Derby Phones is considering the introduction of a new model of headphones with the following price and cost characteristics.

Assume that the projected number of units sold for the month is 5,500. Consider requirements (b), (c), and (d) independently of each other.

Required:

a. What will the operating profit be?

b. What is the impact on operating profit if the sales price decreases by 10 percent? Increases by 20 percent?

c. What is the impact on operating profit if variable costs per unit decrease by 10 percent? Increase by 20 percent?

d. Suppose that fixed costs for the year are 10 percent lower than projected, and variable costs per unit are 10 percent higher than projected. What impact will these cost changes have on operating profit for the year? Will profit go up? Down? By how much?

Hunter & Sons sells a single model of meat smoker for use in the home. The smokers have the following price and cost characteristics.

Hunter & Sons is subject to an income tax rate of 40 percent.

Required:

a. How many smokers must Hunter & Sons sell every month to break even?

b. How many smokers must Hunter & Sons sell to earn a monthly operating profit of $74,880 after taxes?

K&K Toys, Ltd., produces a toy called the Maze. The company has recently established a standard cost system to help control costs and has established the following standards for the Maze toy:

Direct materials: 7 microns per toy at $0.32 per micron

Direct labor: 1.5 hours per toy at $6.80 per hour

During July, the company produced 5,300 Maze toys. The toy's production data for the month are as follows:

Direct materials: 79,000 microns were purchased at a cost of $0.30 per micron. 32,625 of these microns were still in inventory at the end of the month.

Direct labor: 8,450 direct labor-hours were worked at a cost of $61,685.

Required:

1. Compute the following variances for July: (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values. Do not round intermediate calculations. Round final answer to the nearest whole dollar amount.)

a. The materials price and quantity variances.

b. The labor rate and efficiency variances.

k&k Parts, Inc., manufactures auto accessories. One of the company’s products is a set of seat covers that can be adjusted to fit nearly any small car. The company has a standard cost system in use for all of its products. According to the standards that have been set for the seat covers, the factory should work 1,075 hours each month to produce 2,150 sets of covers. The standard costs associated with this level of production are:

During August, the factory worked only 800 direct labor-hours and produced 2,500 sets of covers. The following actual costs were recorded during the month:

At standard, each set of covers should require 3.0 yards of material. All of the materials purchased during the month were used in production.

Required:

1. Compute the materials price and quantity variances for August.

2. Compute the labor rate and efficiency variances for August.

3. Compute the variable overhead rate and efficiency variances for August.

(Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)

1. Weighted Average Method, FIFO Method, Physical Flow, Equivalent Units

   Heap Company manufactures a product that passes through two processes: Fabrication and Assembly. The following information was obtained for the Fabrication Department for September:

   1. All materials are added at the beginning of the process.
   2. Beginning work in process had 90,300 units, 20 percent complete with respect to conversion costs.
   3. Ending work in process had 12,900 units, 20 percent complete with respect to conversion costs.
   4. Started in process, 98,200 units.

   Required:

   1. Prepare a physical flow schedule.

   Heap Company
   Physical Flow Schedule
   Units to account for:
   Total units to account for
   Units accounted for:
   Units completed and transferred out:
   Total units accounted for

   2. Compute equivalent units using the weighted average method.

   Weighted average method:	Equivalent Units
   Direct Materials
   Conversion Costs

   3. Compute equivalent units using the FIFO method.

   FIFO method:	Equivalent Units
   Direct Materials
   Conversion Costs

Olympus, Inc., manufactures three models of mattresses: the Sleepeze, the Plushette, and the Ultima. Forecast sales for next year are 15,250 for the Sleepeze, 12,700 for the Plushette, and 4,580 for the Ultima. Gene Dixon, vice president of sales, has provided the following information:

Salaries for his office (including himself at $66,500, a marketing research assistant at $35,850, and an administrative assistant at $23,550) are budgeted for $125,900 next year.

Depreciation on the offices and equipment is $19,000 per year.

Office supplies and other expenses total $22,750 per year.

Advertising has been steady at $20,600 per year. However, the Ultima is a new product and will require extensive advertising to educate consumers on the unique features of this high-end mattress. Gene believes the company should spend 15 percent of first-year Ultima sales for a print and television campaign.

Commissions on the Sleepeze and Plushette lines are 3 percent of sales. These commissions are paid to independent jobbers who sell the mattresses to retail stores.

Last year, shipping for the Sleepeze and Plushette lines averaged $45 per unit sold. Gene expects the Ultima line to ship for $70 per unit sold since this model features a larger mattress.

Suppose that Gene is considering three sales scenarios as follows: Pessimistic Expected Optimistic Price Quantity Price Quantity Price Quantity Sleepeze $186 12,640 $206 15,250 $206 17,540 Plushette 291 10,020 333 12,700 343 13,850 Ultima 850 2,230 920 4,580 1,120 4,580

Suppose Gene determines that next year's Sales Division activities include the following: Research—researching current and future conditions in the industry

Shipping—arranging for shipping of mattresses and handling calls from purchasing agents at retail stores to trace shipments and correct errors

Jobbers—coordinating the efforts of the independent jobbers who sell the mattresses

Basic ads—placing print and television ads for the Sleepeze and Plushette lines

Ultima ads—choosing and working with the advertising agency on the Ultima account

Office management—operating the Sales Division office

The percentage of time spent by each employee of the Sales Division on each of the above activities is given in the following table: Gene Research Assistant Administrative Assistant Research - 70 % - Shipping 30 % - 20 % Jobbers 15 15 20 Basic ads - 15 35 Ultima ads 25 - 10 Office management 30 - 15

Additional information is as follows: Depreciation on the office equipment belongs to the office management activity.

Of the $22,750 for office supplies and other expenses, $5,400 can be assigned to telephone costs which can be split evenly between the shipping and jobbers' activities. An additional $2,300 per year is attributable to Internet connections and fees, and the bulk of these costs (75 percent) are assignable to research. The remainder is a cost of office management. All other office supplies and costs are assigned to the office management activity.

Required:

1. Prepare an activity-based budget for next year by activity. Use the expected level of sales activity. If required, round answers to the nearest dollar.

Munoz Glass Company makes stained glass lamps. Each lamp that it sells for $316.50 per lamp requires $16.80 of direct materials and $71.40 of direct labor. Fixed overhead costs are expected to be $195,000 per year. Munoz Glass expects to sell 1,000 lamps during the coming year. Selling and administrative expenses were zero.

Prepare income statements using absorption costing, assuming that Munoz Glass makes 1,000, 1,250, and 1,500 lamps during the year. (Do not round intermediate calculations.)

Prepare income statements using variable costing, assuming that Munoz Glass makes 1,000, 1,250, and 1,500 lamps during the year. (Do not round intermediate calculations.)

For Yum Brands! Inc, describe the Product Cost Life Cycle. Does the company employ target costing? If so, how does the company manage costs to reach the target level?

On July 1, 2016, the City of Belvedere accepted a gift of cash in the amount of $3,200,000 from a number of individuals and foundations and signed an agreement to establish a private-purpose trust. The $3,200,000 and any additional gifts are to be invested and retained as principal. Income from the trust is to be distributed to community nonprofit groups as directed by a Board consisting of city officials and other community leaders. The agreement provides that any increases in the market value of the principal investments are to be held in trust; if the investments fall below the gift amounts, then earnings are to be withheld until the principal amount is re-established.

1. On July 1, the original gift of cash was received.
2. On August 1, $2,200,000 in XYZ Company bonds were purchased at par plus accrued interest ($18,333). The bonds pay an annual rate of 5 percent interest semiannually on April 1 and October 1.
3. On August 2, $900,000 in ABC Company common stock was purchased. ABC normally declares and pays dividends semiannually, on January 31 and July 31.
4. On October 1, the first semiannual interest payment ($55,000) was received from XYZ Company. Note that part of this is for accrued interest due at the time of purchase; the remaining part is an addition that may be used for distribution.
5. On January 31, a cash dividend was received from ABC Company in the amount of $25,000.
6. On March 1, the ABC stock was sold for $921,000. On the same day, DEF Company stock was purchased for $965,000.
7. On April 1, the second semiannual interest payment was received from XYZ Company.
8. During the month of June, distributions were approved by the Board and paid in cash in the amount of $82,500.
9. Administrative expenses were recorded and paid in the amount of $5,500.
10. An accrual for interest on the XYZ bonds was made as of June 30, 2017.
11. As of June 30, 2017, the fair value of the XYZ bonds, exclusive of accrued interest, was determined to be $2,203,000. The fair value of the DEF stock was determined to be $961,000.
12. Closing entries were prepared.
    

Required:
a. The above events and transactions occurred during the fiscal year ended June 30, 2017. Record them in the Belvedere Community Trust Fund.
b. Prepare (1) a Statement of Changes in Fiduciary Net Position for the Belvedere Community Trust Fund and (2) a Statement of Fiduciary Net Position

Venus Creations sells window treatments (shades, blinds, and awnings) to both commercial and residential customers. The following information relates to its budgeted operations for the current year.

The controller, Peggy Kingman, is concerned about the residential product line. She cannot understand why this line is not more profitable given that the installations of window coverings are less complex for residential customers. In addition, the residential client base resides in close proximity to the company office, so travel costs are not as expensive on a per client visit for residential customers. As a result, she has decided to take a closer look at the overhead costs assigned to the two product lines to determine whether a more accurate product costing model can be developed. Here are the three activity cost pools and related information she developed:

Compute the activity-based overhead rates for each of the three cost pools. (Round answers to 2 decimal places, e.g. 12.25.)

eTextbook and Media

Partially correct answer iconYour answer is partially correct.

Determine the overhead cost assigned to each product line. (Round answers to 0 decimal places, e.g. 1,575.)

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Incorrect answer iconYour answer is incorrect.

Compute the operating income for each product line, using the activity-based overhead rates. (Round answers to 0 decimal places, e.g. 1,575.)

Exercise 9-5 Departmental expense allocations LO P2

Woh Che Co. has four departments: materials, personnel, manufacturing, and packaging. In a recent month, the four departments incurred three shared indirect expenses. The amounts of these indirect expenses and the bases used to allocate them follow.

Departmental data for the company’s recent reporting period follow.

1. Use this information to allocate each of the three indirect expenses across the four departments.
2. Prepare a summary table that reports the indirect expenses assigned to each of the four departments.

Use this information to allocate each of the three indirect expenses across the four departments.

Prepare a summary table that reports the indirect expenses assigned to each of the four departments.

Net Present Value

Use Exhibit 12B.1 and Exhibit 12B.2 to locate the present value of an annuity of $1, which is the amount to be multiplied times the future annual cash flow amount.

Each of the following scenarios is independent. Assume that all cash flows are after-tax cash flows.

1. Campbell Manufacturing is considering the purchase of a new welding system. The cash benefits will be $480,000 per year. The system costs $1,350,000 and will last 10 years.
2. Evee Cardenas is interested in investing in a women's specialty shop. The cost of the investment is $230,000. She estimates that the return from owning her own shop will be $50,000 per year. She estimates that the shop will have a useful life of 6 years.
3. Barker Company calculated the NPV of a project and found it to be $63,900. The project's life was estimated to be 8 years. The required rate of return used for the NPV calculation was 10%. The project was expected to produce annual after-tax cash flows of $135,000.

Required:

1. Compute the NPV for Campbell Manufacturing, assuming a discount rate of 12%. If required, round all present value calculations to the nearest dollar. Use the minus sign to indicate a negative NPV.
$

Should the company buy the new welding system? YES/NO

2. Conceptual Connection: Assuming a required rate of return of 8%, calculate the NPV for Evee Cardenas' investment. Round to the nearest dollar. If required, round all present value calculations to the nearest dollar. Use the minus sign to indicate a negative NPV.
$

Should she invest? YES/NO

What if the estimated return was $135,000 per year? Calculate the new NPV for Evee Cardenas' investment. Would this affect the decision? What does this tell you about your analysis? Round to the nearest dollar.
$

The shop (SHOULD/SHOULD NOT) be purchased. This reveals that the decision to accept or reject in this case is affected by differences in estimated (INVESTMENT/RETURNS/CASHFLOW)

3. What was the required investment for Barker Company's project? Round to the nearest dollar. If required, round all present value calculations to the nearest dollar.
$

The beginning inventory was 320 units at a cost of $10 per unit. Goods available for sale during the year were 1,360 units at a total cost of $15,060. In May, 620 units were purchased at a total cost of $6,820. The only other purchase transaction occurred during October. Ending inventory was 580 units.

Required:

a. Calculate the number of units purchased in October and the cost per unit purchased in October.

b-1. Assume the periodic inventory system is used. Calculate cost of goods sold and ending inventory using FIFO method. (Enter all values as a positive value.)

b-2. Assume the periodic inventory system is used. Calculate cost of goods sold and ending inventory using LIFO method. (Enter all values as a positive value.)

Identify a product that you think you have paid either too little for or too much for. Identify the pricing strategy you think the company is trying to implement (based on the assigned reading) and evaluate the effectiveness of the strategy. Use at least two sources to justify your answer. You should also use outside research (at least two sources), evaluate the effectiveness of the strategy, and address the competitors response to the pricing decision.

Dell is considering replacing one of its material handling systems. The old system was purchased 7 years ago for $130,000 and was depreciated as MACRS-GDS 5-year property since the system is used in the manufacture of electronic components. It has an annual O&M cost of $48,000, a remaining operational life of 8 years, and an estimated salvage value of $6,000 at that time. A new system can be purchased for $175,000. It will be worth $50,000 in 8 years, and it will have annual O&M costs of only $17,000 per year due to new technology. If the new system is purchased, the old system will be traded in for $55,000, even though the old system can be sold for only $45,000 on the open market. Leasing a new system will cost $31,000 per year, payable at the beginning of the year, plus operating costs of $15,000 per year payable at year-end. If the new system is leased, the existing material handling system will be sold for its market value of $45,000. Use an 8-year planning horizon, an annual worth analysis, a tax rate of 40 percent, and an after-tax MARR of 9 percent to decide which material handling system to recommend: keep existing, trade in existing and purchase new, or sell existing and lease.

a. Use the cash flow approach (insider’s viewpoint approach). (11.2.2)

b. Use the cash flow approach (insider’s viewpoint approach), except note that a Section 1031 like-kind property exchange is to be used. The equipment replaced will continue to be replaced by like-kind investments in the United States indefinitely. Recall that a Section 1031 like-kind property exchange does not apply to leases. (11.4)

Hearty Soup Co. uses a process cost system to record the costs of processing soup, which requires the cooking and filling processes. Materials are entered from the cooking process at the beginning of the filling process. The inventory of Work in Process-Filling on April 1 and debits to the account during April 2016 were as follows:

During April, 700 units in process on April 1 were completed, and of the 7,400 units entering the department, all were completed except 500 units that were 90% completed.

Charges to Work in Process-Filling for May were as follows:

During May, the units in process at the beginning of the month were completed, and of the 9,500 units entering the department, all were completed except 400 units that were 35% completed.

Cost of Production Report- April

Cost of Production Report- May

Final Question:

The cost per equivalent unit for direct materials (increased, decreased) from March to May. The cost per equivalent unit for conversion costs (increased, decreased) from March to May. These changes(should, need not) be investigated for their underlying causes, and any necessary corrective actions should be taken.

List the four financial statements and explain each one. What does each statement tell us? Provide an example of each statement using the corporation like Publix Super Market. Next, explain the connections between the financial statements.