ACCT 505 Final Exam Answers

1. (TCO C) Silver City, Inc., has collected the following operating information below for its current month's activity. Using this information, prepare a flexible budget analysis to determine how well Silver City performed in terms of cost control.

2. (TCO D) Globe Co. manufactures automatic door openers. The company uses 15,000 electronic hinges per year as a component in the assembly of the openers. You have been engaged by Globe to assist with an evaluation of whether the company should continue producing the hinges or purchase them from an outside vendor. 

The Accounting Department  provided the following detail regarding the annual cost to produce electronic hinges:

The Procurement Department provided the following supplier pricing:

The supplier pricing was obtained in response to a formal request for proposal (RFP). Procurement has determined these suppliers meet Globe's technical specifications and quality requirements.

If Globe stops producing the part internally, 10% of the fixed manufacturing overhead would be eliminated.

Required: Prepare a make-or-buy analysis showing the annual advantage or disadvantage (in dollars) of accepting an outside supplier's offer.  Should the company buy the parts?  If so, from which supplier?  

3. (TCO E) Mesa Company produces a single product. Operating data for the company and its absorption costing income statement for the last year are presented below:

Less cost of goods sold:

Variable manufacturing costs are $4 per unit. Fixed factory overhead totals $18,000 for the year. This overhead was applied at a rate of $2 per unit. Variable selling and administrative expenses were $1 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.

4. (TCO A) The following data (in thousands of dollars) have been taken from the accounting records of the White Sands Corporation for the just-completed year.

Use the above 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, what is the impact on the financial statements if the ending finished goods inventory is overstated or understated?

1. (TCO F) Farmington 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:

Ending work in process:

Required: Calculate the equivalent units for materials (using the weighted-average method) for the month in the first processing department.

2.

(TCO G) - (Ignore income taxes in this problem.) Tennessee Co. is considering the production of an exterior paint that will require the purchase of new mixing machinery. The machinery will cost $700,000, is expected to have a useful life of 12 years, and is expected to have a salvage value of $100,000 at the end of 12 years. The machinery will also need a $40,000 overhaul at the end of Year 7. A $50,000 increase in working capital will be needed for this investment project. The working capital will be released at the end of the 12 years. The new paint is expected to generate net cash inflows of $120,000 per year for each of the 12 years. Tennessee’s discount rate is 14%.

Required:

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

b.      Based on your answer to (a) above, should Tennessee go ahead with the new paint?

3. (TCO B) Winslow Corporation produces and sells a single product. Data concerning that product appear below.

Required:

a) Determine the monthly break-even in unit sales. Show your work!

b) Determine the monthly break-even in dollar sales.  Show your work!

2. (TCO F) Memphis Corporation is preparing its cash budget for February. The budgeted beginning cash balance is $27,000. Budgeted cash receipts total $136,000 and budgeted cash disbursements total $128,000. The desired ending cash balance is $50,000. The company can borrow up to $110,000 at any time from a local bank, with interest not due until the following month.

Required:

Prepare the company's cash budget for February in good form. Make sure to indicate what borrowing, if any, would be needed to attain the desired ending cash balance.