accounting help

I also need help with this excersize

 

Cost-Volume-Profit Elements and RelationshipsYour best friend just received a gift of $7,000 from his favorite aunt. He wants to save the money to use as “starter” money after college. He can invest it (1) risk-free at 6%, (2) taking on moderate risk at 8%, or (3) taking on high risk at 14%.
Help your friend project the investment’s worth at the end of four years under each investment strategy and explain the results to him.
Submission Requirements:Complete your work in an MS Excel worksheet

Problem 1

, comprised of $13 direct materials plus $24 conversion costs. Data for February’s activities follow:

High Point produces fleece jackets. The company uses JIT costing for its JIT production system. High Point has two inventory accounts: Raw and in-process inventory and Finished goods inventory. On February 1, 2012, the account balances were Raw and in-process inventory, $7,000; Finished goods inventory, $2,200. The standard cost of a jacket is

$37

Number of jackets completed

20,000

Direct materials purchased

$257,500

Number of jackets sold

19,600

Conversion costs incurred

$580,000

Requirements:

1. What are the major features of a JIT production system such as that of High Point?

2. Prepare summary journal entries for February. Under- or over-allocated conversion costs are closed to Cost of goods sold monthly.

3. Use a T-account to determine the February 29, 2012, balance of Raw and in-process inventory.

Problem 2

$37

420

Requirements:

Christi, Inc., is using a costs-of-quality approach to evaluate design engineering efforts for a new skateboard. Christi’s senior managers expect the engineering work to reduce appraisal, internal failure, and external failure activities. The predicted reductions in activities over the 2-year life of the skateboards follow. Also shown are the cost allocation rates for each activity.
Activity	Predicted Reduction in Activity Units	Activity Cost Allocation Rate Per Unit
Inspection of incoming materials		420
Inspection of finished goods	26
Number of defective units discovered in-house	1,400	56
Number of defective units discovered by customers	325	75
Lost sales to dissatisfied customers	150	103
1. Calculate the predicted quality cost savings from the design engineering work.
2. Christi spent $103,000 on design engineering for the new skateboard. What is the net benefit of this “preventive” quality activity?
3. What major difficulty would Christi’s managers have in implementing this cost-of-quality approach? What alternative approach could they use to measure quality improvement?

Problem 1

																						The budgets of four companies yield the following information:
Company
Blue	Red	Green	Yellow
Sales revenue	$960,000	$(4)	$770,000	$(10)
Variable costs	(1)	132,000	462,000	162,000
Fixed costs	(2)	145,000	220,000	(11)
Operating income (loss)	$32,000	$(5)	$(7)	$93,000
Units sold	160,000	11,000	(8)	(12)
Contribution margin per unit	$2.70	$(6)	$77.00	$16.00
Contribution margin ratio	(3)	0.70	(9)	0.40
	Requirements:
1. Fill in the blanks for each missing value. (Round the contribution margin per unit to the nearest cent.)
2. Which company has the lowest break-even point in sales dollars?
3. What causes the low break-even point?

Problem 2

Requirements:

Kincaid Company sells flags with team logos. Kincaid has fixed costs of $583,200 per year plus variable costs of $4.80 per flag. Each flag sells for $12.00.

1. Use the income statement equation approach to compute the number of flags Kincaid must sell each year to break even.

2. Use the contribution margin ratio CVP formula to compute the dollar sales Kincaid needs to earn $33,000 in operating income for 2012. (Round the contribution margin to two decimal places.)

3. Prepare Kincaid’s contribution margin income statement for the year ended December 31, 2012, for sales of 72,000 flags. Cost of goods sold is 70% of variable costs. Operating costs make up the rest of variable costs and all of fixed costs. (Round your final answers to the nearest whole number.)

4. The company is considering an expansion that will increase fixed costs by 21% and variable costs by $0.60 per flag. Compute the new break-even point in units and in dollars. Should Kincaid undertake the expansion? Give your reasoning. Round your final answers to the nearest whole number.

Problem 1

England Productions performs London shows. The average show sells 1,300 tickets at $60 per ticket. There are 150 shows a year. No additional shows can be held as the theater is also used by other production companies. The average show has a cast of 65, each earning a net average of $340 per show. The cast is paid after each show. The other variable cost is a program-printing cost of $8 per guest. Annual fixed costs total $728,000.

Requirements:

1. Compute revenue and variable costs for each show.

2. Use the income statement equation approach to compute the number of shows England Productions must perform each year to break even.

3. Use the contribution margin approach to compute the number of shows needed each year to earn a profit of $5,687,500. Is this profit goal realistic? Give your reasoning.

4. Prepare England Productions’ contribution margin income statement for 150 shows performed in 2012. Report only two categories of costs: variable and fixed.

Problem 2

Marketing costs

General and administrative costs

Requirements:

The contribution margin income statement of Delectable Donuts for August 2012 follows:
DELECTABLE DONUTS Contribution Margin Income Statement For the Month of August 2012
Sales revenue	$150,000
Variable costs:
Cost of goods sold	$41,000
	Marketing costs	15,000
	General and administrative costs	4,000	60,000
Contribution margin	$90,000
Fixed costs:
37,800
12,600	50,400
Operating income	$39,600
Delectable sells four dozen plain donuts for every dozen custard-filled donuts. A dozen plain donuts sells for $4, with total variable cost of $1.60 per dozen. A dozen custard-filled donuts sells for $5, with total variable cost of $2 per dozen.
1. Calcuate the weighted-average contribution margin.
2. Determine Delectable’s monthly breakeven point in dozens of plain donuts and custard-filled donuts. Prove your answer by preparing a summary contribution.

Problem

1

Green Thumb operates a commercial plant nursery where it propagates plants for garden centers throughout the region. Green Thumb has $4,800,000 in assets. Its yearly fixed costs are $600,000, and the variable costs for the potting soil, container, label, seedling, and labor for each gallon-size plant total $1.35. Green Thumb’s volume is currently 470,000 units. Competitors offer the same plants, at the same quality, to garden centers for $3.60 each. Garden centers then mark them up to sell to the public for $9 to $12, depending on the type of plant.

Requirements:

1. Green Thumb’s owners want to earn a 10% return on the company’s assets. What is Green Thumb’s target full cost?

2. Given Green Thumb’s current costs, will its owners be able to achieve their target profit?

3. Assume Green Thumb has identified ways to cut its variable costs to $1.20 per unit. What is its new target fixed cost? Will this decrease in variable costs allow the company to achieve its target profit?

4. Green Thumb started an aggressive advertising campaign strategy to differentiate its plants from those grown by other nurseries. Monrovia Plants made this strategy work, so Green Thumb has decided to try it too. Green Thumb does not expect volume to be affected, but it hopes to gain more control over pricing. If Green Thumb has to spend $115,000 this year to advertise, and its variable costs continue to be $1.20 per unit, what will its cost-plus price be? Do you think Green Thumb will be able to sell its plants to garden centers at the cost-plus price? Why or why not?

Problem 2

Variable

Fixed

Requirements:

Members of the board of directors of Safe Zone has received the following operating income data for the year ended May 31, 2012:
SAFE ZONE Income Statement For the Year Ended May 31, 2012
Product Line	Total
Industrial Systems	Household Systems
Sales revenue	$370,000	$390,000	$760,000
Cost of goods sold:
	Variable	36,000	42,000	78,000
	Fixed	260,000	65,000	325,000
Total cost of goods sold	$296,000	$107,000	$403,000
Gross profit	$74,000	$283,000	$357,000
Marketing and administrative expenses:
66,000	75,000	141,000
44,000	24,000	68,000
Total marketing and administrative exp.	$110,000	$99,000	$209,000
Operating income (loss)	$(36,000)	$184,000	$148,000
Members of the board are surprised that the industrial systems product line is losing money. They commission a study to determine whether the company should drop the line. Company accountants estimate that dropping industrial systems will decrease fixed cost of goods sold by $84,000 and decrease fixed marketing and administrative expenses by $14,000.
1. Prepare an incremental analysis to show whether Safe Zone should drop the industrial systems product line.
2. Prepare contribution margin income statements to show Safe Zone’s total operating income under the two alternatives: (a) with the industrial systems line and (b) without the line. Compare the difference between the two alternatives’ income numbers to your answer to Requirement 1.
3. What have you learned from the comparison in Requirement 2?

Problem 3

Requirements:

Outdoor Life manufactures snowboards. Its cost of making 2,000 bindings is as follows:
Direct materials	$17,550
Direct labor	3,400
Variable overhead	2,040
Fixed overhead	6,300
Total manufacturing cost for 2,000 bindings	$29,290
Suppose Lancaster will sell bindings to Outdoor Life for $14 each. Outdoor Life would pay $3 per unit to transport the bindings to its manufacturing plant, where it would add its own logo at a cost of $0.70 per binding.
1. Outdoor Life’s accountants predict that purchasing the bindings from Lancaster will enable the company to avoide $2,100 of fixed overhead. Prepare an analysis to show whether Outdoor Life should make or buy the bindings.

Problem 4

Requirements:

Smith Petroleum has spent $204,000 to refine 62,000 gallons of petroleum distillate, which can be sold for $6.40 a gallon. Alternatively, Smith can process the distillate further and produce 56,000 gallons of cleaner fluid. The additional processing will cost $1.75 per gallon of distillate. The cleaner fluid can be sold for $9.00 a gallon. To sell the cleaner fluid, Smith must pay a sales commission of $0.13 a gallon and a transportation charge of $0.18 a gallon.

1. Diagram Smith’s decision alternatives.

2. Identify the sunk cost. Is the sunk cost relevant to Smith’s decision?

3. Should Smith sell the petroleum distillate or process it into cleaner fluid? Show the expected net revenue difference between the two alternatives.

Problem 1

Consider the following statements about capital budgeting.

a. _______ is (are) more appropriate for long-term investments.

b. _______ highlights risky investments.

c. _______ shows the effect of the investment on the company’s accrual-based income.

d. _______ is the interest rate that makes the NPV of an investment equal to zero.

e. In capital rationing decisions, management must identify the discount rate when the _______ method is used.

f. _______ provides management with information on how fast the cash invested will be recouped.

g. _______ is the rate of return, using discounted cash flows, a company can expect to earn by investing in the asset.

h. _______ does not consider the asset’s profitability.

i. _______ uses accrual accounting rather than net cash inflows in its computation.

Requirement:

1. Fill in each statement with the appropriate capital budgeting method: Payback period, ROR, NPV, or IRR.

Problem 2

Water Planet is considering purchasing a water park in Atlanta, Georgia, for $1,870,000. The new facility will generate annual net cash inflows of $460,000 for eight years. Engineers estimate that the facility will remain useful for eight years and have no residual value. The company uses straight-line depreciation, and its stockholders demand an annual return of 10% on investments of this nature.

Requirements:

1. Compute the payback period, the ROR, the NPV, the IRR, and the profitability index of this investment.

2. Recommend whether the company should invest in this project.

Problem 1

16,000

$63,200

. You forecast that monthly sales will increase 2% over April’s sales in May. June’s sales will increase 4% over April’s sales. July’s sales will increase 20% over April’s sales. Collections are 80% in the month of sales and 20% in the month following sale.

plus 2.5% of the COGS budgeted for the following month. COGS = 50% of sales revenue. Purchases are paid 30% in the month of purchase and 70% in the month following the purchase.

. Sales commissions equal 5% of sales for that month. Salaries and commissions are paid 30% in the month incurred and 70% in the following month.

Requirements:

Thumbtack’s March 31, 2012, budgeted balance sheet follows:

THUMBTACK OFFICE SUPPLY Budgeted Balance Sheet March 31, 2012

Assets

Liabilities

Current assets:

Current liabilities:

Cash

$18,000

Accounts payable

$12,500

Accounts receivable

12,000

Salary and commissions payable

1,400

Inventory

16,000

Total liabilities

$13,900

Prepaid insurance

2,200

Total current assets

$48,200

Stockholder’s Equity

Plant assets:

Common stock

Equipment and fixtures

45,000

Retained earnings

33,300

Less: Accumulated depreciation

30,000

Total stockholders’ equity

$49,300

Total plant assets

$

15,000

Total assets

$63,200

Total liabilities and stockholders’ equity

The budget committee of Thumbtack Office Supply has assembled the following data.

a. Sales in April were $

40,000

b. Thumbtack maintains inventory of

$11,000

c. Monthly salaries amount to

$7,000

d. Other monthly expenses are as follows:

Rent expense

$2,400, paid as incurred

Depreciation expense

$200

Insurance expense

$100, expiration of prepaid amount

Income tax

20% of operating income, paid as incurred

Requirements:

1. Prepare Thumbtack’s sales budget for April and May, 2012. Round all amounts to the nearest $1.

2. Prepare Thumbtack’s inventory, purchases, and cost of goods sold budget for April and May.

3. Prepare Thumbtack’s operating expenses budget for April and May.

4. Prepare Thumbtack’s budgeted income statement for April and May.

5. Prepare the schedule of budgeted cash collections from customers for April and May.

6. Prepare the schedule of budgeted cash payments for purchases for April and May.

7. Prepare the schedule of budgeted cash payments for operating expenses for April and May.

8. Prepare the cash budget for April and May. Assume no financing took place.

9. Prepare a budgeted balance sheet as of May 31, 2012.

10. Prepare the budgeted statement of cash flows for the two months ended May 31, 2012. (Note: You should omit sections of the cash flows statements where the company has no activity.)

Assume the following changes to the original facts:

a. Collections of receivables are 60% in the month of sale, 38% in the month following the sale, and 2% are never collected. Assume the March receivables balance is net of the allowance for uncollectibles.

b. Minimum required inventory levels are $8,000 plus 30% of next month’s COGS.

c. Purchases of inventory will be paid 20% in the month of purchase, 80% in the month following purchase.

d. Salaries and commissions are paid 60% in the month incurred and 40% in the following month.

1. Prepare Thumbtack’s revised sales budget for April and May. Round all calculations to the nearest dollar.

2. Prepare Thumbtack’s revised inventory, purchases, and cost of goods sold budget for April and May.

3. Prepare Thumbtack’s revised operating expenses budget for April and May.

4. Prepare Thumbtack’s revised budgeted income statement for April and May.

Problem 2

Requirements:

Refer to the original data and the revisions presented in Problem 1.

1. Prepare the schedule of budgeted cash collections from customers for April and May.

2. Prepare the schedule of budgeted cash payments for purchases for April and May.

3. Prepare the schedule of budgeted cash payments for operating expenses for April and May.

4. Prepare the cash budget for April and May. Assume no financing took place.

Problem 3

,

, and

. The Clothing division has two main product lines:

and sweatshirts. The company uses a shared warehousing facility. There are $50,000 in fixed warehousing costs each month, of which $40,000 are traceable to the three divisions based on the amount of square feet used. There is 100,000 square feet of warehouse space in the facility. The clothing division uses 60,000 square feet of the space, but 5,000 of that space isn’t traceable to t-shirts or sweatshirts. Facts related to the divisions and products for the month ended October 31, 2012, follow:

Clothing Food Spices
T-shirts

40,000 15,000 30,000

$60,000

$7,000

$11,000

Requirements:

Jalapenos! is based in Pleasant Hill, California. The merchandising company has three divisions:	Clothing	Food	Spices	T-shirts
Sweatshirts
Square feet used	10,000
Sales revenue	$300,000	$100,000	$150,000	$80,000
COGS (variable)	$210,000		$60,000	$32,000
Fixed selling expenses	$5,000	$3,000	$1,000
Variable selling expenses	$9,000	$8,500	$2,500
1. Calculate the rate per square foot for Warehousing. Calculate the traceable fixed costs for each division and for each product in the Clothing division.
2. Prepare an income statement for the company using the contribution margin approach. Calculate net income for the company, divisional segment margin for both divisions, and product segment margin for both products.

Problem 1

hrs @ $9.20/hour)

3,530

																																																																									Preston Recliners manufactures leather recliners and uses flexible budgeting and a standard cost system. Preston allocates overhead based on yards of direct materials. The company’s performance report includes the following selected data:
Static Budget (1,000 recliners)	Actual Results (980 recliners)
Sales (1,000 recliners X $495)	$495,000
(980 recliners X $475)	$465,500
Variable manufacturing costs:
Direct materials (6,000 yds @ $8.80/yard)	52,800
(6,150 yds @ $8.60/yard)	52,890
Direct labor (	10,000	92,000
(9,600 hrs @ $9.30/hour)	89,280
Variable overhead (6,000 yds @ $5.00/yard)	30,000
(6,510 yds @ $6.40/yard)	39,360
Fixed manufacturing costs:
Fixed overhead	60,000	62,000
Total cost of goods sold	$234,800		$24
Gross profit	$260,200	$221,970
		Requirements:
1. Prepare a flexible budget based on the actual number of recliners sold.
2. Compute the price variance and the efficiency variance for direct materials and for direct labor. For manufacturing overhead, compute the variable overhead spending, variable overhead efficiency, fixed overhead spending, and fixed overhead volume variances.
3. Have Preston’s managers done a good job or a poor job controlling materials, labor, and overhead costs? Why?
4. Describe how Preston’s managers can benefit from the standard costing system.

Problem 2

,

, and 10,000 units. The static budget was based on expected sales of 8,000 units.

6,500 8,000 10,000

$24

53,000 53,000

Sales revenue

Variable expenses

Contribution margin

Fixed expenses

Operating income

Requirements:

AllTalk Technologies manufactures capacitors for cellular base stations and other communications applications. The company’s January 2012 flexible budget income statement shows output levels of	6,500	8,000
ALLTALK TECHNOLOGIES Flexible Budget Income Statement Month Ended January 31, 2012
Per Unit	By Units (Capacitors)
	Sales revenue	$156,000	$192,000	$240,000
	Variable expenses	$10	65,000	80,000	100,000
	Contribution margin	$91,000	$112,000	$140,000
	Fixed expenses			53,000
	Operating income	$38,000	$59,000	$87,000
The company sold 10,000 units during January, and its actual operating income was as follows:
ALLTALK TECHNOLOGIES Income Statement Month Ended January 31, 2012
$246,000
104,500
$141,500
54,000
$87,500
1. Prepare an income statement performance report for January.
2. What was the effect on AllTalk’s operating income of selling 2,000 units more than the static budget level of sales?
3. What is AllTalk’s static budget variance? Explain why the income statement performance report provides more useful information to AllTalk’s managers than the simple static budget variance. What insights can AllTalk’s managers draw from this performance report?

Problem 3

Requirements:

Java manufacturers coffee mugs that it sells to other companies for customizing with their own logos. Java prepares flexible budgets and uses a standard cost system to control manufacturing costs. The standard unit cost of a coffee mug is based on static budget volume of 60,200 coffee mugs per month:
Direct materials (0.2 lbs @ $0.25 per lb)	$0.05
Direct labor (3 minutes @ $0.12 per minute)	0.36
Manufacturing overhead:
Variable (3 minutes @ $0.05 per minute)	$0.15
Fixed (3 minutes @ $0.14 per minute)	0.42	0.57
Total cost per coffee mug	$0.98
Actual cost and production information for July 2012 follow:
a. Actual production and sales were 62,900 coffee mugs.
b. Actual direct materials usage was 10,000 lbs., at an actual price of $0.17 per lb.
c. Actual direct labor usage was 202,000 minutes at a total cost of $30,300.
d. Actual overhead cost was $10,000 variable and $30,500 fixed.
e. Marketing and administrative costs were $115,000.
1. Compute the price and efficiency variances for direct materials and direct labor.
2. Journalize the usage of direct materials and the assignment of direct labor, including the related variances.
3. For manufacturing overhead, compute the variable overhead spending and efficiency variances and the fixed overhead spending and volume variances.
4. Journalize the actual manufacturing overhead and the applied manufacturing overhead. Journalize the movement of all production from WIP. Journalize the closing of the manufacturing overhead account.
5. Java intentionally hired more-skilled workers during July. How did this decision affect the cost variances? Overall, was the decision wise?