by using excel format

Problem 1

Khan Products Company uses a job order cost system. For a number of months, there has been an ongoing rift between the sales department and the production department concerning a special-order product, TC-1. TC-1 is a seasonal product that is manufactured in batches of 1,000 units. TC-1 is sold at cost plus a markup of 40% of cost.

The sales department is unhappy because fluctuating unit production costs significantly affect selling prices. Sales personnel complain that this has caused excessive customer complaints and the loss of considerable orders for TC-1.

The production department maintains that each job order must be fully costed on the basis of the costs incurred during the period in which the goods are produced. Production personnel maintain that the only real solution is for the sales department to increase sales quantities in the slack periods.

Andrea Parley, president of the company, asks you as the company accountant to collect quarterly data for the past year on TC-1. From the cost accounting system, you accumulate the following production quantity and cost data.

Quarter

Costs 1 2 3 4

Direct materials $100,000 $220,000 $80,000 $200,000

Direct labor 60,000 132,000 48,000 120,000

Manufacturing overhead 105,000 153,000 97,000 125,000

Total $265,000 $505,000 $225,000 $445,000

Production in batches 5 11 4 10

Unit cost (per batch) $53,000 $45,909 $56,250 $44,500

Questions:

1. What manufacturing cost element is responsible for the fluctuating unit costs? Why?
2. What is your recommended solution to the problem of fluctuating unit costs?
3. Restate the quarterly data on the basis of your recommended solution.

Problem 2

In the course of routine checking of all journal entries prior to preparing year-end reports, Betty Eller discovered several strange entries. She recalled that the president's son Joe had come in to help out during an especially busy time and that he had recorded some journal entries. She was relieved that there were only a few of his entries, and even more relieved that he had included rather lengthy explanations. The entries Joe made were:

(1)

Work in Process Inventory 25,000

Cash 25,000

(This is for direct materials put into the process. I don't find the record that we paid for these, so I'm crediting Cash because I know we'll have to pay for them sooner or later.)

(2)

Manufacturing Overhead 12,000

Cash 12,000

(This is for bonuses paid to salespeople. I know they're part of overhead, and I can't find an account called "Non-Factory Overhead" or "Other Overhead" so I'm putting it in Manufacturing Overhead. I have the check stubs, so I know we paid these.)

(3)

Work in Process Inventory 3,000

Raw Materials Inventory 3,000

(This is for the glue used in the factory. I know we used this to make the products, even though we didn't use very much on any one of the products. I got it out of inventory, so I credited an inventory account.)

Questions:

1. How should Joe have recorded each of the three events?
2. If the entry was not corrected, which financial statements (income statement or balance sheet) would be affected? What balances would be overstated or understated? (For events (2) and (3), assume the affected units were completed and sold.)

Problem 3

Florida Beach Company manufactures sunscreen, called NoTan, in 11-ounce plastic bottles. NoTan is sold in a competitive market. As a result, management is very cost-conscious. NoTan is manufactured through two processes: mixing and filling. Materials are added at the beginning of each process, and labor and manufacturing overhead occur uniformly throughout each process. Unit costs are based on the cost per gallon of NoTan using the weighted-average method.

On June 30, 2022, Mary Ritzman, the chief accountant for the past 20 years, opted to take early retirement. Her replacement, Joe Benili, had extensive accounting experience with motels in the area but only limited contact with manufacturing accounting. During July, Joe correctly accumulated the following production quantity and cost data for the Mixing Department.

Production quantities: Work in process, July 1, 8,000 gallons 75% complete as to conversion costs; started into production 100,000 gallons; work in process, July 31, 5,000 gallons 20% complete. All materials are added at the beginning of the process.

Production costs: Beginning work in process $88,000, comprised of $21,000 of materials costs and $67,000 of conversion costs; incurred in July: materials $573,000, conversion costs $765,000.

Joe then prepared a production cost report on the basis of physical units started into production. His report showed a unit manufacturing cost of $14.26 per gallon of NoTan. The management of Florida Beach was surprised at the high unit cost. The president comes to you, as Mary's top assistant, to review Joe's report and prepare a correct report if necessary.

Questions:

A. Show how Joe arrived at the unit manufacturing cost of $14.26 per gallon of NoTan.

B. What error(s) did Joe make in preparing his production cost report?

C. correct production cost report for July.

Problem 4

Palmer Corporation operates on a calendar-year basis. It begins the annual budgeting process in late August when the president establishes targets for the total dollar sales and net income before taxes for the next year.

The sales target is given first to the marketing department. The marketing manager formulates a sales budget by product line in both units and dollars. From this budget, sales quotas by product line in units and dollars are established for each of the corporation's sales districts. The marketing manager also estimates the cost of the marketing activities required to support the target sales volume and prepares a tentative marketing expense budget.

The executive vice president uses the sales and profit targets, the sales budget by product line, and the tentative marketing expense budget to determine the dollar amounts that can be devoted to manufacturing and corporate office expense. The executive vice president prepares the budget for corporate expenses. She then forwards to the production department the product-line sales budget in units and the total dollar amount that can be devoted to manufacturing.

The production manager meets with the factory managers to develop a manufacturing plan that will produce the required units when needed within the cost constraints set by the executive vice president. The budgeting process usually comes to a halt at this point because the production department does not consider the financial resources allocated to be adequate.

When this standstill occurs, the vice president of finance, the executive vice president, the marketing manager, and the production manager meet together to determine the final budgets for each of the areas. This normally results in a modest increase in the total amount available for manufacturing costs and cuts in the marketing expense and corporate office expense budgets. The total sales and net income figures proposed by the president are seldom changed. Although the participants are seldom pleased with the compromise, these budgets are final. Each executive then develops a new detailed budget for the operations in his or her area.

None of the areas has achieved its budget in recent years. Sales often run below the target. When budgeted sales are not achieved, each area is expected to cut costs so that the president's profit target can be met. However, the profit target is seldom met because costs are not cut enough. In fact, costs often run above the original budget in all functional areas (marketing, production, and corporate office).

The president is disturbed that Palmer has not been able to meet the sales and profit targets. He hires a consultant with considerable experience with companies in Palmer's industry. The consultant reviews the budgets for the past 4 years. He concludes that the product line sales budgets were reasonable and that the cost and expense budgets were adequate for the budgeted sales and production levels.

Questions:

1. Discuss how the budgeting process employed by Palmer Corporation contributes to the failure to achieve the president's sales and profit targets.
2. Suggest how Palmer Corporation's budgeting process could be revised to correct the problems.
3. Should the functional areas be expected to cut their costs when sales volume falls below budget? Explain your answer.

Problem 5

Elliot & Hesse Inc. manufactures ergonomic devices for computer users. Some of its more popular products include anti-glare filters and privacy filters (for computer monitors) and keyboard stands with wrist rests. Over the past 5 years, it experienced rapid growth, with sales of all products increasing 20% to 50% each year.

Last year, some of the primary manufacturers of computers began introducing new products with some of the ergonomic designs, such as anti-glare filters and wrist rests, already built in. As a result, sales of Elliot & Hesse's accessory devices have declined somewhat. The company believes that the privacy filters will probably continue to show growth, but that the other products will probably continue to decline. When the next year's budget was prepared, increases were built into research and development so that replacement products could be developed or the company could expand into some other product line. Some product lines being considered are general-purpose ergonomic devices including back supports, foot rests, and sloped writing pads.

The most recent results have shown that sales decreased more than was expected for the anti-glare filters. As a result, the company may have a shortage of funds. Top management has therefore asked that all expenses be reduced 10% to compensate for these reduced sales. Summary budget information is as follows.

Direct materials $240,000

Direct labor 110,000

Insurance 50,000

Depreciation 90,000

Machine repairs 30,000

Sales salaries 50,000

Office salaries 80,000

Factory salaries (indirect labor) 50,000

Total $700,000

Questions:

Using the information above, answer the following questions.

1. What are the implications of reducing each of the costs? For example, if the company reduces direct materials costs, it may have to do so by purchasing lower-quality materials. This may affect sales in the long run.
2. Based on your analysis in (a), what do you think is the best way to obtain the $70,000 in cost savings requested? Be specific. Are there any costs that cannot or should not be reduced? Why?