An individual is building a home in a rural area outside of Lafayette, IN. Natural gas is not available so the individual is considering some different options for heating and cooling the house that are described below. The total heating requirement for the year is estimated to be 150 MMBtu, whereas the total cooling requirement is about 50 MMBtu. The system will be financed along with the rest of the house with a 20% down payment and a loan for 15 years at an interest rate of 3.5%. Assuming a discount rate of 10%, then use the P1‐P2 method to determine the lifecycle costs for each of the different options over the period of the loan. Using the system having the lowest initial cost as a baseline, evaluate the life‐cycle savings and true (not simple) payback periods for the alternatives. Use local energy costs for electricity and liquid propane and report the values and source for the estimates. Assume that the annual inflation rate for electricity is 3% whereas liquid propane inflates at 6% per year. The effective income tax rate for the homeowner including state and federal taxes is 40%. Neglect any differences in maintenance or impacts on property taxes. Make a recommendation regarding the best choice and provide an appropriate justification.

a. Electric Furnace and Conventional Air Conditioner: 1) total installed cost of $3000, 2) electric furnace efficiency of 99%, 3) average COP for cooling of 4.

b. LP (liquid‐propane) Furnace and Conventional Air Conditioner: 1) total installed cost of $4500, 2) average furnace efficiency of 90%, 3) average COP for cooling of 4.

c. Air‐Source Heat Pump: 1) total installed cost of $5500, 2) average COP for cooling of 4, 3) average COP for heating of 2.5.

d. Ground‐Water (Geothermal) Heat Pump: 1) total installed cost of $15,000, 2) average COP for cooling of 6, 3) average COP for heating of 3.5, 4) tax rebate from the federal government of 30% of the installed cost.

1. Sunrise Coffee Company roasts and packs coffee beans. The process begins in the Roasting Department. From the Roasting Department, the coffee beans are transferred to the Packing Department. The following is a partial work in process account of the Roasting Department at December 31:

   ACCOUNT Work in Process-Roasting Department					ACCOUNT NO.
   Date		Item	Debit		Credit	Balance
   						Debit		Credit
   Dec.	1	Bal., 19,700 units, 25% completed				49,644
   	31	Direct materials, 340,800 units	487,344			536,988
   	31	Direct labor	276,552			813,540
   	31	Factory overhead	397,965			1,211,505
   	31	Goods transferred, 343,800 units			?	?
   	31	Bal., ? units, 75% completed				?

   Required:

   Prepare a cost of production report, using the weighted average method, and identify the missing amounts for Work in Process—Roasting Department. Assume that direct materials are placed in process during production. If required, round your cost per equivalent unit answer to two decimal places.

   Sunrise Coffee Company
   Cost of Production Report-Roasting Department
   For the Month Ended December 31
   Unit Information
   Units charged to production:
   Inventory in process, December 1
   Received from materials storeroom
   Total units accounted for by the Roasting Department
   Units to be assigned costs:
   	Whole Units	Equivalent Units of Production
   Transferred to Packing Department in December
   Inventory in process, December 31
   Total units to be assigned costs
   Cost Information
   Cost per equivalent unit:
   		Costs
   Total costs for December in Roasting Department		$
   Total equivalent units
   Cost per equivalent unit		$
   Costs assigned to production:
   Inventory in process, December 1		$
   Costs incurred in December
   Total costs accounted for by the Roasting Department		$
   Costs allocated to completed and partially completed units:
   Transferred to Packing Department in December		$
   Inventory in process, December 31
   Total costs assigned by the Roasting Department		$

Check My Work

The following calendar year-end information is taken from the December 31, 2017, adjusted trial balance and other records of Leone Company.

Sweeten Company had no jobs in progress at the beginning of March and no beginning inventories. The company has two manufacturing departments--Molding and Fabrication. It started, completed, and sold only two jobs during March—Job P and Job Q. The following additional information is available for the company as a whole and for Jobs P and Q (all data and questions relate to the month of March):

Sweeten Company had no underapplied or overapplied manufacturing overhead costs during the month.

Required:

For questions 1-8, assume that Sweeten Company uses a plantwide predetermined overhead rate with machine-hours as the allocation base. For questions 9-15, assume that the company uses departmental predetermined overhead rates with machine-hours as the allocation base in both departments.

5. What was the total manufacturing cost assigned to Job Q?

6. If Job Q included 30 units, what was its unit product cost?

7. Assume that Sweeten Company used cost-plus pricing (and a markup percentage of 80% of total manufacturing cost) to establish selling prices for all of its jobs. What selling price would the company have established for Jobs P and Q? What are the selling prices for both jobs when stated on a per unit basis assuming 20 units were produced for Job P and 30 units were produced for Job Q?

8. What was Sweeten Company’s cost of goods sold for March?

In a natural monopoly, the government will try to set the price at which the demand curve intersects the monopolist's

FireOut Inc. manufactures steel cylinders and nozzles for two models of fire extinguishers: (1) a home fire extinguisher and (2) a commercial fire extinguisher. The home model is a high-volume (54,000 units), half-litre cylinder that holds 2.5 kilograms of multi-purpose dry chemical at 480 PSI (pounds per square inch). The commercial model is a low-volume (10,200 units), two-litre cylinder that holds 10 kilograms of multi-purpose dry chemical at 390 PSI. Both products require 1.5 hours of direct labour for completion. Therefore, total annual direct labour hours are 96,300 or [1.5 hrs. × (54,000 + 10,200)]. Estimated annual manufacturing overhead is $1,502,280. Thus, the predetermined overhead rate is $15.60 or ($1,502,280 ÷ 96,300) per direct labour hour. The direct materials cost per unit is $18.50 for the home model and $26.50 for the commercial model. The direct labour cost is $19 per unit for both the home and commercial models.

The company's managers identified six activity cost pools and related cost drivers, and estimated overhead by cost pool as follows:

Instructions

a.  Under traditional product costing, calculate the total unit cost of each product. Prepare a simple comparative schedule of the individual costs by product (similar to Illustration 5.3).

a. Unit cost—Home model $60.90

b.  Under ABC, prepare a schedule showing the calculations of the activity-based overhead rates (per cost driver).

c.  Prepare a schedule assigning each activity's overhead cost pool to each product based on the use of cost drivers. (Include a calculation of overhead cost per unit, rounding to the nearest cent.)

c. Cost assigned—Home model $1,031,300

d.  Calculate the total cost per unit for each product under ABC.

d. Cost/unit—Home model $56.60

e.  

Classify each of the activities as a value-added activity or a non-value-added activity.

f.  Comment on

• 1.the comparative overhead cost per unit for the two products under ABC, and
• 2.the comparative total costs per unit under traditional costing and ABC.

FireOut Inc. manufactures steel cylinders and nozzles for two models of fire extinguishers: (1) a home fire extinguisher and (2) a commercial fire extinguisher. The home model is a high-volume (54,000 units), half-litre cylinder that holds 2.5 kilograms of multi-purpose dry chemical at 480 PSI (pounds per square inch). The commercial model is a low-volume (10,200 units), two-litre cylinder that holds 10 kilograms of multi-purpose dry chemical at 390 PSI. Both products require 1.5 hours of direct labour for completion. Therefore, total annual direct labour hours are 96,300 or [1.5 hrs. × (54,000 + 10,200)]. Estimated annual manufacturing overhead is $1,502,280. Thus, the predetermined overhead rate is $15.60 or ($1,502,280 ÷ 96,300) per direct labour hour. The direct materials cost per unit is $18.50 for the home model and $26.50 for the commercial model. The direct labour cost is $19 per unit for both the home and commercial models.

The company's managers identified six activity cost pools and related cost drivers, and estimated overhead by cost pool as follows:

Instructions

a.  Under traditional product costing, calculate the total unit cost of each product. Prepare a simple comparative schedule of the individual costs by product (similar to Illustration 5.3).

a. Unit cost—Home model $60.90

b.  Under ABC, prepare a schedule showing the calculations of the activity-based overhead rates (per cost driver).

c.  Prepare a schedule assigning each activity's overhead cost pool to each product based on the use of cost drivers. (Include a calculation of overhead cost per unit, rounding to the nearest cent.)

c. Cost assigned—Home model $1,031,300

d.  Calculate the total cost per unit for each product under ABC.

d. Cost/unit—Home model $56.60

e.  Classify each of the activities as a value-added activity or a non-value-added activity.

f.  Comment on

• 1.the comparative overhead cost per unit for the two products under ABC, and
• 2.the comparative total costs per unit under traditional costing and ABC.

Cover-to-Cover Company is a manufacturer of shelving for books. The company has compiled the following cost data, and wants your help in determining the cost behavior. After reviewing the data, complete requirements (1) and (2) that follow.

1. Determine whether the costs in the table are variable, fixed, mixed, or none of these.

2. For each cost, determine the fixed portion of the cost, and the per-unit variable cost. If there is no amount or an amount is zero, enter "0". Recall that, for N = Number of Units Produced, Total Costs = (Variable Cost Per Unit x N) + Fixed Cost. Complete the following table with your answers. Round variable portion of cost (per unit) answers to two decimal places.

Feedback

Review the definitions for fixed, variable, and mixed costs, and the relationships between units produced and total cost for each type of cost. Recall that the high-low method may be used to separate a cost into its fixed and variable components.

High-Low

Biblio Files Company is the chief competitor of Cover-to-Cover Company in the bookshelf business. Biblio Files is analyzing its manufacturing costs, and has compiled the following data for the first six months of the year. After reviewing the data, answer questions (1) through (3) that follow.

1. From the data previously provided, help Biblio Files Company estimate the fixed and variable portions of its total costs using the high-low method. Recall that Total Costs = (Variable Cost Per Unit x Number of Units Produced) + Fixed Cost. Complete the following table.

2. With your Total Fixed Cost and Variable Cost per Unit from the high-low method, compute the total cost for the following values of N (Number of Units Produced).

3. Why does the total cost computed for 4,360 units not match the data for January?

a. The high-low method is accurate only for months in which production is at full capacity.

b. The high-low method only gives accurate data when fixed costs are zero.

c. The high-low method gives a formula for the estimated total cost and may not match levels of production other than the highest and lowest.

d. The high-low method gives accurate data only for levels of production outside the relevant range.

Feedback

Review the high-low method, and use the smallest and largest levels of production in your computation.

Contribution Margin

Review the contribution margin income statements for Cover-to-Cover Company and Biblio Files Company on their respective Income Statements. Complete the following table from the data provided on the income statements. Each company sold 74,800 units during the year.

Feedback

Review the definitions of contribution margin ratio and unit contribution margin. Also review the formulas for break-even in terms of units sold and sales dollars.

Income Statement - Cover-to-Cover

Income Statement - Biblio Files

Sales Mix

Biblio Files Company is making plans for its next fiscal year, and decides to sell two new types of bookshelves, Basic and Deluxe. The company has compiled the following estimates for the new product offerings.

The company is interested in determining how many of each type of bookshelf would have to be sold in order to break even. If we think of the Basic and Deluxe products as components of one overall enterprise product called “Combined,” the unit contribution margin for the Combined product would be $2.31. Fixed costs for the upcoming year are estimated at $328,020. Recall that the totals of all the sales mix percents must be 100%. Determine the amounts to complete the following table.

Feedback

Review the definition of break-even point.

Recall that the Combined unit contribution margin is given by [(Basic unit contribution margin) x (Basic percent of sales mix)] + [(Deluxe unit contribution margin) x (Deluxe percent of sales mix)]. Since these percents must add up to 100%, we have the following:

(Basic percent of sales mix) + (Deluxe percent of sales mix) = 100%, so that

(Deluxe percent of sales mix) = 100% - (Basic percent of sales mix)

Target Profit

Refer again to the income statements for Cover-to-Cover Company and Biblio Files Company on their respective Income Statement. Note that both companies have the same sales and net income. Answer questions (1) - (3) that follow, assuming that all data for the coming year is the same as the current year, except for the amount of sales.

1. If Cover-to-Cover Company wants to increase its profit by $40,000 in the coming year, what must their amount of sales be?
$

2. If Biblio Files Company wants to increase its profit by $40,000 in the coming year, what must their amount of sales be?
$

3. What would explain the difference between your answers for (1) and (2)?

a. Biblio Files Company has a higher contribution margin ratio, and so more of each sales dollar is available to cover fixed costs and provide operating income.

b. Cover-to-Cover Company’s contribution margin ratio is lower, meaning that it’s more efficient in its operations.

c. The companies have goals that are not in the relevant range.

d. The answers are not different; each company has the same required sales amount for the coming year to achieve the desired target profit.

Please fill in my blanks:Cover-to-Cover Company is a manufacturer of shelving for books. The company has compiled the following cost data, and wants your help in determining the cost behavior. After reviewing the data, complete requirements (1) and (2) that follow.

1. Determine whether the costs in the table are variable, fixed, mixed, or none of these.

2. For each cost, determine the fixed portion of the cost, and the per-unit variable cost. If there is no amount or an amount is zero, enter "0". Recall that, for N = Number of Units Produced, Total Costs = (Variable Cost Per Unit x N) + Fixed Cost. Complete the following table with your answers. Round variable portion of cost (per unit) answers to two decimal places.

Feedback

Review the definitions for fixed, variable, and mixed costs, and the relationships between units produced and total cost for each type of cost. Recall that the high-low method may be used to separate a cost into its fixed and variable components.

High-Low

Biblio Files Company is the chief competitor of Cover-to-Cover Company in the bookshelf business. Biblio Files is analyzing its manufacturing costs, and has compiled the following data for the first six months of the year. After reviewing the data, answer questions (1) through (3) that follow.

1. From the data previously provided, help Biblio Files Company estimate the fixed and variable portions of its total costs using the high-low method. Recall that Total Costs = (Variable Cost Per Unit x Number of Units Produced) + Fixed Cost. Complete the following table.

2. With your Total Fixed Cost and Variable Cost per Unit from the high-low method, compute the total cost for the following values of N (Number of Units Produced).

3. Why does the total cost computed for 4,360 units not match the data for January?

a. The high-low method is accurate only for months in which production is at full capacity.

b. The high-low method only gives accurate data when fixed costs are zero.

c. The high-low method gives a formula for the estimated total cost and may not match levels of production other than the highest and lowest.

d. The high-low method gives accurate data only for levels of production outside the relevant range.

Feedback

Review the high-low method, and use the smallest and largest levels of production in your computation.

Contribution Margin

Review the contribution margin income statements for Cover-to-Cover Company and Biblio Files Company on their respective Income Statements. Complete the following table from the data provided on the income statements. Each company sold 82,800 units during the year.

Feedback

Review the definitions of contribution margin ratio and unit contribution margin. Also review the formulas for break-even in terms of units sold and sales dollars.

Income Statement - Cover-to-Cover

Income Statement - Biblio Files

Sales Mix

Biblio Files Company is making plans for its next fiscal year, and decides to sell two new types of bookshelves, Basic and Deluxe. The company has compiled the following estimates for the new product offerings.

The company is interested in determining how many of each type of bookshelf would have to be sold in order to break even. If we think of the Basic and Deluxe products as components of one overall enterprise product called “Combined,” the unit contribution margin for the Combined product would be $2.31. Fixed costs for the upcoming year are estimated at $346,500. Recall that the totals of all the sales mix percents must be 100%. Determine the amounts to complete the following table.

Feedback

Review the definition of break-even point.

Recall that the Combined unit contribution margin is given by [(Basic unit contribution margin) x (Basic percent of sales mix)] + [(Deluxe unit contribution margin) x (Deluxe percent of sales mix)]. Since these percents must add up to 100%, we have the following:

(Basic percent of sales mix) + (Deluxe percent of sales mix) = 100%, so that

(Deluxe percent of sales mix) = 100% - (Basic percent of sales mix)

Target Profit

Refer again to the income statements for Cover-to-Cover Company and Biblio Files Company on their respective Income Statement. Note that both companies have the same sales and net income. Answer questions (1) - (3) that follow, assuming that all data for the coming year is the same as the current year, except for the amount of sales.

1. If Cover-to-Cover Company wants to increase its profit by $40,000 in the coming year, what must their amount of sales be?
$ 614,000

2. If Biblio Files Company wants to increase its profit by $40,000 in the coming year, what must their amount of sales be?
$514,000

3. What would explain the difference between your answers for (1) and (2)?

a. Biblio Files Company has a higher contribution margin ratio, and so more of each sales dollar is available to cover fixed costs and provide operating income.

b. Cover-to-Cover Company’s contribution margin ratio is lower, meaning that it’s more efficient in its operations.

c. The companies have goals that are not in the relevant range.

d. The answers are not different; each company has the same required sales amount for the coming year to achieve the desired target profit.