Group Case 1 Part 1: Schedules of Cost of Goods Manufactured and Cost of Goods Sold; Income Statement Nish Corporation has provided the following data for the month of April: Sales............................................... $220,000 Raw materials purchases ............... $50,000 Direct labor cost ............................ $23,000 Manufacturing overhead cost ........ $59,000 Selling expense.............................. $18,000 Administrative expense ................. $43,000 Inventories: Beginning Ending Raw materials ........ $26,000 $35,000 Work in process..... $18,000 $22,000 Finished goods....... $42,000 $29,000 Required: a. Prepare a Schedule of Cost of Goods Manufactured in good form for April. b. Prepare an Income Statement in good form for April. Part 2: Application of Job Order Costing Scanlon Company has a job-order costing system and applies manufacturing overhead cost to products on the basis of machine-hours. The following estimates were used in preparing the predetermined overhead rate for the most recent year: Machine-hours............................... 95,000 Manufacturing overhead cost ........ $1,710,000 During the most recent year, a severe recession in the company’s industry caused a buildup of inventory in the company’s warehouses. The company’s cost records revealed the following actual cost and operating data for the year: Machine-hours............................................................................. 75,000 Manufacturing overhead cost ...................................................... $1,687,500 Amount of applied overhead in inventories at year-end: Work in process........................................................................ $337,500 Finished goods.......................................................................... $253,125 Amount of applied overhead in cost of goods sold .................. $759,375 Required: a. Compute the company's predetermined overhead rate for the year and the amount of underapplied or overapplied overhead for the year. b. Determine the difference between net operating income for the year if the underapplied or overapplied overhead is allocated to the appropriate accounts rather than closed directly to Cost of Goods Sold. Part 3: Process Costing using Weighted Average Timberline Associates uses the weighted-average method in its process costing system. The following data are for the first processing department for a recent month: Work in process, beginning: Units in process ........................................................ 2,400 Percent complete with respect to materials .............. 75% Percent complete with respect to conversion ........... 50% Costs in the beginning inventory: Materials cost ........................................................... $8,400 Conversion cost ........................................................ $7,200 Units started into production during the month........... 20,800 Units completed and transfer ...

1. Group Case 1
Part 1: Schedules of Cost of Goods Manufactured and Cost of
Goods Sold; Income Statement
Nish Corporation has provided the following data for the month
of April:
Sales...............................................
$220,000
Raw materials purchases ...............
$50,000
Direct labor cost ............................
$23,000
Manufacturing overhead cost ........
$59,000
Selling expense..............................
$18,000
Administrative expense .................
$43,000
Inventories:
Beginning
Ending
Raw materials ........
$26,000
$35,000
Work in process.....
$18,000
$22,000
Finished goods.......
$42,000
$29,000
Required:

2. a. Prepare a Schedule of Cost of Goods Manufactured in good
form for April.
b. Prepare an Income Statement in good form for April.
Part 2: Application of Job Order Costing
Scanlon Company has a job-order costing system and applies
manufacturing overhead cost to products on the basis of
machine-hours. The following estimates were used in preparing
the predetermined overhead rate for the most recent year:
Machine-hours...............................
95,000
Manufacturing overhead cost ........
$1,710,000
During the most recent year, a severe recession in the
company’s industry caused a buildup of inventory in the
company’s warehouses. The company’s cost records revealed
the following actual cost and operating data for the year:
Machine-
hours.............................................................................
75,000
Manufacturing overhead cost
......................................................
$1,687,500
Amount of applied overhead in inventories at year-end:
Work in
process........................................................................
$337,500
Finished
goods..........................................................................
$253,125
Amount of applied overhead in cost of goods sold ..................

3. $759,375
Required:
a. Compute the company's predetermined overhead rate for the
year and the amount of underapplied or overapplied overhead
for the year.
b. Determine the difference between net operating income for
the year if the underapplied or overapplied overhead is allocated
to the appropriate accounts rather than closed directly to Cost of
Goods Sold.
Part 3: Process Costing using Weighted Average
Timberline Associates uses the weighted-average method in its
process costing system. The following data are for the first
processing department for a recent month:
Work in process, beginning:
Units in process ........................................................
2,400
Percent complete with respect to materials ..............
75%
Percent complete with respect to conversion ...........
50%
Costs in the beginning inventory:
Materials cost ...........................................................
$8,400
Conversion cost ........................................................
$7,200
Units started into production during the month...........
20,800
Units completed and transferred out ...........................
22,200
Costs added to production during the month:

4. Materials cost ...........................................................
$97,400
Conversion cost ........................................................
$129,600
Work in process, ending:
Units in process ........................................................
1,000
Percent complete with respect to materials ..............
80%
Percent complete with respect to conversion ...........
60%
Required:
a. Determine the equivalent units of production.
b. Determine the costs per equivalent unit.
c. Determine the cost of ending work in process inventory.
d. Determine the cost of the units transferred to the next
department.
Part 4: Process Costing using First-in-First Out (FIFO)
Crone Corporation uses the FIFO method in its processing
costing system. The following data concern the company's
Assembly Department for the month of October.
Cost in beginning work in process inventory ........
$1,920
Units started and completed this month ................
3,130

5. Materials
Conversion
Cost per equivalent unit.........................................
$9.50
$20.40
Equivalent units required to complete the units in
beginning work in process inventory.................
360
140
Equivalent units in ending work in process
inventory ............................................................
330
264
Required:
Determine the cost of ending work in process inventory and the
cost of units transferred out of the department during October
using the FIFO method.
Part 5: Activity-Based Costing
Welk Manufacturing Corporation has a traditional costing
system in which it applies manufacturing overhead to its
products using a predetermined overhead rate based on direct
labor-hours (DLHs). The company has two products, H16Z and
P25P, about which it has provided the following data:

6. H16Z
P25P
Direct materials per unit ................
$10.20
$50.50
Direct labor per unit ......................
$8.40
$25.20
Direct labor-hours per unit ............
0.40
1.20
Annual production .........................
30,000
10,000
The company’s estimated total manufacturing overhead for the
year is $1,464,480 and the company’s estimated total direct
labor-hours for the year is 24,000.
The company is considering using a variation of activity-based
costing to determine its unit product costs for external reports.
Data for this proposed activity-based costing system appear
below:
Activities and Activity Measures
Estimated Overhead Cost
Supporting direct labor (DLHs) .................
$ 552,000
Setting up machines (setups) .....................
132,480
Parts administration (part types) ................
780,000
Total ...........................................................
$1,464,480

7. H16Z
P25P
Total
Supporting direct labor ......
12,000
12,000
24,000
Setting up machines ...........
864
240
1,104
Parts administration ...........
600
960
1,560
Required:
a. Determine the manufacturing overhead cost per unit of each
of the company's two products under the traditional costing
system.
b. Determine the manufacturing overhead cost per unit of each
of the company's two products under activity-based costing
system.

8. Part 6: Fixed and Variable Cost
Stuart Manufacturing produces metal picture frames. The
company's income statements for the last two years are given
below:
Last year
This year
Units sold...................................................
50,000
70,000
Sales...........................................................
$800,000
$1,120,000
Cost of goods sold .....................................
550,000
710,000
Gross margin .............................................
250,000
410,000
Selling and administrative expense ...........
150,000
190,000
Net operating income ................................
$100,000
$ 220,000
The company has no beginning or ending inventories.
Required:

9. a. Estimate the company's total variable cost per unit and its
total fixed costs per year. (Remember that this is a
manufacturing firm.)
b. Compute the company's contribution margin for this year.
Part 7: Cost-Volume-Profit Analysis
Belli-Pitt, Inc, produces a single product. The results of the
company's operations for a typical month are summarized in
contribution format as follows:
Sales...................................
$540,000
Variable expenses..............
360,000
Contribution margin ..........
180,000
Fixed expenses ..................
120,000
Net operating income ........
$ 60,000
The company produced and sold 120,000 kilograms of product
during the month. There were no beginning or ending
inventories.
Required:
a. Given the present situation, compute
1. The break-even sales in kilograms.
2. The break-even sales in dollars.
3. The sales in kilograms that would be required to produce net

10. operating income of
$90,000.
4. The margin of safety in dollars.
b. An important part of processing is performed by a machine
that is currently being leased for
$20,000 per month. Belli-Pitt has been offered an arrangement
whereby it would pay $0.10 royalty per kilogram processed by
the machine rather than the monthly lease.
1. Should the company choose the lease or the royalty plan?
2. Under the royalty plan compute break-even point in
kilograms.
3. Under the royalty plan compute break-even point in dollars.
4. Under the royalty plan determine the sales in kilograms that
would be required to produce net operating income of $90,000.
Part 8: Relevant Cost/Special Order
Gottshall Inc. makes a range of products. The company's
predetermined overhead rate is $19 per direct labor-hour, which
was calculated using the following budgeted data:
Variable manufacturing overhead .......
$225,000
Fixed manufacturing overhead ............
$630,000
Direct labor-hours................................
45,000
Component P0 is used in one of the company’s products. The
unit cost of the component according to the company’s cost
accounting system is determined as follows:
Direct materials .........................................
$21.00

11. Direct labor................................................
40.80
Manufacturing overhead applied...............
32.30
Unit product cost .......................................
$94.10
An outside supplier has offered to supply component P0 for $78
each. The outside supplier is known for quality and reliability.
Assume that direct labor is a variable cost, variable
manufacturing overhead is really driven by direct labor-hours,
and total fixed manufacturing overhead would not be affected
by this decision. Gottshall chronically has idle capacity.
Required:
Is the offer from the outside supplier financially attractive?
Why?
Part 9: Relevant Cost/Make or Buy Decision
Part U67 is used in one of Broce Corporation's products. The
company's Accounting Department reports the following costs
of producing the 7,000 units of the part that are needed every
year.
Per Unit
Direct materials..........................................
$8.70
Direct labor ................................................
$2.70
Variable overhead ......................................
$3.30
Supervisor’s salary.....................................

12. $1.90
Depreciation of special equipment ............
$1.80
Allocated general overhead........................
$5.50
An outside supplier has offered to make the part and sell it to
the company for $21.40 each. If this offer is accepted, the
supervisor's salary and all of the variable costs, including direct
labor, can be avoided. The special equipment used to make the
part was purchased many years ago and has no salvage value or
other use. The allocated general overhead represents fixed costs
of the entire company. If the outside supplier's offer were
accepted, only $6,000 of these allocated general overhead costs
would be avoided.
Required:
a. Prepare a report that shows the effect on the company's total
net operating income of buying part U67 from the supplier
rather than continuing to make it inside the company.
b. Which alternative should the company choose?
Part 10: Relevant Cost/Sell or Process Further
Farrugia Corporation produces two intermediate products, A and
B, from a common input. Intermediate product A can be further
processed into end product X. Intermediate product B can be
further processed into end product Y. The common input is
purchased in batches that cost $36 each and the cost of
processing a batch to produce intermediate products A and B is
$15. Intermediate product A can be sold as is for $21 or
processed further for $14 to make end product X that is sold for
$32. Intermediate product B can be sold as is for $44 or

13. processed further for $28 to make end product Y that is sold for
$64.
Required:
a. Assuming that no other costs are involved in processing
potatoes or in selling products, how much money does the
company make from processing one batch of the common input
into the end products X and Y? Show your work!
b. Should each of the intermediate products, A and B, be sold as
is or processed further into an end product? Explain.

14. Part 11: Relevant Cost/Dropping a Product
The management of Woznick Corporation has been concerned
for some time with the financial performance of its product
V86O and has considered discontinuing it on several occasions.
Data from the company's accounting system appear below:
Sales ................................................................
$150,000
Variable expenses............................................
$72,000
Fixed manufacturing expenses ........................
$50,000
Fixed selling and administrative expenses ......
$33,000
In the company's accounting system all fixed expenses of the
company are fully allocated to products. Further investigation
has revealed that $30,000 of the fixed manufacturing expenses
and $13,000 of the fixed selling and administrative expenses are
avoidable if product V86O is discontinued.
A. According to the company's accounting system, what is the
net operating income earned by product V86O?
B. What would be the effect on the company's overall net
operating income if product V86O were dropped?

15. Part 12: Capital Budgeting Decisions
Chee Company has gathered the following data on a proposed
investment project:
Investment required in equipment.............
$240,000

16. Annual cash inflows ..................................
$50,000
Salvage value ............................................
$0
Life of the investment ...............................
8 years
Required rate of return ..............................
10%
Assets will be depreciated using straight
line depreciation method
Required:
Using the net present value and the internal rate of return
methods, is this a good investment?
Part 13: Master Budget
You have just been hired as a new management trainee by
Earrings Unlimited, a distributor of earrings to various retail
outlets located in shopping malls across the country. In the past,
the company has done very little in the way of budgeting and at
certain times of the year has experienced a shortage of cash.
Since you are well trained in budgeting, you have decided to
prepare a master budget for the upcoming second quarter. To
this end, you have worked with accounting and other areas to
gather the information assembled below.
The company sells many styles of earrings, but all are sold for
the same price—$10 per pair. Actual sales of earrings for the
last three months and budgeted sales for the next six months
follow (in pairs of earrings):
January (actual)

17. 20,000
June (budget)
50,000
February (actual)
26,000
July (budget)
30,000
March (actual)
40,000
August (budget)
28,000
April (budget)
65,000
September (budget)
25,000
May (budget)
100,000
The concentration of sales before and during May is due to
Mother’s Day. Sufficient inventory should be on hand at the end
of each month to supply 40% of the earrings sold in the
following month.
Suppliers are paid $4 for a pair of earrings. One-half of a
month’s purchases is paid for in the month of purchase; the
other half is paid for in the following month. All sales are on
credit. Only 20% of a month’s sales are collected in the month
of sale. An additional 70% is collected in the following month,
and the remaining 10% is collected in the second month
following sale. Bad debts have been negligible.
Monthly operating expenses for the company are given below:

18. Variable:
Sales commissions 4% of sales Fixed:
Advertising
$ 200,000
Rent
$ 18,000
Salaries
$ 106,000
Utilities
$ 7,000
Insurance
$ 3,000
Depreciation
$ 14,000
Insurance is paid on an annual basis, in November of each year.
The company plans to purchase $16,000 in new equipment
during May and $40,000 in new equipment during June; both
purchases will be for cash. The company declares dividends of
$15,000 each quarter, payable in the first month of the
following quarter. The company’s balance sheet as of March 31
is given below:
Assets
Cash
$
74,000
Accounts receivable ($26,000 February sales; $320,000 March
sales)
346,000

19. Inventory
104,000
Prepaid insurance
21,000
Property and equipment (net)
950,000
Total assets
$
1,495,000
Liabilities and Stockholders’ Equity
Accounts payable
$
100,000
Dividends payable
15,000
Common stock
800,000
Retained earnings
580,000
Total liabilities and stockholders’ equity
$
1,495,000
The company maintains a minimum cash balance of $50,000.
All borrowing is done at the beginning of a month; any
repayments are made at the end of a month.
The company has an agreement with a bank that allows the

20. company to borrow in increments of
$1,000 at the beginning of each month. The interest rate on
these loans is 1% per month and for simplicity we will assume
that interest is not compounded. At the end of the quarter, the
company would pay the bank all of the accumulated interest on
the loan and as much of the loan as possible (in increments of
$1,000), while still retaining at least $50,000 in cash.
Required:
Prepare a master budget for the three-month period ending June
30. Include the following detailed schedules:
1. a. A sales budget, by month and in total.
b. A schedule of expected cash collections, by month and in
total.
c. A merchandise purchases budget in units and in dollars. Show
the budget by month and in total.
d. A schedule of expected cash disbursements for merchandise
purchases, by month and in total.
2. A cash budget. Show the budget by month and in total.
Determine any borrowing that would be needed to maintain the
minimum cash balance of $50,000.
3. A budgeted income statement for the three-month period
ending June 30. Use the contribution approach.
4. A budgeted balance sheet as of June 30.
Part 14: Variance Analysis for Decision Making
Bronfenbrenner Co. uses a standard cost system for its single

21. product in which variable overhead is applied on the basis of
direct labor hours. The following information is given:
Standard costs per unit:
Raw materials (1.5 grams at $16 per gram) ............................
$24.00
Direct labor (0.75 hours at $8 per hour)..................................
$6.00
Variable overhead (0.75 hours at $3 per hour)........................
$2.25
Actual experience for current year:
Units produced
........................................................................
22,400 units
Purchases of raw materials (21,000 grams at $17 per gram) ..
$357,000
Raw materials used..................................................................
33,400 grams
Direct labor (16,750 hours at $8 per hour)..............................
$134,000
Variable overhead cost incurred..............................................
$48,575
Required:
Compute the following variances for raw materials, direct labor,
and variable overhead, assuming that the price variance for
materials is recognized at point of purchase:
a. Direct materials price variance.
b. Direct materials quantity variance.

22. c. Direct labor rate variance.
d. Direct labor efficiency variance.
e. Variable overhead spending variance.
f. Variable overhead efficiency variance.
g. As a manager, why is variance analysis important?
Part 15: Evaluation of Decentralized Organizations
The Clipper Corporation had net operating income of $380,000
and average operating assets of
$2,000,000. The corporation requires a return on investment of
18%.
Required:
a. Calculate the company's return on investment (ROI) and
residual income (RI).
b. Clipper Corporation is considering an investment of $70,000
in a project that will generate annual net operating income of
$12,950. Would it be in the best interests of the company to
make this investment?
c. Clipper Corporation is considering an investment of $70,000
in a project that will generate annual net operating income of
$12,950. If the division planning to make the investment
currently has a return on investment of 20% and its manager is
evaluated based on the division's ROI, will the division manager
be inclined to request funds to make this investment?
d. Clipper Corporation is considering an investment of $70,000
in a project that will generate annual net operating income of
$12,950. If the division planning to make the investment
currently has a residual income of $50,000 and its manager is
evaluated based on the division's residual income, will the
division manager be inclined to request funds to make this
investment?

23. Part 16: Preparing Statement of Cash Flows
Boscia Corporation's balance sheet appears below:
Comparative Balance Sheet
Ending
Balance
Beginning
Balance
Assets:
Cash and cash equivalents .........................
$ 44
$ 38
Accounts receivable ..................................
82
69
Inventory ...................................................
71
69
Plant and equipment ..................................
537
500
Accumulated depreciation .........................
( 240)
( 201)
Total assets ................................................
$494
$475
Liabilities and stockholders’ equity:

24. Accounts payable ......................................
$ 70
$ 60
Wages payable...........................................
24
21
Taxes payable ............................................
19
22
Bonds payable ...........................................
226
300
Deferred taxes............................................
19
18
Common stock...........................................
22
20
Retained earnings ......................................
114
34
Total liabilities and stockholders’ equity ..
$494
$475
The net income for the year was $108. Cash dividends were
$28. Required:
Prepare a statement of cash flows in good form using the
indirect method.