Activity One $(1)$

For the past $5$ years, Garner Company has had a policy of producing to meet customer demand. As a result, finished goods inventory is minimal, and for the most part, units produced equal units sold.

Recently, Garner$$s industry entered a recession, and the company is producing well below capacity $($and expects to continue doing so for the coming year$).$ The president is willing to accept orders that at least cover its variable costs so that the company can keep its employees and avoid layoffs. Also, any orders above variable costs will increase overall profitability of the company. Toward that end, the president of Garner Company implemented a policy that any special orders will be accepted if they cover the costs that the orders cause.

To help implement the

Direct Materials Usage $=$ $$94$X R$2=0\mathrm{.}90$

Direct Labor Usage $=$ $$16$X R$2=0\mathrm{.}92$

Overhead $=$ $$350,000+$ $$80$X R$2=0\mathrm{.}56$

Selling Costs $=$ $$50,000+$ $$7$X R$2=0\mathrm{.}86$

where X $=$ Direct Labor Hours.

R$2=$ Coefficient of Determination

Required:

Compute the total unit variable cost. Suppose that Garner has an opportunity to accept an order for $20,000$ units at $$212$ per unit. Each unit uses $1$ direct labor hour for production. Should Garner accept the order? $($The order would not displace any of Garner$$s regular orders.$)$

Explain the significance of the coefficient of determination measures for the cost formulas. Did these measures have a bearing on your answer in Requirement $1?$ Should they have a bearing? Why?

Suppose that a multiple regression equation is developed for overhead costs: Y $=$ $$100,000+$ $$85$X$1+$ $$5,000$X$2+$ $$300$X$3,$ where X$1=$ Direct Labor Hours, X$2=$ Number of Setups, and X$3=$ Engineering Hours. The coefficient of determination for the equation is $0\mathrm{.}89.$ Assume that the order of $20,000$ units requires $12$ setups and $600$ engineering hours. Given this new information, should the company accept the special order referred to in Requirement $1?$ Is there any other information about cost behavior that you would like to have? Explain.

Activity Two $(2)$

The following transactions occurred during the month of April for Nelson Company:

Purchased materials costing $$4,610$ on account.

Requisitioned materials totaling $$4,800$ for use in production, $$3,170$ for Job $518$ and the remainder for Job $519.$

Recorded $65$ hours of direct labor on Job $518$ and $90$ hours on Job $519$ for the month. Direct laborers are paid at the rate of $$14$ per hour.

Applied overhead using a plantwide rate of $$6\mathrm{.}20$ per direct labor hour.

Incurred and paid in cash actual overhead for the month of $$973.$

Completed and transferred Job $518$ to Finished Goods.

Sold on account Job $517,$ which had been completed and transferred to Finished Goods in March, for cost $($$$2,770)$ plus $25\%.$

Required:

Prepare journal entries for Transactions a through e$.$

Prepare job$-$order cost sheets for Jobs $518$ and $519.$ Prepare journal entries for Transactions f and g$.($Note: Round to the nearest dollar.$)$

Prepare a schedule of cost of goods manufactured for April. Assume that the beginning balance in the raw materials account was $$1,025$ and that the beginning balance in the work$-$in$-$process account was zero.

Submit your answers in a Word document.