Question one.

a process costing system, when raw materials are put into process, the cost of the items is moved from:

Work in Process to Finished Goods.

Finished Goods to Cost of Goods Sold.

Raw Materials to Work in Process.

Finished Goods to Work in Process.

2. Ending inventory in the assembly department consists of 700 units which are 50% complete with respect to conversion costs. The beginning inventory consisted of 2,000 units. During the month, 6,000 units were started. How many equivalent units will be used in the cost per equivalent unit calculation for conversion costs?

7,650

7,300

8,000

6,700

3. When partially completed units are converted to a comparable number of completed units, they are referred to as (Points : 2)

converted units.

split-off units.

equivalent units.

equitable units.

4. The number of equivalent units in Work in Process is the same for materials and conversion costs.

True

False

5. A company such as Kimberly - Clark, which produces large quantities of identical items like disposable diapers and facial tissues, is likely to use a job-order costing system.

True

False

6. The ending Work in Process inventory in the mixing department contains 300 units that are 30% complete with respect to labor costs. How many equivalent units are in the ending inventory?

300

70

210

90

7. Ranger Glass Company manufactures glass for French doors. At the start of May, 2,000 units were in-process. During May, 11,000 units were completed and 3,000 units were in process at the end of May. These in-process units were 90% complete with respect to material and 50% complete with respect to conversion costs. Other information is as follows:

How much is the cost per equivalent unit for direct materials?

$24.00

$16.20

$15.86

$13.58

8. Which of the following components of work in process are always 100% complete at the beginning of the processing in a department?

Direct labor

Manufacturing overhead

Transferred-in costs

Direct material

9. Department Alpha had no beginning inventory. The department added direct materials of $100,000 and conversion costs of $150,000 during the month of July. Materials are added at the beginning of the process and conversion costs are added evenly throughout the process in this department. During the period, 40,000 units were completed. At the end of the period 40,000 units remained which were 10% complete. What is the cost per equivalent unit of materials and conversion costs, respectively in July?

$3.41 and 4.66

$1.25 and $3.41

$1.25 and $1.88

$1.88 and $3.41

10. The Nazareth Company's mixing department incurred conversions costs of $650,820 during January, after recording a beginning Work in Process inventory of $30,430 for conversion costs. Fifty-four thousand units were transferred out of the department and the ending inventory consisted of 2,500 units that are 20% complete with respect to conversion. What is the conversion cost per equivalent unit?

$12.50

$12.05

$12.17

$12.62

Problem 2.

Today is January 1, 2017. Nigel and Elizabeth Buckingham have come to you, a financial planner, for help in developing a plan to accomplish their financial goals. From your initial meeting together, you have gathered the following information.

Personal Background and Information

Nigel Buckingham (Age 27)

Nigel is an assistant in the marketing department for Energy Tech, Inc., a small company with 15 employees. His annual salary is $39,000.

Elizabeth Buckingham (Age 24)

Elizabeth is a legal research assistant with the law firm of Laurent, Heine & Merritt, LLC. Her annual salary is $30,000.

The Children

Nigel and Elizabeth have no children from this marriage. Nigel has two children, Wilfred, age 4, and Robert, age 3, from a former marriage. Wilfred and Robert live with their mother, Louise.

The Buckinghams

Nigel and Elizabeth have been married for two years. Nigel must pay $500 per month in child support until both Wilfred and Robert reach age 18. The divorce decree also required Nigel to create an insurance trust for the benefit of the children and contribute $175 per month to the trust. The trustee is Louise's father. There are no withdrawal powers on the part of the beneficiaries. The trust is to be used for the education and maintenance of the children in the event of Nigel's death. The trustee has the power to invade any trust principal for the beneficiaries at the earlier of the death of Nigel or Wilfred reaching age 18.

Personal and Financial Objectives

They want to save for an emergency fund.

They want to eliminate debt

They want to save for a 20% down payment on their first home. The current value of the house is $150,000. Property taxes would be $1,800 annually, and the annual insurance premium would be $1,125. Both taxes and insurance are expected to increase with inflation.

They want to contribute to tax-advantaged savings.

They plan to have additional children in seven years.

They both plan to retire in 29 years.

Economic Information

Inflation is expected to be 4.0% annually.

Their salaries should increase 5.0% annually.

There is no state income tax.

The after-tax investment rate of return is 6%.

Bank lending rates are as follows: 6.0% for a 15-year mortgage, 6.5% for a 30-year mortgage, and 8% for a secured personal loan.

Insurance Information

Life Insurance

Policy A

Policy B

Policy C

Insured

Nigel

Nigel

Elizabeth

Face amount

$250,000

$117,0002

$30,000

Type

Whole life

Group term

Group term

Cash value

$2,000

$0

$0

Annual premium

$2,100

$267

$75

Who pays premium

Trustee

Employer

Employer

Beneficiary

Trust1

Louise

Nigel

Policy owner

Trust

Nigel

Elizabeth

Settlement options clause selected

None

None

None

1Wilfred and Robert are beneficiaries of the trust

2This was increased from $50,000 to $117,000 January 1, 2009

Group Term Life Insurance

Section 79 Uniform Premium Schedule

Under age 25

0.05 per month per $1,000

Age 25 to 29

0.06 per month per $1,000

Health Insurance

Nigel and Elizabeth are covered under Nigel's employer plan, which is an indemnity plan with $200 deductible per person per year and an 80/20 major medical coinsurance clause with a family annual stop loss of $1,500.

Long-Term Disability Insurance

Nigel is covered by an own-occupation policy with premiums paid by his employer. The benefits equal 60% of his gross pay after an elimination period of 180 days. The policy covers both sickness and accidents and is guaranteed renewable. In the event of disability, the policy will pay benefits up to age 65.

Elizabeth is not covered by disability insurance.

Renters Insurance

The Buckinghams have a HO-4 renters policy without endorsements.

Content Coverage: $25,000; Liability $100,000.

Automobile Insurance

Both Car and Truck*

Type

Personal Auto Policy

Bodily injury

$25,000/$50,000

Property damage

$10,000

Medical payments

$5,000 per person

Uninsured motorist

$25,000/$50,000

Comprehensive deductible

$200

Collision deductible

$500

Premium (annual)

$4,950

*The Buckinghams do not have any additional insurance on Elizabeth's motorcycle

Investment Information

The Buckinghams think that they need six months of cash flow net of all taxes, savings, vacation, and discretionary cash flow in an emergency fund. They are willing to include in the emergency fund the savings account and Nigel's 401(k) balance because it has borrowing provisions.

The Federal Express stock was a gift to Nigel from his Uncle Sebastian. At the date of the gift (July 1, 1994), the fair market value of the stock was $3,500. Uncle Sebastian's tax basis was $2,500, and Uncle Sebastian paid gift tax of $1,400 on the gift.

The TECHO stock of 100 shares was a gift to Elizabeth last Christmas from her Uncle Kyle. At the date of the gift (December 25, 2008), the fair market value was $8,000, and Uncle Kyle had paid $10,000 for the stock in 1996 (his tax basis).

The growth mutual fund (currently valued at $13,900) had been acquired by Nigel over the years 2011-2016 with deposits of $1,000, $1,000, $2,000, $2,000, $2,500, and $3,000. The earnings were all reinvested and reported via Form 1099 each year:

Year

Reinvested Earnings

2011

$0

2012

$200

2013

$400

2014

$400

2015

$650

2016

$750

The growth mutual fund has a transfer-on-death provision. The account is in Nigel's name, and the beneficiary designation is Nigel's mother. This provision was made prior to his marriage to Elizabeth.

Income Tax Information

The filing status of the Buckinghams for federal income tax is married filing jointly. Both the children (Wilfred and Robert) are claimed as dependents on the Buckinghams' tax return as part of the divorce agreement. Their marginal tax rate is 22.65% (the federal marginal tax rate is 15%; FICA taxes are 7.65%). The Buckinghams live in a state that does not have state income tax.

Retirement Information

Nigel currently contributes 3% of his salary to his 401(k). The employer matches each $1 contributed with $0.50 up to a total employer contribution of 3% of his salary.

Gifts, Estates, Trusts, and Will Information

Nigel has a will leaving all of his probate estate to his children.

Elizabeth does not have a will.

The Buckinghams live in a common-law state that has adopted the Uniform Probate Code.

STATEMENT OF CASH FLOWS

Nigel and Elizabeth Buckingham

January 1, 2016 to December 31, 2016

(Expected to be similar in 2017)

CASH INFLOWS

Salaries

Nigel - salary

$

39,000

Elizabeth - salary

30,000

Investment income*

1,635

Total inflows

$

70,635

CASH OUTLOWS

Savings - house down payment

$

1,800

Reinvestment of investment income

1,635

401(k) contribution

1,170

Total Savings

$

4,605

FIXED OUTFLOWS

Child Support

$

6,000

Life insurance payment (to trustee)

2,100

Rent

9,900

Renters insurance

720

Utilities

1,080

Telephone (home)

540

Telephones (cell)

900

Auto payment principal and interest

5,400

Auto insurance

4,950

Gas, oil, maintenance

3,600

Student loans

3,600

Credit card debt

4,500

Furniture payments

1,952

Total fixed outflows

$

45,242

VARIABLE OUTFLOWS

Taxes - Nigel FICA

$

2,984

Taxes - Elizabeth FICA

2,295

Taxes - federal tax withheld

7,393

Food

4,800

Clothing

1,500

Entertainment/vacation

1,920

Total variable outflows

$

20,892

Total cash outflows

$

70,739

Discretionary cash flows (negative)

$

(104)

*$510 from dividends and $1,125 from other investment sources.

STATEMENT OF FINANCIAL POSITION

Nigel and Elizabeth Buckingham

January 1, 2017

ASSETS1

LIABILITIES AND NET WORTH

Cash and equivalents

Liabilities2

Cash

$

500

Credit card 1

$

8,000

Savings account

1,000

Credit card 2

1,862

Total cash and equivalents

$

1,500

Student loan - Nigel3

45,061

Auto loan - Elizabeth

21,179

Invested assets

Furniture loan

2,300

Federal Express stock (100 shares)4

$

5,000

Total liabilities

$

78,402

TECHO stock (100 shares)

7,200

Growth mutual fund

13,900

401(k) account

1,500

Net worth

$

(78)

Total invested assets

$

27,600

Use assets

Auto - Elizabeth

$

26,474

Truck - Nigel

4,000

Motorcycle - Elizabeth

1,000

Personal property and furniture

17,750

Total use of assets

$

49,224

Total assets

$

78,324

Total liabilities and net worth

$

78,324

Notes to Financial Statements

1Assets are stated at fair market value.

2Liabilities are stated at principal only as of January 1, 2017, before January payments

3Nigel's parents took out the student loans, but he is repaying them. Nigel paid $2,732 in interest in 2016.

4Federal Express's current dividend is $3.40 per share.

Information Regarding Assets and Liabilities

Home Furnishings

The furniture was purchased with 20% down and 18% interest over 36 months. The monthly payment is $162.69.

Automobile

The automobile was purchased January 1, 2015, for $26,474 with 20% down and 80% financed over 60 months with payments of $450 per month.

Stereo System

The Buckinghams have a fabulous stereo system with a fair market value of $10,000. They asked and received permission to alter their apartment to build speakers into every room. The agreement with the landlord requires the Buckinghams to leave the speakers if they move because the speakers are permanently installed and affixed to the property. The replacement value of the installed speakers is $4,500, and the non-installed components are valued at $5,500. The cost of the system was $10,000, and it was purchased last year.

Questions:

List the Buckinghams' financial strengths and weaknesses.

After reading the case what additional information would you request from the Buckinghams to complete your data-gathering phase?

Assume that Nigel is in a serious automobile accident during 2016 and is unable to perform the duties of his occupation for 208 consecutive days. What benefits will be receive under his long-term disability insurance policy? Assume 260 working days in a year.

Assume that in 2017, Nigel is driving his car on a foggy night and the car collides with a deer in the road. As a result, Nigel incurs medical expenses of $1,000, and his friend, Bill, who is riding with him, incurs medical expenses of $2,000. The front bumper of the car also sustains damage of $1,500. If Nigel files a claim for these items under his personal auto policy (PAP), what amount will the policy pay?