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1) The Downey Screen Plant of Allington Windows manufactures new and replacement screens. The plant produces more than 500 different screen sizes and offers four different aluminum frame colors. Plant overhead is absorbed to each screen produced using the square inches of the screen as the allocation base. (For example, a screen with dimensions 20 __7 32 width 38 __21 32 height has 781.581 square inches.) The single plantwide overhead rate, estimated before the year begins, is based on a flexible budget (budgeted fixed overhead plus budgeted variable overhead) divided by budgeted volume. Volume is measured in square inches of the screens produced.

The following table summarizes operations for the year: Budgeted variable overhead (per sq in.) $0.01 Actual overhead incurred $4,287,482 Budgeted fixed overhead $3,594,240 Overabsorbed overhead $797,759 Actual volume (sq in.) 141,256,700 Required:

Calculate the budgeted volume amount (in screen square inches) Downey Screen Plant used in computing the plantwide overhead rate for the year.

2) Federal Mixing (FM) is a division of Federal Chemicals, a large diversified chemical company. FM provides mixing services for both outside customers and other Federal divisions. FM buys or receives liquid chemicals and combines and packages them according to the customer's specifications. FM computes its divisional net income on both a fully absorbed and variable costing basis. For the year just ending, it reported Net Income Absorption costing $13,800,000 Variable costing12,600,000 Difference $1,200,000 Overhead is assigned to products using machine hours. There is no finished goods inventory at FM, only work-in-process (WIP) inventory. As soon as a product is completed, it is shipped to the customer. The beginning inventory based on absorption costing was valued at $6.3 million and contained 70,000 machine hours. The ending WIP inventory based on absorption costing was valued at $9.9 million and contained 90,000 machine hours. Required: Write a short nontechnical note to senior management explaining why variable costing and absorption costing net income amounts differ.

3)The Fox Mug Company is an old-line maker of ceramic coffee mugs. It imprints company logos and other sayings on mugs for both commercial and wholesale markets. The firm has the capacity to produce 50 million mugs per year, but the recession has cut production and sales in the current year to 15 million mugs. The accompanying table shows the operating statement for 2016. Final PDF to printer 460 Chapter 10 zim69495_ch10_439-472.indd 460 04/17/19 07:03 AM MEDFORD MUG COMPANY Income Statement Year Ending 2016 ($ in Millions) Sales (15 million @ $2) $ 30.0 Less costs of goods sold Variable cost (15 million @ $0.50)(7.5) Fixed cost (20.0) (27.5) Gross margin $ 2.5Less selling and administration(4.0) Operating profit $ (1.5) At the end of 2016, there was no ending inventory of finished goods. The board of directors is very concerned about the $1.5 million operating loss. It hires an outside consultant who reports back that the firm suffers from two problems. First, the president of the company receives a fixed salary, and because she owns no stock, she has very little incentive to worry about company profits. The second problem is that the company has not aggressively marketed its product and has not kept up with changing markets. The current president is 64, and the board of directors makes her an offer to retire one year early so that they can hire a new president to turn the firm around. The current president accepts the offer to retire, and the board immediately hires a new president with a proven track record as a turnaround specialist. The new president is hired with an employment contract that pays a fixed wage of $50,000 a year plus 15 percent of the firm's operating profits (if any). Operating profits are calculated using absorption costing. In 2017, the new president doubles the selling and administration budget to $8million (which includes the president's salary of $50,000). He designs a new line of "politically correct" sayings to imprint on the mugs and expands inventory and the number of distributors handling the mugs. Production is increased to 45 million mugs, and sales climb to 18 million mugs at $2each. Variable costs per mug remain at $.50 and fixed costs at $20 million in 2017. At the end of 2017, the president meets with the board of directors and announces he has accepted another job. He believes he has successfully gotten Fox Mug back on track and thanks the board for giving him the opportunity. His new job is helping to turn around another struggling company. Required: a. Calculate the president's bonus for 2017. b. Evaluate the performance of the new president in 2017. Did he do a good a job as the numbers in part (a) suggest?

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