Franklin Corporation estimated its overhead costs would be $23,100 per month except for January when it pays the $192,240 annual insurance premium on the manufacturing facility. Accordingly, the January overhead costs were expected to be $215,340 ($192,240 + $23,100). The company expected to use 7,700 direct labor hours per month except during July, August, and September when the company expected 9,500 hours of direct labor each month to build inventories for high demand that normally occurs during the Christmas season. The company’s actual direct labor hours were the same as the estimated hours. The company made 3,850 units of product in each month except July, August, and September, in which it produced 4,750 units each month. Direct labor costs were $24.40 per unit, and direct materials costs were $10.30 per unit.

Required: Calculate a predetermined overhead rate based on direct labor hours. Determine the total allocated overhead cost for January, March, and August. Determine the cost per unit of product for January, March, and August. Determine the selling price for the product, assuming that the company desires to earn a gross margin of $20.20 per unit.

A:

Calculate a predetermined overhead rate based on direct labor hours. (Round your answer to 2 decimal places.)

B:

Determine the total allocated overhead cost, the cost per unit of product and the selling price for the product for January, March, and August. Assume that the company desires to earn a gross margin of $20.20 per unit. (Do not round intermediate calculations. Round "Cost per unit" and "Selling price per unit" to 2 decimal places. Round your total allocated overhead cost to nearest whole dollar.)

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Scribners Corporation produces fine papers in three production departments—Pulping, Drying, and Finishing. In the Pulping Department, raw materials such as wood fiber and rag cotton are mechanically and chemically treated to separate their fibers. The result is a thick slurry of fibers. In the Drying Department, the wet fibers transferred from the Pulping Department are laid down on porous webs, pressed to remove excess liquid, and dried in ovens. In the Finishing Department, the dried paper is coated, cut, and spooled onto reels. The company uses the weighted-average method in its process costing system. Data for March for the Drying Department follow: Percent Completed Units Pulping Conversion Work in process inventory, March 1 5,000 100 % 20 % Work in process inventory, March 31 8,000 100 % 25 % Pulping cost in work in process inventory, March 1 $ 4,800 Conversion cost in work in process inventory, March 1 $ 500 Units transferred to the next production department 157,000 Pulping cost added during March $ 102,450 Conversion cost added during March $ 31,300 No materials are added in the Drying Department. Pulping cost represents the costs of the wet fibers transferred in from the Pulping Department. Wet fiber is processed in the Drying Department in batches; each unit in the above table is a batch and one batch of wet fibers produces a set amount of dried paper that is passed on to the Finishing Department.

Required: 1. Determine the equivalent units for March for pulping and conversion.

2. Compute the costs per equivalent unit for March for pulping and conversion. (Round your answers to 2 decimal places.)

3. Determine the total cost of ending work in process inventory and the total cost of units transferred to the Finishing Department in March.

4. Prepare a cost reconciliation report for the Drying Department for March

Cots to be accounted for:

Blank Blank amount

Blank Blank amound

Total cash to be accounted for:

Costs accounted for as follows:   

Blank Blank amound

Blank Blank amound

Total costs accounted for:

Exercise 4-10 Contrasting ABC and Conventional Product Costs [LO4-2, LO4-3, LO4-4]

Rocky Mountain Corporation makes two types of hiking boots—Xactive and Pathbreaker. Data concerning these two product lines appear below:

The company has a conventional costing system in which manufacturing overhead is applied to units based on direct labor-hours. Data concerning manufacturing overhead and direct labor-hours for the upcoming year appear below:

Required:

1-a. Compute the predetermined overhead rate based on direct labor-hours.

1-b. Using the predetermined overhead rate and other data from the problem, determine the unit product cost of each product.

2. The company is considering replacing its conventional costing system with an activity-based costing system that would assign its manufacturing overhead to the following four activity cost pools:

Determine the activity rate for each of the four activity cost pools.

3. Using the activity rates and other data from the problem, determine the unit product cost of each product.

Exercise 4-10 Contrasting ABC and Conventional Product Costs [LO4-2, LO4-3, LO4-4]

Rocky Mountain Corporation makes two types of hiking boots—Xactive and Pathbreaker. Data concerning these two product lines appear below:

The company has a conventional costing system in which manufacturing overhead is applied to units based on direct labor-hours. Data concerning manufacturing overhead and direct labor-hours for the upcoming year appear below:

Required:

1-a. Compute the predetermined overhead rate based on direct labor-hours.

1-b. Using the predetermined overhead rate and other data from the problem, determine the unit product cost of each product.

2. The company is considering replacing its conventional costing system with an activity-based costing system that would assign its manufacturing overhead to the following four activity cost pools:

Determine the activity rate for each of the four activity cost pools.

3. Using the activity rates and other data from the problem, determine the unit product cost of each product.

You are going to make a substantial purchase. You have enough money to pay cash, but don’t know if that’s the way to make best use of your assets. Maybe you should take out an installment loan to make the purchase and invest the cash you would otherwise have used to pay for it.

Use the information provided to complete the following worksheet and analyze how the numbers work out most favorably for you. For simplicity, compounding is ignored in calculating both the cost of interest and interest earnings. [Note: Enter your dollar answers rounded to the nearest two cents and precede numbers that are less than zero (0) with a minus sign (–).]

Based on the numbers alone, you should      because:

If you invest the principal, you’ll earn more interest than you’ll pay on the loan.

The interest on a loan will cost you more than the interest you would earn if you invested the principal.

Suppose a profit-maximizing monopoly firm has short-run total cost function TC(Q)=5Q+300. It faces market demand Q=400-4P.

What price will it charge and what quantity will it sell if it acts as a one-price monopolist?

If the firm wishes to sell output in two different blocks at different prices, what are the prices it will charge and how much will it sell in each block?

Building of its reputation for manufacturing no-thrills, efficient and affordable automobiles, the Indian car manufacturers Indy Car Limited, is ready to launch an international marketing campaign, specifically targeting low- to- medium income customers in Asia and Europe. In preparation for the expected demand increase, a new production facility will be added in the state of Andhra Pradesh near Hyderabad to complement the already existing plants in Mumbai and New Delhi. The Company’s CFO, Raja Jain is planning to raise the required funds of Indian Rupees 10 billion ($222.4 million) in the form of a 20- year annual coupon paying corporate bond. The company’s current debt rating with Standard & Poor is “A” with a positive outlook, indicating the likelihood of a rating upgrade to “AA” in the near future. In that case, the market’s required rate of return could drop by as much as 75 basis points from 6.80 percent to 6.05 percent. Mr. Jain is wondering if the bond should be issued at a premium or a discount and if the company should offer a fixed or floating rate or instead of making explicit interest payments, issue a zero- coupon bond instead. Each bond will have a nominal value of Rs. 1,000. The intended issue date is 1st July 2019. You are required to: Q1. Advise Mr. Jain on the impact of the following set of bond features and characteristics on the cost of debts: sinking fund, asset backing, seniority conversion feature, differed call and make whole call provision, a put provision, and a floating rate as well as positive & a negative covenants. Q2. Compute the expected issue price based on the required rate of return of 6.8 percent for: (a). A fixed annual interest payment of Rs 64 per bond. (b). A fixed annual interest payment of Rs 72 per bond. (c). does your answer of (a) and (b) change if semi annual interest payments of Rs 32 and Rs 36 respectively, are made? If so why? (d). a zero- coupon bond Q3. Recompute your results of 2 (a), (b) and (d), assuming an upgrade in the company’s credit rating and determine the impact on the expected issue price. Q4. Explain to Mr. Jain if an affluent investor would rather buy a premium or a discount bond.

A profit-maximizing firm is currently producing output, Q = 3 units and selling at a price of p = $10. What MUST be true about the firm's costs?

A

The firm's Average Variable Cost is less than $10.

B

The firm's Average Total Cost is less than $10.

C

The firm's Marginal Cost is equal to $10.

D

The firm's Average Fixed cost must be less than $10.