840 E.U. $29.689



WIP Units

200

5000

400

4800Out

BI

IN

EI

DM

50%

40%

CC

30%

25%

77

WTD. WTD.AVG. AVG.

SP VC CM MIX CM SP

Boston $1200 $700 $500 60% $300 $720

Deluxe $5000 2000 $3000 40% $1200 $2000

$1500 $2720

1.

60% Boston = 1200 Boston = 1200 Boston

40% Deluxe = 800 Deluxe = 800 Deluxe

2000 units total @ BE

2,000 units

BE (units) = FC = $3,000,000 = 2,000 units BE

CM per unit $1500

2.BE ($) = FC = $3,000,000 = $3,000,000

CM Ratio $1500/$2720 .55

= $5,440,000 BE($)

-- OR ---

1200 x $1200 = $1,440,000

800 x $5000 = 4,000,000

$5,440,000

Deering Banjo Company

78

Q=DLH

$4.00 $900,000

(SP) 1,500,000 × 150/1000

Rate Eff

AQ x AP190,000 x $4.00$760,000

SQ x SP

180,000 X $4.00

$720,000

$760,000 ÷ 190,000AQ x SP

$0 $40,000 U

1,200,000 x 150/1000

=

1. FC $150,000

VC $720,000

$870,000

190,000 × $4.00

$760,000GIVEN

=

180,000

2.Duo Company

79

East Meets West (A)

BE (units) = FC + NI = $20,000 =CM per Units ($10 - $6)

BE ($) = FC + NI = $20,000 =CMR ( $4 / $10)

BE (units) = FC + NI = $20,000 + $15,000 =CM per Units $4

BE ($) = FC + NI = $20,000 + $15,000 =CMR 0.4

1. 5,000 units

$50,000

2. 8,750 units

$87,500

80

East Meets West (B)

SP(X) = FC + VC(X) + NI

$10(X) = $20,000 + $6(X) + .15($10)(X)$10(X) = $20,000 + $6(X) + $1.50(X)$2.50(X) = $20,000

X = * $10ea. = $80,000

Sales = FC + VC + NISales = $20,000 + .60(Sales) + .15(Sales).25(Sales) = $20,000

Sales =

1.

8000 units

$80,000

81

East Meets West (C)

BE(units) = FC + NI = $18,000 + $9,000 = $27,000CM per unit $10.40 - $6.80 $3.60

=

BE ($) = FC + NI = $18,000 + $9,000 = $27,000CMR $10.40 - $6.80 0.346

$10.40

=

1.

7500 units

$78,000

82

East Meets West (D)

NIBT = NI AT = $8,400 = $12,000 NIBT1 - TR 0.7

BE(units) = FC + NI = $20,000 + $12,000 =CM per unit $4

BE ($) = FC + NI = $20,000 + $12,000 =CMR 0.4

1.

8000 units

$80,000

83

East Meets West (E)

Current BE ($) = FC + NI = $20,000 + $12,000 = $80,000CMR 0.4

New BE ($) = FC + NI = $27,500 + $12,000 = $79,000CMR 0.5

This seems better because EMW does notneed earn as much revenue to achieve itstarget profit

BUT!

Current BE ($) = FC + NI = $20,000 = $50,000CMR 0.4

New BE ($) = FC + NI = $27,500 = $55,000CMR 0.5

Current MS Ratio = Actual Rev. – BE Rev. = $80,000 - $50,000 = .375Actual Rev. $80,000

New MS Ratio = Actual Rev. – BE Rev. = $79,000 - $55,000 = .304

Actual Rev. $79,000

MORE RISKY

84

Fast Company

VARIABLE-COSTING INCOME STATEMENTS

SalesLess variable expenses: Variable cost of goods sold a

Variable selling and administrative b

Contribution marginLess fixed expenses: Fixed overhead Fixed selling and administrativeNet income

$1,500,000

(900,000) (37,500)$ 562,500

(150,000) (50,000)$ 362,500

$1,000,000

(600,000) (25,000) $ 375,000

(150,000) (50,000)$ 175,000

$2,000,000

(1,200,000) (50,000)$ 750,000

(150,000) (50,000)$ 550,000

2002 2003 2004

a 2002: $6.00 × 150,000 = $ 900,000 2003: $6.00 × 100,000 = $ 600,000 2004: $6.00 × 200,000 = $1,200,000

b $0.25 per unit × Units sold

$4.00 + $1.50 + $0.50 = $6.00

85

Fast Company (p. 2)

ABSORPTION-COSTING INCOME STATEMENTS

SalesLess cost of goods sold: Variable manufacturing expense a

Fixed manufacturing expense b

Gross marginLess selling and admin. expenses: Variable selling and admin.c

Fixed selling and admin.Net income

$1,500,000

(900,000) (150,000)$ 450,000

(37,500) (50,000)$ 362,500

$1,000,000

(600,000) (100,000) $ 300,000

(25,000) (50,000)$ 225,000

$2,000,000

(1,200,000) (200,000)$ 600,000

(50,000) (50,000)$ 500,000

2002 2003 2004

a 2002: $6.00 × 150,000 = $ 900,000 2003: $6.00 × 100,000 = $ 600,000 2004: $6.00 × 200,000 = $1,200,000

b 2002: $1.00 × 150,000 = $ 150,000 2003: $1.00 × 100,000 = $ 100,000 2004: $1.00 × 200,000 = $ 200,000

c $0.25 per unit × Units sold

FOH per unit = Est. FOHNormal volume

=$150,000150,000 = $1.00 per unit

$4.00 + $1.50 + $0.50 = $6.00

86

Fools Gold JewelryStandard Allowedfor Actual Output



ounces

663 × $300

$198,900

(1,300)(0.5) × $295650 × $295$191,750

663 × $295

$195,585

$3,315 U $3,835 U

$7,150 U

DIRECT MATERIALS

87

Frodo CompanyThere are two ways students can approach this problem. Costs Keep Old Buy NewOperating costs ($75,000) ($20,000)Depreciation (NOT RELEVANT) ($30,000) ($30,000)Resale of old $ 2,000Purchase of new ($40,000)

_______ _______($105,000) ($88,000) $17,000 savings!

Incremental

Change in operating cost $11,000 × 5 years = $ 55,000Resale of old machine $ 2,000Cost of new machine ($40,000)(Cost) or Savings $ 17,000

88

Funk and Wagnall

Relevant Irrelevant Opportunity Outlay Outlay Sunk

X (1.)X (2.)

X (3.)X (4.)

X (5.)X (6.)

X (7.)X (8.)

X X (9.)X (10.)

1.2.3.4.5.6.7.8.9.10.

89

Gee-Whiz ShoesStandard Allowedfor Actual Output

Rate Efficiency


DLH

9,500 × $18.20$172,900

(20,000)(0.5) × $18.00650 × $295$180,000

9,500 × $18.00$171,000

$1,900 U $9,000 F

$7,100 F

DIRECT LABOR

90

Halo Products CompanyA.

B.

C.

D.

PDOR = Est. MOH

Est. Activity=

$200,000

32,000= $6.25

Applied MOH = PDOR * Actual Activity

= $6.25 * 36,400 = $227,500

MOH

Actual

$256,200

Applied

$227,500

Underapplied $28,700

$256,200 / 36,400 = $7.04

91

Hannibal CompanyDM

BI $23,400

Purch $160,000

$33,400

150,000

$100,000 $100,000

0

DL

IDL $20,000

Rent 21,000

Depr 30,000

Util . 5,978

76,978

76,978

0

$6,520

150,000

100,000

76,978

$7,498

326,000

WIP

$40,000

326,000

57,050

308,950

FG

308,950 308,950

0

COGS

I/S

$308,950

Sales Sp;amoes $55,000

Sales Comm. 38,000

Admin. 61,000

$600,000 Sales Rev

$137,050 NI

MOH

92

Hassett Company1998 budget requires 20,000 handles for use in the production of pots. Costs to manufacture the handles is as follows:

DM $.60DL $.40VOH $.10FOH $.20Total $1.30

R&M Steel Co. has offered to supply handles for $1.25 each. Should Hassett MAKE or BUY? MAKE! $1.10 < $1.25

DM, DL, VOH = relevant costs that change

93

The Hat Source

1. BE(units) =CM per unit

FC + NI=

$150,000 + $0

$30 - $18= 12,500 units

BE($) =CM Ratio

FC + NI=

$150,000 +$0

40%= $375,000


FC + NI=

$30 - $18= 15,000 units

BE($) =CM Ratio

FC + NI=

$150,000 +$30,000

40%= $450,000

$150,000 + $30,000

94

Herd Company

Spend N/AVOH

AQ * AP AQ * SP SQ * SP SQ * SP$3.00

Spend VolumeFOH

Actual Budgeted Budgeted

50,000 * $6,000$300,000

42,000 $6.00$252,000

N/A

SQ * SPApplied

Eff

$48,000 u

95

VOH

Spending Efficiency

AQ x AP

$131,000

AQ x SP

121,000 x $.50

$60,500

$3,000U

SQ x SP

115,000 x $.50

$57,500

N/A

SQ x SP

115,000 x $.50

FOH

Actual

Budgeted

$110,000

Budgeted

$110,000

Applied

SQ x SP ($1)

115,000

Spending N/A Volume

$5,000 F

TOTAL

$178,500 $179,500

$3,000U

$172,500

Spending Efficiency Volume

$5,000 F$8000 U

Herman Company

96

Holland CompanyThe cost of a single unit of product under the two costingmethods would be:

Absorption VariableCosting Costing

DM, DL & Vbl MOH $5.00 $5.00Fixed MOH ($15,000/5,000 units) $3.00 - Total cost per unit $8.00 $5.00

Absorption costing Year 1 Year 2 Year 3 Total

Sales (@ $15.00) $75,000 $60,000 $90,000 $225,000Less COGS: Beg. Inv. (@ $8.00) 0 0 8,000 0 COGM (@ $8.00) 40,000 40,000 40,000 120,000 CGAS 40,000 40,000 48,000 120,000 End. Inv. (@ $8.00) 0 8,000 0 0 COGS 40,000 32,000 48,000 120,000Gross Margin 35,000 28,000 42,000 105,000Less S&A 26,000 25,000 27,000 78,000Net Income $9,000 $3,000 $15,000 $27,000

97

Holland Company (p. 2)Variable costing Year 1 Year 2 Year 3 Total

Sales (@ $15.00) $75,000 $60,000 $90,000 $225,000Less vbl. exp: Vbl COGS (@ $5.00) 25,000 20,000 30,000 75,000 Vbl S&A (@ $1.00) 5,000 4,000 6,000 15,000Total vbl. exp. 30,000 24,000 36,000 90,000Contribution margin 45,000 36,000 54,000 135,000Less fixed exp: MOH 15,000 15,000 15,000 45,000 S&A exp. 21,000 21,000 21,000 63,000Total fixed exp. 36,000 36,000 36,000 108,000Net income $9,000 $0 $18,000 $27,000

A reconciliation of the net income figures for the two methodsover the three year period follows:

Year 1 Year 2 Year 3

Variable costing NI $9,000 $0 $18,000Add: FOH cost deferred in inv. under absorp. costing (1,000 units x $3.00) 3,000Less: FOH cost released from inv. under absorption costing (1,000 x $3.00) (3,000)Absorption costing NI $9,000 $3,000 $15,000

98

Home Quality Products

Prevention Costs: b. Seminar costs for “Vendor Day”.

Appraisal Costs: c. Costs of conformance tests at Charlotte plant. e. Costs of inspection tests at the Raleigh packaging plant.

Internal Failure Costs: a. Labor and materials costs of reworking a batch of steam-iron handles.

External Failure Costs: d. Replacement cost of 1,000 steam-irons sold in the Pittsburgh are.

The cost of customer ill-will created by the sale of defective products has two components:

(a) The volume of future lost sales,(b) The contribution margin on lost sales.

Customer surveys and interviews with distributors and retailers can provide a way to estimate (a);(b) can be estimated using internal accounting information.

1.

2.

99

1.BE (units) = FC = $30,000 = 2000 units

CM per unit $35-$20

BE ($) = FC = $30,000 = $70,000 CM ratio $35-$20

$35

2. BE ($) = FC + NI = ($30,000 X 12) + $510,000 = $2,030,000 CM ratio $35-$20

$35

3. MS ($) = Actual Rev. – BE Rev.

= $2,030,000 – ($70,000 x 12)

= $2,030,000 - $840,000

= $1,190,000

MS Ratio = Actual Rev. – BE Rev.

Actual Rev.

= $2,030,000 - $840,000 = 58.6%

$2,030,000

4. Operating Income = NIAT = $864,000 = $1,440,000

I – TR = 1 - .4

BE (units) = FC + NI = $360,000 + $1,440,000 = 120,000 units annually,

CM per unit $35-$20

10,000 units monthly

Houghton’s Limited

100

The Hour RecordDistance traveled is the ‘score,’ determining who wins and who doesn’t, and seems to be best considered a financial measure. Net income or cash flow if you will. This is a historical measure; at any point in time this measure only tells you what has occurred in the past.

Bicycle speed is the predictive of what ‘score’ will be achieved. Measures that do this can be both financial (expected sales in dollars) and nonfinancial (expected sales in units).

Heart Rate is a measure of current effort, such as the amount (in units or dollars) of materials, labor and/or overhead being used in production. In general, with heart rate and with materials usage, lower is better. Again, this is a historical measure but is predictive to the degree that heart rate this minute will be the same as heart rate the next minute. Human body efficiency decreases over time, so heart rate will increase over time, but business efficiency should increase over time, and the corresponding efficiency measures should improve.

Can a target (or budgeted) distance be useful in this scenario? Or at least knowledge of the last record set? If after 30 minutes the rider is less than halfway toward the old record, someone should determine if the record can realistically be equaled or broken. If the record is unrealistic, the rider might as well cut his or her losses and save the energy for another task.

101

Howdy Company$602,000 / 70,000 = $8.60 / hr $735,000 / $420,000 = 1.75%

110 * $8.60 = $946.00 $680 * 1.75 = $1,190.00 $946 + $1190 = $2,136

DM

DL

MOH

$470

290

946

$1,706

DM

DL

MOH

332

680

1190

$2,202 $1706 + $2202 = $3908 / 50 units = $78.16

MOH

(65,000 * $8.60)

559,000

$4,000

0

$570,000

$11,000

underapplied

COGS

$11,000

MOH

$750,000

$13,000

($436,000 * 1.75)

$763,000

$13,000

0

COGS

$13,000

1.

2.

3.

4.

A – machine hours B – DL$

overapplied

102

J.B. Goode CompanyPDOR = Est. MOH = $135,000 = $13.50 per DLH

Standard [Applied MOH = Actual Activity × PDOR]

Custom [Applied MOH = Actual Activity × PDOR]

This part of the calculation is a little unusual because we are using actual MOH in the calculation rather than estimated MOH

Est. Activity 10,000

900 units × 10 DLH = 9000 DLH

×$13.50

$121,500 Applied MOH

100 units × 10 DLH = 1000 DLH

×$13.50

$13,500 Applied MOH

1.

103

J.B. Goode Company (p. 2)

2. STANDARD [Applied MOH = Actual Activity × PDOR]

Depr.Maint.Purch.Insp.IDMSuper.Supplies

3,0009,0001,500 400 900 400 900

×××××××

$10.00$ 1.50$11.00$12.00$15.00$28.00$ 3.00

=======

$30,000 13,500 16,500 4,800 13,500 11,200 2,700$92,200 Applied MOH ÷ 900 Guitars = $102.45 each

CUSTOM [Applied MOH = Actual Activity × PDOR]

Depr.Maint.Purch.Insp.IDMSuper.Supplies

1,0001,000 500 600 100 600 100

×××××××

$10.00$ 1.50$11.00$12.00$15.00$28.00$ 3.00

=======

$10,000 1,500 5,500 7,200 1,500 16,800 300$42,800 Applied MOH ÷ 100 Guitars = $428 each

104

J.B. Goode Company (p. 3)

3. CustomOLD WAY

CustomNEW WAY

DMDLMOHTOTAL

DMDLMOHTOTAL

$375$240$135$750

$ 375$ 240$ 428$1,043

NO ... $1,000 Revenue does not cover the manufacturing expense

The single biggest reason for the higher overhead costis the supervision required for the custom guitars.

105

Joe Slow

R

R

R

I

R

I

R

I

R

1.__________ The cost of traveling the 250 miles to Finding Foodstore.2.__________ The time he will spend on the road.3.__________ The time he will spend visiting with Finding Foodstore executives.4.__________ The amount of time already devoted to Finding Foodstore.5.__________ The revenue potential from Finding Foodstore.6.__________ The cost of his last visit to Finding Foodstore.7.__________ The probability that his visit will result in new sales.8.__________ The cost of lunch for himself if he visits Finding Foodstore.9.__________ The cost of lunch he would buy for Finding Foodstore executives.

106

The John Company

WIP Units

5,000

40,000

10,000

35,000

OutBI

IN

EI

DM

100%

100%

CC

60%

40%

WIP - $ (Wtd. Avg.)

DM $5,050

CC $3,270

DM $44,000

CC $48,600

DM $10,900

CC 5,320

$16,220

35,000 × $2.42

= $84,700

= 10,000 × 100% × $1.09

= 10,000 × 40% × $1.33

OutBI

IN

EI

E.U.

DM CC

35,000

10,000

45,000

35,000

4,000

39,000


DM CC

$5,050

$44,000

$49,050

$3,270

$48,600

$51,870

BI

IN

Total

$/EU

DM CC

$49,050 / 45,000 = $1.09 $51,870 / 39,000 = $1.33

$ 2.42

OUT

EI: (DM) 10,000 × 100%

EI: (CC) 10,000 × 40%

E.U.


107

The John Company (p.2)

WIP Units

5,000

40,000

10,000

35,000

OutBI

IN

EI

DM

100%

100%

CC

60%

40%

WIP - $ (FIFO)

DM $5,050

CC $3,270

DM $44,000

CC $48,600

DM $11,000

CC 5,400

$16,400

$ 8,320 from BI

2,700 Finished CC 5,000×40%×$1.35

73,500 S&F 30,000 × $2.45

$84,520

= 10,000 × 100% × $1.10

= 10,000 × 40% × $1.35

OutBI

IN

EI

E.U.

DM CC

- 0 -

30,000

10,000

40,000

2,000

30,000

4,000

36,000

Costs per EU

DM CC

$1.01

$1.09

$ per EU

BI: (DM) 5,000× 0%

BI: (CC) 5,000×40%

Start & Finish

EI: (DM) 10,000×100%

EI: (CC) 10,000× 40%

E.U.

FIFO METHOD

BI

$5,050 DM ÷ (5,000×100%)

$3,270 CC ÷ (5,000× 60%)

Total

$2.10

$1.10

$1.35

$ per EUIN

$44,000 DM ÷ 40,000 E.U.

$48,600 CC ÷ 36,000 E.U. $2.45



108

Jolly Candies


FC + NI=

$400 + $300

$1= 700 units


FC + NI=

$400 + $0

$1= 400 units 400 units × 120% = 480 units

(volume 20% above breakeven volume)

Rev (480 units × $4)- VC (480 units × $3) CM- FC NI

$1,920 1,440$ 480 400$ 80

3. NIBT = NIAT

1- TR=

$300

1 – 40%= $500

BE(units) =CM per unit

FC + NI=

$400 + $500

$4.00 - $3.50= 1,800 units

109

Jude Law & AssociatesIf the new system is purchased, what will occur??

$180,000 Labor cost savings on old system ($36,000 × 5 years) 10,000 Sale of old system (76,000) Cost of new system (90,000) Labor cost of new system ($18,000 × 5 years) 500 Higher residual value of new system

$24,500 SAVINGS BY PURCHASING NEW SYSTEM

110

Judge Ely JeansDM

$29,500

98,400 95,600

$32,300

DL

$118,400 $118,400

0

MOH

$ 7,200

44,800

4,800

$21,600

10,400

15,200

35,200

$139,200 $139,200

0

60% * 36000 =

WIP

$49,600

95,600

118,400 340,400

139,200

$62,400

FG

$37,600

340,400 326,000

$52,000

COGS

$326,000 $326,000

0

I/S

$326,000 $715,200

$7,200

$14,400

4,000

2,640

123,200

15,300

166,740

492,740

$222,460 NI

S&A

40% * $36,000 =

COGS

ACOGS

COGM

111

Kaitlyn Korporation

CASH

$15,000$90,000

$32,000

$12,000

$125,000Beg.Collections

Borrow

End

Disbursements

112

Kennedy Company

Price Quantity

AQ * AP AQ * SP SQ * SP1,600 * AP

1,600 * $3.60$5,520 $5,760

AQ * SP SQ * SP * $3.60 1,450 * $3.60

$240 F

AP = $3.45

113

Lands End Men’s Suits Price Qty/Usage

AQ × AC AQ × SC SQ × SC10,000 × $5.00 10,000 × $6.00$50,000 $60,000

$10,000 F

AQ × SC SQ × SC (2700)(4) × $6.00 (2700)(3.5) × $6.00 $64,800 $56,700

$8,100 U

CAN’T!

Actual Cost < Standard Cost = FAVORABLEActual Quantity < Standard Quantity = FAVORABLE

Standard Allowedfor Actual Output

(in units)

114

Mango Motors

Absorption Costing

Income Statement


Rev. $810,000

COGS (540,000)

(60,000)

GM $210,000

S&A (67,500)

(50,000)

NI $92,500

Variable Costing

Income Statement

For the year Ended Dec. 31, 1996

Rev. $810,000

VC (540,000)

(67,500)

CM $202,500

FC (60,000)

(50,000)

NI $92,500

115

Marie Manufacturing CompanyBI $ 42,000

Purch. $850,000

EI $ 48,000

DM

(a.)

$844,000

$820,000

DL

$820,000

MOHIDM

Supplies

Fact Depr

Security

Supplies

Equip Dep

$ 4,000

$ 6,200

$ 60,000

$ 12,000

$ 82,600

$560,000

$765,000$724,800

OverappliedMOH

$40,200

$40,200

WIPBI $ 84,000

$844,000

$820,000

$765,000

$93,000EI

$2,420,000

(d.)

FG$ 124,000

$2,420,000

BI

$2,411,000

$ 133,000EI

COGS$2,411,000

$2,370,800 (e.)

$2,370,800

0

I/S

Office Depr.

Adm. Depr.

Sales Sal.

Office Depr.

$3,335,000 Sales$2,370,800

$ 4,000

$ 3,000

$120,000

$ 22,200

$2,520,000

$815,000 (f.)

0

0


Estimated Activity=

$750,000

50,000 DLH= $15 per DLH


51,000 DLH × $15 = $765,000

(b.)

(c.)

$ 40,200

116

McKay Mills1.

2.

PDOR = Est. OH / Est. Activity

= $1,335,000 / 1645

(500 + 410 + 735)

PDOR = $811.55 per DLH

Actuals:

Yarn 455 * $811.55 = $369,255.25

Fabric 420 * $811.55 = $340,851.00

Clothing 750 * $811.55 = $608,662.50

$1,318,768.75

MOH

Actual

$1,372,000.00

Applied

$1,318,768.75

$53,231.25 underapplied

117

Mesa Verde Company

MESA VERDE COMPANYBalance Sheet

December 31, 2005

AssetsCurrent Assets: Cash ………………………… Accounts receivable ………… Inventories ………………….. Total current assets …………Noncurrent assets …………….Total assets ……………………

Liabilities

Stockholders’ Equity

Current liabilities ..……………Noncurrent liabilities …………Total liabilities.………………..

Common stock ..………………Additional paid-in capital …….Retained earnings .……………Total stockholders’ equity ……Total liabilities and equity ……

$ 10,25046,000

86,250

$ 22,500 62,000

$142,500 280,000$422,500

$ 84,500

$150,00060,000

128,000 338,000

$422,500

Where? How?Note 8 [Plug]Note 5Note 4Note 7 [Plug](Given)Note 6 [Calc. = Total L + SE]

Note 9Note 10 [Plug]Note 3

(Given)(Given)Note 2Note 2[Calc.: Note 6]

118

Mesa Verde (p. 2)SUPPORTINGCOMPUTATIONS

Note 1: Compute net income for 2005

Sales …………………..Cost of goods sold ……Gross profit …………..Operating expenses …..Income before taxes ….Taxes expense ………..Net income ……………

$920,000 690,000$230,000

180,000$ 50,000 20,000

$ 30,000

(75% of sales (100% - Gross profit margin ratio))(25% of sales (#) Gross profit margin ratio)

(tax at 40% rate (#))

Note 2: Compute Stockholders’ Equity

Common stock ($15 par × 10,000 sh.)Additional paid-in capital (($21-$15)×10,000 sh.)

Retained earnings, Dec. 31, 2004Net incomeRetained earnings, Dec. 31, 2005Total stockholders’ equity

$150,000 60,000

98,000 30,000

(#) — piece(s) of information provided in problem

$210,000

128,000$338,000

(#)(#)

(#)

(#)

Note 3: Total equity

Total Debt

$338,0000 ÷ 4$ 84,500

(#) Shareholders’ equity to total debt

119


Note 4: Inventory turnover = Cost of goods sold ÷ (Avg.) Inventory 8 = $690,000 (from Note 1) ÷ Inventory Inventory = $86,250

(#) or (#) — piece(s) of information provided in problem

Precisely is “Avg.” Inv.., We will use as “End”

(because it is all we have)

8 = 360(#) ÷ 45(#) Days sales in inventory

An alternative calculation for Inventory turnover

Days sales in receivables = Receivables ÷ (Credit sales ÷ 360(#)) 18 days (#) = Receivables ÷ ($920,000(#)÷360) Receivables = $46,000

“Ending”

Note 6: Total assets = Total liabilies + Total equity = $338,000 (from Note 3) + $84,500 (from Note 3) = $422,500

Total assets = Current assets + Noncurrent assets $422,500 = Current assets + $280,000 (#)Current assets = $142, 500

Current assets = Cash + Receivables + InventoryCash (plug) = Total assets – Receivables – Inventory = $142,500 - $46,000 (from Note 4) - $86,250 (from Note 4) = $10,250

Note 5:

Note 7:

Note 8:

120



Note 9: Acid-test ratio = (Cash + Accounts receivable) ÷ Current liabilities 2.5 (#) = ($10,250 + $46,000) ÷ Current liabilities

Current liabilities = $22,500

Total liabilities = Current liabilities + Noncurrent liabilities $84,500 (from Note 3) = $22,500 + Noncurrent liabilities

Noncurrent liabilities = $62,000

Note 10:

121

Millstone Company

MILLSTONE COMPANYBalance Sheet

December 31, 2004

AssetsCurrent Assets: Cash ………………………… Accounts receivable ………… Inventories ………………….. Total current assets …………Noncurrent assets …………….Total assets ……………………

Liabilities

Stockholders’ Equity


Common stock ..………………Additional paid-in capital …….Retained earnings .……………Total stockholders’ equity ……Total liabilities and equity ……

$ 61,700115,000

161,000

$276,000 63,080

$337,700 510,000$847,700

$339,080

$100,000150,000

258,620 508,620

$847,700

Where? How?Note 7Note 4Note 3Calculation: Cash+A/R+Inv.(Given)Calc: Note 8


(Given)(Given)Note 13 [Plug]Note 11[ = Total assets]

122

Millstone (p. 2)SUPPORTINGCOMPUTATIONS



$1,840,000 1,288,000

$552,000

$ 92,000

(#)(70% of sales (100% - Gross profit margin ratio))(30% of sales (#) Gross profit margin ratio)

(5% Net operating profit margin ratio (#))

Note 2: Compute Stockholders’ Equity

Common stock ($15 par × 10,000 sh.)Additional paid-in capital (($21-$15)×10,000 sh.)

Retained earnings, Dec. 31, 2004Net incomeRetained earnings, Dec. 31, 2005Total stockholders’ equity

$100,000 150,000

$166,620 92,000


$250,000

258,620$508,620

(#)(#) (#)

[Plug: Note 12](Note 11)

The Answer toQuestion #2

(Note 13)

Note 3: Inventory turnover = Cost of goods sold ÷ (Avg.) Inventory 8 (#) = $1,288,000 (from Note 1) ÷ Inventory Inventory = $161,000



123



Accounts receivable turnover = Sales ÷ Average accounts receivable 16 (#) = $1,840,000 ÷ Avg. A/R Accounts receivable = $115,000

Note 5:

Working capital = Current assets - Current liabilities = Cash + Accounts receivable + Inventories - Current liabilities $27,200 (#) = Cash + $115,000 (Note 4) + $161,000 (Note 3) - $276,000 (Note 6) Cash = $61,700

Note 4:

Note 6:

Note 7:



Operating cash flow to income = Operating cash flow ÷ Net income 3 (#) = Operating cash flow ÷ $92,000 (Note 1) Operating cash flow = $276,000

Cash flow to current liabilities ratio = Operating cash flow ÷ Current liabilities 1 (#) = $276,000 (Note 5) ÷ Current liabilities Current liabilities = $276,000

Note 8: Total assets = Cash + Accounts receivables + Inventories + Noncurrent assets = $61,700 (Note 7) + $115,000 (Note 4) + $161,000 (Note 3) + $510,000 (#)Total assets = $847,700

124

Total debt ratio = Total liabilities ÷ Total assets 0.4 (#) = Total liabilities ÷ $847,700 (Note 8)Total liabilities = $339,080



Note 9:

Note 10: Total liabilities = Current liabilities + Noncurrent liabilities $339,080 (Note 9) = $276,000 (Note 6) + Noncurrent liabilitiesNoncurrent liabilities = $63,080

Note 11: Total assets = Total liabilities + Total equity $847,700 (Note 8) = $339,080 (Note 9) + Total equityTotal equity = $508,620

Note 12: Total equity = Common stock + Add’l paid-in capital + Ending retained earnings$508,620 (Note 11) = $100,000 (#) + $150,000 (#) + Ending R/EEnding retained earnings = $258,620

Note 13: End retained earnings = Begin retained earnings + Net income $258,620 (Note 12) = Begin retained earnings + $92,000 (Note 1) Begin retained earnings = $166,620

125

Missouri Retailers (A)

APR

MAY

JUN

FebMar.Apr.

Mar.Apr.May

Apr.MayJun.

$ 85,000×20%$ 95,000×30%$ 75,000×50%

$ 95,000×20%$ 75,000×30%$ 85,000×50%

$ 75,000×20%$ 85,000×30%$108,000×50%

$17,00028,500

37,500$83,000

$19,00022,500

42,500$84,000

$15,00025,500

54,000$94,500

APR MAY JUN Total

$261,500

126

Missouri Retailers (B)

Mar.Apr.

Apr.May

MayJun.

$50,000×70%$55,000×30%

$55,000×70%$65,000×30%

$65,000×70%$88,000×30%

$35,000 16,500$51,500

$38,500 19,500$58,000

$45,500 26,400$71,900

Total

$181,400

APR

MAY

JUN

APR MAY JUN

127

Mizzou Company1.

PDOR = Estimated Activity ÷ Estimated Activity= $130,890 ÷ 1,720= $76.10 per DLH

Unit Product Cost: Direct Materials Direct Labor Mfg. Overhead Total Unit Cost

Miz Zou

$10.70 11.20 53.27 *$75.17

$16.70 19.20 91.32 **$127.22

* 0.7 DLH/unit × $76.10 = $53.27** 1.2 DLH/unit × $76.10 = $91.32

2. Activity-Based Costing: Activity Rates

Activity Cost Pool Machine set-ups Purchase orders General factory

EstimatedMOH

EstimatedActivity

ActivityRates

$13,57091,52025,800

230 setups2,080 orders1,720 DLH

$59 per setup$44 per order$15 per DLH

Traditional Method

128

Mizzou Company (p. 2)

Activities Machine set-ups Purchase orders General factory Total Overhead Cost

3. (a)

ActivityRates

$59 per setup$44 per order$15 per DLH

EstimatedActivity

100 setups 810 orders 280 DLH

MOH$ 5,900

35,640 4,200$45,740

EstimatedActivity

130 setups1,270 orders1,440 DLH

MOH$ 7,670

55,880 21,600$85,150

MIZ ZOU

Activity-Based Costing: Applying MOH to Products

3. (b) Activity-Based Costing: MOH per Unit

Number of units produced 400 units 1,200 units

MOH per unit $114.35 per unit $70.96 per unit

Unit Product Cost: Direct Materials Direct Labor Mfg. Overhead Total Unit Cost

Miz Zou

$ 10.70 11.20 114.35$136.25

$16.70 19.20 79.96$106.86

3. (c) Activity-Based Costing: Unit Product Costs

129

Moehrle ManufacturingCosts to manufacture:DM $45DL $30VOH $30FOH $22Total $127 A special order is received to produce monitors with a special logo that would increase production costs by $5.00 per monitor * *What is the minimum selling price Moehrle should accept for this order?

$105+ $5$110 minimum selling price for special order

130

$60,000

$250,000 $240,000

$70,000

DL

$405,000 $405,000

MOH

$10,000

25,000

100,000

35,000

30,000

$200,000

- 0 -

Purch

Inventory Accounts

Product Costs

$120,000 240,000 405,000 $850,000 200,000

$115,000

FG

$150,000

$850,000 $835,000

$165,000

COGS

$835,000 $835,000

- 0 -

I/S

$835,000 $940,000

$110,000

$ 5,000

COGS

ACOGS

COGM

NI (LOSS!!)

Rev.

Admin.

BI + In = EI + Out

PeriodCosts

$200,000

DM WIP

Muleskinner Athletic Wear, Inc.

131

Narcissus Needles1.

2.

3.

Utilities $10,000

Depr. 15,000

Dupr. Sal. 30,000

Janitorial 6,000

Ins. 9,000

Total MOH $70,000

Est. DLH = 3,500

PDOR = Est. OH / Ect. Activity

= $70,000 / 3,500

PDOR = $20

Apploied OH = PDOR * Activity

= $20 * 3,600 DLH

Applied OH = $72,000

Utilities $10,500

Depr. 15,000

Supr. Sal. 30,000

Janitorial 5,200

Ins. 8,500

Total MOH $69,200

Actual

$69,200

Applied

$72,000

MOH

$2,800 Overapplied

132

Paradise Company

40,000 10,000 80,000

Purch. 1,000,000 1,000,000 1,000,000 1,000,00050,000 10,000 50,000

RM (RM-lbs.) WIP (RM-lbs.) FG (RM-lbs.)

1,010,000

133

Pirates, Inc.

Rate Efficiency

AQ × AC AQ × SC SQ × SC28,000 × $11.70 28,000 × $12.00 (22,000)(1.25) × $12.00 $327,600 $336,000 $330,000

$8,400 F $6,000 U

$2,400 F

Std. Allowed forActual Output(in units)

134

Plentiful Printing, Inc.$15,000

95,000

$20,000

90,000

DM

$3,000

90,000

40,000

60,000

8000

2000

3000

$13,000

$180,000

WIP

$20,000

180,000

$15,000

185,000

FG

$40,000

2,500 * $16

$40,000

0

DL

Actual

$57,000

3000

Applied

$40,000 * 1.5

= $60,000

3000

0

MOH

$185,000

$182,000

0

3000

$182,000

COGS

$182,000

57,000

12,000

$285,000

$34,000

I/S

PDOR = Est OH / Est Activity = $600,000 / $400,000 = 1.5 per DL $

$2000 / 125 hrs = $16 /hr Direct

Labor

Rate

BI

Purch

EI

BI

EI

Adj. COGS

Selling

Admin

Sales

NI

COGM

COGS

Adj. COGS

135

Polaris Company$ 10,000

$210,000

$ 34,000

$178,000

$ 12,000

DM

BI

Purch

EI

$ 42,000

$178,000

$ 90,000

$240,000

$ 30,000

$520,000

BI

EI

WIP

$ 37,000

$520,000

$ 77,000

$480,000

BI

EI

FG

$ 90,000 $ 90,000

- 0 -

DL

MOH

$ 12,000

$110,000

$ 40,000

$ 70,000

$232,000 30,000 * $8

= $240,000

$ 8,000

- 0 -

IDM

IDL

Depr.

Other

COGS

I/S

$472,000

$ 54,000

$ 42,000

$600,000

$ 32,000

COGS

Selling

Admin.

Sales

NI$ 8,000

$480,000

$472,000

Adj. COGS

COGS

$ 8,000

$472,000

- 0 -

136

Polaris Company (p. 2)

$600,000

$ 24,000

$210,000

$ 90,000

$110,000

$ 70,000

$ 54,000

$ 42,000

CASH

$ 40,000

Accum. Depr.

[Stmt. of Cash Flows]

137

Portland Pilots Association

Assets 2004 2003Cash $67,200 $40,800 $26,400 IncreaseAccounts receivable $24,000 $36,000 (12,000) DecreasePrepaid expenses $4,800 $0 4,800 IncreaseLand $156,000 $0 156,000 IncreaseBuilding $192,000 $0 192,000 IncreaseAccumulated depreciation - building ($13,200) $0 (13,200) IncreaseEquipment $32,400 $12,000 20,400 IncreaseAccumulated depreciation -- equipment ($3,600) $0 (3,600) IncreaseTotal $459,600 $88,800

Liabilities and Stockholders' EquityAccounts payable $70,800 $4,800 $66,000 IncreaseBonds payable $156,000 $0 156,000 IncreaseCommon stock $60,000 $60,000 0Retained earnings $172,800 $24,000 148,800 IncreaseTotal $459,600 $88,800

Increase/DecreaseChange

31-Dec

Portland Pilots AssociationComparative Balance Sheets

138

Portland Pilots Assoc. (p. 2)

Operating ActivitiesNet income $166,800Adjustments to convert net income to a cash basis: Depreciation expense $18,000 Loss on sale of equipment 3,600 Decrease in accounts receivable 12,000 Increase in prepaid expenses (4,800) Increase in accounts payable 66,000 94,800Net cash provided by operating activities $261,600

Investing Activities Purchase of building ($192,000) Purchase of equipment (30,000) Sale of equipment 4,800Net cash used by investing activies (217,200)

Financing Activities Payment of cash dividends (18,000)Net cash used by financing activities (18,000)

Net increase in cash and cash equivalents $26,400Cash and cash equivalents at beginning of year 40,800Cash and cash equivalents at end of year $67,200

Noncash investing and financing activities Issuance of bonds payable to purchase land $156,000

PORTLAND PILOTS COMPANYStatement of Cash Flows -- Indirect Method

For the Year Ended December 31, 2004

139

Postmodern ProductsStandard Allowedfor Actual Output



feet

15,200 × $3.15$47,880

(3,000)(5) × $3.0045,000 × $3.00

$45,00015,200 × $3.00

$45,600

$2,280 U $600 U

$2,880 U

DIRECT MATERIALS

ANSWERS:1(a) = $3.151(b) = $2,280 U1(c) = $600 U

140

Postmodern Products (p. 2)Standard Allowedfor Actual Output

Rate Efficiency


DLH

5,400 × $11.40$61,560

(3,000)(1.75) × $11.505,250 × $11.50

$60,3755,400 × $11.50

$62,100

$540 F $1,725 U

$1,185 U

DIRECT LABOR

ANSWERS:2(a) = $11.502(b) = 5,2502(c) = 1.75

141

P.W. ProductsStandard Allowedfor Actual Output



pounds

350,000 × $4.12$1,442,000

(12,000)(25) × $4.00300,000 × $4.00

$1,200,000

350,000 × $4.00$1,400,000

$42,000 U

$16,000 U

CAN’T!

DIRECT MATERIALS

304,000 × $4.00$1,216,000

DM Purchased ≠ DM Used

142

P.W. Products (p. 2)Standard Allowedfor Actual Output

Rate Efficiency


DLH

95,400 × $10.55$1,006,470

(12,000)(8) × $10.0096,000 × $10.00

$960,00095,400 × $10.00

$954,000

$52,470 U $6,000 F

$46,470 U

DIRECT LABOR

143

Rex Company

Price

AQ * AP AQ * SP SQ * SP30,000 * $2.80 30,000 * $3.00 29,000 * $3.00

$84,000 $90,000 $87,000

$3,000 / 1,000 in Q = $3.00

$3,000 F

Quantity

$3,000 u$6,000 F

144

Rikki-Tikki-Tavi TaffyRikky-Tikky-Tavi Taffy

Comparative Balance Sheets31-Dec

Assets 2002 2001

Current Assets:

Cash $3,600 $26,400 ($22,800) Decrease Accounts receivable 144,000 98,400 $45,600 Increase Inventory 129,600 102,000 $27,600 Increase Prepaid expenses 6,000 9,600 ($3,600) DecreaseTotal current assets 283,200 236,400 $46,800 IncreaseLong-term investments 64,800 88,800 ($24,000) DecreasePlant and equipment 523,200 336,000 $187,200 IncreaseLess: Accumulated depreciation 72,000 60,000 $12,000 IncreaseNet plant and equipment 451,200 276,000 $175,200 IncreaseTotal assets $799,200 $601,200 $198,000 Increase

Liabilities and Stockholders’ Equity

Current liabilities:

Accounts payable $86,400 $72,000 $14,400 Increase Accrued liabilities 22,800 21,600 $1,200 IncreaseTotal current liabilities 109,200 93,600 $15,600 IncreaseBonds payable 156,000 0 $156,000 IncreaseDeferred income taxes 14,400 12,000 $2,400 IncreaseStockholders’ equity:

Preferred stock 98,400 114,000 ($15,600) Decrease Common stock 318,000 285,600 $32,400 Increase Retained earnings 103,200 96,000 $7,200 IncreaseTotal stockholders’ equity 519,600 495,600 $24,000 IncreaseTotal liabilities and stockholders’ equity $799,200 $601,200 $198,000 Increase

145

Rikki-Tikki-Tavi Taffy (p. 2)

Operating ActivitiesNet income $37,200Adjustments to convert net income to a cash basis: Depreciation expense $33,600 Increase in accounts receivable (45,600) Increase in inventory (27,600) Decrease in prepaid expenses 3,600 Increase in accounts payable 14,400 Increase in accrued liabilities 1,200 Gain on sale of investments (12,000) Gain on sale of equipment (3,600) Increase in deferred income taxes 2,400 (33,600)Net cash provided by operating activities $3,600

Investing Activities Sale of investments $36,000 Sale of equipment 12,000 Purchase of plant and equipment (217,200)Net cash used by investing activies (169,200)

Financing Activities Increase in bonds payable $156,000 Increase in common stock 16,800 Payment of cash dividends (30,000)Net cash used by financing activities 142,800

Net increase in cash and cash equivalents ($22,800)Cash and cash equivalents at beginning of year 26,400Cash and cash equivalents at end of year $3,600

Noncash investing and financing activities Preferred stock converted to common stock $15,600

RIKKY-TIKKY-TAVI TAFFYStatement of Cash Flows -- Indirect Method


146

Robin Hood, Inc.


Estimated Activity=

$2,000,000

125,000 DLH= $16.00 per MH

a.

b.

c.


140,000 DLH × $16.00 = $2,240,000

MOH

$2,400,000 $2,240,000

$160,000

$160,000

- 0 -

to COGS

Underapplied

147

BI $131,400

PURCH. $319,700

EI $126,100

DM

(a.)325,000

$293,480

DL

$293,480

MOHIDL

DEPR.

PTY TAX

FIRE INS.

IDM

UTIL.

DEPR.

$22,700

$31,000

$12,600

$7,840

$11,600

$36,000

$44,000

920 x 29= 26,680 DLH

26,680 x $600

= $160,080

$165,740

UnderappliedMOH

$5,660(c.)

$5,660

PRIME COSTSDM $325,000DL 293,480

$618,480(b.)

WIPBI $49,000

$325,000

$293,480

$160,080

$73,900EI

$753,660(d.)

FG$87,300

$753,660

BI

763,660

$77,300EI

COGS$763,660

$5,660

$769,320 (f.)

$769,320

0

I/S

SOLO SALARIES

ADU.

PTY TAX

FIRE INS.

COMM.

ADMIN.

UTIL.

RENT

DEPR.

MISC.

R & ALLOW

$1,281,700 Sales$769,320

$85,000

$44,000

$5,400

$1,960

$28,500

$167,200

$9,000

$8,700

$17,400

$4,300

$36,100$1,176,880

$104,820 X 40% = $41,928 $104,820 $62,892

NI BT

(f.)

NI AT

0

0

Roley Poley

PER UNIT

$753,660 / 920 = $819

(e.)

148

Rondini Magic CompanyRondini Magic Company

Comparative Balance Sheets December 31

Assets

2004

2003

Change Increase/Decrease

Cash $ 64,800 $ 44,400 $ 20,400 Increase Accounts receivable 81,600 31,200 50,400 Increase Inventories 64,800 - 0 - 64,800 Increase Prepaid expenses 4,800 7,200 2,400 Decrease Land 54,000 84,000 30,000 Decrease Building 240,000 240,000 - 0 - Accumulated depreciation – building (25,200) (13,200) 12,000 Increase Equipment 231,600 81,600 150,000 Increase Accumulated depreciation – equipment (33,600) (12,000) 21,600 Increase Total $ 682,800 $ 463,200 Liabilities and Stockholders’ Equity Accounts payable $ 27,600 $ 48,000 $ 20,400 Decrease Accrued liabilities 12,000 - 0 - 12,000 Increase Bonds payable 132,000 180,000 48,000 Decrease Common stock ($1 par) 264,000 72,000 192,000 Increase Retained earnings 247,200 163,200 84,000 Increase Total $ 682,800 $ 463,200

149

Rondini Magic Co. (p. 2)

Operating ActivitiesNet income $150,000Adjustments to convert net income to a cash basis: Depreciation expense $39,600 Increase in accounts receivable (50,400) Increase in inventories (64,800) Decrease in prepaid expenses 2,400 Decrease in accounts payable (20,400) Increase in accrued liabilities 12,000 Loss on sale of equipment 2,400 (79,200)Net cash provided by operating activities $70,800

Investing Activities Sale of land $30,000 Sale of equipment 40,800 Purchase of equipment (199,200)Net cash used by investing activies (128,400)

Financing Activities Redemption of bonds (12,000) Sale of common stock 156,000 Payment of cash dividends (66,000)Net cash used by financing activities 78,000

Net increase in cash and cash equivalents $20,400Cash and cash equivalents at beginning of year 44,400Cash and cash equivalents at end of year $64,800

RONDINI MAGIC COMPANYStatement of Cash Flows -- Indirect Method


150

S & P Corporation


FC + NI=

$300,000 + $0

$10 - $5= 60,000 units

2. BE($) =CM Ratio

FC + NI=

$300,000 +$0

50%= $600,000

151

Sam Enterprises

Cans Can-ettes

Units produced per hour 3 1

Contribution margin per unit $ 3 $ 6

Contribution margin per hour (the resource constraint)

$ 9 $ 6

Total contribution for 1,000 hours $9,000 $6,000

THE WINNER!

152

Sleepwell, Inc.DM

$18,500

80,000 81,700

$16,800

DL

$40,500 $40,500

0

MOH

$105,750 $105,750

0

WIP

$12,000

81,700

40,500 $216,450

105,750

$23,500

FG

$10,200

261,450 217,550

$9,100

COGS

$217,550 217,550

0

I/S

$ 82,450

$400,000$217,550 100,000

153

Sly-Like-A-Fox, Inc.

SLY-LIKE-A-FOX, INC.Balance Sheet

December 31, 2002

AssetsCurrent Assets: Cash ………………………… Accounts receivable ………… Inventories …………………..Current Assets ………………...Noncurrent assets …………….Total assets ……………………

Liabilities and Equity


Total equity …………………..Total Liabilities and Equity …..

$ 75,00075,000

50,000$200,000$300,000$500,000

$100,000 150,000$250,000

$250,000$500,000

Where? How?Note 10 [Plug]Note 4Note 5Note 7 [Plug](Given)Note 6 [Calc. = Total L+E]


Note 2[Calc.: Note 6]

154

Sly-Like-A-Fox (p. 2)SUPPORTINGCOMPUTATIONS


Sales …………………..Cost of goods sold ……Gross profit …………..Operating expenses …..Net income ……………

$1,000,000 500,000$ 500,000 450,000$ 50,000

(50% of sales (100% - Gross profit margin ratio))(50% of sales (#) Gross profit margin ratio)

(With no information given about taxes, this is all we have.)

Note 2: Return on end-of-year equity = Net income ÷ End of year equity 20% (#) = $50,000 (from Note 1) ÷ End of year equity Equity = $250,000

Note 3: Total debt to equity ratio = Total liabilities ÷ Stockholders’ equity 1 (#) = Total liabilities ÷ $250,000 (from Note 2) Total liabilities = $250,000

Note 4: Accounts receivable turnover = Sales ÷ Average accounts receivable

16 (#) = $1,000,000 (#)

($50,000(#) + End A/R) ÷ 2


Ending accounts receivable = $75,000

155

Sly-Like-A-Fox (p. 3)

Note 6: Total assets = Total liabilities + Total equity = $250,000 (from Note 3) + $250,000 (from Note 2) = $500,000

Total assets = Current assets + Noncurrent assets $500,000 = Current assets + $300,000 (#) Current assets = $200,000

Current ratio = Current assets ÷ Current liabilities 2 (#) = $200,000 ÷ Current liabilities Current liabilities = $100,000

Total liabilities = Current liabilities + Noncurrent liabilities$250,000 (from Note 3) = $100,000 + Noncurrent liabilities Noncurrent liabilities = $150,000


SUPPORTINGCOMPUTATIONS

Note 10: Current assets = Cash + Accounts receivable + Inventory $200,000 = Cash (plug) + $75,000 (from Note 4) + $50,000 (from Note 5) Cash = $75,000

(This “formula” provided by problem information)

Note 5: Days’ sales in inventory = (Inventory × 360) ÷ Cost of goods sold 36 (#) = (Inventory × 360) ÷ $500,000 (from Note 1) End Inventory = $50,000

Note 9:

Note 8:

Note 7:

156

Smith Company Price Qty

AQ × AC AQ × SC SQ × SC 36,000 × $8.35 36,000 × $8.25 $300,600 $297,000

$3,600 U Std. Allowed for Actual Output(Std. Amt. x Actual Units)

AQ × SC SQ × SC31,800 × $8.25 (3200)(10) × $8.25 $262,350 $264,000

$1,650 F

CAN’T!

157

Smith Company (p. 2)

Rate Efficiency

AQ × AC AQ × SC SQ × SC 11,520 × $9.80 11,520 × $9.65 (3200)(3.5) × $9.65 $112,896 $111,168 $108,080

$1,728 U $3,088 U

$4,816 U

Translating Dr. Fessler’s “picture” into Formulas:1. AQ × (SC – AC) = Rate Variance2. SC × (SQ – AQ) = Efficiency variance

158

SoMuch StereosAbsorption Costing

Income Statement

For the Year Ended Feb. 28, 2000

Rev. $89,000

COGS: DM (22,000)

DC (14,000)

VOH (9,000)

FOH (10,000)

GM $34,000

S&A: VSE (5,000)

FSE (16,000)

FAE (14,000)

NI ($1,000)

Variable Costing

Income Statement

For the Year Ended Feb. 28, 2000

Rev. $89,000

VC: DM (22,000)

DL (14,000)

VOH (9,000)

VSE (5,000)

CM $39,000

FC: FOH (10,000)

FSE (16,000)

FAE (14,000)

NI ($1,000)

159

South Street Furniture Company

South Street Furniture Company Absorption Costing I/S For the Y/E Dec. 31, 2005

Rev

- CoGS

GM

- S&A

NI

$3,600,000

(248,000)(2,176,000) (12,000)$1,164,000

(216,000) (340,000)

$ 608,000

= 72,000 units × $20

= BI 8,000 units × $31 per unit= 64,000 units × $34 per unitUnderapplied MOH (2,000 @ $6)

= 72,000 units sold × $3 per unitFixed

South Street Furniture Company Variable Costing I/S For the Y/E Dec. 31, 2005

Rev

- VC

CM

- FC

NI

$ 3,600,000

(208,000)(1,792,000)

(216,000)$ 1,384,000

(480,000) (340,000)

$ 564,000

= 72,000 units × $20

= BI 8,000 units × $26 per unit= 64,000 units × $28 per unit= 72,000 units × $ 3 per unit

MOHS&A

The difference in NI :

FOH from BIFOH to EIDifference in NI

PDOR = $480,000 ÷ 80,000 normal production = $6.00 per unit

$(40,000) 84,000 $ 44,000

= 8,000 units @ $5 per unit = 14,000 units @ $6 per unit

160

1.y = a + bx b = hi-lo $

hi-lo activity

b = $390,700 - $180,000

4,980 – 2,180

= $210,700

2,800

b = $75.25 per machine hour

$390,000 = a + $75.25 (4,980)

$390,700 = a + $374,745

a = $15,955

Cost Formula

y = $15,955 + $75.25x

y = $15,955 + $75.25 (3,500)

y = $15,955 + $263,375

y = $279,330

2.

Southern Carpets

161

Southern Carpets (cont.)SOUTHERN CARPETSRegression Analysis

SUMMARY OUTPUTY = Costs X = Hours

J $341,062 3,467 Regression StatisticsF $346,471 4,426 Multiple R 0.740754563M $287,328 3,103 R Square 0.548717323A $262,828 3,625 Adjusted R Square 0.503589056M $220,843 3,081 Standard Error 46999.24973J $390,700 4,980 Observations 12J $337,924 3,948A $180,000 2,180 ANOVAS $376,246 4,121 df SS MS F Significance FO $295,041 4,762 Regression 1 26858506459 26858506459 12.1590602 0.005852441N $215,121 3,402 Residual 10 22089294751 2208929475D $275,343 2,469 Total 11 48947801211

Coefficients Standard Error t Stat P-value Lower 95% Upper 95%Intercept 86152.88975 61152.29174 1.408825202 0.18921362 -50102.93094 222408.7104X = Hours 57.27371965 16.42500026 3.486984399 0.005852441 20.6765321 93.87090721

y = $57.27 x + $86,152.89

when x = 3,500 y = $286,597.85when x = 4,000 y = $315,232.89

Cost Function:

162

Steinmueller Steins, Inc.Step 1 Step 5

DM CC100% 70% 5,000

DM $6,00020,000 23,000 CC $7,000 23,000*$1.98

100% 80% 2,000 $13,000$45,540

DM $18,000Step 2 CC $18,000

$36,000DM CC

out DM $1,920 2000*100%*$.9623,000 23,000 CC $1,632 2000*80%*$1.02

EI 2000*100% 2,000 $3,5522000*80% 1,600

E.U. 25,000 24,600

Step 3 BI + IN = EI + Out

BI $6,000 $7,000IN $18,000 $18,000

$24,000 $25,000

Step 4Compute E.U. Costs

$24,000/25,000 $25,000/24,600 =$.96 =$1.01626 = $1.02

$1.98

WIP-Molding (units)

EU

Total Costs To Account For:

WIP-Molding ($)


163

Steinmueller Steins (p. 2)

WIP Units

5,000

20,000

2,000

23,000

OutBI

IN

EI

DM

100%

100%

CC

70%

80%

WIP - $ (FIFO)

DM $6,000

CC $7,000

DM $18,000

CC $18,000

DM $1,800.00

CC 1,364.80

$3,164.80

$ 13,000.00 from BI

1,279.50 Finished CC 5,000×30%×$0.853

31,554.00 S&F 18,000 × $1.753

$45,833.50

= 2,000 × 100% × $0.90

= 2,000 × 80% × $0.853

OutBI

IN

EI

E.U.

DM CC

- 0 -

18,000

2,000

20,000

1,500

18,000

1,600

21,100


DM CC

$1.20

$2.00

$ per EU

BI: (DM) 5,000× 0%

BI: (CC) 5,000×30%

Start & Finish

EI: (DM) 2,000×100%

EI: (CC) 2,000× 80%

E.U.

FIFO METHOD

BI

$6,000 DM ÷ (5,000×100%)

$7,000 CC ÷ (5,000× 70%)

Total

$3.20

$0.90

$0.853

$ per EUIN

$18,000 DM ÷ 20,000 E.U.

$18,000 CC ÷ 21,100 E.U. $1.753



164

Stetson Company

Stetson Company Absorption Costing I/S For the Y/E Dec. 31, 2001

Rev

- CoGS

GM

- S&A

NI

$17,000

(- 0 -)(6,000)

(4,000)$ 7,000

(1,000) (1,400)

$ 4,600

= 2,000 units × $8.50

= BI ( - none - )= 2,000 units × $3 per unitUnderapplied MOH (4,000 @ $1)

= 1,000 units sold × $0.50 per unitFixed

Normal volume is 10,000 units of production.Underapplied MOH = 10,000 – 6,000 actual production = 4,000 units

Stetson Company Absorption Costing I/S For the Y/E Dec. 31, 2002

Rev

- CoGS

GM

- S&A

NI

$25,500

(9,000)( - 0 - )

(9,100)$ 7,400

(1,500) (1,400)

$ 4,500

= 3,000 units × $8.50

= BI 3,000 units × $3 per unit= - 0 - units × $3 per unitUnderapplied MOH (9,100 @ $1)

= 3,000 units sold × $0.50 per unitFixed

Normal volume is 10,000 units of production.Underapplied MOH = 10,000 – 900 actual production = 9,100 units

165

Stetson Company (p. 2)

Stetson Company Variable Costing I/S For the Y/E Dec. 31, 2002

Rev

- VC

CM

- FC

NI

= 3,000 units × $8.50

CoGS (3,000 units × $2 per unitS&A (3,000 units × $0.50 per unit)

MOHS&A

The difference in NI 2001:

Units mfg. - units sold× FOH per unitDifference in NI

4,000 $1.00$ 4,000

$ 25,500

(6,000) (1,500)$ 18,000

(10,000) (1,400)

$ 6,600

Stetson Company Variable Costing I/S For the Y/E Dec. 31, 2001

Rev

- VC

CM

- FC

NI

= 2,000 units × $8.50

CoGS (2,000 units × $2.00 per unit)S&A (2,000 units × $0.50 per unit)

MOHS&A

$ 17,000

(4,000) (1,000)$ 12,000

(10,000) (1,400)

$ 600

The difference in NI 2002:

Units mfg. - units sold× FOH per unitDifference in NI

2,100 $1.00$2,100

Production > SalesAbs. NI is higher!

Sales > ProductionVC NI is higher!

166

Stiegl Corporation

Spend N/A

AQ * AP AQ * SP SQ * SP SQ * SP15,000 * 15,000 * $2.00 12,000 * $2.00

$27,500 $30,000 $24,000

$6,000 u

$3,500 u

Eff

$2,500 F

167

Stone Monument Co. (A)

1.

2.

BE (units) = FC + NI

CMU

= $6,000,000

$1,000

=6,000 units

BE ($) = FC + NI

CMR

= $6,000,000

$2,000 - $1,000$2,000

=$12,000,000

6,000 units BE20,000 units Normal capacity

= 30%

168

Stone Monument Co. (B)

1.

2.


CMU

= $6,000,000 + $1,400,000

$1,000

= 7,400 units

BE ($) = FC + NI

CMR

= $6,000,000 + $1,400,000

$2,000 - $1,000$2,000

= $14,800,000

169

Stone Monument Co. (C)

1.

2.

SP (x) = VCU (x) + FC + NI

$2,000 (x) = $1,000 (x) + $6,000,000 + (.25) ($2,000) (x)$2,000 x = $1,000 x + $6,000,000 + $500 x $500 x = $6,000,000

x = 12,000 units

TR = VC + FC + NI

R = .5 R + $6,000,000 + .25R.25 R = $6,000,000

R = $24,000,000

170

Stone Monument Co. (D)

1.

2.


$2,000 (x) = $1,000 (x) + $6,000,000 + (.25) ($2,000) (x)$2,000 x = $1,000 x + $6,000,000 + $400 x $600 x = $6,000,000

x = 10,000 units

10,000 unitsx $2,000 SP

$20,000,000

171

Stone Monument Co. (E)


SP (20,000) = $1,000 (20,000) + $6,000,000 + $21,000,000

SP = $47,000,000

20,000

SP = $2,350

172

Stone Monument Co. (F)

1.

2.

MS ($) = Actual Revenue - BE Revenue

MS ($) = $40,000,000 - $12,000,000 ($2,000 SP x 20,000 normal volume) (from (A)) MS ($) = $28,000,000

MS Ratio = Actual Revenue - BE Revenue

MS Ratio = $40,000,000 - $12,000,000

Actual Revenue

$40,000,000

MS Ratio = 70%

Quite Good!!

173

Stone Monument Co. (G)

1.

2.


CMU

= $6,000,000 + $2,000,000

$1,000

= 8,000 units

BE ($) = FC + NI

CMR

= $6,000,000 + $2,000,000

$2,000 - $1,000$2,000

= $16,000,000

NIBT = NIAT

1- Tax Rate=

$1,400,000

1 - 0.30

First, …

= $2,000,000

174

Strange Fire, P.C.

Variable Overhead

Spending Efficiency N/A

Actual VOH AQ × SC SQ × SC 2900 × $20 2800 × $20

$54,000 $58,000 $56,000

$4,000 F $2,000 U

2,000 F

Flexible Budget Variance = $2,000 F

175

Stuffing Company (A)

Present0

Year1

Year2

Year3

Purchase

Savings

Total

PV Factor

NPV Calc.

$(60,000)

$(60,000)

× 1.0000

$(60,000)

$25,000

$25,000

× 0.9091

$22,727.50

$25,000

$25,000

× 0.7513

$18,782.50

$25,000

$25,000

× 0.8264

$20,660.00 = $2,170

From PV Table

≥ $0 ☺

OR use Annuity Table

PurchaseSavingsPV FactorNPV Calc.

$25,000× 2.4869

$62,172.50

per year for 3 years$(60,000)

× 1.0000 $(60,000) = $2,172.50 ☺

+ ++

176

Stuffing Company (B)•TRIAL & ERROR•THE HIGHER THE INTEREST RATE, THE LOWER THE PV

We know 10% is TOO LOW (why, because it yields a positive NPV)

So we try 11% … $25,000× 2.4437

$61,092.50(11% for 3 yr. annuity)

vs. $(60,000) STILL TOO LOW

So we try 12% … $25,000× 2.4018

$60,200(12% for 3 yr. annuity)

vs. $(60,000) Still A BIT too low

So we try 13% … $25,000× 2.3612

$59,025(13% for 3 yr. annuity)

vs. $(60,000) Now A BIT too HIGH

Closer to 12% than 13%

177

Stuffing Company (C)

Investment A: 2 years

$ 20,000 in Year 1 80,000 in Year 2 $100,000 Total

Investment B: 2 years

$ 90,000 in Year 1 10,000 in Year 2 $100,000 Total

Investment B BETTER because get money sooner

Payback Period = Original Investment ÷ Periodic Cash Flow

Investment C: 3 years

$100,000 ÷ $39,000 = 2.5641 years

178

Stuffing Company (D)

Accounting Rate of Return (ARR) = Avg. NI ÷ Investment

[ARR aka Simple Rate of Return]

Avg. NI =$80,000

5 yrs. = $16,000 NI per year

Average NIInvestment

= $16,000 $100,000 = 16% ARRARR =

179

Stuffing Company (E)

Profitability Index = PV of CF

Investment

Project 1:

Project 2:

Project 3:

$567,270 ÷ $480,000 = 1.182

$336,140 ÷ $270,000 = 1.245

$379,760 ÷ $400,000 = 0.949

RANKING:

NPV

PI

IRR

Project 1

1

2

2

Project 2

2

1

1

Project 3

3

3

3

1.

2.

180

$ 16,700

$152,500

$22,800

185,000

DM

BI

Purch (for Cash)

EI

$ 18,400

146,400

175,600

54,800

$ 25,200

$370,000

BI

EI

WIP

$ 24,600

370,000

$ 19,500

$375,100

BI

EI

FG

$175,600 $175,600

- 0 -

DL

MOH

$ 14,300

12,600

10,100

9,440

8360

$ 54,800 $ 54,800

- 0 -

IDL

Fact. Repairs

Fact. Utilities

Depr., Fact.

Fact. Ins.

COGS

I/S

$375,100

114,900

92,600

5,150

$680,000COGS

Selling Exp.

Admin. Exp.

Interest Exp.

Sales

NI BT

$375,100

- 0 -

$375,100

COGS

Sven’s Sweets Company

(for Cash)

(for C

ash)

(on Acct.)

(on Acct.)

$ 92,250$ 20,000Inc. Tax (o

n Acct.)

NI AT$ 72,250$ 72,250

- 0 -

(Cash)

(to R/E)

181

Sven’s Sweets (p. 2)$ 42,500

671,900

$ 104,290

$ 14,300

12,600

10,100

8,360

212,500

19,000

152,500

175,600

5,150

Beg

End

CASH


$ 71,900

680,000

$ 80,000

$671,900

Beg

End

A/R (net)

$724,000

$724,000

Beg

End

Plant Assets

$ 278,400

9,440

$ 287,400

Beg

End

Accum. Depr.

Cash fromCustomers

((A/R))

IDL

Repairs

Util.

Ins.

A/P

Tax Pay.

DM

DL

Int. Exp.


$ 100,000

$ 100,000

Beg

End

Notes Payable

$ 5,000

20,000

$ 6,000

Beg

End

Inc. Taxes Payable

$ 40,000

114,900

92,600

$ 35,000

Beg

End

A/P

$ 269,600

$ 269,600

Beg

End

Common Stock

$ 205,100

72,250

$ 277,350

Beg

End

R/E

$ 19,000 $ 212,500(Inc. Tax Exp.)(to Cash)

(to Cash)(Sales on Acct.)(Depr.Exp.)

(Net Income)

(Selling Exp.)(Adm. Exp..)

182

Sven’s Sweets (p. 3)Sven’s Sweets Company


Assets CashA/RPlant AssetsAccum DeprDMWIPFG

Total

$ 104,290 80,000

724,000 (287,840)

22,800 25,200 19,500

$687,950


N/PIT/PA/PC/SR/E

Total

$ 100,000 6,000

35,000 269,600 277,350

$687,950

Sven’s Sweets CompanyStatement of Cash Flows (Indirect Method)

For the Year-Ended December 31, 2005

Net Income

Depr. ExpA/RIT/PA/PDMWIPFG

Net Cash Inflows

Beg. Cash

End Cash

$ 72,250

+ 9,440- 8,100+ 1,000- 5,000- 6,100- 6,800+ 5,100

$ 61,790

42,500

$104,290

Not specifically requested by problem;already calculated CF using Direct Method.

183

Sweet Surrender, Inc.

SWEET SURRENDER, INC.Balance Sheet

December 31, 2003

AssetsCurrent Assets: Cash ………………………… Accounts receivable ………… Inventories …………………..Current Assets ………………...Noncurrent assets …………….Total assets ……………………

Liabilities and Equity


Total equity …………………..Total Liabilities and Equity …..

$ 85,000125,000

75,000$285,000$495,000$780,000

$237,500 22,500

$260,000

$520,000$780,000

Where? How?(Given)Note 5Note 4[Calc.: Note 7]Note 8 [Plug]Note 6 [Calc. = Total L+E]


Note 2[Calc.: Note 6]

184

Return on end-of-year equity = Net income ÷ End of year equity 0.5 (#) = $260,000 (from Note 1) ÷ End of year equity Equity = $520,000

Total debt to equity ratio = Total liabilities ÷ Stockholders’ equity 0.5 (#) = Total liabilities ÷ $520,000 (from Note 2) Total liabilities = $260,000

Days’ sales in inventory = (Inventory × 360) ÷ Cost of goods sold 15 days (#) = (Inventory × 360) ÷ $1,800,000 (from Note 1) End Inventory = $75,000

Days’ sales in receivables = (Accounts receivable × 360) ÷ Sales 15 days (#) = (Inventory × 360) ÷ $3,000,000 (from Note 1) End Accounts receivable = $125,000



$3,000,000 1,800,000$1,200,000 800,000$ 400,000 140,000$ 260,000

(= COGS + Gross profit)(#) (60% of sales (100% - Gross profit margin ratio))(40% of sales (#) Gross profit margin ratio)(#)(Calculation)(tax at 35% rate (#))

Sweet Surrender (p. 2)SUPPORTINGCOMPUTATIONS

Note 2:

Note 3:

Note 4:


Note 5:

185

Note 10: Total liabilities = Current liabilities + Noncurrent liabilities$260,000 (Note 3) = $237,500 (Note 9) + Noncurrent liabilities Noncurrent liabilities = $22,500

Current assets = Cash + Accounts receivable + InventoriesCurrent assets = $85,000 (#) + $125,000 (Note 5) + $75,000 (Note 4) Current assets = $285,000

Current ratio = Current assets ÷ Current liabilities 1.2 (#) = $285,000 (Note 7) ÷ Current liabilities Current liabilities = $237,500

Sweet Surrender (p. 3)

Note 7:

Total assets = Current assets + Noncurrent assets$780,000 (Note 6) = $285,000 (Note 7) + Noncurrent assets (plug) Noncurrent assets = $495,000

SUPPORTINGCOMPUTATIONS

Note 9:

Note 8:

Total assets = Total liabilities + Total equity = $260,000 (Note 3) + $520,000 (Note 2) = $780,000

Note 6:


186

The Swizzle Manufacturing Co.

10,000

$200,000

$25,000

185,000

DM

BI

Purch

EI

$15,000

185,000

230,000

385,200

$22,000

793,200

BI

EI

WIP

$30,000

793,200

$43,200

$780,000

BI

EI

FG

$230,000

(21,400 hrs)

$230,000

0

DL

MOH

63,000

90,000

54,000

76,000

102,000

385,000 21,400 * $18

= $385,200

$ 200

0

Utilities

IDL

Maint.

Depr.

Rental

COGS

I/S

779,800

7,000

110,000

136,000

19,000

18,000

1,200,000

$130,200

COGS

Utilities

S&A Salaries

Advertising

Depr.

Rental

Sales

NI

Est.OH

Est Activity

$360,000

20,000 DLH

= $18 per DLH

200

$779,800

$ 200

$780,000

$779,800 Adj. COGS

PDOR =

=

COGS

187

Swizzle (p. 2)The Swizzle Manufacturing Company

Schedule of Cost of Goods Manufactured

For the Year Ended December 31,1994

Direct material:

Raw materials inventory, 1-1-94

Add: Purchases of raw materials

Total materials available

Deduct: Raw materials inventory, 12-31-94

Raw materials used in production

Direct Labor

Manufacturing overhead:

Utilities......................................................................................

Indirect Labor..............................................................................

Maintenance.................................................................................

Depreciation.................................................................................

Building rent..............................................................................

Actual overhead costs

Add: Overapplied overhead

Manufacturing overhead applied to WIP

Total manufacturing costs

Add: Beginning work in process inventory

Deduct: Ending work in process inventory

Cost of Goods Manufactured

$10,000

200,000

$210,000

(25,000)

$185,000

230,000

$63,000

90,000

54,000

76,000

102,000

$385,000

200

385,200

$800,200

15,000

$815,200

(22,000)

$793,200

188


Schedule of Cost of Goods Sold

For the year ended December 31, 1994

Finished goods inventory, 1-1-94

Add: Cost of goods manufactured

Goods available for sale

Less: Ending finished goods inventory

Cost of goods sold

Deduct: Overapplied overhead

Adjusted cost of goods sold

$30,000

793,200

823,200

(43,200)

$780,000

(200)

$779,800

189


Income Statement


Sales

Less: Cost of Goods Sold

Gross Margin

Less: Selling and administrative expenses:

Utilities

Salaries

Advertising

Depreciation

Building rental

Net Income

$1,200,000

(779,800)

$420,200

$290,000

$130,200

$ 7,000

110,000

136,000

19,000

18,000

190

Tallyho Company

$3,000,000 budgeted FOH ÷ 100,000 budgeted units = $30 per unit (SC)

FIXED OVERHEAD Spending Volume Actual FOH Budgeted FOH Applied FOH BQ × SC SQ × SC 110,000 × $30 $3,200,000 $3,000,000 $3,300,000

$200,000 U $300,000 F

$100,000 F

191

Thorp Company

Rate

AQ * AP AQ * SP SQ * SP2,000 * $5.00 2,000 * $5.50 1,727 *$5.50

$10,000 $11,000 $9,500

$1,000 F

Eff

$1,500 u

192

Tigér Boats

Bill Bird should accept the offer.

$12,500 Selling price per boat(11,500) Variable cost per boat ($5,000 + $5,500 + $1,000)

$ 1,000 Contribution per boat

Fixed manufacturing overhead will not change and thus is not relevant.

193

…can sell just milk, or can process the milk further into cheese, ice cream and yogurt Product: Cheese Ice Cream ButterSales value at split off (i.e., milk) $400,000 $500,000 $100,000Sales value if processed further $450,000 $679,000 $110,000Cost of further processing $ 17,000 $103,000 $ 14,000 Joint costs $150,000Joint costs are allocated by the sales value at split off Relevant!

Cost $400,000 $17,000 $450,000 Cheese :o)

Raw Milk - Joint Costs $150,000 $500,000 $103,000 $679,000 Ice Cream :o)

$100,000 $14,000 $110,000 Butter :o(

$1,000,000 revenue from selling product just as milk

Tillamook Cheese Co.

Cost to produce butter from milk higher than the increased revenue

194

Tina’s Best Chocolate (A)

Tina should process the cocoa powder further into an instant cocoa mix.

$2,000 Selling price of Instant Cocoa (500) Selling price of Cocoa powder

$1,500 Additional revenue from processing further (800) Additional cost of processing further

$700 Additional profit per ¼ ton from processing further

195

Tina’s Best Chocolate (B)

Contribution margin per case

Machine hours required per case

Cost per machine hour

THE LIGHT

$1.00

.02 MH

$50.00

THE DARK

$2.00

.05 MH

$40.00

Tina’s best product is The Light

196

Toledo Torpedo CompanyCost Comparison – Replacement of Machine, Including Relevant and Irrelevant Items

Keep Replace Difference

Sales $400,000 $400,000 $ ---Expenses: Variable 320,000 224,000 96,000 Old machine (book value) Depreciation write-off 40,000 --- --- -or- Lump-sum write-off --- 40,000* --- Disposal value --- 4,000* 4,000 New machine (purchase price) --- 60,000 (60,000)Total expenses $360,000 $320,000 $40,000Operating income $40,000 $80,000 $40,000

* In a formal income statement, these two items would be combined as a "loss on disposal" of $36,000.

FOUR YEARS TOGETHER

RELEVANT Benefit(purchase new machine)

197

True Blue Corporation

Variable Overhead

Spending Efficiency N/A

Actual VOH AQ × SC SQ × SC 400 × $3.85 420 × $3.85

$1,600 $1,540 $1,617

$60 U $77 F

$17 F

Flexible Budget Variance = $17 F

198

Tub Company

Rate

AQ * AP AQ * SP SQ * SP2,200 * $8.40 2,200 * $8.00 2,000 * $8.00

$18,480 $17,600 $16,000

$880 u

Eff

$1,600 u

199

Ward Company

June June July August SeptemberApril: ?May: ?June: $30,000 * 30%

JulyMay: ?June: $30,000 * 50%July: $50,000 * 30%

AugustJune: $30,000 * 15%July: $50,000 * 50%Aug: $70,000 * 30%

SeptemberJuly: $50,000 * 15% $7,500Aug: $70,000 * 50% $35,000Sept: $60,000 * 30% $18,000

$60,500

PART 1 PART 2

July:Aug:Sept:Sept:

$50,000 × 80% × 15% =$70,000 × 80% × 50% = $60,000 × 80% × 30% =$60,000 × 20% =

$ 6,000$28,000$14,400$12,000$60,400

20% of sales collected as cash in month of sale80% of sales are on account and collected later

200

Whiskers Products, Inc.

April April May JuneTotal

QuarterFeb: $55,000 * 20% $11,000Mar: $60,000 * 30% $18,000 $54,000Apr: $50,000 * 50% $25,000

MayMar: $60,000 * 20% $12,000Apr: $50,000 * 30% $15,000 $57,000May: $60,000 * 50% $30,000

JuneApr: $50,000 * 20% $10,000May: $60,000 * 30% $18,000 $55,500June: $55,000 * 50% $27,500Total: $54,000 $57,000 $55,500 $166,500

2ND Quarter Cash Receipts

201

Womack Company

650

PRODUCTION: 4,60010%*5000= 500

FG-Units

4,450

202

Young ProductsYoung Products

Sales budgetFor the First Quarter

Units 100,000Unit price x $15.00Sales $1,500,000

Young ProductsProduction Budget

For the First QuarterSales (in units) 100,000Desired end. inv. 12,000

203

Young Products (cont.)

Young ProductsDirect Materials

For the First QuarterUnits to be produced 104,000DM per unit (lbs) x 4 Production needs (lbs) 416,000Desired end. inv. 6,000 Total needs (lbs) 422,000Less: Beg. inv. (lbs) (4,000) Materials to be purch. (lbs) 418,000

Young ProductsDirect Labor BudgetFor the First Quarter

Units to be produced 104,000Labor: Time per unit x 0.5 Total hours needed 52,000

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