1.

 

 

 

Packer Company, which has only one product, has provided the following data concerning its most recent month of operations:

 

 

 

 

 

 

  Selling price

 

$

81

 

  Units in beginning inventory

 

 

300

 

  Units produced

 

 

1,800

 

  Units sold

 

 

1,600

 

  Units in ending inventory

 

 

500

 

 

 

 

 

 

  Variable costs per unit:

 

 

 

 

     Direct materials

 

$

19

 

     Direct labor

 

$

16

 

     Variable manufacturing overhead

 

$

1

 

     Variable selling and administrative

 

$

11

 

  Fixed costs:

 

 

 

 

     Fixed manufacturing overhead

 

$

34,200

 

     Fixed selling and administrative

 

$

3,200

 

 

The company produces the same number of units every month, although the sales in units vary from month to month. The company’s variable costs per unit and total fixed costs have been constant from month to month.

 

Required:

a.

What is the unit product cost for the month under variable costing?

 

  Unit product cost

$ 

 

$ 

 

$ 

$ 

$ 

  

 

  Expenses:

 

 

  Wages and salaries

  Supplies

  Insurance

  Miscellaneous

  

 

  Total expenses

  

 

  Net operating income

$ 

  

 

 

4.

 

 

 

Vera Corporation bases its budgets on the activity measure customers served. During September, the company planned to serve 28,000 customers, but actually served 27,000 customers. The company has provided the following data concerning the formulas it uses in its budgeting:

 

 

Fixed
element
per month

Variable
element
per customer

  Revenue

 

 

$

5.00

 

  Wages and salaries

$

35,800

 

$

1.90

 

  Supplies

$

0

 

$

0.60

 

  Insurance

$

13,000

 

$

0.00

 

  Miscellaneous

$

7,500

 

$

0.20

 

 

Required:

Prepare the company’s flexible budget for September based on the actual level of activity for the month.(Input all amounts as positive values.)

 

Vera Corporation
Flexible Budget
For the Month Ended September 30

  Revenue

$   

  

b.

Compute the materials price variance. (Input the amount as positive value. Leave no cells blank – be certain to enter “0” wherever required. Indicate the effect of each variance by selecting “F” for favorable, “U” for unfavorable, and “None” for no effect (i.e., zero variance).)

  

  Materials price variance

$   

   

c.

Compute the labor efficiency variance. (Input the amount as positive value. Leave no cells blank – be certain to enter “0” wherever required. Indicate the effect of each variance by selecting “F” for favorable, “U” for unfavorable, and “None” for no effect (i.e., zero variance).)

  

  Labor efficiency variance

$   

  

d.

Compute the direct labor rate variance. (Input the amount as positive value. Leave no cells blank – be certain to enter “0” wherever required. Indicate the effect of each variance by selecting “F” for favorable, “U” for unfavorable, and “None” for no effect (i.e., zero variance).)

  

  Labor rate variance

$   

   

e.

Compute the variable overhead efficiency variance.(Input the amount as positive value. Leave no cells blank – be certain to enter “0” wherever required. Indicate the effect of each variance by selecting “F” for favorable, “U” for unfavorable, and “None” for no effect (i.e., zero variance).)

  

  Variable overhead efficiency variance

$   

  

f.

Compute the variable overhead rate variance. (Input the amount as positive value. Leave no cells blank – be certain to enter “0” wherever required. Indicate the effect of each variance by selecting “F” for favorable, “U” for unfavorable, and “None” for no effect (i.e., zero variance).)

  

  Variable overhead rate variance

$   

 

 

 6.

 

 

 

The management of Rodarmel Corporation is considering dropping product G91Q. Data from the company’s accounting system appear below:

    

 

  Sales

 

$

370,000

 

  Variable expenses

 

$

170,000

 

  Fixed manufacturing expenses

 

$

118,000

 

  Fixed selling and administrative expenses

 

$

89,000

 

        

All fixed expenses of the company are fully allocated to products in the company’s accounting system. Further investigation has revealed that $57,000 of the fixed manufacturing expenses and $40,000 of the fixed selling and administrative expenses are avoidable if product G91Q is discontinued.

    

 

a.

What is the net operating income(loss) earned by product G91Q according to the company’s accounting system? (Input the amount as a positive value.)

       

  

$  by

$ 

 

$ 

$ 

 

$ [removed]  

 

 

  

b.

Whether Product C should be eliminated. 

 

 

 

8.

 

 

 

Kramer Company makes 4,000 units per year of a part called an axial tap for use in one of its products. Data concerning the unit production costs of the axial tap follow:

    

 

  Direct materials

 

$

35

 

  Direct labor

 

 

10

 

  Variable manufacturing overhead

 

 

8

 

  Fixed manufacturing overhead

 

 

20

 

 

 

 

  Total manufacturing cost per unit

 

$

73

 

 

 

 

      

An outside supplier has offered to sell Kramer Company all of the axial taps it requires. If Kramer Company decided to discontinue making the axial taps, 40% of the above fixed manufacturing overhead costs could be avoided. Assume that direct labor is a variable cost.

    

 

a1.

Assume Kramer Company has no alternative use for the facilities presently devoted to production of the axial taps. If the outside supplier offers to sell the axial taps for $65 each, calculate the total cost for making the axial taps.

       

  Total cost

$ [removed]  

    

a2.

Should Kramer Company accept the offer?

 

 

 

    

b.

Assume that Kramer Company could use the facilities presently devoted to production of the axial taps to expand production of another product that would yield an additional contribution margin of $80,000 annually. What is the maximum price Kramer Company should be willing to pay the outside supplier for axial taps?

 

  Maximum acceptable price

$ [removed]  

 

9.

 

 

 

Humes Corporation makes a range of products. The company’s predetermined overhead rate is $16 per direct labor-hour, which was calculated using the following budgeted data:

   

 

 

 

 

 

  Variable manufacturing overhead

 

$

75,000

 

  Fixed manufacturing overhead

 

$

325,000

 

  Direct labor-hours

 

 

25,000

 

  

Management is considering a special order for 700 units of product J45K at $64 each. The normal selling price of product J45K is $75 and the unit product cost is determined as follows:

      

 

 

 

 

 

  Direct materials

 

$

37.00

 

  Direct labor

 

 

18.00

 

  Manufacturing overhead applied

 

 

16.00

 

 

 

 

  Unit product cost

 

$

71.00

 

 

 

 

  

If the special order were accepted, normal sales of this and other products would not be affected. The company has ample excess capacity to produce the additional units. Assume that direct labor is a variable cost, variable manufacturing overhead is really driven by direct labor-hours, and total fixed manufacturing overhead would not be affected by the special order.

  

Required:

If the special order were accepted, what would be the impact on the company’s overall profit? 

   

  Company’s profit

$ [removed]   

 

 

10.

 

 

 

Net operating income reported under absorption costing will exceed net operating income reported under variable costing for a given period if:

[removed]

production equals sales for that period.

[removed]

production exceeds sales for that period.

[removed]

sales exceed production for that period.

[removed]

the variable manufacturing overhead exceeds the fixed manufacturing overhead.

 

11.

 

 

 

A common cost that should not be assigned to a particular product on a segmented income statement is:

[removed]

the product’s advertising costs.

[removed]

the salary of the corporation president.

[removed]

direct materials costs.

[removed]

the product manager’s salary.

 

 

12.

 

 

 

Olds Inc., which produces a single product, has provided the following data for its most recent month of operations:

 Picture 

There were no beginning or ending inventories. The absorption costing unit product cost was:

[removed]

$97

[removed]

$130

[removed]

$99

[removed]

$207

 

 

 

13.

 

 

 

Abe Company, which has only one product, has provided the following data concerning its most recent month of operations:

 Picture 

What is the unit product cost for the month under variable costing?

[removed]

$99

[removed]

$81

[removed]

$106

[removed]

$88

 

14.

 

 

 

Abe Company, which has only one product, has provided the following data concerning its most recent month of operations:

 Picture 

What is the unit product cost for the month under absorption costing?

[removed]

$88

[removed]

$99

[removed]

$81

[removed]

$106

 

15.

 

 

 

Lantto Air uses two measures of activity, flights and passengers, in the cost formulas in its flexible budgets. The cost formula for plane operating costs is $34,810 per month plus $2,850 per flight plus $12 per passenger. The company expected its activity in June to be 70 flights and 292 passengers, but the actual activity was 69 flights and 291 passengers. The actual cost for plane operating costs in June was $236,550. The plane operating costs in the flexible budget for June would be closest to:

[removed]

$237,814

[removed]

$234,952

[removed]

$236,550

[removed]

$234,417

16.

 

 

 

The following standards for variable manufacturing overhead have been established for a company that makes only one product:

 Picture 

The following data pertain to operations for the last month:

 Picture 

What is the variable overhead rate variance for the month?

[removed]

$1,200 F

[removed]

$9,625 F

[removed]

$8,425 F

[removed]

$990 U

 

17.

 

 

 

Freestone Company is considering renting Machine Y to replace Machine X. It is expected that Y will waste less direct materials than does X. If Y is rented, X will be sold on the open market. For this decision, which of the following factors is (are) relevant?

I. Cost of direct materials used
II. Resale value of Machine X

[removed]

Only I

[removed]

Only II

[removed]

Both I and II

[removed]

Neither I nor II

 

18.

 

 

 

A study has been conducted to determine if Product A should be dropped. Sales of the product total $200,000 per year; variable expenses total $140,000 per year. Fixed expenses charged to the product total $90,000 per year. The company estimates that $40,000 of these fixed expenses will continue even if the product is dropped. These data indicate that if Product A is dropped, the company’s overall net operating income would:

[removed]

decrease by $20,000 per year

[removed]

increase by $20,000 per year

[removed]

decrease by $10,000 per year

[removed]

increase by $30,000 per year

 

19.

 

 

 

Lusk Company produces and sells 15,000 units of Product A each month. The selling price of Product A is $20 per unit, and variable expenses are $14 per unit. A study has been made concerning whether Product A should be discontinued. The study shows that $70,000 of the $100,000 in fixed expenses charged to Product A would continue even if the product was discontinued. These data indicate that if Product A is discontinued, the company’s overall net operating income would:

[removed]

decrease by $60,000 per month

[removed]

increase by $10,000 per month

[removed]

increase by $20,000 per month

[removed]

decrease by $20,000 per month

 

20.

 

 

 

Pitkin Company produces a part used in the manufacture of one of its products. The unit product cost of the part is $33, computed as follows:

Picture
 
An outside supplier has offered to provide the annual requirement of 10,000 of the parts for only $27 each. The company estimates that 30% of the fixed manufacturing overhead costs above will continue if the parts are purchased from the outside supplier. Assume that direct labor is an avoidable cost in this decision. Based on these data, the per unit dollar advantage or disadvantage of purchasing the parts from the outside supplier would be:

[removed]

$3 advantage

[removed]

$1 advantage

[removed]

$1 disadvantage

[removed]

$4 disadvantage