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Accounting Problems with Present Value and Cash Flows

17-Computing Cost of Goods Manufactured
Using the following information, compute cost of goods manufactured, which is the cost of
inventory transferred to Finished Goods Inventory.

Work-in-process inventory, beginning balance . . . . .. . . . . . . . . . . . . . . . .. . . . . . .. . . . . . $132,425
Work-in-process inventory, ending balance . . .. . . . .. . . . . . . .. . . . . . . . . . .. . . . .. . . . . . 126,300
Direct materials costs .. . . . . . . . . . . . . . . . . .. . . . . .. . . . . . . . . . . . . . . . . .. . . . .. . . . . . 350,080
Direct labor costs . . . . . . .. . . . . . . . . . . . . .. . . . . . . . . . . . .. . . . . . . . . . . . .. . . . . . . . . . 365,225
Actual manufacturing overhead costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 287,200
Applied manufacturing overhead costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 285,900

13-Segment-Margin Ratio
Refer to the data in PE 19-12. Compute the segment-margin ratio.

The company reports the following costs and revenues for one of its segments:

Net sales revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $728,000
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 416,000
Selling and administrative costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104,000
Advertising cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62,400
Insurance cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82,000

Of these costs, cost of goods sold and selling and administrative costs are variable, advertising
is a direct fixed cost, and insurance is an indirect fixed cost. Using this information, prepare
a segment margin statement for this segment.
.

17-Residual Income
The company had $360,000 in total assets and $94,000 in operating profit this year, and the
company requires at least a 12% return on assets. Compute the company's residual income.

2 Screening, Ranking, and Discounting
Which one of the following statements is correct?
a. Screening is the process of finding the best among available acceptable alternatives.
b. Ranking is the process of determining whether an investment meets a minimum standard
of financial acceptability.
c. For the comparison of cash flows to be accurate, all amounts should be stated at their
value at the point in time when the cash flow occurs.
d. Cash received sooner is worth more than cash received later.
e. Generally speaking, managers use relatively low discount rates when evaluating
investments that involve a high degree of risk.

3 Discounting Cash Outflows
The company is deciding whether to invest in a certain capital investment. The investment
requires an initial outlay of $55,000 and annual payments of $12,000 made at the end of the
year for five years. The company's discount rate is 14%. What is the present value of cash
outflows related to this investment?

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17-Computing Cost of Goods Manufactured
Using the following information, compute cost of goods manufactured, which is the cost of
inventory transferred to Finished Goods Inventory.

Work-in-process inventory, beginning balance . . . . .. . . . . . . . . . . . . . . . .. . . . . . .. . . . . . $132,425
Work-in-process inventory, ending balance . . .. . . . .. . . . . . . .. . . . . . . . . . .. . . . .. . . . . . 126,300
Direct materials costs .. . . . . . . . . . . . . . . . . .. . . . . .. . . . . . . . . . . . . . . . . .. . . . .. . . . . . 350,080
Direct labor costs . . . . . . .. . . . . . . . . . . . . .. . . . . . . . . . . . .. . . . . . . . . . . . .. . . . . . . . . . 365,225
Actual manufacturing overhead costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 287,200
Applied manufacturing overhead costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 285,900

Direct materials $ 350,080
Direct Labor $ 365,225
Applied manufacturing overhead $ 285,900
Total manufacturing ...

Solution Summary

This solution is comprised of a detailed explanation to compute cost of goods manufactured, prepare
a segment margin statement, compute the company's residual income and compute the present value of cash
outflows.

$2.19