problem 1:

Southside Pizzeria wants to improve its ability to manage the ingredient costs associated with making and selling its pizzas. For the month of June, the company plans to make 1,000 pizzas. It has created a planning budget that includes a cost formula for mozzarella cheese of $2.40 per pizza. At the end of June, Southside actually sold 1,100 pizzas and the actual cost of the cheese that it used during the month was $2,632.

Required:

1. What is the mozzarella cheese activity variance for June?

2. What is the mozzarella cheese spending variance for June?

3. Assume that the company establishes a price standard of $0.30 per ounce for mozzarella cheese and a quantity standard of eight ounces of cheese per pizza. Also, assume that Southside actually used 9,400 ounces of cheese during the month to make 1,100 pizzas.

a. What is the materials price variance for mozzarella cheese for June?

b. What is the materials quantity variance for mozzarella cheese for June?

c. What is the materials spending variance for mozzarella cheese for June?

problem 2:

Hixson Company manufactures and sells one product for $34 per unit. The company maintains no beginning or ending inventories and its relevant range of production is 20,000 units to 30,000 units. When Hixson produces and sells 25,000 units, its unit costs are as follows:

Amount

Per UnitDirect materials$8.00Direct labor$5.00Variable manufacturing overhead$1.00Fixed manufacturing overhead$6.00Fixed selling expense$3.50Fixed administrative expense$2.50Sales commissions$4.00Variable administrative expense$1.00

Required:

1. For financial accounting purposes, what is the total amount of product costs incurred to make 25,000 units? What is the total amount of period costs incurred to sell 25,000 units?

2. If 24,000 units are produced, what is the variable manufacturing cost per unit produced? What is the average fixed manufacturing cost per unit produced?(Round your answers to 2 decimal places.)

3. If 26,000 units are produced, what is the variable manufacturing cost per unit produced? What is the average fixed manufacturing cost per unit produced?(Round your answers to 2 decimal places.)

4. If 27,000 units are produced, what are the total amounts of direct and indirect manufacturing costs incurred to support this level of production?

5. What total incremental manufacturing cost will Hixson incur if it increases production from 25,000 to 25,001 units?(Round your answer to 2 decimal places.)

6. What is Hixson's contribution margin per unit? What is its contribution margin ratio?(Round "Contribution margin per unit" to 2 decimal places and "Contribution margin ratio" to 1 decimal place.)

7. What is Hixson's break-even point in unit sales? What is its break-even point in dollar sales?(Do not round your intermediate values.)

8. How much will Hixson's net operating income increase if it can grow production and sales from 25,000 units to 26,500 units?

9. What is Hixson's margin of safety at a sales volume of 25,000 units?(Do not round your intermediate values.)

10. What is Hixson's degree of operating leverage at a sales volume of 25,000 units?(Round your answer to 1 decimal places.)

problem 3:

Newton Company manufactures and sells one product. The company assembled the following projections for its first year of operations:

Variable costs per unit:Manufacturing:Direct materials$20Direct labor$16Variable manufacturing overhead$4Variable selling and administrative$2Fixed costs per year:Fixed manufacturing overhead$450,000Fixed selling and administrative expenses$70,000

During its first year of operations Newton expects to produce 25,000 units and sell 20,000 units. The budgeted selling price of the company's only product is $66 per unit.

Required:

(answer each question independently by referring to the original data):

1. Assuming that Newton's projections are accurate, what will be its absorption costing net operating income (loss) in its first year of operations?

2. Newton is considering investing in a higher quality raw material that will increase its direct materials cost by $1 per unit. It estimates that the higher quality raw material will increase sales by 1,000 units. What will be the company's revised absorption costing net operating income (loss) if it invests in the higher quality raw material and continues toproduce25,000 units?

3. Newton is considering raising its selling price by $1.00 per unit with an expectation that it will lower unit sales by 1,500 units. What will be the company's revised absorption costing net operating income (loss) if it raises its price by $1.00 and continues toproduce25,000 units?

4. Assuming that Newton's projections are accurate, what will be its variable costing net operating income (loss) in its first year of operations?

5. Newton is considering investing in a higher quality raw material that will increase its direct materials cost by $1 per unit. It estimates that the higher quality raw material will increase sales by 1,000 units. What will be the company's revised variable costing net operating income (loss) if it invests in the higher quality raw material and continues toproduce25,000 units?

6. Newton is considering raising its selling price by $1.00 per unit with an expectation that it will lower unit sales by 1,500 units. What will be the company's revised variable costing net operating income (loss) if it raises its price by $1.00 and continues toproduce25,000 units?

7. What is Newton's break-even point in unit sales? What is its break-even point in dollar sales?

8. What is the company's projected margin of safety in its first year of operations?

problem 4:

Koontz Company manufactures two models of industrial componentsa Basic model and an Advanced Model. The company considers all of its manufacturing overhead costs to be fixed and it uses plantwide manufacturing overhead cost allocation based on direct labor-hours. Koontz's controller prepared the segmented income statement that is shown below for the most recent year (he allocated selling and administrative expenses to products based on sales dollars):

BasicAdvancedTotalNumber of units produced and sold20,00010,00030,000Sales$3,000,000$2,000,000$5,000,000Cost of goods sold2,300,0001,350,0003,650,000Gross margin700,000650,0001,350,000Selling and administrative expenses720,000480,0001,200,000Net operating income (loss)$(20,000)$170,000$150,000

Direct laborers are paid $20 per hour. Direct materials cost $40 per unit for the Basic model and $60 per unit for the Advanced model. Koontz is considering a change from plantwide overhead allocation to a departmental approach. The overhead costs in the company's Molding Department would be allocated based on machine-hours and the overhead costs in its Assembly and Pack Department would be allocated based on direct labor-hours. To enable further analysis, the controller gathered the following information:

MoldingAssemble and PackTotalManufacturing overhead costs$787,500$562,500$1,350,000Direct labor hours:Basic10,00020,00030,000Advanced5,00010,00015,000Machine hours:Basic12,000-12,000Advanced10,000-10,000

Required:

1. Using the plantwide approach:

a. Calculate the plantwide overhead rate.

b. Calculate the amount of overhead that would be assigned to each product.

2. Using a departmental approach:

a. Calculate the departmental overhead rates.

b. Calculate the total amount of overhead that would be assigned to each product.

c. Using your departmental overhead cost allocations, redo the controller's segmented income statement (continue to allocate selling and administrative expenses based on sales dollars).

3. Koontz's production manager has suggested using activity-based costing instead of either the plantwide or departmental approaches. To facilitate the necessary calculations, she assigned the company's total manufacturing overhead cost to five activity cost pools as follows:

Activity Cost PoolActivity MeasureManufacturing OverheadMachiningMachine-hours in Molding$417,500Assemble and packDirect labor hours in Assemble and Pack282,500Order processingNumber of customer orders230,000SetupsSetup hours340,000Other (unused capacity)80,000$1,350,000

She also determined that the average order size for the Basic and Advanced models is 400 units and 50 units, respectively. The molding machines require a setup for each order. One setup hour is required for each customer order of the Basic model and three hours are required to setup for an order of the Advanced model.

The company pays a sales commissions of 5% for the Basic model and 10% for the Advanced model. Its traceable fixed advertising costs include $150,000 for the Basic model and $200,000 for the Advanced model. The remainder of the company's selling and administrative costs are organization-sustaining in nature.

Using the additional information provided by the production manager, calculate:

a. An activity rate for each activity cost pool.

b. The total manufacturing overhead cost allocated to the Basic model and the Advanced model using the activity-based approach.

c. The total selling and administrative cost traced to the Basic model and the Advanced model using the activity-based approach.

4. Using your activity-based cost assignments from requirement 3, prepare a contribution format segmented income statement that is adapted fromExhibit 4-8. (Hint: Organize all of the company's costs into three categories: variable expenses, traceable fixed expenses, and common fixed expenses.)

5. Using your contribution format segmented income statement from requirement 4, calculate the break-even point in dollar sales for the Advanced model.

problem 5:

Simmons Company is a merchandiser with multiple store locations. One of its store managers is considering a shift in her store's product mix in anticipation of a strengthening economy. Her store would invest $800,000 in more expensive merchandise (an increase in its working capital) with the expectation that it would increase annual sales and variable expenses by $400,000 and $250,000, respectively for three years. At the end of the three-year period, the store manager believes that the economic surge will subside; therefore, she will release the additional investment in working capital. The store manager's pay raises are largely determined by her store's return on investment (ROI), which has exceeded 22% each of the last three years.

Click here to viewExhibit 7B-1to determine the appropriate discount factor(s) using table.

Required:

1. Assuming the company's discount rate is 16%, calculate the net present value of the store manager's investment opportunity.

2. Calculate the annual margin, turnover, and return on investment (ROI) provided by the store manager's investment opportunity.

3. Assuming that the company's minimum required rate of return is 16%, calculate the residual income earned by the store manager's investment opportunity for each of years 1 through 3.

4. Do you think the store manager would choose to pursue this investment opportunity? Do you think the company would want the store manager to pursue it?

problem 6:

[The following information applies to the questions displayed below.]

Endless Mountain Company manufactures a single product that is popular with outdoor recreation enthusiasts. The company sells its product to retailers throughout the northeastern quadrant of the United States. It is in the process of creating a master budget for 2019 and reports a balance sheet at December 31, 2018 as follows:

Endless Mountain CompanyBalance SheetDecember 31, 2018 AssetsCurrent assets:Cash$46,200Accounts receivable (net)260,000Raw materials inventory (4,500 yards)11,250Finished goods inventory (1,500 units)32,250Total current assets$349,700Plant and equipment:Buildings and equipment900,000Accumulated depreciation(292,000)Plant and equipment, net608,000Total assets$957,700Liabilities and Stockholders' EquityCurrent liabilities:Accounts payable$158,000Stockholders' equity:Common stock$419,800Retained earnings379,900Total stockholders' equity799,700Total liabilities and stockholders' equity$957,700

The company's chief financial officer (CFO), in consultation with various managers across the organization has developed the following set of assumptions to help create the 2019 budget:

1. The budgeted unit sales are 12,000 units, 37,000 units, 15,000 units, and 25,000 units for quarters 1-4, respectively. Notice that the company experiences peak sales in the second and fourth quarters. The budgeted selling price for the year is $32 per unit. The budgeted unit sales for the first quarter of 2020 is 13,000 units.
2. All sales are on credit. Uncollectible accounts are negligible and can be ignored. Seventy-five percent of all credit sales are collected in the quarter of the sale and 25% are collected in the subsequent quarter.
3. Each quarter's ending finished goods inventory should equal 15% of the next quarter's unit sales.
4. Each unit of finished goods requires 3.5 yards of raw material that costs $3.00 per yard. Each quarter's ending raw materials inventory should equal 10% of the next quarter's production needs. The estimated ending raw materials inventory on December 31, 2019 is 5,000 yards.
5. Seventy percent of each quarter's purchases are paid for in the quarter of purchase. The remaining 30% of each quarter's purchases are paid in the following quarter.
6. Direct laborers are paid $18 an hour and each unit of finished goods requires 0.25 direct labor-hours to complete. All direct labor costs are paid in the quarter incurred.
7. The budgeted variable manufacturing overhead per direct labor-hour is $3.00. The quarterly fixed manufacturing overhead is $150,000 including $20,000 of depreciation on equipment. The number of direct labor-hours is used as the allocation base for the budgeted plantwide overhead rate. All overhead costs (excluding depreciation) are paid in the quarter incurred.
8. The budgeted variable selling and administrative expense is $1.25 per unit sold. The fixed selling and administrative expenses per quarter include advertising ($25,000), executive salaries ($64,000), insurance ($12,000), property tax ($8,000), and depreciation expense ($8,000). All selling and administrative expenses (excluding depreciation) are paid in the quarter incurred.
9. The company plans to maintain a minimum cash balance at the end of each quarter of $30,000. Assume that any borrowings take place on the first day of the quarter. To the extent possible, the company will repay principal and interest on any borrowings on the last day of the fourth quarter. The company's lender imposes a simple interest rate of 3% per quarter on any borrowings.
10. Dividends of $15,000 will be declared and paid in each quarter.
11. The company uses a last-in, first-out (LIFO) inventory flow assumption. This means that the most recently purchased raw materials are the "first-out" to production and the most recently completed finished goods are the "first-out" to customers.

Required:

The company's CFO has asked you to prepare the 2019 master budget. To fulfill this request, prepare the following budget schedules and financial statements.

1. Quarterly sales budget including a schedule of expected cash collections.

2. Quarterly production budget.

3. Quarterly direct materials budget including a schedule of expected cash disbursements for purchases of materials.

4. Quarterly direct labor budget.

5. Quarterly manufacturing overhead budget.

6. Ending finished goods inventory budget at December 31, 2019.

7. Quarterly selling and administrative expense budget.

8. Quarterly cash budget.

9. Income statement for the year ended December 31, 2019.

10. Balance sheet at December 31, 2019.