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Paper writing help, The company started 609,452 pillows in production this year

Softy Pillows, Inc.

4th Edition

Softy Pillows, Inc. manufactures 18 inch x 36 inch standard bed pillows. All pillows are sold for the same price of $ 8.99 each to major retail stores. Total sales are estimated to be 605,000 pillows this year.

The Manufacturing Process:

The cutting machine operator puts the cotton cloth into a machine that cuts the cotton cloth into two rectangles the size of the pillow. The two pieces of cotton cloth are then fed into another machine (the assembly machine) that sews three sides, stuffs the pillow with poly fiber fill and then sews the end to keep the poly fiber fill in the pillow. A worker takes the pillow off the assembly machine and puts the pillow into a pre-printed plastic bag to finish the manufacturing process.

The company estimates that manufacturing one pillow requires the following:

Direct Material:

Cotton Fabric

0.75 yards

$ 1.89 per yard

Poly Fiber Fill

20 ounces

$ 0.08 per ounce

Plastic Bag

1 each

$ 0.11 each

Direct Labor:

1 Cutting Machine Operator

0.03 hours at $ 16.69 per hour (33 pillows per hour)

2 Assembly Machine Operators

0.025 hours each at $ 15 per hour (40 pillows hr each)

1 Packing

0.02 hours each at $ 9 per hour (50 pillows per hr)

The cutting machine operator takes the cotton cloth off the bolt of material and feeds the cotton fabric into the cutting machine. One assembly machine operator puts the cut cotton fabric into the machine and one assembly machine operator puts the poly fiber fill into the machine. The packing employee takes the pillow off the assembly machine and puts the pillow into a pre-printed plastic bag.

Manufacturing overhead is allocated to pillows based on total machine hours used. One hour of machine time is used for each hour a machine operator works. The company expects to manufacture 620,000 pillows this year.

The relevant range for the company given the size of the manufacturing facility and the number of machines available is from 500,000 to 750,000 pillows manufactured.

Inventory control employees move the required direct materials to the correct machine and take the finished pillows to the finished goods warehouse area. Receiving employees receive direct materials shipped from suppliers and manage the direct materials warehouse area. Shipping employees pack orders for shipment to customers. All orders are shipped using United Parcel Service (“UPS”).

Important: Use the Above Budget Information for Tasks 1 to 6

Actual Operating Information for the Current Year (Tasks 7 to 11):

The company actually sold 592,635 pillows this year.

The company actually manufactured 601,500 pillows this year.

Actual direct labor hours worked making pillows this year were:

Cutting Machine Operators

11,213

Assembly Machine Operators

32,615

Packing Employees

15,328

See inventory reports for information related to direct materials, work in process and finished goods.

Actual Sales Information for the Current Year (Task 11):

The company is managed by geographic areas: United States, Asia and Europe. Each geographic area has sales manager(s) and several contract sales people. Sales managers are paid a salary, work out of their own homes, and are reimbursed for expenses. Part-time sales people are paid sales commission of 2% of sales only.

Information related to the 3 sales areas follow:

Pillows Sold

Sales People

Sales Get research paper samples and course-specific study resources under   homework for you course hero writing service – Manage rs

United States

363,738

8

3

Asia

143,046

3

1

Europe

85,851

2

1

Total direct fixed selling costs are incurred as follows by the geographic areas:

United States

73%

Asia

14%

Europe

13%

The company estimated that average operating assets for the year would be $ 2,050,000. Actual average operating assets for the year totaled $ 2,263,254.

Budget Information for Next Year (Use for Task 12):

The sales price for one pillow is expected to remain at $ 8.99. The company expects to manufacture and sell 625,000 pillows next year. Total fixed manufacturing overhead is expected to be $ 400,000. Total variable manufacturing overhead is expected to be $ 250,000. Manufacturing overhead depreciation expense is expected to be $ 42,000.

The company budgets period costs using the actual amounts for the prior year and makes adjustments for changes in operations planned for next year. Administrative expenses and warehouse expenses are expected to remain the same next year. Fixed selling and marketing expenses are expected to increase by 10%. Variable selling and marketing expenses are expected to remain the same per unit.

The company desires to keep direct materials on hand at 2.5 times what is required for next month’s production and to keep finished pillows at the total amount of the following three month’s estimated sales.

Pillow sales for next year are expected to be:

January

46,000

February

40,000

March

51,000

April

59,000

May

51,000

June

44,000

July, August, September

54,000

each month

October

84,000

November, December

44,000

each month

Approximately 10% of sales dollars are collected in the month of sale, 60% in the next month and 29% in the second month following the sale. Purchases of direct materials are paid for 15% in the current month and 85% the following month.

The company budgets to keep a minimum cash balance at the end of each month of $ 50,000. A line of credit is in place which allows borrowing in increments of $ 10,000 at an annual interest rate of 8%. Interest is paid at the end of each quarter.

Process Costing Information (Use for Task 13):

The company started 609,452 pillows in production this year. Ending work in process has 70% of materials and 30% of direct labor and is 40% completed for manufacturing overhead. There were 3,290 pillows in beginning work in process. Round equivalent units to the nearest round number.

Question 2

Hercules Exercise Equipment Co. purchased a computerized measuring device two years ago for $52,000. The equipment falls into the five-year category for MACRS depreciation and can currently be sold for $21,800. A new piece of equipment will cost $142,000. It also falls into the five-year category for MACRS depreciation. Assume the new equipment would provide the following stream of added cost savings for the next six years. Use Table 12–12. Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods.

Year Cash Savings
1 $ 59,000
2 51,000
3 49,000
4 47,000
5 44,000
6 33,000

The firm’s tax rate is 35 percent and the cost of capital is 9 percent.

a. What is the book value of the old equipment? (Do not round intermediate calculations and round your answer to the nearest whole dollar.)

b. What is the tax loss on the sale of the old equipment? (Do not round intermediate calculations and round your answer to the nearest whole dollar.)

c. What is the tax benefit from the sale? (Do not round intermediate calculations and round your answer to the nearest whole dollar.)

d. What is the cash inflow from the sale of the old equipment? (Do not round intermediate calculations and round your answer to the nearest whole dollar.)

e. What is the net cost of the new equipment? (Include the inflow from the sale of the old equipment.) (Do not round intermediate calculations and round your answer to the nearest whole dollar.)

f. Determine the depreciation schedule for the new equipment. (Round the depreciation base and annual depreciation answers to the nearest whole dollar. Round the percentage depreciation factors to 3 decimal places.)

g. Determine the depreciation schedule for the remaining years of the old equipment. (Round the depreciation base and annual depreciation answers to the nearest whole dollar. Round the percentage depreciation factors to 3 decimal places.)

h. Determine the incremental depreciation between the old and new equipment and the related tax shield benefits. (Enter the tax rate as a decimal rounded to 2 decimal places. Round all other answers to the nearest whole dollar.)

i. Compute the aftertax benefits of the cost savings. (Enter the aftertax factor as a decimal rounded to 2 decimal places. Round all other answers to the nearest whole dollar.)

j-1. Add the depreciation tax shield benefits and the aftertax cost savings to determine the total annual benefits. (Do not round intermediate calculations and round your answers to the nearest whole dollar.)

j-2. Compute the present value of the total annual benefits. (Do not round intermediate calculations and round your answer to the nearest whole dollar.)

k-1. Compare the present value of the incremental benefits (j) to the net cost of the new equipment (e). (Do not round intermediate calculations. Negative amount should be indicated by a minus sign. Round your answer to the nearest whole dollar.)

k-2. Should the replacement be undertaken?

Yes
No

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