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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
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 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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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 ...

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