1. Jared Inc. is considering replacing its existing photocopier with a new one. The new system offers considerable operational savings. Information about the existing and new systems is as follows:
|
|
Existing
|
New
|
|
Original cost
|
$12,000
|
$15,000
|
|
Annual operating expenses
|
$3,500
|
$2,500
|
|
Accumulated depreciation to date
|
$7,000
|
0
|
|
Current salvage value
|
$2,000
|
$15,000
|
|
Remaining life
|
5 years
|
5 years
|
|
Salvage value in 5 years
|
$0
|
$5,000
|
|
Annual depreciation expense
|
$1,000
|
$3,000
|
Should Jared Inc. replace the existing photocopier with the new system?
2. Amity Plastic Manufacturing is a small plastic products manufacturer. The company uses machine-hours as the single, plant-wide predetermined cost driver rate to allocate manufacturing support costs to the various jobs contracted during the year. The following estimates are provided for the coming year for the company and for an order for Swift Food Processing Ltd.:
Amity Swift job
Direct materials $40,000 $1,000
Direct labor $10,000 $ 200
Manufacturing support costs $30,000
Machine-hours 100,000 900
What are the total estimated manufacturing costs for the Swift Food job?
3. Steve's Salvage plans to salvage scrap metal and other materials from an old industrial site. The current owners of the site will sell the site to Steve's for $100,000. Steve's intends to extract scrap metal at the site for 24 months. It then will clean up the site, return the land to useable condition, and sell it to a developer. Projected costs are:
|
|
Fixed
|
Variable
|
|
Initial outlay
|
Purchase land
|
$100,000
|
|
|
Months 1-24
|
Metal extraction and processing
|
$5,000 per month
|
$110 per ton
|
|
Months 1-27
|
Rent on temporary buildings
|
$4,000 per month
|
|
|
|
Administration
|
$9,000 per month
|
|
|
Months 25-27
|
Cleanup
|
$27,000 per month
|
|
|
|
Land restoration
|
$1,048,000 total
|
|
Assume Steve's Salvage expects to salvage 40,000 tons of metal from the site, and can sell the metal for $190 per ton. If the company wants to earn a profit of $40 per ton, at what price must it sell the land at the end of the project to achieve its target profit per ton? (Ignore the time value of money.)
4. At the beginning of the year, Acme Corporation initiated a quality improvement program. The program was successful in reducing scrap and rework costs. To help assess the impact of the quality improvement program, the following data were collected for the current and preceding years:
|
|
2012
|
2013
|
2014
|
|
Warranty and repair
|
50,000
|
40,000
|
25,000
|
|
Reliability engineering
|
$10,000
|
$15,000
|
$25,000
|
|
Product acceptance
|
10,000
|
9,000
|
7,000
|
|
Quality training
|
2,000
|
5,000
|
8,000
|
|
Packaging inspections
|
3,000
|
5,000
|
5,000
|
|
Re-inspection
|
65,000
|
48,000
|
29,000
|
|
Customer complaints
|
85,000
|
62,000
|
51,000
|
|
Rework
|
25,000
|
18,000
|
12,000
|
| Sales revenue |
$1,250,000 |
$1,262,500 |
$1,350,000 |
Prepare a trend report that shows total cost for each year for each cost of quality category. What conclusion(s) can be drawn from this?
5. Cancun Company is preparing a flexible budget to determine why operating profit fell below the budgeted amount. Complete the following table and list three possible reasons for the variance between budgeted and actual operating profit.
|
|
Master Budget
|
|
Flexible
budget
|
Actual Results
|
Variance
|
|
Sales volume (in units)
|
20,000
|
|
18,500
|
18,500
|
|
|
Sales Revenue
|
$1,050,000
|
|
|
$972,000
|
|
|
Variable costs
|
500,000
|
|
|
477,000
|
|
|
Contribution margin
|
550,000
|
|
|
495,000
|
|
|
Capacity-related (fixed) costs
|
380,000
|
|
|
385,000
|
|
|
Operating profit
|
$ 170,000
|
|
|
$110,000
|
|