Waterways Continuing Problem
WCP1 Waterways Corporation is a private corporation formed for the purpose of providing
the products and the services needed to irrigate farms, parks, commercial projects, and private
homes. It has a centrally located factory in a U.S. city that manufactures the products it
markets to retail outlets across the nation. It also maintains a division that provides installation
and warranty servicing in six metropolitan areas.
A partial list of Waterways’ accounts and their balances for the month of November 2016
follows.
Accounts Receivable
$ 275,000
Advertising Expenses
54,000
Cash
260,000
Depreciation—Factory Equipment
16,800
Depreciation—Office Equipment
2,400
42,000
Factory Supplies Used
16,800
10,200
68,800
48,000
Office Supplies Expense
1,600
72,000
Prepaid Expenses
41,250
52,700
38,000
Raw Materials Purchases
Rent—Factory Equipment
47,000
Repairs—Factory Equipment
4,500
Salaries
325,000
Sales
1,350,000
Sales Commissions
40,500
Waterways Continuing Problem
(This is a continuation of the Waterways Problem from Chapter 15)
WCP2 Waterways has two major public-park projects to provide with comprehensive
irrigation in one of its service locations this month. Job J57 and Job K52 involve 15 acres of
landscaped terrain which will require special-order sprinkler heads to meet the specifications of
the project. Using a job cost system to produce these parts, the following events occurred
during December 2016.
Dec. 1 Purchased raw materials from Durbin Supply Company on account for $53,200.
Dec. 2 Issued $40,000 of direct materials from the company’s inventory to jobs other than
K52 and J57 and $3,000 of indirect materials.
Instructions
(a) Set up the job cost sheets for Job No. J57 and Job No. K52. Determine the total cost for
Waterways Continuing Problem
(This is a continuation of the Waterways Problem from Chapters 15 and 16. The asterisk* indicates material discussed in
the chapter appendix.)
WCP3 Because most of the parts for its irrigation systems are standard, Waterways handles the majority of its
The following information is available for the Molding department for January.
Work in process beginning:
Units in process
22,000
Stage of completion for materials
80%
Stage of completion for labor and overhead
Costs in work in process inventory:
30%
Instructions
(a) Prepare a production cost report for Waterways using the weighted-average method.
*(b) Show the equivalent units for materials and conversion costs if Waterways used FIFO instead of weighted-average.
Waterways Continuing Problem
(This is a continuation of the Waterways Problem from Chapters 15 through 17.)
WCP4 Direct labor or machine hours may not be the appropriate cost driver for overhead in
Instructions
(a) For each of these cost pools, what would be the likely activity cost driver?
(b) Using the following information, determine the overhead rates and the actual cost
assigned for each of the activity cost pools in a possible ABC system for Waterways.
WATERWAYS CORPORATION
Activity Cost Pools
Cost Drivers
Estimated
Overhead
Expected
Use of
Cost Drivers
per Activity
Actual
Use of
Drivers
(c) How would you classify each of the following activities by level—unit level, batch level,
product level, or facility level?
Waterways Continuing Problem
(This is a continuation of the Waterways Problem from Chapters 15 through 18.)
Instructions
(a) Waterways markets a simple water control and timer that it mass-produces. During 2016, the company sold 696,000
units at an average selling price of per solution $4.20 per unit. The variable expenses were $1,900,080, and the
Waterways Continuing Problem
(This is a continuation of the Waterways Problem from Chapters 15 through 19.)
WCP6
Part 1
Waterways has a sales mix of sprinklers, valves, and controllers as follows.
Instructions
(a) Determine the sales mix based on unit sales for each product.
(b) Using the annual expected sales for these products, determine the weighted-average unit
contribution margin for these three products. (Round to two decimal places.)
(c) Assuming the sales mix remains the same, what is the break-even point in units for these
products?
Instructions
Given the information above, and assuming all of the package sets produced can be sold each
month, illustrate the best use of machine hours.
Part 3
Instructions
(a) Using this information for the controllers, determine the contribution margin ratio, the
degree of operating leverage, the break-even point in dollars, and the margin of safety
ratio for Waterways Corporation on this product.
(b) What does this information suggest if Waterways’ cost structure is the same for the
company as a whole?
Waterways Continuing Problem
(This is a continuation of the Waterways Problem from Chapters 15 through 20.)
WCP7
Part 1
Waterways mass-produces a special connector unit that it normally sells for $3.90. It sells approximately 35,000 of
these units each year. The variable costs for each unit are $2.30. A company in Canada that has been unable to
Instructions
Given the information above:
(a) What are the consequences of Waterways agreeing to provide the 15,000 units to the Canadian company? Would
this be a wise “special order” to accept?
(b) Should Waterways accept the special order from the irrigation company?
(c) What would be the consequences of accepting both special orders?
Part 2
Waterways has discovered that a small fitting it now manufactures at a cost of $1.00 per unit could be bought
elsewhere for $0.82 per unit. Waterways has fixed costs of $0.20 per unit that cannot be eliminated by buying this
Instructions
Given the information above:
(a) Without considering the possibility of making the timing unit, evaluate whether Waterways should buy or continue to
make the small fitting.
(b) (1) What is Waterways’ opportunity cost if it chooses to buy the small fitting and start
manufacturing the timing unit?
(2) Would it be wise for Waterways to buy the fitting and manufacture the timing unit? Explain.
Part 3
Waterways Continuing Problem
(This is a continuation of the Waterways Problem from Chapters 15 through 21.)
WCP8 Waterways uses time and material pricing when it bids on irrigation projects.
Budgeted data for 2016 are as follows.
WATERWAYS CORPORATION
Budgeted Costs for Irrigation Projects for 2016
Time
Charges
Material
Loading
Charges
Waterways Continuing Problem
(This is a continuation of the Waterways Problem from Chapters 15 through 22.)
WCP9 Waterways Corporation is preparing its budget for the coming year, 2017. The first step is to plan for the first
quarter of that coming year. Waterways gathered the following information from the managers.
Direct Materials
Item Amount Used per Unit Inventory, Dec. 31
2 lbs per unit 10,355.0 lbs
Metal, plastic, and rubber together are 75¢ per pound per unit.
Waterways likes to keep 5% of the materials needed for the next month in its ending inventory. Payment for materials
is made within 15 days. 50% is paid in the month of purchase, and 50% is paid in the month after purchase. Accounts
Payable on December 31, 2016, totaled $120,595. Raw Materials on December 31, 2016, totaled 11,295 pounds.
Direct Labor
Labor requires 12 minutes per unit for completion and is paid at a rate of $8 per hour.
Manufacturing Overhead
Other Information
The Cash balance on December 31, 2016, totaled $100,500, but management has decided it
would like to maintain a cash balance of at least $800,000 beginning on January 31, 2017.
Instructions
For the first quarter of 2017, do the following.
(a) Prepare a sales budget.
(b) Prepare a production budget.
Waterways Continuing Problem
(This is a continuation of the Waterways Problem from Chapters 15 through 23.)
WCP10 Waterways Corporation is continuing its budget preparations. Waterways had the following static budget and
overhead costs for March 2016.
WATERWAYS CORPORATION
Manufacturing Overhead Budget
(Static) For the Month of March 2017
WATERWAYS CORPORATION
Manufacturing Overhead Costs (Actual)
For the Month of March 2017
Budgeted production in units
117,500
Production in units
118,500
Waterways produced 118,500 units in March rather than the budgeted number of units.
Instructions
(a) Prepare a flexible overhead budget based on the following amounts produced.
(1) 115,500 units
Costs
Indirect labor
Indirect labor
Property taxes
Property taxes
Total budgeted costs
Total costs
Waterways Continuing Problem
(This is a continuation of the Waterways Problem from Chapters 15 through 24.)
WCP11 Waterways Corporation uses very stringent standard costs in evaluating its
manufacturing efficiency. These standards are not “ideal” at this point, but the management is
working toward that as a goal. At present, the company uses the following standards.
The January figures for purchasing, production, and labor are:
The company purchased 229,000 pounds of raw materials in January at a cost of 78¢ a
pound.
Production used 229,000 pounds of raw materials to make 115,500 units in January.
Direct labor spent 18 minutes on each product at a cost of $7.80 per hour.
Overhead costs for January totaled $54,673 variable and $73,800 fixed.
Instructions
Answer the following questions about standard costs.
Materials
Waterways Continuing Problem
(This is a continuation of the Waterways Problem from Chapters 15 through 25.)
WCP12 Waterways puts much emphasis on cash flow when it plans for capital investments. The company chose
its discount rate of 8% based on the rate of return it must pay its owners and creditors. Using that rate, Waterways
then uses different methods to determine the best decisions for making capital outlays.
Instructions
(a) Evaluate in the following ways whether to purchase the new equipment or overhaul the old equipment. (Hint: For
the old machine, the initial investment is the cost of the overhaul. For the new machine, subtract the salvage value
of the old machine to determine the initial cost of the investment.)
(1) Using the net present value method for buying new or keeping the old.
Waterways Continuing Problem
(This is a continuation of the Waterways Problem from Chapters 15 through 26.)
WCP13 Waterways prepared the balance sheet and income statement for the irrigation
installation division for 2016. Now the company also needs to prepare a cash flow statement
WATERWAYS CORPORATION—INSTALLATION DIVISION
Balance Sheets
December 31
Assets
2016
2015
Current assets
Cash
$ 836,797
$ 746,681
Accounts receivable
680,750
542,685
Work in process
702,159
Inventory
16,766
7,500
Prepaid expenses
76,550
42,590
Property, plant, and equipment
300,000
300,000
Buildings
450,000
450,000
Equipment
929,400
800,200
Accumulated depreciation
Total assets
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable
$ 157,095
$ 128,360
Income taxes payable
101,344
79,989
Wages payable
4,517
1,984
Interest payable
1,187
Other current liabilities
14,515
Revolving bank loan payable
15,000
Note payable
140,000
433,658
225,579
Common stock
Retained earnings
1,866,657
969,289
WATERWAYS CORPORATION—INSTALLATION DIVISION
Income Statement
For the Year Ending December 31, 2016
Sales
$5,536,077
Less: Cost of goods sold
3,132,777
Gross profit
2,403,300
Operating expenses
Total operating expenses
Income from operations
1,276,141
Other income
Other expenses
Net other income and expenses
Income before income tax
1,281,954
Income tax expense
Net income