DeVry ACCT 505 FINAL EXAM.... 161065

. (TCO F) Wahr Corporation bases its predetermined overhead rate on the estimated labor hours for the upcoming year. At the beginning of the most recently completed year, the company estimated the labor hours for the upcoming year at 32,000. The estimated variable manufacturing overhead was $7.17 per labor hour and the estimated total fixed manufacturing overhead was $584,320. The actual labor hours for the year turned out to be 33,300.



Required:



Compute the company's predetermined overhead rate for the recently completed year. (Points : 25)

2. (TCO C) Enciso Corporation is preparing its cash budget for November. The budgeted beginning cash balance is $31,000. Budgeted cash receipts total $135,000 and budgeted cash disbursements total $141,000. The desired ending cash balance is $50,000. The company can borrow up to $100,000 at any time from a local bank, with interest not due until the following month.

1. (TCO C) The following overhead data are for a department of a large company.

                                                           Actual costs                  Static

                                                           Incurred                         budget

Activity level (in units)                           360                                340

Variable costs:

             Indirect materials                     $4,182                           $4,148

             Electricity                               $2,536                           $2,414

Fixed costs:

            Administration                          $6,540                           $6,500

            Rent                                        $6,310                           $6,400

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

2. (TCO D) Mr. Earl Pearl, accountant for Margie Knall, Inc. has prepared the following product-line income data:

                                                                                    PRODUCT

                                                                Total             A                  B                      C

Sales................................................$ 100,000........$50,000.........$20,000...........$30,000

Variable expenses..............................  60,000..........30,000............10,000.............20,000

Contribution margin............................. .40,000..........20,000............10,000.............10,000

Fixed expenses:

    Rent................................................. .5,000...........2,500..............1,000...............1,500

    Depreciation..................................... 6,000...........3,000..............1,200................1,800

    Utilities.............................................4,000...........2,000.................500................1,500

    Supervisors' salaries.......................   5,000.......... 1,500.................500................3,000

    Maintenance....................................3,000...........1,500..................600..................900

    Administrative expenses................ 10,000...........3,000.................2,000..............5,000

Total fixed expenses........................ 33,000..........13,500...............5,800.............13,700

Net operating income........................ $7,000..........$6,500.............$4,200............($3,700)

The additional information below is available.

·  The factory rent of $1,500 assigned to Product C is avoidable if the product is dropped.

·  The company's total depreciation would not be affected by dropping C.

·  Eliminating Product C will reduce the monthly utility bill from $1,500 to $800.

·  All supervisors' salaries are avoidable.

·  If Product C is discontinued, the maintenance department will be able to reduce monthly expenses from $3,000 to $2,000.

·  Elimination of Product C will make it possible to cut two persons from the administrative staff. Currently, their combined salaries total $2,000.

Required: Prepare an analysis showing whether Product C should be eliminated.  Articulate your findings.

3. (TCO E) The following absorption costing income statement and additional data are available from the accounting records of Bernon Co. for the month ended May 31, 2007. During the accounting period, 17,000 units were manufactured and sold at a price of $60 per unit. There were no beginning inventories.

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. (Points : 25

Maverick 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 5,600

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 800

Percentage complete for materials 70%

Percentage complete for conversion 30%

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

(Ignore income taxes in this problem.) Axillar Beauty Products Corporation is considering the production of a new conditioning shampoo that 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%.

(Ignore income taxes in this problem.) Five years ago, the City of Paranoya spent $30,000 to purchase a computerized radar system called W.A.S.T.E. (Watching Aliens Sent To Earth). Recently, a sales rep from W.A.S.T.E. Radar Company told the city manager about a new and improved radar system that can be purchased for $50,000. The rep also told the manager that the company would give the city $10,000 in trade on the old system. The new system will last 10 years. The old system will also last that long but only if a $4,000 upgrade is done in 5 years. The manager assembled the following information to use in the decision regarding which system is more desirable:

Required:

a.      What is the City of Paranoya's net present value for the decision described above? Use the total cost approach.

b.      Should the City of Paranoya purchase the new system or keep the old system?