Better Food Company recently acquired an olive oil processing company that has an annual capacity

Better Food Company recently acquired an olive oil processing company that has an annual capacity of 2,000,000 liters and that processed and sold 1,400,000 liters last year at a market price of $4 per liter. The purpose of the acquisition was to furnish oil for the Cooking Division. The Cooking Division needs 800,000 liters of oil per year. It has been purchasing oil from suppliers at the market price. Production costs at capacity of the olive oil company, now a division, are as follows:

Direct materials per liter $1.00
Direct processing labor 0.50
Variable processing overhead 0.24
Fixed processing overhead 0.40
Total $2.14

Management is trying to decide what transfer price to use for sales from the newly acquired company to the Cooking Division. The manager of the Olive Oil Division argues that $4, the market price, is appropriate. The manager of the Cooking Division argues that the cost of $2.14 should be used, or perhaps a lower price, since fixed overhead cost should be recomputed with the larger volume. Any output of the Olive Oil Division not sold to the Cooking Division can be sold to outsiders for $4 per liter.

Question 1: Compute the operating income for the Olive Oil Division using a transfer price of $4 (5 points).

Question 2: Compute the operating income for the Olive Oil Division using a transfer price of $2.14 (5 points).

Question 3: What transfer price(s) do you recommend? Compute the operating income for the Olive Oil Division using your recommendation (5 points).

Click here for the solution: Better Food Company recently acquired an olive oil processing company that has an annual capacity

Webber Fabricating estimated the following annual costs (MT 425)

MT 425

Chapter 2, Exercise 2-12 Allocating Manufacturing Overhead to Jobs [LO 6, 7] Webber Fabricating estimated the following annual costs.

Expected annual direct labor hours 40,000
Expected annual direct labor cost 625,000
Expected machine hours 20,000
Expected material cost for the year 800,000
Expected manufacturing overhead$1,000,000

Required
a. Calculate overhead allocation rates using each of the four possible allocation bases provided.
b. Determine the cost of the following job (number 253) using each of the four overhead allocation rates.


Click here for the solution: Webber Fabricating estimated the following annual costs (MT 425)

ACC 225 P07-05A You have just taken over the accounting for Choi Enterprises, whose annual accounting period ends December 31

ACC 225 P07-05A

You have just taken over the accounting for Choi Enterprises, whose annual accounting period ends December 31. The company’s previous accountant journalized its transactions through December 15 and posted all items that required posting as individual amounts (see the journals and ledgers in the Working Papers). The company’s transactions beginning on December 16 follow (terms for all its credit sales are 2/10, n/30):

Dec. 16 Sold merchandise on credit to Hanna Seppa, Invoice No. 916, for $7,700 (cost is $4,600).
17 Received a $1,040 credit memorandum from Funk Company for the return of merchandise received on December 15.

AND SO ON

31 Issued Check No. 626 to Jamie Inman, the company’s only sales employee, in payment of her $2,020 salary for the last half of December.
31 Issued Check No. 627 to Access Electric Company in payment of its $710 December electric bill.
31 Cash sales for the last half of the month are $29,600 (cost is $11,200). (Cash sales are recorded daily but are recorded only twice in this problem to reduce repetitive entries.)

Required
1. Record these transactions in the journals provided in the working papers.
2. Verify that amounts that should be posted as individual amounts to the general ledger accounts have been posted, including posting to the customer and creditor accounts. (Such items are immediately posted.) Foot and crossfoot the journals and make the month-end postings.
3. Prepare a December 31 trial balance and prove the accuracy of the subsidiary ledgers by preparing schedules of both accounts receivable and accounts payable.


Click here for the solution: ACC 225 P07-05A You have just taken over the accounting for Choi Enterprises, whose annual accounting period ends December 31

Forrester Fashions has annual credit sales of 250,000 units with an average collection period of 70 days

E15–4 Forrester Fashions has annual credit sales of 250,000 units with an average collection period of 70 days. The company has a per-unit variable cost of $20 and a perunit sale price of $30. Bad debts currently are 5% of sales. The firm estimates that a proposed relaxation of credit standards would not affect its 70-day average collection period but would increase bad debts to 7.5% of sales, which would increase to 300,000 units per year. Forrester requires a 12% return on investments. Show all necessary calculations required to evaluate Forrester’s proposed relaxation of credit standards.

Click here for the solution: Forrester Fashions has annual credit sales of 250,000 units with an average collection period of 70 days

Lyle O’Keefe invests $30,000 at 8% annual interest, leaving the money invested without withdrawing any of the interest for 8 years

E6-2 (Simple and Compound Interest Computations) Lyle O’Keefe invests $30,000 at 8% annual interest, leaving the money invested without withdrawing any of the interest for 8 years. At the end of the 8 years, Lyle withdrew the accumulated amount of money.

Instructions
(a) Compute the amount Lyle would withdraw assuming the investment earns simple interest.
(b) Compute the amount Lyle would withdraw assuming the investment earns interest compounded annually.
(c) Compute the amount Lyle would withdraw assuming the investment earns interest compounded semiannually.

Click here for the solution: Lyle O’Keefe invests $30,000 at 8% annual interest, leaving the money invested without withdrawing any of the interest for 8 years

Recently, the annual inflation rate measured by the Consumer Price Index (CPI) was forecast to be 3.3%

E6–4 Recently, the annual inflation rate measured by the Consumer Price Index (CPI) was forecast to be 3.3%. How could a T-bill have had a negative real rate of return over the same period? How could it have had a zero real rate of return? What minimum rate of return must the T-bill have earned to meet your requirement of a 2% real rate of return?

Click here for the solution: Recently, the annual inflation rate measured by the Consumer Price Index (CPI) was forecast to be 3.3%

The expected annual returns are 15% for investment 1 and 12% for investment 2

E8–3 The expected annual returns are 15% for investment 1 and 12% for investment 2. The standard deviation of the first investment’s return is 10%; the second investment’s return has a standard deviation of 5%. Which investment is less risky based solely on standard deviation? Which investment is less risky based on coefficient of variation? Which is a better measure given that the expected returns of the two investments are not the same?

Click here for the solution: The expected annual returns are 15% for investment 1 and 12% for investment 2

From the information listed in the text, compute the average annual return, the variance, standard deviation, and coefficient of variation for each asset

P12-1 From the information listed in the text, compute the average annual return, the variance, standard deviation, and coefficient of variation for each asset.

P12-2 Based upon your answers to problem 1, which asset appears riskiest based on standard deviation? Based on coefficient of variation?

Click here for the solution: From the information listed in the text, compute the average annual return, the variance, standard deviation, and coefficient of variation for each asset

(Size of Accounts Receivable) The Sand Surfer Corporation has annual sales of $38 million

(Size of Accounts Receivable) The Sand Surfer Corporation has annual sales of $38 million. The average collection period is 34 days. What is the average investment in accounts receivable as shown on the balance sheet? Assume 365 days per year.

Click here for the solution: (Size of Accounts Receivable) The Sand Surfer Corporation has annual sales of $38 million

Metro Video Inc. is developing its annual financial statements at December 31, 2011

Metro Video Inc. is developing its annual financial statements at December 31, 2011. The statements are complete except for the statement of cash flows. The completed comparative sheets and income statement are summarized:
2011 2010
Balance sheet at December 31
Cash $68,250 $65,500
Accounts receivable 15,250 22,250
Merchandise inventory 22,250 18,000
Property and equipment 209,250 150,000
Less: Accumulated depreciation (59,000) (45,750)
Accounts payable $9,000 $19,000
Wages payable 4,000 1,200
Note payable, long-term 59,500 71,000
Contributed capital 98,500 65,900
Retained earnings 85,000 52,900
$256,000 $210,000

Income statement for 2011
Sales $195,00
Cost of goods sold 92,000
Depreciation expense 13,250
Other expenses 43,000
Net income $46,750
Additional Data:
a. Bought equipment for cash, $59,250
b. Paid $11,500 on the long-term note payable.
c. Issued new shares of stock for $32,600 cash.
d. Dividends of $14,650 were declared and paid.
e. Other expenses all relate to wages. f. Accounts payable includes only inventory purchases made on credit.
Required:
1. Prepare the statement of cash flows using the indirect method for the year ended December 31, 2011.
2. Based on the cash flow statement, write a short paragraph explaining the major sources and uses of cash by Metro Video during 2011. 

Click here for the solution: Metro Video Inc. is developing its annual financial statements at December 31, 2011