ACCT 505 Final Exam Answers

1. (TCO C) Silver City, Inc., has collected the following operating information
below for its current months activity. Using this information, prepare a flexible
budget analysis to determine how well Silver City performed in terms of cost
control.

Actual Costs Incurred

Static Budget

Activity level (in units)

5,250

5,178

Variable Costs:

Indirect materials

$24,182

$23,476

Utilities

$22,356

$22,674

Fixed Costs:

Administration

$63,450

$65,500

Rent

$65,317

$63,904

2. (TCO D) Globe Co. manufactures automatic door openers. The company uses
15,000 electronic hinges per year as a component in the assembly of the
openers. You have been engaged by Globe to assist with an evaluation of
whether the company should continue producing the hinges or purchase them
from an outside vendor.

The Accounting Department provided the following detail regarding the annual
cost to produce electronic hinges:
Direct materials

$54,000

Direct labor

60,000

Variable manufacturing overhead

36,000

Fixed manufacturing overhead

90,000

Total costs

$240,000

The Procurement Department provided the following supplier pricing:

Supplier A price per hinge

$11.00

Supplier B price per hinge

$10.75

Supplier C price per hinge

$10.50

The supplier pricing was obtained in response to a formal request for proposal
(RFP). Procurement has determined these suppliers meet Globes technical
specifications and quality requirements.

If Globe stops producing the part internally, 10% of the fixed manufacturing
overhead would be eliminated.

Required: Prepare a make-or-buy analysis showing the annual advantage or

disadvantage (in dollars) of accepting an outside suppliers offer. Should the
company buy the parts? If so, from which supplier?

3. (TCO E) Mesa 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

Less cost of goods sold:

Beginning inventory

12,000

Add cost of goods manufactured

54,000

Goods available for sale

66,000

Less ending inventory

6,000

Cost of goods sold

60,000

Gross margin

40,000

Less selling and admin. expenses

28,000

Net operating income

$12,000

Variable manufacturing costs are $4 per unit. Fixed factory overhead totals
$18,000 for the year. This 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.

4. (TCO A) The following data (in thousands of dollars) have been taken from the
accounting records of the White Sands Corporation for the just-completed year.
Sales

1,150

Raw materials inventory, beginning

15

Raw materials inventory, ending

40

Purchases of raw materials

150

Direct labor

250

Manufacturing overhead

300

Administrative expenses

500

Selling expenses

300

Work in process inventory, beginning

100

Work in process inventory, ending

150

Finished goods inventory, beginning

80

Finished goods inventory, ending

120

Use the above data to prepare (in thousands of dollars) a schedule of Cost of
Goods Manufactured and a Schedule of Cost of Goods Sold for the year. In
addition, what is the impact on the financial statements if the ending finished
goods inventory is overstated or understated?
1. (TCO F) Farmington Corporation uses the weighted-average method in its
process costing system. Data concerning the first processing department for the
most recent month are listed below.

Work in process, beginning:

Units in beginning work-in-process inventory

400

Materials costs

$6,900

Conversion costs

$2,500

Percentage complete for materials

80%

Percentage complete for conversion

15%

Units started into production during the month

6,000

Units transferred to the next department during the month

5,000

Materials costs added during the month

$112,500

Conversion costs added during the month

$210,300

Ending work in process:

Units in ending work-in-process inventory

1,200

Percentage complete for materials

60%

Percentage complete for conversion

30%
Required: Calculate the equivalent units for materials (using the weighted-
average method) for the month in the first processing department.

2.

(TCO G) (Ignore income taxes in this problem.) Tennessee Co. is considering the
production of an exterior paint that will require the purchase of new mixing
machinery. The machinery will cost $700,000, is expected to have a useful life of
12 years, and is expected to have a salvage value of $100,000 at the end of 12
years. The machinery will also need a $40,000 overhaul at the end of Year 7. A
$50,000 increase in working capital will be needed for this investment project.
The working capital will be released at the end of the 12 years. The new paint is
expected to generate net cash inflows of $120,000 per year for each of the 12
years. Tennessees discount rate is 14%.

Required:

a. What is the net present value of this investment opportunity?

b. Based on your answer to (a) above, should Tennessee go ahead with the new
paint?

3. (TCO B) Winslow Corporation produces and sells a single product. Data

concerning that product appear below.

Selling price per unit

$130.00

Variable expense per unit

$27.30

Fixed expense per month

$165,3

Required:

a) Determine the monthly break-even in unit sales. Show your work!

b) Determine the monthly break-even in dollar sales. Show your work!

1. (TCO F) Manchester, Inc. bases its predetermined overhead rate on the

estimated machine hours for the upcoming year. Data for the upcoming year
appear below.

Estimated machine hours

85,000

Estimated variable manufacturing overhead

$5.55 per machine hour

Estimated total fixed manufacturing overhead

$951,888

Required:

Compute the companys predetermined overhead rate.

2. (TCO F) Memphis Corporation is preparing its cash budget for February. The
budgeted beginning cash balance is $27,000. Budgeted cash receipts total
$136,000 and budgeted cash disbursements total $128,000. The desired ending
cash balance is $50,000. The company can borrow up to $110,000 at any time
from a local bank, with interest not due until the following month.

Required:

Prepare the companys cash budget for February in good form. Make sure to
indicate what borrowing, if any, would be needed to attain the desired ending
cash balance.