Exam III
1. Leidenheimer Corporation manufactures small airplane propellers. Sales for April totaled $850,000. Information regarding resources for
the month follows: Parts management
Energy
Quality inspections
Long-term labor
Temporary labor
Setups
Materials
Depreciation
Marketing
Customer service
Administrative Resources
Resources
Used
Supplied
$30,000
$35,000
50,000
50,000
45,000
50,000
25,000
35,000
20,000
24,000
70,000
100,000
150,000
150,000
60,000
100,000
70,000
75,000
10,000
20,000
50,000
70,000 In addition, Leidenheimer spent $25,000 on 50 engineering changes
with a cost driver rate of $500 and $30,000 on eight outside contracts
with a cost driver rate of $3,750.
Required: (33 Points)
a. Prepare a traditional income statement.
b. Prepare an activity-based income statement. 2. Computer Information Services is a computer software consulting company. Its three major functional areas are computer programming,
information systems consulting, and software training. Carol Birch, a
pricing analyst in the Accounting Department, has been asked to
develop total costs for the functional areas. These costs will be used
as a guide in pricing a new contract. In computing these costs, Birch
is considering three different methods of allocating overhead coststhe direct method, the step method, and the reciprocal method. Birch
assembled the following data on overhead from its two service
departments, the Information Systems Department and the Facilities
Department. Budgeted
Overhead
Info Systems
(hrs)
Facilities (Sq
ft) Service
User Departments
Departments
Info
Computer
Systems
Facilitie Program
Consult Trainin Total
s
g
$50,000
$25,00
$75,000
$110,0
$85,00 $345,00
0
00
0
0
400
1,100
600
900
3,000
200,000 400,000 600,00
0 800,00
0 2,000,0
00 Information systems is allocated on the basis of hours of computer
usage; facilities are allocated on the basis of floor space.
Required: (33 Points) Allocate the service department costs to the user departments using
the direct method. (Round to the nearest dollar and provide total user
department costs) 3. Bayfield Division of Ashland Inc. has a capacity of 200,000 units and
expects the following results.
Sales (160,000 units at
$4)
Variable costs, at $2
Fixed costs
Income $640,000
320,000
260,000
$60,000 Washburn Division of Ashland Inc. currently purchases 50,000 units of
a part for one of its products from an outside supplier for $4 per unit.
Washburn’s manager believes he could use a minor variation of
Bayfield’s product instead, and offers to buy the units from Bayfield at
$3.50. Making the variation desired by Washburn would cost Bayfield
an additional $0.50 per unit and would increase Bayfield’s annual cash
fixed costs by $20,000. Bayfield’s manager agrees to the deal offered
by Washburn’s manager.
Required: (33 Points)
a. What is the effect of the deal on Washburn’s income?
b. What is the effect of the deal on Bayfield’s income?
c. What is the effect of the deal on the income of Ashland Inc. as a
whole?