Financial data for Beaker Company for last year appear below.

Financial data for Beaker Company for last year appear below.

Beaker Company
Statement of Financial Position

Beginning Balance      Ending  Balance

Assets

Cash                                                    $50,000                                   $70,000

Accounts receivable                            20,000                         25,000

Inventory                                             30,000                         35,000

Plant and Equipment (net)                   120,000                                   110,000

Investment in Cedar Company                        80,000                         100,000

Land (undeveloped)                            170,000                                   170,000

Total Assets                                         $470,000                     510,000

Liabilities and Owners' Equity

Accounts payable                                $70,000                                   $90,000

Long-term debt                                                250,000                                   250,000

Owner's equity                                     150,000                                   170,000

Total liabilities and owner's equity       $470,000                     $510,000

Beaker Company

Income Statement

Sales                                                                                        $414,000

Less Operating Expenses                                                         351,900

Net Operating Income                                                              62,100

Less Interest and Taxes

Interest Expense                                  $30,000          

Tax Expense                                        10,000                         40,000

Net Income                                                                              $22,000

The company paid dividends of $2,100 last year. The Investment in Cedar Company on the statement of financial position represents an investment in the stock of another company.

Required:
i. Compute the company's margin, turnover, and return on investment for last year.
ii. The board of directors of Beaker Company has set a minimum required return of 20%. What was the company's residual income last year? (Points : 15)

TUTORIAL PREVIEW 

(i)

Average operating assets = ($220,000 + $240,000) / 2 = $230,000 

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5 Accounting Questions / 1. Financial data for Beaker Company for last year appear below.

Accounting Questions 5

1. Financial data for Beaker Company for last year appear below.

Beaker Company
Statement of Financial Position

Beginning Balance      Ending  Balance

Assets

Cash                                                    $50,000                                   $70,000

Accounts receivable                            20,000                         25,000

Inventory                                             30,000                         35,000

Plant and Equipment (net)                   120,000                                   110,000

Investment in Cedar Company                        80,000                         100,000

Land (undeveloped)                            170,000                                   170,000

Total Assets                                         $470,000                     510,000

Liabilities and Owners' Equity

Accounts payable                                $70,000                                   $90,000

Long-term debt                                                250,000                                   250,000

Owner's equity                                     150,000                                   170,000

Total liabilities and owner's equity       $470,000                     $510,000

Beaker Company

Income Statement

Sales                                                                                        $414,000

Less Operating Expenses                                                         351,900

Net Operating Income                                                              62,100

Less Interest and Taxes

Interest Expense                                  $30,000          

Tax Expense                                        10,000                         40,000

Net Income                                                                              $22,000

The company paid dividends of $2,100 last year. The Investment in Cedar Company on the statement of financial position represents an investment in the stock of another company.

Required:
i. Compute the company's margin, turnover, and return on investment for last year.
ii. The board of directors of Beaker Company has set a minimum required return of 20%. What was the company's residual income last year? (Points : 15)

2. Eber Wares is a division of a major corporation. The following data are for the latest year of operations.

Sales                                                                            $30,000,000

Net Operating income                                                  $1,170,000

Average operating assets                                              $8,000,000

The company's minimum required rate of return                     18%

Required:
i. What is the division's margin?
ii. What is the division's turnover?
iii. What is the division's ROI?
iv. What is the division's residual income? (Points : 15)

3. The management of Thews Corporation is considering dropping product E28I. Data from the company's accounting system appear below.

Sales                                                                $480,000

Variable Expenses                                           $202,000

Fixed Manufacturing Expenses                                    $158,000

Fixed Selling and Administrative Expenses     $130,000

All fixed expenses of the company are fully allocated to products in the company's accounting system. Further investigation has revealed that $86,000 of the fixed manufacturing expenses and $67,000 of the fixed selling and administrative expenses are avoidable if product E28I is discontinued.

Required:
i. What is the net operating income earned by product E28I according to the company's accounting system? Show your work!

ii. What would be the effect on the company's overall net operating income of dropping product E28I? Should the product be dropped? Show your work! (Points : 15)

4.  Rosiek Corporation uses part A55 in one of its products. The company's accounting department reports the following costs of producing the 4,000 units of the part that are needed every year.

Per Unit

Direct Materials                                               $2.80

Direct Labor                                        $6.30

Variable Overhead                               $8.50

Supervisor's Salary                              $2.60

Depreciation of Special Equipment     $6.80

Allocated General Overhead                $6.10

An outside supplier has offered to make the part and sell it to the company for $32.30 each. If this offer is accepted, the supervisor's salary and all of the variable costs, including direct labor, can be avoided. The special equipment used to make the part was purchased many years ago and has no salvage value or other use. The allocated general overhead represents fixed costs of the entire company. If the outside supplier's offer were accepted, only $4,000 of these allocated general overhead costs would be avoided. In addition, the space used to produce part A55 could be used to make more of one of the company's other products, generating an additional segment margin of $26,000 per year for that product.

Required:
i. Prepare a report that shows the effect on the company's total net operating income of buying part A55 from the supplier rather than continuing to make it inside the company.
ii. Which alternative should the company choose? (Points : 15)

5. Manning Co. manufactures and sells trophies for winners of athletic and other events. Its manufacturing plant has the capacity to produce 18,000 trophies each month; current monthly production is 15,300 trophies. The company normally charges $141 per trophy. Cost data for the current level of production are shown below.

Variable Costs

Direct Materials                                   $948,600

Direct Labor                            $290,700

Selling and Administrative       $41,300

Fixed Costs

Manufacturing                         $579,870

Selling and Administrative       $134,640

The company has just received a special one-time order for 900 trophies at $73 each. For this particular order, no variable selling and administrative costs would be incurred. This order would also have no effect on fixed costs.

Required:
Should the company accept this special order? Why? (Points : 15)

TUTORIAL PREVIEW

i

	Keep the Product	Drop the Product	Difference
Sales	$480,000	$0	($480,000)
Variable Expenses	$202,000	$0	$202,000

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8 PROBLEMS - MANAGERIAL ACCOUNTING

8 PROBLEMS - MANAGERIAL ACCOUNTING

QUESTIONS

1.   Evaluating a special order (LO – 7-5)

Miyamoto Jewelers is considering a special order for 10 handcrafted gold bracelets to be given as gifts to members of a wedding party.  The normal selling price of a gold bracelet is $389.95 and its unit product cost is $264 as shown below.

Direct Materials ……………………………………..$143.00

Direct Labor…………………………………………….   86.00

Manufacturing Overhead………………………..   35.00

Unit Product Cost……………………………………$264.00

Most of the manufacturing overhead is fixed and unaffected by variations in how much jewelry is produced in any given period.  However, $7 of the overhead is variable with respect to the number of bracelets produced.  The customer who is interested in the special bracelet order would like special filigree applied to the bracelets.  This filigree would require additional material costing $6 per bracelet and would also require acquisition of a special tool costing $465 that would have no other use once the special order is completed.  This order would have no effect on the company’s regular sales and the order could be fulfilled using the company’s existing capacity without affecting any other order.

Required:

What effect would accepting this order have on the company’s net operating income if a special price of $349.95 is offered per bracelet for this order?  Should the special order be accepted at this price?

2.  Uncertain Future Cash Flows (LO – 8-3)

Union Bay Plastics is investigating the purchase of automated equipment that would save $100,000 each year in direct labor and inventory carrying costs.  This equipment costs $750,000 and is expected to have a 10-year useful lift with no salvage value.  The company’s required rate of return is 15% on all equipment purchases.  This equipment would provide intangible benefits such as greater flexibility and higher-quality output that are difficult to estimate and yet are quite significant.

Required:
(Ignore income taxes)

What dollar value per year would the intangible benefits have to have in order to make the equipment an acceptable investment?

3.  Production Budget (LO -9-3)

Chrystal Telecom has budgeted the sales of its innovative mobile phone over the next four months as follows:

                                                                                    Sales in Units

July………………………………………………………………………30,000
August………………………………………………………………….45,000
September…………………………………………………………..60,000
October……………………………………………………………….50,000

The company is now in the process of preparing a production budget for the third quarter.  Past experience has shown that end-of-month finished goods inventories must equal 10% of the next month’s sales.  The inventory at the end of Jun was 3,000 units.

Required:
Prepare a production budget for the third quarter showing the number of units to be produced each month and for the quarter in total.

4.  The direct labor budget of Krispin Corporation for the upcoming fiscal year includes the following budgeted direct labor-hours. The company’s variable manufacturing overhead rate is $1.75 per direct labor-hour and the company’s fixed manufacturing overhead is $35,000 per quarter. The only noncash item included in fixed manufacturing overhead is depreciation, which is $15,000 per quarter.

Required:

Construct the company’s manufacturing overhead budget for the upcoming fiscal year.

Compute the company’s manufacturing overhead rate (including both variable and fixed manufacturing overhead) for the upcoming fiscal year.  Round off to the nearest whole cent.

5.  Prepare a flexible budget (LO – 10-1)

Gator Divers is a company that provides divers services such as underwater ship repairs to clients in the Tampa Bay area.  The company's planning budget for March appears below.

Gator Divers

Planning Budget

For the Month Ended March 31

           

Budgeted diving-hours (q) . . . . . . . . . . . . . . . . . . . . .                         200

Revenue ($380.00q) . . . . . . . . . . . . . . . . . . . . . . . . . .                        $76,000

Expenses:

Wages and salaries ($12,000 + $130.00q) . . . . . .                   38,000

Supplies ($5.00q) . . . . . . . . . . . . . . . . . . . . . . . . . .                1,000

Equipment rental ($2,500 + $26.00q) . . . . . . . . . .                  7,700

Insurance ($4,200) . . . . . . . . . . . . . . . . . . . . . . . . .                4,200

Miscellaneous ($540 + $1.50q) . . . . . . . . . . . . . . .                 840

Total expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                        51,740

Net operating income . . . . . . . . . . . . . . . . . . . . . . . . .                         $24,260

Required:
During March, the company’s activity was actually 190 diving-hours. Prepare a flexible budget for that level of activity. unlikely that all costs are strictly variable. Some are likely to be fixed or mixed.

6.  Prepare a Report Showing Activity Variances (L0 – 10-2)

Air Meals is a company that prepares in-flight meals for airlines in its kitchen located next to the local airport.  The company's planning budget for December appears below:

In December, 21,000 meals were actually served.  The company's flexible budget for this level of activity follows:

Required:

Prepare a report showing the company’s activity variances for December.

Which of the activity variances should be of concern to management? Explain

7.  Residual Income (LO – 12-2)

Midlands Design Ltd. Of Manchester, England, is a company specializing in providing design services to residential developers.  Last year the company had net operating income of £400,000 on sales of £2,000,000.  The company’s average operating assets for the year were £2,200,000 and its minimum required rate of return was 16%.  (The currency in the United Kingdom is the pound, denoted by £)

Required:
Compute the company’s residual income for the year. 

8.  Effects of Changes in Sales, Expenses, and Assets on ROI (LO – 12-1)

BusServ.com Corporation provides business-to-business services on the Internet. Data concerning the most recent year appear below:

Required:
Consider each question below independently.  Carry out all computations to two decimal places.

Compute the company’s return on investment (ROI).

The entrepreneur who founded the company is convinced that sales will increase next year by 150% and that net operating income will increase by 400%, with no increase in average operating assets.  What would the company’s ROI?

The Chief Financial Officer of the company believes a more realistic scenario would be a $2 million increase in sales, requiring an $800,000 increase in average operating assets, with a resulting $250,000 increase in net operating income.  What would be the company’s ROI in this scenario?

Prepare a production budget for the third quarter showing the number of units to be produced each month and for the quarter in total.

TUTORIAL PREVIEW

	July	August	Sept.	Quarter
Budgeted sales in units	30,000	45,000	60,000	135,000
Add desired ending inventory*	4,500	6,000	5,000	5,000

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Assignment 8 - 7 Questions

Assignment 8 - 7 Questions

QUESTION 1

Evaluating a special order (LO – 7-5)

Miyamoto Jewelers is considering a special order for 10 handcrafted gold bracelets to be given as gifts to members of a wedding party.  The normal selling price of a gold bracelet is $389.95 and its unit product cost is $264 as shown below.

Direct Materials ……………………………………..$143.00

Direct Labor…………………………………………….   86.00

Manufacturing Overhead………………………..   35.00

Unit Product Cost……………………………………$264.00

Most of the manufacturing overhead is fixed and unaffected by variations in how much jewelry is produced in any given period.  However, $7 of the overhead is variable with respect to the number of bracelets produced.  The customer who is interested in the special bracelet order would like special filigree applied to the bracelets.  This filigree would require additional material costing $6 per bracelet and would also require acquisition of a special tool costing $465 that would have no other use once the special order is completed.  This order would have no effect on the company’s regular sales and the order could be fulfilled using the company’s existing capacity without affecting any other order.

Required:

What effect would accepting this order have on the company’s net operating income if a special price of $349.95 is offered per bracelet for this order?  Should the special order be accepted at this price?

QUESTION 2

Uncertain Future Cash Flows (LO – 8-3)

Union Bay Plastics is investigating the purchase of automated equipment that would save $100,000 each year in direct labor and inventory carrying costs.  This equipment costs $750,000 and is expected to have a 10-year useful lift with no salvage value.  The company’s required rate of return is 15% on all equipment purchases.  This equipment would provide intangible benefits such as greater flexibility and higher-quality output that are difficult to estimate and yet are quite significant.

Required:

(Ignore income taxes)

What dollar value per year would the intangible benefits have to have in order to make the equipment an acceptable investment?

QUESTION 3

Production Budget (LO -9-3)

Chrystal Telecom has budgeted the sales of its innovative mobile phone over the next four months as follows:

Sales in Units

July………………………………………………………………………30,000

August………………………………………………………………….45,000

September…………………………………………………………..60,000

October……………………………………………………………….50,000

The company is now in the process of preparing a production budget for the third quarter.  Past experience has shown that end-of-month finished goods inventories must equal 10% of the next month’s sales.  The inventory at the end of Jun was 3,000 units.

Required:

Prepare a production budget for the third quarter showing the number of units to be produced each month and for the quarter in total.

QUESTION 4

Manufacturing Overhead Budget (LO – 9-6)

The direct labor budget of Krispin Corporation for the upcoming fiscal year includes the following budgeted direct labor-hours.

                                                                       1st quarter   2nd quarter  3rd quarter  4th quarter

Budgeted direct labor-hours……….                5,000            4,800            5,200           5,400

The company’s variable manufacturing overhead rate is $1.75 per direct labor-hour and the company’s fixed manufacturing overhead is $35,000 per quarter. The only noncash item included in fixed manufacturing overhead is depreciation, which is $15,000 per quarter.

Required:

Construct the company’s manufacturing overhead budget for the upcoming fiscal year.Compute the company’s manufacturing overhead rate (including both variable and fixed manufacturing overhead) for the upcoming fiscal year.  Round off to the nearest whole cent.

QUESTION 5

Prepare a Report Showing Activity Variances (L0 – 10-2)

Air Meals is a company that prepares in-flight meals for airlines in its kitchen located next to the local airport.  The company’s planning budget for December appears below:

Air Meals

Planning Budget

For the Month Ended December 31

Budgeted meals (q) ……………………………………………………..               20,000

Revenue ($3.80 q) ……………………………………………………….             $76,000

Expenses:

Raw Materials (2.30q) ………………………………………………..             46,000

Wages and Salaries ($6,400 + $0.25q) ………………………..             11,400

Utilities (2,100 + $0.05q) …………………………………………….              3,100

Facility Rent ($3,800) ………………………………………………….              3,800

Insurance ($2,600) ………………………………………………………              2,600

Miscellaneous ($700 + $0.10q) ……………………………………              2,700 

Total expenses ……………………………………………………………….            69,600

Net operating income …………………………………………………….          $  6,400       

In December, 21,000 meals were actually served.  The company’s flexible budget for this level of activity follows:

Air Meals

Flexible Budget

For the Month Ended December 31

Budgeted meals (q) ……………………………………………………..               21,000

Revenue ($3.80 q) ……………………………………………………….             $79,800

Expenses:

Raw Materials (2.30q) ………………………………………………..             48,300

Wages and Salaries ($6,400 + $0.25q) ………………………..             11,650

 Utilities ($2,100 + $0.50q) ………………………………………….                3,150

Facility Rent ($3,800) …………………………………………………                3,800

 Insurance ($2,600) ………………………………………………………              2,600

Miscellaneous ($700 + $0.10q) ……………………………………              2,800

Total expenses ……………………………………………………………….            72,300

Net operating income …………………………………………………….          $  7,500       

Required:

Prepare a report showing the company’s activity variances for December.

Which of the activity variances should be of concern to management? Explain

QUESTION 6

Residual Income (LO – 12-2)

Midlands Design Ltd. Of Manchester, England, is a company specializing in providing design services to residential developers.  Last year the company had net operating income of £400,000 on sales of £2,000,000.  The company’s average operating assets for the year were £2,200,000 and its minimum required rate of return was 16%.  (The currency in the United Kingdom is the pound, denoted by £)

Required:

Compute the company’s residual income for the year.

QUESTION 7

Effects of Changes in Sales, Expenses, and Assets on ROI (LO – 12-1)

BusServ.com Corporation provides business-to-business services on the Internet. Data concerning the most recent year appear below:

Sales ………………………………………………….    $8,000,000

Net operating income ……………………….        $800,000

Average operating assets ………………….     $3,200,000

Required:

Consider each question below independently.  Carry out all computations to two decimal places.

Compute the company’s return on investment (ROI).

The entrepreneur who founded the company is convinced that sales will increase next year by 150% and that net operating income will increase by 400%, with no increase in average operating assets.  What would the company’s ROI?

The Chief Financial Officer of the company believes a more realistic scenario would be a $2 million increase in sales, requiring an $800,000 increase in average operating assets, with a resulting $250,000 increase in net operating income.  What would be the company’s ROI in this scenario?

TUTORIAL PREVIEW

Margin = Net operating income

                                    Sales

                        = $800,000

                           $8,000,000

                        = 10%

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