Q. 01). P1-31A E-commerce cost-benefit analysis (Learning Objective 5)

Sun Gas wants to move its sales order system to the Web. Under the proposed system, gas stations and other merchants will use a Web browser and, after typing in a password for the Sun Gas Web page, will be able to check the availability and current price of various products and place an order, Currently, customer service representatives take dealers’ orders over the phone: they record the information on a paper form, then manually enter it into the firm’s computer system.

CFO Carrie Smith believes that dealers will not adopt the new Web System unless Sun Gas provides financial assistance to help them purchase or upgrade their PCs. Smith estimates this one-time at $750,000. Sun Gas will also have to invest $150,000 in upgrading its own computer hardware. The cost of the software and the consulting fee for installing eh system will be $230,000. The Web System will enable Sun Gas to eliminate 25 clerical positions. Smith estimates’ that the new system’s lower labor costs will have saved the company $1,357,000.

Requirement

Use a cost-benefit analysis to recommend to Smith whether Sun Gas should proceed with the Web-based ordering system. Give your reasons, showing supporting calculations.

Q. 02). E2-21A Classify and calculate a manufacturer’s costs (Learning Objectives 3 & 4)

An airline manufacturer incurred the following costs last months (in thousands of dollars) :

a. Air plane seats $ 250b. Depreciation on administrative offices 60c. Assembly worker’s wages 600d. Plant utilities 120e. Production supervisors salaries 100f. Jet engines 1,000g. Machine Lubricants 15h. Depreciation on forklifts 50i. Property tan on corporate marketing office 25j. Cost of warranty repairs 225k. Factory janitor’s wages 30l. Cost of designing new plant layout 175

m. Machine operators health insurance 40TOTAL $2,690

Requirements

1. If the cost object is an airplane, classify each cost as one of the following: direct material (DM), direct labo, (DL), indirect labor (IL), indirect materials (IM), other manufacturing overhead (other MOH), or period cost. (Hint: Set up a column for each type of cost). What is the total for each type of cost?

Page 1 of 16

2. Calculate total manufacturing overhead costs.

3. Calculate total inventoriable product costs.

4. Calculate total prime costs.

5. Calculated total conversation costs.

6. Calculate total period costs.

Q. 03. E2-25A Compute cost of goods manufactured and cost of goods sold (Learning Objective 5)

Compute the cost of goods manufactured and cost of goods sold for Strike Marine Company for the most recent year using the amounts described below. Assume that raw materials inventory contains only direct materials.

Beginning of Year

End of Year

End of Year

Raw materials inventory $25,000 $28,000 Insurance on plant $ 9,000Work in process inventory 50,000 35,000 Depreciation-plant

building and equipment13,000

Finished goods inventory 18,000 25,000 Repairs and maintenance plant

4,000

Purchase of direct materials 78,000 Marketing expenses 77,000Direct Labor 82,000 General and

administrative expenses29,000

Indirect labor 15,000

Q. 04. E2-34B Classify costs along eh value chain for a manufacturer (Leaning Objectives 2 & 3)

Suppose the cell phone manufacturer Plum Electronics provides the following information for its costs last month (in hundreds of thousands):

Salaries of telephone salespeople $ 4 Transmitters $ 58

Depreciation on plant and equipment 55 Rearrange production process to

accommodate new robot 1

Exterior case for phone 8 Assembly - line workers’ wages 9

Salaries of scientists who developed new model 11 Technical customer-support hotline 3

Delivery expense to customers via UPS 5 1-800 (toll-free)line for customer

orders

Requirements

Page 2 of 16

1. Classify each of these costs according to its place in the value chain (Hint : You should have at least one cost in each value chain function)

Production

R & D

Design of Products

or Processes

Direct Materials

Direct Labor

Manufacturing Overhead Marketing Distribution Customer

Service

2. Compute the total costs for each value chain category

3. How much are the total inventoriable product costs?

4. How much are the total prime costs?

5. How much are the total conversion costs?

Q. 5. E3-28A Record journal entries (Learning Objectives 2, 3,5 & 6)

The following transactions were incurred by Dutch Fabricators during January, the first month of its fiscal year.

Requirements

1. Record the proper journal entry for each transaction.

a) $190, 000 of materials were purchased on account.

b) $ 174,000 of materials was used in production: of this amount, $152, 000 was used on specific jobs.

c) Manufacturing labor and salaries for the month totaled $ 225,000. A total of $ 190,000 of manufacturing labor and salaries was traced to specific jobs, while the remainder was indirect labor used in the factory.

d) The company recorded $20,000 of depreciation on the plant and plant equipment. The company also received a plant utility bill for $ 10,000

e) $81,000 of manufacturing overhead was allocated to specific jobs.

2. By the end of January, was manufacturing overhead over allocated or under allocated? By how much?

Q.6 S4-19 Quality initiative decision (Learning Objective 5)

Wharfedale manufactures high-quality speakers. Suppose Wharfedale is considering spending the following amounts on a new quality program:

Page 3 of 16

Additional 20 minutes of testing for each speaker $ 600,000Negotiation with and training suppliers to obtain higher-quality materials and on-time delivery 300,000

Redesigning the speakers to make them easier to manufacture 1,400,000Wharfedale expects this quality program to save costs as follows:

Reduced warranty repair costs $ 200,000Avoid inspection of raw materials 400,000Rework avoided because of fewer defective units 650, 000

It also expects this program to avoid lost profits from the followings:

Lost sales due to disappointed customers $ 850,000Lost production time due to rework 300,000

1) Classify each of these costs into one of four categories of quality costs (prevention, appraisal, internal failure, external failure)

2) Should Whardale implement the quality program? Give your reasons.

Q.07 Mission, Inc., Data Set for S4-11 through S4-14:

Mission, Inc., is a technology consulting firm focused on Web site development and integration of Internet business applications President Susan Nelson’s ear is ringing after an unpleasant call form client Jerry Webb. Webb said irate after opening his bill for Mission’s redesign of his company’s Web site. Webb said that Mission’s manor competitor, Delta Applications, charged much lower fees to another company for which Webb serves on the board of directors.

Nelson is puzzled for two reasons. First, she is confident that her firm knows Web site design and support as well as any of Mission’s competitors. Nelson cannot understand how Delta Applications can undercut Mission’s rates and still make a profit. But Delta Applications is reputed to be very profitable. Second, just yesterday Nelson received a call from client Keith Greg. Greg was happy with excellent service and reasonable fees Nelson charged him for adding a database-driven job-posting feature to his company’s Web site. Nelson was surprised by Greg’s compliments because this was an unusual job for Mission that required development of complex database management and control applications, and she had felt a little uneasy accepting it.

Like most consulting firms, Mission traces direct labor to individual engagements (jobs). Missions allocate indirect costs to engagements using a budgeted rate based on direct labor hours. Nelson is happy with this system, which she has used since she established Mission in 1995.

Nelson expects to incur $706,000 of indirect costs this year, and she expects her firm to work 5,000 direct labor hours. Nelson and the other system consultants earn $350 per hour. Clients are billed

Page 4 of 16

at 150% of direct labor cost, Last month, Mission’s consultants spent 100 hours on Webb’s engagement. They also spent 100 hours on Greg’s engagement.

a) S4-11 Compute and use traditional allocation rate (Learning Objective 1)

Refer to Mission Data Set.

1) Compute Mission’s indirect cost allocation rate

2) Compute the total costs assigned to the Web and Greg engagements.

3) Compute the operating income from the Web and Greg engagements.

b) S4-12 Identify clues that old system is broken (Learning Objective 3)

Refer to the Mission Data Set. List all of the signals or clues indicating that Mission’s cost system may be “broken”.

c) S4-13 Compute activity cost allocation rates (Learning Objective 2)

Refer to the Mission Data Set. Nelson suspects that her allocation of indirect costs could be giving misleading results, so she decides to develop an ABC system, She identifies three activities: documentation preparation, information technology support, and training. Nelson figures that documentation costs are driven by the number of pages, information technology support costs are driven by the number of software applications used, and training costs are most closely associated with the number of direct labor hours worked. Estimates of the costs and quantities of the allocation bases follow:

Activity Estimated Cost

Allocation Base Estimated Quantity of Cost Driver

Documentation preparation $100,000 Pages 3,125 PagesInformation technology support 156,000 Application used 780 applicationsTraining 450,000 Direct labor hours 5,000 hours

Compute the cost allocation rate for each activity

Q.08). P5-49A Process costing in a single processing department (Learning Objectives 1, 2 & 3)

Winter Lips produces a lip balm used for cold-weather sports. The balm is manufactured in a single processing department. No lip balm was in process on May 31, and Winter Lips started production on 20,400 lip balm tubes during June, Direct materials are added at the beginning of the process, but conversation costs are incurred evenly throughout the process. Completed production for June totaled 15,200 units. The June 30 work in process was 40% of the way though the production process. Direct materials costing $4,080 were placed in production during June, and direct labor of $3,315 and manufacturing overhead of $1,005 were assigned to the process.

Requirements

Page 5 of 16

1) Draw a time line for Winter Lips that is similar to Exhibit 5-6

2) Use the time line to help you compute the total equivalent units and the cost per equivalent unit for June.

3) Assign total costs to (a) units completed and transferred to Finished Goods and (b) units still n process at June 30.

4) Prepare a T-account for Work in Process Inventory to show activity during June, including the June 30 balance.

Q.09 Prepare a production cost report and journal entries (Learning Objectives 4 & 5)

Classic Accessories manufactures auto roof racks in a two-stage process that includes shaping and plating. Steel alloy is the basic raw material of the shaping process. The steel is molded according to the design specifications of automobile manufacturers (Ford and General Motors). The Planting Department then adds an anodized finish.

At March 31, before recording the transfer of cost form the Plating Department to Finished Goods Inventory, the Classic Accessories general ledger included the following account:

Work in Process Inventory - PlatingMarch 1 balance 26,370Transferred-in from Shaping 28,800Direct materials 28,600Direct labor 20,867Manufacturing overhead 36,763

The direct material (rubber pads) are added at the end of the plating process. Conversion costs are incurred evenly throughout the process. Work in process of the plating Department on March 1 consisted of 600 racks. The $26,370 beginning balance of “Work in Process-Planting” includes $14,400 of transferred-in cost and $11,970 of conversion cost. During March, 3,000 racks were transferred in from the Shaping Department. The Plating Department transferred 2,200 racks to Finished Goods Inventory in March and 1,400 were still in process on March 31. This ending inventory was 50% of the way through the plating process.

Requirements

1) Draw a time line for the Plating Department, similar to Exhibit 5-10.

2) Prepare the March production cost report for the Plating Department.

3) Journalize all transactions affecting the Plating department during March, including the entries that have already been posted.

Page 6 of 16

Q.10 ) Essay Question :

Write a 400 word minimum essay discussing how lean versus traditional production might affect a management accountant trying to calculate company’s costs. How would the information a management accountant would use to determine company costs change depending on type of production?

Q.11). C6-69 Analyze cost behavior using a variety of methods (Learning Objectives 1, 2, 3, 4, & 5).

Braunhaus Microbrewery is in the process of analyzing its manufacturing overhead costs.

Braunhaus Microbrewery is not sure if the number of cases or the number of processing hours is the best cost driver of manufacturing overhead (MOH) costs. The following information is available :

MonthManufacturing

Overhead Costs

Processing Hours cases

MOH Cost per

Processing Hour

MOH Cost per Case

January $29,500 680 8,000 $43.38 $3.69February 27,800 575 6,750 48.35 4.12March 24,500 500 5,500 49.00 4.45April 29,000 600 7,250 48.33 4.00May 28,000 650 7,800 43.08 3.59June 29,570 710 5,600 41.90 5.31

Requirements

1) Are manufacturing overhead costs fixed, variable, or mixed? Explain.

2) Graph Braunhaus Microbrewery’s manufacturing overhead costs against processing hours. Use Excel or graph by hand.

3) Graph Braunhaus Microbrewery’s manufacturing overhead costs against cases produced. Use Excel or graph by hand.

4) Does the data appear to be sound, or do you see any potential data problems? Explain.

5) Use the high-low method to determine Braunhaus Microbrewery’s manufacturing overhead cost equation using processing hours as the cost driver. Assume that management believes all of the data to be accurate and wants to include all of it in the analysis.

6) Estimate manufacturing overhead costs if Braunhaus Microbrewery incurs 550 processing hours in July, using the results of the high-low analysis in Requirement 5.

Page 7 of 16

7) Use Excel regression analysis to determine Braunhaus Microbrewery’s manufacturing over-head cost equation using processing hours as the cost driver. Comment on the R-square. Estimate manufacturing overhead costs if Braunhaus Microbrewery incurs 550 processing hours in July.

8) Use Excel regression analysis to determine Braunhaus Microbrewery’s manufacturing over head cost equation using number of cases produced as the cost driver. Use all of the data provide. Project total manufacturing overhead costs if Braunhaus Microbrewery produces 6,000 cases. Which cost equation is better – this one or the one form Requirement 7? Why?

9) Use Excel regression analysis to determine Braunhaus Microbrewery’s manufacturing overhead cost equation using number of cases produced as the cost driver. This time, remove any potential outliers before performing the regression. How does this affect the R-square? Project total manufacturing overhead costs if Braunhaus Microbrewery produces 6,000 cases.

10) In which cost equation do you have the most confidence? Why?

Q-12). P6-65B Prepare traditional and contribution margin income statements (Learning Objective 6).

Mary’s Ice Cream Shoppe sold 9,100 servings of ice cream during June for $ per serving. Mary purchases the ice cream in large tubs form the Organic Ice Cream Company. Each tub costs Mary $14 and has enough ice cream to fill 28 ice cream cones, Many purchase the ice cream cones for $0.20 each from a local warehouse club. Mary’s Shoppe is located in a local strip mall, and she pays $2,050 a month to lease the space. Mary’s Shoppe is located in a local strip mall, and she pays $2,050 a month to lease the space. Mary expenses $210 a month for the depreciation of the Shoppe’s furniture and equipment. During June, Mary incurred an additional $2,000 of ther operating expenses (75% of these were fixed costs).

Requirements

1. Prepare Mary’s June income statement using a traditional format.

2. Prepare Mary’s June income statement using a contribution margin format.

Q-13). 17-72 Ethical dilemma with CVP analysis error (Learning Objective 2)

You have just begun your summer internship at Tmedic. The company supplies sterilized surgical instruments for physicians. To expand sales, Tmedic is considering paying a commission to its sales force. The controller, Jane Hewitt, asks you to compute (1) the new breakeven sales figure and (2) the operating profit if sales increase 15% under the new sales commission plan. She thinks you can handle this task because you learned CVP analysis in your accounting class.

You spend the next day collecting information from the accounting records, performing the analysis, and writing a memo to explain the results. The company president is pleased with your memo.

Page 8 of 16

You report that the new sales commission plan will lead to a significant increase in operating income and only a small increase in breakeven sales.

The following week, you realize that you made an error in the CVP analysis. Your overlooked the sales personnel’s $2,500 monthly salaries, and you did not include this fixed marketing expense in your computations. You are not sure what to do. If you tell Hewitt of your mistake, she will have to tell the president. In this case, you are afraid Tmedic might not offer you permanent employment after your internship.

Requirements

1. How would your error affect breakeven sales and operating income under the proposed sales commission plan? Could this cause the president to reject the sales commission proposal?

2. Consider your ethical responsibilities. Is there a difference between (a) initially making an error and (b) subsequently failing to inform the controller?

3. Suppose you tell Hewitt of the error in your analysis. Why might the consequences not be as bad as you fear? Should Hewitt take any responsibility for your error? What could Hewitt have done differently?

4. After considering all of the factors, should you inform Hewitt or simply keep quiet?

Q.14). Ethical Issue :

18-54 Outsourcing and ethics (Learning Objective 6)

Mary Tan is controller for Duck Associates, a property management company in Portland, Oregon. Each year, Tan and payroll clerk Toby Stock meet with the external auditor’s about payroll accounting. This year, the auditors suggest that Tan consider outsourcing Duck Associates’ payroll accounting to a company specializing in payroll processing services. This would allow Tan and her staff to focus on their primary responsibility: accounting for the properties under management. At present, payroll requires 1.5 employee positions - payroll clerk Toby Stock and a bookkeeper who spend half her time entering payroll data in the system.

Tan considers this suggestion, and she lists the following items relating to outsourcing pay-roll accounting :

a. The current payroll software that was purchased for $4,000 three years ago would not be needed if payroll processing were outsourced.

b. Duck Associates’ bookkeeper would spend half her time preparing the weekly payroll input form that is given to the payroll processing service. She is paid $450 a week.

c. Duck Associates would no longer need payroll clerk Toby Stock, whose annual salary is $42,000.

Page 9 of 16

d. The payroll processing service would charge $2,000 a month.

Requirements

1. Would outsourcing the payroll function increase or decrease Duck Associates’ operating income?

2. Tan believes that outsourcing payroll would simplify her job, but she does not like the prospect of having to lay off Stock, who has become a close personal friend. She does not believe there is another position available for stock at his current salary. Can you think of other factors that might support keeping Stock rather than outsourcing payroll processing? How should each of the factors affect Tan’s decision if she wants to do what is best for Duck Associates and act ethically?

Essay Questions :

Q.16). 1. “Breakeven analysis isn’t very useful to a company because companies need to do more than break even to survive in the long run” Explain why you agree or disagree with this statement (p.413)

Q. 17). 2. Rondell Pharmacy is considering switching to the use of robots to fill prescriptions that consist of oral solids or medications in pill form. The robots will workers needed. This change is expected to reduce the number of prescription filling errors, reduce the customer’s wait time, and reduce the total overall costs. How does the use of the robots affect Rondell Pharmacy’s cost structure? Explain the impact of this switch to robotics on Rondell Pharmacy’s operating risk (p.414).

Decision Case

Q.19) C8-53 Outsourcing e-mail (Learning Objective 6)

BKFin.com provides banks access to sophisticated financial information and analysis systems via the Web. The company combines these tools with benchmarking data access, including e-mail and wireless communications, so that banks can instantly evaluate individual loan application and entire loan port folios.

BKFIN.com’s CEO, Jon Wise, is happy with the company’s growth. To better focus on client service, Wise is considering outsourcing some functions. CFO Jenny Lee suggests that the company’s e-mail may be the place to start. She recently attended a conference and learned that companies such as Continental Airlines, Dell Net, GTE, and NBC were outsourcing their e-mail function. Wise asks Lee to identify cost related to BKFin.com’s in-house Microsoft exchange e-mail application, which has 2,300 mailboxes. This information follows:

Variable costs :E-mail license $ 7 per mailbox per monthVirus protection license $ 1 per mailbox per monthOther variable costs $8 per mailbox per month

Page 10 of 16

Fixed costs :Computer hardware costs $94,300 per month$8,050 monthly salary for two information technology staff members who work only on e-mail $16,100 per month

Requirements

1. Compute the total cost per mailbox per month of BKFin.com’s current e-mail function.

2. Suppose Mail.com, a leading provider of internet messaging outsourcing services, offers to host BKFin.com’s e-mail function $9 per mail box per month. If BKFin.com outsources its e-mail to Mail.com, BKFin.com will still need the virus protection software : its computer hardware ; and one information technology staff member who would be responsible for maintaining virus protect, quarantining suspicious e-mail, and managing content (e.g., screening e-mail for objectionable content). Should CEO Wise accept Mail.com’s offer? Why or why not?

3. Suppose for an additional $5 per mailbox per month, Mail.com will also provide virus protection, quarantine, and content-management services. Outsourcing these additional functions would mean that BKFin.com would not need an e-mail information technology staff member or the separate virus protection license. Should CEO Wise outsource these extra services to Mail.com? Why or why not?

Q.20). S8-7 Replace a department (Learning Objective 4)

Consider Knight Fashion from S8-5. Assume once again that all fixed costs are unavoidable. If Knight Fashion drops one of the current departments, it plans to replace the dropped department with a Shoe Department. The company expects the Shoe Department to produce $80,000 in sales and have $50,000 of variable costs. Because the shoe business would be new to Knight Fashion, the company would have to incur an additional $7,000 of fixed costs (advertising new show display racks, and so forth) per quarter related to the department. What should Knight Fashion do now?

Q.21). E8-38B Make-or-buy with alternative use of facilities (Learning Objective 6)

Refer to E8-37B. Tech Systems needs 80,000 optical switches next year (assume same relevant range). By outsourcing them, Tech Systems can use its idle facilities to manufacture another product that will contribute $130,000 to operating income, but none of the fixed costs will be avoidable. Should Tech Systems make or buy the switches? Show your analysis.

Tech Systems Incremental Analysis for Outsourcing Decision

Make Unit Buy Unit Cost to Make Minus Cost to Buy

Variable cost per unit :Direct materials $10.00 $ ___ $10.00Direct labor 2.00 ___ 2.00

Page 11 of 16

Variable overhead 1.00 ___ 1.00Purchase price from outsider ___ 11.00 (11.00)Variable cost per unit $13.00 $11.00 $ 2.00

Q.22). E8-31B Pricing decisions given two scenarios (Learning Objective 3)

Rouse Builds 1,500-square-foot starter tract homes in the fast-growing suburbs of Hartford. Land and labor are cheap, and competition among developers in fierce. The homes are “cookie-cutter,” with any upgrades added by the buyer after the sale. Rouse Builders’ costs per developed sublot are as follows:

Land $51,000Construction $123,000Landscaping $ 6,000Variable marketing costs $ 1,000

Rouse Builders would like to earn a profit of 16% of the variable cost of each home sale. Similar homes offered by competing builders sell for $201,000 each.

Requirements

1) Which approach to pricing should Rouse Builders emphasize? Why?

2) Will Rouse Builders be able to achieve its target profit levels? Show your computations.

3) Bathrooms and kitchens are typically the most important selling features of a home. Rouse Builders could differentiate the homes by upgrading bathrooms and kitchens. The upgrades would cost $16,000 per home but would enable. Rouse Builders to increase the selling prices by $28,000 per home (in general, kitchen and bathroom upgrades typically add at least 150% of their cost to the value or any home.) If Rouse Builders upgrades, what will the new cost-plus price per home be? Should the company differentiate its product in this manner? Show your analysis.

Essay Question:

How do you account for financial losses in order to maintain for, a restaurant that gives a free meal to an upset customer or a company that gives repeat customers a discount? From the viewpoint of a management accountant, how would this cost be classified and how would it figure into a company’s financial statements?

Decision Cases

Q.24. C9-71 Suggest performance improvements (Learning Objective 1)

Page 12 of 16

Quality customer service,

Donna Tse recently joined Cycle World, a bicycle store in St. Louis, as an assistant manager. She recently finished her accounting course. Cycle World’s manager and owner, Jeff Towry, asks Tse to prepare a budgeted income statement for the upcoming year based on the information he has collected. Tse’s budget follows:

CYCLE WORLDBudgeted Income StatementFor the Year Ending July 31

Sales revenue $244,000Cost of goods sold 177,000Gross profit 67,000Operating expenses :

Salary and commission expense $46,000 Rent expense 8,000 Depreciation expense 2,000 Insurance expense 800 Miscellaneous expenses 12,000 68,800

Operating loss (1,800)Interest expense 225Net loss $ (2,025)

Requirement

1. Tse does not want to give Towry this budget without making constructive suggestions for steps Towry could take to improve expected performance. Write a memo to Towry outlining your suggestions. Your memo should take the following form :

Q. 25). C9-72 Prepare cash budgets under two alternatives (Learning Objectives 2 & 3)

Each autumn, as a hobby, Suzanne De Angelo weaves cotton place mats to sell at a local crafts shop. The mats sell for $20 per of four. The shop chares a 10% commission and remits the net proceeds to De Angelo at the end of December. De Angelo has woven and sold 25 sets each of the last two years. She has enough cotton in inventory to make another 25 sets. She paid $7 per set for the cotton. De Angelo uses a four-harness loom that she purchased for cash exactly two years ago. It is depreciated at the rate

Page 13 of 16

Date: _________________________

To: Mr. Jeff Towry, Manager

Cycle World

From: Donna Tse

Subject: Cycle World’s budgeted income statement

of $10 per month. The accounts payable relate to the cotton inventory and are payable by September 30.

De Angelo is considering buying an eight-harness loom so that she can weave more intricate patterns in linen. The new loom costs $ 1,000; it would be depreciated at $20 per month. Her bank has agreed to lend her $1,000 at 18% interest, with $200 principal plus accrued interest for the Christmas rush if she does not weave any cotton mats. She predicts that each linen set will sell for %50. Linen costs $18 per set. De Angelo’s supplier will sell her linen on credit payable December 31.

De Angelo plans to keep her old loom whether or not she buys the ne loom. The balance sheet for her weaving business at August 31 is as follows :

SUZANNE DE ANGELO, WEAVERBalance Sheet

August 31Current assets Current liabilitiesCash $ 25 Accounts payable $ 74Inventory of cotton 175

200Fixed assets :

Loom 500 Owner’s equity 386Accumulated depreciation (240)

260Total assets $ 460 Total liabilities and owner’s equity $460

Requirements

1. Prepare a combined cash budget for the four months ending December 31, for two alternatives: weaving the place mats in cotton using the existing loom and weaving the place mats in linen using the new loom. For each alternative, prepare a budgeted income statement for the four months ending December 31, and a budgeted balance sheet at December 31.

2. On the basis of financial considerations only, what should De Angelo do? Give your reason.

3. What non-financial factors might De Angelo consider in her decisions?

Q. 26). E9-21A Direct materials budget (Learning Objective 2)

Beckett Industries manufactures a popular interactive stuffed animal for children that requires three computer chips inside each toy. Beckett industries pays $2 for each computer chip. To help to guard against stockouts of the computer chip. Beckett Industries has a policy that states that the ending inventory of computer chips should be at least 20% of the following month’s production needs. The production schedule for the first four months of the year is as follows:

Page 14 of 16

Stuffed animals to be producedJanuary 5,000February 4,400March 4,800April 4,200

Requirement

1. Prepare a direct materials budget for the first quarter that shows both the number of computer chips needed and the dollar amount of the purchases in the budget.

Q.27). E9-22A Production and direct materials budgets (Learning Objective 2)

Mason Manufacturing products self-watering planters for use in upscale retail establishments. Sales projections for the first five months of the upcoming year shows the estimated unit sales of the planters each month to be as follows:

Number of planters to be soldJanuary 3,500February 3,400March 3,600April 4,000May 4,200

Inventory at the start of the year was 350 planters. The desired inventory of planters at the end of each month should be equal to 10% of the following month’s budgeted sales. Each planter requires two pounds of polypropylene (a type of plastic). The company wants to have 20% of the polypropylene required for next month’s production on hand at the end of each month. The polypropylene costs $0.25 per pound.

Requirements

1.Prepare a production budget for each month in the first quarter of the year, including production in units for each month and for the quarter.

2.Prepare a direct materials budget for the polypropylene for each month in the first quarter polypropylene to be purchased.

Q. 28). E9-23A Direct labor budget (Learning Objective 2)

Madden Industries manufactures three models of a product in a single plant with two departments:

Cutting and Assembly. The company has estimated costs for each of the three product models : the Zip, the Flash, and the Royal modes. The company is currently analyzing direct labor hour requirements for the upcoming year.

Page 15 of 16

Cutting AssemblyEstimated hours per unit :Zips 1.0 2.0Flashes 1.5 2.4Royals 1.2 2.3Direct labor hour rate $10 $12

Budgeted unit production for each of the products is as follows:

Number of units to be producedProduct model :Zips 500Flashes 700Royals 800

Requirement

1. Prepare a direct labor budget for the upcoming year that shows the budgeted direct labor costs for each department and for the company as a whole.

Q.29). E9-24A Manufacturing overhead budget (Learning Objective 2)

The Carlyle Company is in the process of preparing its manufacturing overhead budget for the upcoming year. Sales are projected to be 40,000 units. Information about the various manufacturing overhead costs follows:

Variable rate per unit Total fixed costs

Indirect materials $1.00Supplies $0.80Indirect labor $0.50 $60,000Plant utilities $0.10 $30,000Repairs and maintenance $0.40 $12,000Depreciation on plant and equipment $48,000Insurance on plant and equipment $20,000Plant supervision $65,000

Page 16 of 16