At the beginning of the year, Lopez Company had the following standard cost sheet for one of it's chemical products:

Direct Materials (4 lbs @ $2.80) - $11.20

Direct Labor (2 hrs @ $18.00) - 36.00

FOH (2 hrs @ $5.20) - 10.40

VOH (2 hrs @ $0.70) - 1.40

Standard Cost Per Unit - $59.00

Lopez computes its overhead rates using practical volume, which is 90,000 units.

The actual results for the year are as follows:

(a) units produced: 88,000

(b) direct labor: 170,000 hours

(c) FOH: $930,000 and

(d) VOH: $125,000

1. Compute the variable overhead spending variance.

2. Compute the variable overhead efficiency variance.

3. Compute the fixed overhead spending variance.

4. Compute the fixed overhead volume variance.

Steven is the cost accountant at the Lansing Health Center. He has been asked by the CFO to analyze the center's overhead costs to determine whether nursing hours or the number of patient days would be the best cost driver to use for predicting the center's overhead. He has the following information for the last six months of the most recent year:

Answer the following questions about the Lansing Health Center. Each question is worth 1 point.

1. Are center overhead costs fixed, variable, or mixed? Use the data in the table in arriving at your conclusion.  
Variable Fixed Mixed  Center Overhead Costs

2. Using the high-low method and nursing hours as a driver of overhead, what is the variable cost per unit?

3. Estimate total center overhead costs if the Lansing Health Center incurs 23,604 of nursing hours in January of the next year using the information from the high-low method gathered in Question #2.

4. Estimate total center overhead costs if the Lansing Health Center uses patient days as a driver and the high-low method and assuming the center incurs 3,900 of patient days in January of the next year.  

Question.

Currently the unit selling price of a product is $200, the unit variable cost is $110, and the total fixed costs are $585,000. A proposal is being evaluated to increase the unit selling price to $275. Under the proposed plan, the variable cost per unit and the total fixed cost will not change.

Current Scenario [7 Points]:

1) Calculate the contribution margin per unit.

2) Calculate the contribution margin ratio.

3) Calculate the breakeven point in units under the current scenario.

4) Calculate the breakeven point in dollars under the current scenario,

5) Calculate the number of units to be sold if the company desires a target profit of $225,000.

6) Calculate the sales dollars if the company desires a target profit of $225,000.

Proposed Plan [7 Points]:

1) Calculate the contribution margin per unit.

2) Calculate the contribution margin ratio.

3) Calculate the breakeven point in units under the current scenario.

4) Calculate the breakeven point in dollars under the current scenario,

5) Calculate the number of units to be sold if the company desires a target profit of $225,000.

6) Calculate the sales dollars if the company desires a target profit of $225,000.

Answer:

The standard cost card for a product indicates that one unit of the product requires 8 kilograms of a raw material at $0.80 per kilogram. The production of the product in April was 870 units, but production had been budgeted for 850 units. During April, 7,150 kilograms of the raw material were purchased for $5,577. All the kilograms of the raw material purchased were used in production. What was the materials quantity variance?

In each of following scenarios, explain and categorize the cost of inflation.

a. Because inflation has risen, the J. Crew clothing company decides to issue a new catalog monthly rather than quaterly.

b. Grandpa buys an annutity for $100,000 from an insurance company which promises to pat him $10,000 a year for the rest of his life. After buying it, he is surprised the high inflation triples the price level over next few yars.

c. Maria lives in an economy with hyperinflation. Each day after being paid, she runs to the store as quickly as possible so she can spend her money before is loses value.

d. Gita lives in an economy with an inflation rate of 10 percent. Over the past year, she earned a return of $50,000 on her million-dollar portfolio of stocks and bonds. Because her tax rate is 20 percent, she paid $10,000 to the government.

e. Your father tells you that when he was your age, he worked for only $4 an hour. He suggests that you are lucky to have a job that pays $9 an hour.

​OpenSeas, Inc. is evaluating the purchase of a new cruise ship. The ship will cost $499 ​million, and will operate for 20 years. OpenSeas expects annual cash flows from operating the ship to be $69.9 million and its cost of capital is 12.2%.

a. Prepare an NPV profile of the purchase.

b. Identify the IRR on the graph.

c. Should OpenSeas proceed with the​ purchase?

d. How far off could​ OpenSeas' cost of capital estimate be before your purchase decision would​ change?

Please use the payback period analysis technique to analyze the cost and benefits of this project. With discount factor of 10%, the project will recover the investment in year three. please provide the numbers in the table.

Siegmeyer Corp. is considering a new inventory system, Project A will cost $750,000. The system is expected to generate positive cash flows over the next four years in the amounts of $350,000 in year one, $325,000 in year two, $150,000 in year three, and $180,000 in year four. Siegmeyer’s required rate of return is 8%. Suppose Siegmeyer identifies another mutually exclusive project, Project B, with a net present value of $98,525.50 and IRR of 17.33%. If neither project can be replaced, compared to the values calculated in Problems 7 (NPV = $104,089.40) and 8 (IRR = 15.13%)

Siegmeyer should accept which project(s) (A, B, both or neither) and why?

The president of Dronavation, Inc. has hired you to determine the firm's cost of debt and cost of equity capital. The stock is currently selling for $40 a share and the dividend per share is expected to be around $2. The company has total liabilities of $16 million and interest expense for the year of $2 million.

Discuss

1. The president makes the statement that it will cost $2 per share to use the stockholders' money, so the cost of equity is equal to 5 percent (2/40). Is this correct? How do you respond?

2. The president says to you that if the company owes $16 million and has only $2 million in interest, the cost of debt is 12.5 percent ($2 million / $16 million). Is this conclusion correct? Explain.

3. Based on his calculations, the president recommends the company increase its use of equity financing, because debt costs 12.5 percent, but equity only costs 5 percent. How do you respond?