Reference no: EM131606464

Q1. Leidenheimer Corporation manufactures small airplane propellers. Sales for April totaled $850,000. Information regarding resources for the month follows:

	Resources Used	Resources Supplied
Parts management	$30,000	$35,000
Energy	50,000	50,000
Quality inspections	45,000	50,000
Long-term labor	25,000	35,000
Temporary labor	20,000	24,000
Setups	70,000	100,000
Materials	150,000	150,000
Depreciation	60,000	100,000
Marketing	70,000	75,000
Customer service	10,000	20,000
Administrative	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: 

a. Prepare a traditional income statement.

b. Prepare an activity-based income statement.

Q2. 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 costs-the 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.

	Service Departments		User Departments
	Info		Computer
	Systems	Facilities	Program	Consult	Training	Total
Budgeted Overhead	$50,000	$25,000	$75,000	$110,000	$85,000	$345,000
Info Systems (hrs)		400	1,100	600	900	3,000
Facilities (Sqft)	200,000		400,000	600,000	800,000	2,000,000

Information systems is allocated on the basis of hours of computer usage; facilities are allocated on the basis of floor space.

Required: Allocate the service department costs to the user departments using the direct method. (Round to the nearest dollar and provide total user department costs)

Q3. Bayfield Division of Ashland Inc. has a capacity of 200,000 units and expects the following results.

Sales (160,000 units at $4)	$640,000
Variable costs, at $2	320,000
Fixed costs	260,000
Income	$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:

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?