1. (TCO F) Willow Creek Corporation bases its predetermined overhead rate on the estimated labor hours for the upcoming year. At the beginning of the most recently completed year, the company estimated the labor hours for the upcoming year at 38,500 labor hours. The estimated variable manufacturing overhead was $7.37 per labor hour and the estimated total fixed manufacturing overhead was $601,328. The actual labor hours for the year turned out to be 41,721 labor hours.
Required:
Compute the company’s predetermined overhead rate for the recently completed year. (Points : 25)
2. (TCO F) Matuseski Corporation is preparing its cash budget for October. The budgeted beginning cash balance is $17,000. Budgeted cash receipts total $187,000 and budgeted cash disbursements total $177,000. The desired ending cash balance is $40,000. The company can borrow up to $120,000 at any time from a local bank, with interest not due until the following month.
Required:
Prepare the company’s cash budget for October in good form. (Points : 25)
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2. (TCO D) Lindon Company uses 4,500 units of Part X each year as a component in the assembly of one of its products. The company is presently producing Part X internally at a total cost of $69,000 as follows:
Direct materials
$16,000
Direct labor
18,000
Variable manufacturing overhead
10,000
Fixed manufacturing overhead
25,000
Total costs
$69,000
An outside supplier has offered to provide Part X at a price of $11 per unit. If Lindon stops producing the part internally, one third of the manufacturing overhead would be eliminated.
Required: Prepare a make-or-buy analysis showing the annual advantage or disadvantage of accepting the outside supplier’s offer. (Points : 30)
3. (TCO E) Topple Company produces a single product. Operating data for the company and its absorption costing income statement for the last year is presented below:
Units in beginning inventory
0
Units produced
9,000
Units sold
7,000
Sales
$100,000
Less cost of goods sold:
Beginning inventory
0
Add cost of goods manufactured
54,000
Goods available for sale
54,000
Less ending inventory
12,000
Cost of goods sold
42,000
Gross margin
58,000
Less selling and admin. expenses
28,000
Net operating income
$30,000
Variable manufacturing costs are $4 per unit. Fixed factory overhead totals $18,000 for the year. This overhead was applied at a rate of $2 per unit. Variable selling and administrative expenses were $1 per unit sold.
Required: Prepare a new income statement for the year using variable costing. Comment on the differences between the absorption costing and the variable costing income statements. (Points : 30)
4. (TCO A) The following data (in thousands of dollars) have been taken from the accounting records of the Maroon Corporation for the just-completed year.
Sales
1,150
Raw materials inventory, beginning
15
Raw materials inventory, ending
40
Purchases of raw materials
150
Direct labor
250
Manufacturing overhead
300
Administrative expenses
500
Selling expenses
300
Work in process inventory, beginning
100
Work in process inventory, ending
150
Finished goods inventory, beginning
80
Finished goods inventory, ending
120
Use the above data to prepare (in thousands of dollars) a schedule of Cost of Goods Manufactured and a Schedule of Cost of Goods Sold for the year. In addition, what is the impact on the financial statements if the ending finished goods inventory is overstated or understated? (Points : 25)
1. (TCO F) Carter Corporation uses the weighted-average method in its process costing system. Data concerning the first processing department for the most recent month are listed below.
Work in process, beginning:
Units in beginning work-in-process inventory
400
Materials costs
$6,900
Conversion costs
$2,500
Percentage complete for materials
80%
Percentage complete for conversion
15%
Units started into production during the month
6,000
Units transferred to the next department during the month
5,800
Materials costs added during the month
$112,500
Conversion costs added during the month
$210,300
Ending work in process:
Units in ending work-in-process inventory
1,400
Percentage complete for materials
70%
Percentage complete for conversion
40%
Required: Calculate the equivalent units for materials (using the weighted-average method) for the month in the first processing department. (Points : 25)
2. (TCO G) (Ignore income taxes in this problem.) Five years ago, the City of Paranoya spent $30,000 to purchase a computerized radar system called W.A.S.T.E. (Watching Aliens Sent To Earth). Recently, a sales rep from W.A.S.T.E. Radar Company told the city manager about a new and improved radar system that can be purchased for $50,000. The rep also told the manager that the company would give the city $10,000 in trade on the old system. The new system will last 10 years. The old system will also last that long but only if a $4,000 upgrade is done in 5 years. The manager assembled the following information to use in the decision regarding which system is more desirable:
Old System
New System
Cost of radar system
$30,000
$50,000
Current salvage value
$10,000
–
Salvage value in 10 years
$5,000
$8,000
Annual operating costs
$34,000
$29,000
Upgrade required in 5 years
$4,000
–
Discount rate
14%
14%
Required: (a) What is the City of Paranoya’s net present value for the decision described above? Use the total cost approach. (b) Should the City of Paranoya purchase the new system or keep the old system? (Points : 35)
3. (TCO B) Aziz Corporation produces and sells a single product. Data concerning that product appear below.
Selling price per unit
$130.00
Variable expense per unit
$27.30
Fixed expense per month
$165,347
Required:
Determine the monthly break-even in either unit or total dollar sales. Show your work! (Points : 25)
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