Constructing and Assessing Income Statements Using Cost-to-Cost Method
Assume General Electric Company agreed in May 2016 to construct a nuclear generator for NSTAR, a utility company serving the Boston area. General Electric Company estimated that its construction costs would be $360 million. The contract price of $450 million is to be paid as follows: $150 million at the time of signing; $150 million on December 31, 2016; and $150 million at completion in May 2017. General Electric incurred the following costs in constructing the generator: $144 million in 2016 and $216 million in 2017.

a. Compute the amount of General Electric's revenue, expense, and income for both 2016 and 2017, and for both years combined, under the cost-to-cost revenue recognition method.
Enter dollar amounts in millions.

Hannah Ortega is considering expanding her business. She plans to hire a salesperson to cover trade shows. Because of compensation, travel expenses, and booth rental, fixed costs for a trade show are expected to be $16,770. The booth will be open 39 hours during the trade show. Ms. Ortega also plans to add a new product line, ProOffice, which will cost $179 per package. She will continue to sell the existing product, EZRecords, which costs $105 per package. Ms. Ortega believes that the salesperson will spend approximately 29 hours selling EZRecords and 10 hours marketing ProOffice.

Required

1. Determine the estimated total cost and cost per unit of each product, assuming that the salesperson is able to sell 90 units of EZRecords and 51 units of ProOffice.

2. Determine the estimated total cost and cost per unit of each product, assuming that the salesperson is able to sell 209 units of EZRecords and 104 units of ProOffice.

(For all requirements, round "Cost per unit" to 2 decimal places.)

Walton Chemical Company makes three products, B7, K6, and X9, which are joint products from the same materials. In a standard batch of 371,000 pounds of raw materials, the company generates 80,000 pounds of B7, 157,000 pounds of K6, and 134,000 pounds of X9. A standard batch costs $2,968,000 to produce. The sales prices per pound are $6, $12, and $14 for B7, K6, and X9, respectively.

Material Sampling – Analyzing Direct Material

You are reviewing a cost proposal, which includes an $800,200 direct material estimate. After initial examination of the proposal, you note that there are 500 material items, but you also note that 20 high-cost items account for $620,000 of the total. The remaining $180,200 is spread across 480 relatively small purchases.

Answer the following questions:

1. Examination of the 20 high-cost items (estimated at $620,000) shows that all are properly priced except one item. That item is overpriced by $20,000. What should be your objective for these 20 items?

2. After analyzing a sample of the remaining 480 items, you find that the sample is overpriced by six percent. Using this six percent decrement factor, what cost should you estimate for those items? Remember that the average sample item cost is 106 percent of what it ought to be.

3. Given your answers to Questions 1 and 2, what should you estimate for total material cost?

You are reviewing a cost proposal, which includes an $800,200 direct material estimate. After initial examination of the proposal, you note that there are 500 material items, but you also note that 20 high-cost items account for $620,000 of the total. The remaining $180,200 is spread across 480 relatively small purchases. Answer the following questions:

1. Examination of the 20 high-cost items (estimated at $620,000) shows that all are properly priced except one item. That item is overpriced by $20,000. What should be your objective for these 20 items? 2. After analyzing a sample of the remaining 480 items, you find that the sample is overpriced by six percent. Using this six percent decrement factor, what cost should you estimate for those items? Remember that the average sample item cost is 106 percent of what it ought to be. 3. Given your answers to Questions 1 and 2, what should you estimate for total material cost?

In the service department of the NAPA (National Auto Parts Association), mechanics requiring parts for auto repair or service present their request forms at the parts department counter. The parts clerk fills a request while the mechanic waits. Mechanics arrive in a random (Poisson) fashion at the rate of 60 per hour, and a clerk can fill requests at the rate of 20 per hour (exponential). If the cost for a parts clerk is $20 per hour and the cost for a mechanic is $50 per hour, answer the following three questions (Because of the high arrival rate, an infinite source may be assumed.)

• Please analyze the total cost per hour (clerks’ hourly cost and mechanics’ time spent in system) when there are 4 clerks to staff the counter?
• Please analyze the total cost per hour (clerks’ hourly cost and mechanics’ time spent in system) when there are 5 clerks to staff the counter?
• Is there a need to have 6 clerk to staff the counter? Please explain why with analysis.

Ashlee's Beach Chairs Company produces upscale beach chairs. Annual demand for the chairs is estimated at 1,000 units. The frames are made in batches before the final assembly process. Ashlee's final assembly department needs frames at a rate of 20 per week. Ashlee's frame department can produce 25 frames per week. The setup cost is $100/setup, the annual holding cost per frame is $4, and the cost of production $30 a frame. The company operates 50 weeks per year. Set up an optimum inventory system for Ashlee that would minimize the annual cost of the inventory system. Find the following:
a. Production quantity (Q)
b. Number of production runs
c. Length of production run (tp)
d. Peak inventory
e. Average inventory
f. Idle time (ti)
g. Cycle time
h. Number of cycles
i. Total annual inventory cost (T)
j. Total annual cost of the system (TS)

1.Scholfield Enterprises makes a variety of products that it sells to other businesses. The company's activity-based costing system has four activity cost pools for assigning costs to products and customers. Details concerning that ABC system are listed below:

Activity Cost PoolActivity MeasureActivity RateSupporting assemblyDirect labor-hours (DLHs)$6.55per DLHProcessing batchesNumber of batches$138.20per batchProcessing ordersNumber of orders$52.60per orderServing customersNumber of customers$1,191.00per customer

The cost of serving customers, $1,191.00 per customer, is the cost of serving a customer for one year.

Latif Corporation buys only one of the company's products which Scholfield Enterprises sells for $15.60 per unit. Last year Latif Corporation ordered a total of 1,100 units of this product in 2 orders. To fill the orders, 7 batches were required. The direct materials cost is $7.85 per unit and the direct labor cost is $1.90 per unit. Each unit requires 0.10D LHs.

According to the ABC system, the total overhead cost for this customer this past year was closest to:

Production Function:  

1. Using the data in the table above, compute the marginal product using the definition given earlier in this module. Draw a graph of the marginal product curve using the numbers you computed. Suppose this firm can hire workers at a wage rate of $10 per hour to work in its factory which has a rental cost of $100. Use the data in the table above to calculate the costs (i.e., a data table showing costs at various levels of production) in the following steps:

2. First compute the variable cost for Q = 0 through Q = 5.

3. Next compute the fixed cost for Q = 0 through Q = 5.

4. Then compute the total cost for Q = 0 through Q = 5. This is the cost function.

5. Finally compute the marginal cost for Q = 0 through Q = 5. Draw the marginal cost curve and compare it to the marginal product curve above. Explain what you see.