ACCT 505 Final Exam Solution

# ACCT 505 Final Exam Solution

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ACCT 505 Final Exam Solution

1. (TCO C) Silver City, Inc., has collected the following operating information below for its current month’s 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:
\$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
36,000
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 Globe’s 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 supplier’s 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
54,000
Goods available for sale
66,000
Less ending inventory
6,000
Cost of goods sold
60,000
Gross margin
40,000
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
300
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?
5. (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.
6. (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. Tennessee’s discount rate is 14%.
Required:
a. What is the net present value of this investment opportunity?
7. (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!
8. (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
\$5.55 per machine hour
\$951,888
Required:
Compute the company’s predetermined overhead rate.
9. (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 company’s 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.