Cost of Goods Manufactured Statement BB Materials Inventory + Materials Purchased - EB Material Inventory = Material Used

$ $ $

6,000.00 7,000.00 ($1,000.00) 12,000.00

Prime Cost = direct materia Materials Used + Direct Labor + Manufacturing Overhead Indirect Labor Indirect Materials Utilities Depreciation exp + BB Work in Process - EB Work in Process = Cost of Goods Manufactured Income Statement BB Finished Goods + Cost of goods Manufactored - EB Finished Goods = Cost of Goods Sold Sales - Cost of Goods Sold = Gross (Margin/Profit) Sales - Cost of Goods Sold - Operating Expenses = Net Income $ $ $ $ $ $ $ $ 5,000.00 600.00 500.00 1,900.00 3,500.00 800.00 (3,000.00) 21,300.00 Cost of goods available

$ $ $ $ $ $ $ $ $ $

4,000.00 21,300.00 (5,300.00) 20,000.00 31,800.00 (20,000.00) 11,800.00 31,800.00 (20,000.00) 11,800.00

BB Finished Goods Manufactured is offten Called available for Sale.

Shedule of Cost of Goods Manufactured Direct materials: Raw materials inventory, beginning Add: Purchases of raw materials Raw materials available for use Deduct: Raw materials inventory, ending Raw materials used in production Direct Labor Manufacturing overhead Total manufacturing cost Add: Work in process inventory, beginning Sub total Deduct: Work in process inventory, ending Cost fo goods manufactured

Prime Cost = direct materials + direct labor

Cost of goods available for sale Income Statement Sales Cost of Goods Sold: Finished goods inventory, beginning Add: Cost of goods manufactured Goods availabel for sale Finished goods inventory, ending Gross Margin Selling & Admin Expenses Selling Expense Administrative Expenses Net Income

B Finished Goods + Cost of Goods Manufactured is offten Called Goods vailable for Sale.

$

6,000.00 7,000.00 13,000.00 (1,000.00) 12,000.00 5,000.00 6,500.00 23,500.00 800.00 24,300.00 (3,000.00) 21,300.00

$ $ $ $ $ 4,000.00 21,300.00 25,300.00 (5,300.00) $ $

31,800.00

20,000.00 11,800.00

$ $

11,800.00

Top Switch Inc. designs and manufactures switches used in telecommunication throughout the state of Tennessee affected Top Switchs facilities. Inventory w ruined, and the companys computer system, including all accounting records, Before the unfortunate incident, recovery specialists cleaned the buildings. The controller is very nervous and anxious to recover whatever records he can to su insurance claim for the destroyed inventory. After consulting with the cost acco decide to retrieve the previous years annual report for the beginning iThe cost working on the first quarter results before the storm hit, and to his surprise, th his desk drawer. After reviewing the data , the information shows the following Material purchases were $ 325,000; Direct Labor was $ 220,000 the controller and the cost accountant revealed that sales were $ 1,350,000 was 30% of sales. The cost accountant also discovered, while sifting through th cost of goods available for sale was $ 1,020,000 at cost. While assessing the da controller determined that the prime costs were $ 545,000 that manufacturing overhead is 65% of conversion cost. The cost accountant i of this, but he decides to see what he can do with the information. Inventory n addition, they also agreed that they need first quarter cost data. numbers are as follows: Raw Materials, $ 41,000 Work in Process, $ 56,000 Finished Goods, $ 35,000 Required: Determine the amount of cost in the Raw Materials, Work in Process, and Finis Inventory as of the date of the storm. ( Hint: You may wish to reconstruct the v and statements that would have been affected by the companys accounts dur

itches used in telecommunications. Serious flooding op Switchs facilities. Inventory was completely , including all accounting records, was destroyed. ecialists cleaned the buildings. The company over whatever records he can to support the After consulting with the cost accountant, they report for the beginning iThe cost accountant was e storm hit, and to his surprise, the report was still in e information shows the following information: abor was $ 220,000. Further discussions between sales were $ 1,350,000 and the gross margin iscovered, while sifting through the information, that 000 at cost. While assessing the damage, the were $ 545,000 up to the time of the damage and ersion cost. The cost accountant is not sure about all with the information. Inventory numbers. In t quarter cost data. The beginning inventory

aterials, Work in Process, and Finished Goods You may wish to reconstruct the various schedules ed by the companys accounts during the period.)

Which costs will change with a decrease in activity within the r

An increase in the activity level within the relevant range results in

decrease in activity within the relevant range?

Unit fixed cost and total variable cost.

thin the relevant range results in:

A decrease in fixed cost per unit

Assumptions Sales Variable selling expense Fixed Selling expense Cost of Goods Sold (variable) Fixed Admin expense Variable Admin expense

350,000 35,000 96,000 160,000 55,000 15,000

Sales Less: Variable Expenses: BB Inventory VC CoGS VC S & A exp Contribution Margin Less: Fixed expenses: Fixed Mfg OH Fixed S & A Net Operating Income

0 160,000 50,000

350,000

Sales VC CoGS GM

350,000 (160,000) 190,000

(210000) 140,000 (70,000) 70,000

Units produced Units sold Selling price $

3,000 70.00

Sales Less: Variable Expenses: BB Inventory 0 VC CoGS 150,000 VC S & A exp Contribution Margin Less: Fixed expenses: Fixed Mfg OH Fixed S & A Net Operating Income

210,000

(150000) 60,000 (25,000) 35,000

VC DMC DLC VMfgOH V S&A 50 0 0 0

FC 25,000 -

Total VC

50 3,000 150,000

25,000 Total FC

Assumptions Variable cost per unit: Manufacturing: DMC DLC VMfgOH V S& A Fixed Cost per year FMfgOH F S& A Sales (VC) CM (FC) NI

50 0 0 0

25,000 210,000 (150,000) 60,000 (25,000) 35,000

Change in NI

31,875

Decrease Increase

25% 15% $31,875.00

Units sold Selling price

2,250 $ 70.00 $

80.50

Sales Less: Variable Expenses: BB Inventory 0 VC CoGS 129,375 VC S & A exp Contribution Margin Less: Fixed expenses: Fixed Mfg OH Fixed S & A Net Operating Income

157,500

(129375) 28,125 (25,000) 3,125

Assumptions Variable cost per unit: Manufacturing: DMC DLC VMfgOH V S& A Fixed Cost per year FMfgOH F S& A Sales (VC) CM (FC) NI

VC DMC DLC VMfgOH V S&A 57.5 0 0 0

FC 25,000 -

Total VC

57.5 2,250 129,375

25,000 Total FC

ssumptions

57.5 0 0 0

25,000 157,500 (129,375) 28,125 (25,000) 3,125

Sales Forcast: VC DM DL FOH Selling Exp Admin Exp Total

6,000,000 FC 1,600,000 1,400,000 600,000 240,000 60,000 3,900,000

900,000 360,000 140,000 1,400,000

=

4,000,000

=

=

0.35

Sales revenues - Variable costs- Fixed Cost = Net Income CM = Sales revenues - variable cost CM Ratio = (Sales revenues - Variable cost)/Sales revenues CM=((Sales revenues-Variable cost)/Sales revenues)*Sales revenues (CM Ratio*Sales revenues)-Fixed cost= Net Income

CM Ratio = ($6,000,000-$3,900,000)/$6,000,000 CM Ratio = $2,100,000/$6,000,000 CM Ratio = .35 Break-even point in sales dollars = $1,400,000/.35 Break-even point in sales dollars = $4,000,000 (Answer C)

2,100,000 0.35 2,100,000 -

Time Month

Assumptions Units Start Units increment Unit Price Unit Variable Cost Total Fixed Costs 9000 500 $20 $7.00 $ 130,000

Units 9000 9500 10000 10500 11000 11500 12000 12500 13000 13500 14000 14500 15000

Sales Variable Cost $180,000 $63,000 $190,000 $66,500 $200,000 $70,000 $210,000 $73,500 $220,000 $77,000 $230,000 $80,500 $240,000 $84,000 $250,000 $87,500 $260,000 $91,000 $270,000 $94,500 $280,000 $98,000 $290,000 $101,500 $300,000 $105,000

Contributi on Margin $117,000 $123,500 $130,000 $136,500 $143,000 $149,500 $156,000 $162,500 $169,000 $175,500 $182,000 $188,500 $195,000

Fixed Total Costs $130,000 $193,000 $130,000 $196,500 $130,000 $200,000 $130,000 $203,500 $130,000 $207,000 $130,000 $210,500 $130,000 $214,000 $130,000 $217,500 $130,000 $221,000 $130,000 $224,500 $130,000 $228,000 $130,000 $231,500 $130,000 $235,000

Net Income ($13,000) ($6,500) $0 $6,500 $13,000 $19,500 $26,000 $32,500 $39,000 $45,500 $52,000 $58,500 $65,000

Break Even Break Even Revenue Label 10,000 $200,000.00 Breakeven Units approx =10000

Asumptions Sales Units Mfg VC Mfg FC S & A VC S & A FC

1,000,000 50,000 340,000 70,000 10,000 60,000

Assumptions Unit Price CM Ratio Fixed Exp Variable Expence per unit Variable Expence per unit Variable Expence per unit = = = 60.00 - (60.00*40%) 60.00 24.00 36.00

=

60.00 40% 28,800

Time Month

Assumptions Units Start Units increment Unit Price Unit Variable Cost Total Fixed Costs 9000 500 60.00 36.00 $ 28,800

Units 9000 9500 10000 10500 11000 11500 12000 12500 13000 13500 14000 14500 15000

Sales Variable Cost $540,000 $324,000 $570,000 $342,000 $600,000 $360,000 $630,000 $378,000 $660,000 $396,000 $690,000 $414,000 $720,000 $432,000 $750,000 $450,000 $780,000 $468,000 $810,000 $486,000 $840,000 $504,000 $870,000 $522,000 $900,000 $540,000

Contributi on Margin Fixed Total Costs $216,000 $28,800 $352,800 $228,000 $28,800 $370,800 $240,000 $28,800 $388,800 $252,000 $28,800 $406,800 $264,000 $28,800 $424,800 $276,000 $28,800 $442,800 $288,000 $28,800 $460,800 $300,000 $28,800 $478,800 $312,000 $28,800 $496,800 $324,000 $28,800 $514,800 $336,000 $28,800 $532,800 $348,000 $28,800 $550,800 $360,000 $28,800 $568,800

Net Income $187,200 $199,200 $211,200 $223,200 $235,200 $247,200 $259,200 $271,200 $283,200 $295,200 $307,200 $319,200 $331,200

Break Break Even Even Revenue Label 1200 $72,000.00 Breakeven Units approx =1200

Assumptions Unit Price Unit Variable Cost Fixed Cost

60.00 36.00 28,800

Transfered from previous page

Asumptions Sales Units Mfg VC Mfg FC S & A VC S & A FC

-

A B C D

An allocated protion of fixed manufacturing overhead is included in product cost under: Absorption Costing Variable Costing NO NO NO Yes Yes NO Yes Yes

ABSORPTION COSTING A costing method that includes all manufacturing costsdirect materials, direct labor, and both variable and fixed

VARIABLE COSTING A costing method that includes only variable manufacturing costsdirect materials, direct labor, and variable man

product cost under:

labor, and both variable and fixed manufacturing overheadin unit product costs.

ials, direct labor, and variable manufacturing overheadin unit product costs.

Unit product cost using variable costingUnits produced Units sold Selling price DMC DLC Variable Mfg OH Unit product cost VC 13 55 1 5 FC 130,500 8,300 13 55 1 69 Unit product cost using variable costing = increase or decrease

Total VC

74 8,300 614,200

138,800 Total FC year 12 11,567.00 per month

Unit product cost using Absorption CostingUnits produced Units sold Selling price DMC DLC Variable Mfg OH FC OH Unit product cost VC 13 55 1 5 FC 130,500 8,300 13 55 1 15 84 Unit product cost using absorption costing = increase or decrease

Total VC

74 8,300 614,200

138,800 Total FC year 12 11,567.00 per month

8,700 8,300 $ 92.00 Sales Less: Variable Expenses: BB Inventory VC CoGS VC S & A exp Contribution Margin Less: Fixed expenses: Fixed Mfg OH Fixed S & A Net Operating Income 763,600 0 572,700 41,500

Units produced Units sold Selling price

(614200) 149,400 (130,500) (8,300) 10,600

decrease

VC DMC DLC VMfgOH V S&A 13 55 1 5

FC 130,500 8,300

74 8,300 Total VC 614,200

138,800 Total FC

8,700 8,300 $ 92.00

Units produced Units sold Selling price

$

8,700 8,300 92.00

decrease

Sales Less: Variable Expenses: BB Inventory CoGM CoG Available for Sale Less: EB Inventory GM Selling & Admin exp Net Operating Income

763,600 0 730,800 730,800 (33,600)

(697,200) 66,400 (49,800) 16,600

VC DMC DLC VMfgOH OH Mfg Cost 13 55 1 15

FC 130,500 8,300

Unit Product cost Total VC Sales (VC) CM (FC) NI

84 8,300 697,200

138,800 Total FC

763,600 (697,200) 66,400 (49,800) 16,600

8,700 8,300 $ 92.00 Assumptions Variable cost per unit: Manufacturing: DMC DLC VMfgOH V S& A Fixed Cost per year FMfgOH F S& A Sales (VC) CM (FC) NI

13 55 1 5

130,500 8,300 763,600 (614,200) 149,400 (138,800) 10,600

Assumptions Variable cost per unit: Manufacturing: DMC DLC VMfgOH V S& A Fixed Cost per year

13 55 1 5

FMfgOH F S& A Units Produced Units Sold Selling Price

130,500 8,300 8700 8300 92.00

Assumptions ROI Required ROI Investment Selling and Admin Exp Unit product cost Unit sales

0% 49,800 84 8,300

Markup percentage on absorption cost

7%

Current 1st after 2nd after 3rd after uncollect

30% 60% 8% 0% 0%

Jan Feb Mar Apr 100,000 120,000 110,000

May -

Jun -

Jul -

Jan Feb Mar Apr May Jun 30,000 36,000 33,000 60,000 72,000 66,000 8,000 9,600 8,800 30,000 96,000 113,000 75,600 8,800

Jul -

Aug -

Sep -

Oct

Nov

Dec

Aug -

Sep -

Oct -

Nov -

Dec -

A) B) C) D)

A labor efficiency variance resulting from the use of poor quality materials should be ch the production manager. the purchasing agent. manufacturing overhead. the engineering department.

A) B) C) D)

An unfavorable labor efficiency variance indicates that: The actual labor rate was higher than the standard labor rate. The labor rate variance must also be unfavorable. Actual labor hours worked exceeded standard labor hours for the production level achie Overtime labor was used during the period.

A) B) C) D)

A favorable labor rate variance indicates that actual hours exceed standard hours. standard hours exceed actual hours. the actual rate exceeds the standard rate. the standard rate exceeds the actual rate.

or quality materials should be charged to:

rs for the production level achieved.

Assumptions Standard Quanity Direct material Direct labor Variable Mfg OH Unit Production Direct materials purchased Direct labor worked Variable Mfg OH incurred EB Inventory of Direct materials Materials Price Variance 4,000 85,000 390 3,000 AP= SP= MPV= 0.38 0.40 -1700 Display as positive number 20 0.1 0.1 Cost 32,300.00 4,875.00 1,475.00 Standard Cost per Bag 8.00 1.10 0.40

Materials Quanity Variance

AQ= SQ= MQV=

82,000 80,000 800

Labor Rate Variance

AR= SR= LRV=

12.5 11.00 585

Labor efficiency Variance SQ= LEV= 400 (110) Display as positive number

Assumptions Sales Variavle exp Traceabel fixed exp Avg Operating Assets Minimum required Rate of Return

400,000 100,000 250,000 200,000 20%

Residual Income Operating Income Less: Min Required Return Equals: Residual Income 50,000 40,000 10,000

Return on Investment

Net Operating Income Avg Operating Assets

=

50,000 200,000

=

25%

One of the dangers of allocating common fixed costs to a product line is that such alloca A) TRUE B) FALSE

29. In responsibility accounting, each segment in an organization should be charged with the A) B) TRUE FALSE

Some managers believe that residual income is superior to return on investment as a me A) B) TRUE FALSE

The performance of the manager of Division A is measured by residual income. Which A) B) C) D) Increase in average operating assets. Decrease in average operating assets. Increase in minimum required return. Decrease in net operating income.

A segment of a business responsible for both revenues and expenses would be called: A) B) C) D) a cost center. an investment center. a profit center. residual income.

A business segment whose manager has co A business segment whose manager has co

The net operating income that an investme

product line is that such allocations can make the line appear less profitable than it really is.

on should be charged with the costs for which it is responsible and over which it has control plus its share of common organizati

o return on investment as a means of measuring performance, since it encourages the manager to make investment decisions that

ed by residual income. Which of the following would increase the manager's performance measure?

d expenses would be called:

segment whose manager has control over cost but has no control over revenue or investments in operating assets. segment whose manager has control over cost, revenue, and investments in operating assets.

erating income that an investment center earns above the minimum required return on its operating assets.

its share of common organizational costs.

make investment decisions that are more consistent with the interests of the company as a whole.

ating assets.

Assumptions Sales NOI Stockholder's Equity Average operating assets Minimumrequired rate of return

900,000 36,000 100,000 180,000 15%

Residual Income

Operating Income Average Operating Assets Residual Income

36,000 27,000 9,000

ROI

Operating Income Average Operating Assets

36,000 180,000

=

20%

Assumptions CM FC Not Avoided CM Not Avoided

48,000 96,000 42,000 48,000 42,000 6,000 Increase

Less

Differential Cost Per Drumb Assumptions Direct Material Direct Labor Variable OH Fixed OH Redused cost 30% Rental Supervision Make 12 8 3 10 30% 0 0 Outside supplier Direct Materials Direct Labor Variable OH Supervision Fixed OH Equipment Rental Total Cost 12 8.00 3 0 10 0 33.00 Buy 27

27.00

30% of fixed Mfg OH will continue. No other changes

Outside supplier Direct Materials Direct Labor Variable OH Supervision Fixed OH Equipment Rental Total Cost

Differential Cost Per Drumb Make Buy 30 12 8.00 3 0 10 0 33.00 30.00

Diff

Total Differential Cost Make Buy Diff 270,000 120,000 80,000 30,000 230,000

10,000 Orginal Costing

6.00

270,000

(40,000)

Diff

Total Differential Cost Make Buy Diff 300,000 120,000 80,000 30,000 230,000

10,000 New Costing

3.00

300,000

(70,000)

Some investment projects require that a company expand its working capital to se A) an initial cash outflow for which no discounting is necessary. B) a future cash inflow for which discounting is necessary. C) both an initial cash outflow for which no discounting is necessary and a future cash inflow for w D) irrelevant to the net present value analysis.

A) B) C) D)

Which of the following capital budgeting techniques consider(s) cash flow over the Internal rate of Payback return Yes Yes Yes No No Yes No No

ts working capital to service the greater volume of business that will be generated. Under the net present value method, t

a future cash inflow for which discounting is necessary.

er(s) cash flow over the entire life of the project?

he net present value method, the investment of working capital should be treated as:

If a new machine will yield a net cash flow of $60,000.00 per month for the next 5 years and your discount rate is 10.00% compounded 1 times a year, what is the maximum amount that you should pay for the machine? PUR= 200,000.00 SAVE= 50,000.00 i = Discount Rate = 10.00% n= 1 Price Price x= 10 PUR PV = ($1,228,913.42) Buy Not Buy SAVE PV = ($307,228.36) SALVAGE $0.00 If a new machine will yield a net cash flow of $60,000.00 per month for the next 5 years and your discount rate is 10.00% compounded 1 times a year, the the maximum amount that you should pay for the machine is $227,447.21. Words:

Excel Finance Class 27: Asset Valuation Using Discounted Cash Flow Analysis and PV Function ITEM Annual Cost Savings Initial Investment Net Present Value YEAR(S) 5-Jan Now CASH FLOW 50,000.00 (200,000.00) Discount PV OF CASH FLOWS 10.00% $307,228.36 1 (200,000.00) $107,228.36

100000 300000 12% 5

Period 0 1 2 3 4 5 6 7 8 Payback RRR NPV IRR

Cash Flow For NPV $ (200,000.00) 50,000.00 50,000.00 50,000.00 50,000.00 50,000.00 50,000.00 50,000.00 50,000.00 4.00 10% $66,746.31 18.62%

Cumulative CF for Payback $ (200,000.00) $ (150,000.00) $ (100,000.00) $ (50,000.00) $ $ 50,000.00 $ 100,000.00 $ 150,000.00 $ 200,000.00 4

T AccountsFinished Goods DebitDate Amt Date

CreditAmt

BB

$13,000 $125,000

$110,000

Bal

$28,000

Column1 a.

Column2 Raw Material Accounts Payable Work In Process Raw Material Manufacturing Overhead Sales & Admin Expense Accounts Payable Work In Process Manufacturing Overhead Sales & Admin Expense Salaries & Wages Payable Manufacturing Overhead Accounts Payable Advertising Expense Accounts Payable Manufacturing Overhead Depreciation Expense Accumulated Depreciation Manufacturing Overhead Sales & Admin Expense Accounts Payable Work In Process Manufacturing Overhead Finished Goods Work In Process Finished Goods CoGS

Column3

Column4 kr 200,000.00

Column5

kr 200,000.00 kr 185,000.00 kr 185,000.00 kr kr 63,000.00 7,000.00 kr kr kr kr 230,000.00 90,000.00 110,000.00 kr 430,000.00 kr 54,000.00 kr kr 136,000.00 kr 136,000.00 kr kr 76,000.00 19,000.00 kr kr kr 102,000.00 18,000.00 kr 120,000.00 kr 390,000.00 kr 390,000.00 kr 770,000.00 kr 770,000.00 kr 800,000.00 kr 800,000.00 95,000.00 54,000.00 $ 390,000.00 70,000.00

b.

c.

d.

c. e.

f.

g.

h.

i.

j.

k.

On the bases of direct labor hours Pre deteminded overhead rate: Overhead cost 360,000 Labor Hours 900 Direct Labor $ $ 975 360,000.00 = 900.00

400

$ 390,000.00 $ 400.00POHR =Estimated total manufacturing overhead cost for the coming periodEstimated total units in the allocation base for the coming period

=

400 x

975

g.

Sales & Admin Expense DebitDate

c. d. h.

T AccountsRaw Materials DebitDate Amt

CreditDate Amt

Work in Process DebitDate Amt

CreditDate Amt

BB a.

kr 30,000 kr 200,000

b.

kr 185,000

BB b. d. i. Bal

kr 21,000 kr 185,000 kr 230,000 kr 390,000 kr 56,000

j.

kr

770,000

Estimated total manufacturing overhead cost for the coming periodEstimated total units in the allocation base for the coming period

Bal

kr

45,000

Manufacturing Overhead DebitDate Amt

CreditDate Amt

COGS DebitDate Amt

CreditDate Amt

c. d. e. g. h.

kr kr kr kr kr

63,000 90,000 54,000 76,000 102,000

i.

kr 390,000

k.

kr 800,000

Bal kr

5,000

Bal

kr 800,000

Saleries & Wages Payable DebitDate Amt

CreditDate Amt

Accounts Payable DebitDate Amt

CreditDate Amt

d.

kr 430,000

a. c. e. f. h. Bal

Bal

kr 430,000

kr kr kr kr kr kr

200,000 70,000 54,000 136,000 120,000 580,000

Accumulative Deprecation DebitDate Amt

CreditDate Amt

Salaries Expense DebitDate Amt

CreditDate Amt

g

kr

95,000

Bal kr Depreciation Expense DebitDate Amt

95,000

Bal

kr

-

CreditDate Amt

Advertiaing Expense DebitDate Amt

CreditDate Amt

g.

kr

19,000

f.

kr 136,000

Bal

kr

19,000

Bal Finished Goods DebitAmt Date

kr 136,000

Sales & Admin Expense DebitDate Amt

CreditDate

CreditAmt Date Amt

c. d. h.

kr 7,000 kr 110,000 kr 18,000

BB j.

kr 60,000 kr 770,000

k.

kr

800,000

Bal

kr 135,000

Bal

kr

30,000

Matthias Corporation has provided data concerning the company's Manufacturing Overhead account for the month of May. Prior to the closing of the overapplied or underapplied balance to Cost of Goods Sold, the total of the debits to the Manufacturing Overhead account was $53,000 and the total of the credits to the account was $69,000. Which of the following statements is true? A. Manufacturing overhead applied to Work in Process for the month was $69,000. B. Manufacturing overhead for the month was underapplied by $16,000. C. Manufacturing overhead transferred from Finished Goods to Cost of Goods Sold during the month was $53,000. D. Actual manufacturing overhead incurred during the month was $69,000.

BB WIP Units Started into production during the month EB WIP Units completed and transferred out during month EQUIVALENT UNITS OF PRODUCTION Transfer to next department Ending work in process Equivalent units of Production

40,000

750,000 (30,000) 760,000

760,000 12,000 772,000

COST PER EQUIVALENT UNIT Cost of BB WIP Cost added during the period Total Cost (a 8,600 223,000 231,600

Equivalent units of Production (b) Cost per equivalent Unit (a) (b)

772,000 0.30

Assumptions BB WIP: Units in process % Complete materials % Complete conversion Cost in BB Inventory: Material cost Conversion cost Units started into production during month Units transferred out during month Costs added to production durning month: Material cost Conversion Cost EB WIP: Units in process % Complete materials % Complete conversion

40,000 70% 60% 8,600 4,800 750,000 ? 223,000 149,000 30,000 40% 30%

Assumptions Equipment purchase price Decrease Operating Expense Equipment useful life Minimum Rate of Return on Equipment Present Value Factor

0 0%5.650

use PV Table

Less:

Amount of tangible cost Tangible Benefits Net Present Value

0 0 0

Negative NPV of Equipment purchase Present Value Factor

5.650

=

use PV Table

USE PRESENT VALUE OF AN ORDINARY ANNUITY TABLE

-