Koontz Company manufactures two models of industrial components—a Basic model and an Advanced Model. The company considers all of its manufacturing overhead costs to be fixed and it uses plantwide manufacturing overhead cost allocation based on direct labor-hours. Koontz’s controller prepared the segmented income statement that is shown below for the most recent year (he allocated selling and administrative expenses to products based on sales dollars):

Direct laborers are paid $20 per hour. Direct materials cost $40 per unit for the Basic model and $60 per unit for the Advanced model. Koontz is considering a change from plantwide overhead allocation to a departmental approach. The overhead costs in the company’s Molding Department would be allocated based on machine-hours and the overhead costs in its Assembly and Pack Department would be allocated based on direct labor-hours. To enable further analysis, the controller gathered the following information:

Calculate an activity rate for each activity cost pool. (Round your answers to 2 decimal places.)

Calculate the total manufacturing overhead cost allocated to the Basic model and the Advanced model using the activity-based approach. (Round your intermediate calculations to 2 decimal places.)

Calculate the total selling and administrative cost traced to the Basic model and the Advanced model using the activity-based approach.

Using your activity-based cost assignments from requirement 3, prepare a contribution format segmented income statement. (Round your intermediate calculations to 2 decimal places.)

Crowder Manufacturing Company manufactures and sells ceiling fans. Crowder incurred the following costs related to quality for the year: Cost of warranty $35,000 Cost of employee quality training $27,000 Cost incurred to rework fans $18,000 Spoilage cost (net) $15,000 Cost of handling customer complaints $11,000 Depreciation cost of test equipment $ 6,000 Cost of quality circles $ 5,000 Maintenance cost of test equipment $ 3,000 Cost of retesting reworked fans $ 2,000 Cost of final testing of fans $ 1,000 Required:

a) Prepare a list of the costs, which are related to controlling quality and determine the total dollar amount of these costs.

b) Prepare a list of the costs, which are related to failing to control quality and determine the total dollar amount of these costs.

c) Explain why you might want to incur higher costs for controlling quality.

QUESTION 17

Exhibit 6-2

Consider Exhibit 6-2. What is the marginal utility of having a second order of fries?

a. 10 utils.

b. 20 utils.

c. 30 utils.

d. 50 utils.

QUESTION 18

1. Table 1: Mark’s Utility Information from Ice Cream and Pizza. Budget: $9.

   Ice Cream (Scoops) (P=$1)		Pizza (slices) (P=$2)
   Quantity	MU from Ice Cream	Quantity	MU from Pizza
   1	20	1	24
   2	15	2	22
   3	10	3	20
   4	5	4	18
   5	0	5	16
   6	-5	6	14

   See Table 1. Mark is a rational consumer. He wants to maximize his total utility. With a budget $9, how does his consumption look like?

   		He will buy 2 scoops of ice cream and 1 slice of pizza, saving $5.
   		He will buy 4 scoop of ice cream and 4 slices of pizza, depleting his budget.
   		He will buy 3 scoops of ice cream and 3 slices of pizza, depleting his budget.
   		He will buy 2 scoops of ice cream and 2 slices of pizza, saving $3.

QUESTION 19

1. Table 1: Mark’s Utility Information from Ice Cream and Pizza. Budget: $9.

   Ice Cream (Scoops) (P=$1)		Pizza (slices) (P=$2)
   Quantity	MU from Ice Cream	Quantity	MU from Pizza
   1	20	1	24
   2	15	2	22
   3	10	3	20
   4	5	4	18
   5	0	5	16
   6	-5	6	14

   Continue with the scenario. What is the total utility that Mark achieve?

   		111.
   		134.
   		78.
   		92.

he coal mining industry has been hard-hit by environmental regulations. Recently, however, a combination of increased demand for coal and new pollution reduction technologies has led to an improved market demand for coal. WHC has just been approached by Mid-Cen Electric Company with a request to supply coal for its electric generators for the next eight years. WHC does not have enough excess capacity at its existing mines to guarantee the contract. The company is considering opening a strip mine in The Gunnedah Basin on 5,000 acres of land purchased 10 years ago for $12 million. Based on a recent appraisal, the company feels it could receive $15.5 million if it sold the land today. Strip mining is a process where the layers of topsoil above a coal vein are removed and the exposed coal is removed. Some time ago, the company would simply remove the coal and leave the land in an unusable condition. Changes in mining regulations now force a company to reclaim the land; that is, when the mining is completed, the land must be restored to near its original condition. The land can then be used for other purposes. Because it is currently operating at full capacity, WHC will need to purchase additional necessary equipment, which will cost $77 million. To get the equipment in running order, there would be a $2 million shipping fee and a $3 million installation charge. The equipment will be depreciated to zero on a straight-line basis over its economic life of 15 years. The contract runs for only eight years. At that time the coal from the site will be entirely mined. The company feels that the equipment can be sold for 10 percent of its initial purchase price in eight years. However, WHC plans to open another strip mine at that time and will use the equipment at the new mine. The equipment also requires staff to be specially trained; fortunately, a similar equipment was purchased a year ago, and at that time the staff went through the $500,000 training program needed to familiarise themselves with the type of equipment. WHC’s Corporate Finance (BAFI1059) S2 2020 Page 3 of 9 management is uncertain whether to charge half of this $500,000 training fee to the new project. The equipment also requires annual maintenance cost of $325,000. The contract calls for the delivery of 500,000 tons of coal per year at a price of $93 per ton. WHC feels that coal production will be 620,000 tons, 680,000 tons, and 730,000 tons, respectively, over the first three years, and 590,000 tons per year over the remaining years. The excess production will be sold in the spot market at an average of $75 per ton in Year 1 with an expected decrease of 2% per annum in the following years. Variable costs amount to $35 per ton in Year 1 with an expected increase of 5% per annum in the following years. Fixed costs are $5,000,000 per year. The mine will require a net working capital investment of 5 percent of sales. The net working capital will be built up in the year prior to the sales. WHC will be responsible for reclaiming the land at termination of the mining. The company uses an outside company for reclamation of all the company's strip mines. It is estimated the cost of reclamation will be $2.5 million. In order to get the necessary permits for the strip mine, the company agreed to donate the land after reclamation to the state for use as a public park and recreation area. This will occur in Year 9 and result in a charitable expense deduction of $15.5 million. Company tax rate is 30% and market return is 8.35%

Find the NPV and whether it should open the mine ? show all working out

During the month of July, direct labour cost totalled $24,000 and direct labour cost was 30% of prime cost. If total manufacturing costs during June were $105,000, the manufacturing overhead was:

Daybook Inc. A budget of estimated unit production.budgeted production of 403,500 personal journals in 20Y6. Paper is required to produce a journal. Assume six square yards of paper are required for each journal. The estimated January 1, 20Y6, paper inventory is 40,400 square yards. The desired December 31, 20Y6, paper inventory is 38,900 square yards. Paper costs $0.40 per square yard.

Each journal requires assembly. Assume that eight minutes are required to assemble each journal. Assembly labor costs $13.00 per hour.

Prepare a cost of goods sold An accounting device used to plan and control resources of operational departments and divisions.budget for Daybook Inc. using the information above. Assume the estimated inventories on January 1, 20Y6, for finished goods and work in process were $28,000 and $16,500, respectively. Also assume the desired inventories on December 31, 20Y6, for finished goods and work in process were $30,000 and $14,300, respectively. Factory overhead was budgeted at $214,600. Round your interim calculations to nearest cent, if required.

Superior Company provided the following data for the year ended December 31 (all raw materials are used in production as direct materials):

Inventory balances at the beginning and end of the year were as follows:

The total manufacturing costs for the year were $680,000; the cost of goods available for sale totaled $740,000; the unadjusted cost of goods sold totaled $661,000; and the net operating income was $32,000. The company’s underapplied or overapplied overhead is closed to Cost of Goods Sold.

Required:

Prepare schedules of cost of goods manufactured and cost of goods sold and an income statement. (Hint: Prepare the income statement and schedule of cost of goods sold first followed by the schedule of cost of goods manufactured.)

Schedule of COGS

Income Statement

Eric and Pat are baseball fans. They drove to the local stadium in Eric's car to watch a game, and decided to park in the parking garage. When driving into the parking garage, they were required to take a ticket in order to get access to the garage. The cost for parking the car was $15.00, which was not due until exiting the garage. After taking the ticket, they parked the car and then walked across the street to the game. When the game was over, they walked back to the car. Upon approaching Eric's vehicle, they noticed that one of the windows had been smashed in. Everything inside had been taken, including Pat's work laptop which had been sitting in a bag in the backseat of the car. Eric and Pat were upset that the parking garage security didn't notice and prevent this crime from happening. Eric and Pat filed a lawsuit against the company that runs the parking garage. The company (ABC Co.) defended, stating that on the back of the ticket is a clause which states the following in conspicuous lettering: "ABC Co. is not liable for any loss of contents or damage caused to vehicles parked in the garage due to its own negligence or the actions of any other person." Will the court uphold the clause on the parking ticket? Make sure to fully explain your answer. This means including the law that applies and the reasoning in applying that law.

Lease Classification, Considering Firm Guidance (Issues Memo)

Facts: On 1/1/20X1, Investor, Inc. ("Lessee") signed a Lease Agreement with Developer Inc. ("Landlord") to lease Landlord's newly constructed hotel located at 15 Main St. in San Francisco, CA. The lease term is 20 years, and the estimated life of the building is 40 years. Lessee will occupy all 4 floors of the building. The lease includes renewal options, exercisable at the Landlord's option, to extend the contract term for three additional five-year terms. No purchase option is present in the contract. Lessee's monthly rental payments are $40,000 per month, plus a monthly supplemental rental cost based on Lessee's sales (1% of sales). From experience, Lessee estimates that 1% of its sales should approximate an additional $10,000 per month. As of 1/1/20X1, the appraised value of the building is $15 million. For simplicity, please ignore discounting in this example (use of present value calculations, rates implicit in the lease, etc.). There are no residual value guarantees present.

Assume that this arrangement is within the scope of lease accounting guidance. As needed to clarify areas of judgment, support your response with guidance from both the Codification and from EY's most recent Lease accounting guide book.

Mastery Problem: Process Cost Systems

Grainy Goodness Company

Grainy Goodness Company manufactures granola cereal by a series of three processes, beginning materials such as oats, sweeteners, and nuts being introduced in the Mixing Department. From the Mixing Department, the materials pass through the Baking and Packaging departments, emerging as boxed granola cereal ready for shipment to retail outlets. Direct materials are added at the beginning of each process, and conversion costs are incurred evenly throughout production in each department.

During March, the President and sole stockholder, Jonathan Groat, reviewed the Cost of Production Report for the Mixing Department. He is concerned that the Mixing Department may not be operating efficiently, and asks for your help.

Cost of Production

Jonathan has noticed that his production manager has omitted some of the data on the Cost of Production. Determine the missing information. If there is no amount or an amount is zero, enter "0". Round your per-unit computations to the nearest cent, if required.

Feedback

Review the format and the steps to complete the Cost of Production Report.

February Cost Analysis

Determine the cost per unit of direct materials and for conversion for the month of February using the completed data on the Cost of Production. Round your per-unit computations to the nearest cent, if required.

Feedback

Look for the dollar amount and number of equivalent units on the Cost of Production Report that pertain to the inventory in process on March 1. Don’t forget that direct materials are added at the beginning of the process and so have all been added to inventory in process on March 1. The conversion costs are only partially complete.

March Cost Analysis

Determine the cost per unit of direct materials and for conversion for the month of March using the completed data on the Cost of Production. Round your per-unit computations to the nearest cent, if required.

Feedback

Look for the dollar amount and number of equivalent units on the Cost of Production Report that pertain to the costs and units added in March. Don’t forget that direct materials are added at the beginning of the process. The conversion costs are added evenly through the month.

Mixing Dept. Evaluation

After reviewing your work on the February Cost Analysis and March Cost Analysis, assist Jonathan Groat in evaluating the Mixing Department’s performance by answering the following questions:

In March, was the Mixing Department’s total cost per unit higher or lower than in February?

For which component was the cost per unit for March higher than in February?

What is most probably your recommendation to Jonathan Groat given your computations?

Feedback

What per-unit costs have increased in March when compared to February? How can you tell what is creating that change?

Journal

On March 31, using the data provided on the Cost of Production, journalize the entry to move the appropriate amount of cost from the Mixing Department to the Baking Department. If an amount box does not require an entry, leave it blank.

Feedback

Review the Cost of Production Report you prepared to determine the amount of cost that was transferred from the Mixing Department to the Baking Department in March.

Feedback

Partially correct