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Prime Cost = direct materia Materials Used + Direct Labor + Manufacturing Overhead Indirect Labor Indirect Materials Utilities Depreciation exp + BB Work in Process - EB Work in Process = Cost of Goods Manufactured Income Statement BB Finished Goods + Cost of goods Manufactored - EB Finished Goods = Cost of Goods Sold Sales - Cost of Goods Sold = Gross (Margin/Profit) Sales - Cost of Goods Sold - Operating Expenses = Net Income $ $ $ $ $ $ $ $ 5,000.00 600.00 500.00 1,900.00 3,500.00 800.00 (3,000.00) 21,300.00 Cost of goods available
$ $ $ $ $ $ $ $ $ $
4,000.00 21,300.00 (5,300.00) 20,000.00 31,800.00 (20,000.00) 11,800.00 31,800.00 (20,000.00) 11,800.00
Shedule of Cost of Goods Manufactured Direct materials: Raw materials inventory, beginning Add: Purchases of raw materials Raw materials available for use Deduct: Raw materials inventory, ending Raw materials used in production Direct Labor Manufacturing overhead Total manufacturing cost Add: Work in process inventory, beginning Sub total Deduct: Work in process inventory, ending Cost fo goods manufactured
Cost of goods available for sale Income Statement Sales Cost of Goods Sold: Finished goods inventory, beginning Add: Cost of goods manufactured Goods availabel for sale Finished goods inventory, ending Gross Margin Selling & Admin Expenses Selling Expense Administrative Expenses Net Income
B Finished Goods + Cost of Goods Manufactured is offten Called Goods vailable for Sale.
6,000.00 7,000.00 13,000.00 (1,000.00) 12,000.00 5,000.00 6,500.00 23,500.00 800.00 24,300.00 (3,000.00) 21,300.00
31,800.00
20,000.00 11,800.00
$ $
11,800.00
Top Switch Inc. designs and manufactures switches used in telecommunication throughout the state of Tennessee affected Top Switchs facilities. Inventory w ruined, and the companys computer system, including all accounting records, Before the unfortunate incident, recovery specialists cleaned the buildings. The controller is very nervous and anxious to recover whatever records he can to su insurance claim for the destroyed inventory. After consulting with the cost acco decide to retrieve the previous years annual report for the beginning iThe cost working on the first quarter results before the storm hit, and to his surprise, th his desk drawer. After reviewing the data , the information shows the following Material purchases were $ 325,000; Direct Labor was $ 220,000 the controller and the cost accountant revealed that sales were $ 1,350,000 was 30% of sales. The cost accountant also discovered, while sifting through th cost of goods available for sale was $ 1,020,000 at cost. While assessing the da controller determined that the prime costs were $ 545,000 that manufacturing overhead is 65% of conversion cost. The cost accountant i of this, but he decides to see what he can do with the information. Inventory n addition, they also agreed that they need first quarter cost data. numbers are as follows: Raw Materials, $ 41,000 Work in Process, $ 56,000 Finished Goods, $ 35,000 Required: Determine the amount of cost in the Raw Materials, Work in Process, and Finis Inventory as of the date of the storm. ( Hint: You may wish to reconstruct the v and statements that would have been affected by the companys accounts dur
itches used in telecommunications. Serious flooding op Switchs facilities. Inventory was completely , including all accounting records, was destroyed. ecialists cleaned the buildings. The company over whatever records he can to support the After consulting with the cost accountant, they report for the beginning iThe cost accountant was e storm hit, and to his surprise, the report was still in e information shows the following information: abor was $ 220,000. Further discussions between sales were $ 1,350,000 and the gross margin iscovered, while sifting through the information, that 000 at cost. While assessing the damage, the were $ 545,000 up to the time of the damage and ersion cost. The cost accountant is not sure about all with the information. Inventory numbers. In t quarter cost data. The beginning inventory
aterials, Work in Process, and Finished Goods You may wish to reconstruct the various schedules ed by the companys accounts during the period.)
Assumptions Sales Variable selling expense Fixed Selling expense Cost of Goods Sold (variable) Fixed Admin expense Variable Admin expense
Sales Less: Variable Expenses: BB Inventory VC CoGS VC S & A exp Contribution Margin Less: Fixed expenses: Fixed Mfg OH Fixed S & A Net Operating Income
0 160,000 50,000
350,000
Sales VC CoGS GM
3,000 70.00
Sales Less: Variable Expenses: BB Inventory 0 VC CoGS 150,000 VC S & A exp Contribution Margin Less: Fixed expenses: Fixed Mfg OH Fixed S & A Net Operating Income
210,000
FC 25,000 -
Total VC
50 3,000 150,000
25,000 Total FC
Assumptions Variable cost per unit: Manufacturing: DMC DLC VMfgOH V S& A Fixed Cost per year FMfgOH F S& A Sales (VC) CM (FC) NI
50 0 0 0
Change in NI
31,875
Decrease Increase
2,250 $ 70.00 $
80.50
Sales Less: Variable Expenses: BB Inventory 0 VC CoGS 129,375 VC S & A exp Contribution Margin Less: Fixed expenses: Fixed Mfg OH Fixed S & A Net Operating Income
157,500
Assumptions Variable cost per unit: Manufacturing: DMC DLC VMfgOH V S& A Fixed Cost per year FMfgOH F S& A Sales (VC) CM (FC) NI
FC 25,000 -
Total VC
25,000 Total FC
ssumptions
57.5 0 0 0
4,000,000
0.35
Sales revenues - Variable costs- Fixed Cost = Net Income CM = Sales revenues - variable cost CM Ratio = (Sales revenues - Variable cost)/Sales revenues CM=((Sales revenues-Variable cost)/Sales revenues)*Sales revenues (CM Ratio*Sales revenues)-Fixed cost= Net Income
CM Ratio = ($6,000,000-$3,900,000)/$6,000,000 CM Ratio = $2,100,000/$6,000,000 CM Ratio = .35 Break-even point in sales dollars = $1,400,000/.35 Break-even point in sales dollars = $4,000,000 (Answer C)
Time Month
Assumptions Units Start Units increment Unit Price Unit Variable Cost Total Fixed Costs 9000 500 $20 $7.00 $ 130,000
Units 9000 9500 10000 10500 11000 11500 12000 12500 13000 13500 14000 14500 15000
Sales Variable Cost $180,000 $63,000 $190,000 $66,500 $200,000 $70,000 $210,000 $73,500 $220,000 $77,000 $230,000 $80,500 $240,000 $84,000 $250,000 $87,500 $260,000 $91,000 $270,000 $94,500 $280,000 $98,000 $290,000 $101,500 $300,000 $105,000
Contributi on Margin $117,000 $123,500 $130,000 $136,500 $143,000 $149,500 $156,000 $162,500 $169,000 $175,500 $182,000 $188,500 $195,000
Fixed Total Costs $130,000 $193,000 $130,000 $196,500 $130,000 $200,000 $130,000 $203,500 $130,000 $207,000 $130,000 $210,500 $130,000 $214,000 $130,000 $217,500 $130,000 $221,000 $130,000 $224,500 $130,000 $228,000 $130,000 $231,500 $130,000 $235,000
Net Income ($13,000) ($6,500) $0 $6,500 $13,000 $19,500 $26,000 $32,500 $39,000 $45,500 $52,000 $58,500 $65,000
Break Even Break Even Revenue Label 10,000 $200,000.00 Breakeven Units approx =10000
Assumptions Unit Price CM Ratio Fixed Exp Variable Expence per unit Variable Expence per unit Variable Expence per unit = = = 60.00 - (60.00*40%) 60.00 24.00 36.00
Time Month
Assumptions Units Start Units increment Unit Price Unit Variable Cost Total Fixed Costs 9000 500 60.00 36.00 $ 28,800
Units 9000 9500 10000 10500 11000 11500 12000 12500 13000 13500 14000 14500 15000
Sales Variable Cost $540,000 $324,000 $570,000 $342,000 $600,000 $360,000 $630,000 $378,000 $660,000 $396,000 $690,000 $414,000 $720,000 $432,000 $750,000 $450,000 $780,000 $468,000 $810,000 $486,000 $840,000 $504,000 $870,000 $522,000 $900,000 $540,000
Contributi on Margin Fixed Total Costs $216,000 $28,800 $352,800 $228,000 $28,800 $370,800 $240,000 $28,800 $388,800 $252,000 $28,800 $406,800 $264,000 $28,800 $424,800 $276,000 $28,800 $442,800 $288,000 $28,800 $460,800 $300,000 $28,800 $478,800 $312,000 $28,800 $496,800 $324,000 $28,800 $514,800 $336,000 $28,800 $532,800 $348,000 $28,800 $550,800 $360,000 $28,800 $568,800
Net Income $187,200 $199,200 $211,200 $223,200 $235,200 $247,200 $259,200 $271,200 $283,200 $295,200 $307,200 $319,200 $331,200
Break Break Even Even Revenue Label 1200 $72,000.00 Breakeven Units approx =1200
A B C D
An allocated protion of fixed manufacturing overhead is included in product cost under: Absorption Costing Variable Costing NO NO NO Yes Yes NO Yes Yes
ABSORPTION COSTING A costing method that includes all manufacturing costsdirect materials, direct labor, and both variable and fixed
VARIABLE COSTING A costing method that includes only variable manufacturing costsdirect materials, direct labor, and variable man
labor, and both variable and fixed manufacturing overheadin unit product costs.
ials, direct labor, and variable manufacturing overheadin unit product costs.
Total VC
74 8,300 614,200
Total VC
74 8,300 614,200
8,700 8,300 $ 92.00 Sales Less: Variable Expenses: BB Inventory VC CoGS VC S & A exp Contribution Margin Less: Fixed expenses: Fixed Mfg OH Fixed S & A Net Operating Income 763,600 0 572,700 41,500
decrease
FC 130,500 8,300
138,800 Total FC
decrease
Sales Less: Variable Expenses: BB Inventory CoGM CoG Available for Sale Less: EB Inventory GM Selling & Admin exp Net Operating Income
FC 130,500 8,300
84 8,300 697,200
138,800 Total FC
8,700 8,300 $ 92.00 Assumptions Variable cost per unit: Manufacturing: DMC DLC VMfgOH V S& A Fixed Cost per year FMfgOH F S& A Sales (VC) CM (FC) NI
13 55 1 5
Assumptions Variable cost per unit: Manufacturing: DMC DLC VMfgOH V S& A Fixed Cost per year
13 55 1 5
Assumptions ROI Required ROI Investment Selling and Admin Exp Unit product cost Unit sales
0% 49,800 84 8,300
7%
30% 60% 8% 0% 0%
May -
Jun -
Jul -
Jan Feb Mar Apr May Jun 30,000 36,000 33,000 60,000 72,000 66,000 8,000 9,600 8,800 30,000 96,000 113,000 75,600 8,800
Jul -
Aug -
Sep -
Oct
Nov
Dec
Aug -
Sep -
Oct -
Nov -
Dec -
A) B) C) D)
A labor efficiency variance resulting from the use of poor quality materials should be ch the production manager. the purchasing agent. manufacturing overhead. the engineering department.
A) B) C) D)
An unfavorable labor efficiency variance indicates that: The actual labor rate was higher than the standard labor rate. The labor rate variance must also be unfavorable. Actual labor hours worked exceeded standard labor hours for the production level achie Overtime labor was used during the period.
A) B) C) D)
A favorable labor rate variance indicates that actual hours exceed standard hours. standard hours exceed actual hours. the actual rate exceeds the standard rate. the standard rate exceeds the actual rate.
Assumptions Standard Quanity Direct material Direct labor Variable Mfg OH Unit Production Direct materials purchased Direct labor worked Variable Mfg OH incurred EB Inventory of Direct materials Materials Price Variance 4,000 85,000 390 3,000 AP= SP= MPV= 0.38 0.40 -1700 Display as positive number 20 0.1 0.1 Cost 32,300.00 4,875.00 1,475.00 Standard Cost per Bag 8.00 1.10 0.40
Labor efficiency Variance SQ= LEV= 400 (110) Display as positive number
Assumptions Sales Variavle exp Traceabel fixed exp Avg Operating Assets Minimum required Rate of Return
Residual Income Operating Income Less: Min Required Return Equals: Residual Income 50,000 40,000 10,000
Return on Investment
50,000 200,000
25%
One of the dangers of allocating common fixed costs to a product line is that such alloca A) TRUE B) FALSE
29. In responsibility accounting, each segment in an organization should be charged with the A) B) TRUE FALSE
Some managers believe that residual income is superior to return on investment as a me A) B) TRUE FALSE
The performance of the manager of Division A is measured by residual income. Which A) B) C) D) Increase in average operating assets. Decrease in average operating assets. Increase in minimum required return. Decrease in net operating income.
A segment of a business responsible for both revenues and expenses would be called: A) B) C) D) a cost center. an investment center. a profit center. residual income.
A business segment whose manager has co A business segment whose manager has co
product line is that such allocations can make the line appear less profitable than it really is.
on should be charged with the costs for which it is responsible and over which it has control plus its share of common organizati
o return on investment as a means of measuring performance, since it encourages the manager to make investment decisions that
ed by residual income. Which of the following would increase the manager's performance measure?
segment whose manager has control over cost but has no control over revenue or investments in operating assets. segment whose manager has control over cost, revenue, and investments in operating assets.
erating income that an investment center earns above the minimum required return on its operating assets.
make investment decisions that are more consistent with the interests of the company as a whole.
ating assets.
Assumptions Sales NOI Stockholder's Equity Average operating assets Minimumrequired rate of return
Residual Income
ROI
36,000 180,000
20%
Less
Differential Cost Per Drumb Assumptions Direct Material Direct Labor Variable OH Fixed OH Redused cost 30% Rental Supervision Make 12 8 3 10 30% 0 0 Outside supplier Direct Materials Direct Labor Variable OH Supervision Fixed OH Equipment Rental Total Cost 12 8.00 3 0 10 0 33.00 Buy 27
27.00
Outside supplier Direct Materials Direct Labor Variable OH Supervision Fixed OH Equipment Rental Total Cost
Diff
Total Differential Cost Make Buy Diff 270,000 120,000 80,000 30,000 230,000
6.00
270,000
(40,000)
Diff
Total Differential Cost Make Buy Diff 300,000 120,000 80,000 30,000 230,000
3.00
300,000
(70,000)
Some investment projects require that a company expand its working capital to se A) an initial cash outflow for which no discounting is necessary. B) a future cash inflow for which discounting is necessary. C) both an initial cash outflow for which no discounting is necessary and a future cash inflow for w D) irrelevant to the net present value analysis.
A) B) C) D)
Which of the following capital budgeting techniques consider(s) cash flow over the Internal rate of Payback return Yes Yes Yes No No Yes No No
ts working capital to service the greater volume of business that will be generated. Under the net present value method, t
he net present value method, the investment of working capital should be treated as:
If a new machine will yield a net cash flow of $60,000.00 per month for the next 5 years and your discount rate is 10.00% compounded 1 times a year, what is the maximum amount that you should pay for the machine? PUR= 200,000.00 SAVE= 50,000.00 i = Discount Rate = 10.00% n= 1 Price Price x= 10 PUR PV = ($1,228,913.42) Buy Not Buy SAVE PV = ($307,228.36) SALVAGE $0.00 If a new machine will yield a net cash flow of $60,000.00 per month for the next 5 years and your discount rate is 10.00% compounded 1 times a year, the the maximum amount that you should pay for the machine is $227,447.21. Words:
Excel Finance Class 27: Asset Valuation Using Discounted Cash Flow Analysis and PV Function ITEM Annual Cost Savings Initial Investment Net Present Value YEAR(S) 5-Jan Now CASH FLOW 50,000.00 (200,000.00) Discount PV OF CASH FLOWS 10.00% $307,228.36 1 (200,000.00) $107,228.36
Cash Flow For NPV $ (200,000.00) 50,000.00 50,000.00 50,000.00 50,000.00 50,000.00 50,000.00 50,000.00 50,000.00 4.00 10% $66,746.31 18.62%
Cumulative CF for Payback $ (200,000.00) $ (150,000.00) $ (100,000.00) $ (50,000.00) $ $ 50,000.00 $ 100,000.00 $ 150,000.00 $ 200,000.00 4
T Accounts
Finished Goods Debit
Date Amt Date
Credit
Amt
BB
$13,000 $125,000
$110,000
Bal
$28,000
Column1 a.
Column2 Raw Material Accounts Payable Work In Process Raw Material Manufacturing Overhead Sales & Admin Expense Accounts Payable Work In Process Manufacturing Overhead Sales & Admin Expense Salaries & Wages Payable Manufacturing Overhead Accounts Payable Advertising Expense Accounts Payable Manufacturing Overhead Depreciation Expense Accumulated Depreciation Manufacturing Overhead Sales & Admin Expense Accounts Payable Work In Process Manufacturing Overhead Finished Goods Work In Process Finished Goods CoGS
Column3
Column4 kr 200,000.00
Column5
kr 200,000.00 kr 185,000.00 kr 185,000.00 kr kr 63,000.00 7,000.00 kr kr kr kr 230,000.00 90,000.00 110,000.00 kr 430,000.00 kr 54,000.00 kr kr 136,000.00 kr 136,000.00 kr kr 76,000.00 19,000.00 kr kr kr 102,000.00 18,000.00 kr 120,000.00 kr 390,000.00 kr 390,000.00 kr 770,000.00 kr 770,000.00 kr 800,000.00 kr 800,000.00 95,000.00 54,000.00 $ 390,000.00 70,000.00
b.
c.
d.
c. e.
f.
g.
h.
i.
j.
k.
On the bases of direct labor hours Pre deteminded overhead rate: Overhead cost 360,000 Labor Hours 900 Direct Labor $ $ 975 360,000.00 = 900.00
400
$ 390,000.00 $ 400.00
POHR =
Estimated total manufacturing overhead cost for the coming period
Estimated total units in the allocation base for the coming period
400 x
975
g.
c. d. h.
T Accounts
Raw Materials Debit
Date Amt
Credit
Date Amt
Credit
Date Amt
BB a.
kr 30,000 kr 200,000
b.
kr 185,000
BB b. d. i. Bal
j.
kr
770,000
Bal
kr
45,000
Credit
Date Amt
COGS Debit
Date Amt
Credit
Date Amt
c. d. e. g. h.
kr kr kr kr kr
i.
kr 390,000
k.
kr 800,000
Bal kr
5,000
Bal
kr 800,000
Credit
Date Amt
Credit
Date Amt
d.
kr 430,000
a. c. e. f. h. Bal
Bal
kr 430,000
kr kr kr kr kr kr
Credit
Date Amt
Credit
Date Amt
kr
95,000
95,000
Bal
kr
Credit
Date Amt
Credit
Date Amt
g.
kr
19,000
f.
kr 136,000
Bal
kr
19,000
kr 136,000
Credit
Date
Credit
Amt Date Amt
c. d. h.
BB j.
kr 60,000 kr 770,000
k.
kr
800,000
Bal
kr 135,000
Bal
kr
30,000
Matthias Corporation has provided data concerning the company's Manufacturing Overhead account for the month of May. Prior to the closing of the overapplied or underapplied balance to Cost of Goods Sold, the total of the debits to the Manufacturing Overhead account was $53,000 and the total of the credits to the account was $69,000. Which of the following statements is true? A. Manufacturing overhead applied to Work in Process for the month was $69,000. B. Manufacturing overhead for the month was underapplied by $16,000. C. Manufacturing overhead transferred from Finished Goods to Cost of Goods Sold during the month was $53,000. D. Actual manufacturing overhead incurred during the month was $69,000.
BB WIP Units Started into production during the month EB WIP Units completed and transferred out during month EQUIVALENT UNITS OF PRODUCTION Transfer to next department Ending work in process Equivalent units of Production
40,000
COST PER EQUIVALENT UNIT Cost of BB WIP Cost added during the period Total Cost (a 8,600 223,000 231,600
Equivalent units of Production (b) Cost per equivalent Unit (a) (b)
772,000 0.30
Assumptions BB WIP: Units in process % Complete materials % Complete conversion Cost in BB Inventory: Material cost Conversion cost Units started into production during month Units transferred out during month Costs added to production durning month: Material cost Conversion Cost EB WIP: Units in process % Complete materials % Complete conversion
40,000 70% 60% 8,600 4,800 750,000 ? 223,000 149,000 30,000 40% 30%
Assumptions Equipment purchase price Decrease Operating Expense Equipment useful life Minimum Rate of Return on Equipment Present Value Factor
0 0%
5.650
use PV Table
Less:
0 0 0
5.650
use PV Table