Exam 3B Acct 5311 LS 2015 Instructions (Read the

Exam 3B Acct 5311 LS 2015 Instructions (Read the

Exam 3BAcct5311LS2015
Instructions(Read the instructions carefully before you start.Follow them carefully so you do not lose points for carelessness.):
You may use your book, anycontent on the course site in Blackboard, and your solutions to theassigned homework to help you complete the exam. You may not use any otherwritten source. Nor may you get help from any person except Dr. Martindale.Do not discuss the exam with anyother person until after grades are posted.Readeach question carefully before you try to work it.Create your solutions in a filethat can be sent as an email attachment. Use either Word or Excel. Pleasecreate only one file. If you use Excel, you may use multiple worksheetswithin the workbook.Put your name on your paper, notjust on the file name. I print your file before I grade it so youâ€ll wantme to know whose work it is when I assign the grade.Do not include the questionsin your solution file. (I will subtract points if you do.)There is not a time limit, but yoursolution must be sent by 11:59 p.m. on August 5. Late submissions will notbe accepted.Use “Exam 3B” as thesubject line on your email.
Please include the following statement onyour exam:
“Ihave followed the DBU Honor Pledge while completing this assignment.”
I’ll be praying for you as you work.
I. Cost identificationSidFreeman has developed a new electronic device that he has decided to produceand market. The production facility will be in a nearby industrial park. Hewill use his personal computer, which he purchased for $3,000 last year, tomonitor the production process. The computer will become obsolete before itwears out from use. The computer will bedepreciated at the rate of $100 per month. Sid’s other monthly costs will be:Facility rent $4,000Utilities 500Production Equipmentrent 8,000Materials cost 2,550Labor cost 15,000Advertising 2,000In orderto enter this new business, Sid will quit his current job, which pays him$4,500 per month.
Required:Copy and complete the chart below byplacing an “X” under each heading that identifies the costinvolved. An “X” may be placedunder more than one heading for a single cost; e.g., a cost might be a variablecost 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
Facilityrent
Utilities
Computercost
Computerdepreciation
Equipmentrent
Materialcost
Laborcost
Advertising
Present salary
2. Contribution Margin
Premier Train Travel presents the followinginformation for one month:
Sales price is $100 per passenger
Fixed costs:Marketing and admin $2,000Overhead $1,000
Variable costs:Marketing and admin $ 5per passengerOverhead $10per passengerDirect labor $15per passengerDirect materials $20 per passenger
Estimated number ofpassengers – 150
Required: Treat each question as independentof 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. Ifthe number of passengers doubles, what would be the effect on contributionmargin?
c. Ifdirect labor costs decreased by 10%, what would be the effect on contributionmargin?
d.What impact would a 10% decrease in direct labor costs have on thenumber of passengers needed to retain the current profit?
3.CVPAnalysis
Teddy’s Toy Company expects its sales andvariable 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 $12,600Fixedcosts will be $10,000 each month.
Required: Answer the following independentquestions (i.e., for eachquestion, start with the original information.)
a. What is the expected breakeven pointduring each of these months?
b. Ifthe current selling price of $5 is increased by 20% in May, what will thecontribution margin ratio be for May,the next month?
c. Ifthe selling price of $5 is increased by 15% in May, what will the breakeven point need to be?
d. Iffixed 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. Iffixed costs increased by $5,000, what would sales price per unit need to be tokeep 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 ofmost 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 icemakers is as follows:
Directmaterials $30.00Directlabor 10.00Variablemanufacturing overhead 5.00Fixedmanufacturing overhead 20.00Total $75.00
It appearsthat purchasing the icemakers is to the companyâ€s benefit. Management askedyou, the accountant, for a more in depth schedule.
REQUIRED:a.Prepare a schedule that shows the relevantcosts and determine whether Refrigerators, Inc. should buy the ice makers fromFreeze-It, Inc. or continue to make them, if 25% of the fixed cost is directlyrelated to the production of the ice makers.b.Give quantitative and qualitative reasons onwhy to accept or reject Freeze-Its proposal.
5. Decision Analysis – Special Order:
Larissaâ€sCopy Center makes copies and performs a variety of other services for localbusinesses and walk-inâ€s. James Johnsonis running for councilman and his campaign manager asked if Larissaâ€s CopyCenter can put together 50,000 flyers on colored paper by the next day for $.50a flyer. Larissaâ€s manager at firstthought absolutely not because it would interfere with their regular workloadand with the walk-in business and they wouldnâ€t make any money at thatprice. But Larissa decided to look atthe numbers before turning the job down.She felt that the job could be done after hours and she thinks thatJames Johnson will make a good councilman for their district.
At 15,000copies per day, the cost per unit is as follows:
Direct material $ .10Direct labor .05Variable overhead.10Fixed overhead.25Total $.50
REQUIREDa.)Prepare a schedule that shows the relevantcosts and determine whether Larissaâ€s Copy Center should accept or reject thisspecial order. (Direct labor should becalculated at time and a half since the work will be done after hours.)b.)Are there any qualitative characteristicsthat should be taken into account?
6.Budgeting
Thetreasurer of Logos Co. has accumulated the following budget information for thefirst two months of the coming year:
January FebruarySales $450,000 $520,000Manufacturing costs290,000 350,000Selling & Admin.Expenses 41,400 46,400Capital additions 250,000———–
Thecompany expects to sell about 35% of its merchandise for cash. The remaining sales will be on account. Ofsales on account, 80% are expected to be collected in full in the month of thesale and the remainder in the month following the sale. Of the manufacturingcosts, one-fourth are expected to be paid in the month in which they areincurred. 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 ofthe selling and administrative expenses, one-half are expected to be paid inthe 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. Capitaladditions of $250,000 are to be paid in January.
Currentassets as of January 1 are composed of cash of $45,000 and accounts receivableof $51,000. Current liabilities as of January 1 are composed of accountspayable 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: Usingthis information, prepare a monthly cash budget for Logos Co. for January andFebruary.
7.Budgeting
Air Ducts, Inc. has prepared the following budgets forthe second quarter of the year.
Air Ducts, Inc.
Selling andAdministrative Expense Budget
For the Quarter Ended June30
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 EndedJune 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 themonth incurred and purchases are paid in the month following the purchase.Purchases for March were $40,000.
REQUIREDPrepare acash payment schedule for the second quarter.
8. Net Present Value
SharonBullock, the owner of Sandwich Emporium, wants to purchase a sandwich machineto make grilled sandwiches to sell to her customers at $5.00 each. The following estimates are available:Initial outlay $17,000Annual cash flow$ 5,245Cost of capital 8%Estimated life of the sandwichmachine 4 yearsEstimated residual value of themachine $-0-
Required:
1. Create a schedule ofthe relevant cash flows and then compute the net present value of the sandwichmachine 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.

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