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Chapter 2, Problem #15 ( Page 65)

Wollogong Group Ltd. of New South Wales, Australia, acquired its factory building about 10 years ago. For several years, the company has rented out a small annex attached to the rear of the building. The company has received a rental income of $30,000 per year on this space. The renter's lease will expire soon, and rather than renewing the lease, the company has decided to use the space itself to manufacture a new product. Direct materials cost for the new product will total $80 per unit. To have a place to store finished units of product, the company will rent a small warehouse nearby. The rental cost will be $500 per month. In addition, the company must rent equipment for use in producing the new product; the rental cost will be $4,000 per month. Workers will be hired to manufacture the new product, with direct labor cost amounting to $60 per unit. The space in the annex will continue to be depreciated on a straight-line basis, as in prior years. This depreciation is $8,000 per year. Advertising costs for the new product will total $50,000 per year. A supervisor will be hired to oversee production; her salary will be $1,500 per month. Electricity for operating machines will be $1.20 per unit. Costs of shipping the new product to customers will be $9 per unit. To provide funds to purchase materials, meet payrolls, and so forth, the company will have to liquidate some temporary investments. These investments are presently yielding a return of about $3,000 per year. Various costs associated with the operation of factories are given below:

1.Electricity to run production equipment. 2.Rent on a factory building. 3.Cloth used to make drapes. 4.Production superintendent's salary. 5.Wages of laborers assembling a product. 6.Depreciation of air purification equipment used to make furniture. 7.Janitorial salaries. 8.Peaches used in canning fruit. 9.Lubricants for production equipment. 10.Sugar used in soft-drink production. 11.Property taxes on the factory. 12.Wages of workers painting a product. 13.Depreciation on cafeteria equipment. 14.Insurance on a building used in producing helicopters. 15.Cost of rotor blades used in producing helicopters.

Required: Classify each cost as either variable or fixed with respect to the number of units produced and sold. Also indicate whether each cost would typically be treated as a direct cost or an indirect cost with respect to units of product. Prepare your answer sheet as shown below:

Chapter 2, Problem #18 ( Page 67)

Various cost and sales data for Meriwell Company for the just completed year appear in the worksheet below:

Of the $105,000 of manufacturing overhead, $15,000 is variable and $90,000 is fixed. Required:

1.Prepare a schedule of cost of goods manufactured. 2.Prepare an income statement. 3.Assume that the company produced the equivalent of 10,000 units of product during the year just completed. What was the average cost per unit for direct materials? What was the average cost per unit for fixed manufacturing overhead? 4.Assume that the company expects to produce 15,000 units of product during the coming year. What average cost per unit and what total cost would you expect the company to incur for direct materials at this level of activity? For fixed manufacturing overhead? Assume that direct materials is a variable cost. 5.As the manager responsible for production costs, explain to the president any difference in the average costs per unit between (3) and (4) above.

Chapter 5, Exercise 8 ( Page 218)

The Lakeshore Hotel's guest-days of occupancy and custodial supplies expense over the last seven months were:

Guest-days is a measure of the overall activity at the hotel. For example, a guest who stays at the hotel for three days is counted as three guest-days. Required:

1.Using the high-low method, estimate a cost formula for custodial supplies expense. 2.Using the cost formula you derived above, what amount of custodial supplies expense would you expect to be incurred at an occupancy level of 11,000 guest-days?

Chapter 5, Problem #17 ( Page 223)

Nova Company's total overhead cost at various levels of activity are presented below:

Assume that the total overhead cost above consists of utilities, supervisory salaries, and maintenance. The breakdown of these costs at the 60,000 machine-hour level of activity is:

Nova Company's management wants to break down the maintenance cost into its variable and fixed cost elements. Required:

1.Estimate how much of the $246,000 of overhead cost in July was maintenance cost. (Hint: to do this, it may be helpful to first determine how much of the $246,000 consisted of utilities and supervisory salaries. Think about the behavior of variable and fixed costs!) 2.Using the high-low method, estimate a cost formula for maintenance. 3.Express the company's total overhead cost in the linear equation form Y = a + bX. 4.What total overhead cost would you expect to be incurred at an operating activity level of 75,000 machine-hours?

Chapter 3, Exercise #10 ( Page 122)

Estimated cost and operating data for three companies for the upcoming year follow:

Predetermined overhead rates are computed using the following allocation bases in the three companies:


1.Compute each company's predetermined overhead rate.

2.Assume that Company X works on three jobs during the upcoming year. Direct laborhours recorded by job are: Job 418, 12,000 hours; Job 419, 36,000 hours; and Job 420, 30,000 hours. How much overhead will the company apply to Work in Process for the year? If actual overhead costs total $530,000 for the year, will overhead be underapplied or overapplied? By how much?

Chapter 3, Problem #31 ( Page 136-137)

Froya Fabrikker A/S of Bergen, Norway, is a small company that manufactures specialty heavy equipment for use in North Sea oil fields. (The Norwegian currency is the krone, which is denoted by Nkr.) The company uses a job-order costing system and applies manufacturing overhead cost to jobs on the basis of direct labor-hours. At the beginning of the year, the following estimates were made for the purpose of computing the predetermined overhead rate: manufacturing overhead cost, Nkr360,000; and direct labor-hours, 900. The following transactions took place during the year (all purchases and services were acquired on account):

a.Raw materials were purchased for use in production, Nkr200,000. b.Raw materials were requisitioned for use in production (all direct materials), Nkr185,000. c.Utility bills were incurred, Nkr70,000 (90% related to factory operations, and the remainder related to selling and administrative activities). d.Salary and wage costs were incurred:

e.Maintenance costs were incurred in the factory, Nkr54,000. f.Advertising costs were incurred, Nkr136,000. g.Depreciation was recorded for the year, Nkr95,000 (80% related to factory equipment, and the remainder related to selling and administrative equipment). h.Rental cost incurred on buildings, Nkr120,000 (85% related to factory operations, and the remainder related to selling and administrative facilities). i.Manufacturing overhead cost was applied to jobs, Nkr ? . j.Cost of goods manufactured for the year, Nkr770,000. k.Sales for the year (all on account) totaled Nkr1,200,000. These goods cost Nkr800,000 according to their job cost sheets.

Chapter 4, Problem #13 ( Page 168)

Sunspot Beverages, Ltd., of Fiji makes blended tropical fruit drinks in two stages. Fruit juices are extracted from fresh fruits and then blended in the Blending Department. The blended juices are then bottled and packed for shipping in the Bottling Department. The following information pertains to the operations of the Blending Department for June. (The currency in Fiji is the Fijian dollar.)

Required: Assume that the company uses the weighted-average method.

1.Determine the equivalent units for June for the Blending Department. 2.Compute the costs per equivalent unit for the Blending Department. 3.Determine the total cost of ending work in process inventory and the total cost of units transferred to the Bottling Department. 4.Prepare a cost reconciliation report for the Blending Department for June.
Week 3 Assignments: Chapter 6: Exercise 7 ( Page 264)

Mauro Products distributes a single product, a woven basket whose selling price is $15 and whose variable expense is $12 per unit. The company's monthly fixed expense is $4,200. Required:

1.Solve for the company's break-even point in unit sales using the equation method. 2.Solve for the company's break-even point in sales dollars using the equation method and the CM ratio. 3.Solve for the company's break-even point in unit sales using the formula method. 4.Solve for the company's break-even point in sales dollars using the formula method and the CM ratio.

Chapter 6, Exercise 10 ( Page 265)

Lucido Products markets two computer games: Claimjumper and Makeover. A contribution format income statement for a recent month for the two games appears on the folowing page:


1.Compute the overall contribution margin (CM) ratio for the company. 2.Compute the overall break-even point for the company in sales dollars. 3.Verify the overall break-even point for the company by constructing a contribution format income statement showing the appropriate levels of sales for the two products.

Chapter 6, Problem #19 ( Page 268)

Feather Friends, Inc., distributes a high-quality wooden birdhouse that sells for $20 per unit. Variable costs are $8 per unit, and fixed costs total $180,000 per year. Required: Answer the following independent questions:

1.What is the product's CM ratio? 2.Use the CM ratio to determine the break-even point in sales dollars. 3.Due to an increase in demand, the company estimates that sales will increase by $75,000 during the next year. By how much should net operating income increase (or net loss decrease) assuming that fixed costs do not change? 4.Assume that the operating results for last year were:

Chapter 7, Problem #12 ( Page 298) High Country, Inc., produces and sells many recreational products. The company has just opened a new plant to produce a folding camp cot that will be marketed throughout the United States. The following cost and revenue data relate to May, the first month of the plant's operation:

Week 4 homework
Chapter 8: Exercise 8-3 (Page 338) Green Thumb Gardening is a small gardening service that uses activity-based costing to estimate costs for pricing and other purposes. The proprietor of the company believes that costs are driven primarily by the size of customer lawns, the size of customer garden beds, the distance to travel to customers, and the number of customers. In addition, the costs of maintaining garden beds depends on whether the beds are low maintenance beds (mainly ordinary trees and shrubs) or high maintenance beds (mainly flowers and exotic plants). Accordingly, the company uses the five activity cost pools listed below:

The company has already completed its first stage allocations of costs and has summarized its annual costs and activity as follows:

Required: Compute the activity rate for each of the activity cost pools.

Chapter 8: Exercise 8-14 ( Page 343) Advanced Products Corporation has supplied the following data from its activity-based costing system:

During the year, Advanced Products completed one order for a new customer, Shenzhen Enterprises. This customer did not order any other products during the year. Data concerning that order follow:


1.Using Exhibit 85 as a guide, prepare a report showing the first-stage allocations of overhead costs to the activity cost pools. 2.Using Exhibit 86 as a guide, compute the activity rates for the activity cost pools. 3.Prepare a report showing the overhead costs for the order from Shenzhen Enterprises including customer support costs. 4.Using Exhibit 811 as a guide, prepare a report showing the customer margin for Shenzhen Enterprises.
Chapter 9: Problem #19 ( Page 403) Minden Company is a wholesale distributor of premium European chocolates. The company's balance sheet as of April 30 is given below:

The company is in the process of preparing budget data for May. A number of budget items have already been prepared, as stated below:

a.Sales are budgeted at $200,000 for May. Of these sales, $60,000 will be for cash; the remainder will be credit sales. One-half of a month's credit sales are collected in the month the sales are made, and the remainder is collected in the following month. All of the April 30 accounts receivable will be collected in May. b.Purchases of inventory are expected to total $120,000 during May. These purchases will all be on account. Forty percent of all purchases are paid for in the month of purchase; the remainder are paid in the following month. All of the April 30 accounts payable to suppliers will be paid during May. c.The May 31 inventory balance is budgeted at $40,000. d.Selling and administrative expenses for May are budgeted at $72,000, exclusive of depreciation. These expenses will be paid in cash. Depreciation is budgeted at $2,000 for the month. e.The note payable on the April 30 balance sheet will be paid during May, with $100 in interest. (All of the interest relates to May.) f.New refrigerating equipment costing $6,500 will be purchased for cash during May. g.During May, the company will borrow $20,000 from its bank by giving a new note payable to the bank for that amount. The new note will be due in one year.

Required: 1.Prepare a cash budget for May. Support your budget with a schedule of expected cash collections from sales and a schedule of expected cash disbursements for merchandise purchases. 2.Prepare a budgeted income statement for May. Use the absorption costing income statement format as shown in Schedule 9. 3.Prepare a budgeted balance sheet as of May 31.