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NPV, Equivalent Units for Materials & Relevant Cost Questions

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1. (TCO F) Loxham Corporation uses the weighted-average method in its process costing system. Data concerning the first processing department for the most recent month are listed below:
Work in process, beginning:
Units in beginning work in process inventory 400
Materials costs $6,900
Conversion costs $2,500
Percent complete for materials 80%
Percent complete for conversion 15%
Units started into production during the month 6,000
Units transferred to the next department during the month 5,400
Materials costs added during the month $112,500
Conversion costs added during the month $210,300
Ending work in process:
Units in ending work in process inventory 1,000
Percent complete for materials 80%
Percent complete for conversion 30%
Required: calculate the equivalent units for materials for the month in the first processing department

2. (Ignore income taxes in this problem) Axillar beauty Products Corporation is considering the production of new conditioning shampoo which will require the purchase of new mixing machinery. The machinery will cost $375,000, is expected to have a useful life of 10 year, and is expected to have a salvage value of $50,000 at the end of 10 years. The machinery will also need a $35,000 overhaul at the end of year 6. A $40,000 increase in working capital will be needed for this investment project. The working capital will be released at the end of the 10 years. The new shampoo is expected to generate net cash inflows of $85,000 per year for each of the 10years. Axillar's discount rate is 16%

What is the net present value of this investment opportunity?

Based on the answer above sure Axillar's go ahead with the new conditioning shampoo?

Hanson, Inc makes 1000 units per year of a part called a positron for use in one of its products. Data concerning the unit production cost of the position follow
Direct Materials $342
Direct Labor 80
Variable Manufacturing OH 48
Fixed Manufacturing OH 520
Total $990

An outside supplier has offered to sell Hanson, Inc all of the positron it requires. If Hanson, Inc decided to discontinue making the positrons, 10% of the above fixed manufacturing overhead cost could be avoided.

Required: Assume Hanson, Inc has no alternative use for the facilities presently devoted to production of the positrons. If the outside supplier offers to sell the positron for $850 each should Hanson, Inc accept the offer? Support with appropriate calculations.

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Solution Summary

Excel file contains rows computations of net present value and equivalent units for materials for the month in the first processing department and solution of relevant costing problem.

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Questions in Accounting

1. Blinkone Company's material handling costs and kilo of materials for two recent months appear below.
Materials Handling
Handled Costs
January 80,000 kilos $160,000
February 60,000 kilos $132,000
What is the best estimate of the materials handling costs for 75,000 kilos? (Assume that this activity is within the relevant range.)
a) $150,000 b) $153,000 c)$157,500 d)$165,000

2. Wasserman Company uses activity-based costing to compute product costs for external reports. The company has three activity cost pools and applies overhead using predetermined overhead rates for each activity cost pool. Estimated cost and activities for the current year are presented below for the three activity cost pools:
Estimated overhead Expected
Cost Activity
Activity 1 $21,753 900
Activity 2 $23,475 2,500
Activity 3 $38,519 1,300
Actual activity for the current year was as follows:
Actual Activity
Activity 1 895
Activity 2 2,495
Activity 3 1,340
The amount of overhead applied for Activity 3 during the year was closest to:
a) $38,519 b) 439,704.20, c) $38,564 d) $23,876.80

3. Scientific Atlanta makes and sells portable recorder. Each recorder regularly sells for $200. The following cost data per recorder are based on a full capacity of 12,000 recorders produced each period:
Direct materials $75
Direct labor $55
Manufacturing overhead (75% variable and 25% $48
unavoidable fixed)
Scientific Atlanta has received a special order for a sale of 2,500 recorders to an overseas customer. The only selling costs that would be incurred on this order would be $10 per recorder for shipping. Scientific Atlanta is now selling 7,200 recorders through regular distributors each period. What should be the minimum selling price per recorder in negotiating a price for this special order?
a) $200 b) $166 c) 178 d) $176

4. The Diego Company uses a predetermined overhead rate based on direct labor hours to apply manufacturing overhead to jobs. The company has provided the following estimated costs for the next year:
Direct materials $6000
Direct labor 20000
Rent on factory building 15000
Sales salaries 25000
Depreciation on factory equipment 8000
Indirect labor 12000
Production supervisor's salary 15000
Johansen estimates that 20000 direct labor hours will be worked during the year. The predetermined overhead rate per hour will be:
a. $2.50 b.$3.50 c.$3.75 d. $5.05

5. A company paid off a $10000 long-term note by issuing common stock to the creditor. This transaction would be reflected on the company's statement of cash flows as:
a. an addition of $10,000 and a deduction of $10,000 under investing activities
b. an addition of $10,000 and a deduction of $10,000 under financing activities
c. a direct exchange transaction a separate schedule accompanying the statement of cash flows
d. an addition of $10,000 under financing activities
6. The Greggains Company investigating the purchase of a new threading machine that costs $18000. the machine would save about $4000 per/year over the present method of threading component parts, and would have a salvage value of about $3000 in 6 years when the machine would be replaced. The company's required rate of return is 12%. The machine's net present value is:
a. $1,556 b. ($35) c. $11,000 d. $8,000
7. The following information pertains to Mete Co.:
Sales $400,000
Variable expenses 80,000
Fixed expenses 20,000
Mete's break-even point in sales dollars is:
a. $20,000 b.$25,000 c.$80,000 d. $100,000
8. Last month a manufacturing company had the following operating results:
Beginning finished goods inventory $86,000
Ending finished goods inventory $60,000
Sales $500,000
Gross margins $72,000
What was the cost of goods manufactured for the month?
a. $428,000 b. $402,000 c. $454,000 d. $474,000
9. The following information pertains to Tipp Company's Grinding Department for the month of April:
Units Materials Costs
Beginning work in process $15,000 $5,000
Started in April 40,000 $18,000
Units completed and transferred out 42,500
Ending work in process 12,500
All materials are added at the beginning of the process. Using the weighted-average method, the cost per equivalent unit for materials is closest to:
a. $0.59 b. $0.55 c. $0.45 d. $0.43

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