# acct505 final_29 June

Question
1.(TCO F) Willow Creek Corporation bases its predetermined overhead rate on the estimated labor hours for the upcoming year. At the beginning of the most recently completed year, the company estimated the labor hours for the upcoming year at 38,500 labor hours. The estimated variable manufacturing overhead was \$7.37 per labor hour and the estimated total fixed manufacturing overhead was \$601,328. The actual labor hours for the year turned out to be 41,721 labor hours.

Required:

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

2.(TCO F) Matuseski Corporation is preparing its cash budget for October. The budgeted beginning cash balance is \$17,000. Budgeted cash receipts total \$187,000 and budgeted cash disbursements total \$177,000. The desired ending cash balance is \$40,000. The company can borrow up to \$120,000 at any time from a local bank, with interest not due until the following month.

Required:

Prepare the company’s cash budget for October in good form.(Points : 25)

Page 2

2.(TCO D) Lindon Company uses 4,500 units of Part X each year as a component in the assembly of one of its products. The company is presently producing Part X internally at a total cost of \$69,000 as follows:

Direct materials

\$16,000

Direct labor

18,000

10,000

25,000

Total costs

\$69,000

An outside supplier has offered to provide Part X at a price of \$11 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.(Points : 30)

3.(TCO E) Topple Company produces a single product. Operating data for the company and its absorption costing income statement for the last year is presented below:

Units in beginning inventory

0

Units produced

9,000

Units sold

7,000

Sales

\$100,000

Less cost of goods sold:

Beginning inventory

0

54,000

Goods available for sale

54,000

Less ending inventory

12,000

Cost of goods sold

42,000

Gross margin

58,000

28,000

Net operating income

\$30,000

Variable manufacturing costs are \$4 per unit. Fixed factory overhead totals \$18,000 for the year. This overhead was applied at a rate of \$2 per unit. Variable selling and administrative expenses were \$1 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. (Points : 30)

4.(TCO A) The following data (in thousands of dollars) have been taken from the accounting records of the Maroon Corporation for the just-completed year.

Sales

1,150

Raw materials inventory, beginning

15

Raw materials inventory, ending

40

Purchases of raw materials

150

Direct labor

250

300

500

Selling expenses

300

Work in process inventory, beginning

100

Work in process inventory, ending

150

Finished goods inventory, beginning

80

Finished goods inventory, ending

120

Use the above data to prepare (in thousands of dollars) a schedule of Cost of Goods Manufactured and a Schedule of Cost of Goods Sold for the year. In addition, what is the impact on the financial statements if the ending finished goods inventory is overstated or understated?(Points : 25)

1.(TCO F) Carter Corporation uses the weighted-average method in its process costing system. Data concerning the first processing department for the most recent month are listed below.

Work in process, beginning:

Units in beginning work-in-process inventory

400

Materials costs

\$6,900

Conversion costs

\$2,500

Percentage complete for materials

80%

Percentage complete for conversion

15%

Units started into production during the month

6,000

Units transferred to the next department during the month

5,800

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

1,400

Percentage complete for materials

70%

Percentage complete for conversion

40%

Required: Calculate the equivalent units for materials (using the weighted-average method) for the month in the first processing department.(Points : 25)

2.(TCO G) (Ignore income taxes in this problem.) Five years ago, the City of Paranoya spent \$30,000 to purchase a computerized radar system called W.A.S.T.E. (Watching Aliens Sent To Earth). Recently, a sales rep from W.A.S.T.E. Radar Company told the city manager about a new and improved radar system that can be purchased for \$50,000. The rep also told the manager that the company would give the city \$10,000 in trade on the old system. The new system will last 10 years. The old system will also last that long but only if a \$4,000 upgrade is done in 5 years. The manager assembled the following information to use in the decision regarding which system is more desirable:

Old System

New 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

\$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?(Points : 35)

3.(TCO B) Aziz Corporation produces and sells a single product. Data concerning that product appear below.

Selling price per unit

\$130.00

Variable expense per unit

\$27.30

Fixed expense per month

\$165,347

Required:

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

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