5. Maglie Company manufactures two video game consoles: handheld and home. The handheld consoles are smaller and less expensive than the home consoles. The company only recently began producing the home model. Since the introduction of the new product, profits have been steadily declining. Management believes that the accounting system is not accurately allocating costs to products, particularly because sales of the new product have been increasing.
Management has asked you to investigate the cost allocation problem. You find that manufacturing overhead is currently assigned to products based on their direct labor costs. For your investigation, you have data from last year. Manufacturing overhead was $1,273,000 based on production of 340,000 handheld consoles and 106,000 home consoles. Direct labor and direct materials costs were as follows:
| Handheld | Home | Total | |||||||
| Direct labor | $ | 1,213,250 | $ | 378,000 | $ | 1,591,250 | |||
| Materials | 770,000 | 708,000 | 1,478,000 | ||||||
Management has determined that overhead costs are caused by three cost drivers. These drivers and their costs for last year are as follows:
| Activity Level | ||||||
| Cost Driver | Costs Assigned | Handheld | Home | Total | ||
| Number of production runs | $ | 495,000 | 35 | 10 | 45 | |
| Quality tests performed | 570,000 | 13 | 17 | 30 | ||
| Shipping orders processed | 208,000 | 100 | 60 | 160 | ||
| Total overhead | $ | 1,273,000 | ||||
Required:
a. How much overhead will be assigned to each product if these three cost drivers are used to allocate overhead? What is the total cost per unit produced for each product? (Round "Total cost per unit" to 2 decimal places.)
| overhead | total cost per unit | |
| handheld | $ 8.07 | |
| home | $ 15.07 |
b. How much overhead will be assigned to each product if direct labor cost is used to allocate overhead? What is the total cost per unit produced for each product? (Do not round intermediate calculations. Round "Total cost per unit" to 2 decimal places.)
| overhead | total cost per unit | |
| handheld | ||
| home |
In: Accounting
Tannin Products Inc. prepared the following factory overhead cost budget for the Trim Department for July of the current year, during which it expected to use 16,000 hours for production:
| Variable overhead costs: | ||
| Indirect factory labor | $41,600 | |
| Power and light | 12,320 | |
| Indirect materials | 20,800 | |
| Total variable overhead cost | $ 74,720 | |
| Fixed overhead costs: | ||
| Supervisory salaries | $68,400 | |
| Depreciation of plant and equipment | 18,000 | |
| Insurance and property taxes | 33,600 | |
| Total fixed overhead cost | 120,000 | |
| Total factory overhead cost | $194,720 |
Tannin has available 20,000 hours of monthly productive capacity in the Trim Department under normal business conditions. During July, the Trim Department actually used 15,000 hours for production. The actual fixed costs were as budgeted. The actual variable overhead for July was as follows:
| Actual variable factory overhead costs: | |
| Indirect factory labor | $38,030 |
| Power and light | 11,340 |
| Indirect materials | 20,500 |
| Total variable cost | $69,870 |
Construct a factory overhead cost variance report for the Trim Department for July. Enter all amounts as positive numbers. If an amount box does not require an entry, leave it blank. Round your interim computations to the nearest cent, if required.
| Tannin Products Inc. | ||||
| Factory Overhead Cost Variance Report-Trim Department | ||||
| For the Month Ended July 31 | ||||
| Productive capacity for the month 20,000 hrs. | ||||
| Actual productive capacity used for the month 15,000 hrs. | ||||
| Budget (at actual production) | Actual | Favorable Variances | Unfavorable Variances | |
| Variable factory overhead costs: | ||||
| Indirect factory labor | $ | $ | $ | |
| Power and light | ||||
| Indirect materials | $ | |||
| Total variable factory overhead cost | $ | $ | ||
| Fixed factory overhead costs: | ||||
| Supervisory salaries | $ | $ | ||
| Depreciation of plant and equipment | ||||
| Insurance and property taxes | ||||
| Total fixed factory overhead cost | $ | $ | ||
| Total factory overhead cost | $ | $ | ||
| Total controllable variances | $ | $ | ||
| Net controllable variance-favorable | $ | |||
| Volume variance-unfavorable | ||||
| Idle hours at the standard rate for fixed factory overhead | ||||
| Total factory overhead cost variance-unfavorable | $ | |||
In: Accounting
Process Activity Analysis for a Service Company
Statewide Insurance Company has a process for making payments on
insurance claims as follows:
An activity analysis revealed that the cost of these activities was as follows:
| Receiving claim | $11,400 | |
| Adjusting claim | 79,800 | |
| Paying claim | 22,800 | |
| Total | $114,000 |
This process includes only the cost of processing the claim payments, not the actual amount of the claim payments. The adjusting activity involves verifying and estimating the amount of the claim and is variable to the number of claims adjusted.
The process received, adjusted, and paid 3,800 claims during the period. All claims were treated identically in this process.
To improve the cost of this process, management has determined that claims should be segregated into two categories. Claims under $1,000 and claims greater than $1,000: claims under $1,000 would not be adjusted but would be accepted upon the insured's evidence of claim. Claims above $1,000 would be adjusted. It is estimated that 70% of the claims are under $1,000 and would thus be paid without adjustment. It is also estimated that the additional effort to segregate claims would add 5% to the "receiving claim" activity cost.
a. Develop a table showing the percent of individual activity cost to the total process cost. Round the percents to the nearest whole number, if required.
| Statewide Insurance Company | ||
| Individual activity cost to the total process cost | ||
| Activities | Activity Cost | Percent of Total Process |
| Receiving claim | $ | % |
| Adjusting claim | % | |
| Paying claim | % | |
| Total | $ | % |
b. Determine the average total process cost per
claim payment, assuming 3,800 total claims. Round to the nearest
whole dollar.
$________ per paid claim
c. Prepare a table showing the changes in the activity costs as a result of the changes proposed by management. If an amount is zero, leave the entry box blank. Use the minus sign to indicate an additional cost in the last column.
| Statewide Insurance Company | |||
| Changes in the activity costs | |||
| Activities | Activity Cost Prior to Improvement |
Activity Cost After Improvement |
Activity Cost Saving |
| Receiving claim | $ | $ | $ |
| Adjusting claim | |||
| Paying claim | |||
| Totals | $ | $ | $ |
d. Estimate the average cost per claim payment, assuming that the changes proposed by management are enacted for 3,800 total claims. Round to the nearest cent.
$__________ per paid claim
In: Accounting
Process Activity Analysis for a Service Company
Statewide Insurance Company has a process for making payments on
insurance claims as follows:
An activity analysis revealed that the cost of these activities was as follows:
| Receiving claim | $45,000 | |
| Adjusting claim | 195,000 | |
| Paying claim | 60,000 | |
| Total | $300,000 |
This process includes only the cost of processing the claim payments, not the actual amount of the claim payments. The adjusting activity involves verifying and estimating the amount of the claim and is variable to the number of claims adjusted.
The process received, adjusted, and paid 5,000 claims during the period. All claims were treated identically in this process.
To improve the cost of this process, management has determined that claims should be segregated into two categories. Claims under $1,000 and claims greater than $1,000: claims under $1,000 would not be adjusted but would be accepted upon the insured's evidence of claim. Claims above $1,000 would be adjusted. It is estimated that 70% of the claims are under $1,000 and would thus be paid without adjustment. It is also estimated that the additional effort to segregate claims would add 15% to the "receiving claim" activity cost.
a. Develop a table showing the percent of individual activity cost to the total process cost. Round the percents to the nearest whole number, if required.
| Statewide Insurance Company | ||
| Individual activity cost to the total process cost | ||
| Activities | Activity Cost | Percent of Total Process |
| Receiving claim | $ | % |
| Adjusting claim | % | |
| Paying claim | % | |
| Total | $ | % |
b. Determine the average total process cost per
claim payment, assuming 5,000 total claims. Round to the nearest
whole dollar.
$ per paid claim
c. Prepare a table showing the changes in the activity costs as a result of the changes proposed by management. If an amount is zero, leave the entry box blank. Use the minus sign to indicate an additional cost in the last column.
| Statewide Insurance Company | |||
| Changes in the activity costs | |||
| Activities | Activity Cost Prior to Improvement |
Activity Cost After Improvement |
Activity Cost Saving |
| Receiving claim | $ | $ | $ |
| Adjusting claim | |||
| Paying claim | |||
| Totals | $ | $ | $ |
d. Estimate the average cost per claim payment,
assuming that the changes proposed by management are enacted for
5,000 total claims. Round to the nearest cent.
$ per paid claim
In: Accounting
1.
We know that average _______ cost is ______ when marginal cost is less than average total cost.
|
variable; rising |
||
|
fixed; rising |
||
|
total; falling |
||
|
total; rising |
2.
In the short run, if a company shuts down, which of the following will happen?
|
Total revenue will be zero, but total fixed costs will still have to be paid. |
||
|
Total revenue will be zero, and total costs will be zero. |
||
|
Total economic profit will be zero, and total costs will be positive. |
||
|
Total revenue will be zero, but total variable costs will still have to be paid. |
3.
Output levels will maximize total economic profits in the short run in which of the following situations?
|
When total costs are minimized |
||
|
When total revenues are maximized |
||
|
When variable costs are minimized |
||
|
When marginal costs and marginal revenues are equalized |
4.
Which of the following is true of the industry short-run supply curve?
|
It is always equal to marginal physical product. |
||
|
It is downward sloping. |
||
|
It is the summation of the individual firm's supply curves. |
||
|
It is impossible to compute without knowing about the position of the marginal revenue curve. |
In: Economics
Yasmin Jamieson is 18 years old and is about to graduate from an Ottawa high school. She must decide: which university will she attend in September? She wants to follow a 4-year undergraduate degree in Economics. Yasmin has been accepted to attend McMaster University in Ontario, Canada, and Stanford University, California, United States. She faces only one annual cost for the each of the four years she is in university: tuition. Annual tuition at McMaster is $15,000. At Stanford, annual tuition is $45,000. Assume that she is not considering the option of working after high school. Therefore, do not consider the foregone labour earnings when going to university. After graduation, Yasmin has a strong interest in Labour Economics and hopes to receive job offers from Capital Economics (near Hamilton, Canada) and from Insight Economics (near Stanford, USA).
She knows that these two companies offer different annual salaries depending on where one has graduated. Capital Economics will offer a McMaster graduate an annual salary of $128,000 and a Stanford graduate an annual salary of $160,000. Insight Economics will offer a McMaster graduate an annual salary of $175,000 and a Stanford graduate an annual salary of $250,000.
Let’s assume the following:
• Yasmin’s objective in her decision-making is to maximize the present value of net future income over her career (that is, income net of costs).
• She is certain to get job offers from both companies.
• Please ignore differences between these two cities in terms of income taxes, the exchange rate, the cost of living and moving costs.
• These annual salaries do not change for the duration of her expected career, from age 22 to 65. Hint: this time horizon is sufficiently long to use the present value (PV) approximation formula.
• However, the present value of annual tuition costs should be calculated using the expanded present value formula.
• The market interest rate is 5%. Which university would you recommend to Yasmin? Please show all your calculations and explain your recommendation. (20 points)
In: Economics
ThatcherThatcher
Paints makes and sells paint to home improvement stores.
ThatcherThatcher's
only plant can produce up to
99
million cans of paint per year. Current annual production is
66
million cans. Fixed manufacturing, selling, and administrative costs total
$ 10.2$10.2
million per year. The variable cost of making and selling each can of paint is
$ 6.40$6.40.
Stockholders expect a
2525%
annual return on the company's
$ 35$35
million of assets.
Requirement 1. What is
ThatcherThatcher's
current total cost of making and selling
66
million cans of paint? What is the current cost per can of paint? Select the formula labels and enter the amounts to calculate
ThatcherThatcher's
current total cost and current cost per can of paint. (Enter currency amounts in dollars, not in millions. Enter unit values as whole numbers, not in millions. Round all currency amounts to the nearest whole dollar and round the cost per unit to the nearest cent, $X.XX.)
|
Plus: |
||
|
Divided by: |
Number of units |
|
|
Total cost per unit |
Requirement 2. Assume that |
|
ThatcherThatcher
is a price-taker and the current wholesale market price is
$ 6.90$6.90
per can of paint. What is the target total of cost in producing and selling
66
million cans of paint? Given
ThatcherThatcher's
current total costs, will the company reach stockholders' profit goals?Begin by calculating
ThatcherThatcher's
target total cost. Select the formula labels and enter the amounts. (Enter currency amounts in dollars, not in millions. Round all currency amounts to the nearest whole dollar.)
|
Less: |
||
|
Target total cost |
||
Given
ThatcherThatcher's
current total costs, will the company reach stockholders' profit goals? (Enter currency amounts in dollars, not in millions.)
|
, the company |
reach stockholders' profit goals. There will be a(an) $ |
. |
|||||
Requirement 3. Continuing with Requirement 2, let's say that
ThatcherThatcher
has found ways to reduce its total fixed costs by
$ 270 comma 000$270,000.
What is the target variable cost per can of paint?Select the formula labels and enter the amounts to calculate
ThatcherThatcher's
target variable cost per can of paint. (Enter currency amounts in dollars, not in millions. Enter unit values as whole numbers, not in millions. Round cost per unit amounts to the nearest cent, $X.XX.)
|
Less: |
||
|
Divided by: |
||
Requirement 4. Suppose
ThatcherThatcher
plans to spend an additional
$ 1.9$1.9
million on advertising to differentiate its product in order to increase sales volume to
77
million cans and become more of a price-setter. Assume that
ThatcherThatcher
did reduce its total fixed costs by
$ 270 comma 000$270,000
as stated in Requirement 3 but could not find ways to save on its variable costs. What is the cost-plus price for a can of paint under these conditions?Select the formula labels and enter the amounts to calculate
ThatcherThatcher's
cost-plus price for a can of paint under these conditions. (Enter currency amounts in dollars, not in millions. Round cost per unit amounts to the nearestcent, $X.XX.)
|
Current total costs |
|||
|
Plus: |
|||
|
Divided by: |
|||
|
Cost-plus price per unit |
|||
In: Accounting
Texas Rex sells t-shirts. Expected sales for each quarter is 1000, 1200, 1500, and 2000 t-shirts at $10.00 each. They anticipate no price change.
The Direct Materials Budget tells management how much must be bought to support production and the cost of those purchases.
Plain t-shirts cost $3.00 each, and ink (for the screen printing) cost $0.20 per ounce. The factory needs one plain t-shirt and five ounces of ink for each logoed t-shirt that it produces. Texas Rex’s policy is to have 10% of the following quarter’s needs in ending inventory. The factory has 58 plain t-shirts and 390 ounces of ink on hand on January 1. At the end of the year, the desired ending inventory is 106 plain t-shirts and 530 ounces of ink.
Texas Rex, Inc.
Direct Materials Budget
For the year ending December 31, 2018
Plain t-shirts: Q1 Q2 Q3 Q4 Total
Units to be Produced
Direct Materials per unit_______ _______ ________ _______ ________
Production Needs
Desired Ending Inv. _______ _______ ________ _______ ________
Total Needs
Less Beginning Inv. _______ _______ ________ _______ ________
Direct Materials
To be Purchased
Cost per t-shirt _______ _______ ________ _______ ________
Total T-shirt Purchase
Cost
Ink: Q1 Q2 Q3 Q4 Total
Units to be Produced
Direct Materials per unit_______ _______ ________ _______ ________
Production Needs
Desired Ending Inv. _______ _______ ________ _______ ________
Total Needs
Less Beginning Inv. _______ _______ ________ _______ ________
Direct Materials
To be Purchased
Cost per ounce _______ _______ ________ _______ ________
Total Ink Purchase Cost
Total Cost of
All Direct Materials
In: Accounting
A profit-maximizing firm should shut down in the short run if:
Answer choices:
price is greater than marginal cost.
total revenue is less than total variable cost.
the firm is earning less than a normal rate of return.
the firm is not able to cover its overhead expenses.
marginal cost is higher than average cost.
In: Economics
Stock splits result in:
|
A higher cost per share for all shares than before the stock split. |
||
|
A lower cost per share for all shares than before the stock split. |
||
|
An increase in the total cost of the old and new stock combined. |
||
|
A decrease in the total cost of the old and new stock combined. |
||
|
None of the above statements are correct. |
In: Accounting