Reference no: EM132014051

Questions -

Q1. Harrison Company is considering an investment in equipment for $420,000. Data related to the investment are as follow:

Year	Income Before Depreciation and Taxes
1	$130,000
2	$130,000
3	$130,000
4	$130,000
5	$130,000
6	$130,000

Cost of capital is 10 percent.

Bright use the straight-line method of depreciation for tax purpose. In addition, its tax rate is 40 percent and the depreciation life of the equipment is six years. The equipment has an estimated salvage value of $60,000 at the end of the sixth year. Assume a full year of depreciation is taken in each of the six years.

Required:

a. Calculate the after-tax cash flows for the first year.

b. Calculate the accounting rate of return on average investment for year 1.

c. Calculate the payback period.

d. Calculate the net present value (NPV).

e. Calculate the internal rate of return (IRR).

Q2. Blended Company processes a special producted in a one department process. All of the materials are added when the product is put into production. Meanwhile, beginning work-in-process inventory was 20 percent done related to conversion costs, and ending work-in-process was 70 percent complete relative to conversion costs. Other data for the month of June include:

Cost of diect materials incurred in June	$418,000
Conversion costs incurred in June	$344,800
Beginning work-in-process costs:
Materials	$50,000
Conversion	$8,000
Beginning work-in-process inventory		10,000  Units
Units starts		80,000 Units
Ending work-in-process inventory		20,000 Units

Required: Use the wighted-average method to answer (a) through (f) for June:

a. Calculate the equivalent units for materials and for conversion costs.

b. What is the total amount of dollars to be accounted for by Blended Company in June?

c. Compute the cost per equivalent units for materials and for conversion costs.

d. How many dollars will be assigned to ending work-in-process inventory in June?

e. How many dollars will be assigned to units transferred out to finished goods in Junee?

f. Give me the journal entry to record the transfer to finished goods in June.

g. Calculate the equivalent units for materials and for conversion costs using the FIFO method.

Q3. Renton Company produces precision components. Renton has 11 customers, one accounts for 60 percent for the sales, with the remaining ten accounting for the rest of the sales. The ten smaller customers purchase components in roughly equal quantities. Orders placed by the smaller customers are about the same size. Data concerning Renton's customer activity follow:

	Large Customer	Ten Small Customers
Units purchased	300,000	200,000
Orders placed	12	420
Number of sales calls	20	230
Manufacturing cost	$800,000	$700,000

Order-filling costs for Renton Company total $720,000, and sales-force costs are $600,000.

Required:

a. What are the total costs assigned to the large customer and to the ten small customers assuming that they allocate the order-filling and sales force costs to the large and small customers based on sales volume?

b. What are the total costs assigned to the large customer and to the ten small customers assuming that they allocate the order-filling and sales force costs to the customers using an activity-based costing approach?

Q4. Barry Incorporated uses a job-order costing system and a predetermined overhead rate based on machine hours.

The following information pertains to December of the current year:

	Job No. 20	Job No. 21	Job No.22	Total
Work in process, December 1	$20,000	$30,000	$50,000	$100,000
December production activity:
Materials requisitioned and used	$15,000	$20,000	$30,000	$65,000
Direct labor costs	$5,000	$10,000	$15,000	$30,000
Machine hours	1,000	1,500	2,000	4,500

At the beginning of the year, the company estimated manufacturing overhead for the year would be $300,000 and machine hours used would be 20,000.

Required:

a. Compute the predetermined overhead rate.

b. Determine the total cost associated with each job.

Job No. 20

Job No. 21

Job No. 22

c. Give the general journal entry to record the materials requisitioned and used in December.

d. Give the general journal entry to record total amount of overhead applied in December.

e. Give the general journal entry to record when Job 22 was completed.

Q5. The Hotel Company had the following selected account balances at the end of 2014:

work in Process	$100,000
Finished Goods	$120,000
Cost of Goods Sold	$180,000
Factory Overhead (under applied)	$21,000
Amount of Factory Overhead Applied in 2014	$200,000

Required:

a. Give the journal entry to record the factory overhead applied.

b. What was the actual overhead for the year?

c. Give the journal entry to dispose of the Factory Overhead balance assuming it is written off to Cost of Goods Sold.

d. Give the journal entry to dispose of the Factory Overhead balance assuming it is allocated among Work in Process, Finished Goods, and Cost of Goods Sold based on ending balances.

e. Which method of disposing of under-or over-applied factory overhead cost is more accurate? Explain.

Q6. Coulson Corporation manufactures two products (AA and BB). The overhead costs of $133,000 have been divided into four cost pools that use the following activity drivers:

Product	Number of Setups	Number of Orders	Machine Hours	Packing Orders	Total
AA	40	100	2,000	500
BB	10	50	3,000	300
Cost per pool	$30,000	$21,000	$50,000	$32,000	$133,000

Required:

a. Compute the plant-wide rate overhead rate based on machine hours.

b. Allocate the overhead costs to products AA and BB using the plant -wide rate calculated in part (a).

c. Compute the allocation rates per each of the activity drivers listed using activity-based costing.

d. Allocate the overhead costs to products AA and BB using activity-based costing.