# ACC 206 Final PaperSolutions

Pages: 2 (473 words) Published: July 19, 2015
﻿Final Paper Solutions:

Part II Cash Flow Statement (a):

Cash flows from operating activities

\$ 1,260,000

Less cash payments for:

Purchases of merchandise**
\$830,000

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...