Chapter 4 and 5 Problems
Please complete the following 7 exercises below in either Excel or a word document (but must be single document). You must show your work where appropriate (leaving the calculations within Excel cells is acceptable). Save the document, and submit it in the appropriate week using the Assignment Submission button.
Chapter 4 Exercise 3
3. Cost flows and overhead application
Cleveland Metals uses a job cost system and applies factory overhead to production at a predetermined rate of 180% of direct labor cost. Data pertaining to recent operations follow.
· Job no. 636 was the only job in process on January 1 of the current year. The Work in Process account contained a $24,600 balance on this date.
· Jobs no. 637, 638, and 639 were started during January.
· Total direct material requisitions and direct labor incurred during January amounted to $89,200 and $114,500, respectively.
· The only job that remained in process on January 31 was job no. 638, with costs of $15,000 for direct materials and $20,000 for direct labor.
a. Compute the total cost of the work in process inventory on January 31.
b. Compute the cost of jobs completed during January, and present the proper journal entry to reflect job completion.
Chapter 4 Exercise 7
7. Overhead application: Working backward
The Towson Manufacturing Corporation applies overhead on the basis of machine hours. The following divisional information is presented for your review:
Division A
Division B
Actual machine hours
22,500
?
Estimated machine hours
20,000
?
Overhead application rate
$4.50
$5.00
Actual overhead
$110,000
?
Estimated overhead
?
$90,000
Applied overhead
?
$86,000
Over- (under-) applied overhead
?
$6,500
Find the unknowns for each of the divisions.
Chapter 4 Problem 2
2. Computations using a job order system
General Corporation employs a job order cost system. On May 1 the following balances were extracted from the general ledger;
Work in process $ 35,200
Finished goods 86,900
Cost of goods sold 128,700
Work in Process consisted of two jobs, no. 101 ($20,400) and no. 103 ($14,800). During May, direct materials requisitioned from the storeroom amounted to $96,500, and direct labor incurred totaled $114,500. These figures are subdivided as follows:
Direct Materials
Direct Labor
Job No.
Amount
Job No.
Amount
101
$5,000
101
$7,800
115
19,500
103
20,800
116
36,200
115
42,000
Other
35,800
116
18,000
$96,500
Other
25,900
$114,500
Job no. 115 was the only job in process at the end of the month. Job no. 101 and three “other” jobs were sold during May at a profit of 20% of cost. The “other” jobs contained material and labor charges of $21,000 and $17,400, respectively.
General applies overhead daily at the rate of 150% of direct labor cost as labor summaries are posted to job orders. The firm’s fiscal year ends on May 31.
Instructions:
a. Compute the total overhead applied to production during May.
b. Compute the cost of the ending work in process inventory.
c. Compute the cost of jobs completed during May.
d. Compute the cost of goods sold for the year ended May 31.
Chapter 5 Exercise 1
1. High-low method
The following cost data pertain to 20X6 operations of Heritage Products:
Quarter 1
Quarter 2
Quarter 3
Quarter 4
Shipping costs
$58,200
$58,620
$60,125
$59,400
Orders shipped
120
140
175
150
The company uses the high-low method to analyze costs.
a. Determine the variable cost per order shipped.
b. Determine the fixed shipping costs per quarter.
c. If present cost behavior patterns continue, determine total shipping costs for 20X7 if activity amounts to 570 orders.
Chapter 5 Exercise 2
The treasurer anticipates the following costs for the event, which will be held at the Regency Hotel:
Room rental $300
Dinner cost (per person) 25
Chartered buses 500
Favors and souvenirs (per person) 5
Band 900
Each person would pay $40 to attend; 200 attendees are expected.
a. Will the event be profitable for the sorority? Show computations.
b. How many people must attend for the sorority to break even?
c. Suppose the sorority encouraged its members to drive to the hotel and did not charter the buses. Further, a planned menu change will reduce the cost per meal by $2. If each member will still be charged $40, compute the contribution margin per person.
Chapter 5 Exercise 3
3. Break-even and other CVP relationships
Cedars Hospital has average revenue of $180 per patient day. Variable costs are $45 per patient day; fixed costs total $4,320,000 per year.
a. How many patient days does the hospital need to break even?
b. What level of revenue is needed to earn a target income of $540,000?
c. If variable costs drop to $36 per patient day, what increase in fixed costs can be tolerated without changing the break-even point as determined in part (a)?
Chapter 5 Problem 6
6. Direct and absorption costing
The information that follows pertains to Consumer Products for the year ended December 31, 20X6.
Inventory, 1/1/X6
24,000 units
Units manufactured
80,000
Units sold
82,000
Inventory, 12/31/X6
? units
Manufacturing costs:
Direct materials
$3 per unit
Direct labor
$5 per unit
Variable factory overhead
$9 per unit
Fixed factory overhead
$280,000
Selling & administrative expenses:
Variable
$2 per unit
Fixed
$136,000
The unit selling price is $26. Assume that costs have been stable in recent years.
Instructions:
a. Compute the number of units in the ending inventory.
b. Calculate the cost of a unit assuming use of:
1. Direct costing.
2. Absorption costing.
c. Prepare an income statement for the year ended December 31, 20X6, by using direct costing.
d. Prepare an income statement for the year ended December 31, 20X6, by using absorption costing.
Chapter 6 and 7 Problems
Please complete the following 8 exercises below in either Excel or a word document (but must be single document). You must show your work where appropriate (leaving the calculations within Excel cells is acceptable). Save the document, and submit it in the appropriate week using the Assignment Submission button.
Chapter 6 Exercise 2
2. Schedule of cash collections
Sugarland Company sells a single product and anticipates opening a new facility in Charlotte on May 1 of the current year. Expected sales during the first three months of activity are: May, $60,000; June, $80,000; and July, $85,000. Thirty percent of all sales are for cash; the remaining 70% are on account. Credit sales have the following collection pattern:
Collected in the month of sale 60%
Collected in the month following sale 35
Uncollectible 5
a. Prepare a schedule of cash collections for May through July.
b. Compute the expected balance in Accounts Receivable as of July 31.
Chapter 6 Exercise 4
4. Production and cash-outlay computations
RPR, Inc., anticipates that 120,000 units of product K will be sold during May. Each unit of product K requires four units of raw material A. Actual inventories as of May 1 and budgeted inventories as of May 31 follow.
1-May
31-May
Product K (Units)
55,000
60,000
Rate Materials A (Units)
40,000
37,000
Each unit of raw material A costs $8; RPR pays for all purchases in the month of acquisition. Invoices that account for 80% of the cost of materials acquired will be paid within 10 days of receipt, entitling the company to a 2% cash discount.
a. Determine the number of units of product K to be manufactured in May.
b. Compute the May cash outlay for purchases of raw material A.
July
August
September
Beginning cash balance
$10,000
$ ?
$ ?
Add: Cash receipts
50,000
63,000
71,000
Deduct: Cash payments
-64,000
-58,000
-64,000
Cash excess (deficiency) before financing
($4,000)
$ ?
$ ?
Financing
Borrowing to maintain minimum balance
?
?
?
Principal repayment
?
?
?
Interest payment
?
?
?
Ending cash balance
$ ?
$ ?
$ ?
Chapter 6 Exercise 5
5. Abbreviated cash budget; financing emphasis
An abbreviated cash budget for Big Chuck Enterprises follows.
Big Chuck wishes to maintain a $10,000 minimum cash balance at all times. Additional financing is available (and retired) in $1,000 multiples at a 12% interest rate. Assume that borrowings take place at the beginning of the month; retirements, in contrast, occur at the end of the month. Interest is paid at the time of repaying principal and computed on the portion of principal repaid.
a. Find the unknowns in Big Chuck’s abbreviated cash budget.
b. Determine the outstanding loan balance as of September 30, after any repayments have been made.
Chapter 6 Problem 3
3. Comprehensive budgeting
The balance sheet of Watson Company as of December 31, 20X1, follows.
WATSON COMPANY
Balance Sheet
December 31, 12X1
Assets
Cash
$4,595
Accounts receivable
10,000
Finished goods (575 units x $7.00)
4,025
Direct materials (2,760 units x $0.50)
1,380
Plant & equipment
$50,000
Less: Accumulated depreciation
10,000
40,000
Total assets
$60,000
Liabilities & Stockholders’ Equity
Accounts payable to suppliers
$14,000
Common stock
$25,000
Retained earnings
21,000
46,000
Total liabilities &. stockholders’ equity
$60,000
The following information has been extracted from the firm’s accounting records:
1. All sales are made on account at $20 per unit. Sixty percent of the sales are collected in the month of sale; the remaining 40% are collected in the following month. Forecasted sales for the first five months of 20X2 are: January, 1,500 units,- February, 1,600 units; March, 1,800 units; April, 2,000 units; May, 2,100 units.
2. Management wants to maintain the finished goods inventory at 30% of the following month’s sales.
3. Watson uses four units of direct material in each finished unit. The direct material price has been stable and is expected to remain so over the next six months. Management wants to maintain the ending direct materials inventory at 60% of the following month’s production needs.
4. Seventy percent of all purchases are paid in the month of purchase; the remaining 30% are paid in the subsequent month.
5. Watson’s product requires 30 minutes of direct labor time. Each hour of direct labor costs $7.
Instructions:
a. Rounding computations to the nearest dollar, prepare the following for January through March:
1) Sales budget
2) Schedule of cash collections
3) Production budget
4) Direct material purchases budget
5) Schedule of cash disbursements for material purchases
6) Direct labor budget
b. Determine the balances in the following accounts as of March 31:
1) Accounts Receivable
2) Direct Materials
3) Accounts Payable
Chapter 7 Exercise 3
3. Variances for direct materials and direct labor
Banner Company manufactures flags of various countries. Each flag has a standard of eight square feet of fabric and three hours of direct labor time. Information about recent production activity follows.
Actual cost of fabric: $4.50 per square foot
Fabric consumed: 32,080 square feet
Standard price per square foot of fabric: $4.25
Standard direct labor rate: $10.00 per hour
Actual direct labor rate: $10.20 per hour
Actual labor hours worked: 11,940
Actual production completed: 4,000 flags
a. Compute the materials price variance and the materials quantity variance.
b. Compute the labor rate variance and the labor efficiency variance.
Chapter 7 Exercise 5
5. Overhead variances
Nova Manufacturing applies factory overhead to products on the basis of direct labor hours. At the beginning of the current year, the company’s accountant made the following estimates for the forthcoming period:
· Estimated variable overhead: $500,000
· Estimated fixed overhead: $400,000
· Estimated direct labor hours: 40,000
It is now 12 months later. Actual total overhead incurred in the manufacture of 7,900 units amounted to $895,100. Actual labor hours totaled 39,800. Assuming a direct labor standard of five hours per finished unit, calculate the following:
a. Variable overhead efficiency variance
b. Fixed overhead volume variance
c. Overhead spending variance
Chapter 7 Problem 1
1. P26-A1 Basic flexible budgeting (L.O. 2)
Centron, Inc., has the following budgeted production costs:
Direct materials
$0.40 per unit
Direct labor
1.80 per unit
Variable factory overhead
2.20 per unit
Fixed factory overhead
Supervision
$24,000
Maintenance
18,000
Other
12,000
The company normally manufactures between 20,000 and 25,000 units each quarter. Should output exceed 25,000 units, maintenance and other fixed costs are expected to increase by $6,000 and $4,500, respectively.
During the recent quarter ended March 31, Centron produced 25,500 units and incurred the following costs:
Direct Materials
$10,710
Direct Labor
47,175
Variable factory overhead
51,940
Fixed factory overhead
Supervision
24,500
Maintenance
23,700
Other
16,800
Total production costs
$174,825
Instructions:
a. Prepare a flexible budget for 20,000, 22,500, and 25,000 units of activity.
b. Was Centron’s experience in the quarter cited better or worse than anticipated? Prepare an appropriate performance report and explain your answer.
c. Explain the benefit of using flexible budgets (as opposed to static budgets) in the measurement of performance.
Chapter 7 Problem 5
5. P26-B3 Straightforward variance analysis (L.O. 5)
Arrow Enterprises uses a standard costing system. The standard cost sheet for product no. 549 follows.
Direct materials: 4 units @ $6.50
$26.00
Direct labor: 8 hours @ $8.50
68
Variable factory overhead: 8 hours
@ $7.00
56
Fixed factory overhead: 8 hours
@ 2.5
20
Total standard cost per unit
$170.00
The following information pertains to activity for December:
1. Direct materials acquired during the month amounted to 26,350 units at $6.40 per unit. All materials were consumed in operations.
2. Arrow incurred an average wage rate of $8.75 for 51,400 hours of activity.
3. Total overhead incurred amounted to $508,400. Budgeted fixed overhead totals $1.8 million and is spread evenly throughout the year.
4. Actual production amounted to 6,500 completed units.
Instructions:
a. Compute Arrow’s direct material variances.
b. Compute Arrow’s direct labor variances.
c. Compute Arrow’s variances for factory overhead.