Good morning Mr Shrugal, This Ed Callao you told me to send my questions which I already did Did you receive them by any chance I am still on a trip and my deadline is tomorrow so I just want to have a piece of mind I am resending the attachment again, so kindly reply to me soonest Thanks Week 3 ABSORPTION COST PROBLEMS 5 17 Nickelson Company Variable and Absorption Costing Unit Product Costs and Income Statements Nickleson Company manufactures and sells one product The following information pertains to each of the company's first three years of operation Variable costs per unit Manufacturing Direct materials $ 25 Direct labor $16 Variable manufacturing overhead $5 Variable selling and administrative $2 Fixed costs per year Fixed manufacturing overhead $ 300, 000 Fixed selling and administrative expenses $ 180, 000 During its first year of operations Nickelson produced 60, 000 units and sold 60,000 units During its second year of operations it produced 75, 000 units and sold 50,000 units In its third year, Nickelson produced 40, 000 units and sold 65, 000 units The selling price of the company's product is $ 56 per unit REQUIRED 1 Compute the company's break even point in units sold 2 Assume the company uses variable costing a Compute the unit product cost for year 1, year 2, and year 3 b Prepare an Income statement for year 1, year, 2, and year 3 3 Assume the company uses absorption costing a Compute the unit product cost for year 1, year 2, and year 3 b Prepare an income statement for year 1, year 2, and year 3 4 Compare the net operating income figures that you computed in requirements 2 and 3 to the break even point that you computed in requirement 1 Which net operating income figure seem counterintuitive Why PROBLEM 5 21 Prepare and Reconcile Variable Costing Statements (LO 5 1, LO 5 2, LO 5 3) Linden Company manufactures and sells a single product Cost data for the product follow Variable costs per unit Direct materials $ 6 Direct labor 12 Variable factory overhead 4 Variable selling and administrative 3 Total variable costs per unit $ 25 Fixed costs per month Fixed manufacturing overhead $ 240, 000 Fixed selling and administrative $ 180, 000 Total fixed cost per month $ 420, 000 The product sells for $40 per unit Production and sales data for May and June, the first two months of operation, are as follows Units Units Produced Sold May 30, 000 26, 000 June 30, 000 34, 000 Income statements prepared by the accounting department, using absorption costing, are presented below May June Sales $ 1, 040, 000 $ 1, 360, 000 Cost of goods sold 780, 000 1, 020, 000 Gross margin 260, 000 340, 000 Selling and administrative expense 260, 000 282, 000 Net operating income $ 2, 000 $ 58, 000 REQUIRED 1 Determine the unit product cost under a Absorption costing b Variable costing 2 Prepare contribution formal variable costing income statements for May and June 3 Reconcile the variable costing and absorption costing net operating incomes 4 The company's Accounting Department has determined the break even point to be 28,000 units per month, computed as follows Fixed cost per month $ 420,000 28,000 units Unit contribution margin $ 15 per unit Upon receiving this figure, the president commented There's something peculiar here The controller says that the break even point is 28,000 units per month Yet we sold only 26, 000 units in May, and the income statement we received showed a $ 2, 000 profit Which figure do we believe Prepare a brief explanation of what happened on the May income statement PROBLEM 5 22 SANDI SCOTT Absorption and Variable Costing Production Constant, Sales Fluctuate (LO 5 1, LO 5 2, LO 5 3) Sandi Scott obtained a patent on a small electronic device and organized Scott Products, Inc to produce and sell the device During the first month of operations, the device was very well received on the market, so Ms Scott looked forward to healthy profit For this reason, she was surprised to see a loss for the month on her income statement This statement was prepared by her accounting service which takes great pride in providing its timely financial data The statement follows Scott Products, Inc Income Statement Sales (40,000 units) Variable expenses Variable cost of goods sold $ 80,000 Variable selling and administrative expenses 30,000 Contribution margin Fixed expenses Fixed manufacturing overhead 75, 000 Fixed selling and administrative expenses 20, 000 Net operating loss $200, 000 110, 000 90, 000 95, 000 $ (5, 000) Ms Scott is discouraged over the loss for the month because she had planned to use the statement to encourage investors to purchase stock in the new company A friend who is a CPA, insists that the company should be using absorption costing rather than variable costing He argues that if absorption costing had been used, the company would have reported a profit for the month Selected cost data relating to the product and to the first month of operation follow Units produced 50, 000 Units sold 40, 000 Variable cost per unit Direct materials $ 1 00 Direct labor $ 0 80 Variable manufacturing overhead $ 0 20 Variable selling and administrative expenses $ 0 75 REQUIRED also does realistic computer animation for special effect in movies 1 Complete the following a Complete the product cost under absorption cost b Redo the company's income for the month using the absorption costing c Reconcile the variable and absorption costing net operating income (loss) figures 2 Was the CPA correct in suggesting that the company really earned a profit for the month Explain 3 During the second month of operations, the company again produced 50,000 units but sold 60,000 units (Assume no change in total fixed costs) a Prepare a contribution format income statement for the month using variable costing b Prepare an income statement for the month using the absorption costing c Reconcile the variable costing net operating incomes PROBLEM 6 16 Second Stage Allocation and Product Margins (LO 6 4, LO 6 5) AnimPix, Inc is a small company that creates computer generated animation for films and television Much of the company's work consists of short commercials for television, but the company The young founders of the company have become increasingly concerned with the economics of the business particularly because many competitors have sprung up recently in the local area To help understand the company's cost structure, an activity based costing system has been designed Three major activities carried out in the company animation concept, animation production, and contract administration The animation concept activity is carried out at the contract proposal stage when the company bids on projects This is an intensive activity that involves individuals from all parts of the company bids on the projects This is an intensive activity that involves individuals from all parts of the company in creating storyboards and prototype stills to be shown to the prospective client After the client has accepted a project, the animation goes into production and contract administration begins Technical staff do almost all the work involved in animation production, whereas the administrative staff is largely responsible for contract administration The activity cost pools and their activity measure and rates are listed below Activity Cost Pool Activity Measure Activity Rate Animation concept Number of proposals $ 6, 000 per proposal Animation production Minutes of animation $ 7, 700 per minute of animation Contract administration Number of contracts $ 6, 600 per contract These activity rates include all of the costs of the company, except for the costs of idle capacity and re organization sustaining costs There are no direct labor or indirect materials costs Preliminary analysis using these activity rates has indicated that the local commercials segment of the market maybe unprofitable This segment is higly competitive Producers of local commercials may ask several companies like Anim Pix to bid which results in an unusually low ratio of accepted contracts to bids Furthermore, the animation sequences tend to be much shorter for local commercials than for other work Because animation work is billed at standard rates according to the running time of the completed animation, the revenues from these short projects tend to be below average Data concerning activity in the local commercials market appear below Local Activity Measure Commercials Number of proposals 20 Minutes of animation 12 Number of contracts 8 The total sales for local commercials amounted to $240,000 REQUIRED 1 Determined the cost of serving the local commercial market 2 Prepare a report showing the margin earned serving the local commercial market (Remember, this company has no direct materials or direct labor costs ) 3 What would you recommend to management concerning the local commercial market PROBLEM 6 17 Precision Manufacturing , Inc Comparing Traditional and Activity Based Product Margins (LO 6 1, LO 6 3) Precision Manufacturing Inc (PMI) makes two type of industrial component parts the EX300 and the TX500 An absorption costing income statement for the most recent period is shown below Precision Manufacturing Inc Income Statement Sales $ 1, 700, 000 Cost of goods sold 1, 200, 000 Gross margin 500, 000 Selling and administrative expenses 550, 000 Net operating loss $ ( 50, 000) PMI produced and sold 60,000 units of EX300 at a price of $20 per unit and 12, 500 units of TX500 at a price of $40 per unit The company's traditional cost system allocated manufacturing overhead to products using a plantwide overhead rate and direct labor dollar as the allocation base Additional information relating to the company's two product lines is shown below EX300 Direct materials $ 366, 325 Direct labor $ 120, 000 Manufacturing overhead Cost of goods sold 000 TX500 Total $ 162, 550 $ 42, 500 $ 528, 875 162, 500 508, 625 $ 1, 200, The company has created an activity based costing system to evaluate the profitability of its products PMI's ABC implementation team concluded that $50,000 and $100,000 of the company's advertising expenses could directly traced to EX300 and TX500, respectively The remainder of the selling and administrative expenses was organization sustaining in nature The ABC team also distributed the company's manufacturing overhead to four activities as shown below Manufacturing Activity cost Pool (and activity measure) Overhead Total Machining (machine hours) $198, 250 152,500 Setups (setup hours) 150, 000 375 Product sustaining costs 100, 000 2 Other ( organization sustaining costs) 60, 375 NA Total manufacturing overhead cost $ 508, 625 EX 300 Activity TX 500 90,000 62,500 75 300 1 1 NA NA REQUIRED 1 Using Exhibit 6 12 as a guide, compute the product margins for the EX300 and TX500 under the company's traditional costing system 2 Using Exhibit 6 10 as a guide, compute the product margins for EX300 and TX500 under the activity based costing system 3 Using Exhibit 6 13 as a guide, prepare a quantitative comparison of the traditional and activity based cost assignments Explain why the traditional and activity based cost assignments differ PROBLEM 6 18 Comparing Traditional and Activity Based Product Margin (LO 61, LO 6 3, LO 6 4, LO 6 5) Rocky mountain corporation makes two types of hiking boots Xactive and the Pathbreaker Data concerning these two product lines appear below Xactive Pathbreaker Selling price per unit $ 127 00 $ 89 00 Direct materials per unit 64 80 51 00 Direct labor per unit 18 20 13 00 Direct labor hours per unit 1 4 DLHs 1 0 DLHs Estimated annual production and sales 25, 000 units 75, 000 units The company has a traditional costing system in which manufacturing overhead is applied to units based on direct labor hours Data concerning manufacturing overhead and direct labor hours for the upcoming year appear below Estimated total manufacturing overhead $2, 200, 000 Estimated total direct labor hours 110, 000 DLHs REQUIRED 1 Using Exhibit 6 12 as a guide, compute the product margins for the Xactive and the Path breaker products under the company's traditional costing system 2 The company I considering replacing its traditional costing system with an activity based costing system that would assign its manufacturing overhead to the following four activity cost pools (Other cost pool includes organizationsustaining costs and idle capacity costs) Estimated Expected Activity Activities and Activity Measures Overhead cost Xactive Pathbreaker Total Supporting direct labor (direct labor hours) $ 797, 500 35,000 75,000 110, 000 Batch setups (setups) 680, 000 250 150 400 Batch setups 650, 000 1 1 2 Other 72, 500 NA NA NA Total manufacturing overhead cost $2, 200, 000 Using Exhibit 6 10 as a guide, compute the product margins for the Xactive and the Path breaker products under the activity based costing system 3 Using Exhibit 6 13 as a guide, prepare a quantitative comparison of the traditional and activity based cost assignment Explain why the traditional and activity based cost assignments differ Week 3 ABSORPTION COST PROBLEMS 5 17 Nickelson Company Variable and Absorption Costing Unit Product Costs and Income Statements Nickleson Company manufactures and sells one product The following information pertains to each of the company's first three years of operation Variable costs per unit Manufacturing Direct materials $ 25 Direct labor $16 Variable manufacturing overhead $5 Variable selling and administrative $2 Fixed costs per year Fixed manufacturing overhead $ 300, 000 Fixed selling and administrative expenses $ 180, 000 During its first year of operations Nickelson produced 60, 000 units and sold 60,000 units During its second year of operations it produced 75, 000 units and sold 50,000 units In its third year, Nickelson produced 40, 000 units and sold 65, 000 units The selling price of the company's product is $ 56 per unit REQUIRED 1 Compute the company's break even point in units sold 2 Assume the company uses variable costing a Compute the unit product cost for year 1, year 2, and year 3 b Prepare an Income statement for year 1, year, 2, and year 3 3 Assume the company uses absorption costing a Compute the unit product cost for year 1, year 2, and year 3 b Prepare an income statement for year 1, year 2, and year 3 4 Compare the net operating income figures that you computed in requirements 2 and 3 to the break even point that you computed in requirement 1 Which net operating income figure seem counterintuitive Why PROBLEM 5 21 Prepare and Reconcile Variable Costing Statements (LO 5 1, LO 5 2, LO 5 3) Linden Company manufactures and sells a single product Cost data for the product follow Variable costs per unit Direct materials $ 6 Direct labor 12 Variable factory overhead 4 Variable selling and administrative 3 Total variable costs per unit $ 25 Fixed costs per month Fixed manufacturing overhead $ 240, 000 Fixed selling and administrative $ 180, 000 Total fixed cost per month $ 420, 000 The product sells for $40 per unit Production and sales data for May and June, the first two months of operation, are as follows Units Units Produced Sold May 30, 000 26, 000 June 30, 000 34, 000 Income statements prepared by the accounting department, using absorption costing, are presented below May June Sales $ 1, 040, 000 $ 1, 360, 000 Cost of goods sold 780, 000 1, 020, 000 Gross margin 260, 000 340, 000 Selling and administrative expense 260, 000 282, 000 Net operating income $ 2, 000 $ 58, 000 REQUIRED 1 Determine the unit product cost under a Absorption costing b Variable costing 2 Prepare contribution formal variable costing income statements for May and June 3 Reconcile the variable costing and absorption costing net operating incomes 4 The company's Accounting Department has determined the break even point to be 28,000 units per month, computed as follows Fixed cost per month $ 420,000 28,000 units Unit contribution margin $ 15 per unit Upon receiving this figure, the president commented There's something peculiar here The controller says that the break even point is 28,000 units per month Yet we sold only 26, 000 units in May, and the income statement we received showed a $ 2, 000 profit Which figure do we believe Prepare a brief explanation of what happened on the May income statement PROBLEM 5 22 SANDI SCOTT Absorption and Variable Costing Production Constant, Sales Fluctuate (LO 5 1, LO 5 2, LO 5 3) Sandi Scott obtained a patent on a small electronic device and organized Scott Products, Inc to produce and sell the device During the first month of operations, the device was very well received on the market, so Ms Scott looked forward to healthy profit For this reason, she was surprised to see a loss for the month on her income statement This statement was prepared by her accounting service which takes great pride in providing its timely financial data The statement follows Scott Products, Inc Income Statement Sales (40,000 units) Variable expenses Variable cost of goods sold $ 80,000 Variable selling and administrative expenses 30,000 Contribution margin Fixed expenses Fixed manufacturing overhead 75, 000 Fixed selling and administrative expenses 20, 000 Net operating loss $200, 000 110, 000 90, 000 95, 000 $ (5, 000) Ms Scott is discouraged over the loss for the month because she had planned to use the statement to encourage investors to purchase stock in the new company A friend who is a CPA, insists that the company should be using absorption costing rather than variable costing He argues that if absorption costing had been used, the company would have reported a profit for the month Selected cost data relating to the product and to the first month of operation follow Units produced 50, 000 Units sold 40, 000 Variable cost per unit Direct materials $ 1 00 Direct labor $ 0 80 Variable manufacturing overhead $ 0 20 Variable selling and administrative expenses $ 0 75 REQUIRED also does realistic computer animation for special effect in movies 1 Complete the following a Complete the product cost under absorption cost b Redo the company's income for the month using the absorption costing c Reconcile the variable and absorption costing net operating income (loss) figures 2 Was the CPA correct in suggesting that the company really earned a profit for the month Explain 3 During the second month of operations, the company again produced 50,000 units but sold 60,000 units (Assume no change in total fixed costs) a Prepare a contribution format income statement for the month using variable costing b Prepare an income statement for the month using the absorption costing c Reconcile the variable costing net operating incomes PROBLEM 6 16 Second Stage Allocation and Product Margins (LO 6 4, LO 6 5) AnimPix, Inc is a small company that creates computer generated animation for films and television Much of the company's work consists of short commercials for television, but the company The young founders of the company have become increasingly concerned with the economics of the business particularly because many competitors have sprung up recently in the local area To help understand the company's cost structure, an activity based costing system has been designed Three major activities carried out in the company animation concept, animation production, and contract administration The animation concept activity is carried out at the contract proposal stage when the company bids on projects This is an intensive activity that involves individuals from all parts of the company bids on the projects This is an intensive activity that involves individuals from all parts of the company in creating storyboards and prototype stills to be shown to the prospective client After the client has accepted a project, the animation goes into production and contract administration begins Technical staff do almost all the work involved in animation production, whereas the administrative staff is largely responsible for contract administration The activity cost pools and their activity measure and rates are listed below Activity Cost Pool Activity Measure Activity Rate Animation concept Number of proposals $ 6, 000 per proposal Animation production Minutes of animation $ 7, 700 per minute of animation Contract administration Number of contracts $ 6, 600 per contract These activity rates include all of the costs of the company, except for the costs of idle capacity and re organization sustaining costs There are no direct labor or indirect materials costs Preliminary analysis using these activity rates has indicated that the local commercials segment of the market maybe unprofitable This segment is higly competitive Producers of local commercials may ask several companies like Anim Pix to bid which results in an unusually low ratio of accepted contracts to bids Furthermore, the animation sequences tend to be much shorter for local commercials than for other work Because animation work is billed at standard rates according to the running time of the completed animation, the revenues from these short projects tend to be below average Data concerning activity in the local commercials market appear below Local Activity Measure Commercials Number of proposals 20 Minutes of animation 12 Number of contracts 8 The total sales for local commercials amounted to $240,000 REQUIRED 1 Determined the cost of serving the local commercial market 2 Prepare a report showing the margin earned serving the local commercial market (Remember, this company has no direct materials or direct labor costs ) 3 What would you recommend to management concerning the local commercial market PROBLEM 6 17 Precision Manufacturing , Inc Comparing Traditional and Activity Based Product Margins (LO 6 1, LO 6 3) Precision Manufacturing Inc (PMI) makes two type of industrial component parts the EX300 and the TX500 An absorption costing income statement for the most recent period is shown below Precision Manufacturing Inc Income Statement Sales $ 1, 700, 000 Cost of goods sold 1, 200, 000 Gross margin 500, 000 Selling and administrative expenses 550, 000 Net operating loss $ ( 50, 000) PMI produced and sold 60,000 units of EX300 at a price of $20 per unit and 12, 500 units of TX500 at a price of $40 per unit The company's traditional cost system allocated manufacturing overhead to products using a plantwide overhead rate and direct labor dollar as the allocation base Additional information relating to the company's two product lines is shown below EX300 Direct materials $ 366, 325 Direct labor $ 120, 000 Manufacturing overhead Cost of goods sold 000 TX500 Total $ 162, 550 $ 42, 500 $ 528, 875 162, 500 508, 625 $ 1, 200, The company has created an activity based costing system to evaluate the profitability of its products PMI's ABC implementation team concluded that $50,000 and $100,000 of the company's advertising expenses could directly traced to EX300 and TX500, respectively The remainder of the selling and administrative expenses was organization sustaining in nature The ABC team also distributed the company's manufacturing overhead to four activities as shown below Manufacturing Activity cost Pool (and activity measure) Overhead Total Machining (machine hours) $198, 250 152,500 Setups (setup hours) 150, 000 375 Product sustaining costs 100, 000 2 Other ( organization sustaining costs) 60, 375 NA Total manufacturing overhead cost $ 508, 625 EX 300 Activity TX 500 90,000 62,500 75 300 1 1 NA NA REQUIRED 1 Using Exhibit 6 12 as a guide, compute the product margins for the EX300 and TX500 under the company's traditional costing system 2 Using Exhibit 6 10 as a guide, compute the product margins for EX300 and TX500 under the activity based costing system 3 Using Exhibit 6 13 as a guide, prepare a quantitative comparison of the traditional and activity based cost assignments Explain why the traditional and activity based cost assignments differ PROBLEM 6 18 Comparing Traditional and Activity Based Product Margin (LO 61, LO 6 3, LO 6 4, LO 6 5) Rocky mountain corporation makes two types of hiking boots Xactive and the Pathbreaker Data concerning these two product lines appear below Xactive Pathbreaker Selling price per unit $ 127 00 $ 89 00 Direct materials per unit 64 80 51 00 Direct labor per unit 18 20 13 00 Direct labor hours per unit 1 4 DLHs 1 0 DLHs Estimated annual production and sales 25, 000 units 75, 000 units The company has a traditional costing system in which manufacturing overhead is applied to units based on direct labor hours Data concerning manufacturing overhead and direct labor hours for the upcoming year appear below Estimated total manufacturing overhead $2, 200, 000 Estimated total direct labor hours 110, 000 DLHs REQUIRED 1 Using Exhibit 6 12 as a guide, compute the product margins for the Xactive and the Path breaker products under the company's traditional costing system 2 The company I considering replacing its traditional costing system with an activity based costing system that would assign its manufacturing overhead to the following four activity cost pools (Other cost pool includes organizationsustaining costs and idle capacity costs) Estimated Expected Activity Activities and Activity Measures Overhead cost Xactive Pathbreaker Total Supporting direct labor (direct labor hours) $ 797, 500 35,000 75,000 110, 000 Batch setups (setups) 680, 000 250 150 400 Batch setups 650, 000 1 1 2 Other 72, 500 NA NA NA Total manufacturing overhead cost $2, 200, 000 Using Exhibit 6 10 as a guide, compute the product margins for the Xactive and the Path breaker products under the activity based costing system 3 Using Exhibit 6 13 as a guide, prepare a quantitative comparison of the traditional and activity based cost assignment Explain why the traditional and activity based cost assignments differ

Question

Good morning Mr Shrugal, This Ed Callao  you told me to send my questions which I already did  Did you receive them by any chance  I am still on a trip and my deadline is tomorrow so I just want to have a piece of mind  I am resending the attachment again, so kindly reply to me soonest  Thanks Week 3 ABSORPTION COST PROBLEMS 5 17 Nickelson Company Variable and Absorption Costing Unit Product Costs and Income Statements Nickleson Company manufactures and sells one product  The following information pertains to each of the company's first three years of operation  Variable costs per unit  Manufacturing  Direct materials                                             $ 25 Direct labor                                                     $16 Variable manufacturing overhead              $5 Variable selling and administrative                     $2 Fixed costs per year  Fixed manufacturing overhead                           $ 300, 000 Fixed selling and administrative expenses        $ 180, 000 During its first year of operations Nickelson produced 60, 000 units and sold 60,000 units  During its second year of operations it produced 75, 000 units and sold 50,000 units  In its third year, Nickelson produced 40, 000 units and sold 65, 000 units  The selling price of the company's product is $ 56 per unit  REQUIRED  1  Compute the company's break even point in units sold  2  Assume the company uses variable costing  a  Compute the unit product cost for year 1, year 2, and year 3  b  Prepare an Income statement for year 1, year, 2, and year 3  3  Assume the company uses absorption costing  a  Compute the unit product cost for year 1, year 2, and year 3  b  Prepare an income statement for year 1, year 2, and year 3  4  Compare the net operating income figures that you computed in requirements 2 and 3 to the break even point that you computed in requirement 1   Which net operating income figure seem counterintuitive  Why  PROBLEM 5 21 Prepare and Reconcile Variable Costing Statements (LO 5 1, LO 5 2, LO 5 3) Linden Company manufactures and sells a single product  Cost data for the product follow  Variable costs per unit  Direct materials                                                     $ 6 Direct labor                                                            12 Variable factory overhead                                 4 Variable selling and administrative                  3 Total variable costs per unit                                            $ 25 Fixed costs per month   Fixed manufacturing overhead                            $ 240, 000 Fixed selling and administrative                           $ 180, 000 Total fixed cost per month                                                $ 420, 000 The product sells for $40 per unit  Production and sales data for May and June, the first two months of operation, are as follows  Units Units Produced Sold May                            30, 000 26, 000 June                           30, 000 34, 000 Income statements prepared by the accounting department, using absorption costing, are presented below  May June Sales                                                                 $ 1, 040, 000 $ 1, 360, 000 Cost of goods sold                                          780, 000 1, 020, 000 Gross margin                                                  260, 000 340, 000 Selling and administrative expense           260, 000 282, 000 Net operating income                                  $ 2, 000 $ 58, 000 REQUIRED  1  Determine the unit product cost under  a  Absorption costing b  Variable costing 2  Prepare contribution formal variable costing income statements for May and June  3  Reconcile the variable costing and absorption costing net operating incomes  4  The company's Accounting Department has determined the break even point to be 28,000 units per month, computed as follows  Fixed cost per month   $ 420,000   28,000 units Unit contribution margin $ 15 per unit Upon receiving this figure, the president commented    There's something peculiar here  The controller says that the break even point is 28,000 units per month  Yet we sold only 26, 000 units in May, and the income statement we received showed a $ 2, 000 profit  Which figure do we believe    Prepare a brief explanation of what happened on the May income statement  PROBLEM 5 22 SANDI SCOTT Absorption and Variable Costing  Production Constant, Sales Fluctuate (LO 5 1, LO 5 2, LO 5 3) Sandi Scott obtained a patent on a small electronic device and organized Scott Products, Inc  to produce and sell the device  During the first month of operations, the device was very well received on the market, so Ms  Scott looked forward to healthy profit  For this reason, she was surprised to see a loss for the month on her income statement  This statement was prepared by her accounting service which takes great pride in providing its timely financial data  The statement follows  Scott Products, Inc  Income Statement Sales (40,000 units)                                                          Variable expenses Variable cost of goods sold                                      $ 80,000 Variable selling and administrative expenses     30,000 Contribution margin                                                 Fixed expenses Fixed manufacturing overhead                              75, 000 Fixed selling and administrative expenses           20, 000 Net operating loss                                                           $200, 000 110, 000 90, 000 95, 000 $ (5, 000) Ms  Scott is discouraged over the loss for the month because she had planned to use the statement to encourage investors to purchase stock in the new company  A friend who is a CPA, insists that the company should be using absorption costing rather than variable costing  He argues that if absorption costing had been used, the company would have reported a profit for the month  Selected cost data relating to the product and to the first month of operation follow  Units produced                                                                                   50, 000 Units sold                                                                                             40, 000 Variable cost per unit  Direct materials                                                                   $ 1 00 Direct labor                                                                          $ 0 80 Variable manufacturing overhead                                   $ 0 20 Variable selling and administrative expenses               $ 0 75 REQUIRED  also does realistic computer animation for special effect in movies  1  Complete the following  a  Complete the product cost under absorption cost  b  Redo the company's income for the month using the absorption costing  c  Reconcile the variable and absorption costing net operating income (loss) figures  2  Was the CPA correct in suggesting that the company really earned a   profit   for the month  Explain  3  During the second month of operations, the company again produced 50,000 units but sold 60,000 units (Assume no change in total fixed costs)  a  Prepare a contribution format income statement for the month using variable costing  b  Prepare an income statement for the month using the absorption costing  c  Reconcile the variable costing net operating incomes  PROBLEM 6 16 Second   Stage Allocation and Product Margins (LO 6 4, LO 6 5) AnimPix, Inc  is a small company that creates computer generated animation for films and television  Much of the company's work consists of short commercials for television, but the company The young founders of the company have become increasingly concerned with the economics of the business particularly because many competitors have sprung up recently in the local area  To help understand the company's cost structure, an activity based costing system has been designed  Three major activities carried out in the company  animation concept, animation production, and contract administration  The animation concept activity is carried out at the contract proposal stage when the company bids on projects  This is an intensive activity that involves individuals from all parts of the company bids on the projects  This is an intensive activity that involves individuals from all parts of the company in creating storyboards and prototype stills to be shown to the prospective client  After the client has accepted a project, the animation goes into production and contract administration begins  Technical staff do almost all the work involved in animation production, whereas the administrative staff is largely responsible for contract administration  The activity cost pools and their activity measure and rates are listed below  Activity Cost Pool Activity Measure Activity Rate Animation concept                      Number of proposals $ 6, 000 per proposal Animation production                 Minutes of animation $ 7, 700 per minute of animation Contract administration             Number of contracts $ 6, 600 per contract These activity rates include all of the costs of the company, except for the costs of idle capacity and re organization sustaining costs  There are no direct labor or indirect materials costs  Preliminary analysis using these activity rates has indicated that the local commercials segment of the market maybe unprofitable  This segment is higly competitive  Producers of local commercials may ask several companies like Anim Pix to bid which results in an unusually low ratio of accepted contracts to bids  Furthermore, the animation sequences tend to be much shorter for local commercials than for other work  Because animation work is billed at standard rates according to the running time of the completed animation, the revenues from these short projects tend to be below average  Data concerning activity in the local commercials market appear below  Local Activity Measure Commercials Number of proposals                            20 Minutes of animation                           12 Number of contracts                             8 The total sales for local commercials amounted to $240,000  REQUIRED  1  Determined the cost of serving the local commercial market  2  Prepare a report showing the margin earned serving the local commercial market  (Remember, this company has no direct materials or direct labor costs ) 3  What would you recommend to management concerning the local commercial market  PROBLEM 6 17 Precision Manufacturing , Inc  Comparing Traditional and Activity   Based Product Margins (LO 6 1, LO 6 3) Precision Manufacturing Inc  (PMI) makes two type of industrial component parts   the EX300 and the TX500  An absorption costing income statement for the most recent period is shown below  Precision Manufacturing Inc  Income Statement Sales                                                                   $ 1, 700, 000 Cost of goods sold                                           1, 200, 000 Gross margin                                                    500, 000 Selling and administrative expenses             550, 000 Net operating loss                                           $ ( 50, 000) PMI produced and sold 60,000 units of EX300 at a price of $20 per unit and 12, 500 units of TX500 at a price of $40 per unit  The company's traditional cost system allocated manufacturing overhead to products using a plantwide overhead rate and direct labor dollar as the allocation base  Additional information relating to the company's two product lines is shown below  EX300 Direct materials                      $ 366, 325 Direct labor                             $ 120, 000 Manufacturing overhead      Cost of goods sold                  000 TX500 Total $ 162, 550 $ 42, 500 $ 528, 875 162, 500 508, 625 $ 1, 200, The company has created an activity based costing system to evaluate the profitability of its products  PMI's ABC implementation team concluded that $50,000 and $100,000 of the company's advertising expenses could directly traced to EX300 and TX500, respectively  The remainder of the selling and administrative expenses was organization   sustaining in nature  The ABC team also distributed the company's manufacturing overhead to four activities as shown below  Manufacturing Activity cost Pool (and activity measure) Overhead Total Machining (machine hours)                      $198, 250 152,500 Setups (setup hours)                                   150, 000 375 Product sustaining costs                            100, 000 2 Other ( organization sustaining costs) 60, 375 NA Total manufacturing overhead cost         $ 508, 625 EX 300 Activity TX 500 90,000 62,500 75 300 1 1 NA NA REQUIRED  1  Using Exhibit 6 12 as a guide, compute the product margins for the EX300 and TX500 under the company's traditional costing system  2  Using Exhibit 6 10 as a guide, compute the product margins for EX300 and TX500 under the activity based costing system  3  Using Exhibit 6 13 as a guide, prepare a quantitative comparison of the traditional and activity based cost assignments  Explain why the traditional and activity   based cost assignments differ  PROBLEM 6 18 Comparing Traditional and Activity Based Product Margin (LO 61, LO 6 3, LO 6 4, LO 6 5)  Rocky mountain corporation makes two types of hiking boots   Xactive and the Pathbreaker   Data concerning these two product lines appear below  Xactive Pathbreaker Selling price per unit                                                    $ 127  00 $ 89  00 Direct materials per unit                                             64  80 51 00 Direct labor per unit                                                     18  20 13 00 Direct labor hours per unit                                         1  4 DLHs 1 0 DLHs Estimated annual production and sales                   25, 000 units 75, 000 units The company has a traditional costing system in which manufacturing overhead is applied to units based on direct labor hours  Data concerning manufacturing overhead and direct labor hours for the upcoming year appear below  Estimated total manufacturing overhead                              $2, 200, 000 Estimated total direct labor hours                                          110, 000 DLHs REQUIRED  1  Using Exhibit 6 12 as a guide, compute the product margins for the Xactive and the Path breaker products under the company's traditional costing system  2  The company I considering replacing its traditional costing system with an activity based costing system that would assign its manufacturing overhead to the following four activity cost pools (Other cost pool includes organizationsustaining costs and idle capacity costs)  Estimated Expected Activity Activities and Activity Measures Overhead cost Xactive Pathbreaker Total Supporting direct labor (direct labor hours) $ 797, 500 35,000 75,000 110, 000 Batch setups (setups)                                       680, 000 250 150 400 Batch setups                                                      650, 000 1 1 2 Other                                                                  72, 500 NA NA NA Total manufacturing overhead cost               $2, 200, 000 Using Exhibit 6 10 as a guide, compute the product margins for the Xactive and the Path breaker products under the activity based costing system  3  Using Exhibit 6 13 as a guide, prepare a quantitative comparison of the traditional and activity based cost assignment  Explain why the traditional and activity based cost assignments differ  Week 3 ABSORPTION COST PROBLEMS 5 17 Nickelson Company Variable and Absorption Costing Unit Product Costs and Income Statements Nickleson Company manufactures and sells one product  The following information pertains to each of the company's first three years of operation  Variable costs per unit  Manufacturing  Direct materials                                             $ 25 Direct labor                                                     $16 Variable manufacturing overhead              $5 Variable selling and administrative                     $2 Fixed costs per year  Fixed manufacturing overhead                           $ 300, 000 Fixed selling and administrative expenses        $ 180, 000 During its first year of operations Nickelson produced 60, 000 units and sold 60,000 units  During its second year of operations it produced 75, 000 units and sold 50,000 units  In its third year, Nickelson produced 40, 000 units and sold 65, 000 units  The selling price of the company's product is $ 56 per unit  REQUIRED  1  Compute the company's break even point in units sold  2  Assume the company uses variable costing  a  Compute the unit product cost for year 1, year 2, and year 3  b  Prepare an Income statement for year 1, year, 2, and year 3  3  Assume the company uses absorption costing  a  Compute the unit product cost for year 1, year 2, and year 3  b  Prepare an income statement for year 1, year 2, and year 3  4  Compare the net operating income figures that you computed in requirements 2 and 3 to the break even point that you computed in requirement 1   Which net operating income figure seem counterintuitive  Why  PROBLEM 5 21 Prepare and Reconcile Variable Costing Statements (LO 5 1, LO 5 2, LO 5 3) Linden Company manufactures and sells a single product  Cost data for the product follow  Variable costs per unit  Direct materials                                                     $ 6 Direct labor                                                            12 Variable factory overhead                                 4 Variable selling and administrative                  3 Total variable costs per unit                                            $ 25 Fixed costs per month   Fixed manufacturing overhead                            $ 240, 000 Fixed selling and administrative                           $ 180, 000 Total fixed cost per month                                                $ 420, 000 The product sells for $40 per unit  Production and sales data for May and June, the first two months of operation, are as follows  Units Units Produced Sold May                            30, 000 26, 000 June                           30, 000 34, 000 Income statements prepared by the accounting department, using absorption costing, are presented below  May June Sales                                                                 $ 1, 040, 000 $ 1, 360, 000 Cost of goods sold                                          780, 000 1, 020, 000 Gross margin                                                  260, 000 340, 000 Selling and administrative expense           260, 000 282, 000 Net operating income                                  $ 2, 000 $ 58, 000 REQUIRED  1  Determine the unit product cost under  a  Absorption costing b  Variable costing 2  Prepare contribution formal variable costing income statements for May and June  3  Reconcile the variable costing and absorption costing net operating incomes  4  The company's Accounting Department has determined the break even point to be 28,000 units per month, computed as follows  Fixed cost per month   $ 420,000   28,000 units Unit contribution margin $ 15 per unit Upon receiving this figure, the president commented    There's something peculiar here  The controller says that the break even point is 28,000 units per month  Yet we sold only 26, 000 units in May, and the income statement we received showed a $ 2, 000 profit  Which figure do we believe    Prepare a brief explanation of what happened on the May income statement  PROBLEM 5 22 SANDI SCOTT Absorption and Variable Costing  Production Constant, Sales Fluctuate (LO 5 1, LO 5 2, LO 5 3) Sandi Scott obtained a patent on a small electronic device and organized Scott Products, Inc  to produce and sell the device  During the first month of operations, the device was very well received on the market, so Ms  Scott looked forward to healthy profit  For this reason, she was surprised to see a loss for the month on her income statement  This statement was prepared by her accounting service which takes great pride in providing its timely financial data  The statement follows  Scott Products, Inc  Income Statement Sales (40,000 units)                                                          Variable expenses Variable cost of goods sold                                      $ 80,000 Variable selling and administrative expenses     30,000 Contribution margin                                                 Fixed expenses Fixed manufacturing overhead                              75, 000 Fixed selling and administrative expenses           20, 000 Net operating loss                                                           $200, 000 110, 000 90, 000 95, 000 $ (5, 000) Ms  Scott is discouraged over the loss for the month because she had planned to use the statement to encourage investors to purchase stock in the new company  A friend who is a CPA, insists that the company should be using absorption costing rather than variable costing  He argues that if absorption costing had been used, the company would have reported a profit for the month  Selected cost data relating to the product and to the first month of operation follow  Units produced                                                                                   50, 000 Units sold                                                                                             40, 000 Variable cost per unit  Direct materials                                                                   $ 1 00 Direct labor                                                                          $ 0 80 Variable manufacturing overhead                                   $ 0 20 Variable selling and administrative expenses               $ 0 75 REQUIRED  also does realistic computer animation for special effect in movies  1  Complete the following  a  Complete the product cost under absorption cost  b  Redo the company's income for the month using the absorption costing  c  Reconcile the variable and absorption costing net operating income (loss) figures  2  Was the CPA correct in suggesting that the company really earned a   profit   for the month  Explain  3  During the second month of operations, the company again produced 50,000 units but sold 60,000 units (Assume no change in total fixed costs)  a  Prepare a contribution format income statement for the month using variable costing  b  Prepare an income statement for the month using the absorption costing  c  Reconcile the variable costing net operating incomes  PROBLEM 6 16 Second   Stage Allocation and Product Margins (LO 6 4, LO 6 5) AnimPix, Inc  is a small company that creates computer generated animation for films and television  Much of the company's work consists of short commercials for television, but the company The young founders of the company have become increasingly concerned with the economics of the business particularly because many competitors have sprung up recently in the local area  To help understand the company's cost structure, an activity based costing system has been designed  Three major activities carried out in the company  animation concept, animation production, and contract administration  The animation concept activity is carried out at the contract proposal stage when the company bids on projects  This is an intensive activity that involves individuals from all parts of the company bids on the projects  This is an intensive activity that involves individuals from all parts of the company in creating storyboards and prototype stills to be shown to the prospective client  After the client has accepted a project, the animation goes into production and contract administration begins  Technical staff do almost all the work involved in animation production, whereas the administrative staff is largely responsible for contract administration  The activity cost pools and their activity measure and rates are listed below  Activity Cost Pool Activity Measure Activity Rate Animation concept                      Number of proposals $ 6, 000 per proposal Animation production                 Minutes of animation $ 7, 700 per minute of animation Contract administration             Number of contracts $ 6, 600 per contract These activity rates include all of the costs of the company, except for the costs of idle capacity and re organization sustaining costs  There are no direct labor or indirect materials costs  Preliminary analysis using these activity rates has indicated that the local commercials segment of the market maybe unprofitable  This segment is higly competitive  Producers of local commercials may ask several companies like Anim Pix to bid which results in an unusually low ratio of accepted contracts to bids  Furthermore, the animation sequences tend to be much shorter for local commercials than for other work  Because animation work is billed at standard rates according to the running time of the completed animation, the revenues from these short projects tend to be below average  Data concerning activity in the local commercials market appear below  Local Activity Measure Commercials Number of proposals                            20 Minutes of animation                           12 Number of contracts                             8 The total sales for local commercials amounted to $240,000  REQUIRED  1  Determined the cost of serving the local commercial market  2  Prepare a report showing the margin earned serving the local commercial market  (Remember, this company has no direct materials or direct labor costs ) 3  What would you recommend to management concerning the local commercial market  PROBLEM 6 17 Precision Manufacturing , Inc  Comparing Traditional and Activity   Based Product Margins (LO 6 1, LO 6 3) Precision Manufacturing Inc  (PMI) makes two type of industrial component parts   the EX300 and the TX500  An absorption costing income statement for the most recent period is shown below  Precision Manufacturing Inc  Income Statement Sales                                                                   $ 1, 700, 000 Cost of goods sold                                           1, 200, 000 Gross margin                                                    500, 000 Selling and administrative expenses             550, 000 Net operating loss                                           $ ( 50, 000) PMI produced and sold 60,000 units of EX300 at a price of $20 per unit and 12, 500 units of TX500 at a price of $40 per unit  The company's traditional cost system allocated manufacturing overhead to products using a plantwide overhead rate and direct labor dollar as the allocation base  Additional information relating to the company's two product lines is shown below  EX300 Direct materials                      $ 366, 325 Direct labor                             $ 120, 000 Manufacturing overhead      Cost of goods sold                  000 TX500 Total $ 162, 550 $ 42, 500 $ 528, 875 162, 500 508, 625 $ 1, 200, The company has created an activity based costing system to evaluate the profitability of its products  PMI's ABC implementation team concluded that $50,000 and $100,000 of the company's advertising expenses could directly traced to EX300 and TX500, respectively  The remainder of the selling and administrative expenses was organization   sustaining in nature  The ABC team also distributed the company's manufacturing overhead to four activities as shown below  Manufacturing Activity cost Pool (and activity measure) Overhead Total Machining (machine hours)                      $198, 250 152,500 Setups (setup hours)                                   150, 000 375 Product sustaining costs                            100, 000 2 Other ( organization sustaining costs) 60, 375 NA Total manufacturing overhead cost         $ 508, 625 EX 300 Activity TX 500 90,000 62,500 75 300 1 1 NA NA REQUIRED  1  Using Exhibit 6 12 as a guide, compute the product margins for the EX300 and TX500 under the company's traditional costing system  2  Using Exhibit 6 10 as a guide, compute the product margins for EX300 and TX500 under the activity based costing system  3  Using Exhibit 6 13 as a guide, prepare a quantitative comparison of the traditional and activity based cost assignments  Explain why the traditional and activity   based cost assignments differ  PROBLEM 6 18 Comparing Traditional and Activity Based Product Margin (LO 61, LO 6 3, LO 6 4, LO 6 5)  Rocky mountain corporation makes two types of hiking boots   Xactive and the Pathbreaker   Data concerning these two product lines appear below  Xactive Pathbreaker Selling price per unit                                                    $ 127  00 $ 89  00 Direct materials per unit                                             64  80 51 00 Direct labor per unit                                                     18  20 13 00 Direct labor hours per unit                                         1  4 DLHs 1 0 DLHs Estimated annual production and sales                   25, 000 units 75, 000 units The company has a traditional costing system in which manufacturing overhead is applied to units based on direct labor hours  Data concerning manufacturing overhead and direct labor hours for the upcoming year appear below  Estimated total manufacturing overhead                              $2, 200, 000 Estimated total direct labor hours                                          110, 000 DLHs REQUIRED  1  Using Exhibit 6 12 as a guide, compute the product margins for the Xactive and the Path breaker products under the company's traditional costing system  2  The company I considering replacing its traditional costing system with an activity based costing system that would assign its manufacturing overhead to the following four activity cost pools (Other cost pool includes organizationsustaining costs and idle capacity costs)  Estimated Expected Activity Activities and Activity Measures Overhead cost Xactive Pathbreaker Total Supporting direct labor (direct labor hours) $ 797, 500 35,000 75,000 110, 000 Batch setups (setups)                                       680, 000 250 150 400 Batch setups                                                      650, 000 1 1 2 Other                                                                  72, 500 NA NA NA Total manufacturing overhead cost               $2, 200, 000 Using Exhibit 6 10 as a guide, compute the product margins for the Xactive and the Path breaker products under the activity based costing system  3  Using Exhibit 6 13 as a guide, prepare a quantitative comparison of the traditional and activity based cost assignment  Explain why the traditional and activity based cost assignments differ

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Good morning Mr Shrugal, This Ed Callao. you told me to send my questions which I already did. Did you receive them by any chance.

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