All Work Must Be Shown It Can'T Be Just The Answers

ALL WORK MUST BE SHOWN IT
CAN’T BE JUST THE ANSWERS.

1. Holbrook, Inc. has identified the following overhead costs and cost
drivers for next year.
Overhead.......Expected......Cost.............Expected
Item.............Cost.......Driver............Quantity
------------------------------------------------------
Setup costs....$960,000..Number of setups.......4,800
Ordering costs..160,000..Number of orders......20,000
Maintenance.....640,000..Machine hours.........64,000
Power............80,000..Kilowatt hours...... 200,000
Total $$$ per expected quantity = all added together = $1,840,000
Let’s break this down as cost per unit...
960000/4800 = $200 per setup

160000/20000 = $8 per order
640000/64000 = $10 per machine hour
80000/200000 = $0.40 per kilowatt hour
The following are two of the jobs completed during the year.
Job 701 Job 702
Prime costs..............$25,000........$18,000
Units completed..............650............500
Direct labor hours...........180............220
Number of setups..............12.............15
Number of orders..............16.............30
Machine hours................360............300
Kilowatt hours...............180............650
The company’s normal activity is 40,000 direct labor hours.
Since 40,000 is the normal number of hours, we’re assuming that 40,000
hours yields $1,840,000, so it costs $46 per hour.
Required:
a. Determine the unit cost for each job using direct labor hours to
supply overhead. (That is overhead rate is based on direct labor
hours.)
This is talking about unit cost in terms of labor hours.
Job 1:
Units = 650, hours = 180
180 * 46 = $8280
8280/650 (finding the cost per unit) = $12.74 per unit
Job 2:
Units = 500, hours = 220
220 * 46 = $10120
10120/500 = $20.24 per unit
b. Determine the unit cost for each job using the four cost drivers.
(Round amounts to 2 decimal places.) (That is there are four
overhead rates: setups, orders, maintenance and power.)
Job 701:
unit cost here is the cost per unit, so first we must calculate the
total cost for the job...
so we have 25000 + 12*200 + 16*8 + 360*10 + 180*.4 = $31,200
then 31200/650 = unit cost = $48.00 per unit
Job 702:
Same thing...
18000 + 15*200 + 30*8 + 300*10 + 650*.4 = $24,500
24500/500 = $49.00 per unit
c. Which method produces the more accurate cost assignment? Why?
The method used in step b because it is dealing with exact hours, not
average hours, and it is dealing with exact costs per each cost driver.
2. Madison Corporation has a $1,000 par value bond outstanding paying

annual interest of 7%. The bond matures in 20 years. If the present
yield to maturity for this bond is 9%, calculate the current price of
the bond (in dollars) using annual compounding. (That is interest is
paid annually.) (Note: Your answer is less than $1,000.)
okay, for 20 years at 7%, 1000 will be
$1000.00 × (1 + 0.07)^20 = $3869.68
so to find what the present value of the bond at 9% would be assuming

the end total will be the same
PRESENT * (1 + 0.09)^20 = $3869.68

PRESENT = 3869.68/5.6044 = $690.47
3. The Taylor Corporation is using a machine that originally cost

$88,000. The machine is being depreciated by the straight-line method
over 8 years ($11,000 per year). The machine has a book value of $66,000
and a current market value of $40,000. Assume the machine is sold at the
current market value of $40,000. Jack Elliott, the Chief Financial
Officer of Taylor, is considering replacing this machine with a newer
model costing $75,000. The new machine will save $7,000 in after-tax
earnings each year for the next six years. The new machine is in the 5-
year MACRS category. Taylor Corporation is in the 34% tax bracket. What
is the cash inflow (in dollars) from the sale of the old machine? (Note:
You do not have to calculate depreciation expense.)
(Hint: 1. Calculate the gain or loss on sale.
Without calculating depreciation expense, we simply calculate the

selling of the old one and the buying of the new one here:
-$75,000 + 40,000 = -$35,000
2. Calculate the tax saving or tax expense.
Just dealing with the tax savings. 34% tax bracket is irrelevant,
because we’re only dealing with the effect of selling.
$7,000 * 6 = $42,000
3. Calculate the cash inflow or outflow on the sale.
$42,000 – $35,000 = $7,000

All Work Must Be Shown It Can'T Be Just The Answers

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ALL WORK MUST BE SHOWN IT

CAN’T BE JUST THE ANSWERS.

Total $$$ per expected quantity = all added together = $1,840,000

Let’s break this down as cost per unit...

960000/4800 = $200 per setup

Job 701 Job 702

The company’s normal activity is 40,000 direct labor hours.

This is talking about unit cost in terms of labor hours.

10120/500 = $20.24 per unit

so we have 25000 + 12*200 + 16*8 + 360*10 + 180*.4 = $31,200

then 31200/650 = unit cost = $48.00 per unit

18000 + 15*200 + 30*8 + 300*10 + 650*.4 = $24,500

24500/500 = $49.00 per unit

c. Which method produces the more accurate cost assignment? Why?

2. Madison Corporation has a $1,000 par value bond outstanding paying

okay, for 20 years at 7%, 1000 will be

$1000.00 × (1 + 0.07)^20 = $3869.68

so to find what the present value of the bond at 9% would be assuming

PRESENT * (1 + 0.09)^20 = $3869.68

3. The Taylor Corporation is using a machine that originally cost

(Hint: 1. Calculate the gain or loss on sale.

Without calculating depreciation expense, we simply calculate the

-$75,000 + 40,000 = -$35,000

2. Calculate the tax saving or tax expense.

3. Calculate the cash inflow or outflow on the sale.

$42,000 – $35,000 = $7,000

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so we have 25000 + 12200 + 168 + 36010 + 180.4 = $31,200

18000 + 15200 + 308 + 30010 + 650.4 = $24,500