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Cost Accounting Traditions And Innovations 3rd Edition Jesse T. Barfield, Cecily A. Raiborn, Michael R. Kinney - Solutions
One of the inventory items at a company has a purchase price of $40. The annual demand for the item is 40,000 units. It costs $240 to place an order for the material, and out-of-pocket storage costs amount to $4.80 per unit. The company cost of capital is 18 percent.Determine the EOQ.
Coloma Software, Inc., uses 155,000 cartons of computer disks each year. Order costs amount to $620 each time an order is placed. Carrying costs are $125 per carton.Compute the economic order quantity
Olivas Corporation manufactures Errantos, a consumer product, in optimal production runs of 3,500 units 20 times per year. It is estimated that the setup costs(including nonproductive labor) amount to $612.50 for each batch. The company's cost of capital is 20 percent, and the out-of-pocket cost to
The following information relates to Fong Industries: Units required per year .60,000 Cost of placing an order $300 Unit carrying cost per year $400
Assuming that the units will be required evenly throughout the year, what is the EOQ?(1) 200.(2) 300.(3) 400.(4) 500.b. Pierce Incorporated has to manufacture 48,000 blades for its electric lawn mower division. The blades will be used evenly throughout the year. The setup cost every time a
Medina Corporation uses a direct material, Zelda, in its production processes. The company uses 86,000 units of Zelda a year. The carrying costs of Zelda amount to$25.00 per unit, while order costs are $325 per order. The manufacturer of Zelda will only accept orders in lots of even thousands.What
Rollins Company uses 1,620 tankloads a year of a specific input material. The tankloads are delivered by rail to a siding on the company property. The supplier is offering a special discount for buyers of large quantities. The schedule is as follows:Ordering costs amount to $500, and carrying costs
Compute the optimal order quantity. (Round to the nearest whole number.)Considering the situation in exercise 14-20, suppose that the maximum storage capacity for the company is 100 tankloads. What would the optimal order be?Demonstrate why.
Agri-chem Corporation manufactures commercial fertilizer. The manufacturing process requires several inputs including a nitrogen fixer, NFX. The company uses 39,000 units of NFX per year and makes 15 orders per year in economic lot sizes of 2,600 units. The cost to carry a unit of NFX is $32.00. If
company uses 2,700 units of Zeron per year. Each unit has an invoice cost of $317, including shipping costs. Because of the volatile nature of Zeron, it costs $860 for liability insurance on each shipment. The costs of carrying the inventory amount to$75 per unit per year exclusive of a 20 percent
Wildridge Products, Inc., has expressed concern over the erratic delivery times for a critical product, Westovers. The company orders 3,000 at a time and has maintained a safety stock of 200 Westovers but has been experiencing frequent stockouts and production delays. The plant operates 270 days
Refer to the real world application in this chapter. Engineers and production managers often complain that discounted cash flow analysis is biased against investing in new technology. Why might they make such a statement?
city government is considering investing in street reconstruction that will require outlays as follows:Compute the net present value of these cash outlays if the appropriate discount rate is 10 percent. Year 0 ... 2 Item Amount Engineering studies $ 50,000 Project initiation 200,000 Project
Clinton City is considering investment in an addition to the community center that is expected to return the following cash flows:This schedule includes all cash flows from the project. The project will require an immediate cash outlay of $100,000. The city is tax exempt, therefore no taxes need be
Refer to the data in exercise 15..15.a. What is the net present value of the project if the inflation rate is 10 percent and the discount rate under no inflation is 12 percent? (Hint: Inflation affects both cash flows and the nominal rate of interest; and the cash flows for Year 1 are$11,000, 10
The Chill Factor Ski Corporation plans to acquire production equipment at a cost of$200,000 that will be depreciated for tax purposes as follows: Year 1 , $40,000; Year 2,$70,000; and $30,000 per year in each of Years 3-5. An 18 percent discount rate is appropriate for this asset, and the company's
Refer to the data in exercise 15..20.a. Using the accelerated tax depreciation deductions in exercise 15-20, what is the present value of the tax shield if the inflation rate is 8 percent and the no-inflation discount rate is 22 percent?b. What is the present value of the tax shield if the
The Metz Company plans to acquire an asset at a cost of $800,000 that will be depreciated for tax purposes as follows: Year 1, $230,000; Year 2, $300,000; and$90,000 per year in each of Years 3.5. A 15 percent discount rate is appropriate for this asset, and the company's tax rate is 35
Refer to the data in exercise 15.22. Compute the present value of the tax shield from depreciation assuming the asset qualifies for straight-line depreciation ($160,000 per year). Refer to Exhibit A for format.
Refer to the data in exercise 15.22. The no-inflation discount rate is 15 percent.Using the tax depreciation deductions in exercise
, what is the present value of the tax shield if the inflation rate is 6 percent. Refer to Exhibit A for format. 15-22 The Oakland Naval Shipyard bought machine 1 on March 5, Year 1, for $5,000 cash.The estimated salvage was $0, and the estimated life was 1 1 years. On March 5, Year 2, the shipyard
The Complete Cure Hospital is considering buying laboratory equipment with an estimated life of seven years, so they will not have to use outsiders' laboratories for certain types of laboratory work. All of the cash flows affected by the decision are listed below. (The hospital is a nonprofit
Refer to the data in exercise 15.27. Complete the following schedule to calculate the net present value if the real interest rate is 12 percent and inflation is expected to be 8 percent per year. Refer to Illustration 15.11 for present value table under inflation.(Hint: Inflation affects both the
Instant Dinners, Inc. (IDI), is in the business of manufacturing microwavable frozen foods. However, recent competition from the "vacuum packed, store it on the shelf"food manufacturers has necessitated a look at all of IDI's divisions. West Division is in a little financial trouble much to the
Evans Company is considering expanding its manufacturing operations. It can either convert a warehouse it currently owns in the suburbs, or it can expand its current manufacturing plant downtown. After the board of directors approved the expansion, George Watson, the controller, set about to
Management of Essen Manufacturing Company (problem 15-33) received your report on the estimated net present value of the new equipment. (All numbers in 15-33assumed no inflation.) However, management is disturbed about their economist's report, which indicates an expected inflation rate of 6
Company Z has contracted to supply a governmental agency with 50,000 units of a product each year for the next five years. A certain component of this product can either be manufactured by Company Z or purchased from X Corporation, which will enter into a subcontract for 50,000 units of the
The real world application in this chapter about the Alaska North Slope oil field ("NPV Analysis in Oil Exploration") described a project with a long time between initial investment and project returns. What are some of the factors that may have made the use of capital investment techniques helpful
A company with limited investment funds and a cost of capital of 20 percent must choose from among three competing capital investment projects with the following cash flow patterns (in thousands):The company has $600,000 available for investment.How can the company optimally invest its $600,000
Use the same data as in exercise 16.13 and assume that the projects are indivisible(that is. you must buy 100 percent of any project or else none of that project).Determine the optimal investment policy for the company.
Use the same data as in exercise 16.13 and assume that Projects A and B are mutually exclusive and that the projects are indivisible. Determine the optimal investment policy for the company. 16-15 Refer to the data in exercise 16.16. Assume that the projects available to Morris and Associates are
If Morris and Associates (exercise 16.16) can invest in either Software Designs or the Sunset Mall, but not both, and the projects are indivisible, what is the optimal investment policy for the company? Show supporting calculations.
Farm Fresh Corporation is considering whether to invest in a pasteurizing machine that costs $300,000 and will return $80,000 after tax for each of the next seven years.After that the asset will have no value.Compute the following items for this project:a. Payback.b. Internal rate of return (using
Diamondback, Inc., is a manufacturer of western hats. The company has an opportunity to expand production by purchasing a new automatic hat bander. The bander costs $200,000 and is fully depreciable for tax purposes using the straight-line method over a four-year life. The machine will have no
Quintana Company plans to replace an old piece of equipment that has no book value for tax purposes and no salvage value. The replacement equipment will provide annual cash savings of $8,000 before income taxes. The equipment costs $20,000 and will have no salvage value at the end of its five-year
Using the data for Quintana Company in exercise 16.21, compute the following investment performance measures:a. Net present value.b. Present value index.c. Internal rate of return (using a calculator, computer, or trial and error and interpolation).d. Discounted payback.
Hazel Ridge Company is considering a capital investment proposal with an initial cost of $72,000. The asset is depreciated over a six-year period on the straight-line basis for both book and tax purposes. No salvage value is expected at the end of the asset life. The before-tax cash inflow for the
Choose the best answer for each of the following separate cases. All analyses are before tax.Multiple-choice:a. Bartos, Inc., is planning to purchase a new machine for $40,000. The payback period is expected to be five years. The new machine is expected to produce cash flow from operations of
The owner of Ruggles Company, a sole proprietorship, decided she should acquire some new labor-saving equipment. If the equipment is acquired, it may either be leased or a special nonrecourse loan obtained for the total amount of the equipment purchase.The lease calls for payments of $12,500 per
If the marginal tax rate for Ruggles (exercise 16.28) was 60 percent and the after-tax borrowing rate was 6 percent, would your decision in exercise 16-28 remain the same? Show supporting data.
Refer to the information for Mush Paper Company (exercise 16.30). If the relevant tax rate is 45 percent and the annual lease payments are $95,000 for Years 1-6 and$200,000 in Year 7, would your decision in exercise 16-30 remain the same? Show supporting data.
Oakla Realty Partners has $1.4 million available for investment in real estate ventures.The partnership's cost of capital is 18 percent. As a partnership, Oakla pays no income taxes. The company has the following ventures available to it, all of which have seven-year lives:1. Tulsa Shopping Center,
Assume that the projects available to Oakla Realty Partners (problem 16.32) are indivisible. Determine the optimal investment policy for the partnership. Show supporting data.
If Oakla Realty Partners (problem 16.32) can invest in either the Wichita Falls Mixed-Use Development or the Tulsa Shopping Center but not both, and the other projects are divisible, what is the optimal investment policy for the company? Show supporting data.
Assume that a provision of the Federal Tax Code permits a taxpayer to write off 75 percent of the first $10,000 in outlays for new capital equipment. However, if the taxpayer chooses to take the immediate write-off, the taxpayer loses the depreciation tax shield on the full $10,000.Assume your
HighPotential Corporation made a $5,000 investment in equipment that qualifies for a three-year straight-line tax depreciation write-off. The financial manager of High Potential indicated that there is a tax policy that allows the company to write off 90 percent of this investment against current
What issue is General Electric dealing with in this chapter's real world application?
Budgets in not-for-profit organizations have an additional purpose beyond those in for-profit organizations. What is that purpose?
Davidson Bros, is a large securities dealer. Last year, the company made 60,000 trades with an average commission of $225 per trade. Smaller investors are abandoning the market, which is expected to reduce marketwide volume by 16 percent for the coming year. Davidson expects that its volume
Security Atlantic Bank (SAB) has $40 million in commercial loans with an average interest rate of 1 1 .5 percent. The bank also has $30 million in consumer loans with an average interest rate of 15 percent. Finally, the bank owns $8 million in securities with an average rate of 9 percent.SAB
Wright Company manufactures ballpoint pens. Last year, the company sold 450,000 type A pens at a price of $2 per unit. The company estimates that this volume represents a 20 percent share of the current type A pens market. The market is expected to increase by 5 percent. Marketing specialists have
Limbo Corporation has just made its sales forecasts for the coming period. The Marketing Department estimates that the company will sell 480,000 units during the coming year. In the past, management has found that inventories of finished goods should be maintained at approximately two months'
Graphix, Inc., makes a special line of graphic tubing items. For each of the next two years. Years 5 and 6, the company expects to sell 160,000 units. The beginning finished goods inventory, at the start of Year 5, has 40,000 units. However, the target ending finished goods inventory for each year
Inflated Ego Company buys plain mylar balloons and prints different designs on them for various occasions. The plain balloons are imported from Taiwan, so a stock equal to the balloons needed for two months' sales should be kept on hand at all times.Plain balloons cost $1.35 each and must be paid
Kentron Products wishes to purchase goods in one month for sale in the next. On March 31, the company has 4.000 digital tape players in stock, although sales for the next month (April) are estimated to total 4,300 players. Sales for May are expected to equal 3,500 players, and June sales are
Herald Company is preparing its cash budget for the month of April. The following information is available concerning its inventories:What are the estimated cash disbursements in April? Inventories at beginning of April Estimated purchases for April ... Estimated cost of goods sold for April . $
Ishima Corporation is preparing its cash budget for the month of May. The following information is available concerning its accounts receivable:What are the estimated cash receipts from accounts receivable collections in May?(1) $156,000.(2) $163,000.(3) $164,000.(4) $171,000. Estimated credit
Norton Company manufactures infant furniture and carriages. The accounting staff is currently preparing next year's budget. Michelle Jackson is new to the firm and is interested in learning how this process occurs. She has lunch with Maria, the sales manager, and Barry, the production manager, to
Why is a contribution margin format based on variable costing more useful for performance evaluation purposes than the traditional format based on full-absorption costing?
The basic difference between a master budget and a flexible budget is that:(1) A flexible budget considers only variable costs, but a master budget considers all costs.(2) A flexible budget allows management latitude in meeting goals, whereas a master budget is based on a fixed standard.(3) A
A flexible budget is:( 1 ) Appropriate for control of factory overhead but not for control of direct materials and direct labor.(2) Appropriate for control of direct materials and direct labor but not for control of factory overhead.(3) Not appropriate when costs and expenses are affected by
Refer to the real world application for this chapter. Why would managers at MiniScribe ship disk drives to customers who had not ordered them and backdate invoices to the previous fiscal year?
How does the concept of flexible budgeting reinforce the notion that employees should be held responsible for what they can control?
Orcutt Corporation prepared a budget last period that called for sales of 9,000 units at a price of $12 each. The costs were estimated to be $5 variable per unit and $27,000 fixed. During the period, actual production and actual sales were 9,200 units. The selling price was $12.15 per unit.
Refer to the data in exercise 18.14 for Orcutt Corporation. Prepare a sales activity variance analysis like the one in Illustration 18.3.
Refer to the data in exercise 18.17 for Ortega & Reiser. Prepare a sales activity variance analysis like the one in Illustration 18 .3.
Refer to the data in exercise in 18.17 for Ortega & Reiser. Prepare a profit variance analysis like the one in Illustration 18.5 for Ortega & Reiser.
Refer to the data in exercise 18.23 for Visions, Inc. Prepare a sales activity variance analysis like the one in Illustration 18.3.
Use the information for Visions, Inc. (exercise 18.23). Prepare a profit variance analysis like the one in Illustration 18.5.
Taxes 'R Us public accountants perform both audit and tax work for clients. The Tax Department relies on the Audit Department's work to prepare tax returns. On a recent job, the audit team goofed. Consequently, the tax people prepared the tax return improperly.Now, the client is being audited by
The manager of the soldering area in a company that manufactures computer circuit boards asked the manager of the start station to shut down production for a few hours for emergency maintenance work on the soldering machines. The start station manager refused saying, "My job requires me to keep the
Refer to Exhibit 18.30A. Find the values of the missing items (a) through (jc).Variance Analysis Assume that actual sales volume equals actual production volume. (There are no inventory level changes).
Refer to the data in problem 18.32 for the 47th Street Company. Prepare a sales activity variance analysis like the one in Illustration 18.3.
Use the information for the 47th Street Company in problem 18-32 to prepare a profit variance analysis like the one in Illustration 18.5.
What is a joint production process? Give several examples of joint processes.LO1
What are joint products, by-products, and scrap? How do they differ? Which of these product categories provides the greatest incentive or justification to produce?LO1
How does management determine into which category to classify each type of output from a joint process?LO1
When do the multiple products of a joint process gain separate identity?LO1
How are separate costs distinguished from joint costs?LO1
To which types of joint process output is joint cost allocated? Why?LO1
What are the decision points associated with multiple products? By what criteria would management assess whether to proceed at each point?LO1
What is cost allocation and why is it necessary in a joint process?LO1
What are the two primary methods used to allocate joint cost to joint products? Compare the advantages and disadvantages of each.LO1
Why is it sometimes necessary to use an approximated rather than actual net realizable value at split-off to allocate joint cost? How is this approximated value calculated?LO1
Describe two common approaches used to account for by-products.LO1
Wiry must “not-for-profits” allocate joint costs of multipurpose documents or events between “program” and “support” costs?LO1
(Physical and sales value allocations) Bright Academy runs two night programs for adults. During 1998, the following operating data were generated:The general ledger accounts show $38,500 for direct instructional costs and $5,500 for overhead associated with these two programs. The Board of
(Processing beyond split-off) Post Food Processors makes three products in a single joint process. For 1997, the firm processed all three products beyond the split- off point. The following data are generated for the year.Analysis of 1997 market data reveals that these three products could have
(Net realizable value method) Jackson Processing produces three joint products in a single process. The joint cost is $25,000.a. Allocate the joint cost based on net realizable value at split-off. If necessary, use the net realizable value method for accounting for any by-products.b. Determine the
(Approximated net realizable value method) Hanna Chemical Company makes three products that can either be sold or processed further and then sold. The costs associated with the Hanna joint process is $60,000.Per unit, Chemical 1 weighs 3 pounds, Chemical 2 weighs 2 pounds, and Chem- ical 3 weighs 3
(Processing beyond split-off and cost allocations) Sunshine Products has a joint process that makes three products. Joint cost for the process is $30,000.Alpha, Beta, and Gamma weigh 10 pounds, 6 pounds, and 2 pounds, respectively.a. Determine which products should be processed beyond the split-off
(Physical measure allocation) Gruenfeld Chemical Company uses a joint process to manufacture two chemicals. During October 1997, the company incurred $10,000,000 of joint production cost in producing 12,000 tons of Chemical A and 8,000 tons of Chemical B (a ton is equal to 2,000 pounds). Joint cost
(Monetary measure allocation) Wallace Realty has two operating divisions: Leasing and Sales. In March 1998, the firm spent $100,000 for general company pro¬ motions (as opposed to advertisements promoting specific properties). Wilma Hingle, the corporate controller, is now faced with the task of
(Net realizable value allocation) Arizona Mining Limited had the following gem output during October 1997: 1 diamond, 1 carat; multiple rubies, 10 carats; and multiple opals, 20 carats. This production was determined at the split-off point, and the output had to be processed further before the
(Sales value allocation) Vaca Dairy produces milk and sour cream from a joint process. During November, the company produced 120,000 quarts of milk and 160,000 pints of sour cream. Sales value at split-off point was $50,000 for the milk and $110,000 for the sour cream. The milk was assigned $21,600
(Sell or process further) A certain joint process yields two joint products, A and B. The joint cost for May 1998 is $80,000, and the sales value of the output at split-off is $120,000 for Product A and $100,000 for Product B. Management is trying to decide whether to process the products further.
(By-products and cost allocation) Carlsbad Petroleum has a joint process that yields three products: A, B, and C. The company allocates the joint cost to the products on the basis of pounds of output. A particular joint process run cost $125,000 and yielded the following output by weight:The run
(Sell or process further) New England Weavers produces three products (precut fabrics for hats, shirts, and pants) from a joint process. Joint cost is allocated on the basis of relative sales value at split-off. Rather than sell the products at split- off, the company has the option to complete
(By-products and cost allocation) Classic Productions produced two movies (joint products) in 1997 in its Seattle facilities. The company also generated revenue from admissions paid by fans touring the movie production sets. Classic regards the net income from tours as a by-product of movie
(Accounting for by-products) Alabama Mills Company manufactures various wood products that yield sawdust as a by-product. The only costs associated with the sawdust are selling costs of $5 per ton sold. The company accounts for sales of sawdust by deducting sawdust’s net realizable value from the
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