Question
Players Sports has a machine that can be used to sharpen skill-saws and/or sharpen skates. The machine is available 8 hours per day for 25
Players Sports has a machine that can be used to sharpen skill-saws and/or sharpen skates. The machine is available 8 hours per day for 25 days per month.
They charge $22.00 to sharpen a skill-saw. This process consumes $2.00 worth of supplies. The machine can sharpen 2 skill-saws per hour.
They charge $5.25 to sharpen a pair of skates. The process consumes $0.25 worth of supplies.
Each skate uses 3 minutes of machine time (6 minutes per pair).
The total demand for skill-saw sharpening is 800 per month.
The total demand for skate sharpening is 1,200 pairs per month.
Fixed costs related to the machine (insurance, repair contract, labour, amortization, etc.) total $3,200 per month. The marginal tax rate is 40%.
Required:
- Compute the optimal use of machine hours per month. In other words, how many hours for saws? For skates?
- Compute the number of skill-saw sharpenings and skate sharpenings and the contribution margin at this level of usage.
- Compute the operating income at this level of usage.
- Compute the net income (after-tax) at this level of usage.
Question 2 Activity Costing Exercise
We just cant seem to make any money, exclaimed the President. Profits are falling every month. This month we lost money. What is going on?
A quick look at the books revealed that the company had $250,000 in manufacturing overhead costs. The $250,000 had traditionally been applied based on Direct Labour hours. The company used 10,000 Direct Labour hours, so a pre-determined rate of $25 per Direct Labour Hour was used.
| Product Y | Product Z | |||
Direct Materials | $10 | $18 |
| ||
Direct Labour |
|
|
| ||
(1 hour) | $20 |
|
| ||
(2 hours) |
| $40 |
| ||
Manufacturing Overhead | $25 | $50 |
| ||
Total Cost | $55 | $108 |
| ||
The company has been selling 5 of the cheaper product Y for each unit of Product Z. The company used a 40% markup to cover non-manufacturing operating costs.
| Product Y | Product Z | |||
Selling Price | $77.00 | $151.20 |
| ||
An in-plant study recently revealed that the $250,000 could be traced to the following activities:
Activity | Cost | Total Number for Year |
Material moves | $30,000 | 15,000 moves |
Inspections | $20,000 | 20,000 inspections |
Machinery hours | $90,000 | 9,000 machine hours |
Testing | $10,000 | 5,000 tests |
Setups | $60,000 | 60,000 setups |
Receiving | $40,000 | 10,000 orders processed |
| $250,000 |
|
Further inspection revealed the following activities related to Products Y and Z.
| Product Y | Product Z |
Material moves | 3 | 4 |
Inspections | 2 | 3 |
Machinery hours | 2 | 1 |
Testing | 3 | 3 |
Setups | 4 | 6 |
Receiving | 2 | 1 |
Required: Advise the President on the cause and solution for the current dilemma.
Determine what the new selling prices should be for Products Y and Z.
Question 3 Job Costing
On March 1, Pixma Company had the following balances in its inventory accounts:
Raw Materials $42,000
Work in Process $ 9,905
Finished Goods $ 0
Work in Process of $9,905 on March 1 was made up of three jobs with the following costs:
| Job 817 | Job 818 | Job 819 |
Raw materials | $2,100 | $1,410 | $1,915 |
Direct labour | 900 | 850 | 1,050 |
Applied overhead | 540 | 510 | 630 |
Hint:
Add these to get your beginning WIP amounts for March.
During March, the following transactions occurred:
- Materials purchased on account: $15,000
- Materials requisitions: Job 817: $8,500; Job 818: $7,200; Job 819: $12,300
- Job time tickets collected and summarized: Job 817: 185 hours at $10 per hour; Job 818: 175 hours at $11 per hour; Job 819: 235 hours at $10 per hour
- Overhead is applied on the basis of direct labour cost.
[Hint: Look at the overhead applied to Jobs 817-819 to determine the overhead rate.]
- Actual overhead: $3,500 (assume cash)
- Jobs 817 and 818 were completed and transferred to the finished goods warehouse.
- Job 818 was shipped and the customer was billed for 160 percent of the cost.
- Close overhead to Cost of Goods Sold (no pro-rating).
Required:
- Prepare the journal entries for transactions (a) through (h).
Use the reverse side of this page.
- Prepare job-order cost sheets for Jobs 817, 818, and 819. Post the beginning inventory data, and then update the cost sheets for the March activity.
- Calculate the March 31 balances for the three inventory accounts.
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