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Financial Statement Analysis (Weight = 20%) William Hakka - Problem 14.8B At the end of the year, the following information was obtained from the accounting records of Clips System, Inc.: Sales (all on credit) $ 4,800,000 Cost of goods sold 3,000,000 Average inventory 420,000 Average receivable 380,000 Interest expense 50,000 Income tax expense 80,000 Net income 280,000 Average investment in assets 2,600,000 Average stockholders equity 1,000,000 Instruction: a. From the information given, compute the following: 1. Inventory turnover 2. Accounts receivable turnover 3. Total operating expenses 4. Gross profit percentage 5. Return on average stockholders equity 6. Return on assets b. Clips Systems has an opportunity to obtain a long-term loan at an annual interest rate of 8 percent and could use this additional capital at the same rate of profitability as indicated by the given data. Would obtaining the loan be desirable from the viewpoint of the stockholders? Explain. II. Job Order Cost System and Overhead Allocation (Weight = 30%) William Hakka - Problem 17.4A Precision Instrument, Inc., uses job order costing and applies manufacturing overhead to individual jobs by using predetermined overhead rates. In Dept A, overhead is applied on the basis of machine hours and in Dept B, on the basis of direct labor hours. At the beginning of the current year, management made the following budget estimates as step toward determining overhead application rates: Direct labor $420,000 $300,000 Mfg overhead $540,000 $412,500 Machine-hours 18,000 1,900 Direct labor hours 28,000 25,000 Production of 4,000 tachometers (job no. 399) was started in the middle of Jan and completed two weeks later. Cost records for this job show the following information: Dept A Dept B Job no. 399 (4,000 $6,800 $4,500 units of product): Cost of materials used on job

Direct labor cost $8,100 $7,200 Direct labor hours 540 600 Machine hours 250 100 Instructions a. Determine overhead rate that should be used for each dept in applying overhead costs to job no. 399 b. What is the total cost of job no. 399 and what is the unit cost of product manufactured on this production order? c. Prepare the journal entries required to record the sale (on account) of 1,000 of tachometers to SkiCraft Boats. The total sales price was $19,500 d. Assume actual overhead costs for the year were $517,000 in Dept A and $424,400 in Dept B. Actual machine-hours in Dept A were 17,000 and actual direct labor hours in Dept B were 26,000 during the year. On basis of this info, determine over or under applied overhead in each dept for the year William Hakka - Problem 17.6A Norton Chemical Company produces two products: Amithol and Bitrite. The company uses ABC to allocate mfg overhead to these products. The costs inccured by Nortons Purchasing Department average $80,000 per year and constitute a major portion of the companys total mfg overhead. Purchasing Department costs are assigned to two activity cost pools: 1) the order cost pool and 2) inspection cost pool. Cost are assigned to the pools based on number of employees engaged in each activity. Of the depts five full-time employees, one is responsible for ordering raw materials, and four are responsible for inspecting incoming shipments of materials. Costs assigned to the order poor are allocated to products based on the total number of purchase order generated by each product line. Cost assigned to the inspection pool are allocated to products based on the number of inspection related to each product line. For the upcoming year, Norton estimates the following activity levels: Total Amithol Bitrite Purchase orders 10,000 2,000 8,000 generated Inspections 2,400 1,800 600 conducted In a normal year, the company conducts 2,400 inspections to sample the quality of raw materials. The large number of Amithol-related inspections is due to quality problems experienced in the past. The quality of Bitrite materials has been consistently good Instructions: a. Assign the Purchasing Depts costs to individual cost pools b. Allocate the order cost pool to the individual product lines c. Allocate the inspection cost pool to individual product lines d. Suggest how norton reduce mfg costs incurred by purchasing dept III. Process Costing (Weight = 20%) William Hakka - Problem 18.4A Toll House makes chocolate chip cookies. The cookies pass through 3 production process: mixing the cookie dough, baking and packaging. Toll House uses process costing.

The following are data concerning the costs incurred in each process during May, along with the number of unit processed: Mixing Baking Packaging Direct materials $3,600 $0 $1,020 Direct labor 3,000 1,800 2,100 Mfg overhead 6,000 12,000 1,200 Output 14,000lbs 4,000gross 48,000 boxes To ensure freshness, cookies are baked and packaged on same day that dough is mixed. Thus, the company has no inventory still in process at the end of a business day Instructions: a. Prepare a separate journal entry summarizing the cost incurred by mixing dept in preparing 14,000 pounds of cookie dough in May. In the explanation of your entry, indicate the dept unit cost b. Prepare the month-end entry recording the transfer of cookie dough to the baking dept during May. c. Prepare a journal entry summarizing the costs incurred by baking dept in may (excluding the cost transferred from Mixing Dept). In the explanation, indicate the cost per gross of baking process d. Prepare the month-end entry recording the transfer of cokies from baking dept to packing dept in May. e. Prepare a jornal entry summarizing the costs incurred by packing dept in May. In the explanation, indicate the packaging cost per box. f. Prepare the month-end entry to record the transfers in May of cases of cookies from packing dept to finished goods warehouse. In explanation, indicate the total cost per box transferred g. Briefly explain how mgt will use the unit cost info appearing in entries a, c, e, and f. IV. Cost-Volume-Profit Analysis(Weight = 10%) William Hakka - Problem 20.8A Lifefit Products sells running shoes and shorts. The following is selected per-unit information for two products: Shoes Shorts Sales price $50 $5 Variable costs and 35 1 expenses Contribution margin $15 $4 Fixed costs and expenses amount to $378,000 per month. Lifefit has total sales of $ 1 million per month, of which 80 percent result from the sale of running shoes and the other 20 percent from the sales of shorts Instructions: a. Compute separately the contribution margin ratio for each line of products b. Assuming the current sales mix, compute: 1. Average contribution margin ratio of total monthly sales 2. Monthly operating income 3. The monthly break-even sales volume (stated in dollars) c. Assume that through aggressive marketing Lifefit is able to shift its sales mix toward more sales of shorts. Total sales remain $1 million

per month, but now 30 percent of this revenue stems from sales of shorts. Using this new sales mix, compute: 1. Average contribution margin ratio of total monthly sales 2. Monthly operating income 3. The monthly break-even sales volume (stated in dollars) d. Explain why the companys financial picture charges so significantly with the new sales mix. V. Incremental Analysis (Weight = 20%) William Hakka - Problem 21.4A Optical Instruments produces two models of binoculars. Information for each model is as follows: Model 100 Model 101 Sales price per unit $200 $135 Costs and expenses per units: Direct materials $51 $38 Direct labor 33 30 Manufacturing overhead 36 18 (applied at the rate of $18 per machine-hour, 1/3 of which is fixed and 2/3 variable Variable selling expense 30 15 Total cost and expenses per 150 101 unit Profit per unit 50 34 Machine-hours required to produce 2 1 one unit Total manufacturing overhead amounts to $180,000 per month, one-third of which is fixed. The demand for either product is sufficient to keep the plant operating at full capacity (10,000 machine-hours per month). Assume that only product is to be produced in the future. Instructions: a. Prepare a schedule showing the contribution margin per machine-hour for each product b. Explain your recommendation as to which of two products should be discontinued.