Exam I
1. Sandra Pilsden, the Vice-President for Human Resources in Learning, Inc. was concerned about a recent memo she had recently received from the CEO's office regarding the possibility of outsourcing the payroll function to Salary Experts, a growing provider of a variety of human resource services. She was shocked that the CEO's office had discussed this matter with the Board of Directors, but failed to consult her.
Linden was preparing for a meeting with the CEO. In reading the memo and its attachments, Linden observed the following comparison of costs in a report prepared by the controller's office:
Payroll department expenses:
Salaries of employees $210,000
Share of utilities $75,000
Share of building rent $39,350
Manager's salary $69,000
Computers and supplies $26,000
Other department expenses $20,000
Total annual expenses $439,350
Pilsden also noted that Salary Experts quoted a fixed fee of $125,000 and variable processing costs of $7.50 per employee transaction. She did not believe that the company will actually save money by outsourcing the payroll function. For one, she did not think that the company will actually save all of the above mentioned amounts. She knew that the payroll department manager could not be removed from the company because he had to oversee the payroll function and serve as a liaison with the outside company. However, all other employees in the department would likely not be required.
Required:
a. Assume Learning Toys has 14,000 employees on its payroll. Can the company save money by outsourcing the payroll function?
b. What are the pros and cons of outsourcing the payroll function?
2. The following information applies to the General Lawnmower Company for the year ended December 31, 2010:
Factory Rent $80,000
Direct Materials Inventory, Beginning $50,000
Direct Materials Inventory, Ending $45,000
Direct Materials Purchases $325,000
Direct Labor-Wages $550,000
Indirect Labor-Wages $25,000
Finished Goods Inventory, Beginning $50,000
Finished Goods Inventory, Ending $75,000
Indirect Materials $50,000
Plant Utilities $25,000
General and Administrative $130,000
Work-in-Process Inventory, Beginning $50,000
Work-in-Process Inventory, Ending $55,000
Marketing Expenses $180,000
Sales Revenue $1,825,000
Required:
Prepare a statement of cost of goods manufactured and an income statement for the year ended December 31, 2010.
3. Data concerning Golding Corporation's single product appear below:
Per Unit Percent of Sales
Selling price.................. $210 100%
Variable costs................ 126 60%
Contribution margin......... $84 40%
Fixed costs are $444,000 per month. The company is currently selling 7,000 units per month.
Required:
Management is considering using a new component that would increase the unit variable cost by $2. Since the new component would improve the company's product, the marketing manager predicts that monthly sales would increase by 200 units. What should be the overall effect on the company's monthly operating profit of this change if fixed costs are unaffected?
4. Penny Company offers two products. At present, the following represents the usual results of a month's operations:
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Product A
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Product B
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|
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Per Unit
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Per Unit
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Combined
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Sales
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$120,000
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$1.20
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$80,000
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$0.80
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$200,000
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Variable costs
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60,000
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0.60
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60,000
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0.60
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120,000
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Contribution margin
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$60,000
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0.60
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$20,000
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$0.20
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80,000
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Fixed costs
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50,000
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Operating profit
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$30,000
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Required:
a. Find the break-even point in dollars.
b. Find the margin of safety in dollars.
c. The company is considering decreasing product A's unit sales to 80,000 and increasing product B's unit sales to 180,000, leaving unchanged the selling price per unit, variable cost per unit, and total fixed costs. Would you advise adopting this plan?
d. Refer to (c) above. Under the new plan, find the break-even point in dollars.
e. Under the new plan in (c) above, find the margin of safety in dollars.
5. Assume that the following events occurred at a division of Admiral Enterprises for the current year.
(1) Purchased $900,000 in direct materials.
(2) Incurred direct labor costs of $520,000.
(3) Determined that manufacturing overhead was $820,000.
(4) Transferred 75% of the materials purchased to Work-in-Process Inventory.
(5) Completed work on 60% of the work in process. Costs assigned equally across all work-in-process.
(6) The inventory accounts have no beginning balances. All costs incurred were debited to the appropriate account and credited to Accounts Payable.
Required:
Compute the following amounts in the Work-in-Process Inventory account:
(a) Transfers-in (TI).
(b) Transfers-out (TO).
(c) Ending balance (EB).