1. Statement of Cost of Goods Manufactured and Income Statement for a Manufacturing Company

   The following information is available for Shanika Company for 20Y6:

   Inventories	January 1		December 31
   Materials	$191,340		$233,430
   Work in process	344,410		317,460
   Finished goods	331,020		324,470

   Advertising expense	$158,500
   Depreciation expense-office equipment	22,410
   Depreciation expense-factory equipment	30,110
   Direct labor	359,480
   Heat, light, and power-factory	11,900
   Indirect labor	42,020
   Materials purchased	352,480
   Office salaries expense	123,020
   Property taxes-factory	9,800
   Property taxes-headquarters building	20,310
   Rent expense-factory	16,570
   Sales	1,650,350
   Sales salaries expense	202,620
   Supplies-factory	8,170
   Miscellaneous costs-factory	5,140

   Required:

   1. Prepare the 20Y6 statement of cost of goods manufactured.

   Shanika Company
   Statement of Cost of Goods Manufactured
   For the Year Ended December 31, 20Y6
   			$
   Direct materials:
   	$
   	$
   		$
   Factory overhead:
   	$
   Total factory overhead
   Total manufacturing costs incurred in 20Y6
   Total manufacturing costs			$
   Cost of goods manufactured			$

   2. Prepare the 20Y6 income statement.

   Shanika Company
   Income Statement
   For the Year Ended December 31, 20Y6
   			$
   Cost of good sold:
   		$
   		$
   			$
   Operating expenses:
   Administrative expenses:
   	$
   		$
   Selling expenses:
   	$
   Total operating expenses
   			$

13. Mr. Rogers sells colored pencils. The colored-pencil industry is competitive. Mr. Rogers hires a business consultant to analyze his company’s financial records. The consultant recommends that Mr. Rogers increase his production. The consultant must have concluded that Mr. Roger’s a. total revenues equal his total economic costs. b. marginal revenue exceeds his total cost. c. marginal revenue exceeds his marginal cost. d. marginal cost exceeds his marginal revenue.

14. Robin owns a horse stables and riding academy and gives riding lessons for children at “pony camp.” Her business operates in a competitive industry. Robin gives riding lessons to 20 children per month. Her monthly total revenue is $4,000. The marginal cost of pony camp is $100 per child. In order to maximize profits, Robin should a. give riding lessons to more than 20 children per month. b. give riding lessons to fewer than 20 children per month. c. continue to give riding lessons to 20 children per month. d. We do not have enough information to answer the question.

15. A competitive firm has been selling its output for $20 per unit and has been maximizing its profit, which is positive. Then, the price falls to $18, and the firm makes whatever adjustments are necessary to maximize its profit at the now-lower price. Once the firm has adjusted, its a. quantity of output is lower than it was previously. b. average total cost is lower than it was previously. c. marginal cost is higher than it was previously. d. All of the above are correct.

1. Using the following cost and revenue information for Prestige Worldwide (PWW), determine how the costs, revenue, and cash flow items would be affected by the possible exchange rate scenarios for the pound: (1) £ = $1.20, (2) £= $1.25, and (3) £= $1.30. Would Prestige Worldwide be favorably or unfavorably affected by a weakening pound? Why? Explain. Assume that U.S. sales will be unaffected by the exchange rate. Also, assume that £ earnings will be remitted to the U.S. parent at the end of the period. Lastly, ignore possible tax effects.

Please simply complete the table below (populate the table with the USD cash flows for each account under each scenario). You may instead choose to insert a copy of an Excel generated table below – however, if you decide to use Excel, I require you to turn in an electronic copy of your spreadsheet (in addition to pasting the table into the quiz). Failure to do both (paste table into quiz and turn in spreadsheet) will constitute an incomplete answer. (30 points).

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 $1,324,000 based on production of 360,000 handheld consoles and 106,000 home consoles. Direct labor and direct materials costs were as follows.

Handheld Home Total

Direct labor $ 1,266,000 $ 389,000 $ 1,655,000

Materials   750,000 656,000 1,406,000

Management has determined that overhead costs are caused by three cost drivers. These drivers and their costs for last year are as follows.

Costs Assigned Handheld Home Total

Number of production runs $ 715,000 50 5 55

Quality tests performed 459,000 10 17 27

Shipping orders processed 150,000 100 50 150

Total overhead $ 1,324,000

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?

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?

ABC Limited makes three products; A, B and C. Details of product direct costs and volumes for the period are as follows:

Total production overheads for the period are £362,500.

ABC Ltd currently recovers overheads on a labour hour basis.

The Finance Director (FD) feels that the current method of recovering overheads is outdated and wishes to consider the application of Activity Based Costing (ABC).                                          

The FD has provided you with the following information.

The breakdown of production overheads between activities for the period is as follows:

You have the following statistical data about the cost drivers of each activity for the period:

Required:

Calculate the total unit cost of the three products using labour hours to recover overheads.

Calculate the total unit cost of the three products using Activity Based Costing.

List two advantages and two disadvantages of Activity Based Costing.

Boatbound

Serial entrepreneur Aaron Hall took note of the “sharing economy” that emerged during the last recession and launched Boatbound, a peer-to-peer boat rental company that brings together boat owners who are willing to rent their boats when they are not in use and people who want a fun boating experience without the cost of owning a boat. Hall realized that 12.2 million boats are registered in the United States, yet the average owner uses his or her boat just 26 days per year. Boatbound screens all potential renters, verifies the condition and the safety of each boat, carries ample insurance on each boat, and covers general liability. Boat owners select their renters from Boatbound’s pool of applicants and set daily rental fees, and Boatbound collects 35 percent of the fee. Boatbound has rented every kind of boat, from kayaks to yachts with captains. Fees range from $200 to $8,500 per day. “As a boat owner and someone in the marine industry, I’ve been waiting for something like this my whole life,” says Aabad Melwani, owner of a marina. “I just didn’t know it.”

Henrybuilt

Scott Hudson, CEO of Henrybuilt, had created a profitable niche designing and building upscale kitchens that ranged from $30,000 to $100,000. In 2006, Hudson opened a New York City showroom, which doubled in size in just 18 months. By 2008, the company had more than 200 jobs in the United States, Mexico, and Canada. When the recession hit, however, new projects came to a standstill, and customers began cancelling orders. In response, Hudson launched a subsidiary, Viola Park Corporation, that provides customers lower-cost remodeling options that use its software rather than an architect to create “custom” variations on Henrybuilt designs. The result is a process that produces a kitchen much faster and at half the cost of a Henrybuilt kitchen. Henrybuilt sales have recovered, but Viola Park accounts for 20 percent of sales and is growing twice as fast as Henrybuilt. Unequal Technologies Robert Vito started Unequal Technologies in 2008 to supply protective clothing and gear, including bullet-proof vests, to military contractors. The protective gear is made from a lightweight yet strong composite material that he developed and patented. Two years later, the equipment manager of the Philadelphia Eagles called to ask whether Unequal Technologies could create a special garment for one of its star players who had suffered a sternum injury. Vito modified the bullet-proof vest for the player and soon had other players in the National Football League asking for protective gear. Unequal technologies went on to develop Concussion Reduction Technology (CRT), peel-and-stick pads for football helmets that are made from before it reaches the skull. Independent tests show that CRT reduces the risk of head injuries from impact by 53 percent. The company now supplies equipment to 27 of the NFL’s 32 teams and has its sights set on an even larger market: amateur sports. Vito says Unequal’s technology gives the company a competitive edge that has allowed it to increase sales from $1 million to $20 million in just one year.

(Source: Scarborough and Cornwall, 2016)

1. Select one of these small businesses (Boatbound or Henrybuilt) and explain how the said business used six (6) of the 10 types of innovation to bolster its success.   

15. Marks)

he debits to Work in Process—Roasting Department for St. Arbucks Coffee Company for July 2016, together with information concerning production, are as follows:

All direct materials are placed in process at the beginning of production.

a. Prepare a cost of production report, presenting the following computations:

Direct materials and conversion The number of production units that could have been completed within a given accounting period, given the resources consumed.equivalent units of production for July.

Direct materials and conversion The rate used to allocate costs between completed and partially completed production.costs per equivalent unit for July.

Cost of goods finished during July.

Cost of work in process at July 31, 2016.

If an amount is zero, enter in "0". For the cost per equivalent unit, round your answer to two decimal places.

Arabica Highland Coffee Company roasts and packs coffee beans. The process begins by placing coffee beans into the Roasting Department. From the Roasting Department, coffee beans are then transferred to the Packing Department. The following is a partial work in process account of the Roasting Department at July 31:

Required:

1. Prepare a cost of production report, and identify the missing amounts for Work in Process—Roasting Department. If an amount is zero, enter "0". When computing The rate used to allocate costs between completed and partially completed production.cost per equivalent units, round to two decimal places.

Feedback

2. Assuming that the July 1 work in process inventory includes $12,240 of direct materials, determine the increase or decrease in the cost per equivalent unit for direct materials and conversion between June and July. If required, round your answers to the nearest cent.

True or False

1. _ F __ Absorption costing is used for internal use in decision making and is sometimes called direct costing.
2. _ T _ Manufacturing margin is the excess of variable selling and administrative expenses over sales.   
3. _ T _ For planning and control purposes, managers often compare planned with actual contribution margins.
4. _ T _ Market analysis determines the profit contributed by the market segments of a company and can be analyzed using sales, cost and expenses.
5. _ F _ In analyzing market segments, all companies prepare variable costing reports.   
6. _ T _ Budgets have an important role for organizations of all sizes and affects managerial functions like planning, directing and controlling.
7. _ T _ A continuous budgeting process is a variation of fiscal year budgeting that is used to maintain  a 12 month projection into the future.
8. _ F _ A static budget requires managers to estimate sales, production, and other operating data as though operations are being started for the first time.  
9. _ T _ Operating and financial budgets are an integrated part of the master budget process for a period of time.   
10. _ F _ A direct materials budget estimates the number of units that are required to be manufactured to meet budgeted sales and desired inventory levels.
11. _ T _ The cost of goods sold budget should include direct materials, direct labor, and factory overhead cost.              
12. _ F _ The principle of exceptions allows a company to focus on correcting differences between actual and standard performance.
13. _ T _ The standard setting process in an organization requires the effort of several departments.
14. _ T _ A favorable variance is when the actual is greater than the standard.     
15. __ T __ The total manufacturing cost variance is the difference between the total standard costs and the total actual cost for the units produced.      
16. _ T __ Variances should be reported to the manager responsible for the variance.
17. __T___ Analyzing factory overhead variances are different than direct material and direct labor because of the cost being both variable and fixed.  
18. _____ A nonfinancial performance measure will express performance similar to financial performance measures do.   
19. _____ One of the advantages of a decentralized organization is that decisions made by managers may affect the profits of the company.   
20. _____ The process of measuring and reporting operating results is responsibility accounting in a decentralized organization.
21. _____ A profit center, in a responsibility accounting system, the manager has responsibility and authority that affects revenues, costs, and operating assets.                                         
22. _____ The measurement used in investment centers is called profit margin.                                 
23. _____ Total variable cost remain the same in total dollar amount.   
24. _____ The break-even point is the point at which total revenues equal exactly total cost.
25. _____ Fixed unit cost remain constant as the level of activity changes.      

“That old equipment for producing carburetors is worn out,” said Bill Seebach, president of Hondrich Company. “We need to make a decision quickly.” The company is trying to decide whether it should rent new equipment and continue to make its carburetors internally or whether it should discontinue production of its carburetors and purchase them from an outside supplier. The alternatives follow:

     Alternative 1: Rent new equipment for producing the carburetors for $115,000 per year.
     Alternative 2: Purchase carburetors from an outside supplier for $16.95 each.

     Hondrich Company’s costs per unit of producing the carburetors internally (with the old equipment) are given below. These costs are based on a current activity level of 25,000 units per year:

     The new equipment would be more efficient and, according to the manufacturer, would reduce direct labour costs and variable overhead costs by 25%. Supervision cost ($57,500 per year) and direct materials cost per unit would not be affected by the new equipment. The new equipment’s capacity would be 50,000 carburetors per year.

     The total general company overhead would be unaffected by this decision.

Required:
1. Seebach is unsure what the company should do and would like an analysis showing the unit costs and total costs for each of the two alternatives given above. Assume that 25,000 carburetors are needed each year.

a. What will be the total relevant cost of 25,000 subassemblies if they are manufactured internally as compared to being purchased?

b. What would be the per unit cost of the each subassembly manufactured internally? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

2. Seebach is unsure what the company should do and would like an analysis showing the unit costs and total costs for each of the two alternatives given above.

a-1. What will be the total relevant cost of 46,000 subassemblies if they are manufactured internally?

a-2. What would be the per unit cost of subassembly? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

b-1. What will be the total relevant cost of 50,000 subassemblies if they are manufactured internally?

b-2. What would be the per unit cost of subassembly? (Do not round intermediate calculations. Round your answer to 2 decimal places.