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 9%. For example, if a hospital buys supplies from Worley that cost Worley $100 to buy from manufacturers, Worley would charge the hospital $109 to purchase these supplies.

For years, Worley believed that the 9% 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 $40,000 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. (Round your answers to 2 decimal places.)

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 $40,000 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.)

Cain Components manufactures and distributes various plumbing products used in homes and other buildings. Over time, the production staff has noticed that products they considered easy to make were difficult to sell at margins considered reasonable, while products that seemed to take a lot of staff time were selling well despite recent price increases. A summer intern has suggested that the cost system might be providing misleading information.

The controller decided that a good summer project for the intern would be to develop, in one self-contained area of the plant, an alternative cost system with which to compare the current system. The intern identified the following cost pools and, after discussion with some plant personnel, appropriate cost drivers for each pool. There were:

In this particular area, Cain produces two of its many products: Standard and Deluxe. The following are data for production for the latest full year of operations:

The intern decides to look more closely at the manufacturing activity and determines that it can be broken down into two activities: production and engineering. Production covers the costs of ongoing manufacturing while engineering includes those activities dealing with engineering changes, design modifications, and so on.

The costs attributed to production are $12,180,000 and the costs attributed to engineering are $10,500,000. After discussion with plant engineers, the intern decides that the best cost driver for engineering is setups, because most of the work arises from changes in the way the product is run.

Required:

1. Compute the totals of the cost driver rates shown below. (Round intermediate calculations and "Manufacturing" answer to 2 decimal places.)

Receiving (% of material dollars)

Manufacturing (per machine hour)

Engineering (per setup)

Machine setup (per setup)

Shipping (per unit)

2. What unit product costs will be reported for the two products if the revised ABC system is used?

Standard Deluxe

Direct Costs

Overhead:

Receiving

Manufacturing

Engineering

Machine Setup

Shipping

Number of units

Options

1. You are to receive €125,000 in 3 months and today’s spot price is $1.17, but the 3 month forward rate is $1.19. If a (put or call?) option (€125,000) cost $1,500 what is the least you will receive for selling your euros (net of the option cost) for dollars? (You buy the put for $1,500 and exercise it by selling the euros at $1.19 if the market price of the euro is less than $1.19.) Give answer is total dollars and in dollars per euro.

2. You are to pay €125,000 in 3 months and today’s spot price is $1.17, but the 3 month forward rate is $1.19. If a (put or call?) option (€125,000) cost $1,500 what is the most you will pay for buying your euros (net of the option cost) with dollars? Give answer is total dollars and in dollars per euro.

3. You are to receive €145,000 in 3 months and today’s spot price is $1.17, but the 3 month forward rate is $1.19. A (put or call?) option (€125,000) cost $1,500. In 3 months the spot (market) price on the euro is $1.16. What is the least you will receive for selling your euros (net of the option cost) for dollars? (You buy the put for $1,500 and exercise it by selling the euros at $1.19 if the market price of the euro is less than $1.19.) Give answer is total dollars and in dollars per euro.

4. You are to pay €145,000 in 3 months and today’s spot price is $1.17, but the 3 month forward rate is $1.19. A (put or call?) option (€125,000) cost $1,500. In 3 months the spot (market) price on the euro is $1.16. What is the most you will pay for buying your euros (net of the option cost) with dollars? Give answer is total dollars and in dollars per euro.

Futures

5. You are to receive €145,000 in 3 months and today’s spot price is $1.17, but the 3 month forward rate is $1.19. You enter into a futures contract (€125,000) to sell euros at the $1.19 forward price. In 3 months the spot (market) price on the euro is $1.16. What is the net amount you receive for selling your €145,000? Give answer is total dollars and in dollars per euro.

6. You are to pay €145,000 in 3 months and today’s spot price is $1.17, but the 3 month forward rate is $1.19. You enter into a futures contract (€125,000) to buy euros at the $1.19 forward price. In 3 months the spot (market) price on the euro is $1.16. What is the amount you pay for buying your €145,000? Give answer is total dollars and in dollars per euro.

Assume the market for cigarettes is perfectly competitive. The demand and supply for cigarettes in Oakland is given by the following equations:

Where P represents the price of a carton of cigarettes and Q denotes the quantity of cartons of cigarettes. Use the above information to answer the following questions. Show your work for full credit.

a. Draw a graph of the market in equilibrium and solve for the equilibrium quantity and price. Identify on your graph and calculate the values of consumer, producer, and total surplus. Be sure to label your graph.

P* = _________ Q* = _________ CS = ___________ PS = ___________ TS = ___________

b. Suppose a panel of public health scientists from the Food and Drug Administration (FDA) determine that half a unit of air pollution is emitted for every carton of cigarettes that is smoked and that the external cost (that is the cost that people outside of the market bear) of one unit of pollution is $100. What is total external cost of the air pollution given the market equilibrium quantity of cigarettes exchanged in the unregulated market from part (a)? How does this alter your calculation of total surplus once the external cost is taken into account?

Total External Cost = ___________ TS given External Cost = ___________

c. Now consider a potential FDA regulation to address this air pollution that bans the production and sale of cigarettes. What is total surplus if this policy is imposed? Are the consumers or producers of cigarettes hurt the most by the ban? Support your answer with at most two sentences.

Total Surplus with the ban = ___________ Who is hurt most from the ban? ___________

d. Another potential FDA policy would be to place a lump sum tax the sale of cartons of cigarettes rather than ban cigarette sales as in part (c). The following equation gives the demand curve including the impact of the tax:

Draw a new graph that illustrates the impact of the tax and find the after-tax quantity and the prices paid by buyers and sellers. What is consumer surplus, producer surplus, tax revenue, DWL, and the external cost after the tax is imposed. From your analysis, can you determine who pays the tax directly to the government?

Pbuyer = _________ Pseller = _________ Qtax = _________ CS = _________ PS = _________ Tax Revenue = _________ DWL = _________ External Cost = _________ Who pays the tax to the government? _____________________________

e. Imagine you were the head of the FDA and you must decide whether the FDA should intervene in this market and, if so, in which way to intervene. Would you intervene and, if so, which of the above policies would you choose (the ban or the tax)? Support your answer with no more than two sentences.

The following table shows age distribution and location of a random sample of 166 buffalo in a national park.

Use a chi-square test to determine if age distribution and location are independent at the 0.05 level of significance.

(a) What is the level of significance?


State the null and alternate hypotheses.

H₀: Age distribution and location are independent.
H₁: Age distribution and location are not independent.H₀: Age distribution and location are not independent.
H₁: Age distribution and location are independent.    H₀: Age distribution and location are not independent.
H₁: Age distribution and location are not independent.H₀: Age distribution and location are independent.
H₁: Age distribution and location are independent.

(b) Find the value of the chi-square statistic for the sample. (Round the expected frequencies to at least three decimal places. Round the test statistic to three decimal places.)


Are all the expected frequencies greater than 5?

YesNo    

What sampling distribution will you use?

uniformbinomial    Student's tnormalchi-square

What are the degrees of freedom?


(c) Find or estimate the P-value of the sample test statistic. (Round your answer to three decimal places.)


(d) Based on your answers in parts (a) to (c), will you reject or fail to reject the null hypothesis of independence?

Since the P-value > ?, we fail to reject the null hypothesis.Since the P-value > ?, we reject the null hypothesis.    Since the P-value ? ?, we reject the null hypothesis.Since the P-value ? ?, we fail to reject the null hypothesis.

(e) Interpret your conclusion in the context of the application.

At the 5% level of significance, there is sufficient evidence to conclude that age distribution and location are not independent.At the 5% level of significance, there is insufficient evidence to conclude that age distribution and location are not

The following table shows age distribution and location of a random sample of 166 buffalo in a national park.

Use a chi-square test to determine if age distribution and location are independent at the 0.05 level of significance.

(a) What is the level of significance?


State the null and alternate hypotheses.

H₀: Age distribution and location are independent.
H₁: Age distribution and location are independent.

H₀: Age distribution and location are not independent.
H₁: Age distribution and location are independent.    

H₀: Age distribution and location are not independent.
H₁: Age distribution and location are not independent.

H₀: Age distribution and location are independent.
H₁: Age distribution and location are not independent.

(b) Find the value of the chi-square statistic for the sample. (Round the expected frequencies to at least three decimal places. Round the test statistic to three decimal places.)


Are all the expected frequencies greater than 5?

Yes

No

What sampling distribution will you use?

Student's t binomial    

chi-square

uniform

normal

What are the degrees of freedom?


(c) Find or estimate the P-value of the sample test statistic. (Round your answer to three decimal places.)


(d) Based on your answers in parts (a) to (c), will you reject or fail to reject the null hypothesis of independence?

Since the P-value > α, we fail to reject the null hypothesis.

Since the P-value > α, we reject the null hypothesis.    

Since the P-value ≤ α, we reject the null hypothesis.

Since the P-value ≤ α, we fail to reject the null hypothesis.

(e) Interpret your conclusion in the context of the application.

At the 5% level of significance, there is sufficient evidence to conclude that age distribution and location are not independent.

At the 5% level of significance, there is insufficient evidence to conclude that age distribution and location are not independent.

Grainy Goodness Company manufactures granola cereal by a series of three processes, beginning materials such as oats, sweeteners, and nuts being introduced in the Mixing Department. From the Mixing Department, the materials pass through the Baking and Packaging departments, emerging as boxed granola cereal ready for shipment to retail outlets. Direct materials are added at the beginning of each process, and conversion costs are incurred evenly throughout production in each department.

During March, the President and sole stockholder, Jonathan Groat, reviewed the Cost of Production Report for the Mixing Department. He is concerned that the Mixing Department may not be operating efficiently, and asks for your help.

1. Jonathan has noticed that his production manager has omitted some of the data on the Cost of Production panel. Determine the missing information. If there is no amount or an amount is zero, enter "0". Round your per-unit computations to the nearest cent, if required.

2. Determine the cost per unit of direct materials and for conversion for the month of February using the completed data on the Cost of Production panel. Round your per-unit computations to the nearest cent, if required.

3. Determine the cost per unit of direct materials and for conversion for the month of March using the completed data on the Cost of Production panel. Round your per-unit computations to the nearest cent, if required.

4. After reviewing your work on the February Cost Analysis and March Cost Analysis panels, assist Jonathan Groat in evaluating the Mixing Department’s performance by answering the following questions:

a) In March, was the Mixing Department’s total cost per unit higher or lower than in February?

[ ] No difference

[ ] Lower

[ ] Higher

b) For which component(s) was the cost per unit for March higher than in February? Check all that apply.

[ ] Direct material costs

[ ] Both were higher for March

[ ] Conversion costs

c) What is most probably your recommendation to Jonathan Groat given your computations?

[ ] Investigate a detailed breakdown of direct materials cost to determine the source of the higher per-unit cost.

[ ] Look into creating higher incentives for administrative staff in order to create more effective reporting procedures.

[ ] Pay higher commissions to salespeople to spur sales.

[ ] Investigate a detailed breakdown of conversion costs to determine the source of the higher per-unit cost.

5. On March 31, using the data provided on the panels, journalize the entry to move the appropriate amount of cost from the Mixing Department to the Baking Department. Refer to the Chart of Accounts for exact wording of account titles.

Steps in Preparing a Production Report

Recently, Stillwater Designs expanded its market by becoming an original equipment supplier to Jeep Wrangler. Stillwater Designs produces factory upgraded speakers specifically for Jeep Wrangler. The Kicker components and speaker cabinets are outsourced with assembly remaining in house. Stillwater Designs assembles the product by placing the speakers and other components in cabinets that define an audio package upgrade and that can be placed into the Jeep Wrangler, producing the desired factory-installed appearance. Speaker cabinets and associated Kicker components are added at the beginning of the assembly process.

Assume that Stillwater Designs uses the weighted average method to cost out the audio package. The following are cost and production data for the assembly process for April:

Required:

1. Prepare a physical flow analysis for the assembly department for the month of April.

Feedback

2. Calculate equivalent units of production for the assembly department for the month of April.

3. Calculate unit cost for the assembly department for the month of April.

4. Calculate the cost of units transferred out and the cost of EWIP inventory.

Feedback

5. Prepare a cost reconciliation for the assembly department for the month of April.

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Mental Health provides counseling and stress management programs for overworked students.

Fixed costs are: rent for the building (that includes utilities and maintenance); and the Director's salary. These total $20,000 per month.

Each counseling session uses 60 minutes of therapist time and $3 in materials. Each stress management session uses 20 minutes of trainer time and $3 in materials.

Mental Health hires therapists and trainers on a freelance contract bases and does not provide them any benefits. The hourly wage rate for therapists is $40 per hour and stress management trainers is $30 per hour. They are paid for actual services rendered.

At the end of December 2019, the Director projected they would sell 1000 counseling sessions at $120 each and 10,000 stress management sessions at $25 each in 2020.

A) Complete The Here For You Clinic Annual Static (Projected) Budget for 2020 below

Revenue

Total Cost

Profit

Revenue Breakdown

Counseling Services

Stress Management Services

Cost Breakdown

         Fixed cost

Counselor services

Stress Management Trainer Services

          Supplies

Jump into your time machine and fast forward to December 31. As 2020 comes to a close, the director sees that they actually provided 1000 counseling services. 100 of those services were provided during their “Holidays in July” promotion offering the sessions for $75 each. The remainder were sold at full price.

Actually provided 12,500 stress reduction sessions. 4,000 of these were sold during the July promotion at $15 each. The remainder were sold at $25.

Therapist and stress trainer contracted hourly rates remained the same throughout the year. The spending on fixed costs were exactly as projected.

B)   What is Mental Health's flexible budget amount for: revenue, fixed cost, supplies, counselors, and stress trainers?

C) What is Mental Health's actual revenue, total cost, variable cost and profit?

D) Examine the Revenue Variance. What is the total Revenue Variance? What is the Revenue Price Variance? What is the Revenue Volume Variance?

E) Examine the Cost variance. What is the total Cost Variance? Of the Variable Cost variance, what is the Volume variance and what is the Management variance?

F) Interpret Mental Health's budget variance results for 2020. What contributed most to the change in profit? What recommendations would you make for 2021?