|
Principals Of Managerial Accounting: Homework Chapter 10 Part 1
Exercise 10-15 Product
pricing using variable costs LO P1
Rios Co. makes drones and
uses the variable cost approach in setting product prices. Its costs for producing
40,000 units follow.
The company targets a
profit of $320,000 on this product.
|
Variable
Costs per Unit
|
|
Fixed Costs
|
|
|
Direct materials
|
$
|
90
|
|
Overhead
|
$
|
690,000
|
|
|
Direct labor
|
|
60
|
|
Selling
|
|
325,000
|
|
|
Overhead
|
|
45
|
|
Administrative
|
|
305,000
|
|
|
Selling
|
|
35
|
|
|
|
|
|
|
|
1. Compute the variable cost per unit.
2. Compute the markup percentage on variable cost. (Round
percentage answer to 2 decimal places.)
3. Compute the product’s selling price using the variable cost method.
Exercise 10-4 Make or buy
decision LO A1
Gilberto Company currently
manufactures 60,000 units per year of one of its crucial parts.
Variable costs are $2.30
per unit, fixed costs related to making this part are $60,000 per year,
and allocated fixed costs
are $45,000 per year. Allocated fixed costs are unavoidable whether
the company makes or buys
the part. Gilberto is considering buying the part from a supplier
for a quoted price of
$3.50 per unit guaranteed for a three-year period.
Calculate the total incremental cost of making 60,000 and buying 60,000 units.
Should the company
continue to manufacture the part, or should it buy the part from the outside
supplier?
Costs to Make
Costs to Buy
Outside Supplier
Calculate the total
incremental cost of making 60,000 units. (Round
cost per unit answer to 2 decimal places.)
Calculate the total
incremental cost of buying 60,000 units. (Round
cost per unit answer to 2 decimal places.)
Should the company
continue to manufacture the part, or should it buy the part from the outside
supplier?
Exercise 10-12 Keep or
replace LO A1
Xinhong Company is
considering replacing one of its manufacturing machines.
The machine has a book
value of $44,000 and a remaining useful life of 5 years, at which time its
salvage value will be zero.
It has a current market
value of $54,000. Variable manufacturing costs are $33,200 per year for this
machine.
Information on two
alternative replacement machines follows.
|
|
Alternative
A
|
|
Alternative
B
|
|
Cost
|
$
|
118,000
|
|
|
$
|
115,000
|
|
|
Variable
manufacturing costs per year
|
|
23,000
|
|
|
|
10,600
|
|
|
|
Calculate the total change in net income if Alternative A, B is adopted. Should
Xinhong keep or replace its manufacturing machine?
If the machine should be
replaced, which alternative new machine should Xinhong purchase?
Alternative A
Alternative B
Xinhong Purchase
Calculate the total change
in net income if Alternative A is adopted. (Cash
outflows should be indicated by a minus sign.)
Calculate the total change
in net income if Alternative B is adopted. (Cash
outflows should be indicated by a minus sign.
Should Xinhong keep or
replace its manufacturing machine? If the machine should be replaced, which
alternative new machine should Xinhong purchase?
|
Calla Company produces
skateboards that sell for $63 per unit. The company currently has the
capacity to produce 90,000 skateboards per year, but is selling 81,500
skateboards per year. Annual costs for 81,500 skateboards follow.
|
|
|
|
|
Direct
materials
|
$
|
896,500
|
|
Direct
labor
|
|
676,450
|
|
Overhead
|
|
953,000
|
|
Selling
expenses
|
|
554,000
|
|
Administrative
expenses
|
|
463,000
|
|
|
|
|
Total costs
and expenses
|
$
|
3,542,950
|
|
|
|
|
|
|
A new retail store has
offered to buy 8,500 of its skateboards for $58 per unit. The store is in a
different market from Calla's regular customers and it would not affect
regular sales. A study of its costs in anticipation of this additional
business reveals the following:
|
·
Direct materials and direct labor
are 100% variable.
·
40 percent of overhead is fixed at
any production level from 81,500 units to 90,000 units; the remaining 60% of
annual
overhead costs are variable with respect to volume.
·
Selling expenses are 70% variable
with respect to number of units sold, and the other 30% of selling expenses are
fixed.
·
There will be an additional $2.5
per unit selling expense for this order.
·
Administrative expenses would
increase by a $860 fixed amount.
|
Required:
|
|
Prepare a three-column
comparative income statement that reports the following:
|
|
a.
|
Annual income without
the special order.
|
|
b.
|
Annual income from the
special order.
|
|
c.
|
Combined annual income
from normal business and the new business.
|
|
(Do not round
intermediate calculations and round your answers to the nearest whole
dollar.)
|
|
|
|
Farrow Co.
expects to sell 150,000 units of its product in the next period with the
following results.
|
|
|
|
|
|
|
Sales
(150,000 units)
|
|
$
|
2,250,000
|
|
|
Costs
and expenses
|
|
|
|
|
|
Direct
materials
|
|
|
300,000
|
|
|
Direct
labor
|
|
|
600,000
|
|
|
Overhead
|
|
|
150,000
|
|
|
Selling
expenses
|
|
|
225,000
|
|
|
Administrative
expenses
|
|
|
385,500
|
|
|
|
|
|
|
|
|
Total
costs and expenses
|
|
|
1,660,500
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
589,500
|
|
|
|
|
|
|
|
|
|
|
The
company has an opportunity to sell 15,000 additional units at $12 per unit.
The additional sales would not affect its current expected sales. Direct
materials and labor costs per unit would be the same for the additional units
as they are for the regular units. However, the additional volume would
create the following incremental costs: (1) total overhead would increase by
15% and (2) administrative expenses would increase by $64,500.
|
Calculate
the combined total net income if the company accepts the offer to sell
additional units at the reduced price of $12 per unit.
|
|
|
|
|
Normal
Volume
|
Additional
Volume
|
Combined
Total
|
|
Sales
|
$2,250,000
|
$180,000
|
$2,430,000
|
|
Costs
and expenses:
|
|
|
|
|
Direct
materials
|
300,000
|
30,000
|
330,000
|
|
Direct
labor
|
600,000
|
60,000
|
660,000
|
|
Overhead
|
150,000
|
22,500
|
172,500
|
|
Selling
expenses
|
225,000
|
|
225,000
|
|
Administrative
expenses
|
385,500
|
64,500
|
450,000
|
|
Total
costs and expenses
|
1,660,500
|
177,000
|
1,837,500
|
|
Incremental
income (loss) from new business
|
$589,500
|
$3,000
|
$592,500
|
|
Should the
company accept or reject the offer?
|
The
company should accept the offer 
|
A company
must decide between scrapping or reworking units that do not pass inspection.
The company has 22,000 defective units that cost $6 per unit to manufacture.
The units can be sold as is for $2.50 each, or they can be reworked for $4.50
each and then sold for the full price of $8.50 each. If the units are sold as
is, the company will be able to build 22,000 replacement units at a cost of
$6 each, and sell them at the full price of $8.50 each.
|
What is
the incremental income from selling the units as scrap and reworking and
selling the units? Should the company sell the units as scrap or rework
them? (Enter costs
and losses as negative values.)
|
|
|
|
|
Sale as
Scrap
|
Rework
|
|
Sales of
scrap units
|
$55,000
|
|
|
Sales of
reworked units
|
|
$187,000
|
|
Cost to
rework units
|
|
(99,000)
|
|
Opportunity
cost of not making new units
|
|
(55,000)
|
|
Incremental
income (loss)
|
$55,000
|
$33,000
|
|
|
The
company should:
|
sell as
is
|
|
|
Cobe
Company has already manufactured 28,000 units of Product A at a cost of $28 per
unit. The 28,000 units can be sold at this stage for $700,000. Alternatively,
the units can be further processed at a $420,000 total additional cost and be
converted into 5,600 units of Product B and 11,200 units of Product C. Per
unit selling price for Product B is $105 and for Product C is $70.
|
|
1.
|
Prepare an
analysis that shows whether the 28,000 units of Product A should be processed
further or not.
|
|
|
|
|
Sell as
is
|
Process
Further
|
|
|
Sales
|
$700,000
|
$1,372,000
|
|
|
Relevant
costs
|
|
|
|
Costs
to process further
|
|
420,000
|
|
Total
relevant costs
|
|
420,000
|
|
Income
(loss)
|
$700,000
|
$952,000
|
|
|
Incremental
net income (or loss) if processed further
|
$252,000
|
Incremental
income
|
|
|
The
company should
|
process
further
|
|
-----------------------------------------------------------------------------------------------------------------------------------
5.
|
Xinhong
Company is considering replacing one of its manufacturing machines. The
machine has a book value of $45,000 and a remaining useful life of 5 years,
at which time its salvage value will be zero. It has a current market value
of $52,000. Variable manufacturing costs are $36,000 per year for this
machine. Information on two alternative replacement machines follows.
|
|
Alternative
A
|
Alternative
B
|
|
Cost
|
$
|
115,000
|
|
$
|
125,000
|
|
|
Variable
manufacturing costs per year
|
|
19,000
|
|
|
15,000
|
|
|
|
|
Calculate
the total change in net income if Alternative A is adopted.
(Cash outflows
should be indicated by a minus sign.)
|
|
|
|
|
ALTERNATIVE
A: INCREASE OR (DECREASE) IN NET INCOME
|
|
Cost to
buy new machine
|
$(115,000)
|
|
Cash
received to trade in old machine
|
52,000
|
|
Reduction
in variable manufacturing costs
|
85,000
|
|
Total
change in net income
|
$22,000
|
|
Calculate the total change in net income if
Alternative B is adopted.
(Cash outflows
should be indicated by a minus sign.)
|
|
|
|
ALTERNATIVE
B: INCREASE OR (DECREASE) IN NET INCOME
|
|
Cost to
buy new machine
|
$(125,000)
|
|
Cash
received to trade in old machine
|
52,000
|
|
Reduction
in variable manufacturing costs
|
105,000
|
|
Total
change in net income
|
$32,000
|
|
|
Should
Xinhong keep or replace its manufacturing machine? If the machine should be
replaced, which alternative new machine should Xinhong purchase?
|
Alternative
B
[The
following information applies to the questions displayed below.]
|
Suresh Co.
expects its five departments to yield the following income for next year.
|
|
Dept. M
|
Dept. N
|
Dept. O
|
Dept. P
|
Dept. T
|
Total
|
|
|
Sales
|
|
$
|
63,000
|
|
|
$
|
35,000
|
|
|
|
$
|
56,000
|
|
|
$
|
42,000
|
|
|
|
$
|
28,000
|
|
|
$
|
224,000
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Avoidable
|
|
|
9,800
|
|
|
|
36,400
|
|
|
|
|
22,400
|
|
|
|
14,000
|
|
|
|
|
37,800
|
|
|
$
|
120,400
|
|
|
Unavoidable
|
|
|
51,800
|
|
|
|
12,600
|
|
|
|
|
4,200
|
|
|
|
29,400
|
|
|
|
|
9,800
|
|
|
$
|
107,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
expenses
|
|
|
61,600
|
|
|
|
49,000
|
|
|
|
|
26,600
|
|
|
|
43,400
|
|
|
|
|
47,600
|
|
|
|
228,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
1,400
|
|
|
$
|
(14,000
|
)
|
|
|
$
|
29,400
|
|
|
$
|
(1,400
|
)
|
|
|
$
|
(19,600
|
)
|
|
$
|
(4,200
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recompute
and prepare the departmental income statements (including a combined total
column) for the company under each of the following separate scenarios.
|
|
(1)
|
Management
eliminates departments with expected net losses.
|
|
|
|
|
DEPARTMENTS
WITH EXPECTED NET LOSSES ELIMINATED
|
|
Dept. M
|
Dept. N
|
Dept. O
|
Dept. P
|
Dept. T
|
Total
|
|
Sales
|
$63,000
|
|
$56,000
|
|
|
$119,000
|
|
Expenses:
|
|
|
|
|
|
0
|
|
Avoidable
|
9,800
|
|
22,400
|
|
|
32,200
|
|
Unavoidable
|
51,800
|
12,600
|
4,200
|
29,400
|
9,800
|
107,800
|
|
Total
expenses
|
61,600
|
12,600
|
26,600
|
29,400
|
9,800
|
140,000
|
|
Net
income (loss)
|
$1,400
|
$(12,600)
|
$29,400
|
$(29,400)
|
$(9,800)
|
$(21,000)
|
|
|
|
|
|
DEPARTMENTS
WITH LESS SALES THAN AVOIDABLE EXPENSES ELIMINATED
|
|
Dept. M
|
Dept. N
|
Dept. O
|
Dept. P
|
Dept. T
|
Total
|
|
Sales
|
$63,000
|
|
$56,000
|
$42,000
|
|
$161,000
|
|
Expenses:
|
|
|
|
|
|
|
|
Avoidable
|
9,800
|
|
22,400
|
14,000
|
|
46,200
|
|
Unavoidable
|
51,800
|
12,600
|
4,200
|
29,400
|
9,800
|
107,800
|
|
Total
expenses
|
61,600
|
12,600
|
26,600
|
43,400
|
9,800
|
154,000
|
|
Net
income (loss)
|
$1,400
|
$(12,600)
|
$29,400
|
$(1,400)
|
$(9,800)
|
$7,000
|
|
Childress Company produces three products, K1, S5,
and G9. Each product uses the same type of direct material.
K1 uses 4
pounds of the material, S5 uses 3 pounds of the material, and G9 uses 6 pounds
of the material.
Demand for
all products is strong, but only 50,000 pounds of material are available.
Information
about the selling price per unit and variable cost per unit of each product
follows.
|
K1
|
S5
|
G9
|
|
Selling
price
|
$
|
160
|
$
|
112
|
$
|
210
|
|
Variable
costs
|
|
96
|
|
85
|
|
144
|
|
|
|
1.
|
Calculate
the contribution margin per pound for each of the three products.
|
|
|
|
|
Contribution
margin per pound
|
|
Product
K1
|
Product
S5
|
Product
G9
|
|
Contribution
margin per unit
|
$64.00
|
$27.00
|
$66.00
|
|
Pounds
per unit
|
4
|
3
|
6
|
|
Contribution
margin per pound
|
$16.00
|
$9.00
|
$11.00
|
|
|
Order in
which products should be produced and filled:
|
First
|
Third
|
Second
|
|
9.
|
Edgerron
Company is able to produce two products, G and B, with the same machine in
its factory. The following information is available.
|
|
Product G
|
Product B
|
|
Selling
price per unit
|
|
|
$
|
120
|
|
|
|
|
$
|
160
|
|
|
|
Variable
costs per unit
|
|
|
|
40
|
|
|
|
|
|
90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contribution
margin per unit
|
|
|
$
|
80
|
|
|
|
|
$
|
70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Machine
hours to produce 1 unit
|
|
0.4
|
hours
|
|
|
|
1.0
|
hours
|
|
|
|
Maximum
unit sales per month
|
|
600
|
units
|
|
|
|
200
|
units
|
|
|
|
|
|
The
company presently operates the machine for a single eight-hour shift for 22
working days each month. Management is thinking about operating the machine
for two shifts, which will increase its productivity by another eight hours
per day for 22 days per month. This change would require $15,000 additional
fixed costs per month.
(Round hours
per unit answers to 1 decimal place. Enter operating losses, if any, as
negative values.)
|
|
|
|
|
1.
Determine the contribution margin per machine hour that each product
generates.
|
|
Product
G
|
Product
B
|
|
|
Contribution
margin per unit
|
$80.00
|
$70.00
|
|
|
Machine
hours per unit
|
0.4
|
1.0
|
|
Contribution
margin per machine hour
|
$200.00
|
$70.00
|
|
Product
G
|
Product
B
|
Total
|
|
Maximum
number of units to be sold
|
600
|
200
|
|
|
Hours
required to produce maximum units
|
240
|
200
|
440
|
|
|
2. How
many units of Product G and Product B should the company produce if it
continues to operate with only one shift?
How much
total contribution margin does this mix produce each month?
|
|
Product
G
|
Product
B
|
Total
|
|
Hours
dedicated to the production of each product
|
176
|
|
176
|
|
Units
produced for most profitable sales mix
|
440
|
|
|
|
Contribution
margin per unit
|
$80.00
|
|
|
Total
contribution margin - one shift
|
$35,200
|
|
$35,200
|
|
|
3. If
the company adds another shift, how many units of Product G and Product B
should it produce?
How much
total contribution margin would this mix produce each month?
|
|
Product
G
|
Product
B
|
Total
|
|
Hours
dedicated to the production of each product
|
240
|
112
|
352
|
|
Units
produced for most profitable sales mix
|
600
|
112
|
|
|
Contribution
margin per unit
|
$80.00
|
$70.00
|
|
Total
contribution margin - two shifts
|
$48,000
|
$7,840
|
$55,840
|
|
Total
contribution margin - one shift
|
|
|
35,200
|
|
Change
in contribution margin
|
|
|
20,640
|
|
Change
in fixed costs
|
|
|
15,000
|
|
Change
in operating income(loss)
|
|
|
$5,640
|
|
Should
the company add another shift?
|
Yes
|
|
|
|
|
4.
Suppose that the company determines that it can increase Product G’s
maximum sales to 700 units per
month
by spending $12,000 per month in marketing efforts. Should the company
pursue this strategy and the double shift?
|
|
Product
G
|
Product
B
|
Total
|
|
Hours
dedicated to the production of each product
|
280
|
72
|
352
|
|
Units
produced for most profitable sales mix
|
700
|
72
|
|
|
Contribution
margin per unit
|
$80.00
|
$70.00
|
|
Total
contribution margin - two shifts and marketing campaign
|
$56,000
|
$5,040
|
$61,040
|
|
Contribution
margin - two shifts without marketing campaign
|
|
|
55,840
|
|
Change
in contribution margin
|
|
|
5,200
|
|
Additional
marketing costs
|
|
|
12,000
|
|
Change
in fixed costs
|
|
|
15,000
|
|
Change
in operating income(loss)
|
|
|
$(21,800)
|
|
Should
the company pursue the marketing campaign?
|
No
|
|
|
|
Another name for relevant cost is unavoidable
cost.
False
An opportunity cost is the
potential benefit lost by taking a specific action when two or more alternative
choices are available.
True
An opportunity cost:
Is the potential benefit lost by choosing a specific alternative course of
action among two or more.
Elliot Company can sell
all of its products A and Z that it can produce, but it has limited production
capacity.
It can produce 8 units of
A per hour or 10 units of Z per hour, and it has 20,000 production hours
available.
Contribution margin per
unit is $12 for A and $10 for Z. What is the most profitable sales mix for
Elliot Company?
0 units of A and 200,000 units of Z.
Bannister Co. is thinking about having one of its products manufactured by a
subcontractor.
Currently, the cost of manufacturing 1,000 units follows:
|
Direct material
|
$45,000
|
|
Direct labor
|
30,000
|
|
Factory overhead (30% is
variable)
|
98,000
|
If Bannister can buy 1,000
units from a subcontractor for $100,000, it should:
Buy the product because the total incremental costs of manufacturing are
greater than $100,000.
Additional costs incurred if a company pursues a certain course of action are
sunk costs.
False
A cost that requires a future outlay of cash, and is relevant for current and
future decision making, is a(n):
Out-of-pocket cost.
If accepting additional business would cause existing sales to decline, the
offer should always be declined.
False
A cost that cannot be avoided or changed because it arises from a past
decision, and is irrelevant to future decisions, is called a(n):
Sunk cost.
Costs already incurred in manufacturing the units of a product that do not meet
quality standards are relevant costs in a scrap or rework decision.
False
The Mad Hatter Company owns a machine that
manufactures two types of chimney caps.
Production time is .20
hours for cap A and .40 hours for cap B. The machine's capacity is 2,000 hours
per year.
Both products are sold to
a single customer who has agreed to buy all of the company's output up to a
maximum
of 1,000 units of cap A
and 6,000 units of cap B. Selling prices and variable costs per unit are shown
below.
Based on this information,
what is the Mad Hatter's most profitable sales mix?
|
Cap A
|
Cap B
|
|
Selling price per unit
|
$80
|
$60
|
|
Variable costs per unit
|
53
|
42
|
1,000 units of cap A
and 4,500 units of cap B.
Part of the decision to accept additional business should be based on a
comparison of the incremental (differential)
costs of the added
production with the additional revenues to be received.
True
Product A requires 5 machine hours per unit to be produced, Product B requires
only 3 machine hours per unit, and
the company's productive
capacity is limited to 240,000 machine hours. Product A sells for $16 per unit
and has variable
costs of $6 per unit.
Product B sells for $12 per unit and has variable costs of $5 per unit.
Assuming the company can
sell as many units of either product as it produces, the company should:
Produce only Product B.
If a company has the capacity to produce either 10,000 units of Product A or
10,000 units of Product B;
assuming fixed costs are
the same, production restrictions are the same for both products, and the
markets for both
products are unlimited;
the company should commit 100% of its capacity to the product that has the
higher contribution margin.
True
Benjamin Company had the following results of operations for the past year:
|
Sales (16,000 units at
$10)
|
|
$160,000
|
|
Direct materials and
direct labor
|
$96,000
|
|
|
Overhead (20% variable)
|
16,000
|
|
|
Selling and
administrative expenses (all fixed)
|
32,000
|
(144,000)
|
|
Operating income
|
|
$16,000
|
A foreign company (whose
sales will not affect Benjamin's market) offers to buy 4,000 units at $7.50 per
unit.
In addition to variable
manufacturing costs, selling these units would increase fixed overhead by $600
and selling
and administrative costs
by $300. If Benjamin accepts the offer, its profits will:
Increase by $4,300.
Additional power for operating machines, extra supplies, and added cleanup
costs are examples of incremental overhead costs.
True
Chang Industries has 2,000 defective units of product that have already cost
$14 each to produce.
A salvage company will
purchase the defective units as they are for $5 each. Chang's production
manager reports that the defects
can be corrected for $6
per unit, enabling them to be sold at their regular market price of $21.
The incremental income or
loss on reworking the units is:
$20,000 income.
To determine a product selling price based on the total cost method, management
should include:
Total production and nonproduction costs plus a markup.
Markson Company had the following results of operations for the past year:
|
Sales (8,000 units at
$20)
|
|
$160,000
|
|
Variable manufacturing
costs
|
$86,000
|
|
|
Fixed manufacturing
costs
|
15,000
|
|
|
Variable selling and
administrative expenses
|
12,000
|
|
|
Fixed selling and
administrative expenses
|
20,000
|
(133,000)
|
|
Operating income
|
|
$27,000
|
A foreign company whose
sales will not affect Markson's market offers to buy 2,000 units at $14 per
unit.
In addition to variable
manufacturing costs, selling these units would increase fixed overhead by
$1,600 for the purchase of special tools.
If Markson accepts this
additional business, its profits will:
Increase by $1,900.
Beta Inc. can produce a unit of Zed for the following costs:
|
Direct material
|
$10
|
|
Direct labor
|
20
|
|
Overhead
|
50
|
|
Total costs per unit
|
$80
|
An outside supplier offers
to provide Beta with all the Zed units it needs at $58 per unit. If Beta buys
from the supplier,
it will still incur 40% of
its overhead. Beta should:
Buy Zed since the relevant cost to make it is $60.
Bluebird Mfg. has received a special one-time order for 15,000 bird feeders at
$3 per unit. Bluebird currently produces and
sells 75,000 units at
$7.00 each. This level represents 80% of its capacity. Production costs for
these units are $3.50 per unit,
which includes $2.25
variable cost and $1.25 fixed cost. If Bluebird accepts this additional
business, the effect on net income will be:
$11,250 increase.
|
Gilberto Company
currently manufactures 65,000 units per year of one of its crucial parts.
Variable costs are $1.95 per unit, fixed costs related to making this part
are $75,000 per year, and allocated fixed costs are $62,000 per year.
Allocated fixed costs are unavoidable whether the company makes or buys the
part. Gilberto is considering buying the part from a supplier for a quoted
price of $3.25 per unit guaranteed for a three-year period.
|
Calculate the total
incremental cost of making 65,000 units. (Round cost per
unit answer to 2 decimal places.)
|
|
|
|
|
Incremental
Costs to Make
|
|
Relevant
Amount per Unit
|
Relevant
Fixed Costs
|
Total
Relevant Costs
|
|
Variable cost per unit
|
$1.95
|
|
$126,750
|
|
Fixed manufacturing
costs
|
|
$75,000
|
$75,000
|
|
|
|
|
|
Total incremental cost
to make
|
$201,750
|
|
Calculate the total
incremental cost of buying 65,000 units. (Round cost per
unit answer to 2 decimal places.)
|
|
|
|
|
Incremental
Costs to Buy
|
|
Relevant
Amount per Unit
|
Relevant
Fixed Costs
|
Total
Relevant Costs
|
|
Purchase price per
unit
|
$3.25
|
|
$211,250
|
|
|
|
|
|
|
|
|
|
Total incremental cost
to buy
|
$211,250
|
|
Should the company continue to manufacture the part, or should it buy the part
from the outside supplier?
Make
|
Haver Company currently
produces component RX5 for its sole product. The current cost per unit to
manufacture the required 52,000 units of RX5 follows.
|
|
|
|
|
Direct
materials
|
$
|
5.00
|
|
|
Direct
labor
|
|
9.00
|
|
|
Overhead
|
|
10.00
|
|
|
|
|
|
|
Total costs
per unit
|
$
|
24.00
|
|
|
|
|
|
|
|
Direct materials and
direct labor are 100% variable. Overhead is 70% fixed. An outside supplier
has offered to supply the 52,000 units of RX5 for $20.00 per unit.
|
|
1.
|
Calculate the per unit
incremental costs of making and buying component RX5.
|
|
|
|
|
|
|
Total
incremental costs of:
|
Making the
units
|
Buying the
units
|
|
Total direct materials
|
$260,000
|
|
|
Total direct labor
|
468,000
|
|
|
Variable overhead
costs
|
156,000
|
|
|
Cost to buy the units
|
|
1,040,000
|
|
|
|
|
Total costs
|
$884,000
|
$1,040,000
|
|
Should the company
continue to manufacture the part, or should it buy the part from the
outside supplier?
|
Make the
units
|
|
-----------------------------------------------------------------------------------------------------------------------------------
3.
Harold Manufacturing
produces denim clothing. This year, it produced 5,110 denim jackets at a
manufacturing cost of $41.00 each. These jackets were damaged in the
warehouse during storage. Management investigated the matter and identified
three alternatives for these jackets.
|
|
1.
|
Jackets can be sold to a
second-hand clothing shop for $7.00 each.
|
|
2.
|
Jackets can be
disassembled at a cost of $31,900 and sold to a recycler for $11.00 each.
|
|
3.
|
Jackets can be reworked
and turned into good jackets. However, with the damage, management estimates
it will be able to assemble the good parts of the 5,110 jackets into only
2,920 jackets. The remaining pieces of fabric will be discarded. The cost of
reworking the jackets will be $101,500, but the jackets can then be sold for
their regular price of $44.00 each.
|
|
Required:
|
|
|
1.
|
Calculate the
incremental income.
|
|
|
|
|
|
Alternative
1 Sell as is
|
Alternative
2 Disassemble and sell to a recycler
|
Alternative
3 Rework and turn into good jackets
|
|
Incremental revenue
|
$35,770
|
$56,210
|
$128,480
|
|
Incremental costs
|
0
|
31,900
|
101,500
|
|
Incremental income
|
$35,770
|
$24,310
|
$26,980
|
|
|
The company should
choose:
|
Alternative
1
|
|
|
|
|
-----------------------------------------------------------------------------------------------------------------------------------
4.
|
Edgerron Company is able
to produce two products, G and B, with the same machine in its factory. The
following information is available.
|
|
Product G
|
Product B
|
|
Selling
price per unit
|
|
|
$
|
230
|
|
|
|
|
$
|
260
|
|
|
|
Variable
costs per unit
|
|
|
|
100
|
|
|
|
|
|
156
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contribution
margin per unit
|
|
|
$
|
130
|
|
|
|
|
$
|
104
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Machine
hours to produce 1 unit
|
|
0.4
|
hours
|
|
|
|
1
|
hours
|
|
|
|
Maximum unit
sales per month
|
|
650
|
units
|
|
|
|
250
|
units
|
|
|
|
|
|
|
|
|
|
|
The company presently
operates the machine for a single eight-hour shift for 22 working days each
month. Management is thinking about operating the machine for two shifts,
which will increase its productivity by another eight hours per day for 22
days per month. This change would require $13,000 additional fixed costs per
month. =
(Round hours per unit
answers to 1 decimal place.)
|
|
Elegant
Decor Company’s management is trying to decide whether to eliminate
Department 200, which has produced losses or low profits for several years.
The company’s 2013 departmental income statement shows the following.
|
|
ELEGANT
DECOR COMPANY
Departmental Income Statements
For Year Ended December 31, 2013
|
|
Dept. 100
|
Dept. 200
|
Combined
|
|
Sales
|
|
$
|
438,000
|
|
|
|
$
|
309,539
|
|
|
|
$
|
747,539
|
|
|
Cost
of goods sold
|
|
|
265,000
|
|
|
|
|
214,000
|
|
|
|
|
479,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
173,000
|
|
|
|
|
95,539
|
|
|
|
|
268,539
|
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising
|
|
|
15,000
|
|
|
|
|
12,000
|
|
|
|
|
27,000
|
|
|
Store
supplies used
|
|
|
6,000
|
|
|
|
|
5,500
|
|
|
|
|
11,500
|
|
|
Depreciation
Store equip.
|
|
|
5,000
|
|
|
|
|
3,800
|
|
|
|
|
8,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
direct expenses
|
|
|
26,000
|
|
|
|
|
21,300
|
|
|
|
|
47,300
|
|
|
Allocated
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
salaries
|
|
|
78,000
|
|
|
|
|
46,800
|
|
|
|
|
124,800
|
|
|
Rent
expense
|
|
|
9,440
|
|
|
|
|
4,740
|
|
|
|
|
14,180
|
|
|
Bad
debts expense
|
|
|
10,100
|
|
|
|
|
8,100
|
|
|
|
|
18,200
|
|
|
Office
salary
|
|
|
18,720
|
|
|
|
|
12,480
|
|
|
|
|
31,200
|
|
|
Insurance
expense
|
|
|
1,900
|
|
|
|
|
1,100
|
|
|
|
|
3,000
|
|
|
Misc.
office expenses
|
|
|
2,700
|
|
|
|
|
2,100
|
|
|
|
|
4,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
allocated expenses
|
|
|
120,860
|
|
|
|
|
75,320
|
|
|
|
|
196,180
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
expenses
|
|
|
146,860
|
|
|
|
|
96,620
|
|
|
|
|
243,480
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
26,140
|
|
|
|
$
|
(1,081)
|
|
|
|
$
|
25,059
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In analyzing whether to eliminate Department 200, management considers
the following:
a.The company has one office worker who earns $600 per week, or
$31,200 per year, and four sales clerks who each earn $600 per week,
or $31,200 per year for each salesclerk.
b. The full salaries of two salesclerks are charged to Department 100.
The full salary of one salesclerk is charged to Department 200.
The salary of the fourth clerk, who works half-time in both
departments, is divided evenly between the two departments.
c. Eliminating Department 200 would avoid the sales salaries and the
office salary currently allocated to it. However, management prefers
another plan. Two salesclerks have indicated that they will be
quitting soon. Management believes that their work can be done by the other
two clerks if the one office worker works in sales half-time.
Eliminating Department 200 will allow this shift of duties. If this change is
implemented, half the office worker’s salary would be reported as
sales salaries and half would be reported as office salary.
d. The store building is rented under a long-term lease that cannot be
changed. Therefore, Department 100 will use the space and
equipment currently used by Department 200.
e. Closing Department 200 will eliminate its expenses for advertising,
bad debts, and store supplies; 68% of the insurance expense
allocated to it to cover its merchandise inventory; and 21% of the
miscellaneous office expenses presently allocated to it.
Required:
Complete the three-column report that lists items and amounts for (a)
the company’s total expenses (including cost of goods sold)
—in column 1, (b) the expenses that would be eliminated by closing
Department 200
—in column 2, and (c) the expenses that will continue
—in column 3. The statement should reflect the reassignment of the
office worker to one-half time as salesclerk.
|
|
ELEGANT
DECOR COMPANY
|
|
Analysis
of Expenses under Elimination of Department 200
|
|
Total
Expenses
|
Eliminated
Expenses
|
Continuing
Expenses
|
|
Cost of goods sold
|
$479,000
|
$214,000
|
$265,000
|
|
Direct expenses
|
|
|
|
|
Advertising
|
27,000
|
12,000
|
15,000
|
|
Store supplies used
|
11,500
|
5,500
|
6,000
|
|
Depreciation—Store
equipment
|
8,800
|
|
8,800
|
|
Allocated expenses
|
|
|
|
|
Sales salaries
|
124,800
|
46,800
|
78,000
|
|
Rent expense
|
14,180
|
|
14,180
|
|
Bad debts expense
|
18,200
|
8,100
|
10,100
|
|
Office salary
|
31,200
|
15,600
|
15,600
|
|
Insurance expense
|
3,000
|
748
|
2,252
|
|
Miscellaneous office
expenses
|
4,800
|
441
|
4,359
|
|
Total expenses
|
$722,480
|
$303,189
|
$419,291
|
|
|
Factor Company is
planning to add a new product to its line. To manufacture this product, the
company needs to buy a new machine at a $495,000 cost with an expected
four-year life and a $26,000 salvage value. All sales are for cash, and all
costs are out of pocket except for depreciation on the new machine.
Additional information includes the following.
(PV of $1, FV of $1, PVA of $1, and FVA of $1)
(Use appropriate
factor(s) from the tables provided.)
|
|
|
|
|
|
|
Expected
annual sales of new product
|
$
|
1,870,000
|
|
|
Expected
annual costs of new product
|
|
|
|
|
Direct
materials
|
|
495,000
|
|
|
Direct
labor
|
|
675,000
|
|
|
Overhead
excluding straight-line depreciation on new machine
|
|
339,000
|
|
|
Selling
and administrative expenses
|
|
163,000
|
|
|
Income
taxes
|
|
30
|
%
|
|
Required:
|
|
1.
|
Compute straight-line
depreciation for each year of this new machine’s life.
|
|
|
|
|
Straight-line
depreciation
|
$117,250
|
|
$495,000
− $26,000 / 4 = $117,250
|
2.
|
Determine expected net
income and net cash flow for each year of this machine’s life.
|
|
|
|
|
Expected
net income
|
|
Revenues
|
|
|
|
Sales
|
$1,870,000
|
|
Expenses
|
|
|
|
Direct materials
|
$495,000
|
|
|
Direct labor
|
675,000
|
|
|
Overhead excluding straight-line
depreciation on new machine
|
339,000
|
|
|
Straight-line
depreciation on new machine
|
117,250
|
|
|
Selling and
administrative expenses
|
163,000
|
|
|
|
|
|
|
|
|
Total expenses
|
|
1,789,250
|
|
Income before taxes
|
|
80,750
|
|
Income tax expense
|
|
24,225
|
|
Net income
|
|
$56,525
|
|
Expected
net cash flow
|
|
|
Net income
|
|
$56,525
|
|
|
Straight-line
depreciation on new machine
|
|
117,250
|
|
|
Net cash flow
|
|
$173,775
|
|
|
|
3.
|
Compute this machine’s
payback period, assuming that cash flows occur evenly throughout each year.
|
|
|
|
|
Payback
period
|
|
Choose
Numerator:
|
/
|
Choose
Denominator:
|
=
|
Payback
period
|
|
Cost of investment
|
/
|
Annual net cash flow
|
=
|
Payback period
|
|
$495,000
|
/
|
$173,775
|
=
|
2.85
|
years
|
|
|
4.
|
Compute this machine’s
accounting rate of return, assuming that income is earned evenly throughout
each year.
|
|
|
Accounting
rate of return
|
|
Choose
Numerator:
|
/
|
Choose
Denominator:
|
=
|
Accounting
rate of return
|
|
Annual after-tax net
income
|
/
|
Annual average investment
|
=
|
Accounting rate of
return
|
|
$56,525
|
/
|
$260,500
|
=
|
21.70
|
%
|
|
5.
|
Compute the net
present value for this machine using a discount rate of 7% and assuming
that cash flows occur at each year-end. (Hint: Salvage value is a cash
inflow at the end of the asset’s life.)
|
|
|
|
|
Chart
values are based on:
|
|
|
|
|
|
|
n =
|
4
|
|
|
i =
|
7%
|
|
Cash
flow
|
Select
chart
|
Amount
|
x
|
Table
factor
|
=
|
Present
Value
|
|
Annual cash flow
|
Present Value of an
Annuity of 1
|
$173,775
|
x
|
3.3872
|
=
|
$588,611
|
|
Salvage value
|
Present Value of 1
|
$26,000
|
x
|
0.7629
|
=
|
19,835
|
|
Present value of
cash inflows
|
|
$608,446
|
|
Present value of
cash outflows
|
|
(495,000)
|
|
Net present value
|
|
$113,446
|
|
|
|
Sentinel Company is
considering an investment in technology to improve its operations. The
investment will require an initial outlay of $257,000 and will yield the
following expected cash flows. Management requires investments to have a
payback period of 3 years, and it requires a 9% return on investments. (PV of $1,FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the table
provided.)
|
|
Period
|
Cash Flow
|
|
1
|
$ 47,000
|
|
2
|
53,900
|
|
3
|
75,600
|
|
4
|
94,700
|
|
5
|
125,400
|
|
|
|
Required:
|
|
1.
|
Determine the payback
period for this investment.
(Enter
cash outflows with a minus sign. Round your answer to 1 decimal place.)
|
|
|
|
|
Year
|
Cash
inflow (outflow)
|
Cumulative
Net Cash Inflow (outflow)
|
|
|
|
0
|
$(257,000)
|
$(257,000)
|
|
|
1
|
47,000
|
(210,000)
|
|
2
|
53,900
|
(156,100)
|
|
3
|
75,600
|
(80,500)
|
|
4
|
94,700
|
14,200
|
|
5
|
125,400
|
139,600
|
|
$139,600
|
|
|
Calculate
the payback period:
|
|
Payback occurs between
year:
|
3
|
and year:
|
4
|
|
Calculate the portion
of the year:
|
|
Numerator for
partial year
|
$80,500
|
0.9
|
years
|
|
Denominator for
partial year
|
$94,700
|
|
|
|
|
Payback period =
|
3.9
|
years
|
|
|
2.
|
Determine the break-even
time for this investment. (Enter cash outflows with a minus
sign. Round your answer to 1 decimal place.)
|
|
|
|
|
Year
|
Cash
inflow (outflow)
|
Table
factor
|
Present
Value of Cash Flows
|
Cumulative
Present Value of Cash Flows
|
|
|
0
|
$(257,000)
|
1.0000
|
$(257,000)
|
$(257,000)
|
|
|
1
|
47,000
|
0.9174
|
$43,118
|
(213,882)
|
|
|
2
|
53,900
|
0.8417
|
$45,368
|
(168,514)
|
|
|
3
|
75,600
|
0.7722
|
$58,378
|
(110,136)
|
|
|
4
|
94,700
|
0.7084
|
$67,085
|
(43,051)
|
|
|
5
|
125,400
|
0.6499
|
$81,497
|
38,446
|
|
|
$139,600
|
|
|
|
|
|
Calculate
the break even time:
|
|
Break-even time occurs
between year:
|
4
|
and year:
|
5
|
|
|
Calculate the portion
of the year:
|
|
Numerator for
partial year
|
$43,051
|
0.5
|
years
|
|
|
Denominator for
partial year
|
$81,497
|
|
|
|
|
|
|
Break-even time =
|
4.5
|
years
|
|
|
|
3.
|
Determine the net
present value for this investment.
|
|
|
|
Net
present value
|
$38,446
|
|
|
Forten Company, a merchandiser,
recently completed its calendar-year 2013 operations. For the year, (1) all
sales are credit sales, (2) all credits to Accounts Receivable reflect cash
receipts from customers, (3) all purchases of inventory are on credit, (4)
all debits to Accounts Payable reflect cash payments for inventory, and (5)
Other Expenses are paid in advance and are initially debited to Prepaid
Expenses. The company’s balance sheets and income statement follow.
|
|
FORTEN
COMPANY
Comparative Balance Sheets
December 31, 2013 and 2012
|
|
2013
|
|
2012
|
|
Assets
|
|
|
|
|
|
|
Cash
|
$
|
50,404
|
|
$
|
68,000
|
|
Accounts
receivable
|
|
73,525
|
|
|
57,125
|
|
Merchandise
inventory
|
|
265,906
|
|
|
238,800
|
|
Prepaid
expenses
|
|
1,440
|
|
|
1,900
|
|
Equipment
|
|
154,300
|
|
|
112,000
|
|
Accum.
depreciation—Equipment
|
|
(45,400)
|
|
|
(52,000)
|
|
|
|
|
|
|
|
|
Total assets
|
$
|
500,175
|
|
$
|
425,825
|
|
|
|
|
|
|
|
|
Liabilities
and Equity
|
|
|
|
|
|
|
Accounts
payable
|
$
|
58,875
|
|
$
|
110,000
|
|
Short-term
notes payable
|
|
8,400
|
|
|
5,200
|
|
Long-term
notes payable
|
|
33,575
|
|
|
39,000
|
|
Common
stock, $5 par value
|
|
161,500
|
|
|
148,000
|
|
Paid-in
capital in excess of par, common stock
|
|
40,500
|
|
|
0
|
|
Retained
earnings
|
|
197,325
|
|
|
123,625
|
|
|
|
|
|
|
|
|
Total
liabilities and equity
|
$
|
500,175
|
|
$
|
425,825
|
|
|
|
|
|
|
|
|
|
|
FORTEN
COMPANY
Income Statement
For Year Ended December 31, 2013
|
|
Sales
|
|
|
|
$
|
615,000
|
|
Cost
of goods sold
|
|
|
|
|
298,000
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
|
|
317,000
|
|
Operating
expenses
|
|
|
|
|
|
|
Depreciation
expense
|
$
|
19,200
|
|
|
|
|
Other
expenses
|
|
141,000
|
|
|
160,200
|
|
|
|
|
|
|
|
|
Other gains
(losses)
|
|
|
|
|
|
|
Loss
on sale of equipment
|
|
|
|
|
(4,300)
|
|
|
|
|
|
|
|
|
Income
before taxes
|
|
|
|
|
152,500
|
|
Income taxes
expense
|
|
|
|
|
29,000
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
$
|
123,500
|
|
|
|
|
|
|
|
|
|
|
Additional Information
on Year 2013 Transactions
|
|
a.
|
The loss on the cash
sale of equipment was $4,300 (details in b).
|
|
b.
|
Sold equipment costing
$44,800, with accumulated depreciation of $25,800, for $14,700 cash.
|
|
c.
|
Purchased equipment
costing $87,100 by paying $50,000 cash and signing a long-term note payable
for the balance.
|
|
d.
|
Borrowed $3,200 cash by
signing a short-term note payable.
|
|
e.
|
Paid $42,525 cash to
reduce the long-term notes payable.
|
|
f.
|
Issued 2,700 shares of
common stock for $20 cash per share.
|
|
g.
|
Declared and paid cash
dividends of $49,800.
|
|
Required:
|
|
1.
|
Prepare a complete
statement of cash flows; report its operating activities using the indirect
method. (Amounts to be deducted should be indicated with a minus sign.)
|
|
|
|
|
FORTEN
COMPANY
|
|
|
Statement
of Cash Flows
|
|
|
For Year
Ended December 31, 2013
|
|
|
Cash flows from
operating activities
|
|
|
|
|
Net Income
|
$123,500
|
|
|
|
Adjustments to
reconcile net income to net cash provided by operations:
|
|
|
Depreciation expense
|
19,200
|
|
|
|
Accounts receivable
increase
|
(16,400)
|
|
|
|
Inventory increase
|
(27,106)
|
|
|
|
Prepaid expense
decrease
|
460
|
|
|
|
Accounts payable
decrease
|
(51,125)
|
|
|
|
Loss on disposal of
equipment
|
4,300
|
|
|
|
|
|
|
|
Net cash provided by
operating activities
|
|
$52,829
|
|
|
Cash flows from
investing activities
|
|
|
|
Cash paid for
equipment
|
(50,000)
|
|
|
|
Cash received from
sale of equipment
|
14,700
|
|
|
|
|
|
|
|
Net cash used in
investing activities
|
|
(35,300)
|
|
|
Cash flows from
financing activities:
|
|
|
|
Cash borrowed on
short-term note
|
3,200
|
|
|
|
Cash paid on long-term
note
|
(42,525)
|
|
|
|
Cash received from issuing
stock
|
54,000
|
|
|
|
Cash paid for
dividends
|
(49,800)
|
|
|
|
|
|
|
|
Net cash used in
financing activities
|
|
(35,125)
|
|
|
Net increase
(decrease) in cash
|
$(17,596)
|
|
|
Cash balance at
beginning of year
|
68,000
|
|
|
Cash balance at end of
year
|
$50,404
|
|
|
Golden Corp., a
merchandiser, recently completed its 2013 operations. For the year,
(1) all sales are credit
sales,
(2) all credits to
Accounts Receivable reflect cash receipts from customers,
(3) all purchases of
inventory are on credit,
(4) all debits to Accounts
Payable reflect cash payments for inventory,
(5) Other Expenses are all
cash expenses, and
(6) any change in Income
Taxes Payable reflects the accrual and cash payment of taxes.
The company’s balance
sheets and income statement follow.
|
GOLDEN
CORPORATION
Comparative Balance Sheets
December 31, 2013 and 2012
|
|
2013
|
|
2012
|
|
Assets
|
|
|
|
|
|
|
|
Cash
|
$
|
229,000
|
|
$
|
159,000
|
|
|
Accounts
receivable
|
|
95,000
|
|
|
79,000
|
|
|
Merchandise
inventory
|
|
631,000
|
|
|
541,000
|
|
|
Equipment
|
|
373,000
|
|
|
329,000
|
|
|
Accum.
depreciation—Equipment
|
|
(183,000
|
)
|
|
(119,000
|
)
|
|
|
|
|
|
|
|
|
Total
assets
|
$
|
1,145,000
|
|
$
|
989,000
|
|
|
|
|
|
|
|
|
|
Liabilities
and Equity
|
|
|
|
|
|
|
|
Accounts
payable
|
$
|
97,000
|
|
$
|
86,000
|
|
|
Income
taxes payable
|
|
46,000
|
|
|
40,000
|
|
|
Common
stock, $2 par value
|
|
626,000
|
|
|
598,000
|
|
|
Paid-in
capital in excess of par value, common stock
|
|
217,000
|
|
|
175,000
|
|
|
Retained
earnings
|
|
159,000
|
|
|
90,000
|
|
|
|
|
|
|
|
|
|
Total
liabilities and equity
|
$
|
1,145,000
|
|
$
|
989,000
|
|
|
|
|
|
|
|
|
|
|
|
GOLDEN
CORPORATION
Income Statement
For Year Ended December 31, 2013
|
|
Sales
|
|
|
|
$
|
1,867,000
|
|
Cost
of goods sold
|
|
|
|
|
1,101,000
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
|
|
766,000
|
|
Operating
expenses
|
|
|
|
|
|
|
Depreciation
expense
|
$
|
64,000
|
|
|
|
|
Other
expenses
|
|
509,000
|
|
|
573,000
|
|
|
|
|
|
|
|
Income
before taxes
|
|
|
|
|
193,000
|
|
Income
taxes expense
|
|
|
|
|
25,000
|
|
|
|
|
|
|
|
Net
income
|
|
|
|
$
|
168,000
|
|
|
|
|
|
|
|
|
Additional Information
on Year 2013 Transactions
|
|
a.
|
Purchased equipment for
$44,000 cash.
|
|
b.
|
Issued 14,000 shares of
common stock for $5 cash per share.
|
|
c.
|
Declared and paid
$99,000 in cash dividends.
|
|
Required:
|
|
Prepare a complete
statement of cash flows; report its cash inflows and cash outflows from
operating activities according to the indirect method. (Amounts to be deducted should be indicated with a
minus sign.)
|
|
|
|
|
GOLDEN
CORPORATION
|
|
Statement
of Cash Flows
|
|
For Year
Ended December 31, 2013
|
|
Cash flows from
operating activities
|
|
|
|
Net Income
|
$168,000
|
|
|
Adjustments to
reconcile net income to net cash provided by operations:
|
|
Accounts receivable
increase
|
(16,000)
|
|
|
Inventory increase
|
(90,000)
|
|
|
Accounts payable
increase
|
11,000
|
|
|
Income taxes payable
increase
|
6,000
|
|
|
Depreciation expense
|
64,000
|
|
|
|
|
|
Net cash provided by
operating activities
|
|
$143,000
|
|
Cash flows from
investing activities:
|
|
|
Cash paid for
equipment
|
(44,000)
|
|
|
|
|
|
Net cash used in
investing activities
|
|
(44,000)
|
|
Cash flows from
financing activities:
|
|
|
Cash received from
stock issuance
|
70,000
|
|
|
Cash paid for cash
dividends
|
(99,000)
|
|
|
|
|
|
Net cash used in
financing activities
|
|
(29,000)
|
|
Net increase
(decrease) in cash
|
$70,000
|
|
Cash balance at beginning
of year
|
159,000
|
|
Cash balance at end of
year
|
$229,000
|
|
|