Hello Asmalhotra,

This is a separate request for help. Could you also assist with Memories, Inc. case Part 2? The attachedMemories, Inc.file doesnot contain thesolutions to the following questions D, E, F, & G. Kindly forward solutions to the following at your earliest convenience. Thank you for your help!

D. Prepare a cost of goods manufactured schedule for Year 2 using actual overhead.

E. Prepare a cost of goods sold schedule for Year 2 using actual overhead.

F. Calculate MI's operating income (before taxes) for Year 2.

G. The marketing manager estimates that Year 3 sales will be 385,000 dolls and 30,000 replicas. The production manager is concerned about being able to produce that number of figurines without incurring significant overtime or making changes in the production process. Outline the possible problems, potential objectives, and options that MI should consider.

Memories, Inc. Required Part 1: A. What is an appropriate cost driver for allocating overhead to dolls in Year 1? (Explain your reasoning for choosing the driver.) The appropriate cost driver for allocating the overhead is units produced. There are 10 production lines and each line has five workers. The performance of the lines can be best judged from the units produced. B. Calculate the predetermined overhead rate using the cost driver you identifed in A. (Units produced) Estimated Overhead costs Estimated Units of production Predetermined Overhead Rate $191,700 346,125 $0.55 per doll C. Using normal costing, compute the cost of one of the 336,033 dolls produced in Year 1. Computation of cost of one doll Direct Material Direct Labor Overhead applied Total cost of the dolls produced Number of dolls produced Cost of doll $248,664 $840,082 $186,111 $1,274,857 336,033 $3.79 D. Was overhead over- or under-applied during the year? By how much? Why do you think this happened? Actual Overhead costs Applied overhead Overhead under applied $193,000 186,111 $6,889 Overhead was under applied due to cost differences ($0.55 - $0.57) and utilization differences (346,125 - 336,033) Memories, Inc. Required Part 2: A. Can Memories, Inc. still allocate overhead in Year 2 using the same cost driver used in Year 1? If not, what appears to be the most logical cost driver to use? In the second year, MI has added a new product in their production line. The number of units produced are different and usage of overhead will depend on the time taken for production. Hence the overhead allocation should be based on the labor hours taken for production. In view of above, it is recommended to allocate the overheads based on direct labor hours. B. Compute a predetermined overhead rate for MI in Year 2 using labor hours. Estimated Overhead costs Estimated Direct labir hours Predetermined Overhead Rate $201,285 94,500 $2.13 per labor hour C. Using normal costing and the predetermined rate from B, compute the total manufacturing cost for 345,132 dolls and 25,200 replicas produced in Year 2, as well as the cost per doll and the cost per replica. Was overhead under-applied or over-applied? By how much? Computation of cost of Production Direct Material Direct Labor Overhead applied Total cost of production Number of units produced Cost of doll Actual Overhead costs Applied overhead Overhead under applied Dolls $259,000 $862,830 $183,783 replicas $15,624 $70,010 $14,912 Total $274,624 $932,840 $198,695 $1,305,613 345,132 $3.78 $100,546 25200 $3.99 $1,406,159 $203,600 198,695 $4,905 D. Prepare a cost of goods manufactured schedule for Year 2 using actual overhead. E. Prepare a cost of goods sold schedule for Year 2 using actual overhead. F. Calculate MI's operating income (before taxes) for Year 2. G. The marketing manager estimates that Year 3 sales will be 385,000 dolls and 30,000 replicas. The production manager is concerned about being able to produce that number of fgurines without incurring signifcant overtime or making changes in the production process. Outline the possible problems, potential objectives, and options that MI should consider. D Memories, Inc. Required Part 3: A. Using the preceding activities and cost drivers, calculate a predetermined overhead rate for each activity. Computation of Predetermined overhead rate Activity Materials delivery and handling Molding and cleaning Painting and fnishing Packaging Quality inspections Overhead cost Estimated activity 160 3,000 94,500 378,000 84,000 Cost Driver $55,440 Number of shipments $37,800 Number of molds $68,040 Direct labor hours $15,120 Number of fgurines $25,200 Number of inspections Predetermined overhead rate $346.50 $12.60 $0.72 $0.04 $0.30 B. Using ABC, how much estimated overhead would be allocated to a doll? to a replica? Activity Computation of Overhead Allocation for each product Predetermined DOLLS overhead rate Estimated Activity Materials delivery and handling Molding and cleaning Painting and fnishing Packaging Quality inspections Totals Expected Number of units Overhead allocated per unit $346.50 $12.60 $0.72 $0.04 $0.30 52 2500 87500 352800 80000 Replicas Overhead Estimated Activity Overhead Amount Amount $18,018 108 $37,422 $31,500 500 $6,300 $63,000 7000 $5,040 $14,112 25200 $1,008 $24,000 4000 $1,200 $150,630 $50,970 352,800 25,200 $0.43 $2.02 C. Compare the estimated overhead allocation using ABC to the estimated overhead allocation using direct labor hours. What do you think is the cause of the differences? Overhead allocation as per ABC Overhead allocation on DLHs Difference DOLLS $150,630 $186,667 -$36,037 Replicas $50,970 $14,933 $36,037 Total $201,600 $201,600 $0 Since ABC allocates the overheads, based on the actual utilization of each activity, the allocated overhead is near to the actuals. If the overhead is allocated on one cost driver, direct labor hours, it is actual for labor hours, but not for the other activities. Hence there is a difference. D. What are some of the advantages and disadvantages of using ABC in this case? The advantage of ABC is that the overhead is allocated based on the actual utilization of the activities. The allocated overhead is near to the actuals. This helps the company to correctly calculate the costs and decide the selling price. The disadvantage of this method is it can be very lengthy and time consuming. There are too many records to be maintained and so many computations are needed to arrive at the actual costs. This method is useful only for the companies, where the production level is high, then the cost of implementing ABC method can be justified. E. Would you suggest that MI adopt an ABC system? Why or why not? Total overhead cost is $201,600, which is $16,800 per month. For this amount, the ABC records should be reviewed. If the cost of maintaining the ABC records is higher than the benefits received, ABC method cannot be recommended. In view of this, ABC method can be implemented in MI, if the cost is not very high. F. Does the information provided by the ABC system give you some insight into areas of possible cost reduction? What areas have the greatest potential for cost reduction, and what are the potential impacts on the business from these cost reductions? The information provided by ABC system is the detailed break down of the overhead costs incurred for production. For each activity the cost incurred can be studied for cost reduction. This helps the company to reduce the costs without effecting the production process or the quality of product. Memories, Inc. Required Part 4: A. Analyze the data, with and without month 14, using the high-low method. Estimate both the fxed costs and variable cost per unit and create the cost equation with and without month 14. Does data from the 14th month impact the accuracy of the cost equation? With month 14 Figurines Produced High Low Difference 32675 15167 17508 Variable costs Total Overhead costs $20,852 $14,800 $6,052 $0.35 per unit Fixed costs $9,557 Equation = $9,557 + $0.35q Without month 14 Figurines Produced High Low Difference Variable costs Fixed costs 32675 25750 6925 Total Overhead costs Data with the 14th month does effect the equation by an increase in fixed cost of $4,757 and a decrease in variable costs of $0.14. $20,852 $17,450 $3,402 $0.49 per unit $4,800 Equation = $4,800 + $0.49q B. Should the accounting manager consider using a different independent variable instead of number of fgurines? What would you suggest? The Accounting Manager should use the equation (without month 14) as computed above. This is based on the normal production level between 25,750 to 32,700 units. However, as per the production figures, MI has has maintained the production level higher than 30,000 units. Therefore, Accoutning manager should use the figures of month 17 to 24 and compute the equation for overhead allocation. This will be close to the actuals. C. For Year 3, MI estimates January production of 33,000 fgurines. Based on that expected production, how much overhead would you estimate MI will incur in January. (Use High-Low method without month 14 data) Explain your answer. Equation = $4,800 + $0.49q = $4,800 + $0.49 x 33,000 $20,970 The expected overhead is $20,970 as per above computations, based on the past 24 months overhead costs incurred. This will help MI to plan the overhead costs and review against their actual costs. Corrective Action can be put in place for variances not in align with MI plans. Memories, Inc. Required Part 5: A. Compute the break-even point in Year 3 for the fgurines. How many dolls and how many replicas must be sold to break-even? Sales in units Sales mix percentage Selling price Variable costs Direct Material Direct Labor Variable overhead Total variable costs Contribution Margin Sales mix percentage Weighted contribution Margin Fixed costs Manufacturing overhead Selling and administrative Total Fixed costs Break even point (in units) Sales for Breakeven point Dolls 385,000 92.77% Replicas 30,000 7.23% Total 415,000 100.00% $5.00 $5.25 $10.25 $0.74 $2.51 $0.55 $3.80 $1.20 92.77% $1.11 $0.62 $2.78 $0.55 $3.95 $1.30 7.23% $0.09 $1.36 $5.29 $1.10 $7.75 $2.50 100.00% $1.21 13,043 $183,600 $34,212 $217,812 180,423 180,423 167,380 B. What options does MI have to reduce the break-even point? Discuss both the quantitative and qualitative factors that must be considered with each option. There are four options with MI to reduce break-even point: - To increase the sales price - To decrease the variable costs - To decrease the fixed costs - To increase the sales of replica, which has higher contribution per unit C. How many dolls and replicas, respectively, would MI need to sell in Year 3 to earn a before-tax proft of $150,000? Sales in units Sales mix percentage Selling price Variable costs Direct Material Dolls 385,000 92.77% Replicas 30,000 7.23% Total 415,000 100.00% $5.00 $5.25 $10.25 $0.74 $0.62 $1.36 Direct Labor Variable overhead Total variable costs Contribution Margin Sales mix percentage Weighted contribution Margin Fixed costs Manufacturing overhead Selling and administrative Total Fixed costs Add: Desired proft Total desired contribution Break even point (in units) Sales for Breakeven point $2.51 $0.55 $3.80 $1.20 92.77% $1.11 282,650 $2.78 $0.55 $3.95 $1.30 7.23% $0.09 $5.29 $1.10 $7.75 $2.50 100.00% $1.21 22,025 $183,600 $34,212 $217,812 $150,000 $367,812 304,675 304,675 D. If its tax rate is 30 percent, how many fgurines does MI need to sell in Year 3 to earn an afer-tax proft of $150,000? Sales in units Sales mix percentage Selling price Variable costs Direct Material Direct Labor Variable overhead Total variable costs Contribution Margin Sales mix percentage Weighted contribution Margin Fixed costs Manufacturing overhead Selling and administrative Total Fixed costs Add: Desired proft (before tax) Total desired contribution Break even point (in units) Sales for Breakeven point Dolls 385,000 92.77% Replicas 30,000 7.23% Total 415,000 100.00% $5.00 $5.25 $10.25 $0.74 $2.51 $0.55 $3.80 $1.20 92.77% $1.11 $0.62 $2.78 $0.55 $3.95 $1.30 7.23% $0.09 $1.36 $5.29 $1.10 $7.75 $2.50 100.00% $1.21 25,874 $183,600 $34,212 $217,812 $214,286 $432,098 357,925 357,925 332,051 E. How will the break-even point change if the sales mix changes to 80 percent dolls and 20 percent replicas? Sales in units Sales mix percentage Selling price Variable costs Direct Material Direct Labor Variable overhead Total variable costs Contribution Margin Sales mix percentage Weighted contribution Margin Fixed costs Manufacturing overhead Selling and administrative Total Fixed costs Break even point (in units) Sales for Breakeven point Dolls 332,000 80.00% Replicas 83,000 20.00% Total 415,000 100.00% $5.00 $5.25 $10.25 $0.74 $2.51 $0.55 $3.80 $1.20 80.00% $0.96 $0.62 $2.78 $0.55 $3.95 $1.30 20.00% $0.26 $1.36 $5.29 $1.10 $7.75 $2.50 100.00% $1.22 35,707 $183,600 $34,212 $217,812 178,534 178,534 142,828 F. What would happen to the break-even point if labor costs increased by 10 percent for each type of fgurine? Sales in units Sales mix percentage Selling price Variable costs Direct Material Direct Labor Variable overhead Total variable costs Contribution Margin Sales mix percentage Weighted contribution Margin Fixed costs Manufacturing overhead Selling and administrative Total Fixed costs Dolls 385,000 92.77% Replicas 30,000 7.23% Total 415,000 100.00% $5.00 $5.25 $10.25 $0.74 $2.76 $0.55 $4.05 $0.95 92.77% $0.88 $0.62 $3.06 $0.55 $4.23 $1.02 7.23% $0.07 $1.36 $5.82 $1.10 $8.28 $1.97 100.00% $0.95 $183,600 $34,212 $217,812 Break even point (in units) Sales for Breakeven point 211,748 16,500 228,248 228,248 G. What would happen to the break-even point if MI increased the sales price of replicas to $5.50 and dolls to $5.25? Sales in units Sales mix percentage Selling price Variable costs Direct Material Direct Labor Variable overhead Total variable costs Contribution Margin Sales mix percentage Weighted contribution Margin Fixed costs Manufacturing overhead Selling and administrative Total Fixed costs Break even point (in units) Sales for Breakeven point Dolls 385,000 92.77% Replicas 30,000 7.23% Total 415,000 100.00% $5.25 $5.50 $10.75 $0.74 $2.51 $0.55 $3.80 $1.45 92.77% $1.35 $0.62 $2.78 $0.55 $3.95 $1.55 7.23% $0.11 $1.36 $5.29 $1.10 $7.75 $3.00 100.00% $1.46 10,805 $183,600 $34,212 $217,812 149,470 149,470 138,665 Memories, Inc. Required Part 6: A. Assuming that MI has sufcient excess capacity, what is the minimum price the company would be willing to accept for this special order? Since MI has sufficient excess capacity, the relevant cost of production is variable cost of production. The company should be willing to accept the price above its variable costs. Dolls Variable costs Direct Material Direct Labor Variable overhead Total variable costs $0.74 $2.51 $0.55 $3.80 Replicas $0.62 $2.78 $0.55 $3.95 B. MI is nearing its manufacturing capacity and needs to consider ways to increase throughput. What options does the company have to increase capacity? What bottlenecks does it face? What recommendations would you make? Capacity options are: MI faces bottlenecks in the forms of: Recommendations: Memories, Inc. Required Part 7: A. Prepare a cash receipts budget for Year 3, assuming estimated sales of 385,000 dolls and 30,000 replicas. January February March April May June 8.30% July 9.20% August 10.30% September 7.60% October 8.00% November 6.90% December 8.50% 9.80% 7.50% 9.10% 7.20% 7.60% Sales Budget Dolls Sales (In Units) 385000 Sales Price $5.00 Replicas 30000 415000 $5.25 Sales in dollars $ Sales for the month January February $ 172,848 $ 191,590 $ 1,925,000 $ Total 157,500 $ 2,082,500 CASH RECEIPT BUDGET March 214,498 $ April May June 158,270 $ 166,600 $ 143,693 $ July August September October November December 177,013 $ 204,085 $ 156,188 $ 189,508 $ 149,940 $ 158,270 $ Total 2,082,500 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 7,400 58,475 171,119 189,674 212,353 156,687 156,604 140,819 175,242 202,044 154,626 187,612 142,443 110,789 2,065,887 Collections from the sales of: November December January February March April May June July August September October November December Total Collections $ $ $ $ 7,400 50,410 $ 120,993 $ $ 178,803 $ 8,066 43,212 $ 134,113 $ $ 185,390 $ 6,914 47,898 $ 150,148 $ $ 204,960 $ 7,664 53,624 $ 8,580 110,789 $ 39,568 $ $ 116,620 $ $ 172,077 $ 164,767 $ 6,331 33,320 $ 100,585 $ $ 140,236 $ 6,664 34,486 $ 123,909 $ $ 165,059 $ 5,748 44,253 $ 142,860 $ $ 192,860 $ 7,081 51,021 $ 109,331 $ $ 167,433 $ 8,163 39,047 $ 132,655 $ $ 179,866 $ 6,248 47,377 $ 104,958 $ $ 158,582 $ 7,580 37,485 110,789 155,854 B. Prepare a cash disbursements budget for product costs for Year 3. Sales (In Units) Direct Material Per unit Material costs in dollars Direct Material Budget Dolls Replicas 385000 30000 $ 0.74 $ 0.62 $ 284,900 $ 18,600 $ Sales (In Units) Labor cost per Unit Labor Cost in dollars Total 415000 303,500 Direct Labor Budget Dolls Replicas Total 385000 30000 415000 $ 2.51 $ 2.78 $ 966,350 $ 83,400 $ 1,049,750 Variable Overhead Costs Budget Dolls Replicas Total Sales (In Units) 385000 30000 415000 Variable Overhead cost p/Unit 0.55 0.55 Variable Cost in dollars $ 211,750 $ 16,500 $ 228,250 CASH DISBURSEMENT BUDGET January Sales in percentage 8.30% February 9.20% March 10.30% April May 7.60% 8.00% June 6.90% July 8.50% August September 9.80% 7.50% October November 9.10% December 7.20% Total 7.60% 100.00% Disbursements for Direct Matl-Previous Month $ 20,000 $ 10,076 $ 11,169 $ 12,504 $ 9,226 $ 9,712 $ 8,377 $ 10,319 $ 11,897 $ 9,105 $ 11,047 $ 8,741 $ 132,174 Direct Matl-Current Month $ 15,114 $ 16,753 $ 18,756 $ 13,840 $ 14,568 $ 12,565 $ 15,479 $ 17,846 $ 13,658 $ 16,571 $ 13,111 $ 13,840 $ 182,100 Direct Labor $ 87,129 $ 96,577 $ 108,124 $ 79,781 $ 83,980 $ 72,433 $ 89,229 $ 102,876 $ 78,731 $ 95,527 $ 75,582 $ 79,781 $ 1,049,750 Variable overhead $ 18,945 $ 20,999 $ 23,510 $ 17,347 $ 18,260 $ 15,749 $ 19,401 $ 22,369 $ 17,119 $ 20,771 $ 16,434 $ 17,347 $ 228,250 Selling & Administrative costs $ 15,300 $ 15,300 $ 15,300 ### $ 15,300 $ 15,300 $ 15,300 $ 15,300 $ 15,300 ### $ 183,600 Fixed Manufacturing Overhead $ 2,851 $ 2,851 $ 2,851 ### $ 12,851 $ 12,851 $ 12,851 $ 12,851 $ 12,851 $ 12,851 $ 114,212 Lease Payment $ 3,260 $ 3,260 $ 3,260 ### $ 3,260 $ 3,260 $ 3,260 $ 3,260 $ Expansion of production space 3,260 ### $ 12,851 $ ### $ 15,300 12,851 $ 3,260 $ 200,000 ### $ 39,124 $ 200,000 $ Total Cash Disbursements $ 162,600 $ 165,817 $ 182,970 $ 144,883 $ 357,446 $ 141,870 $ 163,896 $ 184,820 $ 152,816 $ 173,385 $ 147,586 $ 151,120 $ 2,129,210 C. Prepare a summary cash budget for Year 3, showing any borrowing and repayment of debt with interest CASH BUDGET January February 40,000 $ 56,203 $ April May June 97,766 $ 124,960 $ 40,281 $ July August September October November December 40,647 $ 40,294 $ 40,214 $ 41,571 $ 40,363 $ 40,030 $ Total 40,000 204,960 $ 172,077 $ 164,767 $ 140,236 $ 165,059 $ 192,860 $ 167,433 $ 179,866 $ 158,582 $ 155,854 $ 2,065,887 280,736 $ 269,843 $ 289,727 $ 180,517 $ 205,706 $ 233,154 $ 207,647 $ 221,437 $ 198,946 $ 195,884 $ 2,105,887 165,817 $ 182,970 $ 144,883 $ 357,446 $ 141,870 $ 163,896 $ 184,820 $ 152,816 $ 173,385 $ 147,586 $ 151,120 $ 2,129,210 75,777 $ 97,766 $ 124,960 $ (67,719) $ 38,647 $ 41,809 $ 48,334 $ 54,831 $ 48,051 $ 51,360 $ 44,764 $ $ (23,323) 110,000 Cash Balance Beginning $ Add: Collections from sales $ 178,803 $ 185,390 $ Total cash available $ 218,803 $ 241,593 $ Less: Cash Disbursements $ 162,600 $ Excess / Shortage of cash $ 56,203 $ March 75,777 $ Borrwings $ 108,000 $ 2,000 Repayments $ (1,500) $ (8,000) $ (13,000) $ (7,500) $ (11,000) $ $ (15) $ (120) $ (260) $ (188) $ (330) $ (4,500) $ (158) $ (45,500) Interest payments 40,647 $ 40,294 $ 40,214 $ 41,571 $ 40,363 $ 40,030 $ 40,106 $ 40,106 Cash Balance Ending $ 56,203 $ 75,777 $ 97,766 $ 124,960 $ 40,281 $ D. Discuss the company's ability to repay the expansion loan. Include a discussion of the feasibility of the project. Include qualitative factors to be considered E. What if the sales forecast was increased by 50 percent? What impact does that have on the budget, and what is the potential impact on the company? (Prove your answer by rerunning your budgets with the new amounts. If you set up your spreadsheet correctly, this should take two seconds.) (1,071) Required Part 8: Memories, Inc. A. Compute the price and volume variances for sales, assuming that MI sold all figurines produced for $137,565 (dolls) and $9,051 (replicas). What might explain these variances? B. Compute the price and quantity variances for direct materials for each type of figurine. MI paid $29,093 to purchase 32,325 units of raw materials for dolls and $1,453 to purchase 2,401 units of raw materials for replicas. (A unit consists of plastic, molds, varnish, paint, and packaging materials.) From the materials purchased, 30,995 units were used to produce the dolls and 2,149 were used to produce the replicas. How would these variances be interpreted? What might have caused them? Would you consider them large enough to be important? C. Compute the labor rate and efficiency variances for each type of figurine. MI paid $71,350 in labor costs for 7,150 direct labor hours for dolls and $6,425 in labor costs for 650 direct labor hours for replicas. How would these variances be interpreted? What might have caused them? Would you consider them large enough to be important? D. Assuming MI used a predetermined overhead rate of $2.13 per DLH, compute the variable overhead rate and efficiency variances. MI actually paid $20,852 in total overhead costs, consisting of $17,002 of variable overhead and $3,850 of fixed overhead. How would these variances be interpreted? What might have caused them? Would you consider them large enough to be important? E. How might MI extend its variance analysis to be compatible with activity-based costing if they decided to switch to that method? Required Part 9: Memories, Inc. A. Using estimated cost data for Year 3 (given in Part Eight), at what minimum price should MI agree to transfer dolls and replicas to MBI? B. What is the maximum price that MBI should be willing to pay MI for the figurines? C. If MBI purchases figurines from MI, what is the ideal transfer price? Why? D. Should MBI buy figurines from MI or from the outside supplier? (Don't forget that MBI is a wholly owned subsidiary.) What qualitative factors should be considered in making this decision? E. Answer questions A through D again assuming MI is operating at full capacity. Memories, Inc. Required Part 10: A. Using NPV analysis, compare the present value of the least payments with the cost of buying the equipment. Assume a discount rate of 10 percent (ignore tax.) Which option is preferable? B. MI has the option of purchasing equipment from another supplier at a total cost of $190,000. The supplier promises that the new equipment will reduce operating costs by $1,000 per month over the life of the equipment. Assume a 10 percent discount rate (ignore tax.) Which option is preferable? C. Calculate the after-tax NPV for each option in A and B assuming a 30 percent tax rate. If purchased, all equipment will be depreciated over five years, using straight-line depreciation, and will have no salvage value. Which of the three options is preferable now? (Lease Purchase from Quality Materials, Purchase for $190,000) D. What factors other than cost savings should MI consider in these decisions