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Business Finance

ACCT 6273 Identifying Strategic Implications in Accounting Data

Northeastern University

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ACCT 6273 Identifying Strategic Implications in Accounting Data. PLEASE HELP ME SOLVE THESE PROBLEMS. Accounting class. Trying to study for exam.

First problem:

Since its inception, Monterey Corporation has produced a single product, Product A24. The company added the technological capability to begin producing a second product, Product D36. Because of the success of Product D36, manufacturing has been shifting toward its production. Sales of Product D36 are now 50 percent of the total annual sales of 20,000 units, and the company is optimistic about the new product’s future sales growth. Management is thrilled with the new product’s initial success but concerned about the company’s declining profits since the product’s introduction. Suspecting a problem with the company’s costing system, management hires you to investigate.

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Problem 1 Since its inception, Monterey Corporation has produced a single product, Product A24. The company added the technological capability to begin producing a second product, Product D36. Because of the success of Product D36, manufacturing has been shifting toward its production. Sales of Product D36 are now 50 percent of the total annual sales of 20,000 units, and the company is optimistic about the new product’s future sales growth. Management is thrilled with the new product’s initial success but concerned about the company’s declining profits since the product’s introduction. Suspecting a problem with the company’s costing system, management hires you to investigate. In reviewing the company’s records, product specifications, and manufacturing processes, you discover the following information. • The company is in an extremely competitive industry in which markups are low and accurate estimates of cost are critical to success. • The company presently allocates overhead costs to its products based on direct labor hours. • Product D36 has complex parts that require more labor, machine time, setups, and inspections than Product A24. • Total Overhead Costs are $2,016,000. • Budgeted costs per unit for direct materials and labor are as follows: Direct Cost per Unit Product A24 Product D36 Direct materials $48 $48 Direct labor $30/hour X 2 hours production time $30/hour X 2.8 hours production time After carefully studying the company’s overhead, you identify four different categories of overhead costs. Using your knowledge of this company and similar companies in the same industry, you estimate the total costs for each of these categories and identify the most appropriate cost driver for measuring each product’s overhead consumption. Detailed information for each overhead cost category follows. Estimated Cost Cost Driver Use of Cost Driver Overhead Category Machining Set-ups $1,080,000 456,000 Number of machine hours A24: 20,000 hours; D36: 80,000 hours Number of machine setups A24: 1,500 setups; D36: 3,500 setups Inspections 360,000 Number of inspections A24: 200 inspections; D36: 400 inspections Other Factory Overhead Total Overhead $120,000 Equal percentage for each product A24: 50%; D36: 50% $2,016,000 1. Determine the total cost per unit for each product when overhead is assigned using the company’s current overhead allocation method based on direct labor hours. [8 points] A24 D36 (continued on next page) 2. Determine the total cost per unit for each product if the company switched to activity-based costing. [12 points] A24 D36 Problem 2 Following is Perry Corporation’s original budget for 2014, and their actual results for 2014. [24 points] Original Budget (100,000 units) Materials Fabric 100,000 yds @ $5.40/yd $540,000 Steel tubing 25,000 lbs @ $12.10/lb 302,500 Padding 50,000 lbs @ $.50/lb 25,000 Machining 30,000 hrs @ $19/hr 570,000 Assembly 10,000 hrs @ $11.80/hr 118,000 Direct Labor Overhead Rent 100,000 Property taxes 10,000 Other Overhead 200,000 (25% variable) Total $1,865,500 Actual Results (125,000 units) Materials Fabric 125,000 yds @ $5.50/yd $687,500 Steel tubing 32,000 lbs @ $12.20/lb 390,400 Padding 65,000 lbs @ .49/lb 31,850 Machining 35,000 hrs @ $18/hr 630,000 Assembly 11,000 hrs @ $11.50/hr 126,500 Direct Labor Overhead Rent 96,000 Property taxes 10,000 Other Overhead Total Using the format on the following page, prepare the flexible budget needed to evaluate Perry Corporation’s performance for 2014, and compute the Flex-Actual Variances. Show your calculations. Put your answers to Problem 2 here: 210,000 $2,182,250 Calculations Flexible Budget Actual (125,000 units) Materials Fabric Steel tubing Padding $687,500 390,400 31,850 Direct Labor Machining 630,000 Assembly 126,500 Overhead Rent 96,000 Property taxes 10,000 Other Overhead 210,000 (25% variable) Total $2,182,250 Problem 3 Flex – Actual Variances FreshFruit Drink Company planned to make 200,000 containers of apple juice. It expected to use two cups of frozen apple concentrate to make each container of juice. The standard price of one cup of apple concentrate is $0.25. FreshFruit actually paid $110,168.10 to purchase 408,030 cups of concentrate, which was used to make 201,000 containers of apple juice. 1. [4 points] Compute the materials price variance. Answer ______________________ 2. [4 points] Compute the materials usage variance. Answer ______________________ Problem 4 Whitley Company makes a product that is expected to use 1.2 pounds of material per unit of product. The material has a standard cost of $2 per pound. Whitley Company actually used 1.25 pounds of material per unit of product made in January 2015. The actual cost of material was $1.95 per pound. Based on this information, the materials variances for January 2015 production would be: (Circle or highlight one) [4 points] A) U for price and U for usage B) U for price and F for usage C) F for price and U for usage D) F for price and F for usage Problem 5 Simpson Company is analyzing whether its new product will be profitable. The following data are provided for analysis: Expected variable cost of manufacturing $30 per unit Expected fixed manufacturing costs $48,000 per year Expected sales commission Expected fixed administrative costs $6 per unit $12,000 per year 1. [5 points] Simpson estimates that sales will probably be 10,000 units. What sales price per unit will allow the company to break even? Answer: _____________________ 2. [5 points] Simpson has decided to advertise the product heavily and has set the sales price at $52. If sales are 9,000 units, how much can the company spend on advertising and still break even? Answer: _____________________ Problem 6 Fifer Company produces two types of entry doors: the Hollow Core and the Solid Door models. The Company has used direct labor dollars to allocate the overhead cost of $47,450,000. The company’s CFO, Brian Smythe, has offered the following information regarding the two products: Hollow Core Sales in units Solid Door 400,000 50,000 $475 $650 Direct materials per unit 55 130 Direct labor cost per unit 75 50 Sales price per unit The company has hired you as an outside consultant to review the cost system and make recommendations. You decide that an Activity Based Cost system should be considered and compile the following information based on conversations with the production manager: Activity Cost Driver C Order Taking Number of orders Setups Number of setups Machine cost Number of machine hours $ 500, 5,000, 41,950, The number of transactions for each cost driver is as follows: Cost Driver Total Hollow Solid Number of orders 500 100 40 Number of setups 2,500 2,000 50 600,000 300,000 300,00 Number of machine hours 1. Compute the product cost per door (i.e., per unit) using the traditional allocation system based on direct labor dollars [8 points] Hollow Core Product Cost per door ____________ Solid Door ____________ (continued on next page) 2. Compute the product cost per door (per unit) using activity based costing for each product. [10 points] Hollow Core Product Cost per door ____________ Solid Door ____________ 3. How should Mr. Smythe explain the reasons for any differences observed in your analysis above? [4 points] Problem 7 Columbus Company provides the following standard cost data: Direct Material (3 gallons @ $5 per gallon) Direct Labor (2 hours @ $12 per hour) $15 $24 During the period, Columbus Company produced and sold 24,000 units. Following are the amounts of material and labor used to produce the 24,000 units, and their respective actual costs: Direct Material: 71,500 gallons at $5.05 per gallon Direct Labor: 49,000 hours at $12.00 per hour Circle (or highlight) the correct answer. a. The Direct Material price variance was: [3 points] A) F B) U C) 0 b. The Direct Material usage variance was: [3 points] A) F B) U C) 0 c. The Direct Labor rate variance was: [3 points] A) F B) U C) 0 d. The Direct Labor efficiency variance was: [3 points] A) F B) U C) 0
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Explanation & Answer

Attached.

Answer
1 Traditional costing system
Activity
Machining
Setups
Inspections
Other Facory OH
Total OH costs
Direct labor hours
OH Rate per direct labor hour

Expected cost
$
1.080.000
456.000
360.000
120.000
$
2.016.000
48.000
$
42,00

Cost Sheet
Direct Material
Direct Labor
Overheads
Total Cost
Units produced
Per unit cost

2

$
$

$

A24
480.000 $
600.000 $
840.000
1.920.000
10.000
192,00 $

D36
480.000
840.000
1.176.000
2.496.000
10.000
249,60

Activity Based Costing System
Activity
Machining
Setups
Inspections
Other Facory OH
Total

Cost Driver
No. of mach. Hrs.
No. of mach.setups
No. of Insp.
Equal

Cost Sheet
Direct Material
Direct Labor
Overheads
Total Cost
Units produced
Per unit cost

Estimated activity

$
$

$

A24
480.000 $
600.000 $
532.800
1.612.800
10.000
161,28 $

100.000
5.000
600

D36
480.000
840.000
1.483.200
2.803.200
10.000
280,32

Esimated OH
per activity
Cost
cost
$ 1.080.000 $
10,80
456.000 $
91,20
360.000 $
600,00
120.000

Activity used Activity used
A24
D36
20.000
80.000 $
1.500
3.500 $
200
400 $
50%
50% $
$

A24
216.000,00
136.800,00
120.000,00
60.000,00
532.800,00

D36
$
864.000,00
$
319.200,00
$
240.000,00
$
60.000,00
$ 1.483.200,00

Answer
CalculationsFlexible Budget
Actual (125,000)
Flex-Actual
Units Variance
Materials
Fabric
125000*5.4 675.000
687.500
Steel Tubing(25000/100000)*(125000*12.10)
378.125
390.400
Padding (50000/100000)*(125000*.5)
31.250
31.850
Direct Labor
Machining (30000*19)*125000/100000
712.500
630.000
Assembly (10000*11.8)*125000/100000
147.500
126.500
Overheads
Rent
100.000
96.000
Property Taxes
10.000
10.000
Other Overheads
(50000*125000/100000)+150000
212.500
210.000
(25% Variable)
Total
2.266.875 2.182.250

(12.500) A
(12.275) A
(600) A
82.500 F
21.000 F
4.000 F
2.500 F
84.625

Answer
1 Traditional costing system...


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I was having a hard time with this subject, and this was a great help.

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