INTRODUCTORY MGT ACCOUNTING

Problem 1 -

ACCTLQ Corporation has the following budgeted unit sales for the six-month period:

There were 20,000 units of finished goods in inventory at the beginning of February. Plans are to have an inventory of finished products that equal 15% of the unit sales for the next month.

Three pounds of materials are required for each unit produced. Each pound of material costs $6. Inventory levels for materials are equal to 20% of the needs for the next month. Materials inventory on February 1 was 13,000 pounds.

Required:

a. Prepare a production budgets in units for March, April, and May.

b. Prepare a purchases budget for March and April, and give total purchases in both pounds and dollars for each month.

Problem 2 -

Hansenko Company manufactures 100-pound bags of fertilizer that have the following unit standard costs for direct materials and direct labor:

Direct materials (100 lbs. @ $1.00 per lb.) - $100.00

Direct labor (0.5 hours at $24 per hour) - 12.00

Total standard direct cost per 100 lb. bag - $112.00

The following activities were recorded for October:

• 1,000 bags were manufactured.
• 95,000 lbs. of materials costing $76,000 were purchased.
• 102,500 lbs. of materials were used.
• $12,000 was paid for 475 hours of direct labor.

There were no beginning or ending work-in-process inventories.

Required:

a. Compute the direct materials variances.

b. Compute the direct labor variances.

c. Give possible reasons for the occurrence of each of the preceding variances.

Problem 3 -

Mondragon SA assembles its Cardio X product at its Toledo plant. Manufacturing overhead, both variable and fixed, is allocated to each Cardio X unit using budgeted assembly-time hours. Budgeted assembly time per Cardio X product is 2 hours. The budgeted variable manufacturing overhead cost per assembly time hour is $40. The budgeted number of Cardio X units to be assembled in March 2008 is 8,000. Budgeted fixed manufacturing overhead costs are $480,000.

Actual variable manufacturing overhead costs for March 2008 were $610,500 for 7,400 units actually assembled. Actual assembly-time hours were 16,280. Actual fixed manufacturing overhead costs were $503,420.

Required:

a. Calculate variable overhead spending variance and efficiency variance.

b. Calculate fixed overhead spending variance and production-volume variance.

c. Comment on the results in requirement 1 and 2.

Problem 4 -

Raul Technologies is concerned that increased sales did not result in increased profits for 2016. Both variable unit and total fixed manufacturing costs for 2015 and 2016 remained constant at $35 and $4,000,000, respectively.

In 2015, the company produced 160,000 units and sold 120,000 units at a price of $90.00 per unit. There was no beginning inventory in 2015. In 2016, the company made 70,000 units and sold 110,000 units at a price of $90.00. Selling and administrative expenses were all fixed at $350,000 each year.

Required:

a. Prepare income statements for each year using absorption costing.

b. Prepare income statements for each year using variable costing.

c. Explain why the income was different each year using the two methods. Show computations.

Problem 5 -

Pat, a Pizzeria manager, replaced the convection oven just six months ago. Today, Turbo Ovens Manufacturing announced the availability of a new convection oven that cooks more quickly with lower operating expenses. Pat is considering the purchase of this faster, lower-operating cost convection oven to replace the existing one they recently purchased. Selected information about the two ovens is given below:

Required:

a. Identify and name the sunk costs.

b. Identify and state the relevant costs.

c. Calculate the net cash flows over the next 5 years assuming Pizzeria purchases the new convection oven.

d. Besides considering the net cash flows, state and explain other items or issues that Pat, manager of Pizzeria, may consider when making the decision.