Assignment

True Flight Golf manufacturers a popular shaft for golf clubs. Its trade secret is a unique process for weaving high-tension wire into the center of the shaft such that energy is accumulated during the swing and released at impact. A specialized machine costing $3,000,000 is utilized in the manufacturing process. The machine has a 3-year life and no salvage value. True Flight uses straight-line depreciation. During the year, 25,000 shafts were produced, and the company was operating at full capacity. $700,000 of wire was used during the year.

(a) Is machinery depreciation fixed or variable? Is wire fixed or variable?

(b) For the two noted cost items, how much was total variable cost and total fixed cost?

(c) For the two noted cost items, how much was variable cost per unit and how much was fixed cost per unit?

B-18.02 Fixed and variable cost calculations

Alaska Launch, a private-sector aerospace company, provided the following aggregated data for satellite construction jobs during a recent period:

Direct materials $13,442,769

Direct labor 21,889,554

Applied (and actual) factory overhead 8,223,454

Beginning work in process 14,550,098

Ending work in process 17,559,000

(a) How much is cost of goods manufactured? Is this necessarily the same as cost of goods sold? Why or why not?

Review of foundational cost flow concepts B-19.01

Ekpro Products manufactures containment chambers for environmentally friendly incinerators. Each chamber is built to customer specifications. Most of the direct labor time is spent on welding activities. Following is the job cost sheet for an incinerator manufactured for Benzate Corporation:

Ekpro Job Cost Sheet

Job: Benzate

Direct Labor Direct Material Applied Overhead

TotalHours Rate Total Qty. Unit Cost Total Qty. Rate Total

May 8, 20X7

Rod Burner 9 $25 $225 $225

Sandy Sharp 1 $12 $ 12 $ 12

Steel 10 $80 $800 $800

May 9, 20X7

Sandy Sharp 2 $12 $ 24 $ 24

Applied Overhead ? ? $360 $360

12.00 $261 $800 $360 $1,421

(b) Ekpro is considering installation of a robotic machine that will do all welding operations. How might this decision impact the total overhead and the application method?

B-19.04 Determining and evaluating applied overhead

Barksdale Corporation produces hair care products. ShineOnOne is a one-step shampoo and conditioner that is produced in a three-step process. The three phases of production consist of mixing, blending, and bottling. Below is a partial schedule of June's costs for each phase of production. Complete the schedule and respond to the questions that follow.

Beginning Balance

June Costs

Cost Transfers

Ending Balance

Mixing $ 288,100 $ 1,444,424 $ (1,019,087) $ ?

Blending 316,700 ? ?

? (3,378,909)

Bottling 454,900 954,000 ?

? ?

$ ? $ 4,709,991 $ (4,155,676) $ ?

(a) Which department experienced a decrease in work in process during June?

(b) How much was transferred to finished goods inventory?

Critical thinking about process cost flows B-20.07

x

Four of the following eight statements are patently false. Find the four false statements. The other statements are true. For the false statements, mark the words that make the statement false.

1. A simplified explanation of ABC is that it attempts to divide production into its core activities, define the costs for those activities, and then allocate those costs to products based on how much of a particular activity is needed to produce a product.

2. ABC maintains the traditional division between product and period costs.

3. ABC charges products with the costs of manufacturing and nonmanufacturing activities, and some manufacturing costs are not attached to products.

4. Under ABC, idle capacity is typically isolated and allocated to products and services.

5. ABC is suitable for public reporting.

6. With ABC, the "cost objects" are broadened to include not only products/services, but other objects like customers, markets, and so on.

7. The first step in implementing ABC is a detailed study of all business processes and costs.

8. The normal steps in an ABC implementation are (1) study processes and costs, (2) identify activities, (3) identify traceable costs, (4) assign remaining costs to activities, (5) apply costs to objects, and (6) determine per-activity allocation rates.

B-20.08 Basic activity-based costing concepts

Logan Township acquired its water system from a private company on June 1. No receivables were acquired with the purchase. Therefore, total accounts receivable on June 1 had a zero balance.

Logan plans to bill customers in the month following the month of sale, and 70% of the resulting billings will be collected during the billing month. In the next following month, 90% of the remaining balance should be collectable. The remaining uncollectible amounts will relate to citizens who have moved away. Such amounts are never expected to be collected and will be written off.

Water sales during June are estimated at $3,000,000, and expected to increase 30% in July. August sales will be 10% less than July sales.

(a) For each dollar of sales, how much is expected to be collected?

(b) Estimate the monthly cash collections for June, July, August, and September.

B-21.02 Scheduling anticipated cash collections

Review the following SG&A budget that was prepared at the beginning of the current year. The economy appears to be slowing, and sales are now expected to run only 90% of plan. How much can now be ex- pected to result for total SG&A?

The only fixed cost that can be reduced relates to the advertising campaign. What are the possible impacts of attempting to save money by cutting a portion of the advertising budget?

B-21.08 Budgeting for SG&A and volume fluctuation

Spreadsheet f x

A B C D E F G

1

2 Selling, General, and Administrative Budget

3 For the Year Ending December 31, 20X5

4

5 Estimated units sold 50,000

6 X Per unit variable SG&A $ 4.00

7 Total variable SG&A $200,000

8 Fixed SG&A

9 Salaries $275,000

1 0 Office 60,000

1 1 Advertising 175,000

1 2 Other 25,000

1 3 Total fixed SG&A $535,000

1 4 Total budgeted SG&A $735,000

1 5

Sales Production Materials Labor Factory Overhead Finished Goods SG&A Cash Income    

Anderson Metals manufactures and sells #3 steel rebar that is used in the construction of slabs and driveways. The steel bar not only strengthens the finished concrete product, but it also has unique properties such that its temperature related expansion and contraction matches that of concrete. The product is manufactured and sold in 20' long "sticks." The product is generally produced and sold to match customer demand, and there is not a significant amount of finished goods inventory at any point in time. Summary information for 20X6 is as follows:

Sales were $20,000,000, consisting of 5,000,000 sticks.

Total variable costs were $11,000,000.

Total fixed costs were $8,000,000.

Net income was $1,000,000.

The general economic conditions appear to be deteriorating heading into 20X7, and there is some concern about a reduction in sales volume. The following questions should each be answered independent of one another.

(a) What is the company's break-even point in "sticks?" Can the company sustain a 30% reduction in total volume, and remain profitable?

(b) The company's sole shareholder, Doug Anderson, generally lives off of dividends paid by the business. The business typically declares and pays a dividend equal to 25% of net income. If Doug needs to receive $100,000 in dividends for normal living expenses, what total revenues must Anderson Metals produce in 20X7?

I-18.03 Break-even and related analysis