ACC560

Chapter 7:
Exercises 3, 7, and 11
Chapter 8:
Exercises 2, 6, and 9
E7-3 Moonbeam Company manufactures
toasters. For the first 8 months of 2017, the company reported the following
operating results while operating at 75% of plant capacity:
Sales (350,000 units) $4,375,000
Cost of goods sold 2,600,000
Gross profit 1,775,000
Operating expenses 840,000
Net income $ 935,000
Cost of goods sold was 70% variable
and 30% fixed; operating expenses were 80% variable and 20% fixed.
In September, Moonbeam receives a
special order for 15,000 toasters at $7.60 each from Luna Company of Ciudad
Juarez. Acceptance of the order would result in an additional $3,000 of
shipping costs but no increase in fixed costs.
Instructions
a.
Prepare
an incremental analysis for the special order.
b.
Should
Moonbeam accept the special order? Why or why not?
E7-7 Riggs Company
purchases sails and produces sailboats. It currently produces 1,200 sailboats
per year, operating at normal capacity, which is about 80% of full capacity.
Riggs purchases sails at $250 each, but the company is considering using the
excess capacity to manufacture the sails instead. The manufacturing cost per
sail would be $100 for direct materials, $80 for direct labor, and $90 for
overhead. The $90 overhead is based on $78,000 of annual fixed overhead that is
allocated using normal capacity.
The president of Riggs
has come to you for advice. “It would cost me $270 to make the sails,” she
says, “but only $250 to buy them. Should I continue buying them, or have I
missed something?”
Instructions
a.
Prepare
a per unit analysis of the differential costs. Briefly explain whether Riggs
should make or buy the sails.
b.
If
Riggs suddenly finds an opportunity to rent out the unused capacity of its
factory for $77,000 per year, would your answer to part (a) change? Briefly
explain.

E7-11 Kirk Minerals
processes materials extracted from mines. The most common raw material that it
processes results in three joint products: Spock, Uhura, and Sulu. Each of
these products can be sold as is, or each can be processed further and sold for
a higher price. The company incurs joint costs of $180,000 to process one batch
of the raw material that produces the three joint products. The following cost
and sales information is available for one batch of each product.
Sales Value at Sales
Value of
Split-Off Point Allocated Joint Costs Cost to Process Further Processed

Product
Spock $210,000 $40,000 $110,000 $300,000
Uhura ? 300,000 ?60,000 ? ?85,000 ?400,000
Sulu ?455,000 ?80,000 ?250,000 ?800,000

Instructions
a.
Determine
whether each of the three joint products should be sold as is, or processed
further.

E8-2
Eckert Company is involved in producing and selling high-end golf equipment.
The company has recently been involved in developing various types of laser
guns to measure yardages on the golf course. One small laser gun, called
LittleLaser, appears to have a very large potential market. Because of
competition, Eckert does not believe that it can charge more than $90 for
LittleLaser. At this price, Eckert believes it can sell 100,000 of these laser
guns. Eckert will require an investment of $8,000,000 to manufacture, and the
company wants an ROI of 20%.
Instructions
a.
Determine
the target cost for one LittleLaser.
E8-6 Alma’s Recording
Studio rents studio time to musicians in 2-hour blocks. Each session includes
the use of the studio facilities, a digital recording of the performance, and a
professional music producer/mixer. Anticipated annual volume is 1,000 sessions.
The company has invested $2,352,000 in the studio and expects a return on
investment (ROI) of 20%. Budgeted costs for the coming year are as follows.
Per
Session Total
Direct materials (CDs, etc.) $?20

Direct labor $400

Variable overhead $?50

Fixed overhead $950,000
Variable selling and administrative expenses $?40
Fixed selling and administrative expenses $500,000
Instructions

E8-9 Rey Custom
Electronics (RCE) sells and installs complete security, computer, audio, and
video systems for homes. On newly constructed homes it provides bids using
timeand-material pricing. The following budgeted cost data are available.
Time
Charges Material Loading Charges
Technicians’ wages and benefits $150,000
—
Parts manager’s salary and benefits —
$34,000
Office employee’s salary and benefits ??30,000 ? 15,000
Other overhead ??15,000 42,000
Total budgeted costs $195,000 $91,000

The company has budgeted for 6,250 hours of
technician time during the coming year. It desires a $38 profit margin per hour
of labor and an 80% profit on parts. It estimates the total invoice cost of
parts and materials in 2017 will be $700,000.
Instructions
a.
Compute
the rate charged per hour of labor.
b.
RCE
has just received a request for a bid from Buil Builders on a $1,200,000 new
home. The company estimates that it would require 80 hours of labor and $40,000
of parts. Compute the total estimated bill.