ACCT 505 Final Exam Answers

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ACCT 505 Final Exam Answers

1. (TCO C) Silver City, Inc., has collected the following operating information below for its current months activity.Using this information, prepare a flexible budget analysis to determine how well Silver City performed in terms of cost control.

Actual Costs Incurred

Static Budget

Activity level (in units)

5,250

5,178

Variable Costs:

Indirect materials

$24,182

$23,476

Utilities

$22,356

$22,674

Fixed Costs:

Administration

$63,450

$65,500

Rent

$65,317

$63,904

2. (TCO D) Globe Co. manufactures automatic door openers. The company uses 15,000 electronic hinges per year as a component in the assembly of the openers.You have been engaged by Globe to assist with an evaluation of whether the company should continue producing the hinges or purchase them from an outside vendor.

The Accounting Department provided the following detail regarding the annual cost to produce electronic hinges:

Direct materials

$54,000

Direct labor

60,000

Variable manufacturing overhead

36,000

Fixed manufacturing overhead

90,000

Total costs

$240,000

The Procurement Department provided the following supplier pricing:

Supplier A price per hinge

$11.00

Supplier B price per hinge

$10.75

Supplier C price per hinge

$10.50

The supplier pricing was obtained in response to a formal request for proposal (RFP).Procurement has determined these suppliers meet Globes technical specifications and quality requirements.

If Globe stops producing the part internally, 10% of the fixed manufacturing overhead would be eliminated.

Required: Prepare a make-or-buy analysis showing the annual advantage or disadvantage (in dollars) of accepting an outside suppliers offer. Should the company buy the parts? If so, from which supplier?

3. (TCO E) Mesa Company produces a single product. Operating data for the company and its absorption costing income statement for the last year are presented below:

Units in beginning inventory

2,000

Units produced

9,000

Units sold

10,000

Sales

$100,000

Less cost of goods sold:

Beginning inventory

12,000

Add cost of goods manufactured

54,000

Goods available for sale

66,000

Less ending inventory

6,000

Cost of goods sold

60,000

Gross margin

40,000

Less selling and admin. expenses

28,000

Net operating income

$12,000

Variable manufacturing costs are $4 per unit. Fixed factory overhead totals $18,000 for the year. This overhead was applied at a rate of $2 per unit. Variable selling and administrative expenses were $1 per unit sold.

Required: Prepare a new income statement for the year using variable costing. Comment on the differences between the absorption costing and the variable costing income statements.

4. (TCO A) The following data (in thousands of dollars) have been taken from the accounting records of the White Sands Corporation for the just-completed year.

Sales

1,150

Raw materials inventory, beginning

15

Raw materials inventory, ending

40

Purchases of raw materials

150

Direct labor

250

Manufacturing overhead

300

Administrative expenses

500

Selling expenses

300

Work in process inventory, beginning

100

Work in process inventory, ending

150

Finished goods inventory, beginning

80

Finished goods inventory, ending

120

Use the above data to prepare (in thousands of dollars) a schedule of Cost of Goods Manufactured and a Schedule of Cost of Goods Sold for the year. In addition, what is the impact on the financial statements if the ending finished goods inventory is overstated or understated?

1. (TCO F) Farmington Corporation uses the weighted-average method in its process costing system. Data concerning the first processing department for the most recent month are listed below.

Work in process, beginning:

Units in beginning work-in-process inventory

400

Materials costs

$6,900

Conversion costs

$2,500

Percentage complete for materials

80%

Percentage complete for conversion

15%

Units started into production during the month

6,000

Units transferred to the next department during the month

5,000

Materials costs added during the month

$112,500

Conversion costs added during the month

$210,300

Ending work in process:

Units in ending work-in-process inventory

1,200

Percentage complete for materials

60%

Percentage complete for conversion

30%

Required: Calculate the equivalent units for materials (using the weighted-average method) for the month in the first processing department.

2.

(TCO G) (Ignore income taxes in this problem.)Tennessee Co. is considering the production of anexterior paint that will require the purchase of new mixing machinery. The machinery will cost $700,000, is expected to have a useful life of12 years, and is expected to have a salvage value of $100,000 at the end of12 years. The machinery will also need a $40,000 overhaul at the end of Year 7. A $50,000 increase in working capital will be needed for this investment project. The working capital will be released at the end of the12 years. The newpaint is expected to generate net cash inflows of $120,000 per year for each of the12 years.Tennessees discount rate is 14%.

Required:

a. What is the net present value of this investment opportunity?

b. Based on your answer to (a) above, shouldTennessee go ahead with the newpaint?

3. (TCO B) Winslow Corporation produces and sells a single product. Data concerning that product appear below.

Selling price per unit

$130.00

Variable expense per unit

$27.30

Fixed expense per month

$165,3

Required:

a) Determine the monthly break-even in unit sales. Show your work!

b) Determine the monthly break-even in dollar sales. Show your work!

1. (TCO F) Manchester, Inc. bases its predetermined overhead rate on the estimated machine hours for the upcoming year. Data for the upcoming year appear below.

Estimated machine hours

85,000

Estimated variable manufacturing overhead

$5.55 per machine hour

Estimated total fixed manufacturing overhead

$951,888

Required:

Compute the companys predetermined overhead rate.

2. (TCO F) Memphis Corporation is preparing its cash budget for February. The budgeted beginning cash balance is $27,000. Budgeted cash receipts total $136,000 and budgeted cash disbursements total $128,000. The desired ending cash balance is $50,000. The company can borrow up to $110,000 at any time from a local bank, with interest not due until the following month.

Required:

Prepare the companys cash budget for February in good form. Make sure to indicate what borrowing, if any, would be needed to attain the desired ending cash balance.