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ACCT 556 Week 1 Homework Problems


The new president of the Wernecke Company was stumped. Why had profits gone down? He had directed the sales department to push the product with the highest contribution margin, and the sales department had come through with flying colors. The percent of flams sold had increased from 25% of units sold to 37.5% of units sold. So what happened?




  1. Calculate the Wernecke Company’s estimated direct labor hours to produce flims and flams.


  1. Calculate the predetermined variable overhead rate that will be used in the coming year using a traditional costing system based upon direct labor hours.


  1. Using a traditional costing system based upon direct labor hours, compute the unit product costs for flims and flams as well as contribution margin per unit.


  1. It has been suggested to the president to consider the use of an ABC costing system to allocate manufacturing overhead. Engineering studies have revealed the following information about estimated manufacturing activities for the coming year.


            Calculate the separate predetermined overhead rates for each of the activities         listed above.


  1. The following data is available about the activity levels needed to produce the projected 25,000 units of Flims:




  1. The following data is available about the activity levels needed to produce the projected 15,000 units of Flams:



            Calculate the expected variable overhead to be applied to Flams.


  1. Calculate the total overhead (total for company) that is expected to be applied to Flims and Flams.


  1. Calculate the projected unit costs and unit contribution margins for Flims and Flams using ABC costing.



ACCT 556 Week 2 Homework Assignment


The Schonlind Company has gathered information regarding past sales:     





  1. Predict the sales for 2006 using the moving average method.      
  2. You noticed a sudden jump in sales in 2002. After inquiring about this jump, you were told that there was a one-time sale for $200,000 in that year that is not likely to be repeated. What revision, if any, would you make in the sales information used for projection?           
  3. If you revised you historical sales to be used to project 2006 sales, recalculate your projection using the moving average method.         
  4. Which projection (question 1 or question 3) do you feel is more representative of the Schonlind Company’s historical sales? Why?            


Please complete the remaining questions using the revised historical data.  

  1. Predict the sales for 2006 using exponential smoothing.   
  2. Predict the sales for 2006 using a trend line technique using. (GROWTH function in Excel).    
  3. Predict the sales for 2006 using a graphing technique.      
  4. It has been suggested that sales for the company may be connected to disposal income. Using the information below regarding historical disposable income, predict the sale for 2006 using regression analysis if a reliable prediction for disposable income for 2006 is $35,430.          



  1. Which method do you think provides the most realistic sales projections for 2006? Why?          



ACCT 556 Week 3 Homework Problem


Production Budgets                           



The Hale Company finished their sales projections for the coming year. The company produces one product. Part of next year’s sales projections are as follows:                                                   



Engineering has developed the following standards upon which the production budgets will be developed:                                                        


Item     Standard                                            

Materials usage           5 lbs per unit                                      

Material price per pound         $1.50 per pound                                             

Labor usage     0.4 hours per unit                                           

Labor rate        $30 per  hour                                      

Machine hours 3 machine hours per unit                                            


The Hale Company uses a modified allocation method for allocating overhead costs. The rates that will be used in the coming year are as follows:                                                          




Prepare the following production budgets for July, August, and September for the Hale Company:                                                          

  1. Production budget                                                 
  2. Materials purchase budget                                                 
  3. Direct labor budget                                                
  4. Overhead budget                                                   

For the quarter (quarter totals only), prepare the:                                                      

  1. Cost of goods manufactured budget



ACCT 556 Week 4 Homework Problems


Week 4 Capital Budgeting Practice problem:                                                            


You have the following data about a proposed project:                                                                    


Cost of new equipment           $80,000                                                          

Increase need for Working Capital (to be released at end of project)            $20,000                                                          

Length of project        6          years                                       

Salvage Value of equipment at end of project           $8,000                                                            

Annual cash savings if equipment is purchased (cash inflows)          $28,500                                                          

Tax rate           35%                                                    

Discount rate required of all investements     14%                                                    




  1. What is  the annual accounting income?                                                                
  2. What is the annual after tax cash flow?                                                                 
  3. What is the payback based upon the initial cash outflows?                                                                      
  4. What is the discounted payback based on the initial cash outflows?                                                                    
  5. What is the simple rate of return based upon the initial cash outflows?                                                               
  6. What is the net present value?                                                                   
  7. What is the net present value                                                                     
  8. What is the internal rate of return                                                              
  9. Would you recommend this project? Why or why not.      



ACCT 556 Week 5 Homework Assignment


Week 5 Problem

Cash  Budget


Note: It is expected that this problem will be complete using an Excel spreadsheet using formulas. Please see the Excel Tutorial that is available under the course home tab.                           


The Hale Company is currently working on its cash budget for the coming year. The following information is available:                                


Projected sales for the coming year:                          



The collection history of the Hale Company has been as follows:                            

20% of sales are collected in the month of the sale.                          

60% of the sales are collected in the month following the sale.                                

12% of the sales are collected in the 2nd month following the sale.                         

5% of the sales are collected in the 3rd month following the sale.                           


The following information regarding costs is available:                                

The cost of goods sold is 54% of sales          


Items for sale are purchased in the month of the sale.


80% of accounts payable are paid in the month following when the cost is incurred.          


20% of accounts payable are paid in the 2nd month following when the cost is incurred.  


Wages are 28% of sales and are paid currently         


Annual general and administrative costs are $1,411,200 and are incurred evenly throughout the year.      


Annual property taxes are $14,000 and are paid semi annually in June and October.          


A $10,000 cash capital purchase will be made in April.                                


The beginning cash balance in April is expected to be $47,000. The Hale Company has a policy of maintaining a minimum cash balance of $45,000. The company has an arrangement with a local bank for a line of credit that carries a 10% annual interest rate. If the ending monthly balance falls below $45,000, the company will borrow against the line of credit so that the minimum balance can be maintained. If the company has borrowed against the line of credit and a cash balance is expected to be above $45,000 at the end of a particular month, then repayments will be made bringing the cash balance down to $45,000. Interest on the line of credit is paid monthly. Assume that all line of credit transactions occur on the last day of the month.                                 



Prepare a cash budget for the Hale Company for the 2nd quarter of the year. Include April, May, June, and a quarter total in your budget.



ACCT 556 Week 6 Homework Problem

Week 6 Problem                                 

Proforma Statements                         


The Duncan Company has just completed a number of budgets for the coming year. The cost of goods manufactured schedule, the proforma income statement and the balance sheet still have to be completed. The following information is available:                                 




Information from recent budgets for the coming year:                                 

  1. Projected sales are $1,800,000  (12,690 units)                              
  2. Projected direct material purchases are $500,000                          
  3. Projected direct material usage is $495,000                                  
  4. Projected direct labor expense is $400,000                                   
  5. Projected overhead is $380,000                             
  6. Projected selling expenses are $120,000                            
  7. Projected administrative expenses are $300,000                           
  8. Projected cash collections are $1,785,000                         
  9. Projected payments for materials (accounts payable) are $520,000                                  
  10. Projected payments for other operating expenses (other current liabilities) are $1,130,000                               
  11. Projected depreciation expense is $55,000 and is already included in mfg overhead                            


Additional information that is available:                               

  1. The expected tax rate is 35%                                 
  2. The company is planning a stock issue of $25,000                        
  3. Income taxes are paid 3 months after the year-end                                   
  4. The company anticipates purchasing a new patent for $10,000 during the year.                          
  5. WIP inventory is expected to decrease by $2,000                        
  6. Finished goods inventory is expected to increase by $8,000                                
  7. Due to insurance rate increases, it is expected that prepaid expenses will increase by $3,000                             


Investment information:                                

  1. A purchase of additional equipment for $75,000 is expected on January 1st.                              
  2. The purchase will be made using $50,000 cash and long-term debt will be increased by $25,000                                   


Long-Term Debt information:                                   

  1. All long-term debt will have an 8% annual rate.                           
  2. A payment of $50,000 including BOTH  principle and interest will be made on December 31st.                                   


Required: Prepare a cost of goods manufactured schedule, a proforma income statement and proforma balance sheet.        


ACCT 556 Week 7 Course Project Fantastic Inc


Fantastic, Inc. is a case study which allows you to incorporate numerous financial and managerial accounting concepts into a single business setting.  You will take the position of the company controller who will prepare the budget for the year ended December 31, 2006, using the actual data from 2001 through 2005 and information given to you by various departments. You will prepare a report for the president of the company describing the strengths and weakness of the corporation as well as to provide suggestions for the future. In short, you will be responsible for the planning and control procedures for the company from an accounting standpoint.


In order to focus on important accounting concepts, certain simplifications are necessary to make this case manageable. The student should keep the following simplifications in mind while working on this case:


 Work in process inventories will be ignored.l

 Financial and IRS tax will be the same.l

 Some projections for 2006 will be given.l

 Standards used for the 2006 budget will be the reasonably obtainable standards.l

 No hourly worker will work overtime.l

 All price changes will occur on January 1st and will remain in effect for the entire year.l

 The actual 2005 information is available while preparing the 2006 budget.l

 All debt transactions will occur either on January 1st or December 31st.l

 There are no bad debts.l


The student should also keep in mind that the budgeting process is not an exact science; therefore, approximate figures provide adequate information for the decision maker. Figures should be rounded to the whole dollar throughout the budgeting process and the control applications. Since it is not possible to have a partial machine or person, certain figures will always have to be rounded up.




Fantastic, Inc. is a paint manufacturing company that produces two qualities of paint, Super and Stupendous. The company was established eight years ago and began with only one type of paint. Sales of the original product have been rather stable in the past 5 years. In 2003, a second, higher quality paint was introduced, and sales of this product have increased each year due to reasonably effective sales efforts. The president is currently concerned about the potential inefficient use of capacity and the effect that this has on profits.


All raw materials are currently purchased from outside suppliers and no difficulty is foreseen in obtaining the necessary inventories for production in the future. All inventories are currently considered to be at the lowest safe levels possible given the delivery, production, and sales cycles.       



Given the current production capacity, the company will have room for expansion for the next few years without building new facilities or expanding the current building. The company will also have the option of starting a second production shift to support future sales if necessary; therefore, increased production will be obtainable through purchasing additional equipment or increasing production hours. At this time, however, the president is not considering a second shift due the additional $1.00 per hour shift differential that would be necessary to pay the hourly second shift workers.


The company had a cash flow problem in 2005 but has always managed to make all payments on a timely basis. The president wishes to increase the amount of cash on hand in the future so that the company will have a greater margin of safety. To date, the company has not had difficulty obtaining financing for expansion and does not foresee any future difficulties in obtaining necessary funding for legitimate purposes.


The company has paid a consistently good dividend to the stockholders. The president would like to continue this policy in the future.




Fantastic, Inc. has two separate production departments - one for each of the paint types. Since the end products are not distinguishable, the company uses process costing employing a FIFO inventory.


Absorption costing is used for all outside reports. All non-direct fixed costs are allocated using various allocation bases as indicated throughout the project. The Company does not use a full ABC costing system; however, it does employee some of the ABC concepts in the budgeting process.


The administrative department handles all of the purchasing, accounting, and secretarial duties in a highly efficient manner. The need for separate departments is not necessary at this time.



SUPER                                   STUPENDOUS

DEPARTMENT                     DEPARTMENT


Number of machines available                        26                                20

Annual capacity per machine              15,000 gallons             15,000 gallons

Annual production capacity                            390,000 gallons                       300,000 gallons

Machine hours available per machine 1,800 hours                 1,800 hours

Standard machine hour per gallon                  .12 hour/gallon                        .12 hour/gallon

Standard labor hour per machine hour            1.25 labor hr/  1.25 labor hr/

Actual sales volume                            420,000 gallons                       268,200 gallons

Number of hourly employees              29                                21

Supervisors (one per each eight hourly

   employees)                                       4                                  3

Raw material prices

   Cans                                                 40¢ each                                  40¢ each

   Pigment                                            $2.75 per pound                      $3.75 per pound

Raw material usage                            

   Cans                                                 one per gallon              one per gallon

   Pigment                                            two pounds per gallon            two pounds per gallon

Direct labor rate                                              $8.25 per hour             $8.25 per hour





The sales department feels very good about the prospects for 2006. The reputation of the new product, Stupendous Paint, has increased significantly due to effective adverting in the past few years. The sales department is ready to launch a major advertising campaign which is expected to result in the trend of the last three year to continue for the Stupendous brand even with a small price increase per gallon.


Super Paint has been produced since the company began production. The sales level of this product has been rather stagnant for the last 5 years, and that trend is expected to continue in the future.



You have made the following conclusions about the two different products:

Super Paint

  • Sales growth in units will continue to be stagnant.
  • The more recent years are more representative of continuing unit sales than years in the further past.
  • Exponential Smoothing will be an appropriate unit sales projection method to use.


Stupendous Paint

  • Unit sales growth will continue on its current increasing trend
  • An exponential growth function with the year being the independent variable and the sales volume being the dependent variable will be an appropriate sales projection method.




The production department worked in conjunction with both the sales and purchasing departments in developing desired projected inventory levels for December 31, 2006. Information regarding beginning and desired ending inventories for 2006 are as follows:


Hint: Remember that each gallon of paint requires two pounds of pigment.






During 2005, a new contract was signed with the union. As part of that agreement, no worker can work in more than one department, and no single worker can work over 2,000 hours during the year. This means that for every 2,000 hours of labor that is required for production in each department, one hourly employee is needed. For example, if a department needs 10,150 labor hours during the year, six employees will be needed (10,150 total hours /2,000 per employee = 5.075 which needs to be rounded to 6 employees).


The standard direct labor rate will increase $0.25 per hour over the 2005 rate.


Additional information regarding employee benefits is included in the section on manufacturing overhead.




The following information is available regarding the actual overhead costs incurred for 2005:




The sales department consists of 10 representatives who report directly to the president. Each individual is on a base salary plus a commission, and the sales reps also submit meal and entertainment expenses for reimbursement. (In 2005, the meal and entertainment expenses were limited to $50 per week per sales representative based upon a 52 week year.)


The following information is available regarding the actual selling costs incurred for 2005:


                                                                        No change




The administrative department consists of the president and an office staff of eight who handle the secretarial, purchasing, and accounting duties. (Total of nine people.) The following information is available regarding the 2005 actual costs:






It is felt that the level of the office and administrative staff will be adequate for the coming year. It is expected that the

following changes will occur in 2006:






The current federal and state income tax rates  total 40%. All taxes for the year will be paid by the end of the year            

which means that there will be no accrued taxes on December 31, 2006.





It is expected sales will occur evenly throughout the year and that there will be no cash sales. 75% of monthly sales

will be collected in the month following the sale, and the remaining 25% will be collected by the end of the second

month. No bad debts are anticipated.




This account represents the purchases for raw materials only. It is expected that purchases will be made evenly throughout     

the year, and that all purchases will be paid for during the month following the purchase.






The accrued wage account will include all direct labor, indirect labor, sales commissions and salaries, and administrative salaries. All wages are earned evenly throughout the year, and employees are paid twice each month. On December 31, 2006, the accrued wages will include wages representing one full payroll period.




This account includes all other cash expenses not included in Account Payable and Accrued  Wages. It is the company's policy to pay all other expenses during the month following the purchase. These expenses will be incurred evenly throughout the year. The 20% fringe benefits will be paid on all wages, salaries, and commissions.





Property, plant and equipment consist of the following on December 31, 2005:


Property and plant                                          $750,000

Equipment                                                         1,025,000

            Total Property, Plant and Equipment                        $1,775,000


Each additional machine that is needed to support the production level expected during 2006 will cost $30,000 and be depreciated over five years using the straight-line method. Assume that any equipment purchases are made on the first day of the January  and are operational throughout the entire year.


No new equipment will be needed for the sales and administrative departments.




A long-term debt repayment (principle only)  will be made on December 31, 2006 for $255,000. The interest rate charged on the debt balance throughout 2006 will be 7.5% and will be paid on December 31, 2006.


If an additional machine is purchased, $5,000 will be paid in cash and the remaining $25,000 will be financed at the 7.5% rate. This same proportion of cash/additional debt will be applied to all additional equipment purchased during 2006. Again, any purchases will be made on January 1, 2006.




Fantastic, Inc.'s policy is to pay dividends on the last day of each quarter. The total anticipated dividends for 2006 are $2.50 per share.



ACCT 556 Week 7 Homework Problem


Week 7 Problem

Benefits of Social Programs




A community public works project will cost $55,000 dollars and will benefit 5 different individuals:





  1. Is this project economically feasible? Show work in an excel spreadsheet that lists the benefit for each individual.


  1. Would this project be approved by a majority at a majority at a referendum?


  1. Does the project meet the Pareto efficiency improvement criterion?


  1. If possible, revise the cost shares to allow the project to meet the Pareto criterion and to pass a referendum.

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