Accounting Questions

The Stanley Company produces and markets two product lines: Racquets and Gloves. The following
data were gathered on activities during the third quarter:

Racquets Gloves
Sales in units 1,000 5,000
Sales price per unit $100 $40
Variable production costs per unit $20 $8
Traceable fixed production costs $20,000 $37,000
Variable selling expenses per unit $11 $2
Traceable fixed selling expenses $10,000 $23,000
Allocated portion of corporate expenses $6,000 $120,000
Required (10 points):
a. Prepare a segmented income statement for last quarter, showing both “Amount” and “Percent”
columns for the division as a whole and for each product line.
b. Discuss the differences between traceable costs and common costs. 2
6. Mikell supplies acetylene and other compressed gases to industry. Data regarding the store’s operations
follow:
Sales are budgeted at $360,000 for November, $380,000 for December, and $350,000 for January.
Collections are expected to be 75% in the month of sale and 25% in the month following the sale. The
cost of goods sold is 65% of sales. The company maintains a targeted ending inventory of 60% of the
following month’s sales. Payment for merchandise is made in the month following the purchase. Other
monthly expenses to be paid in cash are $21,900. Monthly depreciation is $20,000.
Required (20 points):
a. Prepare a Schedule of Expected Cash Collections for November and December.
b. Prepare a Merchandise Purchases Budget for November and December.
c. Prepare Cash Budgets for November and December.
d. Prepare a Budgeted Income Statement for the two month period of November and December.
3

7. The Charlotte Company produces a single product. The company had the following results for its first
two years of operation:
Year 1 Year 2
Sales
$1,200,0
00
$1,200,0
00
Cost of goods sold 800,000 680,000
Gross margin 400,000 520,000
Selling and administrative
expenses 300,000 300,000
Net operating income (loss) $100,000 $220,000
Additional information about the company is as follows:
In Year 1, the company produced and sold 40,000 units of its only product. In Year 2, the company
again sold 40,000 units, but increased production to 50,000 units. The company’ variable production
cost is $5 per unit and its fixed manufacturing overhead cost is $600,000 per year. Fixed manufacturing
overhead costs are applied to the product on the basis of each year’s unit production (i.e. a new fixed
overhead rate is computed each year). Variable selling and administrative expenses are $2 per units
sold.
Required (15 points):
a. Compute the unit product cost for each year under absorption costing and under variable costing.
b. Prepare an income statement for each year, using the contribution approach with variable costing.
c. Reconcile the variable costing and absorption costing income figures for each year.
d. Explain why the net operating income for Year 2 under absorption costing was higher than the net
operating income for Year 1, although the same number of units were sold in each year.


8. Vaughn Corporation had net operating income of $380,000 and average operating assets of $2,000,000.
The corporation requires a return on investment of 18%. Show all calculations supporting your
responses!
Required (10 points):
a. Calculate the company’s return on investment (ROI) and residual income (RI).
b. Vaughn Corporation is considering an investment of $70,000 in a project that will generate annual
net operating income of $12,950. Would it be in the best interests of the company to make this
investment? 4
c. Vaughn Corporation is considering an investment of $70,000 in a project that will generate annual
net operating income of $12,950. If the division planning to make the investment currently has a
return on investment of 20% and its manager is evaluated based on the division’s ROI, will the
division manager be inclined to request funds to make this investment?
d. Vaughn Corporation is considering an investment of $70,000 in a project that will generate annual
net operating income of $12,950. If the division planning to make the investment currently has a
residual income of $50,000 and its manager is evaluated based on the division’s residual income,
will the division manager be inclined to request funds to make this investment?