Phase I

Given:
Units
$ Materials $ Conv Cost % Materials % Conv Cost
237
$9,156
$4,892
20%
30%
2,375
N/A
N/A
N/A
N/A
488
???
???
70%
55%
$47,880
$38,965

Beg WIP
Started
End WIP
TMC

Computing WIP Avail $'s [the check figure]:

Beg WIP
Mat
$9,156
CC
$4,892
TMC
Mat
$47,880
CC
$38,965
WIP Avail
$100,893
Computing Equivalent Units:
started
2,375
Units

FIFO
%

B -> C
S -> C
S -> E

W/A

Mat

237
1,887
488

EU

80%
100%
70%

Computing $/EU:
TMC
Beg WIP
WIP Avail
EU
$/EU

Computing End WIP & COGM:

End WIP

COGM

CC
190
1,887
342
2,418

EU
$/EU

70%
100%
55%

2,418
$19.80

2,321
$16.79

342
$19.80
$6,763.63

FIFO
CC
268
$16.79
$4,505.32

2,077
2,053
$19.80
$16.79
$41,116.37 $34,459.68

Check

job 622
3,400
2,700
2,160
8,260

job 623
1,800
1,350
1,080
4,230

total wip

19,070

%
100%
100%
70%

EU
237
1,887
342
2,466

$47,880
$9,156
$57,036
2,466
$23.13
W/A

Total

Mat
EU
$/EU

342
$23.13
$7,902.13

EU
$/EU

2,124
$23.13
$49,133.87

$11,268.95

$75,576.05
$9,156.00
$4,892.00
$89,624.05
$100,893.00

Phase II
fin goods
15,000
wip
19,070
materials
14,000
job 621
2,800
2,100
1,680
6,580

166
1,887
268
2,321

$38,965

Beg WIP

mat
lab
app fo

EU

$47,880

Mat
EU
$/EU

Mat

mat purch
mat req
ind mat
job 621
job 622
job 623
mat returned
ind mat
job 622
payroll, net
payroll gross
dir lab
ind lab
sales sal
admin sal
dir lab
job 621
job 622
job 623
act fo
app fo
job 621
job 622
job 623

22,000
2,400
5,300
7,400
5,900
200
400
30,780
38,000
20,900
7,600
5,700
3,800
6,420
8,160
6,320
5,500
5,136
6,528
5,056

materials
beg
purch
mat avail
mat used
end mat

14,000
22,000
36,000
20,400
15,600

wip
beg
mat used
dir lab
app fo
mat avail
cogm
end wip

19,070
18,200
20,900
16,720
74,890
53,384
21,506

proof of end wip -- job 623

beg
4,230
mat used
5,900
dir lab
6,320
app fo
5,056
fg
gross profit

rev
mat

21,000

600

38,000

20,900

16,720

job 621
6,580
5,300
6,420
5,136

job 622
8,260
7,000
8,160
6,528

23,436

29,948

21,506

15,000
21,354

Phase III
convert for
k co
68,400
6,200

convert to
standard
62,500
2,850

sell
as is
52,000
0

lab
4,200
3,300
0
vfo
2,100
1,650
0
com %
2,052
1,250
1,560
net real val
53,848
53,450
50,440
diff 1-2
398
diff 2-3
3,010
diff 1-3
3,408
therefore, sell to k co. and earn extra $398 vs.selling as standard unit and
earn extra $3,010 vs. selling as is.
the lowest price is the current offer less pre-commission difference in profit compared with next best option.
68400 minus
1.03 * 398 =
67990.06
check
convert for convert to
sell
k co
standard
as is
rev
67,990
62,500
52,000
mat
6,200
2,850
0
lab
4,200
3,300
0
vfo
2,100
1,650
0
com %
2,040
1,250
1,560
net real val
53,450
53,450
50,440
diff 1-2
0
diff 2-3
3,010
diff 1-3
3,010
so, at 67990, AM is indifferent to selling to k or converting to standard model

mat
lab
vfo

Phase IV
make
(260,000)
(100,000)
(120,000)
(480,000)

price
fact rent
equip rent

therefore, buy part 345 and save $20,000

buy
(600,000)
90,000
50,000
(460,000)

W/A
CC
%
100%
100%
55%

EU
237
1,887
268
2,392

$38,965
$4,892
$43,857
2,392
$18.33
W/A
CC
268
$18.33
$4,920.26

Total

$12,822.39

2,124
$18.33
$38,936.74

$88,070.61
$100,893.00

Phase I
Given:
Beg WIP
Started
End WIP
TMC

Units
$ Materials $ Conv Cost % Materials % Conv Cost
3,124
$1,945
$2,748
80%
70%
9,457
N/A
N/A
N/A
N/A
1,195
???
???
70%
55%
$27,489
$38,514

Computing WIP Avail $'s [the check figure]:

Beg WIP
Mat
$1,945
CC
$2,748
TMC
Mat
$27,489
CC
$38,514
WIP Avail
$70,696
Computing Equivalent Units:
started
9,457
completed
11,386
Units
Mat
%
B -> C
3,124
20%
S -> C
8,262
100%
S -> E
1,195
70%

Computing $/EU:
TMC
Beg WIP
WIP Avail
EU
$/EU

Computing End WIP & COGM:

End WIP

COGM

FIFO
EU
625
8,262
837
9,723

EU
$/EU

%
30%
100%
85%

Mat
EU
937
8,262
1,016
10,215

$27,489

$38,514

9,723
$2.83

10,215
$3.77

Mat
EU
$/EU

W/A
CC

837
$2.83
$2,364.89

FIFO
CC
1,016
$3.77
$3,829.74

8,887
9,199
$2.83
$3.77
$25,124.11 $34,684.26

Beg WIP

Check
Phase II
Red font items are irrelevant
Finished goods
2800 units
Work in process
1200 units
Materials and supplies
Buildings
Acc dep buildings
Machinery
Acc dep machinery
Office equipment
Acc dep office equipment

%
100%
100%
70%

Total
EU
$/EU
$6,194.63
EU
$/EU
$59,808.37
$1,945.00
$2,748.00
$64,501.37
$70,696.00

9,800
4,070
40,700
48,000
6,000
96,000
37,500
3,200
1,000

Accrued payroll

650

Purchased materials and supplies

Paid factory overhead
Paid marketing expenses
Paid administrative expenses
Requisitions for direct materials
Requisitions for indirect materials
Depreciation:
Building, 5% (65% to manufacturing, 25% to
marketing, and 10% to administrative expenses)
Machinery, 10%
Office equipment, 15% (40% to marketing and 60%
Administrative expenses)
Sales
20,700 units
Cash payments for accounts payable
Cash payments for payroll
Payroll costs related to direct labor
Payroll costs related to indirect labor
Cash collected from customers
Applied factory overhead based on machine hours
Transferred to finished goods
20,400 units
Work in process, October 31

beg
purch
end

144,900
75,000
21,800
19,100
3,900
108,900
27,450
4,440

Materials
40,700
27,600 dir mat
25,800
4,150 ind mat
34,750

Labor
19,100
3,900

paid
ind mat
dep
dep
ind lab

25,800
20,700
26,050
18,600
27,600
4,150

Fact Overhead
20,700
27,450
4,150
1,560
9,600
3,900
12,460 underapplied

beg
dir mat
dir lab
fo-applied
end

beg
tmc
wip avail
cogm
end

WIP
4,070
27,600
19,100
27,450
4,440
units
1,200

20,400
1,228

73,780
74,150

$'s
4,070
74,150
78,220
73,780
4,440

beg
cogm
end

$/unit

3.62
3.62

Ignoring disposition of over- or under-applied factory

overhead, what is C Co.s Cost of Goods Sold for October?

74,538

What is the October 31 balance in Materials and Supplies?

34,750

What is the October 31 balance in Finished Goods?

9,042

What is the Cost of Goods Manufactured in October?

73,780

Finished Goods
9,800
73,780
9,042

What is the amount of over- or under-applied

factory overhead?

12,460 underapplied

Phase III
F Co. manufactures custom-order automated machinery. The firm is relatively new and operates at
about 75% of capacity.
F Co.s management has developed a pricing formula based on current operating costs, which are
expected to continue for the next year. The formula was used in developing the following bid for AP Inc.:
Direct materials
Direct labor
Factory overhead [50% of direct labor]
Corporate overhead [10% of direct labor]
Total cost, excluding sales commission
Add 25% mark-up for profit and taxes
Suggested price, excluding sales commission
Suggested total price [$166,500 / 0.9 for 10% commission]

F Co.s most recent monthly income statement follows:

clearly variable

clearly variable
clearly variable
clearly variable

clearly fixed

probably fixed

Sales
Less sales commissions
Net sales
Expenses:
Direct materials
Direct labor
Variable fact. overhead:
Indirect labor
Supplies
Power
Fixed fact. overhead:
Supervision
Depreciation
Corporate administration
Total expenses
Income before income taxes
Income taxes [40%]
Net income

6,000
7,500
1,500
625
125
500
1,000

2,250

1,500
750

By how much will F Co.s net income increase if AP Inc. accepts the bid developed by F Co.?
assume admin exp is
fixed
variable
rev
185,000
185,000
alternative approach
commission
(18,500)
(18,500)
assume admin exp is
rev, net
166,500
166,500
fixed
dir mat
(94,800)
(94,800)
markup
33,300
dir lab
(24,000)
(24,000)
add back:
v fo/admin
(7,200)
(9,600)
admin
2,400
cont marg
40,500
38,100
ffo
4,800
taxes
(16,200)
(15,240)
40,500
change in inc
24,300
22,860
24,300
If AP Inc. offers to pay only $153,000, should F Co. accept or reject this offer? Why?
assume admin exp is

rev
commission
rev, net
dir mat
dir lab
v fo/admin
cont marg
taxes
change in inc

fixed
153,000
(15,300)
137,700
(94,800)
(24,000)
(7,200)
11,700
(4,680)
7,020

variable
153,000
(15,300)
137,700
(94,800)
(24,000)
(9,600)
9,300
(3,720)
5,580

What is the lowest price at which F Co. can sell its equipment and not reduce its net income?
assume admin exp is
fixed
variable
rev
140,000
142,667
commission
(14,000)
(14,267)
rev, net
126,000
128,400
dir mat
(94,800)
(94,800)
dir lab
(24,000)
(24,000)
v fo/admin
(7,200)
(9,600)
change in inc
0
0
Phase IV
M Co. manufactures and sells three products, Mift, Tift, and Lift. For the coming year, sales are
expected to be
Product
Mift
Tift
Lift

Selling price
10
6
15

Quantity
5,000
7,000
3,000

Total sales
50,000
42,000
45,000
137,000

At the expected sales quantity and mix, the manufacturing costs per unit are
Mift
Materials
Direct labor
Factory overhead:
Variable
Fixed

Tift

Lift

1
2

3
1

2
3

1
1
5

1
1
6

2
3
10

Variable marketing expenses are $2 per unit for Mift and Tift, and $1 per unit for Lift. Budgeted fixed
marketing expenses for the coming year are $3,000, and budgeted fixed administrative
expenses are $6,000.
M Co.s sales manager recommends dropping Tift from the product line and using the released
production capacity to produce more Mift units. M Co.s production manager reports that 5,000
additional units of Mift could be produced with the capacity now used to produce Tift. In order to
sell the extra Mift units, the sales manager believes the advertising budget will have to be
increased by $5,000.
Should M Co. drop the Tift product line or not? Why?
Per unit analysis:
Keep Tift

Drop Tift

rev
mat
lab
vfo
vmktg
cm per unit
units
total cm
advertizing

6
(3)
(1)
(1)
(2)
(1)
7,000
(7,000)
0
(7,000)

rev
mat
lab
vfo
vmktg
cm per unit
units
total cm
advertizing
difference

Total contribution margin analysis:

Keep Tift
rev
42,000
mat
(21,000)
lab
(7,000)
vfo
(7,000)
vmktg
(14,000)
total cm
(7,000)
advertizing
0
(7,000)
difference

10
(1)
(2)
(1)
(2)
4
5,000
20,000
(5,000)
15,000

22,000

Drop Tift
50,000
(5,000)
(10,000)
(5,000)
(10,000)
20,000
(5,000)
15,000

rev
mat
lab
vfo
vmktg
total cm
advertizing
22,000

Total net income analysis:

Current Scenario -- Keep Tift
Mift
Tift
Lift
units
5,000
7,000
3,000
rev
50,000
42,000
45,000
mat
(5,000)
(21,000)
(6,000)
lab
(10,000)
(7,000)
(9,000)
vfo
(5,000)
(7,000)
(6,000)
vmktg
(10,000)
(14,000)
(3,000)
cm
20,000
(7,000)
21,000
fixed costs:
manufacturing
marketing
admin
advertising
net income

Proposed Scenario -- Dr
Mift
10,000
100,000
(10,000)
(20,000)
(10,000)
(20,000)
40,000

Total
N/A
137,000
(32,000)
(26,000)
(18,000)
(27,000)
34,000
(21,000)
(4,000)
(3,000)
0
6,000

difference

22,000

W/A
Mat
EU
3,124
8,262
837
12,223

CC
%
100%
100%
85%

$27,489
$1,945
$29,434
12,223
$2.41

$38,514
$2,748
$41,262
12,402
$3.33

837
$2.41
$2,014.44

W/A
CC
1,016
$3.33
$3,379.51

11,386
$2.41
$27,419.56

11,386
$3.33
$37,882.49

Mat

EU
3,124
8,262
1,016
12,402

Total

$5,393.96

$65,302.04
$70,696.00

Finished Goods
74,538

cogs

COGS
74,538

nd operates at

sts, which are

wing bid for AP Inc.:
94,800
24,000
12,000
2,400
133,200
33,300
166,500
185,000

25,000
(2,500)
22,500

100.00%

30.00%

20.00%
10.00%
18,000
4,500
1,800
2,700
24,300 better assumption
or
22,860 will accept
alternative approach
assume admin exp is
variable
33,300
0
4,800
38,100
22,860
therefore, accept offer and earn extra

7,020 better assumption

or

5,580 will accept

140,000 better assumption

or
142,667 will accept

Budgeted fixed

therefore, drop Tift and earn extra

22,000

Proposed Scenario -- Drop Tift

Lift
Total
3000
N/A
45,000
145,000
(6,000)
(16,000)
(9,000)
(29,000)
(6,000)
(16,000)
(3,000)
(23,000)
21,000
61,000
(21,000)
(4,000)
(3,000)
(5,000)
28,000

Phase I
Given:
Units
Beg WIP
Started
End WIP
TMC

$ Materials $ Conv Cost % Materials

% Conv Cost
$18,714
$13,996
10%
20%
N/A
N/A
N/A
N/A
???
???
70%
55%
$47,880
$38,965

814
14,758
2,784

Computing WIP Avail $'s [the check figure]:

Beg WIP
Mat
$18,714
CC
$13,996
TMC
Mat
$47,880
CC
$38,965
WIP Avail
$119,555
Computing Equivalent Units:
started
14,758
completed
12,788
FIFO
Units
Mat
%
B -> C
814
90%
S -> C
11,974
100%
S -> E
2,784
60%

Computing $/EU:
TMC
Beg WIP
WIP Avail
EU
$/EU

Computing End WIP & COGM:

End WIP

COGM

EU
$/EU

EU
$/EU

EU
733
11,974
1,670
14,377

CC
%
80%
100%
45%

651
11,974
1,253
13,878

$47,880

$38,965

14,377
$3.33

13,878
$2.81

FIFO
Mat
1,670
$3.33
$5,562.97

CC
1,253
$2.81
$3,517.46

12,707
$3.33
$42,317.03

12,625
$2.81
$35,447.54

Beg WIP

Check
Phase II
Finished goods
Work in process
Materials and supplies
Buildings
Acc dep buildings
Machinery
Acc dep machinery
Office equipment
Acc dep office equipment

EU

Red font items are irrelevant

2800 units
1200 units

Total

$9,080.43

$77,764.57
$18,714.00
$13,996.00
$110,474.57
$119,555.00

9,800
4,070
41,700
48,000
6,000
96,000
37,500
3,200
1,000

Accrued payroll

850

Purchased materials and supplies

Paid factory overhead
Paid marketing expenses
Paid administrative expenses
Requisitions for direct materials
Requisitions for indirect materials
Depreciation:
Building, 5% (55% to manufacturing, 25% to
marketing, and 20% to administrative expenses)
Machinery, 10%
Office equipment, 15% (40% to marketing and 60%
Administrative expenses)
Sales
20,700 units
Cash payments for accounts payable
Cash payments for payroll
Payroll costs related to direct labor
Payroll costs related to indirect labor
Cash collected from customers
Applied factory overhead based on machine hours
Transferred to finished goods
20,400 units
Work in process, October 31

beg
purch
end

Materials
41,700
22,900
35,650

144,900
75,000
24,800
19,700
2,400
128,700
27,450
4,440

24,600 dir mat

4,350 ind mat

Labor
19,700
2,400

paid
ind mat
dep
dep
ind lab

22,900
21,400
27,050
21,700
24,600
4,350

Fact Overhead
21,400
27,450
4,350
1,320
9,600
2,400
11,620 underapplied

WIP
4,070
24,600
19,700
27,450
4,440

beg
dir mat
dir lab
fo-applied
end

beg
tmc
wip avail
cogm
end

units
1,200

20,400
1,269

71,380

$'s
4,070
71,750
75,820
71,380
4,440

beg
cogm
end

$/unit

3.50
3.50

Ignoring disposition of over- or under-applied factory

overhead, what is C Co.s Cost of Goods Sold for October?

72,432

What is the October 31 balance in Materials and Supplies?

35,650

What is the October 31 balance in Finished Goods?

8,748

What is the Cost of Goods Manufactured in October?

71,380

What is the amount of over- or under-applied

factory overhead?

11,620

Phase III
F Co. manufactures custom-order automated machinery. The firm is relatively new and operates at
about 75% of capacity.
F Co.s management has developed a pricing formula based on current operating costs, which are
expected to continue for the next year. The formula was used in developing the following bid for AP Inc.:
Direct materials
Direct labor
Factory overhead [50% of direct labor]
Corporate overhead [10% of direct labor]
Total cost, excluding sales commission
Add 25% mark-up for profit and taxes
Suggested price, excluding sales commission
Suggested total price [$148,500 / 0.9 for 10% commission]

F Co.s most recent monthly income statement follows:

clearly variable

clearly variable
clearly variable
clearly variable

clearly fixed

probably fixed

Sales
Less sales commissions
Net sales
Expenses:
Direct materials
Direct labor
Variable fact. overhead:
Indirect labor
Supplies
Power
Fixed fact. overhead:
Supervision
Depreciation
Corporate administration
Total expenses
Income before income taxes
Income taxes [40%]
Net income

1,500
625
125
500
1,000

By how much will F Co.s net income increase if AP Inc. accepts the bid developed by F Co.?
assume admin exp is
fixed
variable
rev
165,000
165,000
commission
(16,500)
(16,500)
rev, net
148,500
148,500
dir mat
(29,200)
(29,200)
markup
dir lab
(56,000)
(56,000)
add back:
v fo/admin
(16,800)
(22,400)
admin
cont marg
46,500
40,900
ffo
taxes
(18,600)
(16,360)
change in inc
27,900
24,540
If AP Inc. offers to pay only $127,000, should F Co. accept or reject this offer? Why?
assume admin exp is

rev
commission
rev, net
dir mat
dir lab
v fo/admin
cont marg
taxes
change in inc

fixed
127,000
(12,700)
114,300
(29,200)
(56,000)
(16,800)
12,300
(4,920)
7,380

variable
127,000
(12,700)
114,300
(29,200)
(56,000)
(22,400)
6,700
(2,680)
4,020

What is the lowest price at which F Co. can sell its equipment and not reduce its net income?
assume admin exp is
fixed
variable
rev
113,333
119,556
commission
(11,333)
(11,956)
rev, net
102,000
107,600
dir mat
(29,200)
(29,200)
dir lab
(56,000)
(56,000)
v fo/admin
(16,800)
(22,400)
change in inc
0
0
Phase IV
M Co. manufactures and sells three products, Mift, Tift, and Lift. For the coming year, sales are
expected to be
Product
Mift
Tift
Lift

Selling price
10
6
15

Quantity
5,000
7,000
3,000

Total sales
50,000
42,000
45,000
137,000

At the expected sales quantity and mix, the manufacturing costs per unit are
Mift
Materials
Direct labor
Factory overhead:
Variable
Fixed

Tift
3
2

2
1

1
1
7

1
1
5

Variable marketing expenses are $1 per unit for Mift and Tift, and $2 per unit for Lift. Budgeted fixed
marketing expenses for the coming year are $3,000, and budgeted fixed administrative
expenses are $6,000.
M Co.s sales manager recommends dropping Tift from the product line and using the released
production capacity to produce more Mift units. M Co.s production manager reports that 4,000
additional units of Mift could be produced with the capacity now used to produce Tift. In order to
sell the extra Mift units, the sales manager believes the advertising budget will have to be
increased by $10,000.
Should M Co. drop the Tift product line or not? Why?
Per unit analysis:
Keep Tift

Drop Tift

rev
mat
lab
vfo
vmktg
cm per unit
units
total cm
advertizing

6
(2)
(1)
(1)
(1)
1
7,000
7,000
0
7,000

rev
mat
lab
vfo
vmktg
cm per unit
units
total cm
advertizing
difference

Total contribution margin analysis:

Keep Tift
rev
42,000
mat
(14,000)
lab
(7,000)
vfo
(7,000)
vmktg
(7,000)
total cm
7,000
advertizing
0
7,000
difference

10
(3)
(2)
(1)
(1)
3
4,000
12,000
(10,000)
2,000

5,000

rev
mat
lab
vfo
vmktg
total cm
advertizing

Drop Tift
40,000
(12,000)
(8,000)
(4,000)
(4,000)
12,000
(10,000)
2,000

5,000

Total net income analysis:

units
rev
mat
lab
vfo
vmktg
cm
fixed costs:
manufacturing
marketing
admin
advertising
net income

Mift
5,000
50,000
(15,000)
(10,000)
(5,000)
(5,000)
15,000

Current Scenario -- Keep Tift

Tift
Lift
7,000
3,000
42,000
45,000
(14,000)
(12,000)
(7,000)
(9,000)
(7,000)
(6,000)
(7,000)
(6,000)
7,000
12,000

Total
N/A
137,000
(41,000)
(26,000)
(18,000)
(18,000)
34,000
(21,000)
(3,000)
(6,000)
0
4,000
difference

5,000

W/A
Mat
%
100%
100%
60%

EU
814
11,974
1,670
14,458

CC
%
100%
100%
45%

$47,880
$18,714
$66,594
14,458
$4.61

EU
$/EU

EU
$/EU

EU
814
11,974
1,253
14,041

$38,965
$13,996
$52,961
14,041
$3.77

W/A
Mat
1,670
$4.61
$7,693.70

CC
1,253
$3.77
$4,725.48

12,788
$4.61
$58,900.30

12,788
$3.77
$48,235.52

Total

$12,419.18

$107,135.82
$119,555.00

Finished Goods
9,800
72,432
71,380
8,748

cogs

COGS
72,432

72,450
72450
81200
153650

underapplied

ly new and operates at

ating costs, which are

the following bid for AP Inc.:
29,200
56,000
28,000
5,600
118,800
29,700
148,500
165,000

25,000
(2,500)
22,500
6,000
7,500

100.00%

2,250

30.00%

1,500
750

20.00%
10.00%
18,000
4,500
1,800
2,700

eloped by F Co.?

27,900 better assumption

or
24,540 will accept
alternative approach
assume admin exp is
fixed
variable
29,700
29,700
5,600
11,200
46,500
27,900

0
11,200
40,900
24,540
therefore, accept offer and earn extra

7,380 better assumption

or

4,020 will accept

e its net income?

113,333 better assumption

or
119,556 will accept

ming year, sales are

Lift
4
3
2
3
12
for Lift. Budgeted fixed

using the released

reports that 4,000
uce Tift. In order to
ill have to be

therefore, keep Tift and save

5,000

Proposed Scenario -- Drop Tift

Mift
Lift
Total
9,000
3000
N/A
90,000
45,000
135,000
(27,000)
(12,000)
(39,000)
(18,000)
(9,000)
(27,000)
(9,000)
(6,000)
(15,000)
(9,000)
(6,000)
(15,000)
27,000
12,000
39,000
(21,000)
(3,000)
(6,000)
(10,000)
(1,000)