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Acc102 Principles of Managerial Accounting
1. The following information is available regarding the total manufacturing overhead costs of Paymore, Inc., for five months in2010:
Machine Hours Mfg Overhead Cost
February 6900 $6250
March 5000 $5375
April 6300 $6025
May 9333 $7975
June 6833 $6050
(a) Using the high-low method, compute the following:
(1) The variable element of overhead cost per machine-hour:
$____________________ per machine-hour
(2) The fixed element of monthly overhead cost:$__________________
(b) Use the cost relationship determined in part a to estimate the total manufacturing overhead costs for July 2010, given that 7,250machine-hours are scheduled. $___________________
2. Portable Enterprises produces two lines of mobile homes: double-wide and single-wide. Unit cost and revenue data pertaining to each product are shown below:
Selling price $70,000 $40,000
Total Variable costs 45,000 20,000
Each double-wide home requires 350 different labor hours and 125 machine hours. Each single-wide home requires 175 direct labor hours and 150 machine hours. Demand for each line of homes far exceeds the company’s total production capacity.
Labor Hours Machine Hours
Double-wide home 350 125
Single-wide home 175 150
(a) If Portable’s production capacity is constrained by limited direct labor hours, which line of homes should it produce?
(b) If Portable’s total production capacity is constrained by machine hours, which line of homes should it produce?
3. Shown below is the current monthly income statement of Metro Video, by profit centers:
Income Statement by Profit Centers
For the Month Ended April 30, 20__
Metro Video Segments
Equipment Sales Video Rentals
Dollars % Dollars % Dollars %
Sales 560,000 100% 280,000 100% 280,000 100%
Variable costs (268,800) -48% (198,800) -71% (70,000) -25%
Contribution margin 291,200 52% 81,200 29% 210,000 75%
Fixed costs traceable to departments (67,200) -12% (25,200) -9% (42,000) -15%
Departments responsibility margins 224,000 40% $56,000 0% $168,000 60%
Common fixed costs (61,600) -11%
Income from operations $162,400 29%
On the basis of this information, compute the increase in monthly income from operations that may be expected to result from each of the following actions:
(a) Spending $5,000 per month in advertising is expected to increase sales in the Equipment Sales Department by 35%.
(b) Closing the Equipment Sales Department and allowing the Video Rentals Department to expand is expected to increase the revenue of the Video Rentals Department by $105,000 per month. This action also is expected to increase fixed costs traceable to the Video Rentals Department by $40,000 per month.
4. Assume the following data for John Company’s August operations.
Standard overhead per direct labor hour based on normal monthly capacity of 30,000 hours:
Fixed( $270,000/30,000 hours) $9
Variable ($660,000/30,000 hours) 22 $31
Direct labor hours actually worked in August $28,000 hours
Actual overhead cost incurred ( including $270,000
fixed costs) $824,000
(a) Compute the amount of overhead applied to Work-in-Process during August. $_______________
(b) Compute the total manufacturing overhead budgeted based on hours worked during August. $_______________
(c) Compute the overhead spending variance for August. Indicate whether favorable (F) or unfavorable (U). $_______________
(d) Compute the overhead volume variance for August. Indicate whether favorable (F) or unfavorable (U). $_______________
5. Mason Co. Is evaluating two alternative investment proposals. Below are data for each proposal:
Proposal A Proposal B
Initial investment cost………………………. $84,000 $96,000
Estimated useful life………………………….. .. 5 years 6 years
Estimated salvage value……………………….. $4,000 -0-
Estimated annual net income………………. $8,200 $8,000
The following information was taken from present value tables:
$1 due in 5 years , discounted at 12% ………………. .567
$1 due in 6 years , discounted at 12% ………………. .507
$1 received annually for 5 years , discounted at 12% …………3.605
$1 received annually for 5 years , discounted at 12% …………4.111
All revenue and expenses other than depreciation will be received and paid in cash. The company uses a discount rate of 12% in evaluating all capital investments.
Compute the following for each proposal (round payback period to the nearest tenth of a year and round return on average investment to the nearest tenth of a percent):
Proposal A Proposal B
(a) Annual net cash flow: $ $
(b) Payback period (in years):
(c) Average investment: $ $
(d) Return on average investment % %
(e) Net present value: $ $
(f) Based on your analysis, which proposal appears to be the best investment?