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Estimated machine hours
73,000
 

 
Estimated variable manufacturing overhead
$3.49
per machine hour
Estimated total fixed manufacturing overhead
$838,770
 

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Question 2.

      

                                                           Actual costs                  Static
                                                           Incurred                         budget

Activity level (in units)                           360                                340

Variable costs:
             Indirect materials                     $4,182                           $4,148
             Electricity                               $2,536                           $2,414
Fixed costs:
            Administration                          $6,540                           $6,500
            Rent                                        $6,310                           $6,400

Required:  Construct a flexible budget performance report that would be useful in assessing how well costs were controlled in this department.

      

Question 2.

Direct materials………………………………………..$18,000

Direct labor………………………………………………20,000

Variable manufacturing overhead……………….     12,000

Fixed manufacturing overhead…………………..     30,000

Total costs……………………………………………….80,000

An outside supplier has offered to provide Part X at a price of $13 per unit. If Lindon stops producing the part internally, one third of the manufacturing overhead would be eliminated.

Required: Prepare a make-or-buy analysis showing the annual advantage or disadvantage of accepting the outside supplier’s offer.

      

Question 3.

Sales…………………………………………………$70,000
Less cost of goods sold:
Beginning inventory………………………………………. 0
Add cost of goods manufactured………………48,000
Goods available for sale………………………….48,000
Less ending inventory………………………………6,000
Cost of goods sold………………………………..42,000
Gross margin……………………………………….28,000
Less selling and admin. expenses……………..25,000
Net operating income…………………………..$  3,000

Data on units produced and sold for the year are given below.

Units in beginning inventory……………………………..0
Units produced……………………………………….8,000
Units sold………………………………………………7,000
  
Fixed factory overhead totaled $16,000 for the year. This overhead was applied to products at a rate of $2 per unit. Variable selling and administrative expenses were $3 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.

      

Question 4.

      

 

Work in process, beginning:

Units in beginning work in process inventory 400

Materials costs $6,900

Conversion costs $2,500

Percent complete for materials 80%

Percent complete for conversion 15%

Units started into production during the month 6,000

Units transferred to the next department during the month 5,400

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 1,000

Percentage complete for materials 80%

Percentage complete for conversion 30%

Required: Calculate the equivalent units for materials for the month in the first processing department.

      

Question 2.

Selling price per unit
$230.00
Variable expense per unit
$112.70
Fixed expense per month
$239,292

      

Question 3.

 

 

    Old System

    New System

 

Cost of radar system…………………..

$30,000

$50,000

 

Current salvage value………………….

 $10,000

 

Salvage value in 10 years……………..

$5,000

$8,000

 

Annual operating costs………………..

$34,000

$29,000

 

Upgrade required in 5 years…………

$4,000

 

Discount rate……………………………..

14%

14%

Required:

a.      What is the City of Paranoya’s net present value for the decision described above? Use the total cost approach.

b.      Should the City of Paranoya purchase the new system or keep the old system?

      

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