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1. (TCO D) Topple Company produces a single product. Operating data for the company
and its absorption costing income statement for the last year are presented below.
Units in beginning inventory
2,000
Units produced
9,000
Units sold
10,000
Sales
$100,000
12,000
54,000
66,000
6,000
60,000
Gross margin
40,000
28,000
$12,000
Variable manufacturing costs are $4 per unit. Fixed manufacturing overhead totals
$18,000 for the year. The fixed manufacturing overhead was applied at a rate of $2 per
unit. Variable selling and administrative expenses were $1 per unit sold.
Required: Prepare a new income statement for the year using variable costing.
Comment on the differences between the absorption costing and the variable costing
income statements. (Points : 30)
Question 2. 2. (TCO I) (Ignore income taxes in this
problem.) Simpson Beauty Products Corporation is
considering the production of a new conditioning shampoo
that will require the purchase of new mixing machinery.
The machinery will cost $700,000, is expected to have a
useful life of 10 years, and is expected to have a salvage
value of $70,000 at the end of 10 years. The machinery
will also need a $45,000 overhaul at the end of Year 5. A
$60,000 increase in working capital will be needed for this
investment project. The working capital will be released at
the end of the 10 years. The new shampoo is expected to
generate net cash inflows of $150,000 per year for each
of the 10 years. Simpson's discount rate is 18%.
Required:
Part A: What is the net present value of this investment
opportunity?
Part B: Based on your answer to (a) above, should
Simpson go ahead with the new conditioning shampoo?
(Points : 30)
Question 3. 3. (TCO A) The following data (in thousands of
dollars) have been taken from the accounting records of
the Maroon Corporation for the just-completed year.
Sales
1,700
50
25
210
Direct labor
360
Manufacturing overhead
330
Administrative expenses
400
Selling expenses
200
120
150
80
120
Required:
Prepare the company's cash budget for November in good
form. Make sure to indicate what borrowing, if any, would
be needed to attain the desired ending cash balance
(Points : 25)
Question 5. 5. (TCO F) Bella Lugosi Holdings, Inc. (BLH),
has collected the following operating information for its
current month's activity. Using this information, prepare a
flexible budget analysis to determine how well BLH
performed in terms of cost control.
Actual Costs
Incurred
Activity level (in
units)
Static
Budget
5,250
5,178
Indirect materials
$24,182
$23,476
Utilities
$22,356
$22,674
Administration
$63,450
$65,500
Rent
$65,317
$63,904
Variable costs:
Fixed costs:
(Points : 25)
Question 6. 6. (TCO H) Lindon Company uses 10,000 units
of Part Y each year as a component in the assembly of
one of its products. The company is presently producing
Part Y internally at a total cost of $100,000 as follows.
Direct materials............................................... $20,000
Direct labor...................................................... 40,000
Variable manufacturing overhead...................... 16,000
Fixed manufacturing overhead.......................
24,000
Total costs.......................................................100,000
An outside supplier has offered to provide Part Y at a price
of $10 per unit. If Lindon stops producing the part
internally, one third of the fixed manufacturing overhead
would be eliminated.
Required: Should Lindon Company make or buy the part?
Prepare a make-or-buy analysis showing the annual
advantage or disadvantage of accepting the outside
supplier's offer. (Points : 30)
Question 7. 7. (TCO B) Sandler Corporation bases its
predetermined overhead rate on the estimated machine
hours for the upcoming year. Data for the upcoming year
appear below.
75,000
Estimated variable
manufacturing overhead
$4.50
$825,0
00
per
machine
hour