Argentine Partners is concerned about the possible effects of inflation
on its operations. Presently, the company sells 60,000 units for $30 per
unit. The variable production costs are $15 and fixed costs amount to
$700,000. Production engineers have advised management that they expect
unit labor costs to rise by 15 percent and unit materials costs to rise
by 10 percent in the coming year. Of the $15 variable costs, 50 percent
are from labor and 25 percent are from materials. Variable overhead
costs are expected to increase by 20 percent. Sales prices cannot
increase more than 10 percent. It is also expected that fixed costs will
rise by 5 percent as a result of increased taxes and other
miscellaneous fixed charges. The company wishes to maintain the same
level of profit in real dollar terms. It is expected that to accomplish
this objective, profits must increase by 6 percent during the year.
a. Compute the volume in units and the dollar sales level necessary to
maintain the present profit level, assuming that the maximum price
increase is implemented.
b. Compute the volume of sales and the dollar sales level necessary to
provide the 6 percent increase in profits, assuming that the maximum
price increase is implemented.
c. If the volume of sales were to remain at 60,000 units, what price
would be required to attain the 6 percent increase in profits?
Click here for the solution: Argentine Partners is concerned about the possible effects of inflation on its operations
Showing posts with label concerned. Show all posts
Showing posts with label concerned. Show all posts
Wednesday, September 23, 2015
Sunday, September 20, 2015
The board of trustees of a local church is concerned about the internal accounting controls pertaining
The board of trustees of a local church is concerned about the internal
accounting controls pertaining to the offering collections made at
weekly services. They ask you to serve on a three-person audit team with
the internal auditor of the university and a CPA who has just joined
the church. At a meeting of the audit team and the board of trustees you
learn the following.
1. The church’s board of trustees has delegated responsibility for the financial management and audit of the financial records to the finance committee. This group prepares the annual budget and approves major disbursements but is not involved in collections or recordkeeping. No audit has been made in recent years because the same trusted employee has kept church records and served as financial secretary for 15 years. The church does not carry any fidelity insurance.
2. The collection at the weekly service is taken by a team of ushers who volunteer to serve for 1 month. The ushers take the collection plates to a basement office at the rear of the church. They hand their plates to the head usher and return to the church service. After all plates have been turned in, the head usher counts the cash received. The head usher then places the cash in the church safe along with a notation of the amount counted. The head usher volunteers to serve for 3 months.
3. The next morning the financial secretary opens the safe and recounts the collection. The secretary withholds $150 – $200 in cash, depending on the cash expenditures expected for the week, and deposits the remainder of the collections in the bank. To facilitate the deposit, church members who contribute by check are asked to make their checks payable to “Cash.”
4. Each month the financial secretary reconciles the bank statement and submits a copy of the reconciliation to the board of trustees. The reconciliations have rarely contained any bank errors and have never shown any errors per books.
Instructions
(a) Indicate the weaknesses in internal accounting control in the handling of collections.
(b) List the improvements in internal control procedures that you plan to make at the next meeting of the audit team for (1) the ushers, (2) the head usher, (3) the financial secretary, and (4) the finance committee.
(c) What church policies should be changed to improve internal control?
Click here for the solution: The board of trustees of a local church is concerned about the internal accounting controls pertaining
1. The church’s board of trustees has delegated responsibility for the financial management and audit of the financial records to the finance committee. This group prepares the annual budget and approves major disbursements but is not involved in collections or recordkeeping. No audit has been made in recent years because the same trusted employee has kept church records and served as financial secretary for 15 years. The church does not carry any fidelity insurance.
2. The collection at the weekly service is taken by a team of ushers who volunteer to serve for 1 month. The ushers take the collection plates to a basement office at the rear of the church. They hand their plates to the head usher and return to the church service. After all plates have been turned in, the head usher counts the cash received. The head usher then places the cash in the church safe along with a notation of the amount counted. The head usher volunteers to serve for 3 months.
3. The next morning the financial secretary opens the safe and recounts the collection. The secretary withholds $150 – $200 in cash, depending on the cash expenditures expected for the week, and deposits the remainder of the collections in the bank. To facilitate the deposit, church members who contribute by check are asked to make their checks payable to “Cash.”
4. Each month the financial secretary reconciles the bank statement and submits a copy of the reconciliation to the board of trustees. The reconciliations have rarely contained any bank errors and have never shown any errors per books.
Instructions
(a) Indicate the weaknesses in internal accounting control in the handling of collections.
(b) List the improvements in internal control procedures that you plan to make at the next meeting of the audit team for (1) the ushers, (2) the head usher, (3) the financial secretary, and (4) the finance committee.
(c) What church policies should be changed to improve internal control?
Click here for the solution: The board of trustees of a local church is concerned about the internal accounting controls pertaining
Tuesday, September 15, 2015
Argentina Partners is concerned about the possible effects of inflation on its operation
Argentina Partners is concerned about the possible effects of inflation
on its operation. Presently, the company sells 60,000 units for $30 per
unit. The variable production costs are $15, and fixed costs amount to
$700,000. Production engineers have advised management that they expect
unit labor cost to rise by 15 percent and unit materials cost to rise by
10 percent in the coming year. Of the $15 variable cost, 50 percent are
from labor and 25 percent are from material. Variable overhead costs
are expected to increase by 20 percent. Sales prices cannot increase
more than 10 percent. It is also expected that fixed cost will rise by 5
percent as a result of increased taxes and other miscellaneous fixed
charges.
The company wishes to maintain the same level of profit in real dollar terms. It is expected that to accomplish this objective, profits must increase by 6 percent during the year.
Required
a. Compute the volume in units and the dollars sales level necessary to maintain the present profit level, assuming that the maximum price increase is implemented.
b. Compute the volume of sales and the dollar sales level necessary to provide the 6 percent increase in profits, assuming that the maximum price increases is implemented.
c. If the volume of dales were to remain at 60,000 units, what price increase would be required to attain the 6 percent increase in profits?
Click here for the solution: Argentina Partners is concerned about the possible effects of inflation on its operation
The company wishes to maintain the same level of profit in real dollar terms. It is expected that to accomplish this objective, profits must increase by 6 percent during the year.
Required
a. Compute the volume in units and the dollars sales level necessary to maintain the present profit level, assuming that the maximum price increase is implemented.
b. Compute the volume of sales and the dollar sales level necessary to provide the 6 percent increase in profits, assuming that the maximum price increases is implemented.
c. If the volume of dales were to remain at 60,000 units, what price increase would be required to attain the 6 percent increase in profits?
Click here for the solution: Argentina Partners is concerned about the possible effects of inflation on its operation
Saturday, August 15, 2015
John Fleming, chief administrator for Valley View Hospital, is concerned about the costs for tests in the hospital's lab
John Fleming, chief administrator for Valley View Hospital, is concerned about the costs for tests in the hospital's lab. Charges for lab tests are consistently higher at Valley View than at other hospitals and have resulted in many complaints. Also, because of strict regulations on amounts reimbursed for lab tests, payments received from insurance companies and governmental units have not been high enough to cover lab costs.
Mr. Fleming has asked you to evaluate costs in the hospital's lab for the past month. The following information is available:
• Two types of tests are performed in the lab-blood tests and smears. During the past month, 1,800 blood tests and 2,400 smears were performed in the lab. Small glass plates are used in both types of tests. During the past month, the hospital purchased 12,000 plates at a cost of $28,200. This cost is net of a 6% quantity discount. 1,500 of these plates were unused at the end of the month; no plates were on hand at the beginning of the month.
• During the past month, 1,150 hours of labor time were recorded in the lab at a cost of $13,800.
• The lab's variable overhead cost last month totaled $7,820.
Valley View Hospital has never used standard costs. By searching industry literature, however, you have determined the following nationwide averages for hospital labs:
Plates: Two plates are required per lab test. These plates cost $2.50 each and are disposed of after the test is completed.
Labor: Each blood test should require 0.3 hours to complete, and each smear should require 0.15 hours to complete. The average cost of this lab time is $14 per hour.
Overhead: Overhead cost is based on direct labor-hours. The average rate for variable overhead is $6 per hour.
1. Compute a materials price variance for the plates purchased last month and a materials quantity variance for the plates used last month.
2. For labor cost in the lab:
• Compute a labor rate variance and a labor efficiency variance.
• In most hospitals, one-half of the workers in the lab are senior technicians and one-half are assistants. In an effort to reduce costs, Valley View Hospital employs only one-fourth senior technicians and three-fourths assistants. Would you recommend that this policy be continued? Explain.
3. Compute the variable overhead rate and efficiency variances. Is there any relation between the variable overhead efficiency variance and the labor efficiency variance? Explain.
Click here for the solution: John Fleming, chief administrator for Valley View Hospital, is concerned about the costs for tests in the hospital's lab
Mr. Fleming has asked you to evaluate costs in the hospital's lab for the past month. The following information is available:
• Two types of tests are performed in the lab-blood tests and smears. During the past month, 1,800 blood tests and 2,400 smears were performed in the lab. Small glass plates are used in both types of tests. During the past month, the hospital purchased 12,000 plates at a cost of $28,200. This cost is net of a 6% quantity discount. 1,500 of these plates were unused at the end of the month; no plates were on hand at the beginning of the month.
• During the past month, 1,150 hours of labor time were recorded in the lab at a cost of $13,800.
• The lab's variable overhead cost last month totaled $7,820.
Valley View Hospital has never used standard costs. By searching industry literature, however, you have determined the following nationwide averages for hospital labs:
Plates: Two plates are required per lab test. These plates cost $2.50 each and are disposed of after the test is completed.
Labor: Each blood test should require 0.3 hours to complete, and each smear should require 0.15 hours to complete. The average cost of this lab time is $14 per hour.
Overhead: Overhead cost is based on direct labor-hours. The average rate for variable overhead is $6 per hour.
1. Compute a materials price variance for the plates purchased last month and a materials quantity variance for the plates used last month.
2. For labor cost in the lab:
• Compute a labor rate variance and a labor efficiency variance.
• In most hospitals, one-half of the workers in the lab are senior technicians and one-half are assistants. In an effort to reduce costs, Valley View Hospital employs only one-fourth senior technicians and three-fourths assistants. Would you recommend that this policy be continued? Explain.
3. Compute the variable overhead rate and efficiency variances. Is there any relation between the variable overhead efficiency variance and the labor efficiency variance? Explain.
Click here for the solution: John Fleming, chief administrator for Valley View Hospital, is concerned about the costs for tests in the hospital's lab
Tuesday, July 14, 2015
After reviewing the month-to-month variances, Panarude senior management became concerned about the increased spending occurring in the last three months of each fiscal year
Panarude Airfreight is an international air freight hauler with more
than 45 jet aircraft operating in the United States and the Pacific Rim.
The firm is headquartered in Melbourne, Australia, and is organized
into five geographic areas: Australia, Japan, Taiwan, Korea, and the
United States. Sup-porting these areas are several centralized corporate
function services (cost centers): human resources, data processing,
fleet acquisition and maintenance, and telecommunications. Each
responsibility center has a budget, negotiated at the beginning of the
year with the vice president of finance. Funds unspent at the end of the
year do not carry over to the next fiscal year. The firm is on a
January-to-December fiscal year.
After reviewing the month-to-month variances, Panarude senior management became concerned about the increased spending occurring in the last three months of each fiscal year. In particular, in the first nine months of the year, expenditure accounts typically show favorable variances (actual spending is less than budget), but in the last three months, unfavorable variances are the norm. In an attempt to smooth out these spending patterns, each responsibility center is reviewed at the end of each calendar quarter and any unspent funds can be deleted from the budget for the remainder of the year. The accompanying table shows the budget and actual spending in the telecommunications department for the first quarter of this year.
At the end of the first quarter, telecommunications’ total annual budget for this year can be reduced by $7,000, the total budget underrun in the first quarter. In addition, the remaining nine monthly budgets for telecommunications are reduced by $778 (or $7,000 / 9). If, at the end of the second quarter, telecommunications’ budget shows an unfavorable variance of, say, $8,000 (after the original budget is reduced for the first-quarter underrun), management of telecommunications is held responsible for the entire $8,000 unfavorable variance. The first-quarter underrun is not restored. If the second quarter budget variance is also favorable, the remaining six monthly budgets are each reduced further by one-sixth of the second-quarter favorable budget variance.
Required:
a. What behavior would this budgeting scheme engender in the responsibility center managers?
b. Compare the advantages and disadvantages of the previous budget regime, where any end-of-year budget surpluses do not carry over to the next fiscal year, with the system of quarterly budget adjustments just described.
Click here for the solution: After reviewing the month-to-month variances, Panarude senior management became concerned about the increased spending occurring in the last three months of each fiscal year
After reviewing the month-to-month variances, Panarude senior management became concerned about the increased spending occurring in the last three months of each fiscal year. In particular, in the first nine months of the year, expenditure accounts typically show favorable variances (actual spending is less than budget), but in the last three months, unfavorable variances are the norm. In an attempt to smooth out these spending patterns, each responsibility center is reviewed at the end of each calendar quarter and any unspent funds can be deleted from the budget for the remainder of the year. The accompanying table shows the budget and actual spending in the telecommunications department for the first quarter of this year.
At the end of the first quarter, telecommunications’ total annual budget for this year can be reduced by $7,000, the total budget underrun in the first quarter. In addition, the remaining nine monthly budgets for telecommunications are reduced by $778 (or $7,000 / 9). If, at the end of the second quarter, telecommunications’ budget shows an unfavorable variance of, say, $8,000 (after the original budget is reduced for the first-quarter underrun), management of telecommunications is held responsible for the entire $8,000 unfavorable variance. The first-quarter underrun is not restored. If the second quarter budget variance is also favorable, the remaining six monthly budgets are each reduced further by one-sixth of the second-quarter favorable budget variance.
Required:
a. What behavior would this budgeting scheme engender in the responsibility center managers?
b. Compare the advantages and disadvantages of the previous budget regime, where any end-of-year budget surpluses do not carry over to the next fiscal year, with the system of quarterly budget adjustments just described.
Click here for the solution: After reviewing the month-to-month variances, Panarude senior management became concerned about the increased spending occurring in the last three months of each fiscal year
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