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Ex1: A company reports the following information regarding its production cost:
a. Compute total variable overhead cost if the production cost per unit under variable costing is
$240.
b. Compute total variable overhead cost if the production cost per unit under absorption costing
is $240.
Ex2: Stonehenge Inc., a manufacturer of landscaping blocks, began operations on April 1 of the
current year. During this time, the company produced 750,000 units and sold 720,000 units at a
sales price of $9 per unit. Cost information for this period is shown in the following table:
Production costs
Direct materials $1.80 per unit
Direct labor $.30 per unit
Variable overhead $496,000 in total
Fixed overhead $450,000 in total
Non production costs
Variable selling and administrative $18,000 in total
Fixed selling and administrative $53,000 in total
a. Prepare Stonehenge's December 31st income statement for the current year under absorption
costing.
b. Prepare Stonehenge's December 31st income statement for the current year under variable
costing.
Ex 3: Dado, Inc. is preparing its budget for the second quarter. The following sales data have
been forecasted:
April May June July Aug.
Unit sales……………….. 640 720 780 620 660
Ex4: Lafayette Company's experience shows that 20% of its sales are for cash and 80% are on
credit. An analysis of credit sales shows that 50% are collected in the month following the sale,
45% are collected in the second month, and 5% prove to be uncollectible. Calculate the
following. Show all calculations!
Ex5: Anniston Co. planned to produce and sell 40,000 units. At that volume level, variable costs
are determined to be $320,000 and fixed costs are $30,000. The planned selling price is $10 per
unit. Anniston actually produced and sold 42,000 units.
Required:
Prepare a flexible budget performance report for the year using the contribution margin format.
Ex 7: City Park College allocates administrative costs to its teaching departments based on the
number of students enrolled, while maintenance and utilities are allocated based on square feet of
classrooms. Based on the information below, what is the total amount of expenses allocated to
each department (rounded to the nearest dollar) if administrative costs for the college were
$180,000, maintenance expenses were $70,000, and utilities were $85,000?
Teaching Size of
Department Students Classroom
Electronics 117 900 sq. ft.
Automotive 156 750 sq. ft.
Computers 429 1,200 sq. ft.
Plumbing 78 150 sq. ft.
Ex8: A company has just received a special, one-time order for 1,000 units. Producing the order
will have no effect on the production and sales of other units. The buyer’s name will be stamped
on each unit, at a cost of $1.50 per unit. Normal cost data, excluding stamping, follows:
Prepare an analysis that indicates the selling price per unit this company will require to earn
$3,000 on the order.
Ex9: A company is considering two alternative investment opportunities, each of which requires
an initial cash outlay of $110,000. The expected net cash flows from the two projects follow:
Project A Project Z
Year 1 $ 30,000 $ 44,000
Year 2 44,000 70,000
Year 3 70,000 30,000
Totals $144,000 $144,000
Required:
(1) Based on a comparison of their net present values, and assuming the same discount rate
greater than zero is required for both projects, which project is the better investment?
(2) Use the table values below to find the net present value of the cash flows associated with
Project A, discounted at 12%:
Flyer Skimmer
New investment ……………….. $424,000 $380,000
Expected 3-year net cash flows:
Year 1 150,000 130,000
Year 2 160,000 130,000
Year 3 170,000 130,000
Required:
Use the payback period to evaluate these two investment projects.