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Homework/ Extra Credit Questions
(Kimmel, Weygandt, Kieso /3rd Edition), Managerial Accounting
1. The Bozeman Inn is trying to determine its break-even point. The inn has 75 rooms that are rented at $52 a night. Operating costs are as follows.
a) Determine the inn's break-even point in (1) number of rented rooms per month and (2) dollars. (Round computations and final answers to 0 decimal places, e.g. 25,500.)
b) If the inn plans on renting an average of 50 rooms per day (assuming a 30-day month), what is (1) the monthly margin of safety in dollars and (2) the margin of safety ratio? (Round margin of safety ratio to 1 decimal place, e.g. 25.5.)
2. Mideast Airways, Inc., a small two-plane passenger airline, has asked for your assistance in some basic analysis of its operations. Both planes seat 10 passengers each, and they fly commuters from Mideast's base airport to the major city in the state, Metropolis. Each month 40 round-trip flights are made. Shown below is a recent month's activity in the form of a cost-volume-profit income statement.
Fare revenues (300 fares)
Snacks and drinks
Supplies and forms
Airport hanger fees
a) Calculate the break-even point in (1) dollars and (2) number of fares.
b) Without calculations, determine the contribution margin at the break-even point.
c) If fares were decreased by 10%, an additional 100 fares could be generated. However, total variable costs would increase by 35%. Should the fare decrease be adopted?
3. Vancey Company had sales in 2012 of $1,953,000 on 65,100 units. Variable costs totaled $781,200, and fixed costs totaled $405,300. A new raw material is available that will decrease the variable costs per unit by 25% (or $3.00). However, to process the new raw material, fixed operating costs will increase by $156,500. Management feels that one-half of the decline in the variable costs per unit should be passed on to customers in the form of a sales price reduction. The marketing department expects that this sales price reduction will result in a 5% increase in the number of units sold. Complete the CVP income statement for 2012, (a) assuming the changes have not been made and (b) assuming the changes are made as described. (For the per unit amounts round to 2 decimal places, e.g. 12.50. All other amounts round to 0 decimal places, e.g. 150,000.)
4. Crown Turf manufactures lawnmowers, weed-trimmers, and chainsaws. Its sales mix and contribution margin per unit are as follows.
Contribution Margin per Unit
Crown Turf has fixed costs of $6,484,320.
Compute the number of units of each product that Crown Turf must sell in order to break even under this product mix.
5. Rathke Delivery is a rapidly growing delivery service. Last year 85% of its revenue came from the delivery of mailing "pouches" and small, standardized delivery boxes (which provides a 15% contribution margin).The other 15% of its revenue came from delivering non-standardized boxes (which provides a 61% contribution margin). With the rapid growth of Internet retail sales, Rathke believes that there are great opportunities for growth in the delivery of non-standardized boxes. The company has fixed costs of $13,260,000.
a) What is the company's break-even point in total sales dollars? (Round weighted-average contribution margin ratio to 3 decimal places, e.g. 0.255 and use this rounded amount for future calculations. Round all other computations and final answers to 0 decimal places, e.g. 20,000,000.)
b) At the break-even point, how much of the company's sales are provided by each type of service? (Round answers to 0 decimal places, e.g. 20,000,000.)
c) The company's management would like to hold its fixed costs constant, but shift its sales mix so that 61% of its revenue comes from the delivery of non-standardized boxes and the remainder from pouches and small boxes. If this were to occur, what would be the company's break-even sales. (Round weighted-average contribution margin ratio to 3 decimal places, e.g. 0.255 and use this rounded amount for future calculations. Round all other computations and final answers to 0 decimal places, e.g. 11,500,000.)
d) What amount of sales would be provided by each service type?
6. Shore Company manufactures and sells three products. Relevant per unit data concerning each product are given below.
Variable costs and expenses
Machine hours to produce
a) Compute the contribution margin per unit of the limited resource (machine hour) for each product
b) Assuming 1,770 additional machine hours are available, which product should be manufactured?
c) Prepare an analysis showing the total contribution margin if the additional hours are (1) divided equally among the products, and (2) allocated entirely to the product identified in (b) above. (Round contribution margin to 2 decimal places, e.g. 1.25.)Divided equally among the products.
7. Ash Creek Company is preparing its master budget for 2012. Relevant data pertaining to its sales, production, and direct materials budgets are as follows.
- Sales: Sales for the year are expected to total 1,900,000 units. Quarterly sales are 19%, 24%, 27%, and 30% respectively. The sales price is expected to be $41 per unit for the first three quarters and $46 per unit beginning in the fourth quarter. Sales in the first quarter of 2013 are expected to be 10% higher than the budgeted sales for the first quarter of 2012.
- Production: Management desires to maintain the ending finished goods inventories at 18 =% of the next quarter's budgeted sales volume.
- Direct materials: Each unit requires 2 pounds of raw materials at a cost of $11 per pound. Management desires to maintain raw materials inventories at 10 % of the next quarter's production requirements. Assume the production requirements for first quarter of 2013 are 506,800 pounds.
Prepare the sales, production, and direct materials budgets by quarters for 2012.
8. Batista Company management wants to maintain a minimum monthly cash balance of $19,700. At the beginning of April, the cash balance is $21,940, expected cash receipts for March are $245,644, and cash disbursements are expected to be $256,476. How much cash, if any, must be borrowed to maintain the desired minimum monthly balance?
9. The Wellstone Division operates as a profit center. It reports the following for the year.
Controllable fixed costs
Noncontrollable fixed costs
Complete the responsibility report for the Wellstone Division at December 31, 2012. (If difference is zero, place zero in answer box and NA for the variance.)
10. Thome Company uses a flexible budget for manufacturing overhead based on direct labor hours. Variable manufacturing overhead costs per direct labor hour are as follows.
- Fixed overhead costs per month are: Supervision $3,900, Depreciation $1,700, and Property Taxes $760. The company believes it will normally operate in a range of 7,400-11,600 direct labor hours per month.
- Complete the monthly flexible manufacturing overhead budget for 2012 for the expected range of activity, using increments of 1,400 direct labor hours.
11. Karnes Company has gathered the information shown below about its product.
Direct materials: Each unit of product contains 4.7 pounds of materials. The average waste and spoilage per unit produced under normal conditions is 0.8 pounds. Materials cost $9 per pound, but Karnes always takes the 2% cash discount all of its suppliers offer. Freight costs average $0.30 per pound.
Direct labor: Each unit requires 2 hours of labor. Setup, cleanup, and downtime average 0.4 hours per unit. The average hourly pay rate of Karnes's employees is $14. Payroll taxes and fringe benefits are an additional $4 per hour.
Manufacturing overhead: Overhead is applied at a rate of $9 per direct labor hour.
Compute Karnes's total standard cost per unit. (Round computations and final answer to 2 decimal places, i.e. 55.05.)
12. The standard cost of Product B manufactured by NJF Company includes 3 units of direct materials at $5.25 per unit. During June, 28,000 units of direct materials are purchased at a cost of $4.94 per unit, and 28,000 units of direct materials are used to produce 9,000 units of Product B.
a) Compute the total materials variance and the price and quantity variances.
b) Repeat the question above, assuming the purchase price is $5.46 and the quantity purchased and used is 26,200 units.
13. Nevitt Company's standard labor cost of producing one unit of Product DD is 4 hours at the rate of $15.84 per hour. During August, 40,800 hours of labor are incurred at a cost of $15.97 per hour to produce 10,000 units of Product DD.
a) Compute the total labor variance
b) Compute the labor price and quantity variances.
c) Repeat the previous question, assuming the standard is 4.2 hours of direct labor at $16.17 per hour.
14. Manufacturing overhead data for the production of Product H by Felton Company are as follows.
Overhead incurred for 53,930 actual direct labor hours worked
Overhead rate (variable $3; fixed $1) at normal capacity of 54,860 direct labor hours
Standard hours allowed for work done
Compute the total overhead variance.
15. Reid Company manufactures toasters. For the first 8 months of 2012, the company reported the following operating results while operating at 75% of plant capacity.
Sales (401,430 units)
Cost of goods sold
- Cost of goods sold was 69% variable and 31% fixed. Operating expenses were also 69% variable and 31% fixed.
- In September, Reid Company receives a special order for 44,420 toasters at $6.10 each from Ortiz Company of Mexico City. Acceptance of the order would result in $7,910 of shipping costs but no increase in fixed operating expenses.
- Complete the incremental analysis for the special order. (If an amount is blank enter 0, all boxes must be filled to be correct. If the impact on net income is a decrease use either a negative sign in front of the number, e.g. -45 or parenthesis, e.g. (45). Enter all other amounts as positive amounts and subtract where necessary. Round your answers to 0 decimal places, e.g. 5,210, round your computations of unit costs to 3 decimal places, e.g. 5.525.)
16. Winters Inc. has been manufacturing its own shades for its table lamps. The company is currently operating at 100% of capacity. Variable manufacturing overhead is charged to production at the rate of 50% of direct labor cost. The direct materials and direct labor cost per unit to make the lamp shades are $4.04 and $5.97, respectively. Normal production is 39,400 table lamps per year.
A supplier offers to make the lamp shades at a price of $13.56 per unit. If Winters Inc. accepts the supplier's offer, all variable manufacturing costs will be eliminated, but the $37,824 of fixed manufacturing overhead currently being charged to the lamp shades will have to be absorbed by other products.
a) Complete the incremental analysis for the decision to make or buy the lamp shades. (If an amount is blank enter 0, all boxes must be filled to be correct. If the impact on net income is a decrease use either a negative sign preceding the number, e.g. -45 or parenthesis, e.g. (45). Round answers to 0 decimal places, e.g. 2,510.)
b) Should Winters Inc. buy the lamp shades?
c) Would your answer be different if the productive capacity released by not making the lamp shades could be used to produce income of $35,400?
17. Angie Donohue recently opened her own basketweaving studio. She sells finished baskets in addition to the raw materials needed by customers to weave baskets of their own. Angie has put together a variety of raw material kits, each including materials at various stages of completion. Unfortunately, owing to space limitations, Angie is unable to carry all varieties of kits originally assembled and must choose between two basic packages.
The basic introductory kit includes undyed, uncut reeds (with dye included) for weaving one basket. This basic package costs Angie $12.10 and sells for $26.08. The second kit, called Stage 2, includes cut reeds that have already been dyed. With this kit the customer need only soak the reeds and weave the basket. Angie is able to produce the second kit by using the basic materials included in the first kit and adding one hour of her own time, which she values at $17.80 per hour. Because she is more efficient at cutting and dying reeds than her average customer, Angie is able to make two kits of the dyed reeds, in one hour, from one kit of undyed reeds. The kit of dyed and cut reeds sells for $32.80
a) Complete the incremental analysis below to determine whether Angie's basketweaving shop should carry the basic introductory kit with undyed and uncut reeds, or the Stage 2 kit with reeds already dyed and cut. (Round all answers to 2 decimal places, e.g. 5.25. If an amount is blank enter 0, all boxes must be filled to be correct. If the impact on net income is a decrease use either a negative sign preceding the amount, e.g. -45 or parenthesis, e.g. (45). Enter all other amounts amounts as positive and subtract where necessary.)
b) Should Angie carry the Stage 2 kits?
18. Brown Enterprises uses a word processing computer to handle its sales invoices. Lately, business has been so good that it takes an extra 3 hours per night, plus every third Saturday, to keep up with the volume of sales invoices. Management is considering updating its computer with a faster model that would eliminate all of the overtime processing.
Original purchase cost
Estimated operating costs
If sold now, the current machine would have a salvage value of $5,010. If operated for the remainder of its useful life, the current machine would have zero salvage value. The new machine is expected to have zero salvage value after 5 years.
a) Complete the analysis to determine if the current machine should be replaced. (Ignore the time value of money. If an amount is blank enter 0, all boxes must be filled to be correct. If the impact on net income is a decrease use either a negative sign preceding the amount, e.g. -45 or parenthesis, e.g. (45). Enter all other amounts as positive amounts and subtract where necessary.)
b) The current machine should be?
19. Shaw Corporation manufactures several types of accessories. For the year, the gloves and mittens line had sales of $499,011, variable expenses of $374,649, and fixed expenses of $149,467. Therefore, the gloves and mittens line had a net loss of $25,105. If Shaw eliminates the line, $40,363 of fixed costs will remain.
a) Complete the analysis showing whether the company should eliminate the gloves and mittens line. (If amount is a decrease use either a negative sign preceding the number, e.g. -45 or parenthesis, e.g. (45). If the answer is zero, place put a zero in the answer box. Do not leave any fields blank. Enter all other amounts as positive amounts and subtract where necessary.)
b) The gloves and mittens line …….. be continued.
20. AS QUESTION # XXXXX
Ash Creek Company is preparing its budgeted income statement for 2012. Relevant data pertaining to its sales, production, and direct materials budgets are as follows.
- Sales: Sales for the year are expected to total 1,600,000 units. Quarterly sales are 20 %, 24 %, 26 %, and 30 % respectively. The sales price is expected to be $40 per unit for the first three quarters and $45 per unit beginning in the fourth quarter. Sales in the first quarter of 2013 are expected to be 15 % higher than the budgeted sales for the first quarter of 2012.
- Production: Management desires to maintain the ending finished goods inventories at 21 % of the next quarter's budgeted sales volume.
- Direct materials: Each unit requires 2 pounds of raw materials at a cost of $10 per pound. Management desires to maintain raw materials inventories at 20 % of the next quarter's production requirements. Assume the production requirements for first quarter of 2013 are 505,400 pounds.
- In addition, Oak Creek budgets 0.3 hours of direct labor per unit, labor costs at $10.00 per hour, and manufacturing overhead at $18.00 per direct labor hour. Its budgeted selling and administrative expenses for 2012 are $4,565,000.
a) Calculate the budgeted total unit cost. (Please round answer to two decimal places, e.g. 5.25.)
b) Complete the budgeted income statement for 2012.