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 6%. For example, if a hospital buys supplies from Worley that cost Worley $100 to buy from manufacturers, Worley would charge the hospital $106 to purchase these supplies.
For years, Worley believed that the 6% 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:
| Activity Cost Pool (Activity Measure) | Total Cost | Total Activity | |||
| Customer deliveries (Number of deliveries) | $ | 332,000 | 4,000 | deliveries | |
| Manual order processing (Number of manual orders) | 438,000 | 6,000 | orders | ||
| Electronic order processing (Number of electronic orders) | 308,000 | 14,000 | orders | ||
| Line item picking (Number of line items picked) | 550,000 | 440,000 | line items | ||
| Other organization-sustaining costs (None) | 670,000 | ||||
| Total selling and administrative expenses | $ | 2,298,000 | |||
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 $38,000 to buy from manufacturers):
|
Activity |
||
| Activity Measure | University | Memorial |
| Number of deliveries | 11 | 26 |
| Number of manual orders | 0 | 45 |
| Number of electronic orders | 17 | 0 |
| Number of line items picked | 180 | 250 |
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 $38,000 cost of goods sold that Worley incurred serving each hospital.)
In: Accounting
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 6%. For example, if a hospital buys supplies from Worley that cost Worley $100 to buy from manufacturers, Worley would charge the hospital $106 to purchase these supplies.
For years, Worley believed that the 6% 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:
| Activity Cost Pool (Activity Measure) | Total Cost | Total Activity | |||
| Customer deliveries (Number of deliveries) | $ | 567,000 | 7,000 | deliveries | |
| Manual order processing (Number of manual orders) | 450,000 | 6,000 | orders | ||
| Electronic order processing (Number of electronic orders) | 270,000 | 15,000 | orders | ||
| Line item picking (Number of line items picked) | 693,000 | 420,000 | line items | ||
| Other organization-sustaining costs (None) | 660,000 | ||||
| Total selling and administrative expenses | $ | 2,640,000 | |||
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 $34,000 to buy from manufacturers):
|
Activity |
||
| Activity Measure | University | Memorial |
| Number of deliveries | 11 | 24 |
| Number of manual orders | 0 | 45 |
| Number of electronic orders | 16 | 0 |
| Number of line items picked | 130 | 230 |
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 $34,000 cost of goods sold that Worley incurred serving each hospital.)
In: Accounting
Vernon Bicycle Manufacturing Company currently produces the handlebars used in manufacturing its bicycles, which are high-quality racing bikes with limited sales. Vernon produces and sells only 6,100 bikes each year. Due to the low volume of activity, Vernon is unable to obtain the economies of scale that larger producers achieve. For example, Vernon could buy the handlebars for $35 each; they cost $38 each to make. The following is a detailed breakdown of current production costs:
| Item | Unit Cost | Total | ||||||
| Unit-level costs | ||||||||
| Materials | $ | 14 | $ | 85,400 | ||||
| Labor | 10 | 61,000 | ||||||
| Overhead | 3 | 18,300 | ||||||
| Allocated facility-level costs | 11 | 67,100 | ||||||
| Total | $ | 38 | $ | 231,800 | ||||
After seeing these figures, Vernon’s president remarked that it would be foolish for the company to continue to produce the handlebars at $38 each when it can buy them for $35 each.
Required
Calculate the total relevant cost. Do you agree with the president’s conclusion?
In: Accounting
Franklin Bicycle Manufacturing Company currently produces the handlebars used in manufacturing its bicycles, which are high-quality racing bikes with limited sales. Franklin produces and sells only 7,000 bikes each year. Due to the low volume of activity, Franklin is unable to obtain the economies of scale that larger producers achieve. For example, Franklin could buy the handlebars for $34 each; they cost $37 each to make. The following is a detailed breakdown of current production costs: Item Unit Cost Total Unit-level costs Materials $ 16 $ 112,000 Labor 10 70,000 Overhead 2 14,000 Allocated facility-level costs 9 63,000 Total $ 37 $ 259,000 After seeing these figures, Franklin’s president remarked that it would be foolish for the company to continue to produce the handlebars at $37 each when it can buy them for $34 each. Required Calculate the total relevant cost. Do you agree with the president’s conclusion?
In: Accounting
Betty's Book and Music Store has two service departments, Warehouse and Data Center. Warehouse Department costs are allocated on the basis of warehouse-hours. Data Center Department costs are allocated based on the number of computer hours. The costs of departments, warehouse-hours and number of computer hours are as follows: Support Departments Operating Departments Warehouse Data Center Music Books Departmental costs $ 60,000 $40,000 $60,000 $70,000 Warehouse-hours - 400 200 400 Computer hours 250 - 375 375
The total cost accumulated in the music department using the
direct method is
Group of answer choices
$126,000
$100,000
$130,000
$104,000
The total cost accumulated in the music department using the
step-down method is (assume the warehouse department goes
first)
Group of answer choices
104,000
$100,000
$126,000
$130,000
The total cost accumulated in the music department using the
reciprocal method is
Group of answer choices
$102,222
$122,402
$127,778
$142,471
In: Accounting
Cardinal Company has determined the following standard cost data necessary to manufacture one unit of its primary product:
Direct Materials….. (6 pounds @ $20)
Direct Labor…………. .(8 hours @ $15)
During 20X1, Cardinal produced only 1 unit of product. This unit required 7 pounds of direct material (a total of 8 pounds were purchased at a cost of $18 per pound). In addition, total payroll costs for direct labor during 20X1 were $130 (10 hours @ $13 per hour).
Required:
Answer the following questions, indicating BOTH the dollar amount of each variance and whether each variance is FAVORABLE (F) or UNFAVORABLE (U).
The materials price variance was $__
The materials efficiency (usage) variance was $__
The labor rate (price) variance was $__
The labor efficiency (usage) variance was $__
The total cost of the unit completed in 20X1 and transferred from Work in Process to Finished Goods was $
In: Accounting
Single Plantwide Factory Overhead Rate
Mozart Music Inc. makes three musical instruments: trumpets, tubas, and trombones. The budgeted factory overhead cost is $122,920. Factory overhead is allocated to the three products on the basis of direct labor hours. The products have the following budgeted production volume and direct labor hours per unit:
| Budgeted Production Volume | Direct Labor Hours Per Unit | ||||
| Trumpets | 2,800 | units | 0.8 | ||
| Tubas | 500 | 1.5 | |||
| Trombones | 1,400 | 1.0 | |||
If required, round all per unit answers to the nearest cent.
a. Determine the single plantwide factory
overhead rate.
$ per direct labor hour
b. Use the factory overhead rate in (a) to determine the amount of total and per-unit factory overhead allocated to each of the three products.
| Total Factory Overhead Cost |
Per Unit Factory Overhead Cost |
|
| Trumpets | $ | $ |
| Tubas | ||
| Trombones | ||
| Total | $ |
In: Accounting
A monopoly sells its good in the U.S. and Japanese markets. The American inverse demand function is PA =60−QA, and the Japanese inverse demand function is PJ =80−2QJ, where both prices, PA and PJ, are measured in dollars. The firm’s total cost of production is TC=5+16Q in both countries. Assume that the firm can prevent resale in other countries.
What price will it charge in the U.S.? ________
What is the optimal quantity in the U.S.? ________
What is the total cost producing the optimal quantity in the U.S.? ________
What is the maximum profit for the good in the U.S.? ________
What price will it charge in the Japanese markets? ________
What is the optimal quantity in the Japanese markets? ________
What is the total cost producing the optimal quantity in the Japanese markets? ________
What is the maximum profit for the good in the Japanese markets? ________
Now, resale is allowed in both markets. What is the optimal price in both markets (round to the nearest whole number? ________ What is the optimal quantity in both markets? ________
In: Economics
Colby Limited is a manufacturing company whose total factory overhead costs fluctuate somewhat from year to year, according to the number of machine-hours worked in its production facility. These costs at high and low levels of activity over recent years are given below:
| Low | High | |
| Machine-hours | 50,000 | 75,000 |
| Total factory overhead costs | $14,250,000 | $17,625,000 |
The factory overhead costs above consist of indirect materials, rent, and maintenance. The company has analyzed these costs at the 50,000 machine-hours level of activity as follows:
| Indirect materials (variable) | $5,000,000 |
| Rent (fixed) | 6,000,000 |
| Maintenance (mixed) | 3,250,000 |
| Total factory overhead costs | $14,250,000 |
For planning purposes, the company want~ to break down the maintenance cost into its variable and fixed cost elements.
Required:
Estimate how much of the factory overhead cost of $17,625,000 at the high level of activity consists of maintenance costs.
In: Accounting
“In a perfectly competitive market, firms always operate at the lowest per-unit cost.” Is the preceding statement true or false? Explain your answer.
For a perfectly competitive firm, profit maximization does not conflict with resource allocative efficiency. Do you agree? Explain your answer.
The perfectly competitive firm does not increase its quantity of output without limit, even thought it can sell all it wants at the going price. Why not?
Why is the marginal revenue curve for a perfectly competitive firm the same as its demand curve?
Complete the following cost schedule:
Quantity 0 1 2 3 4 5 6 7
Total Cost $9 $12 $16 $21 $30 $40 $52 $66
ATC
MC
Assuming a price of this product is $10, at what output rate is
a. Total revenue maximized?
b. ATC minimized?
c. Profit per unit maximized?
d. Total profit maximized?
In: Economics