RMI 2101 Fall 2016 Homework Assignment 7 28 Points.docx

RMI 2101
Fall 2016
Homework Assignment 7
28 Points
Due on Wednesday, November 2, 2016 AT THE BEGINNING
OF CLASS
1. Manaca Company owns a small office building worth
$100,000. Art Vandelay is the risk
manager. Manaca faces the risk of fire which would completely
destroy their building.
The probability of a fire is known to be 5%.
Manaca is considering the following risk management options to
address the risk of fire
to their building:
[1] Retention
[2] Full Insurance for a premium of $4,000
[3] Safety Program + Retention

[4] Safety Program + Full Insurance [premium falls to $3,000]
The cost of the Safety Program is $600. It has the impact of
lowering the probability of a
fire from 5% to 3%. However, if a fire does occur it is still a
total loss.
a. Construct a loss matrix. [4 point]
b. What is the actuarially fair premium [AFP] in this case? [1
point]
c. What is the AFP when safety is introduced? [2 points]
Assume Art’s worry value for retention (WVR) is $2,000 and
for retention and safety
(WVRS) is $1,200.
d. If Art decides to minimize TOTAL COST, what risk
management option does he
choose? Make sure that you show all calculations and clearly
define TOTAL
COST in each case. [4 points]
e. What is Art’s PMAX for full insurance? [1 point]

f. During a meeting, the Chief Risk Officer (CRO) told Art that
the most he would
pay for full insurance is $7,500. What is the CRO’s WVR? [1
point]
g. Who is more risk averse, the CRO or Art? Explain. [2 points]
2. Kramerica Company has a small plant worth $60,000. The
plant is subject to physical
damages and total destruction as a result of fire.
From over 10,000 industry observations, the firm has derived
the following probability
distribution of fire losses for its physical plant.
Loss Amount ($) Probability of Loss
0 0.4
20,000 0.3
40,000 0.2
60,000 ?
Kramerica is considering the following risk management

options:
[1] Retention
[2] Partial insurance - Face Amount = $50,000; Premium =
$1,200
[3] Deductible insurance - Face Amount = $60,000; Deductible
per occurrence =
$800; Premium = $1,500
[4] Full insurance - Face Amount = $60,000; Premium = $7,000
a. Construct the loss matrix. [4 points]
b. Assume that the firm decides to choose a risk management
alternative without
including valuation for subjective risk. What risk management
option is chosen?
Show all work and calculations. [4 points]
c. What worry value(s) would make full insurance preferred to
partial insurance?
Show all work and calculations and explain your numerical
answer. [2 points]
d. What worry value(s) would make deductible insurance

preferred to partial
insurance? Show all work and calculations and explain your
numerical answer.
[3 points]
Assignment # 3
Fryer’s Choice produces a specially blended vegetable oil
widely used in restaurant deep fryers. The blending process
creates a cooking oil that can be heated to a high temperature,
but does not smoke or smell. The oil is produced in two
departments: Blending and Bottling. Raw materials are
introduced at various points in the Blending Department.
The following incomplete Work in Process T-account is
available for the Blending Department for March:
Work in Process—Blending
March 1 balance (20,000 litres;
materials 100% complete; labour
and overhead 90% complete)
$38,000
Completed and transferred to
Bottling ( ? litres)
$???
March costs added:

Oils (390,000 litres)
495,000
Direct labour
72,000
Overhead
181,000
March 31 inventory (40,000 litres;
materials 75% complete, labour and
overhead 25% complete)
$???

The March 1 beginning inventory in the Blending Department
consists of the following cost elements: raw materials, $25,000;
direct labour, $4,000; and overhead, $9,000.
Costs incurred during March in the Bottling Department
were materials used, $115,000; direct labour, $18,000; and
overhead cost applied to production, $42,000. The company
uses the weighted-average method in its process costing.
Required:
1.
Prepare journal entries to record the cost incurred in both the
Blending Department and the Bottling Department during
March. Key your entries to the items (a) through (f) below:
a.
Raw materials were issued for use in production
b.
Direct labour costs were incurred.
c.
Manufacturing overhead costs for the entire factory were
incurred: $225,000. (Hint: Credit Accounts Payable.)
d.
Manufacturing overhead cost was applied to production using a
predetermined overhead rate.
e.
Units that were complete with respect to processing in the
Bottling Department were transferred to finished goods:
$950,000.

f.
Completed units were sold on account: $1,500,000. The cost of
goods sold was $890,000.
2.
Post the journal entries from requirement 1 above to T-
accounts. The following account balances existed at the
beginning of March. (Note: The beginning balance in the
Blending Department’s Work in Process account is given
above.)
Raw materials
$
681,000
Work in Process—Bottling Department
$
65,000
Finished Goods
$
20,000
After posting the entries to the T-accounts, find the ending
balance in the inventory accounts and the manufacturing
overhead accounts.
Work in Process – Bottling Department Work in Process-
Blending Depart.

Beg. Balance Beg. Balance
Ending Balance Ending Balance
Manufacturing Overhead Finished Goods
Ending Balance Ending Balance
Raw Materials Accounts Payable
Beg. Beg. Balance
balance
Ending Ending Balance
Balance
Salaries and Wages Payable Sales
Ending. Balance Ending Balance
Accounts Receivable Cost of Goods Sold
Beg.Bala Beg. Balance
Ending. Balance Ending. Balance

3.
Prepare a production report for the Blending Department for
March. (Round "Cost per equivalent unit" answers to 2 decimal
places.)
Equivalent Units
Material
Labour
Overhead
Units accounted as follows
Transferred to Bottling:
Work in Process March 31
Total Units and equivalent units of production

Costs per equivalent units
Total Costs
Material
Labour
Overhead
Cost to be accounted for:
Work in process March 1
Cost added by bleding department
Total costs
Equivalent units of production

Cost per equivalent units
4.- Prepare the journal entry to record the transfer of finished
goods from the Blending Department to the Bottling Department
and post to the appropriate T-accounts prepared in requirement
2 above.
Record the entry to transfer of finished goods from the Blending
Department to the Bottling Department
I need with explanation in the calculations
Assignment # 2
Zap Rap Inc. is a manufacturer of audio CDs. The company’s
chief financial officer is trying to verify the accuracy of the
December 31 work in process and finished goods inventories
prior to closing the books for the year. He strongly suspects that
the year-end dollar balances are incorrect, but he believes that
all the other data are accurate. The year-end balances shown on
Zap Rap’s books are as follows:
Units
Costs
Work in process, December 31 (materials 100% complete;
conversion 50% complete)
43,600

$
121,294
Finished goods, December 31
57,900
$
193,797
There were no finished goods inventories at the beginning of
the year. The company uses the weighted-average method of
process costing. There is only one processing department.
A review of the company’s inventory and cost records has
disclosed the following data:
Costs
Units
Materials
Conversion
Work in process, January 1 (materials 100% complete;
conversion 80% complete)
34,400
$

48,160
$
49,192
Started into production
810,000
Costs added during the year
$
1,134,000
$
1,620,686
Units completed during the year
800,800

Required:
1.
Determine the equivalent units and the costs per equivalent unit
for materials and conversion for the year. (Round your "Cost
per equivalent unit" answers to 2 decimal places.)
Materials
Conversion
2.
Determine the amount of cost that should be assigned to the
ending work in process and finished goods inventories.
Materials
Conversion
Totals
Cost of ending work in process inventory
Costs of finished goods inventory
3.

Prepare the necessary correcting journal entry to adjust the
work in process and finished goods inventories to the correct
balances as of December 31. (Round intermediate calculations
to 2 decimal places.)
Record the entry to adjust the work in process and finished
goods inventories
4.
Determine the cost of goods sold for the year, assuming that
there is no underapplied or overapplied overhead.
Cost of Goods Sold: __________________
I need with explanation in the calculations
Assignment # 1
The WireOne Company manufactures high-quality coated
electrical wire in two departments, Weaving and Coating.
Materials are introduced at various points during work in the
Weaving Department. After the weaving is completed, the
materials are transferred into the Coating Department, where
specialty plastic coating is applied.
Selected data relating to the Weaving Department during May
are given below:
Production data:
Kilograms in process, May 1(materials 100%

complete; conversion 80% complete)
109,000
Kilograms started into production during May
461,000
Kilograms completed and transferred to Coating
?
Kilograms in process, May 31(materials 65%
complete; conversion 30% complete)
72,000
Cost data:
Work in process inventory, May 1:
Materials cost
$
106,820
Conversion cost
$
98,100
Cost added during May:

Materials cost
$
868,372
Conversion cost
$
390,324
The company uses the weighted-average method.
Required:
1.
Compute the equivalent units of production.
Material =
Conversion =
2.
Compute the costs per equivalent unit for May
Material
Conversion

3.
Determine the cost of ending work in process inventory and of
the units transferred to the Coating Department. (Round
intermediate calculations to 2 decimal places, and final answers
to the nearest whole dollar.)
Material
Conversion
Total
Cost of ending work in process inventory
Cost of units completed and transferred out
4.
Prepare a cost reconciliation between the costs determined in
(3) above and the cost of beginning inventory and costs added
during the period. (Round intermediate calculations to 2
decimal places, and final answers to the nearest whole dollar.)
Cost Reconciliation
Cost to be accounted for:
Cost of beginning work in process inventory:
___________________
Costs added to production during the period:
____________________
Total Costs:

____________________
____________________
Costs accounted as follows:
Transferred to the coating department:
____________________
Work in Process May 31
Materials:
____________________
Conversion:
____________________
Total Costs:
____________________
I need with explanation in the calculations.

RMI 2101 Fall 2016 Homework Assignment 7 28 Points.docx

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RMI 2101 Fall 2016 Homework Assignment 7 28 Points.docx