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ACCT 505 Week 1 Case Study


Top Switch Inc. designs and manufactures switches used in telecommunications. Serious flooding throughout the state of Tennessee affected Top Switch’s facilities. Inventory was completely ruined, and the company’s computer system, including all accounting records, was destroyed.

Before the unfortunate incident, recovery specialists cleaned the buildings. The company controller is very nervous and anxious to recover whatever records he can to support the insurance claim for the destroyed inventory. After consulting with the cost accountant, they decide to retrieve the previous year’s annual report for the beginning inventory numbers. In addition, they also agreed that they need first quarter cost data.

The cost accountant was working on the first quarter results before the storm hit, and to his surprise, the report was still in his desk drawer. After reviewing the data , the information shows the following information: Material purchases were $ 325,000; Direct Labor was $ 220,000. Further discussions between the controller and the cost accountant revealed that sales were $ 1,350,000 and the gross margin was 30% of sales. The cost accountant also discovered, while sifting through the information, that cost of goods available for sale was $ 1,020,000 at cost. While assessing the damage, the controller determined that the prime costs were $ 545,000 up to the time of the damage and that manufacturing overhead is 65% of conversion cost. The cost accountant is not sure about all of this, but he decides to see what he can do with the information.

The beginning inventory numbers are as follows:

Raw Materials, $ 41,000
Work in Process, $ 56,000
Finished Goods, $ 35,000


Determine the amount of cost in the Raw Materials, Work in Process, and Finished Goods Inventory as of the date of the storm. ( Hint: You may wish to reconstruct the various schedules and statements that would have been affected by the company’s accounts during the period.)

Grading Rubric for Case Study I:





Documentation &




Worksheet will be done in Excel and will contain formulas to receive maximum credit

Organization and Cohesiveness



Calculations for all parts should be organized and correctly labeled.




A quality case study will have all required work completed and will be correct.




A quality project will meet or exceed all of the above requirements. 



ACCT 505 Week 2 Quiz


1.Question :(TCO F) For which situation(s) below would an organization be more likely to use a job-order costing system of accumulating product costs

rather than a process costing system?

2.Question :(TCO F) Process costing would be appropriate for each of the following except:

3.Question :(TCO F) Lucas Company uses the weighted-average method in its process costing system. The company adds materials at the beginning

of the process in the Forming Department, which is the first of two stages in its production process. Information concerning operations in the Forming Department in October follows:


Material Cost

Work in process on October 1



Units started in October



Units completed and transferred to next Department during October


What was the materials cost of work in process at on October 31?

4.Question :(TCO F) In a job-order costing system, the use of direct materials that have been previously purchased is recorded as a debit to:

5.Question :(TCO F) During December at Ingrim Corporation, $74,000 of raw materials were requisitioned from the storeroom for use in production.

These raw materials included both direct and indirect materials. The indirect materials totaled $6,000. The journal entry to record the requisition from the storeroom would include a:

6.Question :(TCO F) Valles Corporation had $22,000 of raw materials on hand on February 1. During the month, the company purchased an additional $75,000 of raw materials. The journal entry to record the purchase of raw materials would include a:

1.Question :(TCO F) Whether a company uses process costing or job-order costing depends on its industry. A number of companies in different industries are listed below:

  1. Brick manufacturer
    ii. Contract printer that produces posters, books, and pamphlets to order
    iii. Natural gas production company
    iv. Dairy farm
    v. Coal mining company
    vi. Specialty coffee roaster (roasts small batches of specialty coffee beans)

    For each company, indicate whether the company is most likely to use job-order costing or process costing.
  2. Brick manufacturer Process Costing ii. Contract printer that produces posters, books, and pamphlets to order Job Order Costing iii. Natural gas production company Process Costing iv. Dairy farm Process Costing v. Coal mining company Process Costing vi. Specialty coffee roaster (roasts small batches of specialty coffee beans) Job Order Costing

2.Question :(TCO F) Job 484 was recently completed. The following data have been recorded on its job cost sheet:

Direct materials


Direct labor hours

1,692 DLHs

Direct labor wage rate

$12 per DLHS

Number of units completed

3,600 units

The company applies manufacturing overhead on the basis of direct labor-hours. The predetermined overhead rate is $24 per direct labor-hour.

Compute the unit product cost that would appear on the job cost sheet for this job.

3.Question :(TCO F) Miller Company manufactures a product for which materials are added at the beginning of the manufacturing process. A review of the company's inventory and cost records for the most recently completed year revealed the following information:




Work in process. Jan. 1 (80% complete with respect to conversion costs)




Units started into production


Costs added during the year:





Units completed during the year


The company uses the weighted-average cost method in its process costing system. The ending inventory is 50% complete with respect to conversion costs.


i. Compute the equivalent units of production and the cost per equivalent units for materials and for conversion costs.

ii. Determine the cost transferred to finished goods.

iii. Determine the amount of cost that should be assigned to the ending work in process inventory.


Question :

(TCO F) Weisinger Corporation has provided the following data for the month of January:




Raw materials



Work In process



Finished goods



Additional Information

Raw material purchases


Direct labor costs


Manufacturing overhead cost incurred


Indirect materials included in manufacturing overhead costs incurred


Manufacturing overhead cost applied to work in process


Prepare a Schedule of Cost of Goods Manufactured and a Schedule of Cost of Goods Sold in good form.


Question 1. Question : (TCO B) Assume there is no beginning work in process inventory and the ending work in process inventory is 100% complete with respect to materials costs. The number of equivalent units with respect to materials costs under the weighted average method is


  Student Answer:  the same as the number of units completed.  

   less than the number of units put into production.  

     the same as the number of units put into production.  

   less than the number of units completed.  



Question 2. Question : (TCO B) For which situation(s) below would an organization be more likely to use a job-order costing system of accumulating product costs rather than a process costing system?


  Student Answer:  A steel factory that processes iron ore into steel bars  

     A computer consulting firm  

   A factory that processes sugar and other ingredients into candy  

   All of the above  



Question 3. Question : (TCO B) Luft Company uses the weighted-average method in its process costing system. Operating data for the first processing department for the month of June appear below.

  Units Percent Complete With Respect to Conversion

Beginning work in process inventory 11,000 90%

Started in production during June 58,000  

Ending work in process inventory 17,000 10%


According to the company’s records, the conversion cost in beginning work in process inventory was $79,893 at the beginning of June. Additional conversion costs of $343,830 were incurred in the department during the month.


What was the cost per equivalent unit for conversion costs for the month? (Round to three decimal places.)


  Student Answer:    $7.891  







Question 4. Question : (TCO B) In a job-order costing system, the use of direct materials that have been previously purchased is recorded as a debit to 


  Student Answer:  raw materials.  

   finished goods.  

     work in process.  

   manufacturing overhead.  



Question 5. Question : (TCO B) During October, Crusan Corporation incurred $62,000 of direct labor costs and $4,000 of indirect labor costs. The journal entry to record the accrual of these wages would include a


  Student Answer:  debit to work in process of $66,000.  

   credit to work in process of $66,000.  

   credit to work in process of $62,000.  

     debit to work in process of $62,000.  



Question 6. Question : (TCO B) During February, Degan Inc. transferred $60,000 from work in process to finished goods and recorded a cost of goods sold of $65,000. The journal entries to record these transactions would include a


  Student Answer:  debit to finished goods of $65,000.  

   credit to cost of goods sold of $65,000.  

     credit to work in process of $60,000.  

   credit to finished goods of $60,000.  



 * Times are displayed in (GMT-07:00) Mountain Time (US & Canada)

Grading Summary

These are the automatically computed results of your exam. Grades for essay questions, and comments from your instructor, are in the “Details” section below.  Date Taken:  5/15/2016

Time Spent: 1 h , 27 min , 22 secs 

Points Received: 71 / 90  (78.9%) 




Grade Details – All Questions 

Page:   1  2   

Question 1. Question : (TCO B) Some companies use process costing and some use job-order costing. Which method a company uses depends on its industry. Several companies in different industries are listed below.


  1. Frozen cranberry juice processor
  2. Custom boat builder

iii. Concrete block manufacturer

  1. Winery that produces a number of specialty wines
  2. Aluminum refiner that makes aluminum ingots from bauxite ore
  3. External auditing firm


For each company, indicate whether the company is most likely to use job-order costing or process costing.



Question 2. Question : (TCO B) Job 728 was recently completed. The following data have been recorded on its job cost sheet.


Direct materials $89,925

Direct labor hours 1,220 labor hours

Direct labor wage rate $15 per labor hour

Machine hours 1,550 machine hours

Number of units completed 4,500 units


The company applies manufacturing overhead on the basis of machine hours. The predetermined overhead rate is $18 per machine hour.


Compute the unit product cost that would appear on the job cost sheet for this job. 





Question 3. Question : (TCO B) Harmon Company uses the weighted average method in its process costing system. The Curing Department of Harmon Company reported the following information for the month of November. 

  Units Percent complete with respect to  materials Percentage complete with respect to conversion

Work in process, November 1 10,000 100% 80%

Units started 28,000    

Completed and transferred out 30,000    

Work in process, November 30 8,000 100% 30%



Costs for November Materials   Conversion

    Work in process, November 1 $34,500    $48,600 

    Added during the month $146,000    $194,400


All materials are added at the beginning of the process.


Required: Compute the following items using the weighted average method.


  1. The equivalent units of production for materials
  2. The cost per equivalent unit for conversion

iii. The total cost assigned to units transferred out of the curing department during November

  1. The cost assigned to work in process inventory as of November 30 



Question 4. Question : (TCO A) Hunsicker Corporation has provided the following data for the month of January.


Inventories   Beginning Ending

  Raw materials $30,000  $33,000 

  Work in process $20,000  $18,000 

  Finished goods $52,000  $50,000 



Additional Information  

  Raw material purchases $63,000 

  Direct labor costs $92,000 

  Manufacturing overhead cost incurred $75,000 

  Indirect materials included in manufacturing overhead costs incurred $6,000 

  Manufacturing overhead cost applied to work in process $72,000 


Prepare a Schedule of Cost of Goods Manufactured and a Schedule of Cost of Goods Sold in good form. 



ACCT 505 Week 3 Case Study II


Springfield Express is a luxury passenger carrier in Texas. All seats are first class, and the following data are available:

Number of seats per passenger train car


Average load factor (percentage of seats filled)


Average full passenger fare


Average variable cost per passenger


Fixed operating cost per month


What is the break-even point in passengers and revenues per month? What is the break-even point in number of passenger train cars per month? If Springfield Express raises its average passenger fare to $ 190, it is estimated that the average load factor will decrease to 60 percent. What will be the monthly break-even point in number of passenger cars? (Refer to original data.) Fuel cost is a significant variable cost to any railway. If crude oil increases by $ 20 per barrel, it is estimated that variable cost per passenger will rise to $ 90. What will be the new break-even point in passengers and in number of passenger train cars? Springfield Express has experienced an increase in variable cost per passenger to $ 85 and an increase in total fixed cost to $ 3,600,000. The company has decided to raise the average fare to $ 205. If the tax rate is 30 percent, how many passengers per month are needed to generate an after-tax profit of $ 750,000? (Use original data). Springfield Express is considering offering a discounted fare of $ 120, which the company believes would increase the load factor to 80 percent. Only the additional seats would be sold at the discounted fare. Additional monthly advertising cost would be $ 180,000. How much pre-tax income would the discounted fare provide Springfield Express if the company has 50 passenger train cars per day, 30 days per month? Springfield Express has an opportunity to obtain a new route that would be traveled 20 times per month. The company believes it can sell seats at $ 175 on the route, but the load factor would be only 60 percent. Fixed cost would increase by $ 250,000 per month for additional personnel, additional passenger train cars, maintenance, and so on. Variable cost per passenger would remain at $ 70. Should the company obtain the route? How many passenger train cars must Springfield Express operate to earn pre-tax income of $ 120,000 per month on this route? If the load factor could be increased to 75 percent, how many passenger train cars must be operated to earn pre-tax income of $ 120,000 per month on this route? What qualitative factors should be considered by Springfield Express in making its decision about acquiring this route?

Grading Rubric for Case Study II:





Documentation & Formatting



Case Study will be completed in Word or Excel and contain necessary formulas to receive maximum credit

Organization & Cohesiveness



Calculations for all parts should be organized and correctly labeled. In a quality case study, all questions should be addressed in a clear, concise manner.




Quality work will be free of any spelling, punctuation or grammatical errors. Sentences and paragraphs ( where appropriate) will be clear, concise and factually correct




A quality project will have all of the required work completed and will be correct.




A quality project will meet or exceed all of the above requirements. 



ACCT 505 Week 4 Midterm Exam



Question :

(TCO A) Wages paid to an assembly line worker in a factory are a


Question :

(TCO A) A cost incurred in the past that is not relevant to any current decision is classified as a(n)


Question :

(TCO A) Depreciation of office buildings and office equipment is also known as


Question :

(TCO A) When the activity level is expected to increase within the relevant range, what effects would be anticipated with respect to each of the following?


Question :

(TCO F) Which of the following statements is true?

  1. Overhead application may be made slowly as a job is worked on.
  2. Overhead application may be made in a single application at the time of completion of the job.

III. Overhead application should be made to any job not completed at year end in order to properly value the work in process inventory.


Question :

(TCO F) A job-order cost system is employed in those situations where


Question :

(TCO F) The FIFO method only provides a major advantage over the weighted-average method in that


Question :

(TCO B) The contribution margin ratio always decreases when the


Question :

(TCO B) Which of the following would not affect the break-even point?


Question :

(TCO E) In an income statement prepared using the variable costing method, variable selling and administrative expenses would


Question :

(TCO A) The following data (in thousands of dollars) have been taken from the accounting records of Larop Corporation for the just-completed year:



Purchases of raw materials................................................


Direct labor.......................................................................


Manufacturing overhead....................................................


Administrative expenses....................................................


Selling expenses................................................................


Raw materials inventory, beginning.....................................


Raw materials inventory, ending.........................................


Work-in-process inventory, beginning.................................


Work-in-process inventory, ending.....................................


Finished goods inventory, beginning...................................


Finished goods inventory, ending.......................................


Required: Prepare a Schedule of Cost of Goods Manufactured in the text box below.


Question :

(TCO F) The Illinois Company manufactures a product that goes through three processing departments. Information relating to activity in the first department during June is given below.

Percentage Completed
Units Materials Conversion
Work in process, June 1 150,000 75% 55%
Work in process, Jun 30 145,000 85% 75%

The department started 475,000 units into production during the month and transferred 480,000 completed units to the next department.

Required: Compute the equivalent units of production for the first department for June, assuming that the company uses the weighted-average method of accounting for units and costs.


Question :

(TCO B) A tile manufacturer has supplied the following data:

Boxes of tile produced and sold 625,000

Sales revenue $2,975,000

Variable manufacturing expense $1,720,000

Fixed manufacturing expense $790,000

Variable selling and admin expense $152,000

Fixed selling and admin expense $133,000

Net operating income $180,000


  1. Calculate the company's unit contribution margin.
  2. Calculate the company's unit contribution ratio.
  3. If the company increases its unit sales volume by 5% without increasing its fixed expenses, what would the company's net operating income be?


Question :

(TCO E) Lehne Company, which has only one product, has provided the following data concerning its most recent month of operations:

Selling price

$ 125

Units in beginning inventory


Units oroduced


Units sold


Units in ending inventory


Variable costs per unit:

Direct materials

$ 15

Direct labor

$ 50

Variable manufacturing overhead

$ 8

Variable selling and admin

$ 12

Fixed costs:

Fixed manufacturing overhead

$ 75,000

Fixed selling and admin

$ 20,000

The company produces the same number of units every month, although the sales in units vary from month to month. The company's variable costs per unit and total fixed costs have been constant from month to month.


  1. What is the unit product cost for the month under variable costing?
    b. What is the unit product cost for the month under absorption costing?
    c. Prepare an income statement for the month using the variable costing method.
    d. Prepare an income statement for the month using the absorption costing method. 



ACCT 505 Week 5 Course Project 1 LBJ Company



You have just been contracted as a budget consultant by LBJ Company, a distributor of bracelets to various retail outlets across the country. The company has done very little in the way of budgeting and at certain times of the year has experienced a shortage of cash.

You have decided to prepare a cash budget for the upcoming fourth quarter in order to show management the benefits that can be gained from proper cash planning.  You have worked with accounting and other areas to gather the information assembled below.

The company sells many styles of bracelets, but all are sold for the same $10 price.  Actual sales of bracelets for the last three months and budgeted sales for the next six months follow:


The concentration of sales in the fourth quarter is due to the Christmas holiday. Sufficient inventory should be on hand at the end of each month to supply 40% of the bracelets sold in the following month.



Suppliers are paid $4 for each bracelet.  Fifty-percent of a month's purchases is paid for in the month of purchase; the other 50% is paid for in the following month.  All sales are on credit with no discounts.  The company has found, however, that 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 expenses:

Sales commissions  4% of sales 

Fixed expenses:

Advertising  $220,000

Rent    $20,000

Salaries                                          $110,000

Utilities                                              $10,000

Insurance                                            $5,000

Depreciation                                      $18,000

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

The company plans to purchase $22,000 in new equipment during October and $50,000 in new equipment during November; both purchases will be for cash. The company declares dividends of $20,000 each quarter, payable in the first month of the following quarter.




Other relevant data is given below: 

Cash balance as of September 30  $74,000

Inventory balance as of September 30             $112,000

Merchandise purchases for September            $200,000


The company maintains a minimum cash balance of at least $50,000 at the end of each month.  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 the exact amount needed 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 will pay the bank all of the accrued interest on the loan and as much of the loan as possible while still retaining at least $50,000 in cash.


Prepare a cash budget for the three-month period ending December 31. Include the following detailed budgets:

  1. A sales budget, by month and in total.
  2. A schedule of expected cash collections from sales, by month and in total.
  3. A merchandise purchases budget in units and in dollars. Show the budget by month and in total.
  4. A schedule of expected cash disbursements for merchandise purchases, by month and in total.
  5. 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.



ACCT 505 Week 6 Quiz Segment Reporting and Relevant Costs for Decisions

Question :

(TCO D) Return on investment (ROI) is equal to the margin multiplied by


Question :

(TCO D) For which of the following decisions are opportunity costs relevant?

The decision to make or buy a needed part

The desision to keep or drop a product line














Question :

(TCO D) Last year, the House of Orange had sales of $826,650, net operating income of $81,000, and operating assets of $84,000 at the beginning of the year and $90,000 at the end of the year. What was the company's turnover, rounded to the nearest tenth?


Question :

(TCO D) Data for December concerning Dinnocenzo Corporation's two major business segments-Fibers and Feedstocks-appear below:

Sales revenues, Fibers


Sales revenues, Feedstocks


Variable expenses, Fibers


Variable expenses, Feedstocks


Traceable fixed expenses, Fibers


Traceable fixed expenses, Feedstocks


Common fixed expenses totaled $314,000 and were allocated as follows: $129,000 to the Fibers business segment and $185,000 to the Feedstocks business segment.


Prepare a segmented income statement in the contribution format for the company. Omit percentages; show only dollar amounts.


Question :

(TCO D) Wryski Corporation had net operating income of $150,000 and average operating assets of $500,000. The company requires a return on investment of 19%.


i. Calculate the company's current return on investment and residual income.

ii. The company is investigating an investment of $400,000 in a project that will generate annual net operating income of $78,000. What is the ROI of the project? What is the residual income of the project? Should the company invest in this project?


Question :

(TCO D) Tjelmeland Corporation is considering dropping product S85U. Data from the company's accounting system appear below.



Variable Expenses


Fixed Manufacturing Expenses


Fixed Selling and Administrative Expenses


All fixed expenses of the company are fully allocated to products in the company's accounting system. Further investigation has revealed that $55,000 of the fixed manufacturing expenses and $71,000 of the fixed selling and administrative expenses are avoidable if product S85U is discontinued.


i. According to the company's accounting system, what is the net operating income earned by product S85U? Show your work!

ii. What would be the effect on the company's overall net operating income of dropping product S85U? Should the product be dropped? Show your work!


Question :

(TCO D) Fouch Company makes 30,000 units per year of a part it uses in the products it manufactures. The unit product cost of this part is computed as follows.

Direct Materials


Direct Labor


Variable Manufacturing Overhead


Fixed Manufacturing Overhead


Unit Product Cost


An outside supplier has offered to sell the company all of these parts it needs for $51.90 a unit. If the company accepts this offer, the facilities now being used to make the part could be used to make more units of a product that is in high demand. The additional contribution margin on this other product would be $219,000 per year.

If the part were purchased from the outside supplier, all of the direct labor cost of the part would be avoided. However, $6.20 of the fixed manufacturing overhead cost being applied to the part would continue even if the part were purchased from the outside supplier. This fixed manufacturing overhead cost would be applied to the company's remaining products.


i. How much of the unit product cost of $52.30 is relevant in the decision of whether to make or buy the part?

ii. What is the net total dollar advantage (disadvantage) of purchasing the part rather than making it?

iii. What is the maximum amount the company should be willing to pay an outside supplier per unit for the part if the supplier commits to supplying all 30,000 units required each year?


Question :

(TCO D) Biello Co. manufactures and sells medals for winners of athletic and other events. Its manufacturing plant has the capacity to produce 15,000 medals each month; current monthly production is 14,250 medals. The company normally charges $115 per medal. Cost data for the current level of production are shown below.

Variable Costs

Direct Materials


Direct Labor


Selling and Administrative


Fixed Costs



Selling and Administrative


The company has just received a special one-time order for 600 medals at $102 each. For this particular order, no variable selling and administrative costs would be incurred. This order would also have no effect on fixed costs.


Should the company accept this special order? Why? 

ACCT 505 Week 6 Quiz


Multiple Choice 3

Short 5



Question 1. Question : (TCO D) Return on investment (ROI) is equal to the margin multiplied by



Question 2. Question : (TCO D) For which of the following decisions are opportunity costs relevant? 

  The decision to make or buy a needed part The decision to keep or drop a product line


Question 3. Question : (TCO D) Last year, the House of Orange had sales of $826,650, net operating income of $81,000, and operating assets of $84,000 at the beginning of the year and $90,000 at the end of the year. What was the company's turnover, rounded to the nearest tenth?



Question 1. Question : (TCO D) Data for December concerning Dinnocenzo Corporation's two major business segments-Fibers and Feedstocks-appear below.

Sales revenues, Fibers $870,000

Sales revenues, Feedstocks $820,000

Variable expenses, Fibers $426,000

Variable expenses, Feedstocks $344,000

Traceable fixed expenses, Fibers $148,000

Traceable fixed expenses, Feedstocks $156,000

Common fixed expenses totaled $314,000 and were allocated as follows: $129,000 to the Fibers business segment and $185,000 to the Feedstocks business segment.




Prepare a segmented income statement in the contribution format for the company. Omit percentages; show only dollar amounts. 




Question 2. Question : (TCO D) Wryski Corporation had net operating income of $150,000 and average operating assets of $500,000. The company requires a return on investment of 19%. 




  1. Calculate the company's current return on investment and residual income.


  1. The company is investigating an investment of $400,000 in a project that will generate annual net operating income of $78,000. What is the ROI of the project? What is the residual income of the project? Should the company invest in this project?



  1. Return on investment = Net operating income  /  Average operating assets = $78,000  /  $400,000 = 19.5%





Question 3. Question : (TCO D) Tjelmeland Corporation is considering dropping product S85U. Data from the company's accounting system appear below.



Sales $360,000

Variable Expenses $158,000

Fixed Manufacturing Expenses $119,000

Fixed Selling and Administrative Expenses $94,000


All fixed expenses of the company are fully allocated to products in the company's accounting system. Further investigation has revealed that $55,000 of the fixed manufacturing expenses and $71,000 of the fixed selling and administrative expenses are avoidable if product S85U is discontinued.




  1. According to the company's accounting system, what is the net operating income earned by product S85U? Show your work!


  1. What would be the effect on the company's overall net operating income of dropping product S85U? Should the product be dropped? Show your work!


Question 4. Question : (TCO D) Rosiek Corporation uses part A55 in one of its products. The company's accounting department reports the following costs of producing the 4,000 units of the part that are needed every year. 


Per Unit

Direct Materials $2.80

Direct Labor $6.30

Variable Overhead $8.50

Supervisor's Salary $2.60

Depreciation of Special Equipment $6.80

Allocated General Overhead $6.10


An outside supplier has offered to make the part and sell it to the company for $32.30 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 $4,000 of these allocated general overhead costs would be avoided. In addition, the space used to produce part A55 could be used to make more of one of the company's other products, generating an additional segment margin of $26,000 per year for that product.




  1. Prepare a report that shows the effect on the company's total net operating income of buying part A55 from the supplier rather than continuing to make it inside the company.


  1. Which alternative should the company choose?




Question 5. Question : (TCO D) A customer has asked Clougherty Corporation to supply 4,000 units of product M97, with some modifications, for $40.10 each. The normal selling price of this product is $48.00 each. The normal unit product cost of product M97 is computed as follows.


Direct Materials $18.50

Direct Labor $1.20

Variable manufacturing overhead $8.40

Fixed  manufacturing overhead $3.90

Unit product cost $32.00


Direct labor is a variable cost. The special order would have no effect on the company's total fixed manufacturing overhead costs. The customer would like some modifications made to product M97 that would increase the variable costs by $5.70 per unit and that would require a one-time investment of $31,000 in special molds that would have no salvage value. This special order would have no effect on the company's other sales. The company has ample spare capacity for producing the special order.




Determine the effect on the company's total net operating income of accepting the special order. Show your work!



ACCT 505 Week 7 Course Project 2 Capital Budgeting Decision


ACCT 505 Course Project 2 Hampton Company



Capital Budgeting Decision


Hampton Company: The production department has been investigating possible ways to trim total production costs. One possibility currently being examined is to make the cans instead of purchasing them. The equipment needed would cost $1,000,000, with a disposal value of $200,000, and would be able to produce 27,500,000 cans over the life of the machinery. The production department estimates that approximately 5,500,000 cans would be needed for each of the next 5 years.

The company would hire six new employees. These six individuals would be full-time employees working 2,000 hours per year and earning $15.00 per hour. They would also receive the same benefits as other production employees, 15% of wages in addition to $2,000 of health benefits.

It is estimated that the raw materials will cost 30¢ per can and that other variable costs would be 10¢ per can. Because there is currently unused space in the factory, no additional fixed costs would be incurred if this proposal is accepted.

It is expected that cans would cost 50¢ each if purchased from the current supplier. The company’s minimum rate of return (hurdle rate) has been determined to be 11% for all new projects, and the current tax rate of 35% is anticipated to remain unchanged. The pricing for the company’s products as well as number of units sold will not be affected by this decision. The unit-of-production depreciation method would be used if the new equipment is purchased.


  1. Based on the above information and using Excel, calculate the following items for this proposed equipment purchase.

o Annual cash flows over the expected life of the equipment

o Payback period

o Simple rate of return

o Net present value

o Internal rate of return

The check figure for the total annual after-tax cash flows is $271,150.

  1. Would you recommend the acceptance of this proposal? Why or why not? Prepare a short, double-spaced paper in MS Word elaborating on and supporting your answers.



ng and admin $200,000

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