# Variable Cost and New Conditioning Shampoo

1 January 2017

Bingham Corporation uses the weighted-average method in its process costing system. Data concerning the first processing department for the most recent month are listed below. Work in process, beginning: Units in beginning work-in-process inventory| 400| Materials costs| \$6,900| Conversion costs| \$2,500| Percentage complete for materials| 80%| Percentage complete for conversion| 15%| Units started into production during the month| 6,000|

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Units transferred to the next department during the month| 5,000| Materials costs added during the month| \$112,500| Conversion costs added during the month| \$210,300| Ending work in process: Units in ending work-in-process inventory| 1,200| Percentage complete for materials| 60%| Percentage complete for conversion| 30%| Required: Calculate the equivalent units for materials (using the weighted-average method) for the month in the first processing department.

Axillar Beauty Products Corporation is considering the production of a new conditioning shampoo that will require the purchase of new mixing machinery. The machinery will cost \$375,000, is expected to have a useful life of 10 years, and is expected to have a salvage value of \$50,000 at the end of 10 years. The machinery will also need a \$35,000 overhaul at the end of Year 6. A \$40,000 increase in working capital will be needed for this investment project.

The working capital will be released at the end of the 10 years. The new shampoo is expected to generate net cash inflows of \$85,000 per year for each of the 10 years. Axillar’s discount rate is 16%. Required: (a) What is the net present value of this investment opportunity? (b) Based on your answer to (a) above, should Axillar go ahead with the new conditioning shampoo? (Points : 35) | (TCO C) Nic Saybin Enterprises Accounting Department collects all pertinent monthly operating data. Selected data are presented below for the current month.

From the data provided, please provide Saybin Enterprises Management with a flexible budget analysis to see how costs were controlled. | Actual Costs Incurred| Static Budget| Activity level (in units)| 754,009| 746,500| Variable Costs:| Indirect materials| \$328,897| \$325,640| Utilities| \$174,332| \$171,890| Fixed Costs:| General and administrative| \$237,985| \$244,908| Rent| \$135,500| \$135,000| (Points : 30) (TCO D) Lindon Company uses 4,500 units of Part X each year as a component in the assembly of one of its products.

The company is presently producing Part X internally at a total cost of \$69,000 as follows: Direct materials| \$16,000| Direct labor| 18,000| Variable manufacturing overhead| 10,000| Fixed manufacturing overhead| 25,000| Total costs| \$69,000| An outside supplier has offered to provide Part X at a price of \$11 per unit. If Lindon stops producing the part internally, one third of the manufacturing overhead would be eliminated. Required: Prepare a make-or-buy analysis showing the annual advantage or disadvantage of accepting the outside supplier’s offer.

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