3. (TCO E) Topple Company produces a single product. Operating data for the company and its absorption costing income statement for the last year are presented below:
| Units in beginning inventory | 2,000 |
| Units produced | 9,000 |
| Units sold | 10,000 |
| Sales | $100,000 |
Less cost of goods sold:
| Beginning inventory | 12,000 |
| Add cost of goods manufactured | 54,000 |
| Goods available for sale | 66,000 |
| Less ending inventory | 6,000 |
| Cost of goods sold | 60,000 |
| Gross margin | 40,000 |
| Less selling and admin. expenses | 28,000 |
| Net operating income | $12,000 |
Variable manufacturing costs are $4 per unit. Fixed factory overhead totals $18,000 for the year. This overhead was applied at a rate of $2 per unit. Variable selling and administrative expenses were $1 per unit sold.
Required: Prepare a new income statement for the year using variable costing. Comment on the differences between the absorption costing and the variable costing income statements. (Points : 30)
2. (TCO G) – (Ignore income taxes in this problem.) Axillar Beauty Products Corporation is considering the production of a new conditioning shampoo that will require the purchase of new mixing machinery. The machinery will cost $375,000, is expected to have a useful life of 10 years, and is expected to have a salvage value of $50,000 at the end of 10 years. The machinery will also need a $35,000 overhaul at the end of Year 6. A $40,000 increase in working capital will be needed for this investment project. The working capital will be released at the end of the 10 years. The new shampoo is expected to generate net cash inflows of $85,000 per year for each of the 10 years. Axillar’s discount rate is 16%.
Required:
(a) What is the net present value of this investment opportunity?
(b) Based on your answer to (a) above, should Axillar go ahead with the new conditioning shampoo? (Points : 35)
3. (TCO B) Madlem, Inc., produces and sells a single product whose selling price is $240.00 per unit and whose variable expense is $86.40 per unit. The company’s fixed expense is $720,384 per month.
Required:
Determine the monthly break-even in either unit or total dollar sales. Show your work! (Points : 25)
4. (TCO A) The following data (in thousands of dollars) have been taken from the accounting records of the Maroon Corporation for the just-completed year.
| Sales | 1,150 |
| Raw materials inventory, beginning | 15 |
| Raw materials inventory, ending | 40 |
| Purchases of raw materials | 150 |
| Direct labor | 250 |
| Manufacturing overhead | 300 |
| Administrative expenses | 500 |
| Selling expenses | 300 |
| Work in process inventory, beginning | 100 |
| Work in process inventory, ending | 150 |
| Finished goods inventory, beginning | 80 |
| Finished goods inventory, ending | 120 |
Use the above data to prepare (in thousands of dollars) a schedule of Cost of Goods Manufactured and a Schedule of Cost of Goods Sold for the year. In addition, what is the impact on the financial statements if the ending finished goods inventory is overstated or understated? (Points : 25)
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