ACC500 Managerial Accounting

1) For the year ended December 31, 2015, the following information is available for the Lakers Company:

Sales $891,000
Cost of goods sold 662,000
Depreciation expense 16,000
Amortization expense 3,000
Wage expense 91,000
Rent expense 4,000
Loss on sale of fixed assets 2,000
Interest expense 13,000
Income tax expense 38,000
Total expenses 829,000
Net income $62,000

December 31, 2014 December 31, 2015
Cash $10,000 $12,800
Accounts receivable $10,000 $19,200
Inventory $20,000 $14,100
Prepaid rent $2,000 $1,700
Accounts payable $22,000 $24,400
Wages payable $12,000 $11,300
Taxes payable $2,000 $3,100

Required:
Prepare the operating activities section of the statement of cash flows for the year ending December 31, 2015. Use the indirect method.
4) The Love Company has provided the following information:

Income tax rate 30%
Selling price per unit $6.60
Variable cost per unit $5.28
Total fixed costs $46,200.00

Required:
A) Compute the break-even point in units.
B) Compute the sales volume in units necessary to generate an after-tax net income of $10,000.
C) Compute the sales volume in units necessary to generate an after-tax net income of $20,000.

6) Swensen Company is considering the replacement of equipment used in operations. The following data are available:

Old Equipment New Equipment
Original cost $93,000 $60,000
Useful life in years 13 6
Current age in years 7 0
Book value $57,000 -
Disposal value now $45,000 -
Disposal value in 6 years 0 0
Annual cash operating costs $15,000 $11,000

Required:
A) Prepare a cost comparison for replacing the old equipment. Use only relevant items and add the items together for the next 6 years.
B) Should the old equipment be replaced?


7) Freedom Company has three departments. Data for the most recent year are presented below:

Dept. X Dept. Y Dept. Z
Sales $400 $200 $80
Variable expenses 128 52 34
Unavoidable fixed expenses 96 52 12
Avoidable fixed expenses 116 104 54

Required:
A) Compute the operating income for Freedom Company.
B) Compute the contribution margin for each department.
C) Compute the operating income for each department.
D) Which department(s) should be eliminated? Why?

9) Jeff Company produces a part that is used in the manufacture of one of its products. The annual costs associated with the production of 11,000 units of this part are as follows:

Direct materials $25,000
Direct labor 34,000
Indirect production costsvariable 65,000
Indirect production costsfixed 40,000
Total costs $164,000

A supplier is willing to sell 11,000 units of the part to Jeff Company for $12.50 per unit. When examining the indirect production costsfixed, Jeff Company determines $10,000 is avoidable.

Required:
If there are no alternative uses for the facilities, should Jeff Company take advantage of the supplier's offer?
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