BIKE Company starts with $3,000 cash to finance its business plan to produce bike helmets with a simple assembly process

Understanding Revenue Recognition

For this assignment, turn to page 364 in your textbook (Chapter 6 of Financial Statements Analysis), and complete Case 6-1, Understanding Revenue Recognition.

BIKE Company starts with $3,000 cash to finance its business plan to produce bike helmets with a simple assembly process. During the first month of business the company signs sales contracts for 1,300 units (sales price of $9 per unit), produces 1,200 units (production cost of $7 per unit), ships 1,100 units, and collects in full for 900 units. Production costs are paid at the time of production. The company has only two other costs:

This is the entire problem. Do you think it will be completed by tonight? Sorry but i need it by then.

1. Commission of 10% of the selling price when the company collects from the customer;
2. Shipping costs of $0.20 per unit paid at time of shipment. Selling price and all costs per unit have been constant and are likely to remain the same.

A. Prepare comprehensive (side by side) balance sheets and income statements for the first month of BIKE Company for each of the following three alternatives:
1. Revenue is recognized at the time of shipment
2. Revenue is recognized at the time of collection
3. Revenue is recognized at the time of production

Note: net income for each of the three alternatives is (1) $990, (2) $810, and (3) $1080 respectively.

B. The method where revenue is recognized at the time of collection, known as the installment method, is except the bull for financial reporting in unusual and special cases. Why is BIKE Company likely to prefer this method for tax purposes? (one line simple answer)

C. Comment on the usefulness of the installment method for a credit analyst is using both the balance sheet and income statement.


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Hannon Company expects to produce 1,200,000 units of Product XX in 2010

Hannon Company expects to produce 1,200,000 units of Product XX in 2010. Monthly production is expected to range from 80,000 to 120,000 units. Budgeted variable manufacturing costs per unit are: direct materials $4, direct labor $6, and overhead $8. Budgeted fixed manufacturing costs per unit for depreciation are $2 and for supervision are $1. Prepare a flexible manufacturing budget for the relevant range value using 20,000 unit increments.


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Venice InLine, Inc., was founded by Russ Perez to produce a specialized in-line skate he had designed for doing aerial tricks

Problem 16-19 (Ethics and the Manager) Venice InLine, Inc., was founded by Russ Perez to produce a specialized in-line skate he had designed for doing aerial tricks. Up to this point, Russ has financed the company with his own savings and with cash generated by his business. However, Russ now faces a cash crisis. In the year just ended, an acute shortage of high-impact roller bearings developed just as the company was beginning production for the Christmas season. Russ had been assured by his suppliers that the roller bearings would be delivered in time to make Christmas shipments, but the suppliers were unable to fully deliver on this promise. As a consequence, Venice InLine had large stocks of unfinished skates at the end of the year and was unable to fill all of the orders that had come in from retailers for the Christmas season. Consequently, sales were below expectations for the year, and Russ does not have enough cash to pay his creditors. Well before the accounts payable were due, Russ visited a local bank and inquired about obtaining a loan. The loan officer at the bank assured Russ that there should not be any problem getting a loan to pay off his accounts payable—providing that on his most recent financial statements the current ratio was above 2.0, the acid-test ratio was above 1.0, and net operating income was at least four times the interest on the proposed loan. Russ promised to return later with a copy of his financial statements. Russ would like to apply for a $80,000 six-month loan bearing an interest rate of 10% per year. The unaudited financial reports of the company appear below:

AND SO ON

Required:
1. Based on the unaudited financial statements on the prior page and the statement made by the loan officer, would the company qualify for the loan?
2. Last year Russ purchased and installed new, more efficient equipment to replace an older plastic injection molding machine. Russ had originally planned to sell the old machine but found that it is still needed whenever the plastic injection molding process is a bottleneck. When Russ discussed his cash flow problems with his brother-in-law, he suggested to Russ that the old machine be sold or at least reclassified as inventory on the balance sheet because it could be readily sold. At present, the machine is carried in the Property and Equipment account and could be sold for its net book value of $45,000. The bank does not require audited financial statements. What advice would you give to Russ concerning the machine?

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H. Banks Company would like to design, produce, and sell versatile toasters for the home kitchen market

Exercise 13-35 Target Costing

H. Banks Company would like to design, produce, and sell versatile toasters for the home kitchen market. The toaster will have four slots that adjust in thickness to accommodate both slim slices of bread and oversized bagels. The target price is $75. Banks requires that new products be priced such that 20 percent of the price is profit.

Instructions
1. Calculate the amount of desired profit per unit of the new toaster.
2. Calculate the target cost per unit of the new toaster.

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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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Gundy Company expects to produce 1,223,880 units of Product XX in 2012

Gundy Company expects to produce 1,223,880 units of Product XX in 2012. Monthly production is expected to range from 73,280 to 111,220 units. Budgeted variable manufacturing costs per unit are: direct materials $3, direct labor $6, and overhead $10. Budgeted fixed manufacturing costs per unit for depreciation are $6 and for supervision are $2.

Prepare a flexible manufacturing budget for the relevant range value using 18,970 unit increments. (List variable costs before fixed costs.)

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(Determining and Interpreting Flexible Budget Variances) Use the standard price and cost data supplied in Problem 15-18. Assume that Holligan actually produce and sold 31,000 books

Problem 15-19 Determining and Interpreting Flexible Budget Variances

Use the standard price and cost data supplied in Problem 15-18. Assume that Holligan actually produce and sold 31,000 books. The actual sales price and costs incurred follow.

AND SO ON

Check:
Flexible Budget Variance of NI: $25,900 U

Click here for the solution: (Determining and Interpreting Flexible Budget Variances) Use the standard price and cost data supplied in Problem 15-18. Assume that Holligan actually produce and sold 31,000 books