Ferris Corporation makes a single product—a fire-resistant commercial filing cabinet—that it sells to office

furniture distributors. The company has a simple ABC system that it uses for internal decision making. The

company has two overhead departments whose costs are listed on the following page:

Manufacturing overhead .................................. $500,000

Selling and administrative overhead ................ 300,000

Total overhead costs ........................................ $800,000

The company’s ABC system has the following activity cost pools and activity measures:

Activity Cost Pool Activity Measure

Assembling units ..................... Number of units

Processing orders .................... Number of orders

Supporting customers ............. Number of customers

Other ........................................ Not applicable

Costs assigned to the “Other” activity cost pool have no activity measure; they consist of the costs of

unused capacity and organization-sustaining costs—neither of which are assigned to orders, customers, or

the product.

Ferris Corporation distributes the costs of manufacturing overhead and of selling and administrative

overhead to the activity cost pools based on employee interviews, the results of which are reported below:

Required:

1- Perform the first-stage allocation of overhead costs to the activity cost pools and find manufacturing overhead for Assembling units.

2-Compute activity rates for the activity cost pools and find the activity rate for processing orders

3-Compute activity rates for the activity cost pools and find the activity rate for supporting customers

4-Office Mart is one of Ferris Corporation’s customers. Last year, Office Mart ordered filing cabinets four different times. Office Mart ordered a total of 80 filing cabinets during the year. What is the ABC cost for Assembeling unit?

5-Office Mart is one of Ferris Corporation’s customers. Last year, Office Mart ordered filing cabinets four different times. Office Mart ordered a total of 80 filing cabinets during the year. What is the ABC cost for Processing orders?

Garner Strategy Institute (GSI) presents executive-level training seminars nationally. Eastern University (EU) has approached GSI to present 40 one-week seminars during 2019. This activity level represents the maximum number of seminars that GSI is capable of presenting annually. GSI staff would present the week-long seminars in various cities throughout the United States and Canada. Terry Garner, GSI’s president, is evaluating three financial options for the revenues from Eastern: accept a flat fee for each seminar, receive a percentage of Eastern’s profit before tax from the seminars, and form a joint venture to share costs and profits. Estimated costs for the 2019 seminar schedule follow: Garner Strategy Institute Eastern University Fixed costs for the year: Salaries and benefits $ 200,000 N/A * Facilities 46,000 N/A * Travel and hotel 0 $ 360,920 Other 72,000 N/A * Total fixed costs $ 318,000 $ 360,920 Variable cost per participant: Supplies and materials 0 $ 47 Marketing 0 18 Other site costs 0 35 *Eastern’s fixed costs are excluded because the amounts are not considered relevant for this decision (i.e., they will be incurred whether or not the seminars are presented). Eastern does not include these costs when calculating the profit before tax for the seminars. EU plans to charge $1,200 per participant for each 1-week seminar. It will pay all variable marketing, site costs, and materials costs. Required 1. Assume that the seminars are handled as a joint venture by GSI and EU to pool costs and revenues. a. Determine the total number of seminar participants needed to break even on the total costs for this joint venture. b. Assume that the joint venture has an effective income tax rate of 30%. How many seminar participants must the joint venture enroll to earn an after-tax income of $97,209? 2. Assume that GSI and EU do not form a joint venture, but that GSI is an independent contractor for EU. EU offers two payment options to GSI: a flat fee of $9,500 for each seminar or a fee of 40% of EU’s profit before taxes from the seminars. Compute the minimum number of participants needed for GSI to prefer the 40% fee option over the flat fee. 1 Total Number of seminar participants needed to break even (per year). 2. Assume that the joint venture has an effective income tax rate of 30%. How many seminar participants must the joint venture enroll to earn an after-tax income of $97,209? what is required number of participants? (per year) 3. Assume that GSI and EU do not form a joint venture, but that GSI is an independent contractor for EU. EU offers two payment options to GSI: a flat fee of $9,500 for each seminar or a fee of 40% of EU’s profit before taxes from the seminars. Compute the minimum number of participants needed for GSI to prefer the 40% fee option over the flat fee. what is minimum number of seminar participants?

Refer to Table 7-2. Which of the following is not true?

22. A firm produces 400 units of output at a total cost of $1,200. If fixed costs are $200,

23. Select the type of market that is described by the following attributes: many firms, differentiated products, and free entry.

24. Free entry eliminates long-run profits for firms in competitive and monopolistic industries.

25. If the equilibrium price of an airline ticket is $400 and the government imposes a price floor of $500 on airline tickets, then fewer airline tickets will be sold than at the market equilibrium.

The Gourmand Cooking School runs short cooking courses at its small campus. Management has identified two cost drivers it uses in its budgeting and performance reports—the number of courses and the total number of students. For example, the school might run two courses in a month and have a total of 64 students enrolled in those two courses. Data concerning the company’s cost formulas appear below:

For example, administrative expenses should be $4,000 per month plus $44 per course plus $5 per student. The company’s sales should average $870 per student.

The company planned to run four courses with a total of 64 students; however, it actually ran four courses with a total of only 60 students. The actual operating results for September appear below:

Required:

1. Prepare the company’s planning budget for September.

2. Prepare the company’s flexible budget for September.

3. Calculate the revenue and spending variances for September.

Two firms, Sludge Oil and Northwest Lumber, have access to five production processes, each one of which has a different cost and gives off a different amount of pollution. The daily costs of the processes and the corresponding number of tons of smoke emitted are as shown in the following table:

The City Council wants to curb emissions by half and decides to auction off four permits, each of which entitles the bearer to emit 1 ton of smoke per day. No smoke may be emitted without a permit. Suppose the government conducts the auction by starting at $1 and asking how many permits each firm wants to buy at that price. If the total is more than four, it then raises the price by $1 and asks again, and so on, until the total quantity of demanded permits falls to four.

How much will each permit sell for in this auction?

Each permit will sell for $.


How many permits will each firm buy?

Sludge Oil will purchase  permit(s).

Northwest Lumber will purchase  permit(s).


What will be the total cost to society of this reduction in pollution?

Total cost of pollution reduction will be $.

Snowden Industries produces two electronic decoders, P and Q. Decoder P is more sophisticated and requires more programming and testing than does Decoder Q. Because of these product differences, the company wants to use activity-based costing to allocate overhead costs. It has identified four activity pools. Relevant information follows:

Expected activity for each product follows:

Assume that before shifting to activity-based costing, Snowden Industries allocated all overhead costs based on direct labor hours. Direct labor data pertaining to the two decoders follow:

Required

Determine the cost per unit for overhead when using direct labor hours as the allocation base and when using ABC.

Bryant Company has a factory machine with a book value of $90,800 and a remaining useful life of 7 years. It can be sold for $27,200. A new machine is available at a cost of $407,400. This machine will have a 7-year useful life with no salvage value. The new machine will lower annual variable manufacturing costs from $640,100 to $581,800. Prepare an analysis showing whether the old machine should be retained or replaced. (In the first two columns, enter costs and expenses as positive amounts, and any amounts received as negative amounts. In the third column, enter net income increases as positive amounts and decreases as negative amounts. Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

The Gourmand Cooking School runs short cooking courses at its small campus. Management has identified two cost drivers it uses in its budgeting and performance reports—the number of courses and the total number of students. For example, the school might run two courses in a month and have a total of 60 students enrolled in those two courses. Data concerning the company’s cost formulas appear below:

For example, administrative expenses should be $3,800 per month plus $42 per course plus $5 per student. The company’s sales should average $880 per student.

The company planned to run four courses with a total of 60 students; however, it actually ran four courses with a total of only 56 students. The actual operating results for September appear below:

Required:

1. Prepare the company’s planning budget for September.

2. Prepare the company’s flexible budget for September.

3. Calculate the revenue and spending variances for September.

The Gourmand Cooking School runs short cooking courses at its small campus. Management has identified two cost drivers it uses in its budgeting and performance reports—the number of courses and the total number of students. For example, the school might run two courses in a month and have a total of 60 students enrolled in those two courses. Data concerning the company’s cost formulas appear below:

For example, administrative expenses should be $3,800 per month plus $42 per course plus $5 per student. The company’s sales should average $880 per student.

The company planned to run four courses with a total of 60 students; however, it actually ran four courses with a total of only 56 students. The actual operating results for September appear below:

Required:

1. Prepare the company’s planning budget for September.

2. Prepare the company’s flexible budget for September.

3. Calculate the revenue and spending variances for September.