Managerial Accounting
1) Aramar Company has the following sales budget:
Month Cash Sales Credit Sales
February $24,000 $48,000
March 18,800 29,200
April 10,800 28,400
Collections of credit sales are 35% in the month of sale, 30% in the month after sale and 33% two months after sale. No uncollectible accounts are expected.
Required:
Prepare a schedule of cash collections for the three months.
2) The Scadoba Company has the following information available:
Month Budgeted Sales
March $150,000
April 153,000
May 151,000
June 254,500
July 252,500
The cost of goods sold rate is 38% and the desired ending inventory level is 25% of the next month’s cost of sales.
Required:
Prepare a purchases budget for April, May and June.
3) Direct Material Direct Labor
Std. price per unit of input $12 per foot $14 per hour
Actual price per unit of input $14 per foot $13 per hour
Std. inputs allowed per unit of output 5 feet 3 hours
Actual units of input 2,500 feet 1,550 hours
Actual units of output 600 units
Required:
Compute the price and quantity variances for direct materials and direct labor.
4) Splitsville Company has two departments. Factory overhead costs are applied based on direct labor cost in Department A and machine hours in Department B. The following information is available:
Budgeted Items Dept. A Dept. B
Direct labor cost 280,000 $145,000
Machine hours 31,000 50,000
Factory overhead cost $185,000 $160,000
Actual data for Job #10 are as follows:
Actual Items Dept. A Dept. B
Direct materials requisitioned $10,000 $16,000
Direct labor cost $11,000 $14,000
Machine hours 5,000 3,000
Required:
A) Compute the budgeted factory overhead rate for Department A.
B) Compute the budgeted factory overhead rate for Department B.
C) What is the total overhead cost for Job #10?
D) If Job #10 consists of 80 units of product, what is the unit cost of this job?
5) Each year, Madsen Company purchases 8,000 units of a part that it needs for production of its product. The supplier notified Madsen Company that a price increase will take effect shortly, which will bring the price of the part to $25 per part. Madsen Company is considering the use of idle facilities to produce the part. The annual production costs to produce the needed 8,000 parts are as follows:
Direct materials $17,500
Direct labor 30,000
Variable indirect production costs 14,000
Fixed indirect production costs 33,500
The idle facilities could also be rented out at an annual rent of $99,000. All the fixed indirect production costs are avoidable.
Required:
Determine if Madsen Company should buy the part or produce it internally.
6) Freedom Company has three departments. Data for the most recent year are presented below:
Dept. X Dept. Y Dept. Z
Sales $400 $200 $80
Variable expenses 128 52 34
Unavoidable fixed expenses 96 52 12
Avoidable fixed expenses 116 104 54
Required:
A) Compute the operating income for Freedom Company.
B) Compute the contribution margin for each department.
C) Compute the operating income for each department.
D) Which department(s) should be eliminated? Why?
7) Foster Corporation has a joint process, which produces three products, A, B and C. Each product may be sold at split-off or processed further and then sold. Joint processing costs for a year are $40,000. Other relevant data are:
Sales Value Separable Processing Sales Value
Product at Split-Off Costs After Split-Off at Completion
A $15,500 $2,200 $17,700
B 18,000 8,000 23,000
C 24,000 11,500 37,500
Required:
A) Which products should be processed further? Why?
B) If the Foster Company maximizes profits, what is the operating income?
8) Jorgensen Company is considering the replacement of equipment used in operations. The following data are available:
Old Equipment New Equipment
Original cost $210,000 $40,000
Useful life in years 12 7
Current age in years 5 0
Book value $65,000 –
Disposal value now $30,000 –
Disposal value in 7 years 0 0
Annual cash operating costs $9,000 $8,000
Required:
A) Prepare a cost comparison for replacing the old equipment. Use only relevant items and add the items together for the next 7 years.
B) Should the old equipment be replaced?
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