The Drogon Co. just issued a dividend of $3.30 per share on its common stock. The company is expected to maintain a constant 6.8 percent growth rate in its dividends indefinitely. If the stock sells for $66 a share, what is the company’s cost of equity?

The Drogon Co. just issued a dividend of $3.30 per share on its common stock. The company is expected to maintain a constant 6.8 percent growth rate in its dividends indefinitely.

If the stock sells for $66 a share, what is the company’s cost of equity?

Chocolaterie de Geneve, SA, is located in a French-speaking canton in Switzerland. The company makes chocolate truffles that are sold in popular embossed tins. The company has two processing departments—Cooking and Molding. In the Cooking Department, the raw ingredients for the truffles are mixed and then cooked in special candy-making vats. In the Molding Department, the melted chocolate and other ingredients from the Cooking Department are carefully poured into molds and decorative flourishes are applied by hand. After cooling, the truffles are packed for sale. The company uses a process costing system. The T-accounts below show the flow of costs through the two departments in April:

Work in Process—Cooking
Balance 4/1	8,000	Transferred out	160,000
Direct materials	42,000
Direct labor	50,000
Overhead	75,000

Work in Process—Molding
Balance 4/1	4,000	Transferred out	240,000
Transferred in	160,000
Direct labor	36,000
Overhead	45,000

Required:

Prepare journal entries showing the flow of costs through the two processing departments during April.

Klumper Corporation is a diversified manufacturer of industrial goods. The company’s activity-based costing system contains the following six activity cost pools and activity rates:

Klumper Corporation is a diversified manufacturer of industrial goods. The company’s activity-based costing system contains the following six activity cost pools and activity rates:

Activity Cost Pool	Activity Rates
Supporting direct labor	$	6	per direct labor-hour
Machine processing	$	4	per machine-hour
Machine setups	$	50	per setup
Production orders	$	90	per order
Shipments	$	14	per shipment
Product sustaining	$	840	per product

Activity data have been supplied for the following two products:

	Total Expected Activity
	K425	M67
Number of units produced per year	200	2,000
Direct labor-hours	80	500
Machine-hours	100	1,500
Machine setups	1	4
Production orders	1	4
Shipments	1	10
Product sustaining	1	1

Required:

How much total overhead cost would be assigned to K425 and M67 using the activity-based costing system?

Explanation

Vulcan Flyovers offers scenic overflights of Mount St. Helens, the volcano in Washington State that explosively erupted in 1982. Data concerning the company’s operations in July appear below:

Vulcan Flyovers offers scenic overflights of Mount St. Helens, the volcano in Washington State that explosively erupted in 1982. Data concerning the company’s operations in July appear below:

Vulcan Flyovers
Operating Data
For the Month Ended July 31
	Actual Results		Flexible Budget		Planning Budget
Flights (q)		48		48		50
Revenue ($320.00q)	$	13,650	$	15,360	$	16,000
Expenses:
Wages and salaries ($4,000 + $82.00q)		8,430		7,936		8,100
Fuel ($23.00q)		1,260		1,104		1,150
Airport fees ($650 + $38.00q)		2,350		2,474		2,550
Aircraft depreciation ($7.00q)		336		336		350
Office expenses ($190 + $2.00q)		460		286		290
Total expense		12,836		12,136		12,440
Net operating income	$	814	$	3,224	$	3,560

The company measures its activity in terms of flights. Customers can buy individual tickets for overflights or hire an entire plane for an overflight at a discount.

Required:

1. Prepare a flexible budget performance report for July that includes revenue and spending variances and activity variances. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)

Explanation

1.

Vulcan Flyovers
Flexible Budget Performance Report
For the Month Ended July 31
	Actual Results		Revenue and Spending Variances			Flexible Budget		Activity Variances			Planning Budget
Flights (q)		48					48					50
Revenue ($320.00q)	$	13,650	$	1,710	U	$	15,360	$	640	U	$	16,000
Expenses:
Wages and salaries ($4,000 + $82.00q)		8,430		494	U		7,936		164	F		8,100
Fuel ($23.00q)		1,260		156	U		1,104		46	F		1,150
Airport fees ($650 + $38.00q)		2,350		124	F		2,474		76	F		2,550
Aircraft depreciation ($7.00q)		336		0	None		336		14	F		350
Office expenses ($190 + $2.00q)		460		174	U		286		4	F		290
Total expense		12,836		700	U		12,136		304	F		12,440
Net operating income	$	814	$	2,410	U	$	3,224	$	336	U	$	3,560

Thermal Rising, Inc., makes paragliders for sale through specialty sporting goods stores. The company has a standard paraglider model, but also makes custom-designed paragliders. Management has designed an activity-based costing system with the following activity cost pools and activity rates:

Thermal Rising, Inc., makes paragliders for sale through specialty sporting goods stores. The company has a standard paraglider model, but also makes custom-designed paragliders. Management has designed an activity-based costing system with the following activity cost pools and activity rates:

Activity Cost Pool	Activity Rate
Supporting direct labor	$	26	per direct labor-hour
Order processing	$	284	per order
Custom design processing	$	186	per custom design
Customer service	$	379	per customer

Management would like an analysis of the profitability of a particular customer, Big Sky Outfitters, which has ordered the following products over the last 12 months:

	Standard Model		Custom Design
Number of gliders		20		3
Number of orders		1		3
Number of custom designs		0		3
Direct labor-hours per glider		26.35		28.00
Selling price per glider	$	1,850	$	2,400
Direct materials cost per glider	$	564	$	634

The company’s direct labor rate is $19.50 per hour.

Required:

Using the company’s activity-based costing system, compute the customer margin of Big Sky Outfitters.

Big Sky Outfitters Customer Margin—Activity-Based Costing
Sales ($1,850 per standard model glider × 20 standard model gliders + $2,400 per custom designed glider × 3 custom designed gliders)			$	44,200
Costs:
Direct materials ($564 per standard model glider × 20 standard model gliders + $634 per custom designed glider × 3 custom designed gliders)	$	13,182
Direct labor ($19.50 per direct labor-hour × 26.35 direct labor-hours per standard model glider × 20 standard model gliders + $19.50 per direct labor-hour × 28 direct labor-hours per custom designed glider × 3 custom designed gliders)		11,915
Supporting direct labor ($26 per direct labor-hour × 26.35 direct labor-hours per standard model glider × 20 standard model gliders + $26 per direct labor-hour × 28 direct labor-hours per custom designed glider × 3 custom designed gliders)		15,886
Order processing ($284 per order × 4 orders)		1,136
Custom design processing ($186 per custom design × 3 custom designs)		558
Customer service ($379 per customer × 1 customer)		379		43,056
Customer margin			$	1,144

Gunes Corporation uses the weighted-average method in its process costing system. This month, the beginning inventory in the first processing department consisted of 800 units. The costs and percentage completion of these units in beginning inventory were:

In a process costing system, costs are traced directly to jobs.

False

When materials are purchased in a process costing system, a work in process account is debited with the cost of the materials.

False

In a process costing system, overhead is allocated to departments after being applied to units of product.

False

In a process costing system, manufacturing overhead cost is also called conversion cost.

False

The units in beginning work in process inventory plus the units started into production must equal the units transferred out of the department plus the units in ending work in process inventory.

True

Gunes Corporation uses the weighted-average method in its process costing system. This month, the beginning inventory in the first processing department consisted of 800 units. The costs and percentage completion of these units in beginning inventory were:

	Cost				Percent Complete
Materials costs	$	10,600				65%
Conversion costs	$	12,800				30%

A total of 8,500 units were started and 7,400 units were transferred to the second processing department during the month. The following costs were incurred in the first processing department during the month:

	Cost
Materials costs	$	142,100
Conversion costs	$	359,500

The ending inventory was 50% complete with respect to materials and 35% complete with respect to conversion costs.

The cost of ending work in process inventory in the first processing department according to the company’s cost system is closest to:

Multiple Choice

Top of Form

$61,227

$48,071

Correct

$42,859

$122,453

Bottom of Form

Explanation

Weighted-average method

	Materials				Conversion
Units transferred to the next department		7,400				7,400
Ending work in process:
Materials: 1,900 units × 50%		950
Conversion: 1,900 units × 35%						665
Equivalent units of production		8,350				8,065

	Materials				Conversion
Cost of beginning work in process inventory	$	10,600			$	12,800
Costs added during the period		142,100				359,500
Total cost (a)	$	152,700			$	372,300
Equivalent units of production (b)		8,350				8,065
Cost per equivalent unit (a) ÷ (b)	$	18.287			$	46.162

	Materials				Conversion				Total
Ending work in process inventory:
Equivalent units of production (a)		950				665
Cost per equivalent unit (b)	$	18.287			$	46.162
Cost of ending work in process inventory (a) × (b)	$	17,373.05			$	30,698.02		$	48,071.07

Bistrol Corporation uses the weighted-average method in its process costing system. This month, the beginning inventory in the first processing department consisted of 800 units. The costs and percentage completion of these units in beginning inventory were:

	Cost				Percent Complete
Materials costs	$	15,700				75%
Conversion costs	$	7,700				20%

A total of 8,400 units were started and 7,500 units were transferred to the second processing department during the month. The following costs were incurred in the first processing department during the month:

	Cost
Materials costs	$	186,300
Conversion costs	$	329,800

The ending inventory was 70% complete with respect to materials and 60% complete with respect to conversion costs.

How many units are in ending work in process inventory in the first processing department at the end of the month?

Multiple Choice

Top of Form

7,600

900

1,700

Correct

1,200

Bottom of Form

Explanation

Units in ending work in process = Units in beginning work in process + Units started into production – Units transferred to the next department = 800 + 8,400 – 7,500 = 1,700

Bistrol Corporation uses the weighted-average method in its process costing system. This month, the beginning inventory in the first processing department consisted of 800 units. The costs and percentage completion of these units in beginning inventory were:

	Cost				Percent Complete
Materials costs	$	15,700				75%
Conversion costs	$	7,700				20%

A total of 8,400 units were started and 7,500 units were transferred to the second processing department during the month. The following costs were incurred in the first processing department during the month:

	Cost
Materials costs	$	186,300
Conversion costs	$	329,800

The ending inventory was 70% complete with respect to materials and 60% complete with respect to conversion costs.

What are the equivalent units for conversion costs for the month in the first processing department?

Garrison 16e Rechecks 2017-08-28

Multiple Choice

Top of Form

9,200

8,520

Correct

7,500

1,020

Bottom of Form

Explanation

Weighted-average method

	Conversion
Units transferred to the next department		7,500
Ending work in process: Conversion: 1,700 units × 60%		1,020
Equivalent units of production		8,520

Bistrol Corporation uses the weighted-average method in its process costing system. This month, the beginning inventory in the first processing department consisted of 800 units. The costs and percentage completion of these units in beginning inventory were:

	Cost				Percent Complete
Materials costs	$	15,700				75%
Conversion costs	$	7,700				20%

A total of 8,400 units were started and 7,500 units were transferred to the second processing department during the month. The following costs were incurred in the first processing department during the month:

	Cost
Materials costs	$	186,300
Conversion costs	$	329,800

The ending inventory was 70% complete with respect to materials and 60% complete with respect to conversion costs.

The cost per equivalent unit for materials for the month in the first processing department is closest to:

Multiple Choice

Top of Form

$21.44

$21.96

$20.25

$23.25

Correct

Bottom of Form

Explanation

Weighted-average method

	Materials
Units transferred to the next department		7,500
Ending work in process: Materials: 1,700 units × 70%		1,190
Equivalent units of production		8,690

	Materials
Cost of beginning work in process inventory	$	15,700
Costs added during the period		186,300
Total cost (a)	$	202,000
Equivalent units of production (b)		8,690
Cost per equivalent unit (a) ÷ (b)	$	23.245

Bistrol Corporation uses the weighted-average method in its process costing system. This month, the beginning inventory in the first processing department consisted of 800 units. The costs and percentage completion of these units in beginning inventory were:

	Cost				Percent Complete
Materials costs	$	15,700				75%
Conversion costs	$	7,700				20%

A total of 8,400 units were started and 7,500 units were transferred to the second processing department during the month. The following costs were incurred in the first processing department during the month:

	Cost
Materials costs	$	186,300
Conversion costs	$	329,800

The ending inventory was 70% complete with respect to materials and 60% complete with respect to conversion costs.

The cost per equivalent unit for conversion costs for the first department for the month is closest to:

Multiple Choice

Top of Form

$41.59

$38.71

$39.61

Correct

$36.68

Bottom of Form

Explanation

Weighted-average method

	Conversion
Units transferred to the next department		7,500
Ending work in process: Conversion: 1,700 units × 60%		1,020
Equivalent units of production		8,520

	Conversion
Cost of beginning work in process inventory	$	7,700
Costs added during the period		329,800
Total cost (a)	$	337,500
Equivalent units of production (b)		8,520
Cost per equivalent unit (a) ÷ (b)	$	39.613

Bistrol Corporation uses the weighted-average method in its process costing system. This month, the beginning inventory in the first processing department consisted of 800 units. The costs and percentage completion of these units in beginning inventory were:

	Cost				Percent Complete
Materials costs	$	15,700				75%
Conversion costs	$	7,700				20%

A total of 8,400 units were started and 7,500 units were transferred to the second processing department during the month. The following costs were incurred in the first processing department during the month:

	Cost
Materials costs	$	186,300
Conversion costs	$	329,800

The ending inventory was 70% complete with respect to materials and 60% complete with respect to conversion costs.

The total cost transferred from the first processing department to the next processing department during the month is closest to: (Round "Cost per equivalent unit" to 3 decimal places.)

Garrison 16e Rechecks 2017-07-13

Multiple Choice

Top of Form

$516,100

$471,435

Correct

$539,500

$578,294

Bottom of Form

Explanation

Weighted-average method

	Materials				Conversion
Units transferred to the next department		7,500				7,500
Ending work in process:
Materials: 1,700 units × 70%		1,190
Conversion: 1,700 units × 60%						1,020
Equivalent units of production		8,690				8,520

	Materials				Conversion
Cost of beginning work in process inventory	$	15,700			$	7,700
Costs added during the period		186,300				329,800
Total cost (a)	$	202,000			$	337,500
Equivalent units of production (b)		8,690				8,520
Cost per equivalent unit (a) ÷ (b)	$	23.245			$	39.613

	Materials				Conversion				Total
Units completed and transferred out:
Units transferred to the next department (a)		7,500				7,500
Cost per equivalent unit (b)	$	23.245			$	39.613
Cost of units completed and transferred out (a) × (b)	$	174,337.50			$	297,097.50			$	471,435.00

Which of the following journal entries would be used to record direct labor costs in a company having two processing departments (Department A and Department B)?

Multiple Choice

Top of Form

Work in Process	XXX
Salaries and Wages Payable		XXX

Salaries and Wages Expense	XXX
Salaries and Wages Payable		XXX

Work in Process-Department A	XXX
Work in Process-Department B	XXX
Salaries and Wages Payable		XXX

• Correct

Salaries and Wages Payable	XXX
Work in Process		XXX

Bottom of Form