1. The Aluminum Can Company has 200,000 obsolete cans in inventory at a cost of $10,000. The cans can be cut in half to make candle holders for $2,000. The candle holders can be sold for $3,500 in total. If the cans are scrapped, they could be sold for $900.
Which alternative should the Aluminum Can Company accept and what is the relevant profit from the alternative?
2. Elm Paper Corporation manufactures 20,000 rolls of paper each period. The paper is used as an input for producing several other products that Elm manufactures. The full manufacturing costs for a batch of 100 rolls of paper are as follows:
|
Direct materials
|
$ 270
|
|
Direct labor
|
200
|
|
Variable manufacturing overhead
|
200
|
|
Average fixed manufacturing overhead
|
375
|
|
Total
|
$1,045
|
The fixed manufacturing overhead is comprised of depreciation expenses related to prior investments in facilities and equipment that are used in the manufacturing of the paper. These assets have no other use than for the manufacturing of the paper. An outside supplier has offered to sell Elm the 20,000 rolls of paper necessary to meet production needs this period for a lump-sum of $145,000.
What should Elm do if it wants to maximize its profit for the period?
3. The Kirsten Company uses a joint process to produce products A, B, C, and D. Each product may be sold at its split-off point or processed further. Joint processing costs for a single batch of joint products are $65,000. Other relevant data are as follows:
|
Product
|
Sales Value
At Split-Off
|
Additional Costs
of Processing
|
Sales Value
of Final Product
|
|
A
|
$15,000
|
$18,000
|
$ 45,000
|
|
B
|
27,000
|
15,000
|
40,000
|
|
C
|
20,000
|
25,000
|
30,000
|
|
D
|
13,000
|
11,000
|
25,000
|
|
|
$75,000
|
$69,000
|
$140,000
|
Calculate the effect on profits of processing Product A further beyond the split-off point.
4. Gleeson manufactures a single product with the following full unit costs for 6,000 units:
|
Direct materials
|
$160
|
|
Direct labor
|
80
|
|
Manufacturing overhead (40% variable)
|
240
|
|
Selling expenses (60% variable)
|
80
|
|
Administrative expenses (10% variable)
|
40
|
|
Total per unit
|
$600
|
A company recently approached Gleeson with a special order to purchase 1,000 units for $575. Gleeson currently sells the models to dealers for $1,100. Capacity is sufficient to produce the extra 1,000 units. No selling expenses would be incurred on the special order.
Should Gleeson accept the special order if its goal is to maximize short-run profits? Determine the impact on profit of accepting the order.
5. The Arizona Company uses a joint process to produce products A, B, C, and D. Each product may be sold at its split-off point or processed further. Joint processing costs for a single batch of joint products are $120,000. Other relevant data are as follows:
|
Product
|
Sales Value
At Split-Off
|
Additional
Processing Costs
|
Sales Value of
Final Product
|
|
A
|
$ 25,000
|
$12,000
|
$ 48,000
|
|
B
|
24,000
|
16,000
|
36,000
|
|
C
|
44,000
|
28,000
|
70,000
|
|
D
|
17,000
|
10,000
|
32,000
|
|
Total
|
$110,000
|
$66,000
|
$186,000
|
Determine which products should be processed further.
6. Sayali Company manufactures metal brackets. The estimated number of metal bracket sales for the first three months of the current year is:
|
Month
|
Unit Sales
|
|
January
|
2, 500
|
|
February
|
2,800
|
|
March
|
2,400
|
Finished goods inventory at the end of last December was 300 units. Desired ending finished goods inventory is equal to 20 percent of the next month's sales. Sayali Company expects to sell the brackets for $20 each. How many brackets should Sayali produce in January?
7. The forecasted sales pertain to Skifurn, Inc.:
|
Month
|
Sales
|
|
January
|
$ 900,000
|
|
February
|
1,000,000
|
|
March
|
600,000
|
|
April
|
400,000
|
Collection pattern: 70 percent in month of sale; 30 percent in month following the sale
Accounts Receivable (December 31): $140,000
Calculate the amount of cash that Skifurn expects to collect in February
8. EMJB Company sells three products with the following seasonal sales pattern:
Products:
|
Quarter
|
A
|
B
|
C
|
|
1
|
40%
|
30%
|
10%
|
|
2
|
30%
|
20%
|
40%
|
|
3
|
20%
|
20%
|
40%
|
|
4
|
10%
|
30%
|
10%
|
|
Total
|
100%
|
100%
|
100%
|
The annual sales budget shows forecasts for the different products and their expected selling price per unit as follows:
|
Product
|
Units
|
Selling Price
|
|
A
|
200,000
|
$10
|
|
B
|
160,000
|
40
|
|
C
|
400,000
|
16
|
Prepare a sales budget in units and dollars by quarters for the company for the coming year.
Please use the following format:
|
|
First Quarter
|
Second Quarter
|
Third Quarter
|
Fourth Quarter
|
Year Total
|
|
Product A:
|
|
|
|
|
|
|
Sales (units)
|
|
|
|
|
|
|
Price x $10
|
|
|
|
|
|
|
Sales ($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product B:
|
|
|
|
|
|
|
Sales (units)
|
|
|
|
|
|
|
Price x $40
|
|
|
|
|
|
|
Sales ($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product C:
|
|
|
|
|
|
|
Sales (units)
|
|
|
|
|
|
|
Price x $16
|
|
|
|
|
|
|
Sales ($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total dollars
|
|
|
|
|
|
9. Budgeted sales of gloves for Perfect Fit Hands for the first six months of the year 2014 are as follows:
|
Months
|
Unit Sales
|
|
January
|
700,000
|
|
February
|
820,000
|
|
March
|
760,000
|
|
April
|
720,000
|
|
May
|
1,280,000
|
|
June
|
1,500,000
|
The beginning inventory for 2014 is 210,000 units. The budgeted inventory at the end of a month is 30 percent of units to be sold the following month. Purchase price per unit is $7 per unit.
Prepare a purchases budget in UNITS for each month, January through May.
10. New River Company management is analyzing the company's standard cost variances for direct materials for the most recent period. The following information was available from company records.
|
Actual quantity of materials used
|
96,000 units
|
|
Budgeted quantity of materials used
|
88,000 units
|
|
Actual price paid for materials
|
$8 per unit
|
|
Budgeted price paid for materials
|
$12 per unit
|
There were no increases or decreases in inventories during the period.
a. Calculate the materials quantity variance for the period.
b. Calculate the materials price variance for the period.
11. NCN Engineering Company uses a standard cost system. The following information pertains to 2014:
|
Actual total direct labor costs
|
$640,000
|
|
Total standard labor hours allowed
|
48,000 hrs.
|
|
Actual labor rate
|
$16 per hour
|
|
Standard labor rate
|
$17 per hour
|
a. Calculate NCN's labor efficiency variance.
b. Calculate NCN's labor rate variance.
12. Monongahela River Valley Company management is analyzing the company's standard cost variances for direct materials for the most recent period. The following information was available from company records.
|
Actual quantity of materials used
|
24,000 units
|
|
Budgeted quantity of materials used
|
22,000 units
|
|
Actual price paid for materials
|
$32 per unit
|
|
Budgeted price paid for materials
|
$48 per unit
|
DON'T FORGET TO INDICATE WHETHER THEY ARE FAVORABLE OR UNFAVORABLE!
- Calculate the materials quantity variance for the period.
- Calculate the materials price variance for the period.
13. Shailene Company has set labor costs at $48 per unit of output, based on 3 hours allowed to produce each finished unit. Last month, 3,000 direct labor hours were used, and 1,500 units of output were manufactured at a total cost of $72,000.
DON'T FORGET TO INDICATE WHETHER THEY ARE FAVORABLE OR UNFAVORABLE!
a) Determine the labor rate variance.
a) Determine the labor efficiency variance.
14. Projected unit sales for Astor Corp. for the last quarter of 2015 are:
|
October
|
10,000
|
|
November
|
15,000
|
|
December
|
20,000
|
|
Total
|
45,000
|
Finished goods inventory on September 30, 2015 was 3,000 units.
Projected sales for January are 25,000 units.
The sales price is $100 per unit.
The company tries to keep ending finished goods inventory of 10% of the following month's expected sales.
a) Prepare a Sales Budget in units and dollars by month (October, November and December along with the 4th quarter total).
b) Prepare a Purchases Budget in units for each month (October, November and December along with the 4th quarter total).
15. Calista Gardens has gathered the following information regarding their cash collections of sales:
80% of the sales are collected in cash in the month of the sale.
20% are collected in the first month after the sale.
Accounts receivable at the end of 2014 was $10,000
Sales for the first 3 months of 2015 are as follows:
|
January
|
35,000
|
|
February
|
25,000
|
|
March
|
50,000
|
|
Total
|
110,000
|
Prepare a monthly schedule of cash collections for Calista Gardens for January, February and March for the first quarter of 2015.
16. The following budgeted and actual volume and cost data are for July of this year.
Prepare a flexible budget analysis for July of this year by filling in the Flexible budget amounts based on the actual sales volume and calculating the variances. DON'T FORGET TO INDICATE WHETHER THEY ARE FAVORABLE OR UNFAVORABLE!
|
|
Budget (per unit)
|
Budget
|
Actual
|
FLEXIBLE BUDGET
|
Variance
|
|
Volume
|
40,000
|
40,000
|
36,000
|
36,000
|
|
|
|
Sales Revenue
|
$70 per unit
|
$2,800,000
|
$2,520,000
|
|
|
|
|
Budgeted manufacturing costs:
|
|
|
|
|
|
|
Variable costs:
|
|
|
|
|
|
|
Direct materials
|
$35.00
|
$1,400,000
|
$1,350,000
|
|
|
|
Direct labor
|
15.00
|
600,000
|
580,000
|
|
|
|
Overhead
|
5.00
|
200,000
|
180,000
|
|
|
|
Total fixed overhead costs
|
$450,000
|
450,000
|
406,000
|
|
|
|
Net Income before taxes
|
|
$150,000
|
4,000
|
|
|
|
17. Below is a projected income statement for the coming month (Based on selling 30,000 units)
Dollars Per unit
Sales revenue $600,000 $600,000/30,000 units = $20.00
Variable cost of goods sold (225,000) $225,000/30,000 units = $7.50
Variable marketing costs (150,000) $150,000/30,000 units = $5.00
Contribution margin 225,000 $225,000/30,000 units = $7.50
Fixed cost of goods sold (135,000)
Fixed marketing costs ( 60,000)
Operating Income $ 30,000
The company has a special (one-time) order for 5,000 units to be purchased at a sales price of $11 per unit. Should they sell these 5,000 units for $11?
In addition, no marketing costs will be necessary for the 5,000 one-time-only special order.
18. The Kirsten Company uses a joint process to produce products A, B, C, and D. Each product may be sold at its split-off point or processed further. Joint processing costs for a single batch of joint products are $65,000. Other relevant data are as follows:
|
Product
|
Sales Value
At Split-Off
|
Additional Costs
of Processing
|
Sales Value
of Final Product
|
|
A
|
$15,000
|
$18,000
|
$ 45,000
|
|
B
|
27,000
|
15,000
|
40,000
|
|
C
|
20,000
|
25,000
|
30,000
|
|
D
|
13,000
|
11,000
|
25,000
|
|
|
$75,000
|
$69,000
|
$140,000
|
Calculate the effect on profits of processing Product D further beyond the split-off point