”

Exam 3B
Acct
5311
LS
2015

Instructions
(Read the instructions carefully before you start.
Follow them carefully so you do not lose points for carelessness.):

You may use your book, any content on the course site in Blackboard, and your solutions to the
assigned homework to help you complete the exam. You may not use any other
written source. Nor may you get help from any person except Dr. Martindale.
Do not discuss the exam with any
other person until after grades are posted.
Read
each question carefully before you try to work it.
Create your solutions in a file
that can be sent as an email attachment. Use either Word or Excel. Please
create only one file. If you use Excel, you may use multiple worksheets
within the workbook.
Put your name on your paper, not
just on the file name. I print your file before I grade it so youll want
me to know whose work it is when I assign the grade.
Do not include the questions
in your solution file. (I will subtract points if you do.)
There is not a time limit, but your
solution must be sent by 11:59 p.m. on August 5. Late submissions will not
be accepted.
Use “”Exam 3B”” as the
subject line on your email.

Please include the following statement on
your exam:

“”I
have followed the DBU Honor Pledge while completing this assignment.””

I’ll be praying for you as you work.

I. Cost identification
Sid
Freeman has developed a new electronic device that he has decided to produce
and market. The production facility will be in a nearby industrial park. He
will use his personal computer, which he purchased for $3,000 last year, to
monitor the production process. The computer will become obsolete before it
wears out from use. The computer will be
depreciated at the rate of $100 per month. Sid’s other monthly costs will be:
Facility rent $4,000
Utilities 500
Production Equipment
rent 8,000
Materials cost 2,550
Labor cost 15,000
Advertising 2,000
In order
to enter this new business, Sid will quit his current job, which pays him
$4,500 per month.

Required:
Copy and complete the chart below by
placing an “”X”” under each heading that identifies the cost
involved. An “”X”” may be placed
under more than one heading for a single cost; e.g., a cost might be a variable
cost and a direct materials cost.

Opportunity cost

Sunk cost

Cost Behavior

Product Cost

Period cost

Variable cost

Fixed cost

Direct materials

Direct labor

Factory overhead

Facility
rent

Utilities

Computer
cost

Computer
depreciation

Equipment
rent

Material
cost

Labor
cost

Advertising

Present salary

2. Contribution Margin

Premier Train Travel presents the following
information for one month:

Sales price is $100 per passenger

Fixed costs:
Marketing and admin $2,000
Overhead $1,000

Variable costs:
Marketing and admin $ 5
per passenger
Overhead $10
per passenger
Direct labor $15
per passenger
Direct materials $20 per passenger

Estimated number of
passengers – 150

Required: Treat each question as independent
of the others, starting with the original information each time.

a.
Prepare a complete income statement for internal reporting using the contribution margin method. (No heading required.)

b. If
the number of passengers doubles, what would be the effect on contribution
margin?

c. If
direct labor costs decreased by 10%, what would be the effect on contribution
margin?

d.
What impact would a 10% decrease in direct labor costs have on the
number of passengers needed to retain the current profit?

3.
CVP
Analysis

Teddy’s Toy Company expects its sales and
variable costs during the next two months to be:

March April

Projected sales 5,000 toys 4,200 toys
Sales $25,000 $21,000
Variable Costs $15,000 $12,600
Fixed
costs will be $10,000 each month.

Required: Answer the following independentquestions (i.e., for each
question, start with the original information.)

a. What is the expected breakeven point
during each of these months?

b. If
the current selling price of $5 is increased by 20% in May, what will the
contribution margin ratio be for May,
the next month?

c. If
the selling price of $5 is increased by 15% in May, what will the breakeven point need to be?

d. If
fixed costs decreased by 10% and the variable cost per unit increased by 20%,
what will be the new breakeven point in units?
(Assume the sales price remains at $5.)

e. If
fixed costs increased by $5,000, what would sales price per unit need to be to
keep the same breakeven point the company had in March?

4.
Decision Analysis – Make or Buy:

Refrigerators,
Inc. manufacturer refrigerators.
Freeze-It Company, which manufactures the icemakers that are a part of
most refrigerator freezers, has proposed to make all the icemakers for Refrigerators,
Inc. for $50 a unit. Refrigerators, Inc.
currently manufactures 10,000 icemakers at its facility. The per unit cost to manufacture 10,000 ice
makers is as follows:

Direct
materials $30.00
Direct
labor 10.00
Variable
manufacturing overhead 5.00
Fixed
manufacturing overhead 20.00
Total $75.00

It appears
that purchasing the icemakers is to the companys benefit. Management asked
you, the accountant, for a more in depth schedule.

REQUIRED:
a.
Prepare a schedule that shows the relevant
costs and determine whether Refrigerators, Inc. should buy the ice makers from
Freeze-It, Inc. or continue to make them, if 25% of the fixed cost is directly
related to the production of the ice makers.
b.
Give quantitative and qualitative reasons on
why to accept or reject Freeze-Its proposal.

5. Decision Analysis Special Order:

Larissas
Copy Center makes copies and performs a variety of other services for local
businesses and walk-ins. James Johnson
is running for councilman and his campaign manager asked if Larissas Copy
Center can put together 50,000 flyers on colored paper by the next day for $.50
a flyer. Larissas manager at first
thought absolutely not because it would interfere with their regular workload
and with the walk-in business and they wouldnt make any money at that
price. But Larissa decided to look at
the numbers before turning the job down.
She felt that the job could be done after hours and she thinks that
James Johnson will make a good councilman for their district.

At 15,000
copies per day, the cost per unit is as follows:

Direct material $ .10
Direct labor .05
Variable overhead
.10
Fixed overhead
.25
Total $.50

REQUIRED
a.)
Prepare a schedule that shows the relevant
costs and determine whether Larissas Copy Center should accept or reject this
special order. (Direct labor should be
calculated at time and a half since the work will be done after hours.)
b.)
Are there any qualitative characteristics
that should be taken into account?

6.
Budgeting

The
treasurer of Logos Co. has accumulated the following budget information for the
first two months of the coming year:

January February
Sales $450,000 $520,000
Manufacturing costs
290,000 350,000
Selling & Admin.
Expenses 41,400 46,400
Capital additions 250,000
———–

The
company expects to sell about 35% of its merchandise for cash. The remaining sales will be on account. Of
sales on account, 80% are expected to be collected in full in the month of the
sale and the remainder in the month following the sale. Of the manufacturing
costs, one-fourth are expected to be paid in the month in which they are
incurred. The other three-fourths will be paid in the following month.
Depreciation and insurance represent $6,400 of the probable monthly selling
& administrative expenses. Insurance is paid in March. Of the remainder of
the selling and administrative expenses, one-half are expected to be paid in
the month in which they are incurred and the other half in the month following.
A $40,000 installment on income taxes needs to be paid in February. Capital
additions of $250,000 are to be paid in January.

Current
assets as of January 1 are composed of cash of $45,000 and accounts receivable
of $51,000. Current liabilities as of January 1 are composed of accounts
payable of $121,500, which is made up of $102,000 for materials purchases and
$19,500 for operating expenses.
Management desires to maintain a minimum cash balance of $20,000.

Required: Using
this information, prepare a monthly cash budget for Logos Co. for January and
February.

7.
Budgeting

Air Ducts, Inc. has prepared the following budgets for
the second quarter of the year.

Air Ducts, Inc.

Selling and
Administrative Expense Budget

For the Quarter Ended June
30

April

May

June

Total

Salaries and wages

$ 7,000

$ 8,000

$ 9,000

$ 24,000

Rent

1,000

1,000

1,000

3,000

Depreciation

2,000

2,000

2,000

6,000

Advertising

500

550

600

1,650

Other

3,000

3,500

4,000

10,500

Budgeted S & A Expense

$ 13,500

$ 15,050

$ 16,600

$ 45,150

Air Ducts, Inc.

Purchases Budget

For the Quarter Ended
June 30

April

May

June

Total

Unit Sales

500

600

700

1,800

Desired ending inventory

180

210

225

615

Total units needed

680

810

925

2,415

Beginning Inventory

100

180

210

490

Total units to be purchased

580

630

715

1,925

Cost per unit

$75

$75

$80

Cost of purchases

$43,500

$47,250

$57,200

$147,950

Selling and administrative expenses are paid in the
month incurred and purchases are paid in the month following the purchase.
Purchases for March were $40,000.

REQUIRED
Prepare a
cash payment schedule for the second quarter.

8. Net Present Value

Sharon
Bullock, the owner of Sandwich Emporium, wants to purchase a sandwich machine
to make grilled sandwiches to sell to her customers at $5.00 each. The following estimates are available:
Initial outlay $17,000
Annual cash flow
$ 5,245
Cost of capital 8%
Estimated life of the sandwich
machine 4 years
Estimated residual value of the
machine $-0-

Required:

1. Create a schedule of
the relevant cash flows and then compute the net present value of the sandwich
machine purchase. You may use the Tables in the text, a financial calculator,
or Excel to calculate the PV amounts.
2. In a few sentences,
providing your advice on whether to go ahead with the purchase.
Exam 3B Acct
5311 LS
2015Instructions
(Read the instructions carefully before you start.
Follow them carefully so you do not lose points for carelessness.):Please include the following statement on
your exam:””I
have followed the DBU Honor Pledge while completing this assignment.””I’ll be praying for you as you work.I. Cost identification Sid
Freeman has developed a new electronic device that he has decided to produce
and market. The production facility will be in a nearby industrial park. He
will use his personal computer, which he purchased for $3,000 last year, to
monitor the production process. The computer will become obsolete before it
wears out from use. The computer will be
depreciated at the rate of $100 per month. Sid’s other monthly costs will be: Facility rent $4,000 Utilities 500 Production Equipment
rent 8,000 Materials cost 2,550 Labor cost 15,000 Advertising 2,000In order
to enter this new business, Sid will quit his current job, which pays him
$4,500 per month.Required:Copy and complete the chart below by
placing an “”X”” under each heading that identifies the cost
involved. An “”X”” may be placed
under more than one heading for a single cost; e.g., a cost might be a variable
cost and a direct materials cost. Opportunity costSunk costCost BehaviorProduct CostPeriod costVariable costFixed costDirect materialsDirect laborFactory overheadFacilityrentUtilitiesComputercostComputerdepreciationEquipmentrentMaterialcostLaborcostAdvertisingPresent salary2. Contribution MarginPremier Train Travel presents the following
information for one month:Sales price is $100 per passengerFixed costs:Marketing and admin $2,000Overhead $1,000Variable costs: Marketing and admin $ 5
per passengerOverhead $10
per passengerDirect labor $15
per passengerDirect materials $20 per passengerEstimated number of
passengers – 150Required: Treat each question as independent
of the others, starting with the original information each time.a.
Prepare a complete income statement for internal reporting using the contribution margin method. (No heading required.)b. If
the number of passengers doubles, what would be the effect on contribution
margin?c. If
direct labor costs decreased by 10%, what would be the effect on contribution
margin?d.
What impact would a 10% decrease in direct labor costs have on the
number of passengers needed to retain the current profit?3.
CVP
AnalysisTeddy’s Toy Company expects its sales and
variable costs during the next two months to be: March April
Projected sales 5,000 toys 4,200 toysSales $25,000 $21,000Variable Costs $15,000 $12,600Fixed
costs will be $10,000 each month.Required: Answer the following independentquestions (i.e., for each
question, start with the original information.)a. What is the expected breakeven point
during each of these months?b. If
the current selling price of $5 is increased by 20% in May, what will the
contribution margin ratio be for May,
the next month?c. If
the selling price of $5 is increased by 15% in May, what will the breakeven point need to be?d. If
fixed costs decreased by 10% and the variable cost per unit increased by 20%,
what will be the new breakeven point in units?
(Assume the sales price remains at $5.)e. If
fixed costs increased by $5,000, what would sales price per unit need to be to
keep the same breakeven point the company had in March?4.
Decision Analysis – Make or Buy:Refrigerators,
Inc. manufacturer refrigerators.
Freeze-It Company, which manufactures the icemakers that are a part of
most refrigerator freezers, has proposed to make all the icemakers for Refrigerators,
Inc. for $50 a unit. Refrigerators, Inc.
currently manufactures 10,000 icemakers at its facility. The per unit cost to manufacture 10,000 ice
makers is as follows:Direct
materials $30.00Direct
labor 10.00Variable
manufacturing overhead 5.00Fixed
manufacturing overhead 20.00 Total $75.00It appears
that purchasing the icemakers is to the companys benefit. Management asked
you, the accountant, for a more in depth schedule. REQUIRED:a.
Prepare a schedule that shows the relevant
costs and determine whether Refrigerators, Inc. should buy the ice makers from
Freeze-It, Inc. or continue to make them, if 25% of the fixed cost is directly
related to the production of the ice makers.b.
Give quantitative and qualitative reasons on
why to accept or reject Freeze-Its proposal.5. Decision Analysis Special Order:Larissas
Copy Center makes copies and performs a variety of other services for local
businesses and walk-ins. James Johnson
is running for councilman and his campaign manager asked if Larissas Copy
Center can put together 50,000 flyers on colored paper by the next day for $.50
a flyer. Larissas manager at first
thought absolutely not because it would interfere with their regular workload
and with the walk-in business and they wouldnt make any money at that
price. But Larissa decided to look at
the numbers before turning the job down.
She felt that the job could be done after hours and she thinks that
James Johnson will make a good councilman for their district. At 15,000
copies per day, the cost per unit is as follows: Direct material $ .10 Direct labor .05 Variable overhead
.10 Fixed overhead
.25 Total $.50REQUIREDa.)
Prepare a schedule that shows the relevant
costs and determine whether Larissas Copy Center should accept or reject this
special order. (Direct labor should be
calculated at time and a half since the work will be done after hours.) b.)
Are there any qualitative characteristics
that should be taken into account?6.
BudgetingThe
treasurer of Logos Co. has accumulated the following budget information for the
first two months of the coming year: January February Sales $450,000 $520,000 Manufacturing costs
290,000 350,000 Selling & Admin.
Expenses 41,400 46,400 Capital additions 250,000
———–The
company expects to sell about 35% of its merchandise for cash. The remaining sales will be on account. Of
sales on account, 80% are expected to be collected in full in the month of the
sale and the remainder in the month following the sale. Of the manufacturing
costs, one-fourth are expected to be paid in the month in which they are
incurred. The other three-fourths will be paid in the following month.
Depreciation and insurance represent $6,400 of the probable monthly selling
& administrative expenses. Insurance is paid in March. Of the remainder of
the selling and administrative expenses, one-half are expected to be paid in
the month in which they are incurred and the other half in the month following.
A $40,000 installment on income taxes needs to be paid in February. Capital
additions of $250,000 are to be paid in January.Current
assets as of January 1 are composed of cash of $45,000 and accounts receivable
of $51,000. Current liabilities as of January 1 are composed of accounts
payable of $121,500, which is made up of $102,000 for materials purchases and
$19,500 for operating expenses.
Management desires to maintain a minimum cash balance of $20,000. Required: Using
this information, prepare a monthly cash budget for Logos Co. for January and
February. 7.
BudgetingAir Ducts, Inc. has prepared the following budgets for
the second quarter of the year.Air Ducts, Inc.Selling and
Administrative Expense BudgetFor the Quarter Ended June
30AprilMayJuneTotalSalaries and wages $ 7,000 $ 8,000 $ 9,000 $ 24,000 Rent 1,000 1,000 1,000 3,000 Depreciation 2,000 2,000 2,000 6,000 Advertising 500 550 600 1,650 Other 3,000 3,500 4,000 10,500 Budgeted S & A Expense $ 13,500 $ 15,050 $ 16,600 $ 45,150 Air Ducts, Inc.Purchases BudgetFor the Quarter Ended
June 30AprilMayJuneTotalUnit Sales 500 600 700 1,800 Desired ending inventory 180
210 225 615 Total units needed 680 810 925 2,415 Beginning Inventory 100 180 210 490 Total units to be purchased 580 630 715 1,925 Cost per unit$75 $75 $80 Cost of purchases$43,500 $47,250 $57,200 $147,950 Selling and administrative expenses are paid in the
month incurred and purchases are paid in the month following the purchase.
Purchases for March were $40,000. REQUIREDPrepare a
cash payment schedule for the second quarter.8. Net Present ValueSharon
Bullock, the owner of Sandwich Emporium, wants to purchase a sandwich machine
to make grilled sandwiches to sell to her customers at $5.00 each. The following estimates are available: Initial outlay $17,000 Annual cash flow
$ 5,245 Cost of capital 8% Estimated life of the sandwich
machine 4 years Estimated residual value of the
machine $-0-Required:1. Create a schedule of
the relevant cash flows and then compute the net present value of the sandwich
machine purchase. You may use the Tables in the text, a financial calculator,
or Excel to calculate the PV amounts. 2. In a few sentences,
providing your advice on whether to go ahead with the purchase.”