Question 1. Vernon Inc. manufactures and sells one product. Sales and production information is contained below.
· Selling price per unit $50
· Variable manufacturing costs per unit produced (DM, DL, and variable MOH) $24
· Variable operating expenses per unit sold $5
· Fixed manufacturing overhead (MOH) in total for the year $135,000
· Fixed operating expenses in total for the year $55,000
· Units produced during the year 15,000
· Units sold during the year 13,000
(a) Prepare the income statement using variable costing. (10 points)
(b) Prepare the income statement using absorption costing. (10 points)
(c) Please explain the difference in operating income between the two methods.
Question 2. Hampton Company manufactures and sells medals for winners of athletic events. The company normally charges $33 per medal. The average costs for a medal is shown below.
Direct materials: $12
Direct labor: 8
Variable manufacturing overhead: 6
Variable marketing expenses: 2
Fixed manufacturing overhead: 10 ($500,000 fixed manufacturing overhead/50,000 medals)
Total costs: $38
Hampton Company has enough idle capacity to accept a one-time only special order for 5,000 medals at $25 per medal. Hampton Company will not incur any variable marketing expenses for this order and no additional fixed costs.
Required
Should the company accept this special order? Please state your decision and provide numerical support for your decision.
Lee Company makes 30,000 units per year of Part X for use in one of its products. Lee Company incurred the following manufacturing costs when producing the 30,000 units of Part X.
Direct materials $800,000
Direct labor 450,500
Variable manufacturing overhead 95,000
Fixed manufacturing overhead 110,000
Total $1,455,500
Required
Assume Lee Company has no alternative use for the facilities presently devoted to production of Part X and that none of the fixed costs are avoidable. If the outside supplier offers to sell Part X for $45.00 each, should Lee Company accept the offer? Please clearly state your answer and support your answer with appropriate calculations.
Melinda Corp buys equipment for $75,000 that will last for 5 years. The equipment will generate cash flows of $24,000 per year and will have no salvage value at the end of its life. Ignore taxes. Use 12% required rate of return.
Required
(a) What is the present value (PV) of this investment at 12%?
(b) What is the net present value (NPV) of this investment? Should Melinda Corp buy the equipment based on NPV? Justify your decision.
(c) What is the internal rate of return (IRR) of this investment?
(d) What is the payback period?
ABC Company uses process costing to track its costs in two sequential production departments: Forming and Finishing. The following information is provided regarding the Forming department.
Forming Department
Month Ended July 31
Unit information
Beginning work in process, July 1 --- 10,000
Started into production during July --- 21,000
Completed and transferred to Finishing department during July --- 19,000
Ending work in process, July 31 (40% complete as to direct materials and 45% complete as to conversion costs) --- 12,000
Cost information
Beginning work in process as of July 1 consists of $13,000 of direct materials costs and $6,500 of conversion costs) --- $19,500
Direct materials used in July --- $34,000
Conversion costs incurred in July --- $14,850
Required:
(a) Calculate the equivalent units for direct materials.
(b) Calculate the cost per equivalent unit for direct materials.