Joleen Harmon, CPA, has two clients. Client A requires 20 hours of partner time and 100 hours of staff time. Client B will use 12 hours of partner time and 80 hours of staff time. Partners are paid $85 an hour and bill support time at 60% of their hourly rate. Staff are paid $25 an hour and bill support time at $20 per billable hour. On a separate sheet of paper, calculate the total charge to each of these clients if profit is added at 20% over cost.
2. The Tijama Manufacturing Company has determined the cost of manufacturing a unit of product to be as follows, based on annual production of 50,000 units per year:
Direct materials $20.00
Direct labor 15.00
Variable factory overhead 10.00
Fixed factory overhead 12.00
Operating statistics for the month of August and September are as follows:
August September
Units produced 4,200 3,500
Units sold 3,500 4,200
Selling and administrative expenses $25,000 $35,000
The selling price is $75 a unit. There were no inventories on August 1, and there is no work in process at September 30. Prepare comparative income statements for each month under both absorption costing
and direct costing.
3. The Donal Company has sales of $800,000, variable costs of $300,000, and fixed costs of $250,000. On a separate sheet of paper, compute the following.
a. Contribution margin ratio
b. Break-even sales volume
c. Margin of safety ratio
d. Net income as a percentage of sales
4.
Devine and O’Clock, architects, have been using a simplified costing system in which all professional labor costs are included in a single direct cost category (professional labor) and all overhead costs are included in a single indirect cost pool (professional support) and allocated to jobs using professional labor hours as the allocation base. Consider two clients: Shank Products, which required 50 hours of design work for a new addition; and Sayers Markets, which required plans for a new store that took 20 hours to draw. The firm has two partners who each earn a salary of $150,000 a year and four associates who each earn $60,000 per year. Each professional has 1,500 billable hours per year. The professional support is $590,000, which consists of $350,000 of design support and $240,000 of staff support. Shank’s job required 30 hours of partner time and 20 hours of associate time. Sayers job required 5 hours of partner time and 15 hours of associate time.
Required:-
1. Prepare job costs sheets for Shank Products and Sayers Markets, using a simplified costing system with one direct and one indirect cost pool.
2. Prepare job costs sheets for the two clients, using an activity-based costing system with two direct cost categories (partner labor and associate labor) and two indirect cost categories (design support and staff support). Use professional labor dollars as the cost allocation base for design support and use professional labor dollars for staff support
5.
Differential analysis.
Made Easy, Inc., manufactures household products such as windows, light fixtures, ladders, and work tables. During the year it produced 10,000 Model 10X windows but only sold 5,000 units at $40 each. The remaining units cannot be sold through normal channels. Cost for inventory purposes on December 31 included the following data on the unsold units:
Materials…………………………………………………………… $10.00
Labor………………………………………………….. 5.00
Variable overhead……………………………………………………. 3.00
Fixed overhead…………………………………………………………. 2.00
Total cost per window $20.00
Made Easy can sell the 5,000 windows at a liquidation price of $20.00 per window, but it will incur a packaging and shipping charge of $6.00 per window.
Required:-
1. Identify the relevant costs and revenue for the liquidation sale alternative. Is Made Easy better off accepting the liquidation price rather than doing nothing?
2. Assume the Model 10X can be reprocessed to another size window, Model 20X, which will require the same amount of labor and overhead as was initially required to produce Model 10X but sells only for $30. Determine the most profitable course of action: liquidate or reprocess
