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Answered) Easy Company (15 points) Presented below are items or account balances as of 12/31/2016 or for the year 2016 for the Easy Company:


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Easy Company (15 points) Presented below are items or account balances as of 12/31/2016 or for the year 2016 for the Easy Company: Cash from Customers Factory Utilities Cost of Goods Sold $11,500 Depreciatio
n of Cars for
Salespeople $1,500 Change in Accounts
Receivable +$2,000 $800 Equipment Purchased $3,500 Administrative Expenses $1,500 $5,500 Owners Equity $1,100 Sales Salaries $2,100 Prepare an income statement for the Easy Company using only those items above that belong in the income statement. (8 points)
(no need to use a spreadsheet – just multiple lines of text) The Equipment Purchased has not yet been installed. Upon review by the accounting department, it turns out that what they thought was $3,500 in Equipment Purchased was actually $4,000 and they still owe $500. Their previous values for Factory Utilities, Depreciation, and Owner’s Equity are still all correct, but other values may have to change as a result. (7 points)
How (and how much) would this new information change the 2016 income statement?
___________________________________________
How (and how much) would this new information change the 12/31/2016 balance sheet?
____________________________________________ If more receivables were collected, would that cause a change to total equity? Yes___ No___
Financial Statements (8 points)
For the following questions, assume that the company pays no dividends and does not issue or buyback corporate stock in the relevant years.
1 A company that generates a profit for two consecutive years will have positive cashflow in at least one of the two years
1 True False
2 A company that reports a loss on its income statement will have less cash at
the end of the year than at the beginning of that year.
2 Always Sometimes Never
3 If a company reports a profit this year, sells only for cash (no accounts
receivable), and holds no inventory, then it must generate positive cashflow.
3 True False
4 Accumulated depreciation is reported as a liability on the balance sheet
4 True False CopyFast (10 points)
CopyFast is a company that competes for copy services business with Staples. They are considering two different copiers to do large format copying. If they get either machine, they will sell large­format copies for $0.20 each. The quality is the same, but the costs they pay are different. The costs for the two machines are: ColorMaster SuperColor
Annual Rent $12,000. $40,000
Paper (per copy). $0.02 $0.02 Other variable (per copy) $0.08. $0.03
1 How many copies would they have to sell each year to break even if they choose the ColorMaster?
2 How many copies would they have to sell each year to break even if they choose the SuperColor? 3 If CopyFast is confident that they will sell 500,000 copies next year, which machine should they use?
4 At what volume of copies would they have the same total cost for both machines? Bridgeton revisited (10 points)
Several years after the events of the Bridgeton case discussed in class, the company is still producing auto parts and has expanded operations. For a coming year, sales were expected to be approximately $350 million. According to the budget, direct materials were expected to cost $120 million with direct labor of $30 million and total overhead costs of $80 million. After their previous problems, they now apply overhead based on the cost of direct materials.
Actual results for the year included sales $400 million, Direct Materials of $140 million, Direct Labor of $35 million, and actual overhead costs of $92 million.
a. What was the overhead application rate for the year?
b. How much overhead was allocated for the year?
c. What is the over/under­absorbed overhead?
d. One of their new products was Car Hoods, which had direct material costs of
$25 million and direct labor costs of $7 million. Ignoring any under/overapplied overhead, what was the total manufacturing cost of Car Hoods?
DeLoreto (7 points)
DeLoreto manufactures specialty high­end cars that are produced in limited numbers and sold for an average of $230,000 each. Sales are estimated to be 200 cars next year. Production, advertising, sales, and administrative costs include $10,000,000 of fixed costs and $130,000 per
car of variable costs. They are considering also selling an electric version of their car for $300,000 each, which would incur additional costs of $215,000 each to manufacture and sell. If they sell both types of car, electric car sales would be 100 cars but the gas car sales would drop
from 200 cars to 125 cars.
Should they sell the electric version of the car? Yes___ No ___
If they sell the electric version, what would be the change in their annual income? $_______ Nice Business:
Nice Business prepares financial statements monthly (using the accrual method of accounting).
In the space below, identify the changes each transaction would create for total assets, liabilities, and owners’ equity for the current month. Assets Liabilities Owners’ Equity
=
+ Example: Pay a $25 dividend ­$25 Purchase $300 of raw materials on credit $500 labor to build products (not yet paid) Give away $200 of products as advertising/promotio
n $400 machine depreciation on manufacturing equipment Gund Manufacturing (8 points) ­$25 Gund Manufacturing produces Teddy Bears and sells them for $6.50 each. A foreign retailer has offered to purchase 25,000 Teddy Bears for $4.00 per Teddy. The current average manufacturing cost per Teddy is $4.50, $2.50 of variable cost and $2.00 of fixed cost. Gund has
capacity to make 15,000 more bears. If they accept the special order, they will lose out on 10,000 normal sales, but it won’t hurt their brand or reputation. No variable non­manufacturing costs would be incurred by the special order.
Should Gund Manufacturing accept the order?
What is the impact on income if Gund accepts the order? From the Math & Management Pre­test (2 points) A fixed cost:
A. increases on a per unit basis as the number of units produced increases.
B. remains constant on a per unit basis as the number of units produced increases. C. decreases on a per unit basis as the number of units produced increases.
D. increases in total as the number of units produced increases.
E. More than one of the above. Rama Corp (8 points)
Rama Corp makes machines used at golf courses. One of the parts in their machine is Part #G25 that they currently make at their factory. A supplier has offered to make all of their #G25 parts (4,000 per year) at a price of $26.50 each.
Based on an accounting report, the cost for Manufacture the #G25 parts are: Per Unit Production Cost Direct Materials $1.80 $7.80 $7.90 $2.30 $6.90 $6.60 $33.30 Direct Labor
Variable Overhead
Supervisor’s Salary
Depreciation of Special Equipment Allocated General Equipment Total The Special Equipment has no resale value or alternative use. The supervisor works on several
projects. Also, if Rama doesn’t make #G25, they can use the space and general equipment to increase production of another product, which is supervised by the current supervisor. That would increase the other product’s contribution margin by $13,000.
1 How much will profits increase (decrease) next year if they choose to purchase #G25 from the
supplier?
2 Should they purchase or manufacture #G25?
Chucks Guitars
Chuck's Guitar makes Traditional guitars and Concert Quality guitars. Both use essentially the same manufacturing processes:
1 Plywood is purchased and then cut in shapes that will ultimately form the figure­ 8­shaped box. Both guitar types use the same amount of plywood and are cut and shaped in the same way in this activity, but the Concert Quality guitar uses higher quality plywood that is purchased in smaller quantities per purchase order.
2. The cut plywood is shaped and glued into the traditional figure­8­shaped box, and the neck is added. The assembled guitar is finish­sanded.
3. Finished guitars are lacquered, dried, and hardware is installed.
4. After production processes are complete, the production area is set­up (cleaned) for the next batch to start production.
5. All laborers earn $20 per hour. As per company policy, most labor is considered “overhead” and only 2 hour per guitar is considered “direct labor.”
Expected costs for the year (not including Direct Materials or Direct Labor) Activities $8,400
Plywood purchasing
(does NOT include cost of the plywood)
Plywood cutting $3,000 Shape, Glue and Sand Guitars $6,000 Setup of Production area $4,800 Total $22,200 Other information expected for the year Traditional Concert Annual Production 400 guitars Batch size for production 40 guitars 200 guitars 10 guitars Total Number of Plywood Purchases 10 purchases Total 600 guitars
30 batches 20 purchases 30 purch 800 hours 400 hours 1,200 hours $56 each $80 each Total Direct Labor Hours @ $20/hr. Total Direct Materials
/guitar A Calculate the overhead rate using a plant­wide rate based on direct labor dollars (3 points):
B Calculate the cost/unit of a Traditional Guitar using the plant­wide rate (4 points): C Identify the appropriate driver and calculate the application rate for each of the following costs using ABC (10 points: 1 per cost driver, 2 per application rate): Cost Driver
(fill in if blank) Activity Plywood purchasing Plywood cutting Shape, Glue and Sand $8,400 $3,000 # guitars $6,000 # guitars Setup of Production area $4,800 D Calculate the cost of a Traditional Guitar using ABC (7 points): Application Rate

 


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