Need help with some accounting, document attached.

1. Activity-based costing requires four steps.

Requirement

R1. Rank the following steps in the order in which they would be completed.

Number the first step as ?1? until you have ranked all four steps.

a. Compute the cost allocation rate for each activity.

b. Identify the cost driver for each activity and estimate the total quantity of each driver?s allocation base.

c. Allocate indirect costs to the cost object.

d. Identify each activity and estimate its total indirect cost.

2. Harry, Inc. manufactures motor scooters. Consider each of the following examples of quality costs.

Requirement

Indicate which of the following quality cost categories each example represents.

P: Prevention costs

A: Appraisal costs

IF: Internal failure costs

EF: External failure costs

3. Farragut, Inc., uses activity-based costing to account for its chrome bumper manufacturing process. Company managers have identified four manufacturing activities: materials handling, machine setup, insertion of parts, and finishing. The budgeted activity costs for 2010 and their allocation bases are as follows:

Farragut expects to produce 1,000 chrome bumpers during the year. The bumpers are expected to use 3,000 parts, require 20 setups, and consume 2,000 hours of finishing time.

Requirements

R1. Compute the cost allocation rate for each activity.

R2. Compute the indirect manufacturing cost of each bumper.

4. Erickson Company manufactures wheel rims. The controller budgeted the following ABC allocation rates for 2010:

The number of parts is now a feasible allocation base because Erickson recently purchased bar coding technology. Erickson produces two wheel rim models: standard and deluxe. Budgeted data for 2010 are as follows:

The company expects to produce 1,000 units of each model during the year.

Requirements

R1. Compute the total budgeted indirect manufacturing cost for 2010.

R2. Compute the ABC indirect manufacturing cost per unit of each model. Carry each cost to the nearest cent.

R3. Prior to 2010, Erickson used a direct labor hour single-allocation-base system. Compute the (single) allocation rate based on direct labor hours for 2010. Use this rate to determine the indirect manufacturing cost per wheel rim for each model, to the nearest cent.

5. Refer to exercise 4. For 2011, Erickson?s managers have decided to use the same indirect manufacturing costs per wheel rim that they computed in 2010. In addition to the unit indirect manufacturing costs, the following data are budgeted for the company?s standard and deluxe models for 2011:

Because of limited machine-hour capacity, Erickson can produce either 2,000 standard rims or 2,000 deluxe rims.

Requirements

R1. If Erickson?s managers rely on the ABC unit cost data computed in 17-16, which model will they produce? Carry each cost to the nearest cent. (All nonmanufacturing costs are the same for both models.)

R2. If the managers rely on the single-allocation-base cost data, which model will they produce?

R3. Which course of action will yield more income for Erickson?

6. Refer to exercises 4 and 5. Controller Michael Bender is surprised by the increase in cost of the deluxe model under ABC. Market research shows that for the deluxe rim to provide a reasonable profit, Erickson will have to meet a target manufacturing cost of $454 per rim. A value engineering study by Erickson?s employees suggests that modifications to the finishing process could cut finishing cost from $30 to $20 per hour and reduce the finishing direct labor hours per deluxe rim from 4.5 hours to 4 hours. Direct materials would remain unchanged at $51 per rim, as would direct labor at $54 per rim. The materials handling, machine setup, and insertion of parts activity costs also would remain the same.

Requirement

Would implementing the value engineering recommendation enable Erickson to achieve its target cost for the deluxe rim?

7. Lally, Inc., produces universal remote controls. Lally uses a JIT costing system. One of the company?s products has a standard direct materials cost of $7 per unit and a standard conversion cost of $26 per unit. During January 2011, Lally produced 575 units and sold 570. It purchased $6,800 of direct materials and incurred actual conversion costs totaling $14,000.

Requirements

R1. Prepare summary journal entries for January.

R2. The January 1, 2011, balance of the Raw and in-process inventory account was $40. Use a T-account to find the January 31 balance.

R3. Use a T-account to determine whether Conversion costs are over- or underallocated for the month. By how much? Give the journal entry to close the Conversion costs account.

8. Millan & Co. makes electronic components. Mike Millan, the president, recently instructed vice president Steve Bensen to develop a total quality control program. ?If we don?t at least match the quality improvements our competitors are making,? he told Bensen, ?we?ll soon be out of business.? Bensen began by listing various ?costs of quality? that Millan incurs. The first six items that came to mind were:

Requirement

Classify each item as a prevention cost, an appraisal cost, an internal failure cost, or an external failure cost.

9. Allen, Inc. manufactures bookcases and uses an activity-based costing system. Allen?s activity areas and related data follow:

Allen produced two styles of bookcases in April: the standard bookcase and an unfinished bookcase, which has fewer parts and requires no finishing. The totals for quantities, direct materials costs, and other data follow:

Requirements

R1. Compute the manufacturing product cost per unit of each type of bookcase.

R2. Suppose that premanufacturing activities, such as product design, were assigned to the standard bookcases at $5 each, and to the unfinished bookcases at $4 each. Similar analyses were conducted of postmanufacturing activities such as distribution, marketing, and customer service. The postmanufacturing costs were $21 per standard bookcase and $18 per unfinished bookcase. Compute the full product costs per unit.

R3. Which product costs are reported in the external financial statements? Which costs are used for management decision making? Explain the difference.

R4. What price should Allen?s managers set for unfinished bookcases to earn a unit profit of $19?

10. Lori, Inc., is using a costs-of-quality approach to evaluate design engineering efforts for a new skateboard. Lori?s senior managers expect the engineering work to reduce appraisal, internal failure, and external failure activities. The predicted reductions in activities over the 2-year life of the skateboards follow. Also shown are the cost allocation rates for each activity.

Requirements

R1. Calculate the predicted quality cost savings from the design engineering work.

R2. Lori spent $102,000 on design engineering for the new skateboard. What is the net benefit of this ?preventive? quality activity?

R3. What major difficulty would Lori?s managers have in implementing this costs-of quality approach? What alternative approach could they use to measure quality improvement?

11. Review the following activities of the capital budgeting process:

Requirement

Place the activities in sequential order as they occur in the capital budgeting process.

12. Consider how White Valley Snow Park Lodge could use capital budgeting to decide whether the $12,500,000 Brook Park Lodge expansion would be a good investment. Assume White Valley?s managers developed the following estimates concerning the expansion:

Assume that White Valley uses the straight-line depreciation method and expects the lodge expansion to have a residual value of $600,000 at the end of its 12-year life.

Requirements

R1. Compute the average annual net cash inflow from the expansion.

R2. Compute the average annual operating income from the expansion.

13. Refer to the White Valley Snow Park Lodge expansion project in exercise 2.

Requirement

Compute the payback period for the expansion project.

14. Refer to the White Valley Snow Park Lodge expansion project in exercise 2.

Requirement

Calculate the ARR.

15. Refer to the White Valley Snow Park Lodge expansion project in exercise 2. Assume the

expansion has zero residual value.

Requirements

R1. Will the payback period change? Explain your answer and recalculate if necessary.

R2. Will the project?s ARR change? Explain your answer and recalculate if necessary.

R3. Assume White Valley screens its potential capital investments using the following decision criteria:

Will White Valley consider this project further, or reject it?

16. Suppose White Valley is deciding whether to purchase new accounting software. The payback period for the $27,375 software package is five years, and the software?s expected life is three years. White Valley?s required rate of return is 12.0%.

Requirement

Assuming equal yearly cash flows, what are the expected annual cash savings from the new software?

17. Your grandfather would like to share some of his fortune with you. He offers to give you money under one of the following scenarios (you get to choose):

Requirement

Calculate the present value of each scenario using an 8% discount rate. Which scenario yields the highest present value? Would your preference change if you used a 10% discount rate?

18. Assume you make the following investments:

Requirement

Calculate the value of each investment at the end of three years.

19. Use the Present Value of $1 table (Appendix B, Table A) to determine the present value of $1 received one year from now. Assume a 14% interest rate. Use the same table to find the present value of $1 received two years from now. Continue this process for a total of five years.

Requirements

R1. What is the total present value of the cash flows received over the five-year period?

R2. Could you characterize this stream of cash flows as an annuity? Why, or why not?

R3. Use the Present Value of Annuity of $1 table (Appendix B, Table B) to determine the present value of the same stream of cash flows. Compare your results to your answer to part 1.

R4. Explain your findings.

20. Refer to the White Valley Snow Park Lodge expansion project in exercise 2.

Requirement

What is the project?s NPV? Is the investment attractive? Why?

21. Consider the following statements about capital budgeting.

Requirement

Fill in each statement with the appropriate capital budgeting method: Payback

period, ARR, NPV, or IRR.

Decision Case

Dominic Hunter, a second-year business student at the University of Utah, will graduate in two years with an accounting major and a Spanish minor. Hunter is trying to decide where to work this summer. He has two choices: work full-time for a bottling plant or work part-time in the accounting department of a meat-packing plant. He probably will work at the same place next summer as well. He is able to work 12 weeks during the summer. The bottling plant will pay Hunter $380 per week this year and 7% more next summer. At the meat-packing plant, he could work 20 hours per week at $8.75 per hour. By working only part-time, he could take two accounting courses this summer. Tuition is $225 per hour for each of the four-hour courses. Hunter believes that the experience he gains this summer will qualify him for a full-time accounting position with the meat-packing plant next summer. That position will pay $550 per week. Hunter sees two additional benefits of working part-time this summer. First, he could reduce his studying workload during the fall and spring semesters by one course each term. Second, he would have the time to work as a grader in the university?s accounting department during the 15-week fall term. Grading pays $50 per week.

Requirements

R1. Suppose that Hunter ignores the time value of money in decisions that cover this short time period. Suppose also that his sole goal is to make as much money as possible between now and the end of next summer. What should he do? What nonquantitative factors might Dominic consider? What would you do if you were faced with these alternatives?

R2. Now suppose that Hunter considers the time value of money for all cash flows

that he expects to receive one year or more in the future. Which alternative does this consideration favor? Why?

1. Activity-based costing requires four steps. Requirement R1. Rank the following steps in the order in which they would be completed. Number the first step as \"1\" until you have ranked all four steps. a. Compute the cost allocation rate for each activity. b. Identify the cost driver for each activity and estimate the total quantity of each driver's allocation base. c. Allocate indirect costs to the cost object. d. Identify each activity and estimate its total indirect cost. 2. Harry, Inc. manufactures motor scooters. Consider each of the following examples of quality costs. Requirement Indicate which of the following quality cost categories each example represents. P: Prevention costs A: Appraisal costs IF: Internal failure costs EF: External failure costs 3. Farragut, Inc., uses activity-based costing to account for its chrome bumper manufacturing process. Company managers have identified four manufacturing activities: materials handling, machine setup, insertion of parts, and finishing. The budgeted activity costs for 2010 and their allocation bases are as follows: Farragut expects to produce 1,000 chrome bumpers during the year. The bumpers are expected to use 3,000 parts, require 20 setups, and consume 2,000 hours of finishing time. Requirements R1. Compute the cost allocation rate for each activity. R2. Compute the indirect manufacturing cost of each bumper. 4. Erickson Company manufactures wheel rims. The controller budgeted the following ABC allocation rates for 2010: The number of parts is now a feasible allocation base because Erickson recently purchased bar coding technology. Erickson produces two wheel rim models: standard and deluxe. Budgeted data for 2010 are as follows: The company expects to produce 1,000 units of each model during the year. Requirements R1. Compute the total budgeted indirect manufacturing cost for 2010. R2. Compute the ABC indirect manufacturing cost per unit of each model. Carry each cost to the nearest cent. R3. Prior to 2010, Erickson used a direct labor hour single-allocation-base system. Compute the (single) allocation rate based on direct labor hours for 2010. Use this rate to determine the indirect manufacturing cost per wheel rim for each model, to the nearest cent. 5. Refer to exercise 4. For 2011, Erickson's managers have decided to use the same indirect manufacturing costs per wheel rim that they computed in 2010. In addition to the unit indirect manufacturing costs, the following data are budgeted for the company's standard and deluxe models for 2011: Because of limited machine-hour capacity, Erickson can produce either 2,000 standard rims or 2,000 deluxe rims. Requirements R1. If Erickson's managers rely on the ABC unit cost data computed in 17-16, which model will they produce? Carry each cost to the nearest cent. (All nonmanufacturing costs are the same for both models.) R2. If the managers rely on the single-allocation-base cost data, which model will they produce? R3. Which course of action will yield more income for Erickson? 6. Refer to exercises 4 and 5. Controller Michael Bender is surprised by the increase in cost of the deluxe model under ABC. Market research shows that for the deluxe rim to provide a reasonable profit, Erickson will have to meet a target manufacturing cost of $454 per rim. A value engineering study by Erickson's employees suggests that modifications to the finishing process could cut finishing cost from $30 to $20 per hour and reduce the finishing direct labor hours per deluxe rim from 4.5 hours to 4 hours. Direct materials would remain unchanged at $51 per rim, as would direct labor at $54 per rim. The materials handling, machine setup, and insertion of parts activity costs also would remain the same. Requirement Would implementing the value engineering recommendation enable Erickson to achieve its target cost for the deluxe rim? 7. Lally, Inc., produces universal remote controls. Lally uses a JIT costing system. One of the company's products has a standard direct materials cost of $7 per unit and a standard conversion cost of $26 per unit. During January 2011, Lally produced 575 units and sold 570. It purchased $6,800 of direct materials and incurred actual conversion costs totaling $14,000. Requirements R1. Prepare summary journal entries for January. R2. The January 1, 2011, balance of the Raw and in-process inventory account was $40. Use a T-account to find the January 31 balance. R3. Use a T-account to determine whether Conversion costs are over- or underallocated for the month. By how much? Give the journal entry to close the Conversion costs account. 8. Millan & Co. makes electronic components. Mike Millan, the president, recently instructed vice president Steve Bensen to develop a total quality control program. \"If we don't at least match the quality improvements our competitors are making,\" he told Bensen, \"we'll soon be out of business.\" Bensen began by listing various \"costs of quality\" that Millan incurs. The first six items that came to mind were: Requirement Classify each item as a prevention cost, an appraisal cost, an internal failure cost, or an external failure cost. 9. Allen, Inc. manufactures bookcases and uses an activity-based costing system. Allen's activity areas and related data follow: Allen produced two styles of bookcases in April: the standard bookcase and an unfinished bookcase, which has fewer parts and requires no finishing. The totals for quantities, direct materials costs, and other data follow: Requirements R1. Compute the manufacturing product cost per unit of each type of bookcase. R2. Suppose that premanufacturing activities, such as product design, were assigned to the standard bookcases at $5 each, and to the unfinished bookcases at $4 each. Similar analyses were conducted of postmanufacturing activities such as distribution, marketing, and customer service. The postmanufacturing costs were $21 per standard bookcase and $18 per unfinished bookcase. Compute the full product costs per unit. R3. Which product costs are reported in the external financial statements? Which costs are used for management decision making? Explain the difference. R4. What price should Allen's managers set for unfinished bookcases to earn a unit profit of $19? 10. Lori, Inc., is using a costs-of-quality approach to evaluate design engineering efforts for a new skateboard. Lori's senior managers expect the engineering work to reduce appraisal, internal failure, and external failure activities. The predicted reductions in activities over the 2-year life of the skateboards follow. Also shown are the cost allocation rates for each activity. Requirements R1. Calculate the predicted quality cost savings from the design engineering work. R2. Lori spent $102,000 on design engineering for the new skateboard. What is the net benefit of this \"preventive\" quality activity? R3. What major difficulty would Lori's managers have in implementing this costs-of quality approach? What alternative approach could they use to measure quality improvement? 11. Review the following activities of the capital budgeting process: Requirement Place the activities in sequential order as they occur in the capital budgeting process. 12. Consider how White Valley Snow Park Lodge could use capital budgeting to decide whether the $12,500,000 Brook Park Lodge expansion would be a good investment. Assume White Valley's managers developed the following estimates concerning the expansion: Assume that White Valley uses the straight-line depreciation method and expects the lodge expansion to have a residual value of $600,000 at the end of its 12-year life. Requirements R1. Compute the average annual net cash inflow from the expansion. R2. Compute the average annual operating income from the expansion. 13. Refer to the White Valley Snow Park Lodge expansion project in exercise 2. Requirement Compute the payback period for the expansion project. 14. Refer to the White Valley Snow Park Lodge expansion project in exercise 2. Requirement Calculate the ARR. 15. Refer to the White Valley Snow Park Lodge expansion project in exercise 2. Assume the expansion has zero residual value. Requirements R1. Will the payback period change? Explain your answer and recalculate if necessary. R2. Will the project's ARR change? Explain your answer and recalculate if necessary. R3. Assume White Valley screens its potential capital investments using the following decision criteria: Will White Valley consider this project further, or reject it? 16. Suppose White Valley is deciding whether to purchase new accounting software. The payback period for the $27,375 software package is five years, and the software's expected life is three years. White Valley's required rate of return is 12.0%. Requirement Assuming equal yearly cash flows, what are the expected annual cash savings from the new software? 17. Your grandfather would like to share some of his fortune with you. He offers to give you money under one of the following scenarios (you get to choose): Requirement Calculate the present value of each scenario using an 8% discount rate. Which scenario yields the highest present value? Would your preference change if you used a 10% discount rate? 18. Assume you make the following investments: Requirement Calculate the value of each investment at the end of three years. 19. Use the Present Value of $1 table (Appendix B, Table A) to determine the present value of $1 received one year from now. Assume a 14% interest rate. Use the same table to find the present value of $1 received two years from now. Continue this process for a total of five years. Requirements R1. What is the total present value of the cash flows received over the five-year period? R2. Could you characterize this stream of cash flows as an annuity? Why, or why not? R3. Use the Present Value of Annuity of $1 table (Appendix B, Table B) to determine the present value of the same stream of cash flows. Compare your results to your answer to part 1. R4. Explain your findings. 20. Refer to the White Valley Snow Park Lodge expansion project in exercise 2. Requirement What is the project's NPV? Is the investment attractive? Why? 21. Consider the following statements about capital budgeting. Requirement Fill in each statement with the appropriate capital budgeting method: Payback period, ARR, NPV, or IRR. Decision Case Dominic Hunter, a second-year business student at the University of Utah, will graduate in two years with an accounting major and a Spanish minor. Hunter is trying to decide where to work this summer. He has two choices: work full-time for a bottling plant or work part-time in the accounting department of a meat-packing plant. He probably will work at the same place next summer as well. He is able to work 12 weeks during the summer. The bottling plant will pay Hunter $380 per week this year and 7% more next summer. At the meat-packing plant, he could work 20 hours per week at $8.75 per hour. By working only part-time, he could take two accounting courses this summer. Tuition is $225 per hour for each of the fourhour courses. Hunter believes that the experience he gains this summer will qualify him for a full-time accounting position with the meat-packing plant next summer. That position will pay $550 per week. Hunter sees two additional benefits of working part-time this summer. First, he could reduce his studying workload during the fall and spring semesters by one course each term. Second, he would have the time to work as a grader in the university's accounting department during the 15-week fall term. Grading pays $50 per week. Requirements R1. Suppose that Hunter ignores the time value of money in decisions that cover this short time period. Suppose also that his sole goal is to make as much money as possible between now and the end of next summer. What should he do? What nonquantitative factors might Dominic consider? What would you do if you were faced with these alternatives? R2. Now suppose that Hunter considers the time value of money for all cash flows that he expects to receive one year or more in the future. Which alternative does this consideration favor? Why