Question No. 1-2

The estimated costs of producing 6,000 units of a component are:

Per Unit

Direct Material $10

Direct Labor 8

Applied Variable Factory Overhead 9

Applied Fixed Factory Overhead 12

$1.5 per direct labor dollar

The same component can be purchased from market at a price of $29 per unit. If the component is purchased from market, 25% of the fixed factory overhead will be saved.

Required:

a.Should the component be purchased from the market?

b.Being a production manager, provide your logical opinion on choosing between purchasing the component from market or producing in-house

Question No. 2

Contemporary Trends sells paint and paint supplies carpet and wallpaper at a single store location in suburban Baltimore Although the company has been very profitable over the year management has seen very profitable over the year management has seen a significant decline in wallpaper sales and earnings Much of this decline is attributable to the internet and to companies that advertise deeply discounted prices in magazines and offer customer free shipping and toll free telephone number recent figures follow:

Paint and supplies Carpeting wallpaper

Sales 190,000 230,000 70,000

Less variable cost 114,000 161,000 56,000

Fixed costs 28,000 37,500 22,000

Total cost 142,000 198,500 78,000

operating income 48,000 31,500 -8,000

Management is studying whether to drop wallpaper because of the changing market and accompanying loss if the line is dropped the following changes are expected to occur

a.The vacated space will be remodeled at a cost of 15,000 and will be devoted to an expanded line of high and carpet sales of carpet are expected to increase by 100,000

b.Contemporary can cut wallpapers fixed costs by 50%

c.Sales of paint and paint supplies are expected to fall by 30%

Considering (a), (b) and (c), explain your decision whether to drop or retain the wallpaper

Question No. 3

HASF PVT.LTD

BUDGETED INCOME STATEMENT

FOR 1^st QUARTER 1999

Description JANUARY FEBRUARY MARCH

Sales 285,000 323,000 221,000

Purchases 129,000 168,000 95,000

Wages 35,000 37,000 30,000

Supplies 26,000 23,000 21,500

Utilities 6,500 8,700 7,200

Rent 15,000 12,800 13,600

Insurance 12,000 12,000 12,000

Advertising 24,500 28,500 18,000

Depreciation 20,000 20,000 20,000

Net Profit 17,000 13,000 3,700

Required:

a.Please make a cash budget for the months of January, February and March 1999 based on the data for:

View Receivable Trend:

30% of Sales are collected in the month of sale

30% of Sales are collected after the month of sale

40% of Sales are collected two months after the sale is made

View Payable Trend:

10% of Purchases are paid for in the month of purchase

35% of Purchases are paid after the month of purchase

55% of Purchases are paid two months after the purchase is made

Additional Information:

Rent and Insurance expense were prepaid at the end of 1998

All other expenses are paid for in the month they were incurred

November Sales = 195,000

November Purchases = 100,000

December Sales = 250,000

December Purchases = 165,000

Please see attached Budgeted Income Statement for 1st Quarter 1999

b.Being a CFO of the company, interpret the importance budget in strategic and operational planning of the company

Question No. 7

During June HASF company material purchases amounted to 5,000 pounds at a price of 7 per pound. Actual costs incurred in the production of 5,000 units were as follows

Total direct labor cost 100,000 @10 per hour

Cost of Material used 70,000

The standards for one units of company product are as follows

Direct LaborDirect Material

- 3 hours required for one unit - 2 pounds of Material required for one unit

- Rate 24 per hour - Price 20 per pound

Required:

a.Compute the following

Material variance

Material quantity variance

Material price variance

b.Being an accounting expert, elaborate that how standard costing system facilitates managerial planning, reduction in production costs and decision making. Use your analytical thinking to answer the question