ACC 2013 Assignment Problems

Mccoo Inc. bases its manufacturing overhead budget on budgeted direct labor-hours. The variable
overhead rate is $1.10 per direct labor-hour. The company's budgeted fixed manufacturing overhead is
$120,320 per month, which includes depreciation of $19,730. All other fixed manufacturing overhead
costs represent current cash flows. The September direct labor budget indicates that 9,400 direct laborhours will be required in that month.
Required:
a. Determine the cash disbursement for manufacturing overhead for September. (Omit the "$" sign in
your response.)
Cash disbursement for manufacturing overhead

$

b. Determine the predetermined overhead rate for September. (Round your answer to 2 decimal
places. Omit the "$" sign in your response.)
Predetermined overhead rate

$

Lahay Inc. bases its selling and administrative expense budget on the number of units sold. The variable
selling and administrative expense is $3.80 per unit. The budgeted fixed selling and administrative
expense is $30,350 per month, which includes depreciation of $3,620. The remainder of the fixed selling
and administrative expense represents current cash flows. The sales budget shows 3,000 units are
planned to be sold in April.
Required:
Calculate the selling and administrative cash disbursements budget for April. (Omit the "$" sign in your
response.)
Cash disbursement for selling and administrative expenses

$

rev: 11_09_2012

Velazques Jeep Tours operates jeep tours in the heart of the Colorado Rockies. The company bases its
budgets on two measures of activity (i.e., cost drivers), namely guests and jeeps. One vehicle used in
one tour on one day counts as a jeep. Each jeep has one tour guide. The company uses the following
data in its budgeting:

Revenue
Tour guide wages

Fixed
element
per month
$
0
$
0

Variable
element
per guest
$ 91
$ 0

Variable
element
per jeep
$ 0
$ 107

Vehicle expenses
Administrative expenses

$ 3,700
$ 1,800

$ 4
$ 1

$ 57
$ 0

In March, the company budgeted for 357 guests and 127 jeeps. The company's income statement
showing the actual results for the month appears below:
Velazques Jeep Tours
Income Statement
For the Month Ended March 31
Actual guests
Actual jeeps
Revenue

$

Expenses:
Tour guide
wages
Vehicle
expenses
Administrativ
e expenses

354
129

32,154

13,553
12,589
2,154

Total expense

28,296

Net operating
income

$

3,858

Required:
Complete the report showing the company's activity variances for March. (Input all amounts as positive
values. Leave no cells blank - be certain to enter "0" wherever required. Indicate the effect of
each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e.,
zero variance). Omit the "$" sign in your response.)

Revenue

Velazques Jeep Tours
Activity Variances
For the Month Ended March 31
$

Expenses:
Tour guide wages
Vehicle expenses
Administrative expenses
Total expense
Net operating income

$

During May, Hiles Corporation budgeted for 26,000 customers, but actually served 24,000 customers.
The company uses the following revenue and cost formulas in its budgeting, where q is the number of
customers served:
Revenue: $4.81q
Wages and salaries: $35,100 + $1.72q
Supplies: $0.62q
Insurance: $12,100
Miscellaneous: $5,100 + $0.12q
Required:
Complete the company's flexible budget for May based on the actual level of activity for the
month. (Input all amounts as positive values. Omit the "$" sign in your response.)
Hiles Corporation
Flexible Budget
For the Month Ended May 31
Actual customers served
Revenue

$

Expenses:
Wages and salaries
Supplies
Insurance
Miscellaneous
Total expense
Net operating income

$

Crovo Corporation uses customers served as its measure of activity. During December, the company
budgeted for 44,000 customers, but actually served 46,000 customers. The company has provided the
following data concerning the formulas used in its budgeting and its actual results for December:
Data used in budgeting:

Fixed element
per month
Revenue
Wages and salaries
Supplies
Insurance

$20,500
$
0
$ 7,500

Variable element
per customer
$ 2.60
$ 0.91
$ 0.56
$ 0.00

Miscellaneous

$ 3,500

$ 0.36

Actual results for December:

Revenue
Wages and salaries
Supplies
Insurance
Miscellaneous

$115,300
$ 57,000
$ 23,860
$ 9,500
$ 23,860

Required:
Complete the report showing the company's revenue and spending variances for December. (Input all
amounts as positive values. Leave no cells blank - be certain to enter "0" wherever required.
Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and
"None" for no effect (i.e., zero variance). Omit the "$" sign in your response.)

Revenue

Crovo Corporation
Revenue and Spending Variances
For the Month Ended December 31
$

Expenses:
Wages and salaries
Supplies
Insurance
Miscellaneous
Total expense
Net operating income

$

©2014 McGraw-Hill Education. All rights reserved.
Silmon Corporation makes a product with the following standard costs:

Inputs
Direct materials
Direct labor
Variable overhead

Standard Quantity Standard Price
or Hours
or Rate
4.6 grams $ 7.00 per gram
0.4 hours
$ 14.00 per hour
0.4 hours
$ 2.00 per hour

In June the company produced 5,100 units using 24,710 grams of the direct material and 2,550 direct
labor-hours. During the month the company purchased 25,000 grams of the direct material at a price of
$6.80 per gram. The actual direct labor rate was $14.60 per hour and the actual variable overhead rate
was $1.90 per hour. The materials price variance is computed when materials are purchased. Variable
overhead is applied on the basis of direct labor-hours.
Required:
Compute the following variances for raw materials, direct labor, and variable overhead, assuming that the
price variance for materials is recognized at point of purchase: (Input all amounts as positive values.
Do not round intermediate calculations. Leave no cells blank - be certain to enter "0" wherever
required. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable,
and "None" for no effect (i.e., zero variance). Omit the "$" sign in your response.)

a

Direct materials quantity variance

$

Direct materials price variance

$

c. Direct labor efficiency variance
e
Direct labor rate variance

$

.
b
.
.

d
.

$

Variable overhead efficiency variance

f. Variable overhead rate variance

$
$

Costs associated with two alternatives, code-named Q and R, being considered by Corniel Corporation
are listed below:

Supplies costs
Power costs
Inspection costs
Assembly costs

Alternative Q
$ 60,000
$ 35,000
$ 15,000
$ 28,000

Alternative R
$ 54,000
$ 35,000
$ 23,000
$ 17,000

Required:
a. Which costs are relevant and which are not relevant in the choice between these two alternatives?

Supplies costs
Power costs
Inspection costs
Assembly costs

b. What is the differential cost of Alternative R over Alternative Q? (Negative amount should be
indicated by a minus sign. Omit the "$" signs in your response.)
Differential cost

$

Nutall Corporation is considering dropping product N28X. Data from the company's accounting system
appear below:

Sales

$

600,000

Variable expense
$241,000
Fixed manufacturing expenses
$232,000
Fixed selling and administrative expense $180,000

All fixed expenses of the company are fully allocated to products in the company's accounting system.
Further investigation has revealed that $192,500 of the fixed manufacturing expenses and $107,500 of
the fixed selling and administrative expenses are avoidable if product N28X is discontinued.
Required:
a. According to the company's accounting system, what is the net operating income earned by product
N28X? (Input the amount as a positive value. Omit the "$" sign in your response.)
$
b-1.What would be the effect on the company's overall net operating income of dropping product N28X?
(Input the amount as a positive value. Omit the "$" sign in your response.)
Net operating income would be by $ .
b-2.Should the product be dropped?
No
Yes

Masse Corporation uses part G18 in one of its products. The company's Accounting Department reports
the following costs of producing the 16,700 units of the part that are needed every year.
Per Unit

Direct materials
Direct labor
Variable overhead
Supervisor's salary
Depreciation of special equipment
Allocated general overhead

$3.90
$4.60
$7.60
$8.30
$8.90
$5.90

An outside supplier has offered to make the part and sell it to the company for $32.00 each. If this offer is
accepted, the supervisor's salary and all of the variable costs, including direct labor, can be avoided. The
special equipment used to make the part was purchased many years ago and has no salvage value or
other use. The allocated general overhead represents fixed costs of the entire company. If the outside
supplier's offer were accepted, only $22,700 of these allocated general overhead costs would be
avoided. In addition, the space used to produce part G18 could be used to make more of one of the
company's other products, generating an additional segment margin of $29,000 per year for that product.
Required:
a. Calculate the effect on the company's total net operating income of buying part G18 from the supplier
rather than continuing to make it inside the company. (Input the amount as a positive value. Omit
the "$" sign in your response.)
Net operating income would be by $ .
b. Which alternative should the company choose?
Make
Buy

Foulds Company makes 6,000 units per year of a part it uses in the products it manufactures. The unit
product cost of this part is computed as follows:

Direct
materials
Direct labor
Variable
manufacturing
overhead
Fixed
manufacturing
overhead
Unit product
cost

$

12.10
19.70
1.90
9.80

$

43.50

An outside supplier has offered to sell the company all of these parts it needs for $41.20 a unit. If the
company accepts this offer, the facilities now being used to make the part could be used to make more
units of a product that is in high demand. The additional contribution margin on this other product would
be $43,200 per year.
If the part were purchased from the outside supplier, all of the direct labor cost of the part would be
avoided. However, $6.30 of the fixed manufacturing overhead cost being applied to the part would
continue even if the part were purchased from the outside supplier. This fixed manufacturing overhead
cost would be applied to the company's remaining products.

Required:
a. How much of the unit product cost of $43.50 is relevant in the decision of whether to make or buy the
part? (Round your answer to 2 decimal places. Omit the "$" sign in your response.)

Relevant cost per unit

$

b. What is the net total dollar advantage (disadvantage) of purchasing the part rather than making
it? (Input the amount as a positive value. Omit the "$" sign in your response.)

Net

$

c. What is the maximum amount the company should be willing to pay an outside supplier per unit for
the part if the supplier commits to supplying all 6,000 units required each year? (Round your answer
to 2 decimal places. Omit the "$" sign in your response.)

Maximum acceptable purchase price per unit

$

Holtrop Corporation has received a request for a special order of 9,500 units of product Z74 for $47.00
each. The normal selling price of this product is $52.10 each, but the units would need to be modified
slightly for the customer. The normal unit product cost of product Z74 is computed as follows:

Direct materials
Direct labor
Variable manufacturing
overhead
Fixed manufacturing
overhead
Unit product cost

$17.80
7.10
4.30
7.20
$36.40

Direct labor is a variable cost. The special order would have no effect on the company's total fixed
manufacturing overhead costs. The customer would like some modifications made to product Z74 that
would increase the variable costs by $6.70 per unit and that would require a one-time investment of
$46,500 in special molds that would have no salvage value. This special order would have no effect on
the company's other sales. The company has ample spare capacity for producing the special order.
Required:
Calculate the incremental net operating income of accepting the special order. (Omit the "$" sign in
your response.)
Incremental net operating income

$

Janes, Inc., is considering the purchase of a machine that would cost $430,000 and would last for 5
years, at the end of which, the machine would have a salvage value of $43,000. The machine would
reduce labor and other costs by $103,000 per year. Additional working capital of $5,000 would be needed
immediately, all of which would be recovered at the end of 5 years. The company requires a minimum
pretax return of 16% on all investment projects. (Ignore income taxes.)
Click here to view Exhibit 13B-1 and Exhibit 13B-2 to determine the appropriate discount factor(s) using
tables.
Required:
Determine the net present value of the project. (Negative amount should be indicated by a minus
sign. Round discount factor(s) to 3 decimal places, intermediate and final answers to the nearest
dollar amount. Omit the "$" sign in your response.)
Net present value

$

Brewer Company is considering purchasing a machine that would cost $451,260 and have a useful life of
6 years. The machine would reduce cash operating costs by $98,100 per year. The machine would have
a salvage value of $107,270 at the end of the project. (Ignore income taxes.)
Required:
a. Compute the payback period for the machine. (Round your answer to 2 decimal places.)
Payback period

years

b. Compute the simple rate of return for the machine. (Round your answer to 2 decimal places. Omit

the "%" sign in your response.)
Simple rate of return

%

Austin Company is investigating four different investment opportunities. Information on the four projects
under study is given below:

Project Number
1
Invest
ment
required
Presen
t value
of cash
inflows
at a 8%
discount
rate
Net
present
value
Life of
the
project
Internal
rate of
return

2
$

(450,00
)
0

3

4
$

(540,00
)
0

$

(390,00
)
0

$

(420,00
)
0

624,720

618,300

624,720

496,800

$ 174,720

$ 78,300

$ 234,720

$ 76,800

7 years

14 years

7 years

4 years

19%

10%

24%

16%

Because the company’s required rate of return is 8%, a 8% discount rate has been used in the present
value computations above. Limited funds are available for investment, so the company can’t accept all of
the available projects.

Required:
1. Compute the project profitability index for each investment project. (Round your answers to 3
decimal places.)

Project
1

Profitability
Index

2
3
4

2. Rank the four projects according to preference, in terms of net present value, project profitability index
and internal rate of return.

Net Present
Value
First preference
Second preference
Third preference
Fourth preference

Project
Profitability Index

Internal Rate of
Return