ACC 206 Final PaperSolutions

Topics: Depreciation, Variable cost, Cash flow statement Pages: 2 (473 words) Published: July 19, 2015
Final Paper Solutions:

Part II Cash Flow Statement (a):

Cash flows from operating activities

Cash received from customers*

$ 1,260,000

Less cash payments for:

Purchases of merchandise**
$830,000

Selling & administrative expenses
250,000

 
Income taxes***
0
 
Net cash provided by operating activities
$ 180,000

Cash flows from investing activities

Purchase of equipment

-100,000

Cash flows from financing activities

Dividends paid

-100,000

Net increase (decrease) in cash

$ (20,000)

Cash balance, January 1, 20X2

$ 70,000
Cash balance, December 31, 20X2

$ 50,000

*Sales ($ 1,200,000) + decrease in accounts receivable ($60,000) ** Cost of goods sold ($800,000) + increase in merchandise inventory ($70,000) - increase in accounts payable ($40,000) *** Income tax expense ($30,000) - increase in income taxes payable ($30,000)

Part III :
a. Total machine hours for both products = 45,000, with the current product using 0.5 machine hours per product and the expansion product using 1 machine hour per product.

Expansion product =
5.60 direct materials
+4.00 direct labor
+1.00 variable factory overhead ($1/machine hour)
+ $4.40 fixed factory overhead ($198,000 total / 45,000 total machine hours = $4.40/machine hour) = $15.00 would be the product cost (excludes Selling expenses); with an additional $4.45 to sell the product (0.20 variable selling expense ($0.20/machine hour) + $4.25 fixed selling expense ($191,250 total / 45,000 total machine hours = $4.25/machine hour)

b. Selling price should be $25 per unit ($15 product cost / (1-40% desired margin))

c. The total fixed costs are $389,250. If only the current product is produced, the fixed cost per machine hour is $9.73 (389k/40,000 machine hours). By adding the expansion product, the fixed cost per machine hour is reduced to $8.65, or $1.08 cheaper per...
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