RooPhone Inc. uses the product cost concept of applying the cost-plus approach to product pricing. The costs of producing and selling 5,000 units of cellular phones are as follows:   (7 points)

Variable costs                                                  Fixed Costs:

Direct materials    $625,000                     Factory overhead                     $215,000

Direct labor                     225,000                    Selling & Admin. expenses          75,000

Factory Overhead           200,000

Selling & admin. Exp.    150,000

                                    $1,200,000

RooPhone desires a profit equal to a 18% rate of return on invested assets of $550,000.

Required:

a.) Determine the amount of desired profit.

b.) Determine the product cost per unit for the production of 5,000 phones.

c.) Determine the total cost markup percentage (e.g. 20%) using the product cost concept.

d.) Determine the selling price of each cellular phone. Round to nearest dollar.

1) ABC Co. purchased machinery that cost $200,000 on January 1, 2018. The entire cost was recorded as an expense. The machinery has a nine-year life and a $10,000 residual value. The error was discovered on December 20, 2021. Ignore income tax considerations.

ABC’s income statement for the year ended December 31, 2021, should show depreciation expense of          _______

3) Equipment was purchased at the beginning of 2018 for $900,000. At the time of its purchase, the equipment was estimated to have a useful life of five years and a salvage value of $100,000. The equipment was depreciated using the straight-line method of depreciation through 2021. At the beginning of 2022, the estimate of useful life was revised to a total life of eight years and the expected salvage value was changed to $30,000. The amount to be recorded for depreciation for 2022 is _______

7) XYZ Co. began operations on January 1, 2020. Financial statements for 2020 and 2021 contained the following errors:

                                        Dec. 31, 2020             Dec. 31, 2021   

     Ending inventory $198,000 overstated $219,000 understated

     Depreciation expense 126,000 overstated               —

No corrections have been made for any of the errors. Ignore income tax considerations.

The total effect of the errors on the balance of XYZ’s retained earnings at December 31, 2021 is overstated or understated by          _______

The following cost functions apply to X Company's regular production and sales during the year:

  Cost of goods sold:   $6.05 (X) + $131,670

  Selling and administrative expenses:   $1.02 (X) + $81,130

where X is the number of units produced and sold. During the year, X Company sold 66,500 units for $17.00 each. At the end of the year, a company offered to buy 4,620 units but was only willing to pay $12.00 each. X Company had the capacity to produce the additional 4,620 units.

5. If X Company had accepted the special order, firm profits would have increased by

6. Consider the following three changes. Direct material costs on the special order would have increased by $0.86 per unit, direct labor costs on the special order would have decreased by $0.46 per unit, and X Company would have had to rent special equipment for $1,500. Independent of your answer to (5), the effect of these changes would have been to reduce profit on the special order by

7. In order to retain all of X Company's regular customers, it would have had to reduce the regular selling price by $0.43. If the selling price were reduced and next year's unit sales turned out to be the same as this year's sales, firm profits would have fallen by

21. The Paul Manufacturing Company uses the process cost system and the average cost method.  The following production data are for the month of April, 2016.

Prepare a cost of production summary for the month.

The following cost functions apply to X Company's regular production and sales during the year: Cost of goods sold: $6.05 (X) + $146,520 Selling and administrative expenses: $1.05 (X) + $69,960 where X is the number of units produced and sold. During the year, X Company sold 66,000 units for $18.00 each. At the end of the year, a company offered to buy 4,460 units but was only willing to pay $12.00 each. X Company had the capacity to produce the additional 4,460 units.

5. If X Company had accepted the special order, firm profits would have increased by

6. Consider the following three changes. Direct material costs on the special order would have increased by $0.71 per unit, direct labor costs on the special order would have decreased by $0.42 per unit, and X Company would have had to rent special equipment for $1,000. Independent of your answer to (5), the effect of these changes would have been to reduce profit on the special order by

7. In order to retain all of X Company's regular customers, it would have had to reduce the regular selling price by $0.37. If the selling price were reduced and next year's unit sales turned out to be the same as this year's sales, firm profits would have fallen by

ASSUME CONVERSION COSTS INFORMATION IS AS FOLLOWS: BEGINNING COST = $87,500, CURRENT COST = $233,980. WHAT ARE TOTAL CONVERSION COSTS ALLOCATED TO UNITS TRANSFERRED OUT?

$CC ALLOCATED TO UNITS TRANSFERRED OUT___________

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SMITH HAS THE FOLLOWING PROCESS COSTING DATA FOR WIP DEPT # 2:

            BEGINNING UNITS       30,000

            UNITS STARTED 63,000

            ENDING UNITS 17,000

            CONVERSION COSTS ARE 45 PERCENT COMPLETE WITH REGARDS TO ENDING WIP.

FIFO Periodic System

COGS:

Ending Inventory:

Average Cost Periodic System

COGS:

Ending Inventory:

FIFO Previous System

COGS:

Ending Inventory:

Average Cost Previous System

COGS:

Ending Inventory:

Show Solutions

The fixed cost to restart production is $104,400 per model. Once production starts the variable cost to make each vehicle is $272.50 per vehicle. The firm’s management is trying to decide if the firm should only concentrate on the domestic (Canadian) market (Estimated 745 of vehicles) or pursue export opportunities (Estimated combined 11710 of vehicles) Calculate the total cost per vehicle for the two (2) options. Which of the two (2) options do you recommend? Why?

Relevant cost, the make or buy decision

The Rocky Road Company has the following cost information regarding a product that it makes with a current volume of 40,000 units.

Unit Cost

Total Cost

Direct Material

$100

$4,000,000

Direct Labor

$40

$1,600,000

VMOH

$60

$2,400,000

FMOH

$75

$3,000,000

It had has been approached by the Smooth Road Company with an offer to make this product.

The offer is to make 40,000 units at a cost of $240 per unit.

After a special study of the make or buy decision, the Rocky Road Company determined that of its total fixed costs of $3,000,000, there were avoidable costs of $1,200,000.

Provide the following:

A) The per unit cost for each input and total cost to make the product

B) The per unit and total cost to buy the product from the Smooth Road Company

C) Your recommendation (with a short rationale as to why)

The special study determined that if the Rocky Road Company accepted the offer made by the Smooth Road Company, then additional resources would be freed that could be used to generate additional units of another product. This would generate $6,000,000 in revenues at a cost of $5,400,000. In light of this new information, please show your work and provide:

D) The total cost to make the product

E) The total cost to buy the product from the Smooth Road Company

F) Your recommendation (with a short rationale as to why)