ACCT 505 Final Exam 2

Required:

Compute the company’s predetermined overhead rate for the recently completed year. (Points : 25)

Required:

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.

(Points : 30)

PRODUCT

Total             A                  B                      C

Sales…………………………………………$ 100,000……..$50,000………$20,000………..$30,000

Variable expenses…………………………  60,000……….30,000…………10,000………….20,000

Contribution margin……………………….. .40,000……….20,000…………10,000………….10,000

Fixed expenses:

Rent…………………………………………. .5,000………..2,500…………..1,000……………1,500

Depreciation………………………………. 6,000………..3,000…………..1,200…………….1,800

Utilities………………………………………4,000………..2,000……………..500…………….1,500

Supervisors’ salaries…………………..   5,000………. 1,500……………..500…………….3,000

Maintenance………………………………3,000………..1,500………………600………………900

Administrative expenses……………. 10,000………..3,000……………..2,000…………..5,000

Total fixed expenses…………………… 33,000……….13,500……………5,800………….13,700

Net operating income…………………… $7,000……….$6,500………….$4,200…………($3,700)

The additional information below is available.

·  The factory rent of $1,500 assigned to Product C is avoidable if the product is dropped.

·  The company’s total depreciation would not be affected by dropping C.

·  Eliminating Product C will reduce the monthly utility bill from $1,500 to $800.

·  All supervisors’ salaries are avoidable.

·  If Product C is discontinued, the maintenance department will be able to reduce monthly expenses from $3,000 to $2,000.

·  Elimination of Product C will make it possible to cut two persons from the administrative staff. Currently, their combined salaries total $2,000.

Required: Prepare an analysis showing whether Product C should be eliminated.  Articulate your findings.

(Points : 30)

Additional Information:

Required: Prepare a new income statement for the year using variable costing. Comment on the differences, if any, between the absorption costing and the variable costing income statements.

(Points : 30)

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 5,600

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 800

Percentage complete for materials 70%

Percentage complete for conversion 30%

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

(Points : 25)

Required:

Determine the monthly break-even in unit sales. Show your work! (Points : 25)

Required:

a.       What is the net present value of this investment opportunity?

b.      Based on your answer to (a) above, should Axillar go ahead with the new conditioning shampoo?

(Points : 35)