1) Kalven Company manufactures boats. During September, 2014, the company
purchased 100 GPS devices at a cost of $120 each. Kalven withdrew 60 devices from
the warehouse during the month. Twenty of these devices were installed in salespersons
cars and the remaining 40 phones were put in boats manufactured during the month.
Of the boats put into production during September, 2014, 70% were completed and
transferred to the company’s storage lot. Fifty percent of the boats completed during the
month were sold by September 30 .
Instructions
Determine the cost of GPS devices that would appear in each of the following accounts
at September 30, 2014:
Raw materials inventory
Work in process inventory
Finished goods inventory
Cost of goods sold
Selling expenses
2) The Oxygen Fixation Department of Tomco Manufacturing began the month of
December with beginning work in process of 3,000 units that are 100% complete as to
materials and 30% complete as to conversion costs. Units transferred out are 12,000
units. Ending work in process contains 5,000 units that are 100% complete as to
materials and 40% complete as to conversion costs.
Instructions
Compute the equivalent units of production for materials and conversion costs for the
month of December.
3) Richmond Company manufactures a product that sells for $50 per unit. Richmond
incurs a variable cost per unit of $35 and $2,400,000 in total fixed costs to produce this
product. They are currently selling 200,000 units.
Instructions: Complete each of the following requirements, presenting labeled
supporting computations.
1>Compute and label the contribution margin per unit and contribution margin ratio.
2>Using the contribution margin per unit, compute the break-even point in units.
3>Using the contribution margin ratio, compute the break-even point in dollars.
4>Compute the margin of safety and margin of safety ratio.
5>Compute the number of units that must be sold in order to generate net income of
$300,000 using the contribution margin per unit.
6>Should Richmond give a commission to its salesmen based on 10% of sales, if it will
decrease fixed costs by $400,000 and increase sales volume 20%? Support your answer
with labeled computations.
4) Vikolov Corporation evaluates its managers based on return on investment (ROI).
Robbie Franco and Jan Mendoza, managers of the electronics and housewares
departments respectively, have recently suffered from declining profits in their
departments. Over lunch, they discuss the problem, and how they could improve
performance. Most of the discussion centers around ways to increase sales. Near the
end of the lunch period, however, Jan remarks that there are two components to
consider, and that they have considered only one. She wonders whether there is some
way to reduce investment, and by decreasing the denominator of the ROI fraction, to
improve the final result.
Back at work, Robbie continues to mull over Jan remarks. She decides to pursue the
matter further, and before the end of the quarter she has sold quite a bit of older
equipment and replaced it with equipment obtained with a short-term lease. Her
performance, measured by ROI, is markedly improved, although sales continue to be
disappointing.
Required:
1>Who are the stakeholders in this situation?
2>Is Robbie’s action ethical? Briefly explain.
5) Goodwill is an unusual asset in that it cannot be sold individually apart from a
business as a whole. If goodwill is an intangible asset, why can’t it be sold like other
intangible assets such as copyrights and patents? Briefly explain what makes goodwill
different.
6) The return on common stockholders equity is computed by dividing _____________
minus _______________ dividends by average common stockholders equity.