Seemore Company manufactures binoculars

| June 12, 2016

Question
Seemore Company manufactures binoculars. The actual costs for 2013 and 2014 were as follows:

2013 2014

Direct materials:

Plastic case $ 8.00 $ 7.60

Lens set 34.00 34.40

Direct labor 64.00 (1.6 hours) 60.00 (1.5 hours)

Indirect manufacturing costs:

Variable 16.00 14.20

Fixed 4.00 (100,000 units) 3.80 (120,000 units)

Beginning in 2014, Seemore implemented a continuous improvement program that required a first-year cost reduction target of a 7 percent reduction of the 2013 base.

Seemore’s continuous improvement target for lens sets in 2014 was:

$31.62

$34.40

$37.40

$32.30

2. Sayali Company manufactures metal brackets. The estimated number of metal bracket sales for the first three months of the current year is:

Month Unit Sales

January 2, 500

February 2,800

March 2,400

Finished goods inventory at the end of last December was 300 units. Desired ending finished goods inventory is equal to 20 percent of the next month’s sales. Sayali Company expects to sell the brackets for $20 each.

How many brackets should Sayali produce in January?

1,960

2,360

2,760

2,600

3. Assume that EEG Company wanted to reduce the cost of materials handling in each of its stores, and management set a target reduction of 2 percent per year. If a given store has current annual materials handling costs of $200,000 and expected an increase next year due to 15 percent growth, the budget for next year would be:

$216,000

$196,000

$230,000

$225,400

4. Boulder Mower Manufacturing Company has three divisions. Engine components are transferred from Components to Assembly. Assembled engines are transferred from Assembly to the Mower Division. Costs for each division are given below. Mowers are sold on a competitive outside market for $250. There are no outside markets for engine components or assembled engines.

Division Name

Components Assembly Mower

Total variable costs $100 per package

of components $20 per engine plus transfer price paid

to Components $200 per mower plus transfer price paid to Assembly

Total division fixed costs $110,000 $110,000 $220,000

This period, Components sends Assembly 10,000 packages of engine components. Using a market based transfer price, determine the amount Assembly would pay Components:

Cannot be determined from the information provided

Is based on the Component’s division’s variable cost

Is based on the Component’s division’s full absorption cost

Is the $250 market price of the mowers

5. Tracey Sales Co. has predicted the following costs for this year for 500,000 units:

Manufacturing Selling and Administrative

Variable $ 800,000 $250,000

Fixed 1,200,000 300,000

Total $2,000,000 $550,000

What is the markup on variable manufacturing costs needed to break even?

218.75 percent

212.50 percent

150.00 percent

25.00 percent

6. The Year 1 selling expense budget for Karin Corporation is as follows:

Budgeted sales $2,500,000

Selling costs:

Delivery expenses $25,000

Commission expenses 75,000

Advertising expenses 20,000

Office expenses 12,000

Miscellaneous expenses 30,000

Total $ 162,000

Delivery and commission expenses vary proportionally with budgeted sales in dollars. Advertising and office expenses are fixed. Miscellaneous expenses include $10,000 of fixed costs. The rest varies with budgeted sales in dollars. The Year 2 budgeted sales is $3,400,000.

What will be the value for commission expenses in the Year 2 selling expense budget?

$102,000

$ 24,000

$ 48,000

$122,000

7. USE THE FOLLOWING INFORMATION FOR QUESTIONS 47 – 50:

Seemore Company manufactures binoculars. The actual costs for 2013 and 2014 were as follows:

2013 2014

Direct materials:

Plastic case $ 8.00 $ 7.60

Lens set 34.00 34.40

Direct labor 64.00 (1.6 hours) 60.00 (1.5 hours)

Indirect manufacturing costs:

Variable 16.00 14.20

Fixed 4.00 (100,000 units) 3.80 (120,000 units)

Beginning in 2014, Seemore implemented a continuous improvement program that required a first-year cost reduction target of a 7 percent reduction of the 2013 base.

Seemore’s continuous improvement target for plastic cases in 2014 was:

$8.00

$7.60

$7.44

$8.80

8. Birchtown Company’s budgeted sales were 5,000 units at $400 per unit. Actual sales were 4,500 units at $420 per unit. Birchtown’s sales price variance was:

$ 34,000 (U)

$100,000 (U)

$ 90,000 (F)

$ 45,000 (F)

9. Boulder Milling is evaluating a proposal to invest in a new piece of equipment costing $100,000 with the following annual cash flows over the equipment’s 4-year useful life:

Cash revenues $120,000

Cash expenses (64,000)

Depreciation expenses (straight-line) (20,000)

Income provided from equipment $36,000

Cost of capital 12 percent

Using a spreadsheet or financial calculator, determine the net present value for the investment.

The investment’s net present value is:

$ 9,345

$170,092

$ 70,092

$264,482

10. Cari Chair Company manufactures rocking chairs. The estimated number of rocking chair sales for each of the last three months of Year 1 is as follows:

Month Unit Sales

October 10,000

November 14,000

December 15,000

Finished goods inventory at the end of November was 4,000 units. Desired ending finished goods inventory is equal to 25 percent of the next month’s sales. Cari Chair expects to sell the chairs for $100 each. January sales for Year 2 are projected at 16,000 chairs.

How many chairs should Cari produce in December?

15,000

14,000

9,500

10,500

11. Chattanooga, Inc. has two categories of overhead: maintenance and inspection. Costs expected for these categories for the coming year are as follows:

Maintenance $800,000

Inspection 400,000

The following data have been assembled for use in developing a bid for a proposed job:

Direct materials $6,000

Direct labor $16,000

Machine-hours 400

Number of inspections 4

Direct labor-hours 800

The practical capacity of machine-hours for all jobs during the year is 25,000, and for inspections is 800. These are the cost drivers for maintenance and inspection costs, respectively.

Using the appropriate cost drivers, the total cost of the potential job is:

$22,000

$14,400

$33,600

$36,800

12. Boulder Milling is evaluating a proposal to invest in a new piece of equipment costing $110,000 with the following annual cash flows over the equipment’s 4-year useful life:

Cash revenues $95,000

Cash expenses (52,000)

Depreciation expenses (straight-line) (15,000)

Income provided from equipment $28,000

Cost of capital 14 percent

The investment’s payback period is (rounded to two decimal places):

3.91

3.33

2.37

2.56

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