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1) Mayberry Company had the following journal entries recorded for the end of June. Unfortunately, the company’s only accountant quit on July 10 and the president is at a loss as to the company’s performance for the month of June.
Materials Control 150,000
Direct Materials Price Variance 5,000
Accounts Payable Control 145,000
Work–in–Process Control 60,000
Direct Materials Efficiency Variance 4,000
Materials Control 64,000
Work–in–Process Control 425,000
Direct Manufacturing Labor Price Variance 7,500
Direct Manufacturing Labor Efficiency Variance 9,000
Wages Payable Control 423,500
a. What kind of performance did the company have for June? Explain each variance.
b. Why is Direct Materials given in two entries?
2) Quiett Truck manufactures part WB23 used in several of its truck models. 10,000 units are produced each year with production costs as follows:
Direct materials $ 45,000
Direct manufacturing labor 15,000
Variable support costs 35,000
Fixed support costs 25,000
Total costs $120,000
Quiett Truck has the option of purchasing part WB23 from an outside supplier at $11.20 per unit. If WB23 is outsourced, 40% of the fixed costs cannot be immediately converted to other uses.
a. Describe avoidable costs. What amount of the WB23 production costs is avoidable?
b. Should Quiett Truck outsource WB23? Why or why not?
c. What other items should Quiett Truck consider before outsourcing any of the parts it currently manufactures?
3) Collier Bicycles has been manufacturing its own wheels for its bikes. The company is currently operating at 100% capacity, and variable manufacturing overhead is charged to production at the rate of 30% of direct labor cost. The direct materials and direct labor cost per unit to make the wheels are $1.50 and $1.80, respectively. Normal production is 200,000 wheels per year.
A supplier offers to make the wheels at a price of $4 each. If the bicycle company accepts this offer, all variable manufacturing costs will be eliminated, but the $42,000 of fixed manufacturing overhead currently being charged to the wheels will have to be absorbed by other products.
a. Prepare an incremental analysis for the decision to make or buy the wheels.
b. Should Collier Bicycles buy the wheels from the outside supplier? Justify your answer.
4)Today, Turbo Ovens Manufacturing announced the availability of a new convection oven that cooks more quickly with lower operating expenses. Pat is considering the purchase of this faster, lower–operating cost convection oven to replace the existing one they recently purchased. Selected information about the two ovens is given below:
Existing New Turbo Oven
Original cost $60,000 $50,000
Accumulated depreciation $ 5,000
Current salvage value $40,000
Remaining life 5 years 5 years
Annual operating expenses $10,000 $ 7,500
Disposal value in 5 years $ 0 $ 0
a. What costs are sunk?
b. What costs are relevant?
c. What are the net cash flows over the next 5 years assuming the Pizzeria purchases the new convection oven?
d. What other items should Pat, as manager of the Pizzeria, consider when making this decision?
5) Buck Corporation plans to grow by offering a computer monitor, the CM3000 that is superior and unique from the competition. Buck believes that putting additional resources into R&D and staying ahead of the competition with technological innovations are critical to implementing its strategy.
a. Is Buck’s strategy one of product differentiation or cost leadership? Explain briefly.
Identify at least one key element that you would expect to see included in the balanced scorecard
b. for the financial perspective.
c. for the customer perspective.
d. for the internal business process perspective.
e. for the learning and growth perspective.
6) Heather’s Pillow Company manufactures pillows. The 20X5 operating budget is based on production of 20,000 pillows with 0.5 machine–hour allowed per pillow. Variable manufacturing overhead is anticipated to be $220,000.
Actual production for 20X5 was 18,000 pillows using 9,500 machine–hours. Actual variable costs were $20 per machine–hour.
Calculate the variable overhead spending and efficiency variances.
7) Everjoice Company makes clocks. The fixed overhead costs for 20X5 total $720,000. The company uses direct labor–hours for fixed overhead allocation and anticipates 240,000 hours during the year for 480,000 units. An equal number of units are budgeted for each month.
During June, 42,000 clocks were produced and $63,000 were spent on fixed overhead.
a. Determine the fixed overhead rate for 20X5 based on units of input.
b. Determine the fixed overhead static–budget variance for June.
c. Determine the production–volume overhead variance for June.
8) Silver Lake Cabinets is approached by Ms. Jenny Zhang, a new customer, to fulfill a large one–time–only special order for a product similar to one offered to regular customers. The following per unit data apply for sales to regular customers:
Direct materials $100
Direct labor 125
Variable manufacturing support 60
Fixed manufacturing support 75
Total manufacturing costs 360
Markup (60%) 216
Targeted selling price $576
Silver Lake Cabinets has excess capacity. Ms. Zhang wants the cabinets in cherry rather than oak, so direct material costs will increase by $30 per unit.
a. For Silver Lake Cabinets, what is the minimum acceptable price of this one–time–only special order?
b. Other than price, what other items should Silver Lake Cabinets consider before accepting this one–time–only special order?
c. How would the analysis differ if there was limited capacity?
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