Ch 6. Questions for Review and Discussion
6. How should governments report their capital projects and debt service activities in their government-wide statements?
Click here for the solution: How should governments report their capital projects and debt service activities in their government-wide statements?
Monday, April 18, 2016
Lane & Goble Bookstore has a liberal return policy
E8-13 – Identifying and correcting an internal control weakness
Lane & Goble Bookstore has a liberal return policy. A customer can return any product for a full refund within 30 days of purchase. When a customer returns merchandise, Lane & Goble policy specifies:
• Store clerk issues a prenumbered return slip and refunds cash from the cash register. Keep a copy of the return slip for review by the manager.
• Store clerk places the returned goods back on the shelf as soon as possible. Lane & Goble uses a perpetual inventory system.
1. How can a dishonest store clerk steal from Lane & Goble? What part of company policy enables the store clerk to steal without getting caught?
2. How can Lane & Goble improve its internal controls to prevent this theft?
Click here for the solution: Lane & Goble Bookstore has a liberal return policy
Lane & Goble Bookstore has a liberal return policy. A customer can return any product for a full refund within 30 days of purchase. When a customer returns merchandise, Lane & Goble policy specifies:
• Store clerk issues a prenumbered return slip and refunds cash from the cash register. Keep a copy of the return slip for review by the manager.
• Store clerk places the returned goods back on the shelf as soon as possible. Lane & Goble uses a perpetual inventory system.
1. How can a dishonest store clerk steal from Lane & Goble? What part of company policy enables the store clerk to steal without getting caught?
2. How can Lane & Goble improve its internal controls to prevent this theft?
Click here for the solution: Lane & Goble Bookstore has a liberal return policy
William County opted to account for its duplication service center in an internal service fund
Government and Not-for-Profit Accounting
E. 9-3 Internal service funds are accounted for similarly to businesses
William County opted to account for its duplication service center in an internal service fund. Previously the center had been accounted for in the county’s general fund. During the first month in which it was accounted for as an internal service fund the center engaged in the following transactions:
1. Five copiers were transferred to the internal service fund from the government’s general capital assets. At the time of transfer the copiers had a book value (net of accumulated depreciation) of $70,000.
2. The general fund made an initial cash contribution of $35,000 to the internal service fund.
3. The center borrowed $270,000 from a local bank to finance the purchase of additional equipment and renovation of its facilities. It issued a three-year note.
4. It purchased equipment for $160,000 and paid contractors $100,000 for improvements to its facilities.
5. It billed the county clerk’s office $5,000 for printing services, of which the office remitted $2,500.
6. It incurred, and paid in cash, various operating expenses of $9,000.
7. The fund recognized depreciation of $1,500 on its equipment and $900 on the improvements to its facilities.
a. Prepare journal entries in the internal service fund to record the transactions.
b. Comment on the main differences resulting from the shift from the general fund to an internal service fund in how the center's assets and liabilities would be accounted for and reported
Click here for the solution: William County opted to account for its duplication service center in an internal service fund
E. 9-3 Internal service funds are accounted for similarly to businesses
William County opted to account for its duplication service center in an internal service fund. Previously the center had been accounted for in the county’s general fund. During the first month in which it was accounted for as an internal service fund the center engaged in the following transactions:
1. Five copiers were transferred to the internal service fund from the government’s general capital assets. At the time of transfer the copiers had a book value (net of accumulated depreciation) of $70,000.
2. The general fund made an initial cash contribution of $35,000 to the internal service fund.
3. The center borrowed $270,000 from a local bank to finance the purchase of additional equipment and renovation of its facilities. It issued a three-year note.
4. It purchased equipment for $160,000 and paid contractors $100,000 for improvements to its facilities.
5. It billed the county clerk’s office $5,000 for printing services, of which the office remitted $2,500.
6. It incurred, and paid in cash, various operating expenses of $9,000.
7. The fund recognized depreciation of $1,500 on its equipment and $900 on the improvements to its facilities.
a. Prepare journal entries in the internal service fund to record the transactions.
b. Comment on the main differences resulting from the shift from the general fund to an internal service fund in how the center's assets and liabilities would be accounted for and reported
Click here for the solution: William County opted to account for its duplication service center in an internal service fund
Robert Buey became Chief Executive Officer of Phelps Manufacturing two years ago
BYP 9-6 Robert Buey became Chief Executive Officer of Phelps Manufacturing two years ago. At the time, the company was reporting lagging profits, and Robert was brought in to "stir thing up." The company has three divisions, electronics, fiber optics, and plumbing supplies. Robert has no interest in plumbing supplies, and one of the first fixed costs away from the other two divisions to the plumbing division. This had the effect of causing the plumbing division to report losses during the last two years; in the past it had always reported low, but acceptable, net income. Robert felt that this reallocation would shine a favorable light on him in front of the board of directors because it meant that the electronics and fiber optics divisions would look like they were improving.
Given that these are "business of the future," he believed that the stock market would react favorably to these increase, while not penalizing the poor results of the plumbing division. Without this shift in the allocation of fixed costs, the profits of the electronics and fiber optics divisions would not have improved. But now the board of directors has suggested that the plumbing division be closed because it is reporting losses. This would mean that nearly 500 employees, many of whom have worked for Phelps their whole lives, would lose their jobs.
Instructions
(a) If a division is reporting losses, does that necessarily mean that it should be closed?
(b) Was the reallocation of fixed costs across division unethical?
(c)What should Robert do?
Click here for the solution: Robert Buey became Chief Executive Officer of Phelps Manufacturing two years ago
Given that these are "business of the future," he believed that the stock market would react favorably to these increase, while not penalizing the poor results of the plumbing division. Without this shift in the allocation of fixed costs, the profits of the electronics and fiber optics divisions would not have improved. But now the board of directors has suggested that the plumbing division be closed because it is reporting losses. This would mean that nearly 500 employees, many of whom have worked for Phelps their whole lives, would lose their jobs.
Instructions
(a) If a division is reporting losses, does that necessarily mean that it should be closed?
(b) Was the reallocation of fixed costs across division unethical?
(c)What should Robert do?
Click here for the solution: Robert Buey became Chief Executive Officer of Phelps Manufacturing two years ago
What is the relationship between a bond's price and its yield to maturity?
What is the relationship between a bond's price and its yield to maturity?
Click here for the solution: What is the relationship between a bond's price and its yield to maturity?
Click here for the solution: What is the relationship between a bond's price and its yield to maturity?
Summit Manufacturing, Inc. produces snow shovels
Summit Manufacturing, Inc. produces snow shovels. The selling price per snow shovel is $30.
Costs involved in production are:
Direct material $5
Direct labor 4
Variable manufacturing overhead 3
Total variable manufacturing costs per unit $12
Fixed manufacturing overhead per year $180,000
In addition, the company has fixed selling and administrative costs of $160,000 per year.
EXERCISE 5-11. [LO 1] During the year, Summit produces 40,000 snow shovels and sells 37,000 snow shovels.
Required
What is the value of ending inventory using full costing?
EXERCISE 5-12. [LO 1, 2] During the year, Summit produces 40,000 snow shovels and sells 37,000 snow shovels.
Required
What is the value of ending inventory using variable costing?
EXERCISE 5-13. [LO 1, 2, 3] During the year, Summit produces 40,000 snow shovels and sells 37,000 snow shovels.
Required
Calculate the difference in full costing net income and variable costing net income without preparing either income statement.
EXERCISE 5-14. [LO 1] During the year, Summit produces 40,000 snow shovels and sells 37,000 snow shovels.
Required
What is cost of goods sold using full costing?
EXERCISE 5-15. [LO 1, 2] During the year, Summit produces 40,000 snow shovels and sells 37,000 snow shovels.
Required
What is variable cost of goods sold?
EXERCISE 5-16. [LO 1] During the year, Summit produces 40,000 snow shovels and sells 37,000 snow shovels.
Required
What is net income using full costing?
EXERCISE 5-17. [LO 1, 2] During the year, Summit produces 40,000 snow shovels and sells 37,000 snow shovels.
Required
What is net income using variable costing?
Click here for the solution: Summit Manufacturing, Inc. produces snow shovels
Costs involved in production are:
Direct material $5
Direct labor 4
Variable manufacturing overhead 3
Total variable manufacturing costs per unit $12
Fixed manufacturing overhead per year $180,000
In addition, the company has fixed selling and administrative costs of $160,000 per year.
EXERCISE 5-11. [LO 1] During the year, Summit produces 40,000 snow shovels and sells 37,000 snow shovels.
Required
What is the value of ending inventory using full costing?
EXERCISE 5-12. [LO 1, 2] During the year, Summit produces 40,000 snow shovels and sells 37,000 snow shovels.
Required
What is the value of ending inventory using variable costing?
EXERCISE 5-13. [LO 1, 2, 3] During the year, Summit produces 40,000 snow shovels and sells 37,000 snow shovels.
Required
Calculate the difference in full costing net income and variable costing net income without preparing either income statement.
EXERCISE 5-14. [LO 1] During the year, Summit produces 40,000 snow shovels and sells 37,000 snow shovels.
Required
What is cost of goods sold using full costing?
EXERCISE 5-15. [LO 1, 2] During the year, Summit produces 40,000 snow shovels and sells 37,000 snow shovels.
Required
What is variable cost of goods sold?
EXERCISE 5-16. [LO 1] During the year, Summit produces 40,000 snow shovels and sells 37,000 snow shovels.
Required
What is net income using full costing?
EXERCISE 5-17. [LO 1, 2] During the year, Summit produces 40,000 snow shovels and sells 37,000 snow shovels.
Required
What is net income using variable costing?
Click here for the solution: Summit Manufacturing, Inc. produces snow shovels
The Divine Cheesecake Shoppe is a national bakery that is known for its strawberry cheesecake
Chapter 6 Problem 6-12 Activity-Based Costing [LO 5]
The Divine Cheesecake Shoppe is a national bakery that is known for its strawberry cheesecake. It also makes 12 different kinds of cheesecake as well as many other types of bakery items. It has recently adopted an activity-based costing system to assign manufacturing overhead to products. The following data relate to its strawberry cheesecake and the ABC cost pools:
AND SO ON
Required
a. Calculate the overhead rate per unit of activity for each of the five cost pools.
b. Calculate the total overhead assigned to the production of the strawberry cheesecake.
c. Calculate the overhead cost per unit for the strawberry cheesecake. Round to three decimal places.
d. Calculate the total unit cost for the strawberry cheesecake. Round to three decimal places.
e. Suppose that the Divine Cheesecake Shoppe allocates overhead by a traditional production volume-based method using direct labor dollars as the allocation base and one cost pool. Determine the overhead rate per direct labor dollar and the per unit overhead assigned to the strawberry cheesecake. Discuss the difference in cost allocations between the traditional method and the activity-based costing approach. Round to three decimal places.
Click here for the solution: The Divine Cheesecake Shoppe is a national bakery that is known for its strawberry cheesecake
The Divine Cheesecake Shoppe is a national bakery that is known for its strawberry cheesecake. It also makes 12 different kinds of cheesecake as well as many other types of bakery items. It has recently adopted an activity-based costing system to assign manufacturing overhead to products. The following data relate to its strawberry cheesecake and the ABC cost pools:
AND SO ON
Required
a. Calculate the overhead rate per unit of activity for each of the five cost pools.
b. Calculate the total overhead assigned to the production of the strawberry cheesecake.
c. Calculate the overhead cost per unit for the strawberry cheesecake. Round to three decimal places.
d. Calculate the total unit cost for the strawberry cheesecake. Round to three decimal places.
e. Suppose that the Divine Cheesecake Shoppe allocates overhead by a traditional production volume-based method using direct labor dollars as the allocation base and one cost pool. Determine the overhead rate per direct labor dollar and the per unit overhead assigned to the strawberry cheesecake. Discuss the difference in cost allocations between the traditional method and the activity-based costing approach. Round to three decimal places.
Click here for the solution: The Divine Cheesecake Shoppe is a national bakery that is known for its strawberry cheesecake
Jeffrey Vaughn, president of Frame-It Company, was just concluding a budget meeting with his senior staff
Comprehensive Master Budget
Accounting 2302
Jeffrey Vaughn, president of Frame-It Company, was just concluding a budget meeting with his senior staff. It was November of 20x0, and the group was discussing preparation of the firm’s master budget for 20x1. “I’ve decided to go ahead and purchase the industrial robot we’ve been talking about. We’ll make the acquisition on January 2 of next year, and I expect it will take most of the year to train the personnel and reorganize the production process to take full advantage of the new equipment.”
AND SO ON
Prepare Frame-It Company’s master budget for 20x1 by completing the following schedules and statements.
1. Sales budget:
2. Cash receipts budget:
3. Production budget:
4. Direct-material budget
5. Cash disbursements budget:
6. Summary cash budget:
7. Prepare a budgeted schedule of cost of goods manufactured and sold for the year 20x1. Note: Budgeted and actual MOH will be equal.
8. Prepare Frame-It’s budgeted income statement for 20x1. (Ignore income taxes.)
9. Prepare Frame-It’s budgeted statement of retained earnings for 20x1.
10. Prepare Frame-It’s budgeted balance sheet as of December 31, 20x1.
Click here for the solution: Jeffrey Vaughn, president of Frame-It Company, was just concluding a budget meeting with his senior staff
Accounting 2302
Jeffrey Vaughn, president of Frame-It Company, was just concluding a budget meeting with his senior staff. It was November of 20x0, and the group was discussing preparation of the firm’s master budget for 20x1. “I’ve decided to go ahead and purchase the industrial robot we’ve been talking about. We’ll make the acquisition on January 2 of next year, and I expect it will take most of the year to train the personnel and reorganize the production process to take full advantage of the new equipment.”
AND SO ON
Prepare Frame-It Company’s master budget for 20x1 by completing the following schedules and statements.
1. Sales budget:
2. Cash receipts budget:
3. Production budget:
4. Direct-material budget
5. Cash disbursements budget:
6. Summary cash budget:
7. Prepare a budgeted schedule of cost of goods manufactured and sold for the year 20x1. Note: Budgeted and actual MOH will be equal.
8. Prepare Frame-It’s budgeted income statement for 20x1. (Ignore income taxes.)
9. Prepare Frame-It’s budgeted statement of retained earnings for 20x1.
10. Prepare Frame-It’s budgeted balance sheet as of December 31, 20x1.
Click here for the solution: Jeffrey Vaughn, president of Frame-It Company, was just concluding a budget meeting with his senior staff
TufStuff, Inc. sells a wide range of drums, bins, boxes, and other containers that are used in the chemical industry
CASE 13–30 Make or Buy; Utilization of a Constrained Resource [LO1, LO3, LO5]
TufStuff, Inc. sells a wide range of drums, bins, boxes, and other containers that are used in the chemical industry. One of the company’s products is a heavy-duty corrosion-resistant metal drum, called the WVD drum, used to store toxic wastes. Production is constrained by the capacity of an automated welding machine that is used to make precision welds. A total of 2,000 hours of welding time is available annually on the machine. Because each drum requires 0.4 hours of welding time, annual production is limited to 5,000 drums. At present, the welding machine is used exclusively to make the WVD drums. The accounting department has provided the following financial data concerning the WVD drums:
WVD Drums
Selling price per drum . . . . . . . . . . . . . . $149.00
Cost per drum:
Direct materials . . . . . . . . . . . . . . . . . $52.10
Direct labor ($18 per hour) . . . . . . . . 3.60
Manufacturing overhead . . . . . . . . . . 4.50
Selling and administrative expense. . 29.80 90.00
Margin per drum . . . . . . . . . . . . . . . . . . $ 59.00
AND SO ON
ALL 5 REQUIREMENTS ANSWERED.
Click here for the solution: TufStuff, Inc. sells a wide range of drums, bins, boxes, and other containers that are used in the chemical industry
TufStuff, Inc. sells a wide range of drums, bins, boxes, and other containers that are used in the chemical industry. One of the company’s products is a heavy-duty corrosion-resistant metal drum, called the WVD drum, used to store toxic wastes. Production is constrained by the capacity of an automated welding machine that is used to make precision welds. A total of 2,000 hours of welding time is available annually on the machine. Because each drum requires 0.4 hours of welding time, annual production is limited to 5,000 drums. At present, the welding machine is used exclusively to make the WVD drums. The accounting department has provided the following financial data concerning the WVD drums:
WVD Drums
Selling price per drum . . . . . . . . . . . . . . $149.00
Cost per drum:
Direct materials . . . . . . . . . . . . . . . . . $52.10
Direct labor ($18 per hour) . . . . . . . . 3.60
Manufacturing overhead . . . . . . . . . . 4.50
Selling and administrative expense. . 29.80 90.00
Margin per drum . . . . . . . . . . . . . . . . . . $ 59.00
AND SO ON
ALL 5 REQUIREMENTS ANSWERED.
Click here for the solution: TufStuff, Inc. sells a wide range of drums, bins, boxes, and other containers that are used in the chemical industry
Software Solutions, Inc., was started by two young software engineers to market SpamBlocker
Problem A-6 The Economists’ Approach to Pricing; Absorption Costing Approach to Cost-Plus Pricing
Software Solutions, Inc., was started by two young software engineers to market SpamBlocker, a software application they had written that screens incoming e-mail messages and eliminates unsolicited mass mailings. Sales of the software have been good at 50,000 units a month, but the company has been losing money as shown below:
Sales (50,000 units _ $25 per unit) . . . . . . . . . $1,250,000
Variable cost (50,000 units _ $6 per unit) . . . . 300,000
Contribution margin . . . . . . . . . . . . . . . . . . . . . 950,000
Fixed expenses . . . . . . . . . . . . . . . . . . . . . . . . 960,000
Net operating income (loss) . . . . . . . . . . . . . . . $ (10,000)
The company’s only variable cost is the $6 fee it pays to another company to reproduce the software on floppy diskettes, print manuals, and package the result in an attractive box for sale to consumers. Monthly fixed selling and administrative expenses are $960,000. The company’s marketing manager has been arguing for some time that the software is priced too high. She estimates that every 5% decrease in price will yield an 8% increase in unit sales. The marketing manager would like your help in preparing a presentation to the company’s owners concerning the pricing issue.
Required:
1. To help the marketing manager prepare for her presentation, she has asked you to fill in the blanks in the following table. The selling prices in the table were computed by successively decreasing the selling price by 5%. The estimated unit sales were computed by successively increasing the unit sales by 8%. For example, $23.75 is 5% less than $25.00 and 54,000 units is 8% more than 50,000 units
Selling Price, Estimated Unit Sales, Sales, Variable Cost, Fixed Expenses, Net Operating Income
$25.00 50,000 $1,250,000 $300,000 $960,000 $(10,000)
$23.75 54,000 $1,282,500 $324,000 $960,000 $ (1,500)
$22.56 58,320 ? ? ? ?
$21.43 62,986 ? ? ? ?
$20.36 68,025 ? ? ? ?
$19.34 73,467 ? ? ? ?
$18.37 79,344 ? ? ? ?
$17.45 85,692 ? ? ? ?
$16.58 92,547 ? ? ? ?
$15.75 99,951 ? ? ? ?
2. Using the data from the table, construct a chart that shows the net operating income as a function of the selling price. Put the selling price on the X-axis and the net operating income on the Y-axis. Using the chart, determine the approximate selling price at which net operating income is maximized.
3. Compute the price elasticity of demand for the SpamBlocker software. Based on this calculation, what is the profit-maximizing price?
4. The owners have invested $2,000,000 in the company and feel that they should be earning at least 2% per month on these funds. If the absorption costing approach to pricing were used, what would be the target selling price based on the current sales of 50,000 units? What do you think would happen to the net operating income of the company if this price were charged?
5. If the owners of the company are dissatisfied with the net operating income and return on investment at the selling price you computed in (3) above, should they increase the selling price? Explain.
Click here for the solution: Software Solutions, Inc., was started by two young software engineers to market SpamBlocker
Software Solutions, Inc., was started by two young software engineers to market SpamBlocker, a software application they had written that screens incoming e-mail messages and eliminates unsolicited mass mailings. Sales of the software have been good at 50,000 units a month, but the company has been losing money as shown below:
Sales (50,000 units _ $25 per unit) . . . . . . . . . $1,250,000
Variable cost (50,000 units _ $6 per unit) . . . . 300,000
Contribution margin . . . . . . . . . . . . . . . . . . . . . 950,000
Fixed expenses . . . . . . . . . . . . . . . . . . . . . . . . 960,000
Net operating income (loss) . . . . . . . . . . . . . . . $ (10,000)
The company’s only variable cost is the $6 fee it pays to another company to reproduce the software on floppy diskettes, print manuals, and package the result in an attractive box for sale to consumers. Monthly fixed selling and administrative expenses are $960,000. The company’s marketing manager has been arguing for some time that the software is priced too high. She estimates that every 5% decrease in price will yield an 8% increase in unit sales. The marketing manager would like your help in preparing a presentation to the company’s owners concerning the pricing issue.
Required:
1. To help the marketing manager prepare for her presentation, she has asked you to fill in the blanks in the following table. The selling prices in the table were computed by successively decreasing the selling price by 5%. The estimated unit sales were computed by successively increasing the unit sales by 8%. For example, $23.75 is 5% less than $25.00 and 54,000 units is 8% more than 50,000 units
Selling Price, Estimated Unit Sales, Sales, Variable Cost, Fixed Expenses, Net Operating Income
$25.00 50,000 $1,250,000 $300,000 $960,000 $(10,000)
$23.75 54,000 $1,282,500 $324,000 $960,000 $ (1,500)
$22.56 58,320 ? ? ? ?
$21.43 62,986 ? ? ? ?
$20.36 68,025 ? ? ? ?
$19.34 73,467 ? ? ? ?
$18.37 79,344 ? ? ? ?
$17.45 85,692 ? ? ? ?
$16.58 92,547 ? ? ? ?
$15.75 99,951 ? ? ? ?
2. Using the data from the table, construct a chart that shows the net operating income as a function of the selling price. Put the selling price on the X-axis and the net operating income on the Y-axis. Using the chart, determine the approximate selling price at which net operating income is maximized.
3. Compute the price elasticity of demand for the SpamBlocker software. Based on this calculation, what is the profit-maximizing price?
4. The owners have invested $2,000,000 in the company and feel that they should be earning at least 2% per month on these funds. If the absorption costing approach to pricing were used, what would be the target selling price based on the current sales of 50,000 units? What do you think would happen to the net operating income of the company if this price were charged?
5. If the owners of the company are dissatisfied with the net operating income and return on investment at the selling price you computed in (3) above, should they increase the selling price? Explain.
Click here for the solution: Software Solutions, Inc., was started by two young software engineers to market SpamBlocker
Friday, April 15, 2016
Barlow Company manufactures three products: A, B, and C
Exercise 13-5 Utilization of a Constrained Resource
Barlow Company manufactures three products: A, B, and C. The selling price, variable costs, and Contribution margin for one unit of each product follow:
Product
A B C
Selling price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $180 $270 $240
Variable expenses:
Direct materials . . . . . . . . . . . . . . . . . . . . . . . . . 24 72 32
Other variable expenses . . . . . . . . . . . . . . . . . . 102 90 148
Total variable expenses . . . . . . . . . . . . . . . . . . . . . 126 162 180
Contribution margin . . . . . . . . . . . . . . . . . . . . . . . . $ 54 $108 $ 60
Contribution margin ratio . . . . . . . . . . . . . . . . . . . . 30% 40% 25%
The same raw material is used in all three products. Barlow Company has only 5,000 pounds of raw material on hand and will not be able to obtain any more of it for several weeks due to a strike in its supplier’s plant. Management is trying to decide which product(s) to concentrate on next week in filling its backlog of orders. The material costs $8 per pound.
Required:
1. Compute the amount of contribution margin that will be obtained per pound of material used in each product.
2. Which orders would you recommend that the company work on next week—the orders for product A, product B, or product C? Show computations.
3. A foreign supplier could furnish Barlow with additional stocks of the raw material at a substantial premium over the usual price. If there is unfilled demand for all three products, what is the highest price that Barlow Company should be willing to pay for an additional pound of materials? Explain.
Click here for the solution: Barlow Company manufactures three products: A, B, and C
Barlow Company manufactures three products: A, B, and C. The selling price, variable costs, and Contribution margin for one unit of each product follow:
Product
A B C
Selling price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $180 $270 $240
Variable expenses:
Direct materials . . . . . . . . . . . . . . . . . . . . . . . . . 24 72 32
Other variable expenses . . . . . . . . . . . . . . . . . . 102 90 148
Total variable expenses . . . . . . . . . . . . . . . . . . . . . 126 162 180
Contribution margin . . . . . . . . . . . . . . . . . . . . . . . . $ 54 $108 $ 60
Contribution margin ratio . . . . . . . . . . . . . . . . . . . . 30% 40% 25%
The same raw material is used in all three products. Barlow Company has only 5,000 pounds of raw material on hand and will not be able to obtain any more of it for several weeks due to a strike in its supplier’s plant. Management is trying to decide which product(s) to concentrate on next week in filling its backlog of orders. The material costs $8 per pound.
Required:
1. Compute the amount of contribution margin that will be obtained per pound of material used in each product.
2. Which orders would you recommend that the company work on next week—the orders for product A, product B, or product C? Show computations.
3. A foreign supplier could furnish Barlow with additional stocks of the raw material at a substantial premium over the usual price. If there is unfilled demand for all three products, what is the highest price that Barlow Company should be willing to pay for an additional pound of materials? Explain.
Click here for the solution: Barlow Company manufactures three products: A, B, and C
Presented below is selected information from the Greenville Company's current period accounting records (in $000s)
Presented below is selected information from the Greenville Company's current period accounting records (in $000s):
Sales $10,000
Raw Materials Used 2,500
Direct Labor Costs 1,000
Period Costs (Selling and Administrative) 2,500
Beginning Raw Material Inventory 300
Ending Raw Material Inventory 1,000
Net Income 200
Beginning Work-in-Process Inventory 0
Ending Work-in-Process Inventory 300
Beginning Finished Goods Inventory 700
Ending Finished Goods Inventory 400
* NOTE: All raw materials used were direct materials.
Question:
Determine the following (in dollars):
a. Raw Material Purchases
b. Gross Profit
c. Cost of Goods Manufactured
d. Manufacturing Overhead
Click here for the solution: Presented below is selected information from the Greenville Company's current period accounting records (in $000s)
Sales $10,000
Raw Materials Used 2,500
Direct Labor Costs 1,000
Period Costs (Selling and Administrative) 2,500
Beginning Raw Material Inventory 300
Ending Raw Material Inventory 1,000
Net Income 200
Beginning Work-in-Process Inventory 0
Ending Work-in-Process Inventory 300
Beginning Finished Goods Inventory 700
Ending Finished Goods Inventory 400
* NOTE: All raw materials used were direct materials.
Question:
Determine the following (in dollars):
a. Raw Material Purchases
b. Gross Profit
c. Cost of Goods Manufactured
d. Manufacturing Overhead
Click here for the solution: Presented below is selected information from the Greenville Company's current period accounting records (in $000s)
(Cost Function for Expedia) Expedia provides travel services on the Internet
3-34 Cost Function for Expedia
Expedia provides travel services on the Internet. 2002 was an important year for Expedia as it reported positive operating income after three years of operating losses. In the first quarter of 2001, Expedia reported an operating loss of $19 million on sales revenue of $57 million. In the first quarter of 2002, sales revenue had more than doubled to $116 million, and Expedia had operating income of $18 million. Assume that fixed costs were the same in 2002 as in 2001.
1. Compute the operating expenses for Expedia in the first quarter of 2001. In the first quarter of 2002.
2. Determine the cost function for Expedia, that is, the total fixed cost and the variable cost as a percentage of sales revenue. Use the same form as equation (1) on page 100.
3. Explain how Expedia’s operating income could increase by $37 million with an increase in sales of $59 million, while it had an operating loss of $19 million on its $57 million of sales in the first quarter of 01
Click here for the solution: (Cost Function for Expedia) Expedia provides travel services on the Internet
Expedia provides travel services on the Internet. 2002 was an important year for Expedia as it reported positive operating income after three years of operating losses. In the first quarter of 2001, Expedia reported an operating loss of $19 million on sales revenue of $57 million. In the first quarter of 2002, sales revenue had more than doubled to $116 million, and Expedia had operating income of $18 million. Assume that fixed costs were the same in 2002 as in 2001.
1. Compute the operating expenses for Expedia in the first quarter of 2001. In the first quarter of 2002.
2. Determine the cost function for Expedia, that is, the total fixed cost and the variable cost as a percentage of sales revenue. Use the same form as equation (1) on page 100.
3. Explain how Expedia’s operating income could increase by $37 million with an increase in sales of $59 million, while it had an operating loss of $19 million on its $57 million of sales in the first quarter of 01
Click here for the solution: (Cost Function for Expedia) Expedia provides travel services on the Internet
Given the following four cost behaviors and expected levels of cost-driver activity, predict total costs
3-35 Predicting Costs
Given the following four cost behaviors and expected levels of cost-driver activity, predict total costs:
1. Fuel costs of driving vehicles, $0.20 per mile, driven 17,000 miles per month
2. Equipment rental cost, $6,000 per piece of equipment per month for seven pieces for three
months
3. Ambulance and EMT personnel cost for a soccer tournament, $1,200 for each 250 tournament participants; the tournament is expecting 2,400 participants
4. Purchasing department cost, $7,500 per month plus $4 per material order processed at 4,000 orders in one month
Click here for the solution: Given the following four cost behaviors and expected levels of cost-driver activity, predict total costs
Given the following four cost behaviors and expected levels of cost-driver activity, predict total costs:
1. Fuel costs of driving vehicles, $0.20 per mile, driven 17,000 miles per month
2. Equipment rental cost, $6,000 per piece of equipment per month for seven pieces for three
months
3. Ambulance and EMT personnel cost for a soccer tournament, $1,200 for each 250 tournament participants; the tournament is expecting 2,400 participants
4. Purchasing department cost, $7,500 per month plus $4 per material order processed at 4,000 orders in one month
Click here for the solution: Given the following four cost behaviors and expected levels of cost-driver activity, predict total costs
Tori Amos Corporation began operations on December 1, 2006
E8-22 (Alternative Inventory Methods—Comprehensive) Tori Amos Corporation began operations on December 1, 2006. The only inventory transaction in 2006 was the purchase of inventory on December 10, 2006, at a cost of $20 per unit. None of this inventory was sold in 2006. Relevant information is as follows.
Ending inventory units
December 31, 2006 100
December 31, 2007, by purchase date
December 2, 2007 100
July 20, 2007 50 150
During the year the following purchases and sales were made:
Purchases Sales
March 15 300 units at $24 April 10 200
July 20 300 units at 25 August 20 300
September 4 200 units at 28 November 18 150
December 2 100 units at 30 December 12 200
The company uses the periodic inventory method.
Determine ending inventory using dollar-value LIFO. Assume that the December 2, 2007, purchase cost is the current cost of inventory. (Hint: The beginning inventory is the base layer priced at $20 per unit.)
Click here for the solution: Tori Amos Corporation began operations on December 1, 2006
Ending inventory units
December 31, 2006 100
December 31, 2007, by purchase date
December 2, 2007 100
July 20, 2007 50 150
During the year the following purchases and sales were made:
Purchases Sales
March 15 300 units at $24 April 10 200
July 20 300 units at 25 August 20 300
September 4 200 units at 28 November 18 150
December 2 100 units at 30 December 12 200
The company uses the periodic inventory method.
Determine ending inventory using dollar-value LIFO. Assume that the December 2, 2007, purchase cost is the current cost of inventory. (Hint: The beginning inventory is the base layer priced at $20 per unit.)
Click here for the solution: Tori Amos Corporation began operations on December 1, 2006
In 2011, the Marion Company purchased land containing a mineral mine for $1,600,000
P11-7 Depletion; change in estimate
In 2011, the Marion Company purchased land containing a mineral mine for $1,600,000. Additional costs of $600,000 were incurred to develop the mine. Geologists estimated that 400,000 tons of ore would be extracted. After the ore is removed, the land will have a resale value of $100,000.
To aid in the extraction, Marion built various structures and small storage buildings on the site at a cost of $150,000. These structures have a useful life of 10 years. The structures cannot be moved after the ore has been removed and will be left at the site. In addition, new equipment costing $80,000 was purchased and installed at the site. Marion does not plan to move the equipment to another site, but estimates that it can be sold at auction for $4,000 after the mining project is completed.
In 2011, 50,000 tons of ore was extracted and sold. In 2012, the estimate of total tons of ore in the mine was revised from 400,000 to 487,500. During 2012, 80,000 tons were extracted, of which 60,000 tons were sold.
1. Compute depletion and depreciation of the mine and the mining facilities and equipment for 2011 and 2012. Marion uses the units-of-production method to determine depreciation on mining facilities and equipment.
2. Compute the book value of the mineral mine, structures, and equipment as of December 31, 2012.
3. Discuss the accounting treatment of the depletion and depreciation on the mine and mining facilities and equipment.
Click here for the solution: In 2011, the Marion Company purchased land containing a mineral mine for $1,600,000
In 2011, the Marion Company purchased land containing a mineral mine for $1,600,000. Additional costs of $600,000 were incurred to develop the mine. Geologists estimated that 400,000 tons of ore would be extracted. After the ore is removed, the land will have a resale value of $100,000.
To aid in the extraction, Marion built various structures and small storage buildings on the site at a cost of $150,000. These structures have a useful life of 10 years. The structures cannot be moved after the ore has been removed and will be left at the site. In addition, new equipment costing $80,000 was purchased and installed at the site. Marion does not plan to move the equipment to another site, but estimates that it can be sold at auction for $4,000 after the mining project is completed.
In 2011, 50,000 tons of ore was extracted and sold. In 2012, the estimate of total tons of ore in the mine was revised from 400,000 to 487,500. During 2012, 80,000 tons were extracted, of which 60,000 tons were sold.
1. Compute depletion and depreciation of the mine and the mining facilities and equipment for 2011 and 2012. Marion uses the units-of-production method to determine depreciation on mining facilities and equipment.
2. Compute the book value of the mineral mine, structures, and equipment as of December 31, 2012.
3. Discuss the accounting treatment of the depletion and depreciation on the mine and mining facilities and equipment.
Click here for the solution: In 2011, the Marion Company purchased land containing a mineral mine for $1,600,000
The Thompson Corporation, a manufacturer of steel products, began operations on October 1, 2009
P11-5 Property, plant, and equipment and intangible assets; comprehensive
The Thompson Corporation, a manufacturer of steel products, began operations on October 1, 2009. The accounting department of Thompson has started the fixed-asset and depreciation schedule presented below. You have been asked to assist in completing this schedule. In addition to ascertaining that the data already on the schedule are correct, you have obtained the following information from the company's records and personnel:
a. Depreciation is computed from the first of the month of acquisition to the first of the month of disposition.
b. Land A and Building A were acquired from a predecessor corporation. Thompson paid $812,500 for the land and building together. At the time of acquisition, the land had a fair value of $72,000 and the building had a fair value of $828,000.
c. Land B was acquired on October 2, 2009, in exchange for 3,000 newly issued shares of Thompson's common stock. At the date of acquisition, the stock had a par value of $5 per share and a fair value of $25 per share. During October 2009, Thompson paid $10,400 to demolish an existing building on this land so it could construct a new building.
d. Construction of Building B on the newly acquired land began on October 1, 2010. By September 30, 2011, Thompson had paid $210,000 of the estimated total construction costs of $300,000. Estimated completion and occupancy are July 2012.
e. Certain equipment was donated to the corporation by the city. An independent appraisal of the equipment when donated placed the fair value at $16,000 and the residual value at $2,000.
f. Machine A's total cost of $110,000 includes installation charges of $550 and normal repairs and maintenance of $11,000. Residual value is estimated at $5,500. Machine A was sold on February 1, 2011.
g. On October 1, 2010, Machine B was acquired with a down payment of $4,000 and the remaining payments to be made in 10 annual installments of $4,000 each beginning October 1, 2011. The prevailing interest rate was 8%.
Required:
Supply the correct amount for each numbered item on the schedule. Round each answer to the nearest dollar.
Click here for the solution: The Thompson Corporation, a manufacturer of steel products, began operations on October 1, 2009
The Thompson Corporation, a manufacturer of steel products, began operations on October 1, 2009. The accounting department of Thompson has started the fixed-asset and depreciation schedule presented below. You have been asked to assist in completing this schedule. In addition to ascertaining that the data already on the schedule are correct, you have obtained the following information from the company's records and personnel:
a. Depreciation is computed from the first of the month of acquisition to the first of the month of disposition.
b. Land A and Building A were acquired from a predecessor corporation. Thompson paid $812,500 for the land and building together. At the time of acquisition, the land had a fair value of $72,000 and the building had a fair value of $828,000.
c. Land B was acquired on October 2, 2009, in exchange for 3,000 newly issued shares of Thompson's common stock. At the date of acquisition, the stock had a par value of $5 per share and a fair value of $25 per share. During October 2009, Thompson paid $10,400 to demolish an existing building on this land so it could construct a new building.
d. Construction of Building B on the newly acquired land began on October 1, 2010. By September 30, 2011, Thompson had paid $210,000 of the estimated total construction costs of $300,000. Estimated completion and occupancy are July 2012.
e. Certain equipment was donated to the corporation by the city. An independent appraisal of the equipment when donated placed the fair value at $16,000 and the residual value at $2,000.
f. Machine A's total cost of $110,000 includes installation charges of $550 and normal repairs and maintenance of $11,000. Residual value is estimated at $5,500. Machine A was sold on February 1, 2011.
g. On October 1, 2010, Machine B was acquired with a down payment of $4,000 and the remaining payments to be made in 10 annual installments of $4,000 each beginning October 1, 2011. The prevailing interest rate was 8%.
Required:
Supply the correct amount for each numbered item on the schedule. Round each answer to the nearest dollar.
Click here for the solution: The Thompson Corporation, a manufacturer of steel products, began operations on October 1, 2009
Computer Boutique sells computer equipment and home office furniture
Computer Boutique sells computer equipment and home office furniture. Currently, the furniture product line takes up approximately 50% of the company's retail floor space. The president of Computer Boutique is trying to decide whether the company should continue offering furniture or just concentrate on computer equipment. If furniture is dropped, salaries and other direct fixed costs can be avoided. In addition, sales of computer equipment can increase by 13%. Allocated fixed costs are assigned based on relative sales.
Computer Home
Office Equipment Furniture Total
Sales $1,200,000 $800,000 $2,000,000
Less cost of goods sold 700,000 500,000 1,200,000
Contribution margin 500,000 300,000 800,000
Less direct fixed costs:
Salaries 175,000 175,000 350,000
Other 60,000 60,000 120,000
Less allocated fixed costs:
Rent 14,118 9,882 24,000
Insurance 3,529 2,471 6,000
Cleaning 4,117 2,883 7,000
President's salary 76,470 53,350 130,000
Other 7,058 4,942 12,000
Total costs 340,292 380,708 649,000
Net Income $159,708 ($ 8,708) $151,000
Prepare an incremental analysis to determine the incremental effect on profit of discontinuing the furniture line.
Click here for the solution: Computer Boutique sells computer equipment and home office furniture
Computer Home
Office Equipment Furniture Total
Sales $1,200,000 $800,000 $2,000,000
Less cost of goods sold 700,000 500,000 1,200,000
Contribution margin 500,000 300,000 800,000
Less direct fixed costs:
Salaries 175,000 175,000 350,000
Other 60,000 60,000 120,000
Less allocated fixed costs:
Rent 14,118 9,882 24,000
Insurance 3,529 2,471 6,000
Cleaning 4,117 2,883 7,000
President's salary 76,470 53,350 130,000
Other 7,058 4,942 12,000
Total costs 340,292 380,708 649,000
Net Income $159,708 ($ 8,708) $151,000
Prepare an incremental analysis to determine the incremental effect on profit of discontinuing the furniture line.
Click here for the solution: Computer Boutique sells computer equipment and home office furniture
On January 2, 2011, the Jackson Company purchased equipment to be used in its manufacturing process
E11-10 Double-declining-balance method; switch to straight line
On January 2, 2011, the Jackson Company purchased equipment to be used in its manufacturing process. The equipment has an estimated life of eight years and an estimated residual value of $30,625. The expenditures made to acquire the asset were as follows:
Purchase price $154,000
Freight charges 2,000
Installation charges 4,000
Jackson's policy is to use the double-declining-balance (DDB) method of depreciation in the early years of the equipment's life and then switch to straight line halfway through the equipment's life.
Required:
1. Calculate depreciation for each year of the asset's eight-year life.
2. Discuss the accounting treatment of the depreciation on the equipment.
Click here for the solution: On January 2, 2011, the Jackson Company purchased equipment to be used in its manufacturing process
On January 2, 2011, the Jackson Company purchased equipment to be used in its manufacturing process. The equipment has an estimated life of eight years and an estimated residual value of $30,625. The expenditures made to acquire the asset were as follows:
Purchase price $154,000
Freight charges 2,000
Installation charges 4,000
Jackson's policy is to use the double-declining-balance (DDB) method of depreciation in the early years of the equipment's life and then switch to straight line halfway through the equipment's life.
Required:
1. Calculate depreciation for each year of the asset's eight-year life.
2. Discuss the accounting treatment of the depreciation on the equipment.
Click here for the solution: On January 2, 2011, the Jackson Company purchased equipment to be used in its manufacturing process
(ACC 422 Week 4) Leontyne Price Company from time to time embarks on a research program when a special project seems to offer possibilities
E12-16 (Accounting for R&D Costs) Leontyne Price Company from time to time embarks on a research program when a special project seems to offer possibilities. In 2006 the company expends $325,000 on a research project, but by the end of 2006 it is impossible to determine whether any benefit will be derived from it.
Instructions
(a) What account should be charged for the $325,000, and how should it be shown in the financial statements?
(b) The project is completed in 2007, and a successful patent is obtained. The R&D costs to complete the project are $110,000. The administrative and legal expenses incurred in obtaining patent number 472-1001-84 in 2007 total $16,000. The patent has an expected useful life of 5 years. Record these costs in journal entry form. Also, record patent amortization (full year) in 2007.
(c) In 2008, the company successfully defends the patent in extended litigation at a cost of $47,200, thereby extending the patent life to December 31, 2015. What is the proper way to account for this cost? Also, record patent amortization (full year) in 2008.
(d) Additional engineering and consulting costs incurred in 2008 required to advance the design of a product to the manufacturing stage total $60,000. These costs enhance the design of the product considerably. Discuss the proper accounting treatment for this cost.
Click here for the solution: (ACC 422 Week 4) Leontyne Price Company from time to time embarks on a research program when a special project seems to offer possibilities
Instructions
(a) What account should be charged for the $325,000, and how should it be shown in the financial statements?
(b) The project is completed in 2007, and a successful patent is obtained. The R&D costs to complete the project are $110,000. The administrative and legal expenses incurred in obtaining patent number 472-1001-84 in 2007 total $16,000. The patent has an expected useful life of 5 years. Record these costs in journal entry form. Also, record patent amortization (full year) in 2007.
(c) In 2008, the company successfully defends the patent in extended litigation at a cost of $47,200, thereby extending the patent life to December 31, 2015. What is the proper way to account for this cost? Also, record patent amortization (full year) in 2008.
(d) Additional engineering and consulting costs incurred in 2008 required to advance the design of a product to the manufacturing stage total $60,000. These costs enhance the design of the product considerably. Discuss the proper accounting treatment for this cost.
Click here for the solution: (ACC 422 Week 4) Leontyne Price Company from time to time embarks on a research program when a special project seems to offer possibilities
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