P6-7B The management of Clare Co. asks your help in determining the comparative effects of the FIFO and LIFO inventory cost flow methods. For 2011, the accounting records show the following data.
Inventory, January 1 (10,000 units) $ 45,000
Cost of 100,000 units purchased 532,000
Selling price of 80,000 units sold 700,000
Operating expenses 140,000
Units purchased consisted of 35,000 units at $5.10 on May 10; 35,000 units at $5.30 on August 15; and 30,000 units at $5.60 on November 20. Income taxes are 30%.
Instructions
(a) Prepare comparative condensed income statements for 2011 under FIFO and LIFO. (Show computations of ending inventory.)
(b) Answer the following questions for management.
(1) Which inventory cost flow method produces the most meaningful inventory amount for the balance sheet? Why?
(2) Which inventory cost flow method produces the most meaningful net income? Why?
(3) Which inventory cost flow method is most likely to approximate actual physical flow of the goods? Why?
(4) How much additional cash will be available for management under LIFO than under
FIFO? Why?
(5) How much of the gross profit under FIFO is illusory in comparison with the gross profit under LIFO?
Click here for the solution: The management of Clare Co. asks your help in determining the comparative effects of the FIFO and LIFO inventory cost flow methods
Showing posts with label Methods. Show all posts
Showing posts with label Methods. Show all posts
Monday, August 17, 2015
Sunday, July 12, 2015
The management of Utley Inc. asks your help in determining the comparative effects of the FIFO and LIFO inventory cost flow methods
P6-7A The management of Utley Inc. asks your help in determining the comparative effects of the FIFO and LIFO inventory cost flow methods. For 2008 the accounting records show these data.
Inventory, January 1 (10,000 Units) $35,000
Cost of 120,000 units purchased 504,500
Selling price of 100,000 units sold 665,000
Operating expenses 130,000
Units purchased consisted of 35,000 units at $4.00 on May 10; 60,000 units at $4.20 on August 15; and 25,000 units at $4.50 on November 20. Income taxes are 28%.
Instructions:
a. Prepare comparative condensed income statements for 2008 under FIFO and LIFO (show computations of ending inventory.)
b. Answer the following questions for management in the form of a business letter.
1. Which inventory cost flow method produces the most meaningful inventory amount for the balance sheet? Why?
2. Which inventory cost flow method produces the most meaningful net income? Why?
3. Which inventory cost flow method is most likely to approximate the actual physical flow of the goods? Why?
4. How much more cash will be available for management under LIFO than under FIFO? Why?
5. How much of the gross profit under FIFO is illusionary in comparison with the gross profit under LIFO?
Click here for the solution: The management of Utley Inc. asks your help in determining the comparative effects of the FIFO and LIFO inventory cost flow methods
Inventory, January 1 (10,000 Units) $35,000
Cost of 120,000 units purchased 504,500
Selling price of 100,000 units sold 665,000
Operating expenses 130,000
Units purchased consisted of 35,000 units at $4.00 on May 10; 60,000 units at $4.20 on August 15; and 25,000 units at $4.50 on November 20. Income taxes are 28%.
Instructions:
a. Prepare comparative condensed income statements for 2008 under FIFO and LIFO (show computations of ending inventory.)
b. Answer the following questions for management in the form of a business letter.
1. Which inventory cost flow method produces the most meaningful inventory amount for the balance sheet? Why?
2. Which inventory cost flow method produces the most meaningful net income? Why?
3. Which inventory cost flow method is most likely to approximate the actual physical flow of the goods? Why?
4. How much more cash will be available for management under LIFO than under FIFO? Why?
5. How much of the gross profit under FIFO is illusionary in comparison with the gross profit under LIFO?
Click here for the solution: The management of Utley Inc. asks your help in determining the comparative effects of the FIFO and LIFO inventory cost flow methods
Wednesday, June 17, 2015
George Winston Company, a major retailer of bicycles and accessories, operates several stores and is a publicly traded company
ACC 421 Week 5
Problem 23-7 (P23-7) (SCF-Direct and Indirect Methods from Comparative Financial Statements) George Winston Company, a major retailer of bicycles and accessories, operates several stores and is a publicly traded company. The comparative statement of financial position and income statement for Winston as of May 31, 2008, are shown on the next page. The company is preparing its statement of cash flows.
AND SO ON
The following is additional information concerning Winston’s transactions during the year ended
May 31, 2008.
1. All sales during the year were made on account.
2. All merchandise was purchased on account, comprising the total accounts payable account.
3. Plant assets costing $98,000 were purchased by paying $48,000 in cash and issuing 5,000 shares of stock.
4. The “other expenses” are related to prepaid items.
5. All income taxes incurred during the year were paid during the year.
6. In order to supplement its cash, Winston issued 4,000 shares of common stock at par value.
7. There were no penalties assessed for the retirement of bonds.
8. Cash dividends of $105,000 were declared and paid at the end of the fiscal year.
Instructions
(a) Compare and contrast the direct method and the indirect method for reporting cash flows from operating activities.
(b) Prepare a statement of cash flows for Winston Company for the year ended May 31, 2008, using the direct method. Be sure to support the statement with appropriate calculations. (A reconciliation of net income to net cash provided is not required.)
(c) Using the indirect method, calculate only the net cash flow from operating activities for Winston Company for the year ended May 31, 2008.
Click here for the solution: George Winston Company, a major retailer of bicycles and accessories, operates several stores and is a publicly traded company
Problem 23-7 (P23-7) (SCF-Direct and Indirect Methods from Comparative Financial Statements) George Winston Company, a major retailer of bicycles and accessories, operates several stores and is a publicly traded company. The comparative statement of financial position and income statement for Winston as of May 31, 2008, are shown on the next page. The company is preparing its statement of cash flows.
AND SO ON
The following is additional information concerning Winston’s transactions during the year ended
May 31, 2008.
1. All sales during the year were made on account.
2. All merchandise was purchased on account, comprising the total accounts payable account.
3. Plant assets costing $98,000 were purchased by paying $48,000 in cash and issuing 5,000 shares of stock.
4. The “other expenses” are related to prepaid items.
5. All income taxes incurred during the year were paid during the year.
6. In order to supplement its cash, Winston issued 4,000 shares of common stock at par value.
7. There were no penalties assessed for the retirement of bonds.
8. Cash dividends of $105,000 were declared and paid at the end of the fiscal year.
Instructions
(a) Compare and contrast the direct method and the indirect method for reporting cash flows from operating activities.
(b) Prepare a statement of cash flows for Winston Company for the year ended May 31, 2008, using the direct method. Be sure to support the statement with appropriate calculations. (A reconciliation of net income to net cash provided is not required.)
(c) Using the indirect method, calculate only the net cash flow from operating activities for Winston Company for the year ended May 31, 2008.
Click here for the solution: George Winston Company, a major retailer of bicycles and accessories, operates several stores and is a publicly traded company
The accounting records of Brooks Photography, Inc, reflected the following balances as of January 1, 2012
Problem 4-20 Effect of Different Inventory Cost Flow Methods on Financial Statements
The accounting records of Brooks Photography, Inc, reflected the following balances as of January 1, 2012:
Cash $19,000
Beginning inventory 6,750 (75 units @$90)
Common stock 7,500
Retained earnings 18,250
The following five transactions occurred in 2012:
1. First purchase (cash) 100 units @ $92
2. Second purchase (cash) 175 units @ $100
3. Sales (all cash) 300 units @ $170
4. Paid $15,000 cash for operating expenses.
5. Paid cash for income tax at the rate of 30 percent of income before taxes.
Required
a. Compute the cost of goods sold and ending inventory, assuming (1) FIFO cost flow, (2) LIFO cost flow, and (3) weighted-average cost flow.
b. Use a vertical model to prepare the 2012 income statement, balance sheet, and statement of cash flows under FIFO, LIFO, and weighted average. (Hint: Record the events under an accounting equation before preparing the statements.)
Check:
a. Cost of Goods Sold—FIFO $28,450
b. Net Income—UFO: $4,935
Click here for the solution: The accounting records of Brooks Photography, Inc, reflected the following balances as of January 1, 2012
The accounting records of Brooks Photography, Inc, reflected the following balances as of January 1, 2012:
Cash $19,000
Beginning inventory 6,750 (75 units @$90)
Common stock 7,500
Retained earnings 18,250
The following five transactions occurred in 2012:
1. First purchase (cash) 100 units @ $92
2. Second purchase (cash) 175 units @ $100
3. Sales (all cash) 300 units @ $170
4. Paid $15,000 cash for operating expenses.
5. Paid cash for income tax at the rate of 30 percent of income before taxes.
Required
a. Compute the cost of goods sold and ending inventory, assuming (1) FIFO cost flow, (2) LIFO cost flow, and (3) weighted-average cost flow.
b. Use a vertical model to prepare the 2012 income statement, balance sheet, and statement of cash flows under FIFO, LIFO, and weighted average. (Hint: Record the events under an accounting equation before preparing the statements.)
Check:
a. Cost of Goods Sold—FIFO $28,450
b. Net Income—UFO: $4,935
Click here for the solution: The accounting records of Brooks Photography, Inc, reflected the following balances as of January 1, 2012
Monday, May 11, 2015
ACC 561 EXCEL Application Exercise 12-59, Allocating Costs Using Direct and Step-Down Methods
ACC 561
EXCEL Application Exercise 12-59, Allocating Costs Using Direct and Step-Down Methods, on p. 584
Goal: Create an Excel spreadsheet to allocate costs using the direct method and the stepdownmethod. Use the results to answer questions about your findings.
Scenario: Antonio Cleaning has asked you to help them determine the best method for
allocating costs from their service departments to their producing departments. Additional
background information for your spreadsheet appears in Fundamental Assignment Material
12-B2. Exhibit 12-4 on page 532 illustrates the types of calculations that are used for
allocating costs using the direct method and the step-down method.
When you have completed your spreadsheet, answer the following questions:
1. What are the total costs for the Residential department using the direct method?
What are the total costs for the Commercial department using the direct method?
2. What are the total costs for the Residential department using the step-down method?
3. What are the total costs for the Commercial department using the step-down method?
4. Which method would you recommend that Antonio Cleaning use to allocate their
service departments’ costs to their producing departments? Why?
Step-by-Step:
1. Open a new Excel spreadsheet.
2. In column A, create a bold-faced heading that contains the following:
Row 1: Chapter 12 Decision Guideline
Row 2: Dallas Cleaning
Row 3: Cost Allocations from Service Departments to Producing Departments
Row 4: Today’s Date
3. Merge and center the four heading rows across columns A through H.
4. In row 7, create the following bold-faced, center-justified column headings:
Column B: Personnel
Column C: Administrative
Column D: Residential
Column E: Commercial
Column F: Total Res/Comm
Column G: Total Admin/Res/Comm
Column H: Grand Total
5. Change the format of the column headings in row 7 to permit the titles to be displayed
on multiple lines within a single cell.
Alignment tab: Wrap Text: Checked
Note: Adjust column widths so that headings use only two lines.
Adjust row height to ensure that row is same height as adjusted headings.
6. In column A, create the following row headings:
Row 8: Direct Department Costs
Row 9: Number of Employees
Skip 2 rows
Note: Adjust the width of column A to 27.14.
7. In column A, create the following bold-faced, underlined row heading:
Row 12: Direct Method:
8. In column A, create the following row headings:
Row 13: Direct Department Costs
Row 14: Personnel Allocation
Row 15: Administrative Allocation
Row 16: Total Costs
Skip 2 rows
9. In column A, create the following bold-faced, underlined row heading:
Row 19: Step-down Method:
10. In column A, create the following row headings:
Row 20: Direct Department Costs
Row 21: Step 1—Personnel Allocation
Row 22: Step 2—Administrative Allocation
Row 23: Total Costs
11. Use data from Fundamental Assignment 12-B2 to enter the amounts in columns B
through E for rows 8, 9, 13, and 20.
12. Use the appropriate calculations to do the totals in row 8 for columns F and H.
Use the appropriate calculations to do the totals in row 9 for columns F and G.
13. Use the appropriate formulas to allocate the costs from the service departments to the
producing departments using each of the methods.
14. Use the appropriate calculations to do the totals in columns B through E and in column H,
rows 16 and 23.
15. Format amounts in columns B through H, rows 8, 13, 16, 20, and 23 as
Number tab: Category: Accounting
Decimal: 0
Symbol: $
16. Format the amount in columns B through E, rows 14, 15, 21, and 22 as
Number tab: Category: Accounting
Decimal: 0
Symbol: None
17. Change the format of the total costs amounts in columns B through E, rows 16 and 23,
to display a top border, using the default line style.
Border tab: Icon: Top Border
18. Change the format of the amounts in row 9, columns B through G to center justified
Click here for the solution: ACC 561 EXCEL Application Exercise 12-59, Allocating Costs Using Direct and Step-Down Methods
ACC 561 3-38, Mixed Cost, Choosing Cost Drivers, and High-Low and Visual-Fit Methods
ACC 561
Question 3-38, Mixed Cost, Choosing Cost Drivers, and High-Low and Visual-Fit Methods, on p. 121-122
Cedar Rapids Implements Company produces farm implements. Cedar Rapids is in the process of measuring its manufacturing costs and is particularly interested in the costs of the manufacturing maintenance activity, since maintenance is a significant mixed cost. Activity analysis indicates that maintenance activity consists primarily of maintenance labor setting up machines using certain supplies. A setup consists of preparing the necessary machines for a particular production run of a product. During setup, machines must still be running, which consumes energy. Thus, the costs associated with maintenance include labor, supplies, and energy. Unfortunately, Cedar Rapid’s cost accounting system does not trace these costs to maintenance activity separately. Cedar Rapids employs two fulltime maintenance mechanics to perform maintenance. The annual salary of a maintenance mechanic is $25,000 and is considered a fixed cost. Two plausible cost drivers have been suggested: “units produced” and “number of setups.” Data had been collected for the past 12 months and a plot made for the cost driver—units of production. The maintenance cost figures collected include estimates for labor, supplies, and energy. Cory Fielder, controller at Cedar Rapids, noted that some types of activities are performed each time a batch of goods is processed rather than each time a unit is produced. Based on this concept, he has gathered data on the number of setups performed over the past 12 months. The plots of monthly maintenance costs versus the two potential cost drivers follow on page 122.
1. Find monthly fixed maintenance cost and the variable maintenance cost per driver unit using the visual-fit method based on each potential cost driver. Explain how you treated the April data.
2. Find monthly fixed maintenance cost and the variable maintenance cost per driver unit using the high-low method based on each potential cost driver.
3. Which cost driver best meets the criteria for choosing cost functions? Explain.
Click here for the solution: ACC 561 3-38, Mixed Cost, Choosing Cost Drivers, and High-Low and Visual-Fit Methods
Cedar Rapids Implements Company produces farm implements. Cedar Rapids is in the process of measuring its manufacturing costs and is particularly interested in the costs of the manufacturing maintenance activity, since maintenance is a significant mixed cost. Activity analysis indicates that maintenance activity consists primarily of maintenance labor setting up machines using certain supplies. A setup consists of preparing the necessary machines for a particular production run of a product. During setup, machines must still be running, which consumes energy. Thus, the costs associated with maintenance include labor, supplies, and energy. Unfortunately, Cedar Rapid’s cost accounting system does not trace these costs to maintenance activity separately. Cedar Rapids employs two fulltime maintenance mechanics to perform maintenance. The annual salary of a maintenance mechanic is $25,000 and is considered a fixed cost. Two plausible cost drivers have been suggested: “units produced” and “number of setups.” Data had been collected for the past 12 months and a plot made for the cost driver—units of production. The maintenance cost figures collected include estimates for labor, supplies, and energy. Cory Fielder, controller at Cedar Rapids, noted that some types of activities are performed each time a batch of goods is processed rather than each time a unit is produced. Based on this concept, he has gathered data on the number of setups performed over the past 12 months. The plots of monthly maintenance costs versus the two potential cost drivers follow on page 122.
1. Find monthly fixed maintenance cost and the variable maintenance cost per driver unit using the visual-fit method based on each potential cost driver. Explain how you treated the April data.
2. Find monthly fixed maintenance cost and the variable maintenance cost per driver unit using the high-low method based on each potential cost driver.
3. Which cost driver best meets the criteria for choosing cost functions? Explain.
Click here for the solution: ACC 561 3-38, Mixed Cost, Choosing Cost Drivers, and High-Low and Visual-Fit Methods
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