# Prepare an incremental analysis schedule to demonstrate by what amount would operating income be increased or decreased as a result of accepting the special order.

Accounting Week 8 Final
Assignment Requirements

Question 1: 6.5% points:
NFL manufactures footballs. The forecasted income statement for the year before any special orders included sales of \$4,000,000 (sales price is \$10 per unit.) Manufacturing cost of goods sold is anticipated to be \$3,200,000. Selling expenses are expected to be \$300,000, and operating income is projected at \$500,000. Fixed costs included in these forecasted amounts are \$1,200,000 for manufacturing cost of goods sold and \$100,000 for selling expenses. Eagles is offering a special order to buy 50,000 footballs for \$7.50 each. There will be no additional selling expenses, and sufficient capacity exists to manufacture the extra footballs.
Requirements: Prepare an incremental analysis schedule to demonstrate by what amount would operating income be increased or decreased as a result of accepting the special order.

Question 2: 6% points:
Flop Company manufactures 10,000 units of widgets for use in its annual production. Costs are direct materials \$20,000, direct labor \$55,000, variable overhead \$45,000, and fixed overhead \$70,000. Floozy Company has offered to sell Flop 10,000 units of widgets for \$18 per unit. If Flop accepts the offer, some of the facilities presently used to manufacture widgets could be rented to a third party at an annual rental of \$15,000. Additionally, \$4 per unit of the fixed overhead applied to widgets would be totally eliminated.
Requirements: Prepare an incremental analysis schedule to demonstrate if Flop should accept Floozy’s offer.
Question 3: 15% points:
Dr. Peterside is considering buying a company if it will break even or earn net income on revenues of \$80,000 per month. The company that Dr. Peterside is considering sells each unit it produces for \$5. Use the following cost data to:
Volume (units) Cost
8,000 \$70,000
68,000 190,000

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Requirements:
a. Using the high-low method to compute the variable cost per unit and the fixed cost for the period.
b. Calculate the break-even point in sales dollar.
c. Should Dr. Peterside buy this company?

Question 4: 15% points:
Mason Company has the following selected data for the current year:
Sales (10,000 units) \$90,000
Direct materials \$45,000
Direct labor costs \$15,000
Variable selling and administrative expenses \$3,750
Fixed selling and administrative expenses \$22,500
The company produced and sold 10,000 units. Direct materials and direct labor are variable costs.
Requirements:
a. Prepare an income statement for the current year using the contribution margin format.
b. Prepare an income statement for the current year using the traditional format.
Question 5: 10% points:
Williams Brothers Company makes products for sporting events. The following data are for the year ended December 31, 2013:
Finished goods inventory, Jan 1, 2013 \$120,000
Finished goods inventory, Dec 31, 2013 \$210,000
Materials inventory, Jan 1, 2013 \$67,500
Materials inventory, Dec 31, 2013 \$97,500
Materials purchases \$262,500
Direct labor \$337,500
Work in process inventory, Jan 1, 2013 \$45,000
Work in process inventory, Dec 31, 2013 \$60,000
Requirements:
a. Prepare a cost of goods manufactured statement.
b. Compute the cost of goods sold as of December 31, 2013.

Question 6: 10% points:
Given the following data, prepare a schedule that shows contribution margin, contribution to indirect expenses, and net income of the Sharks Division of Hockey, Inc:
Direct fixed expenses \$324,000
Indirect fixed expenses \$259,200
Sales \$2,100,000
Variable expenses \$1,500,000
What would be the effect on the Company income if the segment were eliminated?

Multiple choice questions allocated 1.5% point each.
Question 7
Manufacturing costs are also known as product costs. Which of the following best describes those costs which are considered to be manufacturing costs?
a. Direct materials, direct labor, and factory overhead.
b. Direct materials and direct labor only.
d. Direct labor and factory overhead.

Question 8:
For Financial Accounting and external reporting purposes, all selling and administrative expenses are treated as:
A. product costs.
B. selling costs.
C. period costs.
Question 9:
Under which cost category are indirect material costs included?
b. direct labor.
c. direct materials.
d. none of the above.
Question 10
Factory overhead includes all manufacturing costs except direct material and direct labor. Which of the following items would not be considered to be a factory overhead cost?
a. Repainting the corporate office building.
b. Indirect labor.
c. Repair and maintenance expenditures on factory machinery.
d. Small expenditures pertaining to items like rags, screws, adhesives, etc., used in the production process.
Question 11
The appropriate journal entry to transfer the cost of completed units from the Work in Process account would involve a credit to Work in Process and a debit to which of the following accounts?
a. Income Summary
b. Raw Materials Inventory
c. Finished Goods
d. Manufacturing Summary

Question 12
Lansing Corporation provides household painting services. During June, its busiest month, Lansing had total direct labor hours of 20,000 and total costs of \$274,000. During December, its slowest month, the company had direct labor hours of 12,500 and total costs of \$214,000. The company is planning for 16,000 direct labor hours in July. How many dollars should the company budget for fixed costs during July?
a. \$114,000
b. \$162,000
c. \$242,000
d. \$251,500
Question 13
The Environmental Filter Company is planning to sell air filter systems for \$2,500 per unit. Variable costs are \$1,500 per unit and total fixed costs are \$1,000,000. What is the dollar value of sales necessary to break even?
a. \$1,000,000
b. \$2,000,000
c. \$2,500,000
d. \$5,000,000
Question 14
With the job order cost system, a credit balance in the Factory Overhead account at the end of an accounting period would indicate:
a. That an error in the job cost system has occurred.
b. That the company lost money during the period.
c. The presence of under applied overhead.
d. The presence of over applied overhead.

Question 15
Which of the following factors would cause the break-even point to change?
a. Increased sales volume.
b. Fixed costs increased due to addition of physical plant.
c. Total variable costs increased as a function of higher production.
d. Total production decreased.
Question 16
Moore Company reported sales of \$150,000 (20,000 units). Fixed costs amounted to \$20,000 and income for the period was \$90,000. Determine the per-unit variable cost.
a. \$1.00
b. \$2.00
c. \$4.50
d. \$5.50
Question 17
The Rug Outlet Store produces two products, carpet and padding. These account for 40% and 60% of the total sales dol lars of the company, respectively. Variable costs (as a percentage of sales dollars) are 40% for carpet and 50% for padding. Total fixed costs are \$540,000. No other costs are expected to be incurred. How much is the company’s total break-even point in sales dollars?
a. \$540,000
b. \$964,285
c. \$1,000,000
d. \$1,173,913

Question 18:
Acronyms are perhaps overused, but nonetheless important to know. Which of the following acronyms is used to describe a process for an inventory management process that attempts to minimize the money invested in inventory?
a. CFM
b. TQM
c. ABC
d. JIT

Question 19
A company’s telephone bill consisting of a \$200 monthly base amount, plus long distance charges, would be classified as a:
a. Variable cost
b. Committed fixed cost
c. Discretionary fixed cost
d. Mixed cost
Question 20
The Factory Overhead account in a job costing system is credited for the:
d. Indirect materials and indirect labor.
Question 21
Beginning work in process was 1,200 units, 2,800 additional units were put into production, and ending work in process was 500 units. How many units were completed?
a. 500
b. 3,000
c. 3,300
d. 3,500
Question 22
Which of the following comments regarding activity-based costing is not a correct observation?
a. The per unit cost of an end product under ABC will necessarily be less than the per unit cost under traditional costing methods.
b. ABC may produce results that are not suitable for external reporting under GAAP.
c. Activities are said to be resource drivers because they consume resources necessary for the activities to happen.
d. Batch-level activities produce costs that may not be in proportion to the number of units produced.
Question 23
Which cost accumulation procedure is best suited to the continuous mass production of similar units?
a. Job order
b. Process
c. Standard
d. Actual
Question 24
. Wang Company provides the following information for their first year of operation:
Sales 5,000 units @ \$10
Fixed \$1,000
Variable \$1 per unit
Variable production costs per unit:
Direct materials \$2
Direct labor \$2
Production 7,500 units

If Wang uses variable costing, operating income would be:

a. \$11,500
b. \$14,000
c. \$16,500
d. \$20,000

Question 25
Roland Corporation budgeted April sales at 2,500 units. The beginning finished goods inventory consisted of 2,000 units, however, Roland desired to have 2,500 finished units on hand by the end of April. Direct materials inventory consisted of 800 beginning units and Roland desired an ending balance of 1,400 units. Each finished unit required 2 units of direct material and 1 hour of direct labor. Direct materials cost \$3.00 per unit, direct labor cost \$11.00 per hour, and factory overhead is applied at \$7.00 per direct labor hour. Roland has no work in process at the beginning or end of the month. How much is the anticipated cost of goods manufactured for April?
a. \$51,000
b. \$57,600
c. \$72,000
d. \$73,800
Question 26
Bright Company manufactures mirrors which require 8 square feet of glass per mirror. Bright anticipates production of 500 units in January, 700 units in February, and 1,700 units in March. Bright maintains glass on hand equal to 40% of the following month’s anticipated production requirements. The glass costs \$3 per square foot. At the beginning of January, only 500 square feet of glass is on hand. How many square feet of glass should Bright plan to buy in February?
a. 2,200 square feet
b. 5,440 square feet
c. 8,800 square feet
d. 11,040 square feet
Question 27
Scanlon Corporation has estimated its activity for April as follows:
Sales \$800,000
Gross profit (based on sales) 40%
Increase in accounts receivable during month 10,000
Increase in finished goods inventory during month 30,000
Total selling and administrative costs 80,000
Depreciation included in selling and administrative costs 25,000

Scanlon has no raw material or work in process inventory at the beginning or end of April. On the basis of the above, what are estimated cash disbursements for April?
a. \$510,000
b. \$533,000
c. \$535,000
d. \$565,000
Question 28
10. Blinder Corporation projected the following:
Sales \$5,000,000
Fixed manufacturing costs 2,000,000
Blinder projects variable manufacturing costs of 40% of sales. Assuming no change in inventory, what will be the projected cost of goods sold?
a. \$2,000,000
b. \$3,000,000
c. \$4,000,000
d. \$5,000,000
Question 29
Maverick Corporation had four operating segments. Information for each segment is included in the following table. Maverick has a threshold rate of return of 7%. Which segment has the largest residual income?
Segment A Segment B Segment C Segment D

Operating Income \$100,000 \$200,000 \$300,000 \$400,000

Operating Assets \$200,000 \$300,000 \$300,000 \$5,000,000
a. Segment A
b. Segment B
c. Segment C
d. Segment D
Question 30
Income computed by the absorption costing method will tend to exceed income computed by the variable costing method if:
a. Fixed manufacturing costs decrease.
b. Units sold exceed units produced.
c. Variable manufacturing costs decrease.
d. Units produced exceed units sold.
Question 31
Which of the following statements concerning job cost sheets is incorrect?
a. A job cost sheet would show the direct materials used on that specific job.
b. A job cost sheet would reveal the selling costs associated with a particular job.
c. The total costs recorded on a job cost sheet should also be reflected in the Work in Process account in the general ledger.
d. The amount of overhead on a job cost sheet is the applied factory overhead rather than the actual factory overhead.
Question 32 (discussion)
Part 2
Give the three sets of definitions for income and investment that can be used in ROI calculations, and explain when each set is applicable.

Question 33 (Homework)
Chapter 25

Question 1 (see attachment for assignment)

Complete Alternate Problem A – Swiss Corporation (page 269)