1. FUNDAMENTALS OF ACCOUNTING II
Homework Exercises – Chapter 24
SE5
Noway Jose Communications, Inc., is considering purchasing a
new piece of computerized data transmission equipment.
Estimated annual net cash inflows for the new equipment are
$590,000. The equipment costs $2 million, it has a five-year
life and it will have no residual value at the end of the five
years. The company has a minimum rate of return of 12
percent. Compute the present value of the piece of equipment.
Should the company purchase it? Why? (Hint: Use Table 2 in
Appendix C.)

2. E1A
Emerald Bay Furniture Company’s managers have gathered all
of the capital investment proposals for the year, and they are
ready to make their final selections. The following proposals
and related rate-of-return amounts were received during the
period:
Project Capital
Investment Rate of Return
AB $
450,000 19%
CD
500,000 28%
EF
654,000 12%
GH
800,000 32%
IJ
320,000 23%
KL
240,000 18%
MN
180,000 16%
OP
400,000 26%
QR
560,000 14%
ST
1,200,000 22%
UV
1,600,000 20%

3. Assume that the company’s minimum rate of return is 15
percent and that $5,000,000 is available for capital investments
during the year.
1.
List the acceptable capital investment proposals in order of
profitability.
2.
Which proposals should be selected for this year? Why?
E4A
For each of the following situations, identify the correct factor
to use from Tables 1 or @ in Appendix C. Also compute the
appropriate present value.
1.
Annual net cash inflows of $22,500 for a period of twelve years,
discounted at 14 percent.
2.

4. The following five years of cash inflows, discounted at 10
percent:
Year 1 $35,000
Year 2 20,000
Year 3 30,000
Year 4 40,000
Year 5 50,000
3.
The amount of $70,000 to be received at the beginning of year
7, discounted at 14 percent.
E9A
Eco Wet, Inc., a manufacturer of gears for lawn sprinklers, is
thinking about adding a new fully automated machine. This
machine can produce gears that the company now produces on
its third shift. The machine has an estimated useful life of ten
years and will cost $500,000. The residual value of the new
machine is $50,000. Gross cash revenue from the machine will
be about $420,000 per year, and related operating expenses,
including depreciation, should total $400,000. Depreciation is
estimated to be $80,000 annually. The payback period should
be five years or less. Use the payback period method to
determine whether the company should invest in the new
machine. Show the computations that support your answer.

5. E10A
Assume the same facts as in E9A for Eco Wet, Inc.
Management has decided that only capital investments that yield
at least an 8 percent return will be accepted. Using the
accounting rate-of-return method, decide whether the company
should invest in the machine. (Round percentages to one
decimal place.) Show the computations that support your
decision.
FUNDAMENTALS OF ACCOUNTING II
Homework Exercises/Problems - Chapter 19
E14A
Westport Inspection Service specializes in inspecting cars that
have been returned to automobile leasing companies at the end
of their leases. Westport’s charge for each inspection is $60; its
average cost per inspection is $15. The owner wants to expand
his business by hiring another employee and purchasing an
automobile. The fixed costs of the new employee and
automobile would be $3,000 per month. How many inspections
per month would the new employee have to perform to earn a

6. profit of $1,500?
E15A
Americas Company has a plant capacity of 100,000 units per
year, but its budget for this year indicates that only 60,000 units
will be produced and sold. The entire budget for this year
follows.
Sales (60,000 units at
$3.75)
$225,000
Less cost of goods produced (based on production of 60,000
units) $60,000
Direct materials
(variable) 30,000
Direct labor
(variable) 45,000
Variable overhead
costs
75,000
Total cost of goods

7. produced
210,000
Gross
margin
$ 15,000
Less selling and administrative expenses:
Selling
(fixed) $24,000
Administrative
(fixed)
36,000
Total selling and administrative
expenses
60,000
Operating income
(loss)
$(45,000)
1.
Given the budgeted selling price and cost data, how many units
would Americas have to sell to break even? (Hint: Be sure to
consider selling and administrative expenses.)
2.
Market research indicates that if Americas were to drop its
selling pride to $3.70 per unit, it could sell 100,000 units.
Would you recommend the drop in price? What would the new
operating income or loss be?

8. P1
Wabash Company specializes in refurbishing exterior painted
surfaces that have been hard hit by humidity and insect debris.
It uses a special technique, called pressure cleaning, before
priming and painting the surface. The refurbishing process
involves the following steps:
1.
Unskilled laborers trim all trees and bushes within two feel of
the structure.
2.
Skilled laborers clean the building with a high-pressure
cleaning machine, using about 6 gallons of chlorine per job.
3.
Unskilled laborers apply a coat of primer.
4.
Skilled laborers apply oil-based exterior paint to the entire
surface.
On average, skilled laborers work 12 hours per job, and
unskilled laborers work hours. The refurbishing process
generated the following operating results during the year on 500
jobs:
Skilled labor
$20 per hour

9. Unskilled labor
$8 per hour
Gallons of chlorine used
3,000 gallons at $5.50 per gallon
Paint primer
7,536 gallons at $15.50 per gallon
Paint
6,280 gallons at $16.00 per gallon
Depreciation on paint-spraying equipment
$600 per month depreciation
Lease of two vans
$800 per month total
Rent on storage building
$421 per month
Data on utilities for the year follow:
Month Number of jobs
Cost Hours Worked
January 42
$ 3,950 840
February 37
3,550 740
March 44
4,090 880
April 49
4,410 980
May 54
4,720 1,080
June 62
5,240 1,240
July 71
5,820 1,420
August 73
5,890 1,460

10. September 63
5,370 1,260
October 48
4,340 960
November 45
4,210 900
December
40
3,830
800
Totals
628
$55.420
12,560
1.
Classify the costs as variable, fixed, or mixed.
2.
Using the high-low method, separate mixed costs into their
variable and fixed components. Use total hours worked as the
basis.
3.
Compute the average cost per job for the year. (Hint: Divide
the total of all costs for the year by the number of jobs
completed.) Use estimated hours to determine utilities costs.
(Round to two decimal places.)

11. P2
Park & Moran, a law firm, is considering opening a legal clinic
for middle-and low-income clients. The clinic would bill at a
rate of $18 per hour. It would employ law students as
paraprofessional help and pay them $9 per hour. Other variable
costs are anticipated to be $5.40 per hour, and annual fixed
costs are expected to total $27,000.
1.
Compute the breakeven point in billable hours.
2.
Compute the breakeven point in total billings.
3.
Find the new breakeven point in total billings if fixed costs
should go up by $2,340.
FUNDAMENTALS OF ACCOUNTING II
Homework Exercises – Chapter 21
SE7

12. Complete the current liabilities, total assets – current liabilities,
and economic value added calculations for investment Centers
M and N.
Center M Center N
Sales
$15,000 $18,000
After-tax operating income
$1,000 $1,100
Total assets
$4,000 $5,000
Current liabilities
$1,000 ______
Total assets – current liabilities
______ $3,500
Cost of capital
15% 15%
Economic value added
______ ______
E1A

13. Identify the most appropriate type of responsibility center for
each of the organizational units that follow.
a.
The sheets and towels laundry facility of a large hotel
chain __________
b.
The on-line order department of a retailer __________
c.
A manufacturing department of a large corporation __________
d.
An urgent care clinic in a community hospital
__________
e.
A famous brand of a large corporation __________
E6A
Roofing tile is Tops Corporation’s major product. It sold
88,400 cases of tile during the year. Variable cost of goods
sold was $848,640; variable selling expenses were $132,600;
fixed overhead was $166,680; fixed selling expenses were
$1152,048; and fixed administrative expenses were $96,450.
The selling price was $18 per case. There were no partially
completed jobs in process at the beginning or the end of the
year. Prepare the calendar year-end income statement for Tops
using:

14. 1.
The traditional reporting format
2.
The variable costing format
E8A
Game, LLP, is evaluating the performance of three divisions:
Rock, Scissors, and Paper. Using the data that follow, compute
the economic value added by each division, and comment on
each division’s performance.
Rock Scissors Paper
Sales $50,000
$50,000 $50,000
After-tax operating income $5,000
$5,000 $20,000
Total assets $25,000
$12,500 $25,000
Current liabilities $5,000
$5,000 $5,000
Cost of capital
15% 15% 15%

15. P1
Beverage Products Company specializes in 12-ounce drinking
glasses. The president asks the controller to prepare a
performance report for April. The following report was handed
to her a few days later:
USE THE DATA ON PAGE 986 IN YOUR TEXT TO
COMPLETE
In discussing the report with the controller, the president
stated. “Profits have been decreasing in recent months, but this
report indicates that our production process is operating
efficiently.”
Required:
1.
Prepare a flexible budget for the company using production
levels of 45,000 units, 50,000 units, and 55,000 units.
2.
Assume that the company produced 45,560 units in April and
that all fixed costs remained constant. Prepare a revised
performance report similar to the one above, using actual
production in units as a basis for the budget column. (Do not
round your answers.)
Beverage Products Company
Monthly Flexible Budget
Units Produced

16. Variable
Cost Category
45,000
50,000
55,000
Cost per Unit
Direct materials
$0.10
Direct labor
0.12
Variable overhead:
Indirect labor
0.03
Supplies
0.02
Heat and power
0.03

17. Other
0.05
Total variable overhead costs
$0.35
Fixed overhead:
Heat and power
Depreciation
Insurance and taxes
Other
Total fixed overhead costs

18. Total costs
Beverage Products Company
Performance Report
For April
Variable
Difference
Unit
Budgeted
Actual
Under (Over)
Cost Category
Cost
Costs*
Costs
Budget
Direct materials
$0.10

19. Direct labor
$0.12
Variable overhead:
Indirect labor
$0.03
Supplies
$0.02
Heat and power
$0.03
Other
$0.05
Total variable overhead costs
Fixed overhead:

20. Heat and power
Depreciation
Insurance and taxes
Other
Total fixed overhead costs
Totals
*Based on actual production of 45,560 units

21. FUNDAMENTALS OF ACCOUNTING II
Homework Exercises – Chapter 22
SE8
Meanwhile Products uses standard costing. The following
information about overhead was generated during August:
Standard variable overhead rate
$2.50 per machine hour
Standard fixed overhead rate
$3.00 per machine hour
Actual variable overhead costs
$60,100
Actual fixed overhead costs
$68,800
Budgeted fixed overhead costs
$70,000
Standard machine hours per unit produced 2.8
Good units produced
8,000
Actual machine hours
24,200
Compute the variable overhead spending and efficiency

22. variances and the fixed overhead budget and volume variances.
E2A
Flossmor Corporation uses standard costing and is in the
process of updating its direct materials and direct labor
standards for Product 2B. The following data have been
accumulated:
Direct materials
: In the previous period, 20,000 units were produced, and
32,000 square yards of direct materials at a cost of $128,000
were used to produce them.
Direct labor:
In the previous period, 20,000 units were produced and 58,000
direct labor hours were worked – 34,000 hours on machine H
and 24,000 hours on machine K. Machine H operators earned
$10 per hour, and machine K operators earned $9 per hour last
period. A new labor union contract calls for a 10 percent
increase in labor rates for the coming period.
Using this information as the basis for the new standards,

23. compute the direct materials quantity and price standards and
the direct labor time and rate standards for each machine for the
coming period.
E5A
LIFT Elevator Company manufactures small hydroelectric
elevators. One of the direct materials used is heavy-duty
carpeting for the floor of the elevator. The direct materials
quantity standard for May was 6 square yards per elevator.
During May, the purchasing agent purchased this carpeting at
$20 per square yard; the standard price for the period was $22.
Fifty elevators were completed and sold during the month; the
Production Department used an average of 6.5 square yards of
carpet per elevator. Calculate the company’s direct materials
price and quantity variances for carpeting for May.

24. P1
Modular houses are Homes, Inc.’s specialty. The company’s
best-selling model is a three bedroom, 1,400-square foot house
with an impressive front entrance. Last year, the standard costs
for the six basic direct materials used in manufacturing the
entrance were as follows: wood framing materials, $2,140;
deluxe front door, $480; door hardware, $260; exterior siding,
$710; electrical materials, $580; and interior finishing
materials, $1,520. Three types of direct labor are used to build
the entrance: carpenter, 30 hours at $36 per hour; door
specialist, 4 hours at $24 per hour; and electrician, 8 hours at
$50 per hour. Last year, the company used an overhead rate of
40 percent of total direct materials cost.
This year, the cost of wood framing materials is expected to
increase by 20 percent, and a deluxe front door will cost $496.
The cost of the door hardware will increase by 10 percent, and
the cost of electrical materials will increase by 20 percent.
Exterior siding cost should decrease by $15 per unit. The cost
of interior finishing materials is expected to remain the same.
The carpenter’s wages will increase by $1 per hour, and the
door specialist’s wages should remain the same. The
electrician’s wages will increase by $0.50 per hour. Finally, the
overhead rate will decease to 30 percent of total direct materials
cost.

25. Required:
1.
Compute the total standard cost of direct materials per entrance
for last year.
2.
Using your answer to requirement 1, compute the total standard
unit cost per entrance for last year.
3.
Compute the total standard unit cost per entrance for this year.
(Round to the nearest dollar.)