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1. (TCO C) The following overhead data are for a department of a large company.
Actual costs Static
Incurred budget

Activity level (in units) 800 750

Variable costs:
Indirect materials $6,850 $6,600
Electricity $1,312 $1,275
Fixed costs:
Administration $3,570 $3,700
Rent $3,320 $3,200

Required: Construct a flexible budget performance report that would be useful in assessing how well costs were controlled in this department.

(Points: 30)



2. (TCO D) Lindon Company uses 5,000 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 $80,000 as follows:
Direct Materials...............................................$18,000

Direct Labor......................................................20,000

Variable Manufacturing Overhead................... 12,000

Fixed Manufacturing Overhead....................... 30,000

Total Costs.......................................................80,000

An outside supplier has offered to provide Part X at a price of $13 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) Duif Company's absorption costing income statement for the last year of operations is presented below:
Sales.........................................................$70,000
Less cost of goods sold:
Beginning inventory.............................................. 0
Add cost of goods manufactured..................48,000
Goods available for sale...............................48,000
Less ending inventory....................................6,000
Cost of goods sold......................................42,000
Gross margin..............................................28,000
Less selling & admin. expenses....................25,000
Net operating income................................$ 3,000

Data on units produced and sold for the year are given below:

Units in beginning inventory...................................0
Units produced..............................................8,000
Units sold......................................................7,000

Fixed factory overhead totaled $16,000 for the year. This overhead was applied to products at a rate of $2 per unit. Variable selling and administrative expenses were $3 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 Karmana Corporation for the just completed year.
Sales ...............................................................$950
Raw materials inventory, beginning .....................$10
Raw materials inventory, ending .........................$30
Purchases of raw materials ...............................$120
Direct labor ......................................................$180
Manufacturing overhead ...................................$230
Administrative expenses ...................................$100
Selling expenses ...............................................$140
Work in process inventory, beginning ..................$50
Work in process inventory, ending ......................$40
Finished goods inventory, beginning ..................$100
Finished goods inventory, ending ........................$80

Use these 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, elaborate on the relationship between these schedules as they relate to the flow of product costs in a manufacturing company.

(TCO F) Industrial Supply 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

Percent complete for materials 80%

Percent complete for conversion 15%

Units started into production during the month 6,000

Units transferred to the next department during the month 5,200

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 1,200

Percent complete for materials 75%

Percent complete for conversion 30%



Required: calculate the equivalent units for materials for the month in the first processing department.

(Points: 25)



2. (TCO F) Homey Corporation uses the weighted-average method in its process costing system. This month, the beginning inventory in the first processing department consisted of 700 units. The costs and percentage completion of these units in beginning inventory were:
Materials costs $9,100 -- 80% complete

Conversion costs $5,400 -- 25% complete

A total of 8,000 units were started, and 7,600 units were transferred to the second processing department during the month. The following costs were incurred in the first processing department during the month:

Materials costs $96,700

Conversion costs $180,700

The ending inventory was 80% completed for materials and 70% completed for conversion costs.

Required: Calculate the equivalent units for conversion costs for the month in the first processing department.

(Points: 25)



3. (TCO G) - (Ignore income taxes in this problem.) Axillar Beauty Products Corporation is considering the production of a new conditioning shampoo which will require the purchase of new mixing machinery. The machinery will cost $375,000, is expected to have a useful life of 10 years, and is expected to have a salvage value of $50,000 at the end of 10 years. The machinery will also need a $35,000 overhaul at the end of year 6. A $40,000 increase in working capital will be needed for this investment project. The working capital will be released at the end of the 10 years. The new shampoo is expected to generate net cash inflows of $85,000 per year for each of the 10 years. Axillar's discount rate is 16%.
Required:

a. What is the net present value of this investment opportunity?

b. Based on your answer to (a) above, should Axillar go ahead with the new conditioning shampoo?

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