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QUESTION I. 15 POINTS

Use the following information to calculate and answer the next 6 questions. (SHOW YOUR WORK)

Labrador Company produces a single product. It sold 75,000 units last year with the following results:

Sales \$1,875,000

Variable costs \$750,000

Fixed costs 300,000 1,050,000

Net income before taxes 825,000

Income taxes (45%) 371,250

Net income \$ 453,750

In an attempt to improve its product, Labrador is considering replacing a component part in its product that has a cost of \$5 per unit with a new and better part costing \$10 per unit during the coming year. A new machine would also be needed to increase plant capacity. The machine would cost \$90,000, with a useful life of six years and no salvage value. The company uses straight-line amortization on all plant assets.

1. Labrador’s break-even point in units last year was =20,000 units

2. Product’s units that Labrador would have to sell in the past year to earn \$247,500 in net income after taxes are 50,000

3. If it holds the sales price constant and makes the suggested changes, Labrador’s break-even point in units in the coming year will be

4. If it holds the sales price constant and makes the suggested changes, Labrador have to sell to make the same net income before taxes as last year will be 114,000 units

5. If Labrador wishes to maintain the same contribution margin ratio, selling price per unit of product must it charge next year to cover the increased materials costs will be \$37.5

6. The effect on the company’s net income before tax if the sales increased by 10% last year will be

Do not prepare income statement. \$112,500 increase =DOL X increase of sales X net income

QUESTION II-A. 7.5 POINTS

Use the following information to calculate and answer the next 3 questions. (SHOW YOUR WORK)

Taylor Enterprises sells its product for \$40 per unit. It currently produces 100,000 units per year, operating at normal capacity, which is about 80% of full capacity. Taylor recently received a special order from a customer for 20,000 units. Production costs per unit for regular sales are direct materials \$ 6, direct labour \$14, and manufacturing overhead \$12. The \$12for manufacturing overhead is based on \$400,000 of annual fixed manufacturing overhead that is allocated using the normal capacity.

7. Suppose the special order price is \$520,000 for all 20,000 units, and assume that Taylor has sufficient capacity to fill the special order. Should it be accepted or not and how much the effect on the net income?

8. Suppose that Taylor would like to earn \$40,000 on this order and assume that there is sufficient capacity to fill the special order. What price per unit should Taylor charge for the special order?

9. Suppose that the special order price is \$650,000 for all 20,000 units, but there is not sufficient capacity to fill the order; 10,000 units of regular business will be replaced by the special order if it is accepted. Should Taylor accept the special order or not how much the effect on the net income?

QUESTION II-B. 7.5 POINTS

Use the following information to calculate and answer the next 3 questions. (SHOW YOUR WORK)

X&Y, Inc. makes 3 products, A, B, and C. X&Y, Inc only has 150 machine hours available each week. Contribution margin, machine hour requirements, and weekly customer demand information is as follows:

A B C

Contribution margin per unit \$8 \$4 \$7

Machine hours required per unit 0.8 0.2 0.2

Weekly customer demand 400 600 500

10. In what order should the products be produced?

11. How many units of each product should be produced?

12. What is the maximum amount that Clark would be willing to pay, above the normal cost, for one more machine hour per week?

ANY EXTRA UNIT COME FROM B MARKET BECAUSE Weekly customer demand is 600 we filled 250 units. CM \$20

QUESTION III-A. 5 POINTS

Use the following information to calculate and answer the next 2 questions. (SHOW YOUR WORK)

The Machining Division has a capacity of 2,000 units. Its sales and cost data are:

Selling price per unit \$80

Variable manufacturing costs per unit \$25

Variable selling costs per unit \$5

Total fixed manufacturing overhead \$200,000

13. The Machining Division is currently selling 1,800 units to outside customers, and the Assembly Division wants to purchase 400 units from Machining. If the transaction takes place, the variable selling costs per unit on the units transferred to Assembly will be \$0/unit, not \$5/unit. What should be the transfer price in order not to affect its’ current profit?

14. If the Assembly Division is currently buying from an outside supplier at \$75 per unit, what will be the effect on overall company profits if internal sales for 400 units take place at the optimum transfer price?

QUESTION III-B. 5 POINTS

Use the following information to calculate and answer the next 2 questions. (SHOW YOUR WORK)

The National Division of Roboto Company is buying 10,000 widgets from an outside supplier at \$50 per unit. Roboto’s Overseas Division, which is producing and selling at full capacity (15,000 units), has the following sales and cost structure:

Sales price per unit \$65.00

Variable cost per unit 45.00

Fixed cost (at capacity) per unit 10.00

15. If the National Division buys its 4,000 widgets from the Overseas Division, the transfer price should be

16. If the Overseas Division meets the outside supplier’s price and sells the 4,000 widgets to National, the effect on overall company profits will be

QUESTION III-C. 5 POINTS

Use the following information to calculate and answer the next 2 questions. (SHOW YOUR WORK)

High Sound Corporation manufactures car stereos. It is a division of Quality Motors, which manufactures vehicles. High Sound sells car stereos to Quality Motors, as well as to other vehicle manufacturers and retail stores. The following information is available for High Sound’s standard unit car stereos costs: variable cost per unit \$35; fixed cost per unit \$25; and selling price to outside customers \$90. Quality Motors currently purchases a standard unit car stereos from an outside supplier for \$80. Because of quality concerns and to ensure a reliable supply, the top management of Quality Motors has ordered High Sound to provide 20,000 units per year at a transfer price of \$40 per unit. High Sound is already operating at full capacity. High Sound can avoid \$5 per unit of variable costs

17. What is the minimum transfer price that High Sound should accept?

18. What is the potential loss to the corporation as a whole because of this forced transfer price at

QUESTION IV. 17.5 POINTS

Use the following information to calculate and answer the next 7 questions. (SHOW YOUR WORK)

January February March April

Sales \$30,000 \$40,000 \$50,000 \$25,000

Production in units 1,000 1,500 2,000 2,500

Sales are 40% cash and 60% on account, and 60% of credit sales are collected in the month of the sale. In the month after the sale, 40% of credit sales are collected. It takes 4 KG of direct material to produce a finished unit, and direct materials cost \$5 per KG. All direct materials purchases are on account, and are paid as follows: 40% in the month of the purchase, 60% the following month. Ending direct materials inventory for each month is 40% of the next month’s production needs. January’s beginning materials inventory is 1,080 Kg. Suppose that both accounts receivable and accounts payable are zero at the beginning of January.

19. Total cash sales for the January – March quarter are

20. The accounts receivable balance at the end of March is

OR LONG ANALYSIS

Total credit sales – collections = Ending Balance

J F M A

Sales \$30,000 \$40,000 \$50,000

Credit sales 60% \$18,000 \$24,000 \$30,000

Collections

January cs \$ 10,800 \$ 7,200

February cs \$14,400 \$ 9,600

March cs \$18,000 \$ 12,000

21. The ending direct materials inventory for March is =4,000 KG

J F M A

22. Material purchases costs for February are

23. Cash payments on account for February are

24. The ending balance in accounts payable for March is

25. The net change in cash for the period January – March is

QUESTION V-A. 7.5 POINTS

Use the following information to calculate and answer the next 3 questions. (SHOW YOUR WORK)

Bella, Inc. has operated for 2 years. During that time it produced 3,000 units in year 1 and 2,400 in year 2, while sales were 2,400 units in year 1 and 2,700 in year 2. Variable production costs were \$8 per unit during both years. The company uses last-in, first-out (LIFO) for inventory costing. The absorption costing income statements for these 2 years were:

Year 1Year 2

Sales \$48,000 \$54,000

Less cost of goods sold:

Beginning inventory \$ 0 \$ 6,600

Product costs 33,000 28,200

Ending inventory (6,600) 26,400 (3,300) 31,500

Gross profit 21,600 22,500

Less operating expenses(S&A):

Variable 3,600 4,050

Fixed 5,000 8,600 5,000 9,050

Operating income \$ 13,000 \$ 13,450

26. Cost of goods sold for year 1 using variable costing would be

27. Ending inventory for year 2 using variable costing would be

28. Operating income for year 2 using variable costing would be

QUESTION V-B. 10 POINTS

Use the following information to calculate and answer the next 4 questions. (SHOW YOUR WORK)

Baylor, Inc. just finished its second year of operations. In the first year it produced 3,000 units and sold 1200. The second year resulted in the same production level, but sales were 3,600 units. The variable costing income statements for both years are shown below:

Year 1Year 2

Sales \$ 60,000 \$180,000

Variable cost of goods sold \$28,800 \$86,400

Variable selling and administration 1,800 30,600 5,400 91,800

Contribution margin 29,400 88,200

Fixed manufacturing overhead 15,000 15,000

Fixed selling and administration 10,000 25,000 10,000 25,000

Operating income \$4,400 \$ 63,200

29. The total product costs during year 1 using absorption would be

30. The operating income for year 1 using absorption costing would be

31. The ending inventory for year 2 using absorption costing would be

32. The operating income for year 2 using absorption costing would be

QUESTION VI. 25 POINTS

Use the following information to calculate and answer the next 10 questions. (SHOW YOUR WORK)

You have given the following information for a firm that has only been in business for one year. The firm is able to buy a new type of biodegradable plastic at a fixed price of \$100 per roll. The plastic is then cut and sealed to make garbage bags. Fixed factory overhead is estimated to be \$125,000 per year. During this past year, 8,000 cartons of garbage bags were produced, which represents 80% of the activity volume. You have the following information:

 Rolls of plastic used 8,500 Variable overhead incurred \$70,000 Roll of plastic price variance \$0 Overhead efficiency variance \$7,500 U Fixed overhead spending (budget) variance \$5,000F Standard costs per carton of garbage bags: Labour costs @ \$10 per hour \$20 Rolls of plastic 1 roll Total overhead \$20

Instructions

Compute the following:

33. Standard direct labour hours allowed for units produced are

Total costs of fixed overhead applied are

Variable overhead spending variance is

34. Actual number of direct labour hours incurred are

35. Labour efficiency variance is

36. Materials quantity variance is

37. Fixed overhead volume variance is

1. Manufacturing overhead controllable variance is

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