Miller Toy Company manufactures a plastic swimming pool at its Westwood Plant.

Miller Toy Company manufactures a plastic swimming pool at its Westwood Plant. The plant has been experiencing problems as shown by its June contribution format income statement below:

Janet Dunn, who has just been appointed general manager of the Westwood Plant, has been given instructions to “get things under control.” Upon reviewing the plant’s income statement, Ms. Dunn has concluded that the major problem lies in the variable cost of goods sold. She has been provided with the following standard cost per swimming pool:

During June the plant produced 15,000 pools and incurred the following costs:

a. Purchased 60,000 pounds of materials at a cost of $4.95 per pound.

b. Used 49,200 pounds of materials in production. (Finished goods and work in process inventories are insignificant and can be ignored.)

c. Worked 11,800 direct labor-hours at a cost of $17.00 per hour.

d. Incurred variable manufacturing overhead cost totaling $18,290 for the month. A total of 5,900 machine-hours was recorded. It is the company’s policy to close all variances to cost of goods sold on a monthly basis.

Required:

1. Compute the following variances for June:

a. Materials price and quantity variances.

b. Labor rate and efficiency variances.

c. Variable overhead rate and efficiency variances.

2. Summarize the variances that you computed in (1) above by showing the net overall favorable or unfavorable variance for the month. What impact did this figure have on the company’s income statement? Show computations.

3. Pick out the two most significant variances that you computed in (1) above. Explain to Ms. Dunn possible causes of these variances.

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Korvanis Corporation operates a Medical Services Department for its employees. Charges to

Korvanis Corporation operates a Medical Services Department for its employees. Charges to the company’s operating departments for the variable costs of the Medical Services Department are based on the actual number of employees in each department. Charges for the fixed costs of the Medical Services Department are based on the long-run average number of employees in each operating department.

Variable Medical Services Department costs are budgeted at $80 per employee. Fixed Medical Services Department costs are budgeted at $400,000 per year. Actual Medical Services Department costs for the most recent year were $41,000 for variable costs and $408,000 for fixed costs. Data concerning employees in the three operating departments follow:

Required:

1. Determine the Medical Services Department charges for the year to each of the operating departments—Cutting, Milling, and Assembly.

2. How much, if any, of the actual Medical Services Department costs for the year should be treated as a spending variance and not charged to the operating departments?

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“I know headquarters wants us to add that new product line,” said

“I know headquarters wants us to add that new product line,” said Dell Havasi, manager of Billings Company’s Office Products Division. “But I want to see the numbers before I make any move. Our division’s return on investment (ROI) has led the company for three years, and I don’t want any letdown.”

Billings Company is a decentralized wholesaler with five autonomous divisions. The divisions are evaluated on the basis of ROI, with year-end bonuses given to the divisional managers who have the highest ROIs. Operating results for the company’s Office Products Division for this year are given below:

Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  $ 10,000,000
Variable expenses . . . . . . . . . . . . . . . . . . . . . . .      6,000,000
Contribution margin . . . . . . . . . . . . . . . . . . . . .      4,000,000
Fixed expenses . . . . . . . . . . . . . . . . . . . . . . . . .       3,200,000
Net operating income . . . . . . . . . . . . . . . . . . .       $ 800,000
Divisional average operating assets . . . . . . .     $4,000,000

The company had an overall return on investment (ROI) of 15% this year (considering all divisions). Next year the Office Products Division has an opportunity to add a new product line that would require an additional investment that would increase average operating assets by $1,000,000. The cost and revenue characteristics of the new product line per year would be:

Sales . . . . . . . . . . . . . . . . . . . . . . . .    $2,000,000
Variable expenses . . . . . . . . . . . .  60% of sales
Fixed expenses . . . . . . . . . . . . . . .      $640,000

Required:

1. Compute the Office Products Division’s margin, turnover, and ROI for this year.

2. Compute the Office Products Division’s margin, turnover, and ROI for the new product line by itself.

3. Compute the Office Products Division’s margin, turnover, and ROI for next year assuming that it performs the same as this year and adds the new product line.

4. If you were in Dell Havasi’s position, would you accept or reject the new product line? Explain.

5. Why do you suppose headquarters is anxious for the Office Products Division to add the new product line?

6. Suppose that the company’s minimum required rate of return on operating assets is 12% and that performance is evaluated using residual income.

a. Compute the Office Products Division’s residual income for this year.

b. Compute the Office Products Division’s residual income for the new product line by itself.

c. Compute the Office Products Division’s residual income for next year assuming that it performs the same as this year and adds the new product line.

d. Using the residual income approach, if you were in Dell Havasi’s position, would you accept or reject the new product line? Explain.

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Alpha and Beta are divisions within the same company. The managers of

Alpha and Beta are divisions within the same company. The managers of both divisions are evaluated based on their own division’s return on investment (ROI). Assume the following information relative to the two divisions:

Required:

1. Refer to case 1 shown above. Alpha Division can avoid $2 per unit in commissions on any sales to Beta Division.

a. What is Alpha Divisions’s lowest acceptable transfer price?

b. What is Beta Division’s highest acceptable transfer price?

c. What is the range of acceptable transfer prices (if any) between the two divisions? Will the managers probably agree to a transfer? Explain.

2. Refer to case 2 shown above. A study indicates that Alpha Division can avoid $5 per unit in shipping costs on any sales to Beta Division.

a. What is Alpha Divisions’s lowest acceptable transfer price?

b. What is Beta Division’s highest acceptable transfer price?

c. What is the range of acceptable transfer prices (if any) between the two divisions? Would you expect any disagreement between the two divisional managers over what the exact transfer price should be? Explain.

d. Assume Alpha Division offers to sell 30,000 units to Beta Division for $88 per unit and that Beta Division refuses this price. What will be the loss in potential profits for the company as a whole?

3. Refer to case 3 shown above. Assume that Beta Division is now receiving an 8% price discount from the outside supplier.

a. What is Alpha Divisions’s lowest acceptable transfer price?

b. What is Beta Division’s highest acceptable transfer price?

c. What is the range of acceptable transfer prices (if any) between the two divisions? Will the managers probably agree to a transfer? Explain

d. Assume Beta Division offers to purchase 20,000 units from Alpha Division at $60 per unit. If Alpha Division accepts this price, would you expect its ROI to increase, decrease, or remain unchanged? Why?

4. Refer to case 4 shown above. Assume that Beta Division wants Alpha Division to provide it with 120,000 units of a different product from the one Alpha Division is producing now. The new product would require $21 per unit in variable costs and would require that Alpha Division cut back production of its present product by 45,000 units annually. What is Alpha Division’s lowest acceptable transfer price?

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Baird Company makes classic Polish sausage. The company uses a standard cost

Baird Company makes classic Polish sausage. The company uses a standard cost system to help control costs. Manufacturing overhead is applied to production on the basis of standard direct labor-hours. According to the company’s planning budget, the following manufacturing overhead costs should be incurred at an activity level of 35,000 labor-hours (the denominator activity level):

Variable manufacturing overhead cost . . . . . . . $ 87,500
Fixed manufacturing overhead cost . . . . . . . . .   210,000
Total manufacturing overhead cost . . . . . . . . .  $297,500

During the most recent year, the following operating results were recorded:

Activity:

Actual labor-hours worked . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,000
Standard labor-hours allowed for the actual output . . . . . . .  32,000
Cost:
Actual variable manufacturing overhead cost incurred . . . . $78,000
Actual fixed manufacturing overhead cost incurred . . . . .  $209,400

At the end of the year, the company’s Manufacturing Overhead account contained the following data:

Management would like to determine the cause of the $15,400 underapplied overhead.

Required:

1. Compute the predetermined overhead rate. Break the rate down into variable and fixed cost elements.

2. Show how the $272,000 Applied figure in the Manufacturing Overhead account was computed.

3. Breakdown the $15,400 underapplied overhead into four components: (1) variable overhead rate variance, (2) variable overhead efficiency variance, (3) fixed overhead budget variance, and (4) fixed overhead volume variance.

4. Explain the meaning of each variance that you computed in (3) above.

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Marvel Parts, Inc., manufactures auto accessories. One of the company’s products is

Marvel Parts, Inc., manufactures auto accessories. One of the company’s products is a set of seat covers that can be adjusted to fit nearly any small car. The company uses a standard cost system for all of its products. According to the standards that have been set for the seat covers, the factory should work 2,850 hours each month to produce 1,900 sets of covers. The standard costs associated with this level of production are:

During August, the factory worked only 2,800 direct labor-hours and produced 2,000 sets of covers. The following actual costs were recorded during the month:

At standard, each set of covers should require 5.6 yards of material. All of the materials purchased during the month were used in production.

Required:

Compute the following variances for August:

1. The materials price and quantity variances.

2. The labor rate and efficiency variances.

3. The variable overhead rate and efficiency variances.

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Koontz Company manufactures a number of products. The standards relating to one

Koontz Company manufactures a number of products. The standards relating to one of these products are shown below, along with actual cost data for May.

The production superintendent was pleased when he saw this report and commented:

“This $0.08 excess cost is well within the 2% limit management has set for acceptable variances. It’s obvious that there’s not much to worry about with this product.” Actual production for the month was 12,000 units. Variable overhead cost is assigned to products on the basis of direct labor-hours. There were no beginning or ending inventories of materials.

Required:

1. Compute the following variances for May:

a. Materials price and quantity variances.

b. Labor rate and efficiency variances.

c. Variable overhead rate and efficiency variances.

2. How much of the $0.08 excess unit cost is traceable to each of the variances computed in (1) above.

3. How much of the $0.08 excess unit cost is traceable to apparent inefficient use of labor time?

4. Do you agree that the excess unit cost is not of concern?

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Becton Labs, Inc., produces various chemical compounds for industrial use. One compound,

Becton Labs, Inc., produces various chemical compounds for industrial use. One compound, called Fludex, is prepared using an elaborate distilling process. The company has developed standard costs for one unit of Fludex, as follows:

During November, the following activity was recorded related to the production of Fludex:

a. Materials purchased, 12,000 ounces at a cost of $225,000.

b. There was no beginning inventory of materials; however, at the end of the month, 2,500 ounces of material remained in ending inventory.

c. The company employs 35 lab technicians to work on the production of Fludex. During November, they each worked an average of 160 hours at an average pay rate of $22 per hour.

d. Variable manufacturing overhead is assigned to Fludex on the basis of direct labor-hours. Variable manufacturing overhead costs during November totaled $18,200.

e. During November, the company produced 3,750 units of Fludex.

Required:

1. For direct materials:

a. Compute the price and quantity variances.

b. The materials were purchased from a new supplier who is anxious to enter into a long-term purchase contract. Would you recommend that the company sign the contract? Explain.

2. For direct labor:

a. Compute the rate and efficiency variances.

b. In the past, the 35 technicians employed in the production of Fludex consisted of 20 senior technicians and 15 assistants. During November, the company experimented with fewer senior technicians and more assistants in order to reduce labor costs. Would you recommend that the new labor mix be continued? Explain.

3. Compute the variable overhead rate and efficiency variances. What relation can you see between this efficiency variance and the labor efficiency variance?

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Down Under Products, Ltd., of Australia has budgeted sales of its popular

Down Under Products, Ltd., of Australia has budgeted sales of its popular boomerang for the next four months as follows:

                                    Unit Sales

April . . . . . . . . . . . . . . . . 50,000
May . . . . . . . . . . . . . . . .  75,000
June . . . . . . . . . . . . . . .   90,000
July . . . . . . . . . . . . . . . .  80,000

The company is now in the process of preparing a production budget for the second quarter. Past experience has shown that end-of-month inventory levels must equal 10% of the following month’s unit sales. The inventory at the end of March was 5,000 units.

Required:

Using Schedule 2 as your guide, prepare a production budget by month and in total, for the second quarter.

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Deacon Company is a merchandising company that is preparing a budget for

Deacon Company is a merchandising company that is preparing a budget for the three-month period ended June 30. The following information is available:

Deacon Company
Balance Sheet
March 31
Assets
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    $ 55,000
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       36,000
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      40,000
Buildings and equipment, net of depreciation . . . . . . . . . . .     100,000
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 231,000
Liabilities and Stockholders’ Equity
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   $ 51,300
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      70,000
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     109,700
Total liabilities and stockholders’ equity . . . . . . . . . . . . . . . . . $ 231,000

Budgeting Assumptions:

1. Sixty percent of sales are cash sales and 40% of sales are credit sales. Twenty percent of all credit sales are collected in the month of sale and the remaining 80% are collected in the month subsequent to the sale.

2. Budgeted sales for July are $140,000.

3. 10% of merchandise inventory purchases are paid in cash at the time of the purchase. The remaining 90% of purchases are credit purchases. All purchases on credit are paid in the month subsequent to the purchase.

4. Each month’s ending merchandise inventory should equal $10,000 plus 50% of the next month’s cost of goods sold.

5. Depreciation expense is $1,000 per month. All other selling and administrative expenses are paid in full in the month the expense is incurred.

Required:

1. Calculate the expected cash collections for April, May, and June.

2. Calculate the budgeted merchandise purchases for April, May, and June.

3. Calculate the expected cash disbursements for merchandise purchases for April, May, and June.

4. Prepare a budgeted balance sheet at June 30.

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  1. Click on the “Order Now” tab at the top menu or “GET A FREE QUOTE” icon at the bottom and a new page will appear with an order form to be filled
  2. Fill in the initial requirements in the small order form located on the home page and press “continue” button to proceed to the main order form or press “order” button in the header menu. Starting from there let our system intuitively guide you through all steps of ordering process. Submit detailed paper instructions, upload necessary files if needed and provide your contact information – you are almost done!
  3. Proceed with the payment- click on “PROCEED TO CHECKOUT” at the bottom of the page. From there, the payment sections will show, follow the guided payment process and your order will be available for our writing team to work on it. All your payments are processed securely through PayPal. This enables us to guarantee a 100% security of your funds and process payments swiftly.
  4. Delivery- Once finished, your final paper will be available for download through your personal dashboard. You will also receive an email notification with a copy of your paper attached to it.