Q1. Leidenheimer Corporation manufactures small airplane propellers. Sales for April totaled $850,000. Information regarding resources for the month follows:
|
Resources Used
|
Resources Supplied
|
|
Parts management
|
$30,000
|
$35,000
|
|
Energy
|
50,000
|
50,000
|
|
Quality inspections
|
45,000
|
50,000
|
|
Long-term labor
|
25,000
|
35,000
|
|
Temporary labor
|
20,000
|
24,000
|
|
Setups
|
70,000
|
100,000
|
|
Materials
|
150,000
|
150,000
|
|
Depreciation
|
60,000
|
100,000
|
|
Marketing
|
70,000
|
75,000
|
|
Customer service
|
10,000
|
20,000
|
|
Administrative
|
50,000
|
70,000
|
In addition, Leidenheimer spent $25,000 on 50 engineering changes with a cost driver rate of $500 and $30,000 on eight outside contracts with a cost driver rate of $3,750.
Required:
a. Prepare a traditional income statement.
b. Prepare an activity-based income statement.
Q2. Computer Information Services is a computer software consulting company. Its three major functional areas are computer programming, information systems consulting, and software training. Carol Birch, a pricing analyst in the Accounting Department, has been asked to develop total costs for the functional areas. These costs will be used as a guide in pricing a new contract. In computing these costs, Birch is considering three different methods of allocating overhead costs-the direct method, the step method, and the reciprocal method. Birch assembled the following data on overhead from its two service departments, the Information Systems Department and the Facilities Department.
|
Service Departments
|
User Departments
|
|
Info
|
Computer
|
|
Systems
|
Facilities
|
Program
|
Consult
|
Training
|
Total
|
|
Budgeted Overhead
|
$50,000
|
$25,000
|
$75,000
|
$110,000
|
$85,000
|
$345,000
|
|
Info Systems (hrs)
|
|
400
|
1,100
|
600
|
900
|
3,000
|
|
Facilities (Sqft)
|
200,000
|
|
400,000
|
600,000
|
800,000
|
2,000,000
|
Information systems is allocated on the basis of hours of computer usage; facilities are allocated on the basis of floor space.
Required: Allocate the service department costs to the user departments using the direct method. (Round to the nearest dollar and provide total user department costs)
Q3. Bayfield Division of Ashland Inc. has a capacity of 200,000 units and expects the following results.
|
Sales (160,000 units at $4)
|
$640,000
|
|
Variable costs, at $2
|
320,000
|
|
Fixed costs
|
260,000
|
|
Income
|
$60,000
|
Washburn Division of Ashland Inc. currently purchases 50,000 units of a part for one of its products from an outside supplier for $4 per unit. Washburn's manager believes he could use a minor variation of Bayfield's product instead, and offers to buy the units from Bayfield at $3.50. Making the variation desired by Washburn would cost Bayfield an additional $0.50 per unit and would increase Bayfield's annual cash fixed costs by $20,000. Bayfield's manager agrees to the deal offered by Washburn's manager.
Required:
a. What is the effect of the deal on Washburn's income?
b. What is the effect of the deal on Bayfield's income?
c. What is the effect of the deal on the income of Ashland Inc. as a whole?