INTRODUCTORY MANAGEMENT ACCOUNTING ASSIGNMENT

Question 1 -

For 2016, QE, Inc., expects to sell 6,000 ceramic vases for $20 each. Advertising expense and marketing expense are estimated to be $8,000 and $4,000, respectively. The manufacturing costs per vase are predicted to include direct materials costs of $2, direct manufacturing labor of $10, and manufacturing overhead of $3. The company fully utilizes its capacity in 2016. The following inventory levels apply to 2016:

Required:

a. On the 2016 budgeted income statement, what amount will be reported for sales?

b. On the 2016 budgeted income statement, what amount will be reported for cost of goods sold?

c. How many ceramic vases should be produced in 2016?

d. What are the 2016 budgeted production costs for direct materials, direct manufacturing labor, and manufacturing overhead, respectively?

Question 2 -

Littrell Company produces chairs and has determined the following direct cost categories and budgeted amounts:

Actual performance for the company is shown below:

Actual output: (in units)                - 4,000

Direct Materials:

• Materials costs - $30,225
• Input purchased and used - 3,900
• Actual price per input - $7.75

Direct Manufacturing Labor:

• Labor costs - $11,470
• Labor-hours of input - 1,240
• Actual price per hour - $9.25

Direct Marketing Labor:

• Labor costs - $5,880
• Labor-hours of input - 2,100
• Actual price per hour - $2.80

Required:

a. What is the combined total of the flexible-budget variances for direct costs?

b. Calculate price variance for

i) direct materials

ii) direct manufacturing labor

iii) direct marketing labor

c. Calculate efficiency variance for

i) direct materials

ii) direct manufacturing labor

iii) direct marketing labor

Question 3 -

Different management levels in WHIV1Y, Inc., require varying degrees of managerial accounting information. Because of the need to comply with the managers' requests, four different variances for manufacturing overhead are computed each month. The information for the April overhead expenditures is as follows:

Budgeted output units - 3,200 units

Budgeted fixed manufacturing overhead - $20,000

Budgeted variable manufacturing overhead - $5 per direct labor hour

Budgeted direct manufacturing labor hours - 2 hours per unit

Fixed manufacturing costs incurred - $26,000

Direct manufacturing labor hours used - 7,200 hours

Variable manufacturing costs incurred - $35,600

Actual units manufactured - 3,400 units

Allocation base of fixed manufacturing costs -  direct labor hour

 Required:

a. Compute a 4-variance analysis for the plant controller.

b. Compute a 3-variance analysis for the plant manager.

c. Compute a 2-variance analysis for the corporate controller.

d. Compute the flexible-budget variance for the manufacturing vice president.

Question 4 -

The following data are available for Brennan Soft Toys Company for the year ended September 30, 2015. The company uses production unit as allocation base for indirect costs and fully utilizes its capacity in 2015.

Sales: 24,000 units at $50 each

Expected and actual production: 30,000 units

Manufacturing costs incurred:

Variable: $525,000

Fixed (all indirect): $372,000

 Nonmanufacturing costs incurred:

Variable: $144,800

Fixed (all indirect): $77,400

Beginning inventories: none

Required:

a. Determine operating income using the variable-costing approach.

b. Determine operating income using the absorption-costing approach.

c. Explain why operating income is not the same under the two approaches.

Question 5 -

The Strubel Company currently makes Part No. 789 for producing product A. At the end of 2015, the management of Strubel Company predicts that product A will continue being produced in the coming three years. All units of product A produced in one year will be sold in that year. David Lin, general manager of the Strubel Company, has received a bid from the Gabriella Company for supplying Part No. 789. Current plans call for Gabriella Company to supply 1,000 units of Part No. 789 per year at $50 a unit. Gabriella Company can begin supplying on January 1, 2016, and continue for three years. After three years, Strubel Company will not need Part No. 789 anymore because product A will retire from the market completely. Gabriella Company can accommodate any change in Strubel Company's demand for the part and will supply it for $50 a unit, re¬gardless of quantity required and the change made.

Jack Ng, controller of the Strubel Company, reports the following annual costs for manufacturing 1,000 units of Part No. 789:

The following additional information is available:

a. Direct materials are purchased on an as-needed basis.

b. If Part No. 789 is outsourced, workers who work on Part No. 789 can be laid off immediately without any compensation pay.

c. Part No. 789 is made on a machine used exclusively for the manufacture of Part No. 789. The machine was acquired on January 1, 2015, at a cost of $40,000. The machine has a useful life of four years and $0 terminal disposal value. Depreciation is calculated using the straight-line method. The disposal price for the machine on January 1, 2016 is $25,000.

d. Product and process engineering costs are incurred to ensure that the manufacturing process for Part No. 789 works smoothly. Although these costs are fixed in one year period with respect to units of Part No. 789 produced, they can be saved if Part No. 789 is outsourced.

e. Rent costs of $2,000 are allocated to Part No. 789 on the basis of the floor space used for manufacturing the part. If Part No. 789 is discontinued, the space currently used to manufacture it would become available. The company could then use the space for storage and save $1,000 per year currently paid for outside storage.

f. Genera] plant overhead costs are allocated to each department on the basis of direct manufacturing labor dollars. These costs will not change in total, but no general plant overhead will be allocated to Part No. 789 if the part is outsourced. For simplicity, assume the original general plant overhead absorbed by Part No. 789 will still be part of cost of product A.

Assume tax effect and time value of money are ignored.

Required:

1. Should Strubel Company outsource Part No. 789?

2. Briefly list the other three factors that David Lin should consider in choosing between the alternatives.