eBook Cornerstone Exercise 6.10 (Algorithmic) Cost Information and the Weighted Average Method Morrison Company had the equivalent units schedule and cost information for its Sewing Department for the month of December, as shown below. Direct Materials Conversion Costs Units completed 46,000 46,000 Add: Units in ending work in process × Percentage complete: 20,000 × 100% direct materials 20,000 — 20,000 × 45% conversion materials — 9,000 Eqivalent units of output 66,000 55,000 Costs: Work in process, December 1: Direct materials $62,000 Conversion costs 10,000 Total work in process $72,000 Current costs: Direct materials $540,000 Conversion costs 180,000 Total current costs $720,000 Required: 1. Calculate the unit cost for December, using the weighted average method. Do NOT round interim calculations and, if required, round your answer to the nearest cent. $ per equivalent unit 2. Calculate the cost of goods transferred out, calculate the cost of EWIP, and reconcile the costs assigned with the costs to account for. Cost of goods transferred out: Units completed $ Cost of EWIP Total costs assigned (accounted for) $ Reconciliation Cost to account for: BWIP $ Current (December) Total $ 3. What if you were asked to show that the weighted average unit cost for materials is the blend of the November unit materials cost and the December unit materials cost? The November unit materials cost is $3.10 ($62,000/20,000), and the December unit materials cost is $11.74 ($540,000/46,000). The equivalent units in BWIP are 20,000, and the FIFO equivalent units are 46,000. Calculate the weighted average unit materials cost using weights defined as the proportion of total units completed from each source (BWIP output and current output). Do NOT round interim calculations and, if required, round your answer to the nearest cent. $ per unit

Cost Information and the Weighted Average Method

Morrison Company had the equivalent units schedule and cost information for its Sewing Department for the month of December, as shown below.

Required:

1. Calculate the unit cost for December, using the weighted average method. Do NOT round interim calculations and, if required, round your answer to the nearest cent.
$ per equivalent unit

2. Calculate the cost of goods transferred out, calculate the cost of EWIP, and reconcile the costs assigned with the costs to account for.

Cost of goods transferred out:

Reconciliation
Cost to account for:

3. What if you were asked to show that the weighted average unit cost for materials is the blend of the November unit materials cost and the December unit materials cost? The November unit materials cost is $3.53 ($60,000/17,000), and the December unit materials cost is $10.42 ($500,000/48,000). The equivalent units in BWIP are 17,000, and the FIFO equivalent units are 48,000. Calculate the weighted average unit materials cost using weights defined as the proportion of total units completed from each source (BWIP output and current output). Do NOT round interim calculations and, if required, round your answer to the nearest cent.
$ per unit

Traditional Product Costing Versus Activity-Based Costing
Assume that Panasonic Company has determined its estimated total manufacturing overhead cost for one of its plants to be $252,000, consisting of the following activity cost pools for the current month:

Total direct labor hours used during the month were 8,000. Panasonic produces many different electronic products, including the following two products produced during the current month:

a. Calculate the total per-unit cost of each model using direct labor hours to assign manufacturing overhead to products.
Round rate to two decimal places.
Overhead rate per direct labor hour $Answer

Use rounded overhead rate calculated above for calculations below. Round cost answers to the nearest whole number, when needed. Round cost per unit to two decimal places, if needed.

b. Calculate the total per-unit cost of each model using activity-based costing to assign manufacturing overhead to products.

Round cost per unit to two decimal places, if needed.

Traditional Product Costing Versus Activity-Based Costing
Assume that Panasonic Company has determined its estimated total manufacturing overhead cost for one of its plants to be $216,000, consisting of the following activity cost pools for the current month:

Total direct labor hours used during the month were 8,000. Panasonic produces many different electronic products, including the following two products produced during the current month:

a. Calculate the total per-unit cost of each model using direct labor hours to assign manufacturing overhead to products.
Round rate to two decimal places.
Overhead rate per direct labor hour $Answer

Use rounded overhead rate calculated above for calculations below. Round cost answers to the nearest whole number, when needed. Round cost per unit to two decimal places, if needed.

b. Calculate the total per-unit cost of each model using activity-based costing to assign manufacturing overhead to products.

Round cost per unit to two decimal places, if needed.

Traditional Product Costing Versus Activity-Based Costing
Assume that Panasonic Company has determined its estimated total manufacturing overhead cost for one of its plants to be $216,000, consisting of the following activity cost pools for the current month:

Total direct labor hours used during the month were 8,000. Panasonic produces many different electronic products, including the following two products produced during the current month:

a. Calculate the total per-unit cost of each model using direct labor hours to assign manufacturing overhead to products.
Round rate to two decimal places.

Overhead rate per direct labor hour Answer

Use rounded overhead rate calculated above for calculations below. Round cost answers to the nearest whole number, when needed. Round cost per unit to two decimal places, if needed.

b. Calculate the total per-unit cost of each model using activity-based costing to assign manufacturing overhead to products.

Round cost per unit to two decimal places, if needed.

1.       Which statement(s) is (are) correct?

a.       The planning horizon for any business is between three and five years.

b.      Forecasts that extend beyond the planning horizon are less credible.

c.       The planning horizon should be the furthest point in the future considered by the business plan.

d.      The planning horizon for a hotel owner is determined by the length of the management contract.

2.       What statement would a hotel owner prefer to see in the business plan for a hotel destination spa, if he or she wants to evaluate whether the GM has the support of the management team?

a.       I have decided that we need to invest more money in the spa.

b.      These financial objectives for the spa are in line with those revealed to me privately by our closest competitors.

c.       The spa manager and head of rooms division have presented the following alternative scenarios for the development of the spa business following our recent brainstorming session.

d.      The future success of the spa business is probably not assured but it is not considered something we can do much about.

3.   What are the two missing items in this list of planning components for a hotel owning company? Historical data, Forecasting, Strategy , Management

a.       Statement of Source and Application of Funds

b.      Profit and Loss Account

c.       Benchmarking

d.      Experience

4.   What is the group of words missing from this statement about organizational planning?

One category of organizational planning is to ______ what may happen in the future, by using known facts, _______ and _________ to generate a ________ of future performance.

a.      Guess, Relationships, Assumptions, Forecast

b.      Predict, Relationships, Assumptions, Budget

c.       Predict, Relationships, Facts, Forecast

d.      Predict, Relationships, Assumptions, Forecast

5.   What is the group of words missing from this statement about organizational planning?

Another category of organizational planning is to ________ established theories on how the business ________, by looking at generally accepted _____ or current relationships between business processes and the ________ generated.

a.       Challenge, Operates, Past, Outcomes

b.      Disprove, Operates, Past, Outcomes

c.       Challenge, Operates, Past, Profits

d.      Challenge, Manages, Future, Outcomes

6.   What is the group of words missing from this statement about organizational planning?

A third category of organizational planning is to ________ and ______ a ______ business model. This type of planning allows ___________ to assess changes to the way the business operates.

a.       Broken, Innovate, Management, Repair

b.      Innovate, Renew, Established, Management

c.       Innovate, Grow, Established, Human Resources

d.     Maintain, Reinforce, Established, Management

7.   Which of these statements is unsuitable for inclusion in a business plan?

a.       We will make sure that we do things as well as the competition does in order to maintain our position in the market.

b.      We will focus our planning efforts on business process and not on the outcome.

c.       Too much emphasis on the outcome may cause short-term decision-making and the risk that strategy will be forgotten.

d.      The planning process must aim to make the business better than the competition.

8.   In order to establish a business planning strategy that can be aligned with budgets, managers need to (select the 4 statements that apply from the list below):

a.       Communicate how these actions relate to individual departments.

b.      Write a vision and mission statement

c.       Ensure that adequate resources are available.

d.      Get approval of the annual budget from shareholders

e.      Choose a course of action to meet these goals for a given business environment.

f.        Set realistic goals.

You have an opportunity to purchase the 23 site Plum Creek manufactured home/RV park for $250,000. The park caters to extended stay residents (six months or longer) and charges a market rental rate of $240 per site per month. You expect to be able to raise site rentals 3% per year to account for inflation. There are no tenant reimbursements or passthroughs. You plan a five year holding period so you create a six year proforma. The owner reports an annual vacancy rate of 10% but you believe an annual 15% vacancy rate every year of the holding period is a more realistic estimate. You use 15%. For expense estimates, you rely on public records (tax office), an income/expense statement provided by the owner/seller, and Darrell Hess & Associates, a national manufactured home park brokerage company that compiles expense data from hundreds of parks nationwide. The previous year’s property taxes were $5,042. The new assessment and tax rate has not been set, so the previous year’s taxes are used in your pro-forma for the first year. Hazard and liability insurance is estimated to be 2% of effective gross income (EGI) in first year. Each site is individually metered for electricity and the tenants are responsible for their usage. The park owner reported annual water and trash removal expenses of $5,460 for the previous year, and this amount appears reasonable for your first year projection. The annual administrative/management expense (part time on-site manager, advertising, legal fees, accounting fees and office expenses, etc.) is estimated to be 29% of EGI by Darrell Hess & Assoc. The owner did not report any maintenance expense as he did all of the work himself. You believe a $2,000 first year expense is reasonable for the road maintenance, landscape maintenance, etc. You expect expenses to increase 3% each year of the five year holding period except insurance and management expenses tied to EGI. Page 7 of 7 You have obtained a loan commitment from a bank for 80% (20% down payment aka equity contribution) of the purchase price with a 20 year amortization at 6% interest. 1) Create a six year Pro-forma statement of cash flows on an Excel spreadsheet. 2) Calculate the following ratios and indicators (all before tax) by Excel formulas at the bottom of the spreadsheet to three decimals: A) Operating expense ratio (annual operating expense/EGI); according to Darrell Hess & Associates, operators can expect a 50% operating expense ratio. B) All Five Years of Debt Coverage Ratio (NOI/debt service); 1.3 or greater is considered good by the lender. C) All Five Years Return on Equity (BTCF/equity invested); investor surveys indicate 13% or better is expected for each year. D) Using the IRV formula, calculate the indicated overall rate (cap rate) RO for Year One to see if it is within the 9-11% range for manufactured home parks indicated by a national investor survey. Use the $250,000 asking price as the value in IRV for the calculation. E) Calculate the value of the subject after the five year holding period (the reversion) using a 10.5% terminal RO. Remember to carry the pro-forma to a sixth year to obtain Year Six NOI. F) Calculate the unleveraged IRR of the cash flows using the $250,000 asking price. G) Calculate the NPV of the property using a 12% IRR

SWOT Analysis

            Marriott International Inc. is a leading firm in its industry. It is known for aiming to maintain its dominance in its position in the market. A SWOT analysis of Marriott shows the following;  

Strength

Marriott has a track record that shows it has never failed in integrating complementary firms. It has always been successful to do all this through mergers and acquisition. It has done all this to ensure its operation are smooth and with less completion. Marriott is innovative and has hotels all over the world. They are innovative because they recently launched a mobile app. You can see advertisements about it on Facebook or other social media platforms. (Marriott corporate.2017). You no longer must use a key to get into your room. You just unlock it with your phone now. Not just that but you can do a mobile check-in and skip the front desk. Also, Marriott has its presence and reputation all over the world which makes them well-known in quality business.

Weakness

            Marriott Inc. is well known for its desire need to expand. The business has expanded so much to the extent of failing to monitor and maintain the quality of their services throughout. I know this first hand all their hotels are not the same. Some may mention the fact that the Marriott is a family company and how this creates room for error. And it could. Understanding that family tradition and family opinions can offend others or promote an atmosphere that feels "stuck" can put a roadblock up for those future investors. (Marriott corporate.2017). Another weakness is even though they are expanding to many other countries, this could also lead to over population of the hotels and not further along other local companies or promote more of a diversity in the market.

Opportunity

            The opportunities Marriott has been modernizing their hotels rooms to fit the trending market and more profitable emergence into new marketable areas. (Marriott International Inc.2017) For the interior design point, there is room to create more of a unique home familiar style within the walls of its rooms. This allows for a better experience for the loyal customer and to the old customer who thought they may have not liked the hotel franchise. The other opportunity of emerging into new markets creates a profitable growth for the company to expand their presence into new categories such as the technology market. Bringing in the google home or amazon Alexa experience or personalize the delights that customer have in their everyday home and bringing it into the hotel room will only further the experience. (Marriott International Inc. 2017)

Threat

            Vulnerability to terror attacks- the travel industry is one that is highly targeted by terrorists. Especially 5 star rated properties. If it were to get attacked, the firm would lose its trust in their esteem clients. Threats to Marriott include more competition to enter the existing hotel industry and price freezing. As more and more innovative companies make a break through, there is more attraction to them and the idea to try something new in the customer's perspective, leaving Marriott to fend for themselves in the fight of hotel rooms. Also, as the market expands, the prices of other companies can tend to look better, especially if they offer the same amenities and rewards.

​​​​​​​

• Identify the most important or critical items on your SWOT Matrix that you believe warrant immediate attention to improve strategic management. Select one from each of the four categories.
• Be sure you justify your decisions.

The beginning inventory at Dunne Co. and data on purchases and sales for a three-month period ending June 30 are as follows:

1. Record the inventory, purchases, and cost of merchandise sold data in a perpetual inventory record similar to the one illustrated in Exhibit 3, using the first-in, first-out method. Under FIFO, if units are in inventory at two different costs, enter the units with the LOWER unit cost first in the Cost of Goods Sold Unit Cost column and in the Inventory Unit Cost column.

2. Determine the total sales and the total cost of goods sold for the period. Journalize the entries in the sales and cost of goods sold accounts. Assume that all sales were on account. If an amount box does not require an entry, leave it blank.

3. Determine the gross profit from sales for the period.
$

4. Determine the ending inventory cost as of June 30.
$

5. Based upon the preceding data, would you expect the ending inventory using the last-in, first-out method to be higher or lower?

FIFO Perpetual Inventory

The beginning inventory at Dunne Co. and data on purchases and sales for a three-month period ending June 30 are as follows:

Required:

1. Record the inventory, purchases, and cost of merchandise sold data in a perpetual inventory record similar to the one illustrated in Exhibit 3, using the first-in, first-out method. Under FIFO, if units are in inventory at two different costs, enter the units with the LOWER unit cost first in the Cost of Goods Sold Unit Cost column and in the Inventory Unit Cost column.

2. Determine the total sales and the total cost of goods sold for the period. Journalize the entries in the sales and cost of goods sold accounts. Assume that all sales were on account.

3. Determine the gross profit from sales for the period.
$

4. Determine the ending inventory cost as of June 30.
$

5. Based upon the preceding data, would you expect the ending inventory using the last-in, first-out method to be higher or lower?