Bramble Visuals produces Tablets and Books. Total overhead costs traditionally have been allocated on the basis of direct labor hours. After implementing activity-based costing, managers determined the following cost pools and cost drivers. They also decided that general costs should no longer be allocated to products.

Other information is as follows:

Bramble’s managers have gathered the following information about selling and administrative costs.

Calculate ABC rates. (Round answers to 2 decimal places, e.g. 15.25.)

Problem 17-2A Schultz Electronics manufactures two ultra high-definition television models: the Royale which sells for $1,600, and a new model, the Majestic, which sells for $1,300. The production cost computed per unit under traditional costing for each model in 2017 was as follows. Traditional Costing Royale Majestic Direct materials $700 $420 Direct labor ($20 per hour) 120 100 Manufacturing overhead ($38 per DLH) 228 190 Total per unit cost $1,048 $710 In 2017, Schultz manufactured 25,000 units of the Royale and 10,000 units of the Majestic. The overhead rate of $38 per direct labor hour was determined by dividing total expected manufacturing overhead of $7,600,000 by the total direct labor hours (200,000) for the two models. Under traditional costing, the gross profit on the models was Royale $552 ($1,600 – $1,048) and Majestic $590 ($1,300 – $710). Because of this difference, management is considering phasing out the Royale model and increasing the production of the Majestic model. Before finalizing its decision, management asks Schultz’s controller to prepare an analysis using activity-based costing (ABC). The controller accumulates the following information about overhead for the year ended December 31, 2017. Activity Cost Pools Cost Drivers Estimated Overhead Expected Use of Cost Drivers Activity-Based Overhead Rate Purchasing Number of orders $1,200,000 40,000 $30/order Machine setups Number of setups 900,000 18,000 $50/setup Machining Machine hours 4,800,000 120,000 $40/hour Quality control Number of inspections 700,000 28,000 $25/inspection The cost drivers used for each product were: Cost Drivers Royale Majestic Total Purchase orders 17,000 23,000 40,000 Machine setups 5,000 13,000 18,000 Machine hours 75,000 45,000 120,000 Inspections 11,000 17,000 28,000

Assign the total 2017 manufacturing overhead costs to the two products using activity-based costing (ABC) and determine the overhead cost per unit. (Round cost per unit to 2 decimal places, e.g. 12.25.)

Calculate cost per unit of each model using ABC costing. (Round answers to 2 decimal places, e.g. 12.25.)

Calculate gross profit of each model using ABC costing. (Round answers to 2 decimal places, e.g. 12.25.)

Here is the condensed 2015 balance sheet for Skye Computer Company (in thousands of dollars):

2015

Current assets $2,000

Net fixed assets 3,000

Total assets $5,000

Accounts payable and accruals $900

Short-term debt 100

Long-term debt 1,100

Total debt $1,200

Preferred stock 250

Common stock 1,300

Retained earnings 1,350

Total common equity $2,650

Total liabilities & equity $5,000

The firm’s total debt, which is the sum of the company’s short-term debt and long-term debt, equals $1.2 million. The firm’s before-tax cost of debt is 10%, and its marginal tax rate is 35%. Skye’s earnings per share last year were $3.20. The common stock sells for $55.00 now in the secondary market, last year’s dividend (D0) was $2.10, and a flotation cost of 10% would be required to sell new common stock. Security analysts are projecting that the common dividend will grow at an annual rate of 9%. Skye’s preferred stock pays a dividend of $3.30 per share, and its preferred stock sells for $30.00 per share. The outstanding common stock shares is 50,000 and outstanding preferred stock shares is 10,000. The market risk premium is 5%, the risk-free rate is 6%, and Skye’s beta is 1.516

a. Calculate the cost of each capital component, that is, the after-tax cost of debt

(rd(1 – T)), the cost of preferred stock (rp), the cost of equity from retained earnings (rs),

and the cost of newly issued common stock(re). Use the Discounted Cash Flow (DCF)

method to find the cost of common equity, e.g. rs and re.

b. Now calculate the cost of common equity from retained earnings, using the

CAPM method.

C. What is the cost of new common stock based on the CAPM? (Hint: Find the

difference between re and rs as determined by the DCF method and add that differential to

the CAPM value for rs.)

d. If Skye continues to use the same market-value capital structure, (1) what is

the firm’s WACC assuming that it uses only retained earnings for equity? (2) what is the

firm’s WACC assuming that if it expands so rapidly that it must issue new common

stock? (Hint: use current value of stocks to obtain the market-value capital structure, the

weights of capital.)

Modelling Cost Behaviour

MEW has been contracted by one of its customers to produce two new components in the next year. The management accountant has been asked to prepare costings for the two new components and is concerned that the current method of calculating the overhead cost per unit is not accurate enough. She has collected monthly information for the current year on the fixed and variable overheads incurred and on potential alternative allocation bases that can be used to calculate the total overhead cost per unit.

Required:

1. (a) Use the data provided to identify which of the three potential cost drivers (or combination of cost drivers) should be used to estimate the total overhead cost per unit. Prepare a regression analysis using the cost driver(s) you have selected (you may want to look at scatterplots and prepare alternative regression equations to make your decision).

2. (b) Prepare a memo for the CFO that explains (i) why it is necessary to use a more accurate method of allocating overheads for determining the total cost of the new components and (ii) explains how you decided which cost drivers to include in your regression. You should add supporting evidence and/or calculations to show how you came to your conclusion. Also, write out your annual total overhead cost equation using your regression results. Note the CFO requests a memo of no more than one page (within specified margins and font size) excluding any regression results or supporting calculations.

Worley Company buys surgical supplies from a variety of manufacturers and then resells and delivers these supplies to hundreds of hospitals. Worley sets its prices for all hospitals by marking up its cost of goods sold to those hospitals by 8%. For example, if a hospital buys supplies from Worley that cost Worley $100 to buy from manufacturers, Worley would charge the hospital $108 to purchase these supplies.

For years, Worley believed that the 8% markup covered its selling and administrative expenses and provided a reasonable profit. However, in the face of declining profits, Worley decided to implement an activity-based costing system to help improve its understanding of customer profitability. The company broke its selling and administrative expenses into five activities as shown:

Worley gathered the data below for two of the many hospitals that it serves—University and Memorial (each hospital purchased medical supplies that had cost Worley $31,000 to buy from manufacturers):

Required:

1. Compute the total revenue that Worley would receive from University and Memorial.

2. Compute the activity rate for each activity cost pool.

3. Compute the total activity costs that would be assigned to University and Memorial.

4. Compute Worley’s customer margin for University and Memorial. (Hint: Do not overlook the $31,000 cost of goods sold that Worley incurred serving each hospital.)

Compute Worley’s customer margin for University and Memorial. (Hint: Do not overlook the $31,000 cost of goods sold that Worley incurred serving each hospital.) (Loss amounts should be indicated with a minus sign. Round your intermediate calculations to 2 decimal places. Round your final answers to the nearest whole number.)

Excerpts from TPX Company's December 31, 2015 and 2014, financial statements are presented below:

Assuming all the sales are credit sales, what is TPX Company's 2015 receivables turnover? (Round your answer to 1 decimal place)

Excerpts from TPX Company's December 31, 2015 and 2014, financial statements are presented below:

TPX Company's 2015 inventory turnover is (Round your answer to 1 decimal place):

Excerpts from TPX Company's December 31, 2015 and 2014, financial statements are presented below:

TPX Company's 2015 debt to equity ratio is (Round your answer to 1 decimal place):

Excerpts from TPX Company's December 31, 2015 and 2014, financial statements are presented below:

TPX Company's 2015 gross profit ratio is (Round your answer to 1 decimal place):

Excerpts from TPX Company's December 31, 2015 and 2014, financial statements are presented below:

TPX Company's 2015 return on assets is (Round your answer to 1 decimal place):

Excerpts from TPX Company's December 31, 2015 and 2014, financial statements are presented below:

TPX Company's 2015 profit margin is (Round your answer to 1 decimal place):

Recent financial statement data for Harmony Health Foods (HHF) Inc. is shown below.

HHF's times interest earned ratio is (Round your answer to 2 decimal places):

•If you run a small courier company as the subcontractor for Australia post, use the cost curves to daw a graph which component of your costs will be affected by the petrol price drop.

•Identify the type of cost petrol is for the company (variable/fixed cost), and explain the impact of price change on this cost category and total and average cost.

•Draw initial cost curves (ATC, AVC, AFC and MC).

Show the change of those curves as a result of the petrol price change,

Hana 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: ACCOUNT Work in Process—Roasting Department ACCOUNT NO. Date Item Debit Credit Balance Debit Credit July 1 Bal., 5,400 units, 2/5 completed 13,392 31 Direct materials, 243,000 units 558,900 572,292 31 Direct labor 116,600 688,892 31 Factory overhead 29,200 718,092 31 Goods transferred, 243,000 units ? 31 Bal., ? units, 2/5 completed ? 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 cost per equivalent units, round to two decimal places. Hana Coffee Company Cost of Production Report-Roasting Department For the Month Ended July 31 Unit Information Units charged to production: Inventory in process, July 1 5,400 Received from materials storeroom 243,000 Total units accounted for by the Roasting Department 248,400 Units to be assigned costs: Equivalent Units Whole Units Direct Materials Conversion Inventory in process, July 1 5,400 0 3,240 Started and completed in July 243,000 243,000 243,000 Transferred to Packing Department in July Inventory in process, July 31 Total units to be assigned costs Cost Information Cost per equivalent unit: Direct Materials Conversion Total costs for July in Roasting Department $ $ Total equivalent units Cost per equivalent unit $ $ Costs assigned to production: Direct Materials Conversion Total Inventory in process, July 1 $ Costs incurred in July Total costs accounted for by the Roasting Department $ Costs allocated to completed and partially completed units: Inventory in process, July 1 balance $ To complete inventory in process, July 1 $ $ Cost of completed July 1 work in process $ Started and completed in July Transferred to Molding Department in July $ Inventory in process, July 31 Total costs assigned by the Roasting Department $ Feedback 1. Calculate equivalent units for materials and conversion costs. Calculate the cost per equivalent unit for materials and conversion costs. Calculate the costs assigned to the beginning inventory, the units started and completed, and the ending inventory. 2. Assuming that the July 1 work in process inventory includes $11,880 of direct materials, determine the increase or decrease in the cost per equivalent unit for direct materials and conversion between February and July. If required, round your answers to the nearest cent. Increase or Decrease Amount Change in direct materials cost per equivalent unit $ Change in conversion cost per equivalent unit $ Feedback 2. Compare the costs per equivalent unit for February and July. The costs per equivalent unit for materials and conversion for February are in the July 1 work in process inventory. The materials amount is given.

Rivera Company has several processing departments. Costs charged to the Assembly Department for November 2020 totaled $2,282,148 as follows.

Production records show that 34,600 units were in beginning work in process 30% complete as to conversion costs, 661,100 units were started into production, and 25,300 units were in ending work in process 40% complete as to conversion costs. Materials are entered at the beginning of each process.

Determine the equivalent units of production and the unit production costs for the Assembly Department. (Round unit costs to 2 decimal places, e.g. 2.25.)

eTextbook and Media

Determine the assignment of costs to goods transferred out and in process.

eTextbook and Media

Prepare a production cost report for the Assembly Department. (Round unit costs to 2 decimal places, e.g. 2.25 and other answers to 0 decimal places, e.g. 125.)

Rivera Company has several processing departments. Costs charged to the Assembly Department for November 2020 totaled $2,282,148 as follows.

Production records show that 34,600 units were in beginning work in process 30% complete as to conversion costs, 661,100 units were started into production, and 25,300 units were in ending work in process 40% complete as to conversion costs. Materials are entered at the beginning of each process.

Determine the equivalent units of production and the unit production costs for the Assembly Department. (Round unit costs to 2 decimal places, e.g. 2.25.)

eTextbook and Media

Determine the assignment of costs to goods transferred out and in process.

eTextbook and Media

Prepare a production cost report for the Assembly Department. (Round unit costs to 2 decimal places, e.g. 2.25 and other answers to 0 decimal places, e.g. 125.)