ACCT 210 1st EditionExam 3 Study Guide: Lectures: 15 - 22Lecture 15I. Transfer pricinga. Transfer pricing specifically refers to sales occurring within different divisions of the same companyb. Structure:i. Ceiling: maximum price = the market priceii. Floor: minimum price = variable costc. Always do what’s best for the overall company, not the divisiond. Minimum transfer pricei. Minimum = variable cost to produce + contribution margin forgone from the transferii. If there is adequate excess capacity, CM forgone = $0iii. Will always assume adequate excess capacity; thus minimum transfer price = variable costII. Exercise 10-18a.Minimum transfer price = $6/unitb.Between $6 and $12III. Exercise 10-19a.Cost based transfer price = $29b.Market based transfer price = $50IV. Exercise 10-20a.Division A Division B Corporate income (A+B)Sales 12,000 x $157 = $1,884,00012,000 x $241 = $2,892,000$4,796,000Variable costs 12,000 x $117 = $1,404,00012,000 x ($157 + $44) = $2,412,000$3,816,000CM $480,000 $480,000 $960,000b.Division A Division B Corporate income (A+B)Sales 0 12,000 x $241 = $2,892,000$2,892,000Variable costs 0 12,000 x ($166 + $44) = $2,520,000$2,520,000CM 0 $372,000 $372,000V. Exercise 10-21a.Printing division Accounting div Corporate totalSales 2600 0 2600Variable costs 1600 2600 4200CM 1000 (2600) (1600)b.Printing division Accounting div Corporate totalSales 0 0 0Variable costs 0 1780 1780CM 0 (1780) (1780)c.Internal option (paying for $2600)Lecture 16I. Exercise F4-1a.Raw Materials Inventory 4,300 * $1.40 = $6020Direct Materials Price Variance $6450 - $6020 = $430Accounts payable/cash $6450b.Work in Process Inventory ¼ * 15,840 * $1.40 = $5544Direct Materials Quantity Variance $5600-$5544 = $56Raw materials inventory 4,000 * $1.40 = $5600II. Exercise F4-2a.Raw Materials Inventory 505,800 * $.22 = $111,276Direct Materials Price Variance $116,334-$111,276 = $5058Accounts Payable 505,800 *$.23 = $116,334b.Work In Process Inventory 69,000 * 8.4 * $.22 = $127,512Direct Materials Quantity Variance $127,512-$127,358 = $154Raw Materials Inventory 578,900 * $.22 = $127,358III. Exercise F4-4a.Work In Process Inventory 24,700 * ($9.6-$.55) = $223,535Direct Labor Rate Variance $243,840–(25,400 * $9.05) = $13,970Direct Labor Efficiency Variance (25,400 * $9.05) – $223,535 = $6,335Wages Payable (24,700+700) * $9.6 = $243,840IV. Exercise F4-6a.Manufacturing overhead $325,094Accounts payable $325,094b.Work In Process Inventory 99,000 * 0.6 * $6.20 = $368,280Manufacturing Overhead $368,280c.Manufacturing Overhead $368,280 - $325,094 = $43,186O/H Spending Variance (52,470 * $6.20) - $325,094 = $220O/H Efficiency Variance $368,280 –(52,470*$6.20) = $42,966V. Exercise F4-11a.i. To record the purchase of material:Raw Materials Inventory 494,000 * $6 = $2,964,000DM Price Variance $2,964,000-$2,667,600 = $296,400Accounts payable $2,667,600ii. To record the use of material:Work In Process Inventory 21,200 * 15 * $6 = $1,908,000Direct Materials Quantity Variance $2,226,000-$1,908,000 = $318,000Raw Materials Inventory 371,000 * $6 = $2,226,000Lecture 17I. Chapter 5a. In preparing budget, begin with revenue/sales then determine costsb. Budgets are done in 2 ways:i. Bottoms up1. People at lower levels and each department prepares own budget2. Head CEO reviews themii. Top down1. CEO starts budget process2. Bottom layers/departments prepare budgets based upon that3. More aggressive methodc. Zero based budgeting vs. incremental budgetingi. Zero based: assume zero as baseline, build cost base from scratch. More common/difficult/time consuming methodii. Incremental: used by federal government. Based upon last year’s budget II. E9-1a.April May June TotalFeb sales ($230,000)(20% Feb, 70% March, 10% April)23,000 $23,000March sales ($260,000)(20% March, 70% April, 10% May)182,000 26,000 $208,000April sales ($300,000)(20% April, 70% May, 60,000 210,000 30,000 $300,00010% June)May sales ($500,000)(20% May, 70% June, 10% July)100,000 350,000 $450,000June sales ($200,000)(20% June, 70% July, 10%August)40,000 $40,000Total cash collections$265,000 $336,000 $420,000 $1,021,000b.i. Accounts receivable = 10% of May paid in July + 70% of June paid in July +10% of June paid in Augustii. A/R = (10% * 500000) + (70% * 200000) + (10% * 200000)iii. A/R = 50000 + 140000 + 20000iv. A/R = $210,000Lecture 18I. Exercise 5-14a.b.II. Exercise 5-15a.b.III. Problem 5-20a.b.c.IV. Problem 5-23a.b.Lecture 19I. Chapter 5a. Selling and administrative expense budgeti. Shows expenses to be incurred to support the budgeted level of salesb. Production budgeti. Shows when and how many units to produce in order to meet budgeted sales volumeii. Budget sales + Budgeting ending inventory – Budgeted beginning inventory = Budgeted productionII. Exercise 5-8III. Exercise 5-10Lecture 20I. Exercise 5-12a.b.II. Exercise 5-13a.b.III. Exercise 5-16a.b.IV. Exercise 5-17a.i.b.i.V. Exercise 5-18a.b.VI. Practice question 14a.b.VII. Practice question 19a.b.Lecture 21I. Capital budgetinga. A systematic approach for evaluating long-range investment proposals for the purpose of allocating limited resourcesb. Capital assets: have a useful life of over one accounting period. Also called “depreciable assets”c. For expected future returnsi. Return of investment: When do I get my investment back?ii. Return on investment: When do I get my investment back plus how much am I going to make?d. Example: if you buy four shares of stock for $26 and sell it one month later for $32.50i. Return of investment = $26ii. Return on investment = $6.50II. Screening vs. preference decisionsa. Screening: which projects meet hurdle rate?i. Hurdle rate = minimum rate of returnii. Which of the projects are acceptable for the organization in light of its goals?b. Preference: of the acceptable projects, which ones should be implemented?III. Identifying project cash flowsa. Cash receipts:i. Additional sales revenueii. Salvage value of equipmentiii. Cost savingsb. Cash disbursements:i. Purchase priceii. Additional operating costs1. Direct materials2. Direct labor3. Manufacturing overhead4. Sales, general & adminiii. Do not include interest from financing or acquisition of the assetIV. Exercise 9-1a.b.Cash Flow Timing AmountPurchase of new equipment Year 0 $-1,247,000 (neg; outflow)Salvage of old equipment Year 0 $172,400 (pos; inflow)Sales revenue Years 1-4 $832,500 (33000 * 25)Valuable costs Years 1-4 $-466,200 (33000 * 14)Additional fixed costs Years 1-4 $-70,000Salvage of