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1. Bingham Corporation uses the weighted-average

1. 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:

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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
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%

Calculate the equivalent units for materials (using the weighted-average method) for the month in the first processing department.

2. (Ignore income taxes in this problem.) Five years ago, the City of Paranoya spent $30,000 to purchase a computerized radar system called W.A.S.T.E. (Watching Aliens Sent To Earth). Recently, a sales rep from W.A.S.T.E. Radar Company told the city manager about a new and improved radar system that can be purchased for $50,000. The rep also told the manager that the company would give the city $10,000 in trade on the old system. The new system will last 10 years. The old system will also last that long but only if a $4,000 upgrade is done in 5 years. The manager assembled the following information to use in the decision regarding which system is more desirable:

Old System New System
Cost of radar system $30,000 $50,000
Current salvage value $10,000
Salvage value in 10 years $5,000 $8,000
Annual operating costs $34,000 $29,000
Upgrade required in 5 years $4,000
Discount rate 14% 14%

(a) What is the City of Paranoya’s net present value for the decision described above? Use the total cost approach.
(b) Should the City of Paranoya purchase the new system or keep the old system?

3. Topple Company produces a single product. Operating data for the company and its absorption costing income statement for the last year is presented below:

Units in beginning inventory 0
Units produced 9,000
Units sold 7,000
Sales $100,000

Less cost of goods sold:

Beginning inventory 0
Add cost of goods manufactured 54,000
Goods available for sale 54,000
Less ending inventory 12,000
Cost of goods sold 42,000
Gross margin 58,000
Less selling and admin. expenses 28,000
Net operating income $30,000

Variable manufacturing costs are $4 per unit. Fixed factory overhead totals $18,000 for the year. This overhead was applied at a rate of $2 per unit. Variable selling and administrative expenses were $1 per unit sold.

Prepare a new income statement for the year using variable costing. Comment on the differences between the absorption costing and the variable costing income statements.

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