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Luxguard Home Paint Company produces exterior latex paint, which it sells in one gallon containers. The company has two processing departments Base Fab and Finishing. White paint which is used as a base for all the companys paints, is mixed from raw ingredients in the Base Fab Department. Pigments are then added to the basic white paint, the pigmented paint is squirted under pressure into one gallon containers, and the containers are labeled and packed for shipping in the Finishing Department. Information relating to the companys operations for April follow:

Production Data:

Units (gallons) in process, April 1: materials 100% complete, conversion 60% complete	30,000
Units (gallons) started into production during April	420,000
Units (gallons) completed and transferred to the Finishing Department	370,000
Units (gallons) in process, April 30: materials 50% complete, conversion 25% complete	80,000

Cost Data:

Work in process inventory, April 1: Materials Conversion	$92,000 $58,000
Cost added during April: Materials Conversion	$851,000 $995,000

Required:

Using the chart below, prepare a cost reconciliation report for April:

Equivalent Units of Production

	Materials	Conversion
Units transferred to the next department
Ending work in process inventory
Equivalent units of production

Costs per Equivalent Unit

	Materials	Conversion
Costs of beginning work in process inventory
Costs added during the period
Total Cost
Equivalent units of production
Cost per equivalent unit

Costs of Ending Work in Process Inventory and the Units Transferred Out:

	Materials	Conversion	Total
Ending Work in Process Inventory: Equivalent units of production Cost per equivalent unit Cost of ending work in process inventory
Units Completed and Transferred Out: Units transferred to the next department Cost per equivalent unit Cost of units completed and transferred out

Cost Reconciliation

Costs to be accounted for: Cost of beginning work in process inventory Costs added to production during the period Total cost to be accounted for
Costs accounted for as follows: Cost of ending work in process inventory Cost of units transferred out Total cost accounted for

The administrator of Azalea Hills Hospital would like a cost formula linking the administrative costs involved in admitting patients to the number of patients admitted during a month. The admitting departments costs and the number of patients admitted during the immediately preceding eight months are given in the following table:

Month	Number of Patients Admitted	Admitting Department Costs
May	1,800	$14,700
June	1,900	$15,200
July	1,700	$13,700
August	1,600	$14,000
September	1,600	$14,300
October	1,300	$13,100
November	1,100	$12,800
December	1,500	$14,600

Required:

1. Use the high low method to establish the fixed and variable components of admitting costs.

2. Express the fixed and variable components of admitting costs as a cost formula in the form

Y = a + bX

Part V

Voltar Company manufactures and sells a specialized cordless telephone for high electromagnetic radiation environments. The companys contribution format income statement for the most recent year is given below:

	Total	Per Unit	Percent of Sales
Sales (20,000 units)	$1,200,000	$60	100%
Variable Expenses	900,000	45	?%
Contribution Margin	300,000	$15	?%
Fixed Expenses	240,000
Net Operating Income	$ 60,000

Required:

1. Compute the companys CM ratio and variable expense ratio.

2. Compute the companys breakeven point in both units and sales dollars.

3. Assume that sales increase by $400,000 next year. If cost behavior patterns remain unchanged by how much will the companys net operating income increase?

4. Refer to the original data. Assume that next year management wants the company to earn a profit of at least $90,000. How many units will have to be sold to meet this target profit?

5. In an effort to increase sales and profits, management is considering the use of a higher quality speaker. The higher quality speaker would increase variable costs by $3 per unit, but management could eliminate one quality inspector who is paid a salary of $30,000 per year. The sales manager estimates that the higher quality speaker would increase annual sales by at least 20%

a. Assuming that the changes are made as described above, prepare a projected contribution format income statement for next year.

	Total	Per Unit	Percent of Sales
Sales (20,000 units)
Variable Expenses
Contribution Margin
Fixed Expenses
Net Operating Income

Dexter Corporation produces and sells a single product, a wooden hand loom for weaving small items such as scarves. Selected cost and operating data relating to the product are given below:

Selling price per unit	$50
Manufacturing Costs: Variable per unit produced: Direct materials Direct Labor Variable overhead Fixed per year	$11 $6 $3 $120,000
Selling and administrative costs: Variable per unit sold Fixed per year	$4 $70,000

Units in beginning inventory	0
Units produced during the year	10,000
Units sold during the year	8,000
Units in ending inventory	2,000

Required:

Assume the company uses absorption costing

Compute the unit product cost

Prepare an income statement

Assume the company uses variable costing

Compute the unit product cost

Prepare an income statement

3. Reconcile the variable costing and absorption costing net operating income

Ferris Corporation makes a single product a fire resistant commercial filing cabinet that it sells to office furniture distributors. The company has a simple ABC system that it uses for internal decision making. The company has two overhead departments whose costs are listed below:

Manufacturing Overhead	$500,000
Selling and administrative overhead	300,000
Total overhead costs	$800,000

The companys ABC system has the following activity cost pools and activity measures:

Activity Cost Pool	Activity Measure
Assembling units	Number of units
Processing orders	Number of orders
Supporting customers	Number of customers
Other	Not applicable

Costs assigned to the Other activity cost pool have no activity measure, they consist of the costs of unused capacity and organization sustaining costs neither of which are assigned to orders, customers, or the product.

Ferris Corporation distributes the costs of manufacturing overhead and of selling and administrative overhead to the activity cost pools based on employee interviews, the results of which are reported below:

Distribution of Resource Consumption Across Activity Cost Pools

	Assembling Units	Processing Orders	Supporting Customers	Other	Total
Manufacturing Overhead	50%	35%	5%	10%	100%
Selling and Administrative Overhead	10%	45%	25%	20%	100%
Total Activity	1,000 units	250 orders	100 customers

Required:

1. Using the chart provided, perform the first stage allocation of overhead costs to the activity cost pools.

	Assembling Units	Processing Orders	Supporting Customers	Other	Total
Manufacturing Overhead
Selling & Administrative Expense
Total Cost

2. Using the chart provided below, compute the activity rates for the activity cost pools.

Activity Cost Pools	Total Cost	Total Activity	Activity Rate
Assembling Units
Processing Orders
Supporting Customers

3. OfficeMart is one of Ferris Corporations customers. Last year, OfficeMart ordered filing cabinets four different times. OfficeMart ordered a total of 80 filing cabinets during the year. Using the chart provided below, show the overhead costs attributable to Office Mart.

Activity Cost Pools	Activity Rate	Activity	ABC Cost
Assembling Units
Processing Orders
Supporting Customers
Total ABC Cost

4. The selling price of a filing cabinet is $595. The cost of direct materials is $180 per filing cabinet and direct labor is $50 per filing cabinet. Using the chart provided below, determine the customer margin of OfficeMart.

Sales
Costs: Direct Materials Direct labor Total ABC Cost
Customer Margin

Mynor Corporation manufactures and sells a seasonal product that has peak sales in the third quarter. The following information concerns operations for Year 2 the coming year and for the first two quarters of Year 3.

The companies single product sells for $8 per unit. Budgeted sales in units for the next six quarters are as follows (all sales are on credit):

	Year 2 Quarter 1	Year 2 Quarter 2	Year 2 Quarter 3	Year 2 Quarter 4	Year 3 Quarter 1	Year 3 Quarter 2
Budgeted Unit Sales	40,000	60,000	100,000	50,000	70,000	80,000

Sales are collected in the following pattern: 75% in the quarter the sales are made, and the remaining 25% in the following quarter. On January 1, Year 2, the companys balance sheet showed $65,000 in accounts receivable, all of which will be collected in the first quarter of the year. Bad debts are negligible and can be ignored.

The company desires an ending finished goods inventory at the end of each quarter equal to 30% of the budgeted unit sales for the next quarter. On December 31, Year 1, the company had 12,000 units on hand.

Required:

1. Prepare a sales budget:

	Year 2 Quarter 1	Year 2 Quarter 2	Year 2 Quarter 3	Year 2 Quarter 4	Year
Budgeted Unit Sales
Selling price per unit
Total Sales

2. Prepare the schedule of expected cash collections:

	Year 2 Quarter 1	Year 2 Quarter 2	Year 2 Quarter 3	Year 2 Quarter 4	Year
Accounts Receivable, beginning balance
First quarter sales
Second quarter sales
Third quarter sales
Fourth quarter sales
Total Cash Collections

3. Prepare the production budget

	Year 2 Quarter 1	Year 2 Quarter 2	Year 2 Quarter 3	Year 2 Quarter 4	Year
Budgeted Unit Sales
Add Desired ending finished goods inventory
Total needs
Less beginning finished goods inventory
Required production

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