PROBLEM ONE 18 points Lennox Industries manufactures two products A and B A

# Problem one 18 points lennox industries manufactures

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PROBLEM ONE (18 points) Lennox Industries manufactures two products: A and B. A review of the company's accounting records revealed the following data: A B Production volume (units) 2,500 5,000 Direct material (per unit) \$40 \$60 Direct labor (per unit): 2 hours at \$12/hr \$24 3 hours at \$12/hr \$36 Manufacturing overhead is currently applied by spreading overhead of \$1,860,000 over 20,000 direct labor hours. However, management is considering a shift to activity‐based costing in an effort to improve the firm's accounting procedures, and the following data are available: Cost Pool Cost Cost Driver A B Total Setting up 240,000 \$ Number of setups 100 20 120 General factory overhead 1,500,000 Direct labor hours 5,000 15,000 20,000 Machine processing 120,000 Machine hours 2,200 800 3,000 1,860,000 \$ Cost Driver Volume Lennox determines selling prices by adding 40% to a product's total cost. Required: A. Compute the per‐unit cost and selling price of product B by using Lennox's current costing procedures. (5 points)
ACC 312 Fundamentals of Managerial Accounting Midterm Exam 2, Spring 2013 11 B. Compute the per‐unit manufacturing overhead cost of product B if the company switches to activity‐ based costing. (5 points) C. Compute product B's total per‐unit cost and selling price under activity‐based costing. (5 points) D. Lennox has recently encountered significant international competition for product B, with considerable business being lost to very aggressive suppliers. Will activity‐based costing allow the company to be more competitive with product B from a price perspective? State “Yes” or “No” and briefly explain. (3 points)
ACC 312 Fundamentals of Managerial Accounting Midterm Exam 2, Spring 2013 12 PROBLEM TWO (12 points) Sleepy Pillow Company, a manufacturer of pillows, has the following budgeted sales in units for the next six- month period: # of Pillows June 100,000 July 125,000 August 150,000 September 200,000 October 280,000 There were 50,000 units of finished goods in inventory at the beginning of June. Plans are to have an ending inventory of finished products that equals 20% of the unit sales for the next month. Five pounds of raw materials are required for each pillow produced. Each pound of raw material costs \$2.00. Budgeted raw material inventory levels (in pounds) are as follows: Beginning Ending Balance Balance July 200,000 220,000 August 240,000 Each pillow is expected to sell for \$20. Credit sales are expected to comprise 90% of total sales (cash sales make up the remaining 10%). Collections for credit sales are expected to be 80% in the month of sale, 20% in the following month. A. Prepare production budgets, in units, for July and August. (4 points)
ACC 312 Fundamentals of Managerial Accounting Midterm Exam 2, Spring 2013 13 B. Prepare direct-material purchases budgets for July and August. Give total purchases in both pounds of material and dollars for each month. (5 points) C. Based only on the above information, what will Sleepy Pillow record as their ending September 30th accounts receivable balance in their budgeted balance sheet? (3 points)
ACC 312 Fundamentals of Managerial Accounting Midterm Exam 2, Spring 2013 14 PROBLEM THREE (20 points) Part A Hot Stuff operates a delivery service for local restaurants. Variable overhead costs are budgeted at \$3 per

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• Spring '08
• Welsh

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