The management of Borealis Manufacturing Company is trying to decide whether to continue manufacturing a part or to buy it from an outside supplier

ACC 560 Week 5 Assignment

P7-2A The management of Borealis Manufacturing Company is trying to decide whether to continue manufacturing a part or to buy it from an outside supplier. The part, called WISCO, is a component of the company's finished product.

The following information was collected from the accounting records and production data for the year ending December 31, 2008.
1. 7,000 units of WISCO were produced in the Machining Department.
2. Variable manufacturing costs applicable to the production of each WISCO unit were: direct materials $4.80, direct labor $4.30, indirect labor $0.43, utilities $0.40.
3. Fixed manufacturing costs applicable to the production of WISCO were:
Cost Item Direct Allocated
Depreciation $2,100 $ 900
Property taxes 500 200
Insurance 900 600
$3,500 $1,700

All variable manufacturing and direct fixed costs will be eliminated if WISCO is purchased. Allocated costs will have to be absorbed by other production departments.

4. The lowest quotation for 7,000 WISCO units from a supplier is $70,000.
5. If WISCO units are purchased, freight and inspection costs would be $0.40 per unit, and receiving costs totaling $1,250 per year would be incurred by the Machining Department.

Hint: Make incremental analysis related to make or buy, consider opportunity cost, and identify nonfinancial factors.

Instructions
(a) Prepare an incremental analysis for WISCO. Your analysis should have columns for (1) Make WISCO, (2) Buy WISCO, and (3) Net Income Increase/(Decrease).
(b) Based on your analysis, what decision should management make?
(c) Would the decision be different if Borealis Company has the opportunity to produce $5,000 of net income with the facilities currently being used to manufacture WISCO? Show computations.
(d) What nonfinancial factors should management consider in making its decision?

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For the past several years, Emily Page has operated a part-time consulting business from her home

PR 4-6A For the past several years, Emily Page has operated a part-time consulting business from her home. As of June 1, 2010, Emily decided to move to rented quarters and to operate the business, which was to be known as Bottom Line Consulting, on a full-time basis. Bottom Line Consulting entered into the following transactions during June:

June 1: The following assets were received from Emily Page: cash, $20,000; accounts receivable, $4,500, supplies, $2,000; and office equipment, $11,500. There were no liabilities received.
1. Paid three months rent on a lease rental contract, $6,000.
2. Paid the premiums on property casualty insurance policies, $2,400.

AND SO ON

Check: 8. Net Income $16,455

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Louder Company manufactures part MNO used in several of its truck models

Louder Company manufactures part MNO used in several of its truck models. A total of 10,000 units are produced each year with production costs as follows:

Direct materials $ 45,000
Direct manufacturing labor 15,000
Variable support costs 35,000
Fixed support costs 25,000
Total costs $120,000

Louder Company has the option of purchasing part MNO from an outside supplier at $11.20 per unit. If MNO is outsourced, 40% of the fixed costs cannot be immediately converted to other uses.

Question 1: What amount of the MNO production costs is avoidable?

Question 2: Should the company outsource MNO? Why or why not?

Question 3: What other items should the company consider before outsourcing any of the parts it manufactures?


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For the past several years, Sara Keith has operated a part-time consulting business from her home

ACC 1800 – Accounting Procedures
Fall 2011 - Comprehensive Problem

For the past several years, Sara Keith has operated a part-time consulting business from her home. As of June 1, 2011, Sara decided to move to rented quarters and to operate the business, which was to be known as S&K Consulting, on a full-time basis. S&K Consulting entered into the following transactions during June:

June 1 The following assets were received from Sara Keith: cash, $20,000; accounts receivable, $4,500; supplies, $2,000; and office equipment, $11,500. There were no liabilities received.
June 1 Paid three month’s rent on a lease contract, $6,000.
June 2 Paid the annual premiums on property and casualty insurance policies, $2,400.
June 4 Received cash from clients as an advance payment for services to be provided and recorded it as unearned fees, $2,700.
June 5 Purchased additional office equipment on account, $3,500.
June 6 Received cash from clients on account, $3,000.
June 10 Paid cash for a newspaper advertisement, $200.
June 12 Paid for part of the debt incurred on June 5, $750.
June 12 Recorded services provided on account for the period June 1-12, $5,100.
June 14 Paid part-time receptionist for two weeks’ salary, $1,100.
June 17 Recorded cash from clients for fees earned for the period June 1-16, $6,500.
June 18 Paid cash for supplies, $750.
June 20 Recorded services provided on account for the period June 13-20, $3,100.
June 24 Recorded cash from cash clients for fees earned for the period June 17-24, $5,150.
June 26 Received cash from clients on account, $6,900.
June 27 Paid part-time receptionist for two weeks’ salary, $1,100.
June 29 Paid telephone bill for June, $150.
June 29 Paid electricity bill for June, $400.
June 30 Recorded cash from cash clients for fees earned for the period June 25-30, $2,500.
June 30 Recorded services provided on account for the remainder of June, $1,100.
June 30 Sara withdrew $5,000 for personal use.

Instructions:
1. Journalize each transaction in a two-column journal, referring to the following chart of accounts in selecting the accounts to be debited and credited.
11 Cash 31 Sara Keith, Capital
12 Accounts Receivable 32 Sara Keith, Withdrawals
14 Supplies 41 Service Revenue
15 Prepaid Rent 51 Salary Expense
16 Prepaid Insurance 52 Rent Expense
18 Office Equipment 53 Supplies Expense
19 Accumulated Depreciation 54 Depreciation Expense
21 Accounts Payable 55 Insurance Expense
22 Salaries Payable 59 Miscellaneous Expense
23 Unearned Service Revenue
2. Open T-accounts and post the journal entries to the T-accounts.
3. Complete a worksheet at end of June using the following adjustment data:
a. Insurance expired during June is $200.
b. Supplies on hand on June 30 are $650.
c. Depreciation of office equipment for June is $250.
d. Accrued receptionist salary on June 30 is $220.
e. Rent expired during June is $2,000.
f. Unearned service revenue on June 30 is $1,875.
4. Prepare an income statement, a statement of owner’s equity and a balance sheet.
5. Journalize and post the adjusting entries.
6. Journalize and post the closing entries.
7. Compute final balances in each T-account.
8. Prepare the post-closing trial balance.


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Analytical procedures are an important part of the audit process and consist of the evaluation of financial information

Auditing P 8-31 Analytical procedures are an important part of the audit process and consist of the evaluation of financial information by the study of plausible relationships among financial and nonfinancial data. Analytical procedures may be done during planning, as a substantive test, or as a part of the overall review of an audit.

The following are various statements regarding the use of analytical procedures:
1. Not required during this stage.
2. Should focus on enhancing the auditor’s understanding of the client’s business and the transactions and events that have occurred since the last audit date.
3. Should focus on identifying areas that may represent specific risks relevant to the audit.
4. Do not result in detection of misstatements.
5. Designed to obtain evidential matter about particular assertions related to account balances or classes of transactions.
6. Generally use data aggregated at a lower level than the other stages.
7. Should include reading the financial statements and notes to consider the adequacy of evidence gathered.
8. Involve reconciliation of confirmation replies with recorded book amounts.
9. Use the preliminary or unadjusted working trial balance as a source of data.
10. Expected to result in a reduced level of detection risk.

Required
For each of the 10 statements, select the stage of the audit for which the statement is most accurate using the following responses:
1. Planning the audit
2. Substantive testing
3. Overall review
4. Statement is not correct concerning analytical procedures.*


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Fouch Company makes 30,000 units per year of a part it uses in the products it manufactures

Fouch Company makes 30,000 units per year of a part it uses in the products it manufactures. The unit product cost of this part is computed as follows:

Direct Materials-------------------------------$15.70
Direct Labor-----------------------------------$17.50
Variable Manufacturing Overhead-------$ 4.50
Fixed Manufacturing Overhead----------$14.60
----------
Unite Product Cost--------------------------$52.30
----------

An outside supplier has offered to sell the company all of these parts it needs for $51.90 a unit. If the company accepts this offer, the facilities now being used to make the part could be used to make more units of a product that is in high demand. The additional contribution margin on this other product would be $219,000 per year.

If the part were purchased from the outside supplier, all of the direct labor cost of the part would be avoided. However, $6.20 of the fixed manufacturing overhead cost being applied to the part would continue even if the part were purchased from the outside supplier. This fixed manufacturing overhead cost would be applied to the company's remaining products.

Required:
i. How much of the unit product cost of $52.30 is relevant in the decision of whether to make or buy the part?
ii. What is the net total dollar advantage (disadvantage) of purchasing the part rather than making it?
iii. What is the maximum amount the company should be willing to pay an outside supplier per unit for the part if the supplier commits to supplying all 30,000 units required each year?

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Lindon Company uses 4,500 units of Part X each year as a component in the assembly of one of its products

Lindon Company uses 4,500 units of Part X each year as a component in the assembly of one of its products. The company is presently producing Part X internally at a total cost of $69,000 as follows:

Direct Materials...... $16,000
Direct Labor........ 18,000
Variable Manufacturing Overhead .....10,000
Fixed Manufacturing Overhead....... 25,000
Total Costs ....$69,000

An outside supplier has offered to provide Part X at a price of $11 per unit. If Lindon stops producing the part internally, one-third of the manufacturing overhead would be eliminated.

Required: Prepare a make or buy analysis showing the annual advantage or disadvantage of accepting the outside supplier's offer.

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Rosiek Corporation uses part A55 in one of its products

Rosiek Corporation uses part A55 in one of its products. The company's accounting department reports the following costs of producing the 4,000 units of the part that are needed every year.

Per Unit
Direct Materials $2.80
Direct Labor $6.30
Variable Overhead $8.50
Supervisor's Salary $2.60
Depreciation of Special Equipment $6.80
Allocated General Overhead $6.10

An outside supplier has offered to make the part and sell it to the company for $32.30 each. If this offer is accepted, the supervisor's salary and all of the variable costs, including direct labor, can be avoided. The special equipment used to make the part was purchased many years ago and has no salvage value or other use. The allocated general overhead represents fixed costs of the entire company. If the outside supplier's offer were accepted, only $4,000 of these allocated general overhead costs would be avoided. In addition, the space used to produce part A55 could be used to make more of one of the company's other products, generating an additional segment margin of $26,000 per year for that product.

Required:
i. Prepare a report that shows the effect on the company's total net operating income of buying part A55 from the supplier rather than continuing to make it inside the company.
ii. Which alternative should the company choose?

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The Zygon Corporation was recently formed to produce a semiconductor chip that forms an essential part of the personal computer manufactured by a major corporation

The Zygon Corporation was recently formed to produce a semiconductor chip that forms an essential part of the personal computer manufactured by a major corporation. The direct materials are added at the start of the production process while conversion costs are added uniformly throughout the production process. June is Zygon's first month of operations, and therefore, there was no beginning inventory. Direct materials cost for the month totaled $895,000, while conversion costs equaled $4,225,000. Accounting records indicate that 475,000 chips were started in June, and that 425,000 chips were completed.

Ending inventory was 50% complete as to conversion costs.

Required:
a. What is the total manufacturing cost per chip for June?
b. Allocate the total costs between the completed chips and the chips in ending inventory.

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You have just started work for Warren Co. as part of the controller’s group involved in current financial reporting problems

(Issues Raised about Investment Securities) You have just started work for Warren Co. as part of the controller’s group involved in current financial reporting problems. Jane Henshaw, controller for Warren, is interested in your accounting background because the company has experienced a series of financial reporting surprises over the last few years. Recently, the controller has learned from the company’s auditors that there is authoritative literature that may apply to its investment in securities. She assumes that you are familiar with this pronouncement and asks how the following situations should be reported in the financial statements

Situation 1
Trading securities in the current assets section have a fair value that is $4,200 lower than cost.
Situation 2
A trading security whose fair value is currently less than cost is transferred to the available-for-sale category.
Situation 3
An available-for-sale security whose fair value is currently less than cost is classified as noncurrent but is to be reclassified as current.
Situation 4
A company’s portfolio of available-for-sale securities consists of the common stock of one company. At the end of the prior year, the fair value of the security was 50% of original cost, and this reduction in fair value was reported as an other than temporary impairment. However, at the end of the current year the fair value of the security had appreciated to twice the original cost.
Situation 5
The company has purchased some convertible debentures that it plans to hold for less than a year. The fair value of the convertible debentures is $7,700 below its cost.

Instructions
What is the effect upon carrying value and earnings for each of the situations above? Assume that these situations are unrelated.

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