Cost Accounting for Controllership 1) Pasquale, Inc. produces thr...

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Cost Accounting for Controllership 1) Pasquale, Inc. produces three types of products with the following information. Unit sales price Unit variable cost Unit contribution margin Machine time required (minutes per unit) Monthly demand (units) $ Product A $ 100 60 40 1 20,000 Product C 200 $ 400 140 300 60 100 2 4 50,000 80,000 Assume the company has only 300,000 minutes of machine time available during the month but requires 440,000 minutes to meet the demand for all three products. • How should the manager prioritize production of the three products? • Compute the number of units produced for each product. The situation in this problem involved only one binding internal constraint , Write a memo to the CEO- Mr. Pasquale describing the process to identify the optimal mix of products. 2) Half-Pint, Inc. manufactures child-sized tables and chairs for pre-school classrooms. To meet its annual production needs, Half-Pint requires 6,000 feet of lumber. As the new cost accountant, you plan to reevaluate the firm’s ordering policy for raw material, and have gathered the following data: Product B Current order size Ordering cost per order Carrying costs per foot of lumber for one year Lead time Work year 1,000 feet of lumber $500 $50 10 days 250 days 1 a. At Half-Pint’s current order size of 1,000 feet of lumber per order: i. Ordering costs per year = ii. Carrying costs per year = iii. Total costs to order and carry inventory = b. Determine the economic order quantity (EOQ) for Half-Pint. EOQ = c. If Half-Pint decided to order lumber at the economic order quantity: i. Ordering costs per year = ii. Carrying costs per year = iii. Total costs to order and carry inventory = d. How much would Half-Pint save annually if it changed from its current order size of 1,000 to the economic order quantity? Annual savings = e. Deliveries of lumber are sometimes delayed, so Half-Pint wants to keep an extra 100 feet of lumber on hand as safety stock. What should the new reorder point be? Reorder point = 3) Maker-O-Dough, Inc. needs to make more money. The firm wants a 10% rate of return on all capital projects, and evaluates them on a pre-tax basis. Project A requires a $450,000 investment. It has an expected life of six years with an annual cash flow of $90,000 received at the end of each year. a. Payback period for the project = 2 b. Net present value (NPV) of the project = c. Estimated internal rate of return (IRR) for this project = d. Should Maker-O-Dough accept or reject this project? e. Explain: Project B also requires a $450,000 investment, but it has an expected life of 3 years, and has the following estimated future cash flows: Year 1 Year 2 Year 3 Salvage value $175,000 250,000 150,000 -0- f. Payback period for the project = g. Net present value (NPV) of the project = h. Estimated internal rate of return (IRR) for this project = i. Should Maker-O-Dough accept or reject this project? j. Explain: 3 4) Last year, Turn-M-Out, Inc. began operations. During the year, the firm produced 30,000 units, sold 28,000 units for $200 each, and incurred the following costs: Fixed Costs Manufacturing overhead Administrative expenses Selling expenses Variable Costs/Unit $270,000 Direct materials $80 150,000 Direct labor 20 120,000 Manufacturing overhead 3 Selling expenses 40 a. As the firm’s new cost accountant, your first job is to determine the manufacturing cost/unit under absorption costing Manufacturing cost/unit (absorption costing) = b. Prepare an income statement under absorption costing for the year. (Tax rate = 30%) 4 c. Value of ending inventory under absorption costing = d. Compute the manufacturing cost/unit under variable costing. Manufacturing cost/unit (variable costing) = e. Prepare an income statement for the year under variable costing. (Tax rate = 30%) f. Value of ending inventory under variable costing = g. When you show this information to Paige Turner, the CEO of Turn- M-Out, she is confused by the differences between the net income and ending inventory under absorption costing and under variable costing. She likes the results better under absorption costing, and wonders why you bothered to prepare a variable costing income statement. Write a memo to her explaining why these differences occurred and how the variable costing income statement might be useful to the firm. 5 5) Last year, Chop-M-Up, Inc. implemented a new labor process and redesigned its product, hoping to increase input usage efficiency. At the end of this year, the CEO wants an assessment of the changes on the firm’s productivity based on the following data: Output Output sales price Materials Materials purchases Labor Labor cost Power Power cost Last Year 20,000 lbs. $20 per lb. 16,000 lbs. $6 per lb. 10,000 DLH $10 per DLH 4,000 KWH $2 Per KWH This Year 24,000 lbs. $20 per lb. 16,800 lbs. $8 per lb. 9,600 DLH $10 per DLH 6,000 KWH $3 Per KWH a. Compute the partial operational measures for each input for last year and this year. Partial productivity for materials: Last year = Partial productivity for labor: Last year = Partial productivity for power: Last year = This year = This year = This year = What can you conclude about productivity improvement? b. Compute operating income for each year and calculate the total change in profits from last year to this year. Total change in profit from last year to this year = 6 c. Calculate the profit-linked productivity measures for this year. Materials Labor Power What do these measures suggest about changes in the firm’s productivity under the new production system? d. Calculate the price-recovery component. Price recovery component = What does this measure suggest about relationship between the change in productivity and firm profitability this year? 7 6) Do-R-Best had a reputation for poor quality. At the beginning of 2016, the firm initiated a quality improvement program. To help assess the impact of the quality improvement program, the firm collected the following data for 2015 and the next three years after the change: 2015 $100,000 2,000 12,000 1,000 8,000 Re-inspection 75,000 Rework 30,000 Warranty and Repair 70,000 2016 $85,000 3,000 10,000 2,000 10,000 65,000 25,000 50,000 2017 $62,000 5,000 9,000 5,000 15,000 48,000 18,000 40,000 2018 $51,000 5,000 7,000 8,000 25,000 29,000 12,000 25,000 Customer complaints Packaging inspections Product Acceptance Quality training Reliability engineering a. Classify each cost as a Prevention Cost, Appraisal Cost, Internal Failure Cost, or External Failure Cost, and prepare a multiple-year report for the firm’s costs of quality. b. Based on this trend report, what do you observe about changes in the firm’s quality costs over the 4-year period? c. What recommendations would you make to the firm about its quality costs going forward? 8

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