ACCT 505 FINAL EXAM.

ACCT 505 FINAL EXAM. Question 1.1. (TCO E) Installing a custom logo on a boat is a(n) (Points : 10) batch-level activity. product-level activity. unit-level activity. organization sustaining activity. Question 2.2. (TCO G) Given the following data, what would ROI be? Sales Net operating income Contribution margin Average operating assets Stockholder's equity $70,000 $10,000 $20,000 $50,000 $25,000 (Points : 10) 28.6% 20.0% 40.0% 50.0% Page 2 Question 1.1. (TCO C) Aziz Corporation produces and sells a single product. Data concerning that product appear below. Selling price per unit Variable expense per unit Fixed expense per month $110.00 $38.50 $85,800 Required: Determine the monthly breakeven in either unit or total dollar sales. Show your work! (Points : 25) BEP (units) = fixed cost / contribution per unit = 85,800 / (110 - 38.50) = 1200 units (dollars) = 85,800 *110/71.5 = $132,000 Question 2.2. (TCO B) Carter Corporation uses the weighted-average method in its process costing system. Data concerning the first processing department for the most recent month are listed below. Work in process, beginning:Units in beginning work-in-process inventory600 Materials costs Conversion costs$6,900 $2,500 Percentage complete for materials80% Percentage complete for conversion15% Units started into production during the month6,300 Units transferred to the next department during the month5,800 Materials costs added during the month$112,500 Conversion costs added during the month$210,300 Ending work in process: Units in ending work-in-process 1,100 inventory Percentage complete for materials 70% Percentage complete for conversion 40% Required: Calculate the equivalent units for materials (using the weighted-average method) for the month in the first processing department. (Points : 25) SOLUTION: To solve for units transferred: +WIP,beginning +Units started into production during the month -WIP,ending =Units completed and transferred out during the month Equivalent units of production Transferred to next department WIP,ending (1,100 units*40%complete) 5,800 440Equivalent units of production 6,240 Cost per equivalent unit Cost of beginning WIP $2,500 Cost added during the period $112,500 Total cost(a) $115,000 Equivalent units of production(b) 6,240 Cost per equivalent unit=(a)/(b) $18.43 Page 3 Question 1.1. (TCO D) Topple Company produces a single product. Operating data for the company and its absorption costing income statement for the last year are presented below. Units in beginning inventory0 Units produced9,000 Units sold Sales7,000 $100,000 Less cost of goods sold: Beginning inventory0 Add cost of goods manufactured54,000 Goods available for sale54,000 Less ending inventory12,000 Cost of goods sold42,000 Gross margin58,000 Less selling and admin. expenses 28,000 Net operating income $30,000Variable manufacturing costs are $4 per unit. Fixed manufacturing overhead totals $18,000 for the year. The fixed manufacturing overhead was applied at a rate of $2 per unit. Variable selling and administrative expenses were $1 per unit sold. Required: Prepare a new income statement for the year using variable costing. Comment on the differences between the absorption costing and the variable costing income statements. (Points : 30) Solution Sales Less : Variable Cost Beginning Inventory Add : Cost of Goods Manufactured (9,000 x $4) Goods available for Sale Less : Ending inv. 2,000 x $4 Cost of goods Sold Less : Variable Selling & admin. (7,000 x $1) Total Variable costs Contribution Less : Fixed Costs Manufacturing overheads Selling & admin.Exp.$28,000-$7,000 $21,000 Net Operating Income $100,000 0 $36,000 $36,000 $8,000 $28,000 $7,000 $35,000 $65,000 $18,000 $39,000 $26,000 Net Operating Income under absorption costing is $30,000 w hereas under Variable costing it comes out as $26,000. The reason of this difference of $4,000 is due to Ending inventory charged @$6 under Absorption costing w hereas under Variable costing only variable cost $4 has been considered. The difference is Question 2.2. (TCO I) (Ignore income taxes in this problem.) Simpson Beauty Products Corporation is considering the production of a new conditioning shampoo that will require the purchase of new mixing machinery. The machinery will cost $700,000, is expected to have a useful life of 10 years, and is expected to have a salvage value of $70,000 at the end of 10 years. The machinery will also need a $45,000 overhaul at the end of Year 5. A $60,000 increase in working capital will be needed for this investment project. The working capital will be released at the end of the 10 years. The new shampoo is expected to generate net cash inflows of $150,000 per year for each of the 10 years. Simpson's discount rate is 18%. Required: Part A: What is the net present value of this investment opportunity? Part B: Based on your answer to (a) above, should Simpson go ahead with the new conditioning shampoo? (Points : 30)