Problem 1: Computing Cost of Goods Manufactured
Using the following information, compute cost of goods manufactured, which is the cost of inventory transferred to Finished Goods Inventory.
Work-in-process inventory, beginning balance . . . . .. . . . . . . . . . . . . . . . .. $132,425
Work-in-process inventory, ending balance . . .. . . . .. . . . . . . .. . . . . . . . . . ..126,300
Direct materials costs .. . . . . . . . . . . . . . . . . .. . . . . .. . . . . . . . . . . . . . . . . 350,080
Direct labor costs . . . . . . .. . . . . . . . . . . . . .. . . . . . . . . . . . .. . . . . . . . . . . 365,225
Actual manufacturing overhead costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 287,200
Applied manufacturing overhead costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . 285,900
Problem 2: Segment-Margin Ratio
Refer to the data in PE. Compute the segment-margin ratio.
The company reports the following costs and revenues for one of its segments:
Net sales revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $728,000
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .416,000
Selling and administrative costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .104,000
Advertising cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62,400
Insurance cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .82,000
Of these costs, cost of goods sold and selling and administrative costs are variable, advertising is a direct fixed cost, and insurance is an indirect fixed cost. Using this information, prepare a segment margin statement for this segment.
Problem 3: Residual Income
The company had $360,000 in total assets and $94,000 in operating profit this year, and the company requires at least a 12% return on assets. Compute the company’s residual income.
Problem 4: Screening, Ranking, and Discounting
Which one of the following statements is correct?
a. Screening is the process of finding the best among available acceptable alternatives.
b. Ranking is the process of determining whether an investment meets a minimum standard of financial acceptability.
c. For the comparison of cash flows to be accurate, all amounts should be stated at their value at the point in time when the cash flow occurs.
d. Cash received sooner is worth more than cash received later.
e. Generally speaking, managers use relatively low discount rates when evaluating investments that involve a high degree of risk.
Problem 5: Discounting Cash Outflows
The company is deciding whether to invest in a certain capital investment. The investment requires an initial outlay of $55,000 and annual payments of $12,000 made at the end of the year for five years. The company’s discount rate is 14%. What is the present value of cash outflows related to this investment?