Problem 1 - Case Hardware sells tiling grout among other products. their 2017 grout merchandise sales is as follows:
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Kilograms produced and sold
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625,000 kg
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Sales revenue
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$4,960,000
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Variable manufacturing expense
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2,325,000
|
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Fixed manufacturing expense
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1,308,000
|
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Variable selling and administrative expense
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356,000
|
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Fixed selling and administrative expense
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412,000
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Net operating income
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$559,000
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Due to storage limitations, Case Hardware's annual storage and sales capacity is 700,000 kg.
Required
A. Using the given information, prepare an Income Statement in the Contribution Margin format.
B. Compute:
a. Sales at break-even, kg and sales $s.
b. Operating leverage.
c. Sales required to achieve a $750,000 net operating income.
C. Prepare a revised Contribution Margin Income Statement assuming that Case Hardware'sgrout sales increases by 10% (based on volume),
D. Suppose, in 2018, a customer offered to pay $6.00 per kg for a special order of 70,000 kg, should Case Hardware accept or reject the offer. In reaching your answer, assume the company has already committed to sell 675,000 kg of grout for the year. (Please explain your answer)
Problem 2 - O'Neil's Manufacturing, Inc. produces and sells plumbingfixtures. The company is preparing its 2019 manufacturing cost plan, which requires an analysis of the allocation of its indirect costs.
For that analysis, assume the company has two categories of indirect costs - maintenance and inspection. Estimated maintenance and inspection costs for 2019 are:
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Maintenance
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$800,000
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Inspection
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400,000
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Total
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$1,200,000
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Additionally, O'Neil's is bidding to supply fixtures for a proposed construction project - Job AA. For proposed Job AA, the company hasmade the following cost and activity estimates:
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Direct materials
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$6,000
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Direct labor
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$16,000
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Machine-hours
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400
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Number of inspections
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4
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Direct labor-hours
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800
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Of course, at present, the estimate lacks the allocation of indirect costs - maintenance and inspection.
For the 2019 plan, Frank Bock, the budgeting director, estimates that they will incur 56,470 direct labor hours, 25,000 machine hours and they will conduct 800 inspections.
Required
A. Using Direct Labor hours to allocate the indirect costs (called the "traditional method" of indirect cost allocation), estimate the total cost for proposed Job AA.
B. Using machine hours to allocate maintenance cost and number of inspections to allocate inspection cost (called the "activity-based" indirect cost allocation method), estimate the total cost for proposed Job AA.
C. For estimating the bid for Job AA, what was the effect of changing from the traditional method to the activity-based cost method?
D. Discuss the advantages and challenges of using an activity-based costing approach.
E. Under what circumstances might the activity-based costing approach provide information that is not significantly different from the traditional method.
Problem 3 - ShowBoat Corporation makes small sail boats that are sold to marine supply stores throughout the southeastern U.S. Recently, Joe Flynn, Sales Director, received a special order from a large boat retailer. The retail company offered to purchase 1,000 boats at a price of $125 per boat. The largest order that ShowBoat has ever filled was for 50 boats, so this would be a significant order for the company.
In consideration of the order, Joe Flynn obtained the following information from the company's cost accounting department:
Description
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|
|
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Planned sales for year (assuming 5,500 units sold)
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$880,000
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Less: Expected Cost of Goods Sold
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|
|
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Variable costs:
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|
|
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Direct material costs
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$275,000
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|
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Direct labor costs
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302,500
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|
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Other variable production costs
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55,000
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(632,500)
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|
Fixed production costs:
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|
|
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Depreciation of factory building
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40,000
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|
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Depreciation of machinery and equipment
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25,000
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|
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Supervisory salaries
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17,500
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(82,500)
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Gross margin
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$165,000
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Required -
A. Prepare a schedule comparing the relevant revenue and costs associated with the special order.
B. Given the analysis provided in step 1, would you accept the special order?
C. If ShowBoat was operating at full production capacity before accepting the order, what might be the implications of that circumstance on your answer in step 2 above?
D. What qualitative/business-related factors should be considered when making the final decision?
E. Why don't companies, like ShowBoat, examine every order using the relevant cost framework?
Problem 4- Rosewood Guitar, Inc. is preparing it cash receipts schedule for the 1st quarter ending 20x1. In doing so, its budget director prepared the following budgeted sales schedule:
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Rosewood Guitar Company
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Sales Budget
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For the Quarter Ending March 31, 20x1
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January
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February
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March
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Budgeted sales
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$220,000
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$240,000
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$260,000
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Addition Information:
Sales for the prior November and December 200x0 were $180,000 and $200,000, respectively.
20% of sales are for cash, the remaining 80% are credit sales.
-Credit sales are collected as follows:
- 10% in the month of sale
- 60% in the month following the sale, and the remaining
- 30% in the second month following the sale.
There are no uncollectible accounts receivable.
Required - Prepare a cash receipts schedule for the first quarter of 20x1.(Please show your detailed schedule)