ACCT 336 / ACCT336 / ACCT/336 Week 4 Midterm exam (NEW 2016)

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HOMEWORK Description

ACCT 336 / ACCT336 / ACCT/336 Week 4 Midterm exam (NEW 2016)

1. (TCO 7) Elliot’s Escargots sells commercial and home snail extraction tools and serving pieces. Currently, the snail extraction line of products takes up approximately 50% of the company’s retail floor space. The CEO of Elliot’s wants to decide if the company should continue offering snail extraction tools or focus only on serving pieces. If the snail extraction tools are dropped, salaries and other direct fixed costs can be avoided and serving piece sales would increase by 13%. Allocated fixed costs are assigned based on relative sales.

	Snail Extraction	Serving
	Tools	Pieces	Total
Sales	$1,200,000	$800,000	$2,000,000
Less cost of goods sold	700,000	500,000	1,200,000
Contribution margin	500,000	300,000	800,000
Less direct fixed costs:
Salaries	175,000	175,000	350,000
Other	60,000	60,000	120,000
Less allocated fixed costs:
Rent	14,118	9,882	24,000
Insurance	3,529	2,471	6,000
Cleaning	4,117	2,883	7,000
Executive salary	76,470	53,530	130,000
Other	7,058	4,942	12,000
Total costs	340,292	308,708	649,000
Net income	$159,708	($ 8,708)	$151,000

Prepare an incremental analysis in good form to determine the incremental effect on profit of discontinuing the snail extraction tool line. (Points : 6)

2. (TCO 4) Paschal’s Parasailing Enterprises has estimated that fixed costs per month are $115,600 and variable cost per dollar of sales is $0.35 (6 points).

What is the break-even point per month in sales?
What level of sales is needed for a monthly profit of $70,000?

For the month of August, Paschal’s anticipates sales of $600,000. What is the expected level of profit? (Points : 6)

3. (TCO 6) Princess Cruise Lines has the following service departments; concierge, valet, and maintenance. Expenses for these departments are allocated to Mediterranean and transatlantic cruises. Expenses for the departments are totaled (both variable and
components are combined) and as follows.

Concierge $1,500,000
Valet $2,750,000
Maintenance $2,250,000

The sea miles logged are 5,000,000 for the Mediterranean and 20,000,000 for the transatlantic voyages.

Based upon the sea miles logged, allocate the service department costs (6 points). (Points : 6)

4. (TCO 9) Thurman Munster, the owner of Adams Family RVs, is considering the addition of a service center his lot. The building and equipment are estimated to cost $1,200,000, and both the building and equipment will be depreciated over 10 years using the straight-line method. The building and equipment have zero estimated residual value at the end of 10 years. Munster’s required rate of return for this project is 12%. Net income related to each year of the investment is as follows.

Revenue	$450,000
Less:
Material Cost	$60,000
Labor	100,000
Depreciation	110,000
Other	10,000	280,000
Income before taxes		170,000
Taxes at 40%		68,000
Net Income	$102,000

(A) Determine the net present value of the investment in the service center. Should Munster invest in the service center?
(B) Calculate the internal rate of return of the investment to the nearest 0.5%.
(C) Calculate the payback period of the investment.

(D) Calculate the accounting rate of return. (Points : 8)

5. (TCO 5) The following information relates to Vice Versa Ventures for calendar year 20XX, the company’s first year of operations.

Units produced	20,000
Units sold	17,000
Selling price per unit	$35
Direct material per unit	$5
Direct labor per unit	$5
Variable manufacturing overhead per unit	$2
Variable selling cost per unit	$3
Annual fixed manufacturing overhead	$160,000
Annual fixed selling and administrative expense	$80,000

(a) Prepare an income statement using full costing.

(b) Prepare an income statement using variable costing. (Points : 8)

6. (TCO 8) Leekee Shipyards has a new barnacle-removing product for ocean-going vessels. The company invests $1,000,000 in operating assets and plans to produce and sell 200,000 units per year. Leekee wants to make a return on investment of 20% each year. Leekee needs to know what price to charge for this product.

Use the absorption costing approach to determine the markup necessary to make the desired return on investment based on the following information.

	Per Unit	Total
Direct Materials	$2.00
Direct Labor	$1.50
Variable Manufacturing Overhead	$1.00
Fixed Manufacturing Overhead		$100,000
Variable Selling and Administrative Expense	$0.10
Fixed Selling and Administrative Expense		$100,000

(Points : 6)

7. (TCO 10) Which of the following statements is true about overhead cost variance analysis using activity-based costing?

8. (TCO 10) Sebastian Company, which manufactures electrical switches, uses a standard cost system and carries all inventories at standard. The standard manufacturing overhead costs per switch are based on direct labor hours and are shown below:

Variable overhead (5 hours at $12 per direct manufacturing labor hour)	$ 60
Fixed overhead (5 hours at $15 per direct manufacturing labor hour, based on capacity of 200,000 direct manufacturing labor hours per month)	75
Total overhead per switch	$ 135

The following information is available for the month of December:

§  46,000 switches were produced, although 40,000 switches were scheduled to be produced.

§  225,000 direct manufacturing labor hours were worked at a total cost of $5,625,000.

§  Variable manufacturing overhead costs were $2,750,000.

§  Fixed manufacturing overhead costs were $3,050,000.

The total variable manufacturing overhead variance was

9. (TCO 10) Sebastian Company, which manufactures electrical switches, uses a standard cost system and carries all inventories at standard. The standard manufacturing overhead costs per switch are based on direct labor hours and are shown below:

Variable overhead (5 hours at $12 per direct manufacturing labor hour)	$ 60
Fixed overhead (5 hours at $15 per direct manufacturing labor hour, based on capacity of 200,000 direct manufacturing labor hours per month)	75
Total overhead per switch	$ 135

The following information is available for the month of December:

§  46,000 switches were produced, although 40,000 switches were scheduled to be produced.

§  225,000 direct manufacturing labor hours were worked at a total cost of $5,625,000.

§  Variable manufacturing overhead costs were $2,750,000.

§  Fixed manufacturing overhead costs were $3,050,000.

The fixed manufacturing overhead spending variance for December was

10. (TCO 10) The following information is for Pappillon Corporation’s variable manufacturing overhead costs last month: favorable flexible-budget variance of $3,000, unfavorable efficiency variance of $2,500. The spending variance is

11. (TCO 10) Budgeted overhead costs rates can be expressed as an amount per unit of output or per unit of input.