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142. The Canine Company has total estimated factory overhead for the year of $2,400,000, divided into four
activities: Fabrication, $1,200,000; Assembly, $480,000; Setup, $400,000; and Materials Handling $320,000.
Canine manufactures two products: Standard Crates and Deluxe Crates. The activity-base usage quantities for
each product by each activity are as follows:
Fabrication
Assembly
Setup
Materials Handling
Standard
20,000 dlh
60,000 dlh
120 setups
200 moves
Deluxe
60,000
20,000
880
1,400
80,000 dlh
80,000 dlh
1,000 setups
1,600 moves
Each product is budgeted for 20,000 units of production for the year. Determine (a) the activity rates for each activity and (b) the factory overhead
cost per unit for each product using activity-based costing.
143. Finch, Inc. has bought a new server and is having to decide what to do with the old one. The cost of the old
server was originally $60,000 and has been depreciated $45,000. The company has received two offers that it
must consider. One offer was made to purchase the equipment outright for $18,500 less a 5% sales commission.
The other offer was to lease the equipment for $7,000 for the next five years but the company will be required
to provide maintenance and insurance totaling $3,000 per year. What offer should Finch, Inc. accept?
144. Gull Corp. is considering selling its old popcorn machine and replacing it with a newer one. The old
machine has a book value of $5,000 and its remaining useful life is 5 years. Annual costs are $4,000. A high
school is willing to buy it for $2,000. New equipment would cost $18,000 and annual operating costs would be
$1,500. The new machine has an estimated useful life of 5 years. Should the machine be replaced? Support
your answer with calculations.
The machine should not be replaced:
145. Lark Art Company sells unfinished wooden decorations at a price of $15.00. The current profit margin is
$5.00 per decoration. The company is considering taking individual orders and customizing them for sale. To
finish the decoration the company would have to pay additional labor of $3.00, additional materials costing an
average of $4.00 per unit and fixed costs would increase by $1,500. If the company estimates that it can sell 600
units for $25.00 each month, should they start taking the orders?
146. Using the variable cost concept determine the selling price for 30,000 units using the following
data: Variable cost per unit $15.00, total fixed costs $90,000 and desired profit $150,000.
147. Airflow Company sells a product in a competitive marketplace. Market analysis indicates that their
product would probably sell at $28.00 per unit. Airflow management desires a profit equal to a 20% rate of
return on invested assets of $1,400,000. They anticipate selling 50,000 units. Their current full cost per unit
for the product is $25 per unit.
(1) What is the amount of profit per unit?
(2) What is the target cost per unit if they meet the market dictated price and management’s desired profit?
148. Match each of the following terms with the best definition given.
1. Combines market-based pricing with a cost
3. Only costs of manufacturing are included in
Competition-based
149. Match each of the following terms with the best definition given.
Engineering
2. Includes manufacturing cost plus selling and
3. A document that initiates a product or process
4. Variable manufacturing costs plus variable selling and
Normal selling
Variable cost
150. Match each of the following terms with the best definition.
1. Evaluation of how income will change based on an
Product cost
Theory of
4. Possible result of using an inappropriate overhead
Differential
151. Carillion Company is considering the disposal of equipment that is no longer needed for operations. The
equipment originally cost $600,000 and accumulated depreciation to date totals $460,000. An offer has been
received to lease the machine for its remaining useful life for a total of $310,000, after which the equipment will
have no salvage value. The repair, insurance, and property tax expenses that would be incurred by Carillion
Company on the machine during the period of the lease are estimated at $75,800. Alternatively, the equipment
can be sold through a broker for $230,000 less a 10% commission.
Prepare a differential analysis report, dated June 15 of the current year, on whether the equipment should be
leased or sold.
152. Product J is one of the many products manufactured and sold by Oceanside Company. An income
statement by product line for the past year indicated a net loss for Product J of $12,250. This net loss resulted
from sales of $275,000, cost of goods sold of $186,500, and operating expenses of $85,750. It is estimated that
30% of the cost of goods sold represents fixed factory overhead costs and that 40% of the operating expense is
fixed. If Product J is retained, the revenue, costs, and expenses are not expected to change significantly from
those of the current year. Because of the large number of products manufactured, the total fixed costs and
expenses are not expected to decline significantly if Product J is discontinued.
Prepare a differential analysis report, dated February 8 of the current year, on the proposal to discontinue
Product J.
153. Snipe Company has been purchasing a component, Part Q, for $19.20 a unit. Snipe is currently operating at
70% of capacity and no significant increase in production is anticipated in the near future. The cost of
manufacturing a unit of Part Q, determined by the absorption costing method, is estimated as follows:
Direct materials
$11.50
Direct labor
4.50
Variable factory overhead
1.12
Fixed factory overhead
3.15
Total
$20.27
Prepare a differential analysis report, dated March 12 of the current year, on the decision to make or buy Part Q.
154. MZE Manufacturing Company has a normal plant capacity of 37,500 units per month. Because of an extra
large quantity of inventory on hand, it expects to produce only 30,000 units in May. Monthly fixed costs and
expenses are $112,500 ($3 per unit at normal plant capacity) and variable costs and expenses are $8.25 per unit.
The present selling price is $13.50 per unit. The company has an opportunity to sell 7,500 additional units at
$9.90 per unit to an exporter who plans to market the product under its own brand name in a foreign market.
The additional business is therefore not expected to affect the regular selling price or quantity of sales of MZE
Manufacturing Company.
Prepare a differential analysis report, dated April 21 of the current year, on the proposal to sell at the special
price.
155. Due to Medicare reimbursement cuts, Loving Home Care is considering shutting down its Certified
Nursing Assistant (CNA) Division. Fixed costs will have to be transferred to the Nursing Division if the CNA
division is discontinued. Based on the following income statement make a recommendation to the president
regarding this decision.
Loving Home Care
Condensed Income Statement
For the Year Ended December 31, 20--
156. Holiday Decorations Unique has been approached by the community college to make special decorations
for the faculty and staff. The college is willing to buy 5,000 Christmas ornaments with their own design for
$6.00 each. The company normally sells its decorations for $12.00 each. A break down of their costs is as
follows:
157. The Bitterns Company produces their product at a total cost of $89 per unit. Of this amount $14 per unit is
selling and administrative costs. The total variable cost is $58 per unit. The desired profit is $25 per unit.
Determine the mark up percentage on (a) total cost, (b) product cost and (c) variable cost concepts.
158. Jay Company uses the total cost concept of applying the cost-plus approach to product pricing. The costs
and expenses of producing and selling 38,400 units of Product E are as follows:
Variable costs:
Direct materials
$ 4.70
Direct labor
2.50
Factory overhead
1.90
Selling and administrative expenses
2.60
Total
$ 11.70
Fixed costs:
Factory overhead
$80,000
Selling and administrative expenses
14,000
Jay desires a profit equal to a 14% rate of return on invested assets of $640,000.
(a)
Determine the amount of desired profit from the production and sale of Product E.
(b)
Determine the total costs and the cost amount per unit for the production and sale of 38,400 units of Product E.
(c)
Determine the markup percentage for Product E.
(d)
Determine the selling price of Product E.
159. Hummingbird Company uses the product cost concept of applying the cost-plus approach to product
pricing. The costs and expenses of producing 25,000 units of Product K are as follows:
Variable costs:
Direct materials
$2.50
Direct labor
4.25
Factory overhead
1.25
Selling and administrative expenses
.50
Total
$8.50
Fixed costs:
Factory overhead
$25,000
Selling and administrative expenses
17,000
Hummingbird desires a profit equal to a 5% rate of return on invested assets of $642,500.
(a)
Determine the amount of desired profit from the production and sale of Product K.
(b)
Determine the total manufacturing costs and the cost amount per unit for the production and sale of 25,000 units of Product K.
(c)
Determine the markup percentage for Product K.
(d)
Determine the selling price of Product K.
Round your markup percentage to one decimal place, and other intermediate calculations and final answer to two decimal places.
160. Moon Company uses the variable cost concept of applying the cost-plus approach to product pricing. The
costs and expenses of producing and selling 75,000 units of Product T are as follows:
Variable costs:
Direct materials
$ 7.00
Direct labor
3.50
Factory overhead
1.50
Selling and administrative expenses
3.00
Total
$ 15.00
Fixed costs:
Factory overhead
$45,000
Selling and administrative expenses
20,000
Moon desires a profit equal to a 18% rate of return on invested assets of $1,440,000.
(a)
Determine the amount of desired profit from the production and sale of Product T.
(b)
Determine the total variable costs for the production and sale of 75,000 units of Product T.
(c)
Determine the markup percentage for Product T.
(d)
Determine the unit selling price of Product T.
Round your markup percentage to one decimal place and other intermediate calculations and final answer to two decimal places.
161. Falcon Inc. manufactures Product B, incurring variable costs of $15.00 per unit and fixed costs of $70,000.
Falcon desires a profit equal to a 12% rate of return on assets, $785,000 of assets are devoted to producing
Product B, and 100,000 units are expected to be produced and sold.
(a)
Compute the markup percentage, using the total cost concept.
(b)
Compute the selling price of Product B.
Round your intermediate calculations and final answer to two decimal places.
162. Goshawks Co. produces an automotive product and incurs total manufacturing costs of $2,600,000 in the
production of 80,000 units. The company desires to earn a profit equal to a 12% rate of return on assets
of $960,000. Total selling and administrative expenses are $105,000.
(a)
Calculate the markup percentage, using the product cost concept.
(b)
Compute the price of the automotive product.
Round your markup percentage to one decimal place, and other intermediate calculations and final answer to two decimal places.
163. Yakking Co. manufactures mobile cellular equipment and develops a price for the product by using the
variable cost concept. Yakking incurs variable costs of $1,900,000 in the production of 100,000 units while
fixed costs total $50,000. The company employs $4,725,000 of assets and wishes to earn a profit equal to a 10%
rate of return on assets.
(a)
Compute a markup percentage based on variable cost.
(b)
Determine a selling price.
Round your markup percentage to one decimal place, and other intermediate calculations and final answer to two decimal places.
164. Sensational Soft Drinks makes three products: iced tea, soda, and lemonade. The following data are
available:
Iced Tea
Soda
Lemonade
Sales price per unit
$.90
$.60
$.50
Variable cost per unit
.30
.15
.10
Contribution margin per unit
$.60
$.45
$.40
Sensational is experiencing a bottleneck in one of its processes that affects each product as follows:
Iced Tea
Soda
Lemonade
Bottleneck process hours per unit
3
3
4
(a)
Using a theory of constraints (TOC) approach, rank the products in terms of profitability.
(b)
What price for lemonade would equate its profitability (contribution margin per bottleneck hour) to that of soda?
165. The Stewart Cake Factory sells chocolate cakes, birthday decorated cakes, and specialty cakes. The factory
is experiencing a bottleneck and is trying to determine which cake is more profitable. Even though the company
may have to limit the orders that it takes, they are concerned about customer service and satisfaction.
(A) Calculate the contribution margin per hour per cake.
(B) Determine which cakes the company should try to sell more of first, second, and then last.
Chocolate Cake
Birthday
Cake
Specialty Cake
Sales price
$25.00
$45.00
$30.00
Variable cost per cake
$5.00
$12.00
$10.00
Hours needed to bake, frost, and decorate
1 hour
2.5 hours
2 hours
