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    Production and cost: Paymaster, Gamestop, Raynor Manufacturing

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    See attached file for Production and costing questions:

    #13. The costing method that has been labeled as a "black hole" is commonly known as:
    a. Absorption costing
    b. Fixed costing
    c. Break-even point costing
    d. Variable costing

    #14. Paymaster, Inc., a computer software store, provided that following information on 1999
    operations.
    Cost of Goods Sold $600,000
    Store manager's salary $80,000
    Assistant's salary $40,000
    Operating costs (store) $120,000
    Sales personnel salary (four employees) $29,000 each
    Commissions of 15% of sales $?
    Advertising and promotion per year $20,000
    Sales personnel salary (four employees) $1,200,000

    Paymaster is a small company and has hired you to perform some management
    advisory services. Paymaster sold 2,500 high quality payroll programs last year.
    Using the information provided:
    What is the variable cost per unit sold?
    a. $320
    b. $312
    c. $240
    d. $72

    #15. The Gameshop manufactures specialized board games. Management is attempting to
    search for ways to reduce manufacturing labor costs and has received a proposal from a
    consulting company to rearrange the production floor next year. Currently, the system
    requires 10 machine operators and 2.5 individuals to handle direct materials. Employee
    pay averages $7.50 per hour and will increase to $8.50 per hour next year. Each
    employee currently works 2,500 hours but that will decrease to 2,400 hours if the
    proposal is accepted. The proposal only requires 8.5 workers.
    Which of the following decisions should management accept?
    a. Do not change the production floor.
    b. Rearrange the production floor.
    c. Either a or b, because the employees cannot be laid off.
    d. It doesn't matter because the costs incurred will remain the same.

    #16. Which of the following departments is NOT a support department for an ink
    manufacturing company?
    a. Food services
    b. Health services
    c. Mixing and bottling
    d. Security

    #17. The department that adds value to a product sold to a customer is:
    a. A personnel department
    b. An operating department
    c. A support department
    d. A service department

    #18. Raynor Manufacturing purchases trees from Tree Nursery and processes them up to the
    splitoff point, where two products (paper and pencil casings) are obtained. The products
    are then sold to an independent company that markets and distributes them to retail
    outlets. The following information was collected for the month of October.

    Trees processed: 50 trees (yield is 30,000 sheets of paper and 30,000 pencil casings,
    and no scrap)
    Production: 30,000 sheets of paper and 30,000 pencil casings
    Sales: Paper: 29,000 @ $0.04 per page
    Pencil casings: 30,000 @ $0.10 per casing

    The cost of purchasing 50 trees and processing them up to the splitoff point to yield
    30,000 sheets of paper and 30,000 pencil casings is $1,500.

    Raynor manufacturing's accounting department reported no beginning inventories;
    however, ending inventories amounts reflected 1,000 sheets of paper in stock.

    What is the paper's sales value at the splitoff point?
    a. $120
    b. $1,160
    c. $1,200
    d. $1,950

    #19. All of the following are reasons for restricting resources EXCEPT:
    a. The attempt to formulate long-run production plans.
    b. The attempt to improve long-run supply reliability.
    c. The protection of an "infant" segment.
    d. The belief that products produced externally are of a higher quality and will be
    delivered quickly.

    #20. For each of the following independent cases, find the unknowns designated by the
    capital letters.
    Case 1 Case 2
    Direct materials used H $40,000
    Direct manufacturing labor $30,000 $15,000
    Variable Marketing, Distribution K T
    Fixed manufacturing overhead I $20,000
    Fixed marketing, distribution J $10,000
    Gross Margin $25,000 $20,000
    Finished goods inventory, Jan 1, 1999 0 $5,000
    Finished goods inventory, Dec 31, 1999 0 $5,000
    Contribution Margin (dollars) $30,000 V
    Revenues $100,000 $100,000
    Direct materials inventory, Jan 1, 1999 $12,000 $20,000
    Direct materials inventory, Dec 31, 1999 $5,000 W
    Variable manufacturing overhead $5,000 X
    Work in process, Jan 1, 1999 0 $9,000
    Work in process, Dec 31, 1999 0 $9,000
    Purchases of direct materials $15,000 $50,000
    Breakeven point (in revenues) $66,667 Y
    Cost of goods manufactured G U
    Operating Income (loss) L ($5,000)

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    Solution Preview

    13) D Variable Costing
    In the 1970-1980's, variable costing was used, but the trend is reversing because fixed overhead is becoming a major part of product cost.

    14) C
    The variable costs (VC) are COGS and commissions. Thus 600,000/2500 = 240 = VC per unit sold.
    Even though commissions are a variable cost, they are a VC for selling and administrative expenses.
    Selling & Administrative expenses are treated as period costs.

    15) B
    Currently, there are 12.5 workers working 2500 hours. Under the new proposal, there will be 8.5 workers working 2400 hours. Regardless of pay ...

    Solution Summary

    The solution presents a sentence or two in explanation of each of the problems plus the calculations to arrive at an answer.

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