Problem I

Part A –

Singller Inc., budgeted sales of 30,000 units of its product in January, 2016. Budgeted inventory balances are:

 

January 1 January 31

Finished Goods (units) 6,500 5,600

 

Required:

What is the expected production in units for January, 2016?

 

 

 

 

 

 

 

 

 

 

 

Part B

Pynchon Enterprises expects to make the following sales revenue in the first quarter of the calendar year 2016 as follows:

January February March

Sales $180,000 $135,000 $162,000

25% of the sales are on account (accounts receivable), while the other 75% are for cash. The collection pattern for Pynchon's accounts receivable follows:

Collections for:

Current month's credit sales........... 50%

First month after credit sales.......... 30%

Second month after credit sales..... 18%

Uncollectible Accounts Receivable..2%

 

Required:

How much will the expected cash receipts amount to for the month of March, 2016?

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Part C

Poe Corporation had budgeted operating income for 2015 of $6,300,000. The actual operating income was $6,556,000. The flexible-budget operating income was $6,930,000.

Required:

1. Calculate the total static-budget variance.

 

 

 

 

 

2. Calculate the total flexible-budget variance.

 

 

 

 

 

Problem II

Updike Company applies both variable and fixed overhead based on machine hours. The relevant range of production for this activity is 0 to 10,000 units per month. For October, 2015, the following monthly information is obtained:

 

Budgeted and Standard Amounts:

Machine hours per unit of output........................... 3

Variable overhead per machine hour.................... $?

Fixed overhead per machine hour........................ $2.10

Total overhead per machine hour........................ $2.90 (both variable and fixed)

Total budgeted fixed overhead............................ $?

Total budgeted variable overhead........................ $4,800

Budgeted machine hours....................................... ?

Budgeted output in units....................................... 2,000

Actual Amounts:

Units produced...................................... 2,200

Machine hours....................................... 6,800

Variable overhead................................. $4,900

Fixed overhead...................................... $12,000

Required:

1. Compute the fixed overhead and variable overhead variances. Compute a total of four variances.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2. If production were budgeted at 1,800 units, what would be the amount of the total budgeted fixed and total budgeted variable overhead costs in the flexible budget for October?

 

Fixed -

 

 

 

 

Variable -

 

 

 

 

 

 

 

3. Prepare one journal entry to record the actual fixed overhead cost and the amount applied to production. Include all of the fixed overhead variances in one journal entry (standard costing system).

 

 

 

 

 

 

 

Type the correct answer in the space provided.

 

Under a standard costing system, if the sum of the four overhead variances is favorable, that

 

means the total overhead was ____________________________________ (under-applied or

 

over-applied).

 

 

 

Problem III

Cheever Company uses a standard cost system for its single product. The following data are available:

 

Actual results for the current period:

Purchase of direct materials (20,000 pounds)........... $19,500

Direct materials used................................................. 12,000 pounds

Direct Labor (10,200 hours)................................... $102,000

Units Produced ......................................................... 12,600

 

Standard cost, material quantity, and direct labor hours and rate per unit of output:

Direct Materials: 1 pound at $1 per pound

Direct Labor: 1 hour at $9.50 per hour

 

Required:

1. Compute the direct materials price and efficiency variances.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2. Compute the direct labor price and efficiency variances.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3. Prepare one journal entry to record the actual direct labor cost and the amount applied to production, including the direct labor price (rate) and efficiency (quantity) variances (standard costing system).

 

 

 

 

 

 

 

 

 

 

4. Prepare the journal entry under a standard costing system (including variances) to:

(a) record the purchase of direct materials.

 

 

 

 

 

 

 

(b) record the usage of direct materials in production

 

 

 

 

 

 

 

Problem IV

Popeye Company operates a free cafeteria for the benefit of its employees. Budgeted and actual costs for

the cafeteria last year are given below:

 

		Budget	Actual
	Variable costs........	$200,000	$168,000
	Fixed costs............	$480,000	$504,000

 

The variable costs of the cafeteria are allocated to operating departments (Machining and Assembly) on the basis of the number of employees in these departments. Data concerning last year are given below:

		Machining	Assembly
	Budgeted number of employees..................	60	100
	Actual number of employees.......................	40	80
	Percentage of peak-period requirements.....	40%	60%

 

The budgeted fixed costs in the cafeteria are allocated by the peak-period requirements.

 

Required:

A. Compute the dollar amount of variable and fixed cost that should have been allocated to each of the operating departments at the beginning of last year for planning purposes, that is, allocate the fixed and variable overhead based on the budgeted costs.

 

Machining:

 

 

 

 

 

 

 

 

 

 

Assembly:

 

 

 

 

 

 

 

 

 

 

 

continued

B. (1) Compute the dollar amount of the variable and fixed costs that should have been charged to each of the operating departments at the end of last year for purposes of evaluating performance. (HINT: Allocate the variable costs based on the actual cost driver; think about whether or not you would allocate the actual fixed overhead or the budgeted fixed overhead for evaluating performance.) (2) Identify the amount, if any, of actual cafeteria costs that should not be charged to Machining and Assembly. If the amount is $0, briefly discuss why. If there is any amount other than $0, also briefly discuss why.

 

(1)

Machining:

 

 

 

 

 

 

 

 

 

 

 

 

Assembly:

 

 

 

 

 

 

 

 

 

 

 

 

 

(2)

 

 

 

 

 

 

 

 

 

Problem V

Sherlock companyprocesses timber into four products. During January, the joint costs of processing were $280,000. There was no inventory at the beginning of the month. Production and sales value information for the month is as follows (bdft = board foot):

 

		Sales Value at
Product	Board feet	Splitoff Point	Ending Inventory
2 x 4's	6,000,000	$0.30 per board foot	500,000 bdft.
2 x 6's	3,000,000	0.40 per board foot	250,000 bdft.
4 x 4's	2,000,000	0.45 per board foot	100,000 bdft.
Slabs	1,000,000	0.10 per board foot	50,000 bdft.

 

Required:

Determine the value of ending inventory if the sales value at splitoff method is used for product costing. Record your answers in the Tables below. You do not have to show your work (calculations). Fill-in all of the cells below but not the cells noted with “xxxxxxx.” Round to 3 decimal places when necessary and you can omit $ signs.

Answer:

Product	Board feet	Sales Value	Percent	Joint Cost	Allocated
2 x 4's	6,000,000
2 x 6's	3,000,000
4 x 4's	2,000,000
Slabs	1,000,000
Xxxxxxx	Xxxxxxxx	xxxxxxxxxx	xxxxxxx	xxxxxxxxxx	xxxxxxxxxxx
Totals	Xxxxxxxxx		100%	xxxxxxxxxxx

 

 

 

Product	Fraction of Production in Inventory	Allocated	Inventory value
2 x 4's	500,000/6,000,000 ×
2 x 6's	250,000/3,000,000 ×
4 x 4's	100,000/2,000,000 ×
Slabs	50,000/1,000,000 ×
Xxxxxxxx	xxxxxxxxxxxxxxxxxxxxxxx	xxxxxxxx	xxxxxxxxxxx
Total	xxxxxxxxxxxxxxxxxxxxxxx	xxxxxxxx

 

 

 

 

 

 

 

Problem VI

The following comes from the Website “about.com” under the category “about money.”

“In 1906, Italian economist Vilfredo Pareto created a mathematical formula to describe the unequal distribution of wealth in his country, observing that twenty percent of the people owned eighty percent of the wealth. In the late 1940s, Dr. Joseph M. Juran inaccurately attributed the 80/20 Rule to Pareto, calling it Pareto's Principle. While it may be misnamed, Pareto's Principle or Pareto's Law as it is sometimes called can be a very effective tool to help you manage effectively.

After Pareto made his observation and created his formula, many others observed similar phenomena in their own areas of expertise. Quality Management pioneer, Dr. Joseph Juran, working in the US in the 1930s and 40s recognized a universal principle he called the "vital few and trivial many" and reduced it to writing. In an early work, a lack of precision on Juran's part made it appear that he was applying Pareto's observations about economics to a broader body of work. The name Pareto's Principle stuck, probably because it sounded better than Juran's Principle.

As a result, Dr. Juran's observation of the "vital few and trivial many", the principle that 20 percent of something always are responsible for 80 percent of the results, became known as Pareto's Principle or the 80/20 Rule. (Some say “20/80.”)

The 80/20 Rule means that in anything a few (20 percent) are vital and many (80 percent) are trivial. In Pareto's case it meant 20 percent of the people owned 80 percent of the wealth. In Juran's initial work he identified 20 percent of the defects causing 80 percent of the problems. Project Managers know that 20 percent of the work (the first 10 percent and the last 10 percent) consume 80 percent of your time and resources. You can apply the 80/20 Rule to almost anything, from the science of management to the physical world.”

 

Required: Assuming that Pareto’s Principle applies to your customer profitability, i.e., 20% of your customers generate 80% of your profits, discuss the kind of information that you as an accountant can provide to management to help your company become more profitable (also consider the corollary of Pareto’s Principle, 80% of your customers provide 20% of your profitability). If you use any outside resources be sure to provide references in the space below this paragraph.