Prepare an income statement in good form for april

Question

Assignment

Part I: Schedules of Cost of Goods Manufactured and Cost of Goods Sold; Income Statement

Nish Corporation has provided the following data for the month of April:

Sales	$220,000
Raw materials purchases	$50,000
Direct labor cost	$23,000
Manufacturing overhead cost	$59,000
Selling expense	$18,000
Administrative expense	$43,000

Inventories:	Beginning	Ending
Raw materials	$26,000	$35,000
Work in process	$18,000	$22,000
Finished goods	$42,000	$29,000

Required:

• Prepare a Schedule of Cost of Goods Manufactured in good form for April.
• Prepare an Income Statement in good form for April.

Part II: Application of Job Order Costing

Scanlon Company has a job-order costing system and applies manufacturing overhead cost to products on the basis of machine-hours. The following estimates were used in preparing the predetermined overhead rate for the most recent year:

Machine-hours	95,000
Manufacturing overhead cost	$1,710,000

During the most recent year, a severe recession in the company's industry caused a buildup of inventory in the company's warehouses. The company's cost records revealed the following actual cost and operating data for the year:

Machine-hours	75,000
Manufacturing overhead cost	$1,687,500
Amount of applied overhead in inventories at year-end:
Work in process	$337,500
Finished goods	$253,125
Amount of applied overhead in cost of goods sold	$759,375

Required:

• Compute the company's predetermined overhead rate for the year and the amount of underapplied or overapplied overhead for the year.
• Determine the difference between net operating income for the year if the underapplied or overapplied overhead is allocated to the appropriate accounts rather than closed directly to Cost of Goods Sold.

Part III: Process Costing using Weighted Average

Timberline Associates uses the weighted-average method in its process costing system. The following data are for the first processing department for a recent month:

Work in process, beginning:
Units in process	2,400
Percent complete with respect to materials	75%
Percent complete with respect to conversion	50%
Costs in the beginning inventory:
Materials cost	$8,400
Conversion cost	$7,200
Units started into production during the month	20,800
Units completed and transferred out	22,200
Costs added to production during the month:
Materials cost	$97,400
Conversion cost	$129,600
Work in process, ending:
Units in process	1,000
Percent complete with respect to materials	80%
Percent complete with respect to conversion	60%

Required:

• Determine the equivalent units of production.
• Determine the costs per equivalent unit.
• Determine the cost of ending work in process inventory.
• Determine the cost of the units transferred to the next department.

Part IV: Process Costing using First-in-First Out (FIFO)

Crone Corporation uses the FIFO method in its processing costing system. The following data concern the company's Assembly Department for the month of October.

Cost in beginning work in process inventory	$1,920
Units started and completed this month	3,130

	Materials	Conversion
Cost per equivalent unit	$9.50	$20.40
Equivalent units required to complete the units in beginning work in process inventory	360	140
Equivalent units in ending work in process inventory	330	264

Required:

• Determine the cost of ending work in process inventory and the cost of units transferred out of the department during October using the FIFO method.

Part V: Activity-Based Costing

Welk Manufacturing Corporation has a traditional costing system in which it applies manufacturing overhead to its products using a predetermined overhead rate based on direct labor-hours (DLHs). The company has two products, H16Z and P25P, about which it has provided the following data:

	H16Z	P25P
Direct materials per unit	$10.20	$50.50
Direct labor per unit	$8.40	$25.20
Direct labor-hours per unit	0.40	1.20
Annual production	30,000	10,000

The company's estimated total manufacturing overhead for the year is $1,464,480 and the company's estimated total direct labor-hours for the year is 24,000.

The company is considering using a variation of activity-based costing to determine its unit product costs for external reports. Data for this proposed activity-based costing system appear below:

Activities and Activity Measures	Estimated Overhead Cost
Supporting direct labor (DLHs)	$ 552,000
Setting up machines (setups)	132,480
Parts administration (part types)	780,000
Total	$1,464,480

	H16Z	P25P	Total
Supporting direct labor	12,000	12,000	24,000
Setting up machines	864	240	1,104
Parts administration	600	960	1,560

Required:

• Determine the manufacturing overhead cost per unit of each of the company's two products under the traditional costing system.
• Determine the manufacturing overhead cost per unit of each of the company's two products under activity-based costing system.

Part VI: Fixed and Variable Cost

Stuart Manufacturing produces metal picture frames. The company's income statements for the last two years are given below:

	Last year	This year
Units sold	50,000	70,000
Sales	$800,000	$1,120,000
Cost of goods sold	550,000	710,000
Gross margin	250,000	410,000
Selling and administrative expense	150,000	190,000
Net operating income	$100,000	$ 220,000

The company has no beginning or ending inventories.

Required:

• Estimate the company's total variable cost per unit and its total fixed costs per year. (Remember that this is a manufacturing firm.)
• Compute the company's contribution margin for this year.

Part VII: Cost-Volume-Profit Analysis

Belli-Pitt, Inc, produces a single product. The results of the company's operations for a typical month are summarized in contribution format as follows:

Sales	$540,000
Variable expenses	360,000
Contribution margin	180,000
Fixed expenses	120,000
Net operating income	$ 60,000

The company produced and sold 120,000 kilograms of product during the month. There were no beginning or ending inventories.

Required:

• Given the present situation, compute
  • The break-even sales in kilograms.
  • The break-even sales in dollars.
  • The sales in kilograms that would be required to produce net operating income of §  $90,000.
  • The margin of safety in dollars.

• An important part of processing is performed by a machine that is currently being leased for $20,000 per month. Belli-Pitt has been offered an arrangement whereby it would pay $0.10 royalty per kilogram processed by the machine rather than the monthly lease.
  • Should the company choose the lease or the royalty plan?
  • Under the royalty plan compute break-even point in kilograms.
  • Under the royalty plan compute break-even point in dollars.
  • Under the royalty plan determine the sales in kilograms that would be required to produce net operating income of $90,000.

Part VIII: Relevant Cost/Special Order

Gottshall Inc. makes a range of products. The company's predetermined overhead rate is $19 per direct labor-hour, which was calculated using the following budgeted data:

Variable manufacturing overhead	$225,000
Fixed manufacturing overhead	$630,000
Direct labor-hours	45,000

Component P0 is used in one of the company's products. The unit cost of the component according to the company's cost accounting system is determined as follows:

Direct materials ..	$21.00
Direct labor	40.80
Manufacturing overhead applied	32.30
Unit product cost	$94.10

An outside supplier has offered to supply component P0 for $78 each. The outside supplier is known for quality and reliability. Assume that direct labor is a variable cost, variable manufacturing overhead is really driven by direct labor-hours, and total fixed manufacturing overhead would not be affected by this decision. Gottshall chronically has idle capacity.

Required:

Is the offer from the outside supplier financially attractive? Why?

Part IX: Relevant Cost/Make or Buy Decision

Part U67 is used in one of Broce Corporation's products. The company's Accounting Department reports the following costs of producing the 7,000 units of the part that are needed every year.

	Per Unit
Direct materials	$8.70
Direct labor	$2.70
Variable overhead ..	$3.30
Supervisor's salary.	$1.90
Depreciation of special equipment	$1.80
Allocated general overhead	$5.50

An outside supplier has offered to make the part and sell it to the company for $21.40 each. If this offer is accepted, the supervisor's salary and all of the variable costs, including direct labor, can be avoided. The special equipment used to make the part was purchased many years ago and has no salvage value or other use. The allocated general overhead represents fixed costs of the entire company. If the outside supplier's offer were accepted, only $6,000 of these allocated general overhead costs would be avoided.

Required:

• Prepare a report that shows the effect on the company's total net operating income of buying part U67 from the supplier rather than continuing to make it inside the company.
• Which alternative should the company choose?

Part X: Relevant Cost/Sell or Process Further

Farrugia Corporation produces two intermediate products, A and B, from a common input. Intermediate product A can be further processed into end product X. Intermediate product B can be further processed into end product Y. The common input is purchased in batches that cost $36 each and the cost of processing a batch to produce intermediate products A and B is $15. Intermediate product A can be sold as is for $21 or processed further for $14 to make end product X that is sold for $32. Intermediate product B can be sold as is for $44 or processed further for $28 to make end product Y that is sold for $64.

Required:

• Assuming that no other costs are involved in processing potatoes or in selling products, how much money does the company make from processing one batch of the common input into the end products X and Y? Show your work!
• Should each of the intermediate products, A and B, be sold as is or processed further into an end product? Explain.

Part XI: Relevant Cost/Dropping a Product

The management of Woznick Corporation has been concerned for some time with the financial performance of its product V86O and has considered discontinuing it on several occasions. Data from the company's accounting system appear below:

Sales .	$150,000
Variable expenses..	$72,000
Fixed manufacturing expenses	$50,000
Fixed selling and administrative expenses	$33,000

In the company's accounting system all fixed expenses of the company are fully allocated to products. Further investigation has revealed that $30,000 of the fixed manufacturing expenses and $13,000 of the fixed selling and administrative expenses are avoidable if product V86O is discontinued.

• According to the company's accounting system, what is the net operating income earned by product V86O?
• What would be the effect on the company's overall net operating income if product V86O were dropped?

Part XII: Capital Budgeting Decisions

Chee Company has gathered the following data on a proposed investment project:

Investment required in equipment.	$240,000
Annual cash inflows .	$50,000
Salvage value ..	$0
Life of the investment .	8 years
Required rate of return	10%

Assets will be depreciated using straight line depreciation method

Required:

• Using the net present value and the internal rate of return methods, is this a good investment?

Part XIII: Master Budget

You have just been hired as a new management trainee by Earrings Unlimited, a distributor of earrings to various retail outlets located in shopping malls across the country. In the past, the company has done very little in the way of budgeting and at certain times of the year has experienced a shortage of cash. Since you are well trained in budgeting, you have decided to prepare a master budget for the upcoming second quarter. To this end, you have worked with accounting and other areas to gather the information assembled below.

The company sells many styles of earrings, but all are sold for the same price-$10 per pair. Actual sales of earrings for the last three months and budgeted sales for the next six months follow (in pairs of earrings):

January (actual)	20,000	June (budget)	50,000
February (actual)	26,000	July (budget)	30,000
March (actual)	40,000	August (budget)	28,000
April (budget)	65,000	September (budget)	25,000
May (budget)	100,000

The concentration of sales before and during May is due to Mother's Day. Sufficient inventory should be on hand at the end of each month to supply 40% of the earrings sold in the following month.

Suppliers are paid $4 for a pair of earrings. One-half of a month's purchases is paid for in the month of purchase; the other half is paid for in the following month. All sales are on credit. Only 20% of a month's sales are collected in the month of sale. An additional 70% is collected in the following month, and the remaining 10% is collected in the second month following sale. Bad debts have been negligible.

Monthly operating expenses for the company are given below:

Variable:

Sales commissions 4% of sales Fixed:

Advertising	$ 200,000
Rent	$ 18,000
Salaries	$ 106,000
Utilities	$ 7,000
Insurance	$ 3,000
Depreciation	$ 14,000

Insurance is paid on an annual basis, in November of each year.

The company plans to purchase $16,000 in new equipment during May and $40,000 in new equipment during June; both purchases will be for cash. The company declares dividends of $15,000 each quarter, payable in the first month of the following quarter. The company's balance sheet as of March 31 is given below:

Assets
Cash	$ 74,000
Accounts receivable ($26,000 February sales; $320,000 March sales)	346,000
Inventory	104,000
Prepaid insurance	21,000
Property and equipment (net)	950,000
Total assets	$ 1,495,000
Liabilities and Stockholders' Equity
Accounts payable	$ 100,000
Dividends payable	15,000
Common stock	800,000
Retained earnings	580,000
Total liabilities and stockholders' equity	4 1,495,000

The company maintains a minimum cash balance of $50,000. All borrowing is done at the beginning of a month; any repayments are made at the end of a month.

The company has an agreement with a bank that allows the company to borrow in increments of

$1,000 at the beginning of each month. The interest rate on these loans is 1% per month and for simplicity we will assume that interest is not compounded. At the end of the quarter, the company would pay the bank all of the accumulated interest on the loan and as much of the loan as possible (in increments of $1,000), while still retaining at least $50,000 in cash.

Required:

Prepare a master budget for the three-month period ending June 30. Include the following detailed schedules:

• A sales budget, by month and in total.

o A schedule of expected cash collections, by month and in total.

o A merchandise purchases budget in units and in dollars. Show the budget by month and in total.

o A schedule of expected cash disbursements for merchandise purchases, by month and in total.

• A cash budget. Show the budget by month and in total. Determine any borrowing that would be needed to maintain the minimum cash balance of $50,000.

• A budgeted income statement for the three-month period ending June 30. Use the contribution approach.
• A budgeted balance sheet as of June 30.

Part XIV: Variance Analysis for Decision Making

Bronfenbrenner Co. uses a standard cost system for its single product in which variable overhead is applied on the basis of direct labor hours. The following information is given:

Standard costs per unit:
Raw materials (1.5 grams at $16 per gram)	$24.00
Direct labor (0.75 hours at $8 per hour)	$6.00
Variable overhead (0.75 hours at $3 per hour)	$2.25
Actual experience for current year:
Units produced	22,400 units
Purchases of raw materials (21,000 grams at $17 per gram)	$357,000
Raw materials used	33,400 grams
Direct labor (16,750 hours at $8 per hour)	$134,000
Variable overhead cost incurred.	$48,575

Required:

Compute the following variances for raw materials, direct labor, and variable overhead, assuming that the price variance for materials is recognized at point of purchase:

• Direct materials price variance.
• Direct materials quantity variance.
• Direct labor rate variance.
• Direct labor efficiency variance.
• Variable overhead spending variance.
• Variable overhead efficiency variance.
• As a manager, why is variance analysis important?

Part XV: Evaluation of Decentralized Organizations

The Clipper Corporation had net operating income of $380,000 and average operating assets of $2,000,000. The corporation requires a return on investment of 18%.

Required:

• Calculate the company's return on investment (ROI) and residual income (RI).
• Clipper Corporation is considering an investment of $70,000 in a project that will generate annual net operating income of $12,950. Would it be in the best interests of the company to make this investment?
• Clipper Corporation is considering an investment of $70,000 in a project that will generate annual net operating income of $12,950. If the division planning to make the investment currently has a return on investment of 20% and its manager is evaluated based on the division's ROI, will the division manager be inclined to request funds to make this investment?
• Clipper Corporation is considering an investment of $70,000 in a project that will generate annual net operating income of $12,950. If the division planning to make the investment currently has a residual income of $50,000 and its manager is evaluated based on the division's residual income, will the division manager be inclined to request funds to make this investment?

Part XVI: Preparing Statement of Cash Flows

Boscia Corporation's balance sheet appears below:

Comparative Balance Sheet
	Ending Balance	Beginning Balance
Assets:
Cash and cash equivalents	$ 44	$ 38
Accounts receivable	82	69
Inventory	71	69
Plant and equipment	537	500
Accumulated depreciation	( 240)	( 201)
Total assets	$494	$475
Liabilities and stockholders' equity:
Accounts payable	$ 70	$ 60
Wages payable.	24	21
Taxes payable	19	22
Bonds payable	226	300
Deferred taxes	19	18
Common stock	22	20
Retained earnings	114	34
Total liabilities and stockholders' equity	$494	$475

The net income for the year was $108. Cash dividends were $28. Required:

• Prepare a statement of cash flows in good form using the indirect method.

Format your assignment according to the following formatting requirements:

o The answer should be typed, using Times New Roman font (size 12), double spaced, with one-inch margins on all sides.

o The response also includes a cover page containing the title of the assignment, the student's name, the course title, and the date. The cover page is not included in the required page length.

o Also include a reference page. The Citations and references must follow APA format. The reference page is not included in the required page length.