657 FINAL EXAM SOLUTION done in june 2015

| October 3, 2018

APPLICATION PROBLEMS: (10 points each)All work must be shown to receive any creditQuestion 26: Learned Corporation recorded the following transactions for the just completed month.a. $80,000 in raw materials were purchased on account.b. $71,000 in raw materials was requisitioned for use in production. Of this amount, $62,000 was for direct materials and the remainder was for indirect materials.c. Total labor wages of $112,000 were incurred. Of this amount, $101,000 was for direct labor and the remainder was for indirect labor.d. Additional manufacturing overhead costs of $175,000 were incurred.Required:Record the above transactions in journal entries.Question 27: Midwest Industrial Products Corporation makes two products, Product H and Product L. Product H is expected to sell 50,000 units next year and Product L is expected to sell 10,000 units. A unit of either product requires 0.2 direct labor hours.The company’s total manufacturing overhead for the years is expected to be $1,920,000.Required:1. The company currently applies manufacturing overhead to products using direct labor-hours as the allocation base. If this is followed, how much overhead cost would be applied to each product? Compute both the overhead cost per unit and the total amount of overhead cost that would be applied to each product. (In other words, how much overhead cost is applied to a unit of Product H? Product L? How much overhead cost is applied in total to all the units of Product H? Product L?)2. Management is considering an activity-based costing system and would like to know what impact this change might have on product costs. For purposes of discussion, it has been suggested that all of the manufacturing overhead be treated as a product-level cost. The total manufacturing overhead would be divided in half between the two products, with $960,000 assigned to Product H and $960,000 assigned to Product L.If this is followed, how much overhead cost per unit would be applied to each product?3. Explain the impact on unit product costs of the switch in costing systems.Question 28: Data concerning a recent period’s activity in the Prep Department, the first processing department in a company that uses processing costs, appear below.MaterialConversionEquivalent units of production in ending work in process2,000800Cost per equivalent unit$13.86$4.43A total of 20,100 units were completed and transferred to the next processing department during the period.Required:Compute the cost of the units transferred to the next department during the period and the cost of the ending work in process inventory.Question 29: Harris Company manufactures and sells a single product. A partially completed schedule of the company’s total and per unit costs over the relevant range of 30,000 to 50,000 units produced and sold annually is given below:Units Produced and Sold30,00040,00050,000Total Costs:Variable costs$180,000??Fixed costs300,000??Total Costs??Cost per unit:Variable cost???Fixed cost???Total cost per unit???Required:1. Complete the schedule of the company’s total and unit costs above.2. Assume that the company produces and sells 45,000 units during the year at a selling price of $16 per unit. Prepare a contribution format Income Statement for the year.Question 30: Whirly Corporation’s most recent Income Statement is shown below:TotalPer UnitSales (10,000 units)$350,000$35.00Variable expenses200,00020.00Contribution Margin150,000$15.00Fixed expenses135,000Net Operating income$ 15,000Required:Prepare a new contribution format Income Statement under each of the following conditions (consider each case independently):1. The sales volume increases by 100 units.2. The sales volume decreases by 100 units.3. The sales volume is 9,000 units.Question 31: Silver Company makes a product that is very popular as a Mother’s Day gift. Thus, peak sales occur in May of each year, as shown in the company’s sales budget for the second quarter given below:AprilMayJuneTotalBudgeted sales (all on account)$300,000$500,000$200,000$1,000,000From past experience, the company has learned that 20% of a month’s sales are collected in the month of the sale, another 70% are collected in the month following the sale, and the remaining 10% are collected in the second month following the sale. Bad debts are negligible and can be ignored. February sales totaled $230,000, and March sales totaled $260,000.Required:1. Prepare a schedule of expected cash collections from sales, by month and in total for the second quarter.2. Assume that the company will prepare a budgeted balance sheet as of June 30. Compute the accounts receivable as of that date.Question 32: Puget Sound Divers is a company that provides diving services such as underwater ship repairs to clients in the Puget Sound area. The company’s planning budget for May appears below:Puget Sound DiversPlanning BudgetFor the Month Ended May 31Budgeted diving-hours (q)……………………100Revenue ($365.00q)……………………………$36,500ExpensesWages and salaries ($8,000 + 125.00q)……..$20,500Supplies ($3.00q)……………………………300Equipment rental ($1,800 + $32.00q)……….5,000Insurance ($3,400)…………………………..3,400Miscellaneous ($630 + $1.80q)……………..810Total expense………………………………….$30,010Net operating income………………………….$ 6,490Required:During May, the company’s activity was actually 105 diving-hours. Prepare a flexible budget for that level of activity.Question 33: Alyeski Tours operates day tours of coastal glaciers in Alaska on its tour boat the Blue Glacier. Management has identified two cost drivers – the number of cruises and the number of passengers – that it uses in its budgeting and performance reports. The company publishes a schedule of day cruises that it may supplement with special sailings if there is sufficient demand. Up to 80 passengers can be accommodated on the tour boat. Data concerning the company’s cost formulas appear below:Fixed CostPer MonthCost perCruiseCost perPassengerVessel operating costs……..$5,200$480.00$2.00Advertising………………..$1,700Administrative costs………$4,300$ 24.00$1.00Insurance………………….$2,900For example, vessel operating costs should be $5,200 per month plus $480 per cruise plus $2 per passenger. The company’s sales should average $25 per passenger. The company’s planning budget for July is based on 24 cruises and 1,400 passengers.Required:Prepare the company’s planning budget for July.Question 34: Provide the missing data in the following table for a distributor of martial arts products:DivisionAlphaBravoCharlieSales………………………………$?$11,500,000$?Net operating income…………….$?$ 920,000$210,000Average operating assets…………$800,000$?$?Margin……………………………4%?7%Turnover………………………….5??Return on investment (ROI)………?20%14%Question 35: Commercial Services.com Corporation provides business-to-business services on the Internet. Data concerning the most recent year appear below:Sales………………………………..$3,000,000Net operating income………………$150,000Average operating assets…………..$750,000Required:Consider each question below independently. Carry out all computations to two decimal points.1. Compute the company’s return on investment (ROI).2. The entrepreneur who founded the company is convinced that sales will increase next year by 50% and that net operating income will increase by 200%, with no increase in average operating assets. What would be the company’s ROI?3. The chief financial officer of the company believes a more realistic scenario would be a $1,000,000 increase in sales, requiring a $250,000 increase in average operating assets, with a resulting $200,000 increase in net operating income. What would be the company’s ROI?Question 36: Delta Company produces a single product. The cost of producing and selling a single unit of this product at the company’s normal activity level of 60,000 units per year is:Direct materials…………………………………$5.10Direct labor………………………………………$3.80Variable manufacturing overhead………………$1.00Fixed manufacturing overhead………………….$4.20Variable selling and administrative expense……$1.50Fixed selling and administrative expense……….$2.40The normal selling price is $21 per unit. The company’s capacity is 75,000 units per year. An order has been received from a mail-order house for 15,000 units at a special price of $14.00 per unit. This order would not affect regular sales.Required:If the order is accepted, by how much will annual profits be increased or decreased? (The order will not change the company’s total fixed costs.)Question 37: Bed & Bath, a retailing company has two departments, Hardware and Linens. The company’s most recent monthly contribution format Income Statement follows:DepartmentTotalHardwareLinensSales……………………………..$4,000,000$3,000,000$1,000,000Variable expenses………………..1,300,000900,000400,000Contribution margin……………..2,700,0002,100,000600,000Fixed expenses…………………..2,200,0001,400,000800,000Net operating income (loss)……..$ 500,000700,000$ (200,000)A study indicates that $340,000 of the fixed expenses being charged to Linens are sunk costs or allocated costs that will continue even if the Linens Department is dropped. In addition, the elimination of the Linens Department will result in a 10% decrease in the sales of the Hardware Department.Required:If the Linens Department is dropped, what will be the effect on the net operating income of the company as a whole?Question 38: Information on four investment proposals is given below:Investment ProposalABCDInvestment required……………….$(90,000)$(100,000)$(70,000)$(120,000)Present value of cash inflows….126,000138,000105,000160,000Net present value…………………..$ 36,000$ 38,000$ 35,000$ 40,000Life of the project………………….5 years7 years6 years6 yearsRequired:1. Compute the project profitability index for each investment proposal.2. Rank the proposals in terms of preference.Question 39: Comparative financial statement data for Carmono Company follow:20092008Cash………………………………………………..$ 3$ 6Account receivable…………………………………2224Inventory………………………………………….5040Plant and equipment……………………………….240200Less accumulated depreciation………………….(65)(50)Total asset…………………………………………$250$220Accounts payable………………………………….$ 40$ 36Common stock…………………………………….150145Retained Earnings…………………………………6039Total Liabilities and stockholders’ equity…………$250$220For 2009, the company reported net income as follows:Sales…………………………………………..$ 275Cost of goods sold…………………………….150Gross Margin………………………………….125Selling and administrative expenses………….90Net Income……………………………………$ 35Dividends of $14 were declared and paid during 2009.Required:Using the indirect method, prepare a statement of cash flows for 2009.Question 40: The financial statements for Castile Products, Inc. are given below:Castile Products, Inc.Balance SheetDecember 31AssetsCurrent Assets:Cash………………………………………..$ 6,500Accounts receivable, net…………………..35,000Merchandise inventory…………………….70,000Prepaid expenses……………………………3,500Total current assets…………………………..115,000Property and equipment, net…………………185,000Total assets……………………………………$300,000Liabilities and Stockholders’ EquityLiabilities:Current liabilities……………………………$ 50,000Bonds payable, 10%………………………………..80,000Total Liabilities……………………………….130,000Stockholders’ equity:Common stock $5 par value………………..$ 30,000Retained Earnings…………………………..140,000Total stockholders’ equity……………………170,000Total liabilities and equity ……………………$300,000Castile ProductsIncome StatementFor the Year Ended December 31Sales……………………………………………$420,000Cost of goods sold……………………………..292,500Gross Margin…………………………………..127,500Selling and administrative expenses………….89,500Net operating income…………………………38,000Interest expense……………………………….8,000Net income before taxes……………………….30,000Income taxes (30%)……………………………9,000Net Income……………………………………$ 21,000Account balances at the beginning of the year were: accounts receivable $25,000, inventory $60,000. All sales were on account.Required:Compute financial ratios as follows:1. Gross margin percentage2. Current ratio3. Acid-test ratio4. Debt-to-equity ratio5. Average collection period6. Average sale period7. Times interest earned ratio8. Book value per share

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