Q1 Traditional income statement 20 min 18 pts. Q2 Projecting new income statements 17 min 18 pts Q3 Graphing cost patterns 3 min 5 pts 20 min 23 pts

Transcription

1 SBAD 333 Cost Accounting USC Upstate Johnson College of Business & Economics Exam 1 Fall 2012 Albrecht Name Q1 Traditional income statement 20 min 18 pts Q2 Projecting new income statements 17 min 18 pts Q3 Graphing cost patterns 3 min 5 pts 20 min 23 pts Q4 Basic CVP 7 min 9 pts Q5 Change in profit 5 min 6 pts Q6 CVP with changing costs 8 min 8 pts Q7 Where A, B & C are best 15 min 12 pts 35 min 35 pts Overall 75 min 76 pts Instructions: 1. Budget your time wisely. 2. Show all work and computations. Incorrect answers on the problems that are accompanied by computations are eligible for partial credit. 3. You may use a calculator, a straight-edge, pens and pencils. You may not use your text or any notes. You may not use a cell phone, PDA, laptop computer. This exam is closed-book, closed-notes, and closed-neighbor. 4. Do not cheat! An exam is not important enough to compromise your honor. Anyone caught cheating will be disciplined according to University policy and course policies listed on the syllabus. 5. Good luck.

2 Potentially Useful Equations Traditional statement Contribution margin statement Sales revenue Sales revenue - Cost of Goods Sold - Variable costs Gross Margin Contribution margin -Selling, General & Admin - Fixed costs Income Income Sales rev Beg FG Beg WIP Beg Mat! CGS + CGM + DM used + Mat Purchases GM! End FG + DL! End Mat! S&A CGS + MOH DM used Income! End WIP CGM Units Revenue SP*X! V*X! F = π Rev! V%*Rev! F = π (SP! V)*X! F = π (1! V%)*Rev! F = π CM*X! F = π CM%*Rev! F = π CM*ªX = ªπ CM*ªRev = ªπ Where: SP = sales price per unit Rev = sales revenue VC = variable cost per unit VC% = variable cost as percent of revenue CM = contribution margin per unit CM% = contribution margin percentage (of revenue) F = total fixed cost X = units (designated Q in text) π = before tax profit after tax net income = π*(1! tax rate) You may detach this formula sheet from the rest of the test.

3 Question 1 For 2012 the following data are given for the Laura Company: Required: Prepare schedules in good form showing how to compute each of the following: (1) Manufacturing overhead (2) Selling costs (3) Administrative costs (4) Cost of goods manufactured (5) Cost of goods sold (6) Traditional income statement Purchases of direct materials Customer service Depreciation, VP s office furniture Labor, sales force Direct labor Work in process inventory, 1/1/ Work in process inventory, 12/31/ Factory supervisors Maintenance, factory equipment Direct materials inventory, 1/1/ Direct materials inventory, 12/31/ Factory security Depreciation, finished goods warehouse Depreciation, factory building CEO s salary Rent, corporate airplane for CEO Factory custodial personnel Finished goods inventory, 1/1/ Finished goods inventory, 12/31/ Sales revenue ,320

4 Question 2 The Laura Company has prepared budgeted income statements for 12,000 and 16,000 units. Expenses are either variable, fixed or mixed. 2,000 units 12,000 units 16,000 units 22,000 units Sales revenue 228, ,000 Expense A 66,000 88,000 Expense B 34,000 42,000 Expense C 32,000 32,000 Expense D 38,000 50,000 Operating profit Required: (1) Fill in the above blanks (2) In part of the space below, prepare a contribution margin income statement for the results at 16,000 units.

5 Question 3 The Nicolas Company incurs various types of costs. Create line graphs for the following types of cost patterns on the graphs below. The lines do not need to be drawn to scale. Your line graph should simply convey the proper shape of the line. The Y-axis (vertical) represents total costs, the X-axis (horizontal) represents activity levels. a. Cost of direct labor b. Initial fixed costs = $0. At 10,000 units, an investment in fixed cost of $20,000 is made. For all units, the variable cost per unit is $3.

6 Question 4 The Chandler Company produces and sells super widgets. It projects the following revenue and costs for production and sales: Sales price $17 per unit Variable cost $11 per unit Fixed cost $68,532 total Required: (1) What is the break even point in units for Chandler's super widgets? Prepare a contribution margin income statement to prove your answer. (2) How many units in total are needed to generate a before tax profit of 20% of sales? Prepare a contribution margin income statement to prove your answer. (3) What is the change in profit going from 8,000 units to 12,200 units? Clearly mark your answers with a circled number, Î, Ï, or Ð based on which part of the question the answer is for.

7 Question 5 The Trey Company predicts a pre-tax loss of $50,000 at a sales quantity of 72,000 units, and a contribution margin of $3 per unit. How many units sold are needed to generate a profit of $10,000? What is the amount of fixed costs?

8 Question 6 The Taylor Company sells zidgets at $12 per unit. The projected cost structure varies depending on the relevant range. For the range from 1 to 20,000 units, the cost structure for units produced and sold is expected to be $7 per unit variable, $230,000 fixed. For the range from 20,001 to 25,000, the cost structure for units produced and sold is expected to be $4 per unit variable (a reduction of $3 per unit) in addition to all costs previously incurred. For the range above 25,000, the cost structure for units produced and sold is expected to be $6 per unit variable in addition to all costs previously incurred Required: Compute the projected break even point for the Jones Company. What will be the pretax profit/loss at 30,000 units?

9 Question 7 The Jake Company is considering adopting one of three new processes to produce its primary product, Yidgets. Process A: sales price of $20/unit, variable costs of $5/unit and $600,000 fixed costs. Process B: sales price of $20/unit,variable costs of $10/unit and $400,000 fixed costs.. Process C: sales price of $20/unit, variable costs of $15/unit and $300,000 fixed costs. Required: Which process is best at various parts of the relevant range? [Hint: you will need to compute indifference points between the various processes.]

10 SBAD 333 Cost Accounting Exam 1 Fall 2012 Solutions Question 1 Compute income statement amounts: Sales rev 4,320 Beg FG 176 Beg WIP 130 Beg Mat 93! CGS!2,282 + CGM 2,294 + DM used Mat Purchases 588 GM 2,038! End FG!188 + DL 729! End Mat! 82! S&A!1,073 CGS 2,282 + MOH 1,006 DM used 599 Income 965! End WIP!170 CGM 2,294 Labor, sales force 520 Rent corp airplane 36 Factory supervisors 236 Deprec, FG warehouse 110 CEO salary 90 Factory security 82 Customer service 225 Dep, VP off furn 92 Maint, fact equip 195 Total 855 Total 218 Deprec, factory bldg 360 Factory custodial pers. 133 Total 1,006

11 Question 2 2,000 units 12,000 units 16,000 units 22,000 units Sales revenue 38, , , ,000 Expense A 11,000 66,000 88, ,000 Expense B 14,000 34,000 42,000 54,000 Expense C 32,000 32,000 32,000 32,000 Expense D 8,000 38,000 50,000 68,000 Operating profit (27,000) 58,000 92, ,000 (1) Fill in the above blanks. (2) In part of the space below, prepare a contribution margin income statement for the results at 16,000 units. Sales revenue 304,000 Variable costs A 88,000 B 32,000 C 0 D 48, ,000 Cont Margin 136,000 Fixed costs A 0 B 10,000 C 32,000 D 2,000 44,000 Inc 92,000 Question 3 a. Cost of direct labor b. Initial fixed costs = $0. At 10,000 units, an investment in fixed cost of $20,000 is made. For all units, the variable cost per unit is $3.

12 Question 4 The Chandler Company produces and sells super widgets. It projects the following revenue and costs for production and sales: Sales price $17 per unit Variable cost $11 per unit Fixed cost $68,532 total Required: (1) What is the break even point in units for Chandler's super widgets? Prepare a contribution margin income statement to prove your answer. cm*x! F = π 6X! 68,532 = 0 X = 11,422 R 194,174 17*11,422 V 125,642 11*11,422 CM 68,532 6*11,422 F 68,532 π 0 (2) How many units in total are needed to generate a before tax profit of 10% of sales? Prepare a contribution margin income statement to prove your answer. cm*x! F = π 6X! 68,532 =.2*(17X) 2.6X! 68,532 = 0 X = 26, R 448,094 17*26, V 289,943 11*26, CM 158,151 6*26, F 68,532 π 89, ,094*.20 = 89,619 (3) What is the change in profit going from 8,000 units to 12,200 units? +25,200 = +4,200*6

13 Question 5 The Trey Company predicts a pre-tax loss of $50,000 at a sales quantity of 72,000 units, and a contribution margin of $3 per unit. How many units sold are needed to generate a profit of $10,000? What is the amount of fixed costs? X*cm = π X*3 = +10,000!!50,000 X*3 = +10, ,000 X = 60,000 / 3 = 20,000 X = 92,000 = 72, ,000 X*cm! F = π 72,000*3! F =!50,000 F = 266,000 Proof: 92,000*3! 266,000 = 276,000! 266,000 = +10,000 Question 6 The Taylor Company sells zidgets at $12 per unit. For the range from 1 to 20,000 units, $7 per unit variable, $230,000 fixed. For the range from 20,001 to 25,000, $4 per unit variable (a reduction of $3 per unit) in addition to all costs previously incurred. For the range above 25,000,$6 per unit variable in addition to all costs previously incurred Required: Compute the projected break even point for the Jones Company. What will be the pretax profit/loss at 30,000 units? CM needed = 230,000 CM from first 20,000 units = (12! 7)*20,000 = 100,000 CM still needed = 130,000 = 230,000! 100,000 CM from next 5,000 units = (12! 4)*5,000 = 40,000 CM still needed = 90,000 = 130,000! 40,000 units needed = 90,000 / (12!6) = 15,000 units Total needed = 40,000 = 20, , ,000 30,000 units = (12! 7)*20,000 + (12! 4)*5,000 + (12! 6)*5,000! 230,000 = 100, , ,000! 230,000 =!60,000

14 Question 7 Process A: sales price of $20/unit, variable costs of $5/unit and $600,000 fixed costs. Process B: sales price of $20/unit,variable costs of $10/unit and $400,000 fixed costs.. Process C: sales price of $20/unit, variable costs of $15/unit and $300,000 fixed costs. Comparing A to B: (20! 5)X! 600,000 = (20!10)X! 400,000 5X = 200,000 Indifference point X = 40,000 B < 40,000 < A Comparing A to C: (20! 5)X! 600,000 = (20!15)X! 300,000 10X = 300,000 Indifference point X = 30,000 C < 30,000 < A Comparing B to C: (20!10)X! 400,000 = (20!15)X! 300,000 5X = 100,000 Indifference point X = 20,000 C < 20,000 < B 0 to 20,000 B more profitable than A C more profitable than A C more profitable than B 20,000 to 30,000 B more profitable than A C more profitable than A B more profitable than C 30,000 to 40,000 B more profitable than A A more profitable than C B more profitable than C 40,000 to infinity A more profitable than B A more profitable than C B more profitable than C Therefore, C Therefore B Therefore B Therefore A C < 20,000 < B < 40,000 < A

15 SBAD 333 Cost Accounting by Albrecht USC Upstate Johnson College of Business & Economics Exam 2 Fall 2012 Name Q1 Change in profit 10 min 10 pts Q2 CVP with changing costs 10 min 8 pts 15 min 16 pts Q3 Continue or discontinue 10 min 14 pts Q4 Special order 20 min 30 pts 30 min 44 pts Q5 Learning curve marginal blocks 10 min 8 pts Q6 Learning curve estimate parameters 15 min 15 pts 25 min 23 pts Overall 65 min 77 pts Instructions: 1. Budget your time wisely. 2. Show all work and computations. Incorrect answers on the problems that are accompanied by computations are eligible for partial credit. 3. You may use a calculator, a straight-edge, pens and pencils. You may not use your text or any notes. You may not use a cell phone, PDA, laptop computer. This exam is closed-book, closed-notes, and closed-neighbor. 4. Do not cheat! An exam is not important enough to compromise your honor. Anyone caught cheating will be disciplined according to University policy and course policies listed on the syllabus. 5. Good luck.

16 Potentially Useful Equations Traditional statement Contribution margin statement Sales revenue Sales revenue - Cost of Goods Sold - Variable costs Gross Margin Contribution margin -Selling, General & Admin - Fixed costs Income Income Sales rev Beg FG Beg WIP Beg Mat! CGS + CGM + DM used + Mat Purchases GM! End FG + DL! End Mat! S&A CGS + MOH DM used Income! End WIP CGM Units Revenue SP*X! V*X! F = π Rev! V%*Rev! F = π (SP! V)*X! F = π (1! V%)*Rev! F = π CM*X! F = π CM%*Rev! F = π CM*ªX = ªπ CM*ªRev = ªπ Where: SP = sales price per unit Rev = sales revenue VC = variable cost per unit VC% = variable cost as percent of revenue CM = contribution margin per unit CM% = contribution margin percentage (of revenue) F = total fixed cost X = units (designated Q in text) π = before tax profit after tax net income = π*(1! tax rate) Incremental benefits + Additional CM or revenues + Cost savings Incremental costs! Additional costs! Lost CM or revenues Change in profit y = ax b T = ax b+1 Where: y = cumulative average time per unit T = total time for x units a = time required for first unit x = cumulative number of units produced b = ln (% learning) / ln (2) You may detach this formula sheet from the rest of the test.

17 Question 1 At total sales revenue of $300,000, the Jessica Company has a loss of $25,000. At total sales revenue of $550,000, it has a profit of $10,000. Compute the contribution margin percentage, the amount of total fixed cost, and the amount of profit/loss at a total sales revenue of $700,000. Prepare a contribution margin income statement for sales revenue of $700,000. Be sure to clearly identify and mark your answers.

18 Question 2 The Chase Company sells zidgets at $30 per unit. Its cost structure is as follows. r There is an initial (fixed) investment of $500,000. r After 50,000 units, an additional (fixed) investment of $200,000 is made. r Variable costs for the first 30,000 units are $15 per zidget. r After 30,000 units and up until 50,000 units, variable costs are $10 per zidget. r Above 50,000 units, variable costs are $9 per zidget. (1) How many zidgets must be sold to generate a before-tax profit of $0? (2) What is the profit/loss at 60,000 zidgets? (3) Prepare a contribution margin income statement to prove your answer to #2. Don t work this problem. Cancelled due to time constraints.

19 Question 3 The most recent monthly income statement for Melanie Markets is given below: Total Store A Store B Store C Sales $2,400,000 $900,000 $600,000 $900,000 Less variable expenses 1,500, , , ,000 Contribution margin 900, , , ,000 Less committed (unavoidable) fixed exp 270,000 70, , ,000 Less discretionary (avoidable) fixed exp 410, , , ,000 Less allocated common fixed exp 180,000 60,000 60,000 60,000 Operating income $40,000 $220,000 ($210,000) $40,000 Due to its poor showing, consideration is being given to closing Store B. The studies also show that closing Store B would result in a 10% increase in variable costs of Store A (revenues stays constant), and a 15% decrease in sales (and variable cost) of Store C. There will be a $15,000 decrease in discretionary fixed expenses for store C. There will be a $10,000 drop in allocated common fixed costs. Required: Compute the overall increase (+) or decrease (!) in Melanie s operating income if store B is closed. Clearly identify and mark your final answer. Show all work:

20 Question 4 Sue s Company makes mid-priced dining tables for sale to various retail companies. Normal production ranges have been 70,000 to 80,000 tables. 80,000 tables is the maximum capacity of the plant at the current time. The planned income statement (or budget) for the year without this order is as follows: Sales (75,000 $350) $26,250,000 Costs: Variable production overhead ($30 / unit) 2,250,000 Selling commissions ($20 per unit) 1,500,000 Fixed overhead ($120 per unit) 9,000,000 Direct labor production ($45 per unit) 3,375,000 Direct materials production ($55 per unit) 4,125,000 Fixed selling & administrative ($40 / table) 3,000,000 23,250,000 Income $3,000,000 At the current time, Sue estimates there is an excess capacity of 5,000 units Each of the following cases is separate and independent of each other. Case A Sue has received a special order from a customer for 6,000 tables. The order is to be filled any time during the coming year, and the proposed price per table is $280. No selling commissions would be paid on the order. Fixed costs, in total, do not change as a result of this order. Sue plans on producing all 6,000 units of the special order. Planned sales at the regular sales price will be reduced by 1,000 units. The production manager is to receive a $15,000 bonus. By how much will Sue s s income change from the budget (+ or!) if the order for 6,000 tables is accepted?

21 Case B Sue has received a special order from a customer for 25,000 tables. The order is to be filled any time during the coming year, and the proposed price per table is $260 per table. No selling commissions would be paid on the order. Fixed costs, in total, do not change as a result of this order. Sue plans making 5,000 units in house from normal production runs at budgeted costs, and comes from the excess capacity. 8,000 will be filled by nonroutine production created by adding a shift and working overtime. Material costs for these 8,000 units will increase by 20%, and labor costs will be 50% higher than on regular production. An additional $15,000 insurance policy must be purchased, and the production manager will get a bonus of $25,000. The final 12,000 of the special order comes from outsourcing. These units could be purchased from an outside supplier at $250 per table. Shipping for these outsourced units is $85,000. Summary: 5,000 normal production run from excess capacity. 8,000 from nonroutine production with increased costs. 12,000 from outside supplier. By how much will Sue s s income change from the budget (+ or!) if this order for 25,000 tables is accepted?

22 Question 5 Jason s Company employs labor with a learning effect of 87%. If the cost for the first unit is $510, compute the total time and average time for these intervals (or marginal blocks). Your computations should use logarithms to at least four decimal places. Please show your computations Total cost of labor for this interval: Average cost per unit of labor within interval: 901-1,200 Total cost of labor for this interval: Average cost per unit of labor within interval:

23 Question 6 The Mackenzie Company is interested in computing its learning effect on a new product. Early measurements reveal 900 hours were spent on making the first 250 units, and 800 hours were spent on making the next 300 units. Your computations should use logarithms to at least four decimal places. Please show all computations. Required: 1. What is Mackenzie s learning effect (xx.xx%) per doubling of production? 2. What are Mackenzie s equations for computing either the cumulative average time or total time per doubling of production?

24 SBAD 333 Cost Accounting Exam 2 Fall 2012 Solutions

25 Question 1 At total sales revenue of $300,000, the Jessica Company has a loss of $25,000. At total sales revenue of $550,000, it has a profit of $10,000. Compute (1) the contribution margin percentage, (2) the amount of total fixed cost, and (3) the amount of profit/loss at a total sales revenue of $700,000. cm%*ªrev = ªπ cm%*(550,000! 300,000) = 10,000! (!25,000) cm%*250,000 = 35,000 cm% = 0.14 cm%*rev! F = π 0.14*300,000! F =!25,000 F = $67,000 cm%*rev! F = π 0.14*700,000!67,000 = 0 π π = $31,000 [3 pts] [3 pts] [2 pts] Sales revenue $700,000 Variable costs 602,000 86% [2 pts] Contribution margin 98,000 Fixed costs 67,000 π 31,000

26 Question 2 The Chase Company sells zidgets at $30 per unit. Its cost structure is as follows. r There is an initial (fixed) investment of $500,000. r After 50,000 units, an additional (fixed) investment of $200,000 is made. r Variable costs for the first 30,000 units are $15 per zidget. r After 30,000 units and up until 50,000 units, variable costs are $10 per zidget. r Above 50,000 units, variable costs are $9 per zidget. (1) How many zidgets must be sold to generate a before-tax profit of $0? (2) What is the profit/loss at 60,000 zidgets? (3) Prepare a contribution margin income statement to prove your answer to #2. Initial CM needed = 500,000 CM from first 40,000 units = (30! 15)*30,000 = 450,000 CM still needed = 50,000 = 500,000! 450,000 Additional units needed = 50,000 / (30!10) = 2,500 units Total units needed = 32,500 = 30, ,500 60,000 units = (30! 15)*30,000 + (30! 10)*20,000 + (30! 9)*10,000! 700,000 = 450, , ,000! 700,000 = +360,000 Sales revenue $1,800,000 60,000*30 Variable costs 740,000 30,000* ,000* ,000*9 Contribution margin 1,060,000 Fixed costs 700, , ,000 π 360,000

27 Question 3 The most recent monthly income statement for Melanie Markets is given below: Total Store A Store B Store C Sales $2,400,000 $900,000 $600,000 $900,000 Less variable expenses 1,500, , , ,000 Contribution margin 900, , , ,000 Less committed (unavoidable) fixed exp 270,000 70, , ,000 Less discretionary (avoidable) fixed exp 410, , , ,000 Less allocated common fixed exp 180,000 60,000 60,000 60,000 Operating income $40,000 $220,000 ($210,000) $40,000 Due to its poor showing, consideration is being given to closing Store B. The studies also show that closing Store B would result in a 10% increase in variable costs of Store A (revenues stays constant), and a 15% decrease in sales (and variable cost) of Store C. There will be a $15,000 decrease in discretionary fixed expenses for store C. There will be a $10,000 drop in allocated common fixed costs. Required: Compute the overall increase (+) or decrease (!) in Steven s operating income if store B is closed. Incremental benefits cost savings B avoidable fixed + 150,000 cost savings C avoidable fixed + 15,000 cost savings common fixed + 10,000 Incremental costs lost cm B! 100,000 lost cm C (15% decrease)! 45,000 add l variable costs A! 40,000 Change in profit! 10,000

28 Question 4 Equation for regular sales: (350!130!20)*X!12,000,000 = π At the current time, Jim estimates there is an excess capacity of 5,000 units Each of the following cases is separate and independent of each other. Case A Sue has received a special order from a customer for 6,000 tables. The order is to be filled any time during the coming year, and the proposed price per table is $280. No selling commissions would be paid on the order. Fixed costs, in total, do not change as a result of this order. Sue plans on producing all 6,000 units of the special order. Planned sales at the regular sales price will be reduced by 1,000 units. The production manager is to receive a $15,000 bonus. Incremental benefits add l cm 6,000*(280! 130) + 900,000 [4 pts] Incremental costs production manager bonus! 15,000 [2 pts] lost cm 1,000*(350! 150)! 200,000 [4 pts] Change in profit + 685,000 [10 pts] [fixed 2] Case B Sue has received a special order from a customer for 25,000 tables. The order is to be filled any time during the coming year, and the proposed price per table is $260 per table. No selling commissions would be paid on the order. Fixed costs, in total, do not change as a result of this order. Sue plans making 5,000 units in house from normal production runs at budgeted costs, and comes from the excess capacity. 8,000 will be filled by nonroutine production created by adding a shift and working overtime. Material costs for these 8,000 units will increase by 20%, and labor costs will be 50% higher than on regular production. An additional $15,000 insurance policy must be purchased, and the production manager will get a bonus of $25,000. The final 12,000 of the special order comes from outsourcing. These units could be purchased from an outside supplier at $250 per table. Shipping for these outsourced units is $85,000. Summary: 5,000 normal production run from excess capacity. 8,000 from nonroutine production with increased costs. 12,000 from outside supplier. Incremental benefits add l cm 5,000*(260! 130) + 650,000 [4 pts] add l cm 8,000*(260! 66! 67.5! 30) + 772,000 [4 pts] add l cm 12,000*(260!250) + 120,000 [4 pts] Incremental costs [fixed cost 2 pts] production manager s bonus! 25,000 [2 pts] insurance policy! 15,000 [2 pts] shipping! 85,000 [2 pts] Change in profit + 1,417,000 [20 pts]

29 Question 5 Jason s Company employs labor with a learning effect of 87%. If the cost for the first unit is $510, compute the total time and average time for these intervals (or marginal blocks) Total cost of labor for this interval: Total cost = T 900! T 600 = 510 * 900 ((ln(.87)/ln(2))+1)! 510 * 600 ((ln(.87)/ln(2))+1) = 510 * 900 (( / )+1)! 510 * 600 (( / )+1) = 510 * 900 ( )! 510 * 600 ( ) = 510 * 900 ( )! 510 * 600 ( ) = 510 * ! 510 * = 117,022.65! 84, = 32, Average cost per unit of labor within interval: (T 900! T 600 ) / 300 = 32, / 300 = ,200 Total cost of labor for this interval: Total cost = T 1,200! T 900 = 510 * 1,200 ((ln(.87)/ln(2))+1)! 510 * 900 ((ln(.87)/ln(2))+1) = 510 * 1,200 (( / )+1)! 510 * 900 (( / )+1) = 510 * 1,200 ( )! 510 * 900 ( ) = 510 * 1,200 ( )! 510 * 900 ( ) = 510 * ! 510 * = 147,267.52! 117, = 30, Average cost per unit of labor within interval: (T 1,200! T 900 ) / 300 = 30, / 300 =

30 Question 6 The Mackenzie Company is interested in computing its learning effect on a new product. Early measurements reveal 900 hours were spent on making the first 250 units, and 800 hours were spent on making the next 300 units. Your computations should use logarithms to at least four decimal places. Please show all computations. Required: 1. What is Mackenzie s learning effect (xx.xx%) per doubling of production? 2. What are Mackenzie s equations for computing either the cumulative average time or total time per doubling of production? Î Ï Î Ï Î Ï 900 = a*250 (b+1) 1,700 = a*550 (b+1) ln(900) = ln(a) + (b+1)*ln(250) ln(1,700) = ln(a) + (b+1)*ln(550) = ln(a) + (b+1)* = ln(a) + (b+1)* Î = ln(a) + b* Ï = ln(a) + b* Î Ï = ln(a) + b* = ln(a) + b* Î! Ï = 0! b* ! = b = ln(learning effect) / ln(2) [6 pts to get b]! * =! = ln(learning effect) learning effect = EXP (! ) = % [4 pts to get LE] 900 = a*250 ( ) 900 = a* = a [4 pts to get a] a = Y = *X! [eq form 1 pt] b =! T = *X b+1 = LE = %

31 SBAD 333 Cost Accounting USC Upstate Johnson College of Business & Economics Exam 3 Fall 2012 Albrecht Name Q1 Job costing 40 min 35 pts Q2 ABC problem 30 min 30 pts Q3 Cost of quality 10 min 10 pts Q4 Cost Allocation 12 min 8 pts Q5 Cash budget 10 min 10 pts 102 min 93 pts Q6 Realistic capital budgeting 22 pts Overall 115 pts Instructions: 1. Budget your time wisely. 2. Show all work and computations. Incorrect answers on the problems that are accompanied by computations are eligible for partial credit. 3. You may use a calculator, a straight-edge, pens and pencils. You may not use your text or any notes. You may not use a cell phone, PDA, laptop computer or any similar device. This exam is closed-book, closed-notes, and closed-neighbor. 4. Do not cheat! An exam is not important enough to compromise your honor. Anyone caught cheating will be disciplined according to University policy and course policies listed on the syllabus. 5. Good luck.

32 Cash Budget Beginning Cash + Cash receipts! Cash disbursements ± Financing Ending Cash Potentially Useful Equations Traditional statement Contribution margin statement Sales revenue Sales revenue - Cost of Goods Sold - Variable costs Gross Margin Contribution margin -Selling, General & Admin - Fixed costs Income Income Sales rev Beg FG Beg WIP Beg Mat! CGS + CGM + DM used + Mat Purchases GM! End FG + DL! End Mat! S&A CGS + MOH DM used Income! End WIP CGM Units Revenue SP*X! V*X! F = π Rev! V%*Rev! F = π (SP! V)*X! F = π (1! V%)*Rev! F = π CM*X! F = π CM%*Rev! F = π CM*ªX = ªπ CM*ªRev = ªπ Where: SP = sales price per unit Rev = sales revenue VC = variable cost per unit VC% = variable cost as percent of revenue CM = contribution margin per unit CM% = contribution margin percentage (of revenue) F = total fixed cost X = units (designated Q in text) π = before tax profit after tax net income = π*(1! tax rate) Incremental benefits + Additional CM or revenues + Cost savings Incremental costs! Additional costs! Lost CM or revenues Change in profit y = ax b T = ax b+1 Where: y = cumulative average time per unit T = total time for x units a = time required for first unit x = cumulative number of units produced b = ln (% learning) / ln (2)

33 Question 1 Accounting for Month of June. A quick scan of the records of the Zach Company reveals the following information pertaining to the months of April, May, June, July, and August (Aug): Start Costs prior DM DL OH Costs Finish Job Date to June June June June after June Date Disposition A July Aug 3 Sold in Aug - $1,300 B May July 6 Sold in July - $3,800 C April May 15 Sold in May - $760 D June ,021 0 June 27 Sold in June - $2,900 E May May 27 Sold in June - $ 1,035 F June July 2 Sold in July - $2,400 G June July 13 Sold in Aug - $4,100 H June June 30 Sold in June - $1,950 I May June 10 Sold in June - $1,900 J May May 14 Sold in July - $730 K May June 19 Sold in June - $2,200 L June ,064 0 June 11 Sold in July - $2,700 $3,013 $3,674 3,524 $5,596 $1,626 The overhead cost during June is underapplied by $ Work-in-process on June 1 Jobs: Cost: 2. Work-in-process on June 31 Jobs: Cost: 3. Finished goods on June 1 Jobs: Cost: 4. Finished goods on June 31 Jobs: Cost: Continued on next page º º º º

34 5. Cost of goods manufactured for June (compute it two ways) 6. Cost of goods sold (unadjusted) for June (compute it two ways) 7. How much was actually spent on overhead during June? 8. Cost of goods sold (adjusted) for June 9. Sales revenue for June 10. Gross margin for June Continued on next page º º º º

35 11. Prepare the journal entry for the addition of all direct material to all jobs worked on during June 12. Prepare the journal entry for the addition of all manufacturing overhead to all jobs worked on during June 13. Prepare the journal entry to account for all jobs completed during June 14. Prepare the journal entry for cost of goods sold for June. 15. Prepare the end of period entry to even up (or close out) the account for overhead.

36 Question 2 Adapted from Activity-Based Costing and Bidding on Jobs from Garrison, 12e Best Asbestos Removal Company removes potentially toxic asbestos insulation and related products from buildings. The company's estimator has been involved in a long-simmering dispute with the on-site work supervisors. The on-site supervisors claim that the estimator does not adequately distinguish between routine work such as removal of asbestos insulation around heating pipes in older homes and nonroutine work such as removing asbestos-contaminated ceiling plaster in industrial buildings. The on-site supervisors believe that nonroutine work is far more expensive than routine work and should bear higher customer charges. The estimator sums up his position in this way: My job is to measure the area to be cleared of asbestos. As directed by top management, I simply multiply the number of tsf (thousand square feet) by $3,500 per tsf to determine the bid price. Since our average cost is only $2,900 per tsf ($8,700,000 3,000 tsf), that leaves enough cushion to take care of the additional costs of nonroutine work that shows up. Besides, it is difficult to know what is routine or not routine until you actually start tearing things apart. Total estimated costs for coming year Licensing and insurance 2,000,000 Fuel 200,000 Truck depreciation 100,000 Onsite supplies 400,000 Equipment depreciation 800,000 Wages and salaries 1,600,000 Disposal fees 3,400,000 Office expenses 200,000 Total cost $8,700,000 To shed light on this controversy, the company initiated an activity-based costing study of all of its costs. Data from the activity-based costing system follow: Cost Driver/Pool Activity measure Total activity Estimating and job set up Number of jobs 300 jobs (routine & nonroutine) Travel to and from jobs Number of miles 50,000 miles Removing asbestos Number of tsf 3,000 tsf Working on nonroutine jobs Number of nonroutine jobs 120 nonroutine jobs Other (costs of idle capacity) NA NA Distribution of Resource Consumption Across Activity Cost Pools Estimating & Removing Working on Job Setup Travel Asbestos Nonroutine jobs Other Total Licensing & insurance 5% 5% 45% 40% 5% 100% Fuel 0% 40% 10% 45% 5% 100% Truck depreciation 5% 65% 10% 20% 0% 100% On-site supplies 5% 10% 55% 30% 0% 100% Equipment deprec. 5% 0% 20% 65% 10% 100% Wages & salaries 5% 5% 30% 45% 15% 100% Disposal fees 0% 0% 40% 60% 0% 100% Office expenses 30% 5% 10% 25% 30% 100%

37 Required: 1. Prepare a company-wide projected income statement for the upcoming year for Best Asbestos Removal. 2. Using the current bid price of $3,500/tsf and the average cost model of $2,900/tsf, compute the profit/loss for each of these jobs: a. A routine 10 tsf asbestos removal job 25 miles away (50 miles round trip) b. A routine 10 tsf asbestos removal job 260 miles away (520 miles round trip) c. A nonroutine 10 tsf asbestos removal job 35 miles away (70 miles round trip) 3. Allocate costs to the activity cost pools, then compute the separate cost rates for each activity cost pool. 4. Using the activity cost rates you have computed, compute the profit/loss for each of these three jobs (still use the current bid price of $3,500/tsf). a. A routine 10 tsf asbestos removal job 25 miles away (50 miles round trip) b. A routine 10 tsf asbestos removal job 260 miles away (520 miles round trip) c. A nonroutine 10 tsf asbestos removal job 35 miles away (70 miles round trip) 5. Using the total projected revenue and a base of the total costs allocated to the four activity cost pools, compute a new sales/bid price per dollar of cost. Use this new sales/bid price per dollar of cost to compute the profitability of each of these three jobs. Cost are to be allocated using the activity cost rates computed in part 3. a. A routine 10 tsf asbestos removal job 25 miles away (50 miles round trip) b. A routine 10 tsf asbestos removal job 260 miles away (520 miles round trip) c. A nonroutine 10 tsf asbestos removal job 35 miles away (70 miles round trip) Please work this problem on blank sheets of paper and then have Dr. Albrecht staple your answer to the exam booklet.

38 Question 3 The textbook mentions four types of quality costs. Two of these costs are: Appraisal costs External failure costs Please define these terms, then provide examples for each type of cost. When providing examples of external failure costs, be sure to include the largest cost.

39 Question 4 Andrew Company has four service departments (designated below as S 1, S 2, S 3, S 4 ) and four production departments (designated as P 1, P 2, P 3, P 4 ). The schedule below shows overhead directly attributable to each department along with the percentages of service that each service department performs for other departments. Percentages to Be Allocated to Departments Service Dept S 1 S 2 S 3 S 4 P 1 P 2 P 3 P 4 S 1 0% 13% 12% 15% 22% 8% 17% 13% S 2 28% 0% 12% 12% 8% 11% 9% 20% S 3 5% 3% 0% 4% 18% 26% 28% 16% S 4 18% 13% 12% 0% 6% 8% 6% 37% Direct Cost $400,000 $600,000 $350,000 $900, Required: Allocate the service department costs using the step method. The order of allocation is S2, S4, S1, S3.

40 Question 5 Prepare a cash budget for Hal Company using the following components. Your cash budget should be properly organized with titles for each line and all appropriate subtotals and totals. Hint, some of the following items are bogus and should not be included. Receipts from cash sales Current assets Cash payments to employees Amount repaid on loan Allowance for doubtful accounts Beginning cash Cash collections from credit sales Cash payments for purchases Gain from sale

41 Take home exam problem: You are to bring a solution to this problem to the final exam with you. The following activities constitute cheating: (1) You are not to work with anyone else in any way, shape or form. (2) You are not to check answers. (3) Anything else that prevents your solution from being completely and totally your work. The following is allowed: (1) textbook, (2) notes, (3) HW and test solutions on course web page, (4) a financial calculator or spreadsheet. Question 6 The Latasha Company is contemplating investing $14,900,000 in a project that will generate eight years of contribution margins. $10,000,000 of the investment is targeted for equipment (3 year asset class for MACRS) with an expected salvage vale of $800,000 when the project is complete. $4,000,000 is targeted for training and initial advertising, and $900,000 will be used as working capital (to be 100% reclaimed at the end of the eight year project). A marginal tax rate of 19% is to be used for this problem. year Cont Margin MACRS 1 $2,000, % 2 $5,800, % 3 $4,200, % 4 $2,400, % 5 $2,300,000 0% 6 $1,900,000 0% 7 $1,700,000 0% 8 $1,500,000 0% totals $21,800, % Required: 1. Compute the rate of return (IRR) for this project (xx.xxx%). Please show all work. If you use a calculator, please show all key strokes used to get answer. If you use a spreadsheet, then send me the file (albrecht@profalbrecht.com) used to compute your answer. 2. Compute the net present value of this investment assuming an average cost of capital of 8.5%, rounding to the nearest dollar. Please show all work. If you use a calculator, please show all key strokes used to get answer. If you use a spreadsheet, then send me the file (albrecht@profalbrech.com) used to compute your answer. 3. Compute the payback period, to the nearest hundredth of a year.

42 SBAD 333 Cost Accounting Exam 3 Fall 2012 Solutions

43 Question 1 [35 test pts / 42 grading pts ( ) (5/6)] Start Costs prior DM DL OH Costs Finish Job Date to June June June June after June Date Disposition A July Aug 3 Sold in Aug - $1,300 B May July 6 Sold in July - $3,800 C April May 15 Sold in May - $760 D June ,021 0 June 27 Sold in June - $2,900 E May May 27 Sold in June - $ 1,035 F June July 2 Sold in July - $2,400 G June July 13 Sold in Aug - $4,100 H June June 29 Sold in June - $1,950 I May June 10 Sold in June - $1,900 J May May 14 Sold in July - $730 K May June 19 Sold in June - $2,200 L June ,064 0 June 11 Sold in July - $2,700 $3,013 $3,674 3,524 $5,596 $1,626 The overhead cost during June is underapplied by $ Work-in-process on June 1 Jobs: B, I, K Cost: 1,498 = Work-in-process on June 31 Jobs: B, F, G Cost: 6,515 = 2, , , Finished goods on June 1 Jobs: E, J Cost: 1,044 = Finished goods on June 31 Jobs: J, L Cost: 2,334 = , Cost of goods manufactured for June (compute it two ways) D 1,973 BWIP 1,498 H 1,307 +DM +3,674 I 1,264 +DL +3,524 K 1,368 +MOH +5,596 L 1,865!EWIP!6,515 CGM 7,777 CGM 7, Cost of goods sold (unadjusted) for June (compute it two ways) Job Cost Revenue D 1,973 2,900 E 575 1,035 H 1,307 1,950 BFG 1,044 I 1,264 1,900 +CGM + 7,777 K 1,368 2,200!EFG!2,334 CGS 6,487 9,985 CGS 6,487

44 7. How much was actually spent on overhead during June? actual= applied + underapplied actual = 5, actual = 5, Cost of goods sold (adjusted) for June 6,804 = 6, Sales revenue for June 9, Gross margin for June 3,181 = 9,985! 6, Prepare the journal entry for the addition of all direct material to all jobs worked on during June 12. Prepare the journal entry for the addition of all manufacturing overhead to all jobs worked on during June 13. Prepare the journal entry for cost of goods manufactured during June 14. Prepare the journal entry for cost of goods sold for June. 15. Prepare the end of period entry for accounting for overhead. During June Work-in-process 3,674 Direct materials inventory 3,674 During June Work-in-process 5,596 Manufacturing overhead control 5,596 June 30 Finished goods 7,777 Work-in-process 7,777 June 30 Cost of goods sold expense 6,487 Finished goods 6,487 June 30 Cost of goods sold expense 317 Manufacturing overhead control 317

45 Question 2 [ ] (1) Income statement for company: Sales revenue ($3,500*3,000tsf) $10,500,000 Expenses Licensing and insurance 2,000,000 Fuel 200,000 Truck depreciation 100,000 Onsite supplies 400,000 Equipment depreciation 800,000 Wages and salaries 1,600,000 Disposal fees 3,400,000 Office expenses 200,000 8,700,000 Profit 1,800,000 (2) Using the current bid price of $3,500/tsf and the average cost model of $2,900/tsf, compute the profit/loss for each of these jobs: a. A routine 10 tsf asbestos removal job 25 miles away (50 miles round trip) b. A routine 10 tsf asbestos removal job 260 miles away (520 miles round trip) c. A nonroutine 10 tsf asbestos removal job 35 miles away (70 miles round trip) (a) (b) 10 tsf 10 tsf 10 tsf routine routine nonroutine Revenue 35,000 35,000 35,000 Expense 29,000 29,000 29,000 P/L 6,000 6,000 6,000 (3) Allocate costs to the activity cost pools, then compute the separate cost rates for each activity cost pool. Estimating & Removing Working on Job Setup Travel Asbestos Nonroutine jobs Other Total Licensing & insurance 100, , , , ,000 2,000,000 Fuel 0 80,000 20,000 90,000 10, ,000 Truck depreciation 5,000 65,000 10,000 20, ,000 On-site supplies 20,000 40, , , ,000 Equipment deprec. 40, , ,000 80, ,000 Wages & salaries 80,000 80, , , ,000 1,600,000 Disposal fees 0 0 1,360,000 2,040, ,400,000 Office expenses 60,000 10,000 20,000 50,000 60, ,000 Cost pool 305, ,000 3,170,000 4,360, ,000 8,700,000 activity 300 jobs 50,000 miles 3,000 tsf 120 jobs Rate 1,016.67/job 7.50/mile 1,056.67/tsf 36,333.33/NRjob

46 4. Using the activity cost rates you have computed, compute the profit/loss for each of these three jobs (still use the current bid price of $3,500/tsf). a. A routine 10 tsf asbestos removal job 25 miles away (50 miles round trip) b. A routine 10 tsf asbestos removal job 260 miles away (520 miles round trip) c. A nonroutine 10 tsf asbestos removal job 35 miles away (70 miles round trip) (a) (b) 10 tsf 10 tsf 10 tsf routine routine nonroutine Revenue 35,000 35,000 35,000 Est/setup 1,017 1,017 1,017 Travel 375 3, Removal 10,567 10,567 10,567 Nonroutine ,333 P/L 23,041 19,516!13, Using the total projected revenue and a base of the total costs allocated to the four activity cost pools, compute a new sales/bid price per dollar of cost. Use this new sales/bid price to compute the profitability of each of these three jobs. Cost are to be allocated using the activity cost rates computed in part 3. a. A routine 10 tsf asbestos removal job 25 miles away (50 miles round trip) b. A routine 10 tsf asbestos removal job 260 miles away (520 miles round trip) c. A nonroutine 10 tsf asbestos removal job 35 miles away (70 miles round trip) 10,500,000 / (8,700,000! 490,000) = $ revenue / $1 cost (a) (b) 10 tsf 10 tsf 10 tsf routine routine nonroutine Revenue 15,294 19,802 61,952 Est/setup 1,017 1,017 1,017 Travel 375 3, Removal 10,567 10,567 10,567 Nonroutine ,333 P/L 3,335 4,318 13,510

47 Question 3 The textbook mentions four types of quality costs. Two of these costs are: Appraisal costs External failure costs Please define these terms, then provide examples for each type of cost. When providing examples of external failure costs, be sure to include the largest cost. Appraisal costs (also known as detection costs), in the context of benefits and costs of quality, are incurred to detect individual units that do not conform to specifications. Examples are (1) end of process sampling and (2) field testing of products in use at customer sites. The cost of internal failures is directly related to the amount of effort spent on detection. An appraisal is an assessment, in this case, of the quality of units produced. It is not an assessment of the market value of the units produced, as many students declared. External failure costs, in the context of benefits and costs of quality, occur when defective products are delivered to customers. Examples are (1) warranty repairs, (2) technical support, (3) marketing costs to repair a tarnished image, and (4) lost sales (the largest external failure cost by far. Too many students declared an external failure cost to be a calamity outside the company and beyond management s control.

48 Question 4 Percentages to Be Allocated to Departments Service Dept S 1 S 2 S 3 S 4 P 1 P 2 P 3 P 4 S 1 0% 13% 12% 15% 22% 8% 17% 13% S 2 28% 0% 12% 12% 8% 11% 9% 20% S 3 5% 3% 0% 4% 18% 26% 28% 16% S 4 18% 13% 12% 0% 6% 8% 6% 37% Direct Cost $400,000 $600,000 $350,000 $900, Required: Allocate the service department costs using the step method. The order of allocation is S2, S4, S1, S3.

49 Question 5 Prepare a cash budget using the following components. Your cash budget should be properly organized with titles for each line and all appropriate subtotals and totals. Hint, some of the following items are bogus and should not be included. Receipts from cash sales T Current assets Cash payments to employees T Amount repaid on loan T Allowance for doubtful accounts Beginning cash T Cash collections from credit sales T Cash payments for purchases T Gain from sale Cash balance, beginning ,000 T Add cash sales ,000 T Add collections from credit sales ,000 T Total cash available ,000 T Less disbursements: T Cash payments to employees ,000 T Cash payments for purchases ,000 T Total disbursements ,000 Excess (deficiency) of cash available over disbursements ,000 T Financing T Borrowings Repayments (96,000) T Total financing (96,000) Cash balance, ending ,000 T Excluding other T

50 Question 6 The Latasha Company is contemplating investing $14,900,000 in a project that will generate eight years of contribution margins. $10,000,000 of the investment is targeted for equipment (3 year asset class for MACRS) with an expected salvage vale of $800,000 when the project is complete. $4,000,000 is targeted for training and initial advertising, and $900,000 will be used as working capital (to be 100% reclaimed at the end of the eight year project). A marginal tax rate of 19% is to be used for this problem. year Cont Margin MACRS 1 $2,000, % 2 $5,800, % 3 $4,200, % 4 $2,400, % 5 $2,300,000 0% 6 $1,900,000 0% 7 $1,700,000 0% 8 $1,500,000 0% totals $21,800, % 1. Compute the rate of return (IRR) for this project (xx.xxx%). Please show all work. If you use a calculator, please show all key strokes used to get answer. If you use a spreadsheet, then send me the file (albrecht@profalbrecht.com) used to compute your answer. 2. Compute the net present value of this investment assuming an average cost of capital of 8.5%, rounding to the nearest dollar. Please show all work. If you use a calculator, please show all key strokes used to get answer. If you use a spreadsheet, then send me the file (albrecht@profalbrech.com) used to compute your answer. 3. Compute the payback period, to the nearest hundredth of a year. 0!14,140,000 = 10,000, ,000,000* ,000 = 10,000, ,240, , ,253,270 = 2,000,000*.81 + (10,000,000*.3333)*.19 = 1,620, , ,542,550 = 5,800,000*.81 + (10,000,000*.4445)*.19 = 4,698, , ,683,390 = 4,200,000*.81 + (10,000,000*.1481)*.19 = 3,402, , ,084,790 = 2,400,000*.81 + (10,000,000*.0741)*.19 = 1,944, , ,863,000 = 2,300,000* *.19 = 1,863, ,539,000 = 1,900,000* *.19 = 1,539, ,377,000 = 1,700,000* *.19 = 1,377, ,763,000 = 1,500,000* *.19 + [800,000* ,000] = 1,215, (648, ,000) Calculating IRR 0!14,140, ,253, ,542, ,683, ,084, ,863, ,539, ,377, ,763,000 IRR % Calculating 8.5% PV of inflows (1-8) +15,571,797 PV of investment (0)!14,140,000 Net present value +1,431,797 A positive NPV means that the true rate of return (IRR) is greater than 8.5%.