explain how the current-cost model differs significantly from the other accounting models (IR cash, historical cost, and general price level adjusted). what is the physical capital concept? what are the strengths and wealnesses of the current cost accounting model?

Exercise 5-3A Allocating product cost between cost of goods sold and ending inventory: multiple purchases LO 5-1

Cortez Company sells chairs that are used at computer stations. Its beginning inventory of chairs was 120 units at $55 per unit. During the year, Cortez made two batch purchases of this chair. The first was a 142-unit purchase at $62 per unit; the second was a 220-unit purchase at $66 per unit. During the period, it sold 286 chairs.

Required
Determine the amount of product costs that would be allocated to cost of goods sold and ending inventory, assuming that Cortez uses

a. FIFO:

b. LIFO:
  

c. Weighted average: (Round your intermediate calculations and final answers to the nearest whole dollar amount.)

a. FIFO:
  

Calculate (i)Cost of Production and Profitability Statement .(ii) Cash flow Statement.(iii)Calculate the cost of Capital; (iv) NPV of the Project;(v)DSCR.

Zinc Unit Installed Capacity    First Year Second Year    Third Year…
   Tonnes    1000000 750000 800000    1000000

SRevenue Projection : Zinc is expected to be sold at Rs per ton Rs2.1 lakh.

Cost of the Project: The cost of the project works out as below:
a) Fixed Assets or Long Term Loan: Rs 3145 crores
b) Working Capital : The working capital requirements were Rs 431 crores at 75% capacity; Rs 459.73 crores at 80% capacity and Rs 574.67 crores at full capacity utilization. Interest rate for working capital were @12.5 %.
Means of Financing: The project would be financed by equity of Rs 942 crores and rest by term loan financing amounting to Rs 2203 crores . Interest on term loan was @11.50 %. The company’s share is listed in NSE . The risk-free rate of return is 8.00% assumed by the company and the market rate of return is 18%. The Beta of the company, as reported in the pink press was 1.17. Marginal tax rate of the company is @ 27 %. The project does not enjoy any tax exemption. It is expected the project will be implemented in an years time.

Life of the Project : For all estimation purposes life of the project would be 8 (eight) years. The project enjoys 2 (two)years moratorium in terms of repayment of instalment payment .

In rest of the six years, instalments of the principal will be paid uniformly. However interest payment will be from the first year of operation.

Salvage Value of the Project : Rs 310.

Manpower of the Project: Since company is already running a plant of similar type and of bigger capacity , the company is confident to draw competent human resources required for the project.

Availability of Raw Material : The company is in possession of mine rights of Zinc Mine , there will be no difficulty to obtain needed raw material .

Technology and Process Knowhow :The company will be using Bayer–Hall-Herout commercial technology, for the production of Zinc.

Fuel Usage: To ensure reliable low-cost power for the units operations and to achieve self-sufficiency of energy needs, the company proposes to set up captive power plants (CPPs) to cater to the power requirements of its smelters and mines. Besides a large part of coal for the CPPs is high GCV imported coal. The price of coal since remains to be volatile the company is examining critically ,setting up installed thermal captive power plants (CPPs). As of now it would buy power from outside.

Risk Analysis- an indicative list only :(a)Changes in the market prices of Zinc, could adversely affect the results of operations;(b)Operating results are affected by movements in exchange rates; (c) The company’s energy requirements are met by power supply of electricity boards , any changes in the state government’s policy could increase production costs. (d) The company has to obtain a steady supply of Zinc ore at reasonable costs otherwise results of operations may be affected.

Domestic Industry Outlook: Domestic Zinc consumption has been witnessing strong growth spurred by investments and industrial growth. The outlook for future demand remains upbeat as economic activity in key Zinc consuming sectors continued to be fast paced. The company estimates with this capacity expansion its share in global market will be around 7%.

Project Implementation :A combination of cutting-edge technology-driven equipment and know-how of global mining experts will help us develop the mines. These initiatives will ensure high productivity levels at low costs, enabling us to maintain our position as one of the lowest-cost producers globally.

Revenues and Cost Structure (%)
Cost Components as % of Revenue
Raw Material    0.049
Salaries    0.034
Finance Cost 0.14
Depreciation    0.18
Power Fuel Water    0.050
Other Expenses 0.250
Sub Total .703

Jake’s Roof Repair has provided the following data concerning its costs:

For example, wages and salaries should be $21,300 plus $15.00 per repair-hour. The company expected to work 2,700 repair-hours in May, but actually worked 2,600 repair-hours. The company expects its sales to be $48.00 per repair-hour.

Required:

Compute the company’s activity variances for May. (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.)

Jake’s Roof Repair has provided the following data concerning its costs:

For example, wages and salaries should be $21,400 plus $15.00 per repair-hour. The company expected to work 2,600 repair-hours in May, but actually worked 2,500 repair-hours. The company expects its sales to be $51.00 per repair-hour.

Required:

Compute the company’s activity variances for May. (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.)

Morton Company has two divisions. Sales, direct materials cost, direct labor cost, and manufacturing overhead data for Morton’s two divisions are available below. Note: All of Morton Company’s products are sold in competitive markets.

                                                                    Missile                                Salt

                                                                 Products                       Products

Sales                                                     $1,500,000                    $1,000,000

Direct labor                                            (800,000)                       (300,000)

Direct materials                                     (100,000)                         (40,000)

Manufacturing overhead*                    (400,000)                       (150,000)

Gross profit                                            $200,000                        $510,000

*Manufacturing overhead is allocated to production based on the amount of direct labor cost.

        Morton has determined that its total manufacturing overhead cost of $550,000 is a mixture of batch-level costs and product line costs. Morton has assembled the following information concerning the manufacturing overhead costs, the annual number of production batches, and the number of product lines in each division.

                                                          Total

                                          Manufacturing

                                                  Overhead                      Missile                        Salt

                                                         Costs                   Products               Products

Batch-level overhead               $250,000               10 batches            90 batches

Product line overhead               300,000                       3 lines                   7 lines

                                                   $550,000

        Which ONE of the following statements is MOST CORRECT?

• If the activity-based costing system had been used in the most recent year in place of the traditional overhead allocation technique, profit for the Missile Division would have increased by $25,000.

• If the activity-based costing system had been used in the most recent year in place of the traditional overhead allocation technique, profit for the Missile Division would have decreased by $25,000.

• If the activity-based costing system had been used in the most recent year in place of the traditional overhead allocation technique, profit for the Missile Division would have increased by $260,000.

• If the activity-based costing system had been used in the most recent year in place of the traditional overhead allocation technique, profit for the Missile Division would have decreased by $260,000.

• If the activity-based costing system had been used in the most recent year in place of the traditional overhead allocation technique, profit for the Salt Division would have decreased by $285,000.

• If the activity-based costing system had been used in the most recent year in place of the traditional overhead allocation technique, profit for the Salt Division would have increased by $285,000.

9). Truong Company's Assembly Department has materials cost at-$3 per unit and conversion cost at-$6 per unit. There are 15,000-units in ending inventory, all of which are 70% complete as to conversion costs. How much are total costs to be assigned to ending inventory (EI) ?

A) $63,000.

B) $108,000.

C) $94,500.

D) $135,000.

10). The Anfa Company's Assembly Department has materials cost at $4 per unit and conversion cost at $8 per unit. There are 15,000 units in ending (EI) inventory, all of which are 70% complete as to conversion costs. How much are total costs to be assigned to ending inventory (EI) ?

A) $84,400.

B) $144,000.

C) $126,600.

D) $180,000.

11). At the high level of activity in November, 7,000 machine hours were run and power costs were $18,000. In April, a month of low activity, 2,000 machine hours were run and power costs amounted to $9,000. Using the high-low method, the estimated fixed cost (F /C) element of power costs is

A) $18,000.

B) $9,000.

C) $5,400.

D) $12,600.

Lamps R Us makes lamps.  The variable materials cost $8.85 per unit.  The variable labor cost is $8.10 per unit.  (10 points)

1. what is variable cost per unit
2. suppose Lamps R Us has fixed costs of $800,000 during the year in which its total production is 150,000 units.  What are the total costs for the year?
3. If the selling price is $39.99 per unit.  Does Lamps R Us break even on a cash basis?  If depreciation is $400,000 per year, what is the accounting break-even point?

Jake’s Roof Repair has provided the following data concerning its costs:

For example, wages and salaries should be $20,500 plus $15.00 per repair-hour. The company expected to work 2,500 repair-hours in May, but actually worked 2,400 repair-hours. The company expects its sales to be $50.00 per repair-hour.

Required:

Compute the company’s activity variances for May. (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.)