13-52 Choice of Cost-Allocation Bases in Accounting Firm
Brenda McCoy, the managing partner of McCoy, Brennan, and Cable, a public accounting firm, is considering the desirability of tracing more costs to jobs than just direct labor. In this way, the firm will be able to justify billings to clients.
Last year’s costs were
Direct-professional labor $ 5,000,000
Overhead 10,000,000
Total costs $15,000,000
The following costs were included in overhead:
Computer time $ 750,000
Secretarial cost 700,000
Photocopying 250,000
Fringe benefits to direct labor 800,000
Phone call time with clients (estimated but not tabulated) 500,000
Total $3,000,000
The firm’s data processing techniques now make it feasible to document and trace these costs to individual jobs. As an experiment, in December Brenda McCoy arranged to trace these costs to six audit engagements.
Two job records showed the following:
Engagement
Eagledale Company First Valley Bank
Direct-professional labor $15,000 $15,000
Fringe benefits to direct labor 3,000 3,000
Phone call time with clients 1,500 500
Computer time 3,000 700
Secretarial costs 2,000 1,500
Photocopying 500 300
Total direct costs $25,000 $21,000
1. Compute the overhead application rate based on last year’s costs.
2. Suppose last year’s costs were reclassified so that $3 million would be regarded as direct costs instead of overhead. Compute the overhead application rate as a percentage of direct labor and as a percentage of total direct costs.
3. Using the three rates computed in numbers 1 and 2, compute the total costs of engagements for Eagledale Company and First Valley Bank.
4. Suppose that client billing was based on a 30% markup of total job costs. Compute the billings that would be forthcoming in number 3.
5. Which method of costing and overhead application do you favor? Explain.
Click here for the solution: Brenda McCoy, the managing partner of McCoy, Brennan, and Cable, a public accounting firm, is considering the desirability of tracing more costs
Showing posts with label public. Show all posts
Showing posts with label public. Show all posts
Wednesday, November 11, 2015
Monday, October 26, 2015
An analysis of the transactions made by S. Moses & Co., a certified public accounting firm, for the month of August is shown below
ACC 557 Week 1 Assignment
E1-8 An analysis of the transactions made by S. Moses & Co., a certified public accounting firm, for the month of August is shown below. Each increase and decrease in stockholders’ equity is explained.
Cash Accounts Office Accounts Stockholders’ _ Receivable _ Supplies _ Equipment _ Payable _ Equity
1. _$15,000 _$15,000 Investment
2. _2,000 _$5,000 _$3,000
3. _750 _$750
4. _4,600 _$3,700 _8,300 Service Revenue
5. _1,500 _1,500
6. _2,000 _2,000 Dividends
7. _650 −650 Rent Expense
8. _450 _450
9. _4,900 _4,900 Salaries Expense
10. _500 −500 Utilities Expense
Instructions
(a) Describe each transaction that occurred for the month.
(b) Determine how much stockholders’ equity increased for the month.
(c) Compute the amount of net income for the month.
Click here for the solution: An analysis of the transactions made by S. Moses & Co., a certified public accounting firm, for the month of August is shown below
E1-8 An analysis of the transactions made by S. Moses & Co., a certified public accounting firm, for the month of August is shown below. Each increase and decrease in stockholders’ equity is explained.
Cash Accounts Office Accounts Stockholders’ _ Receivable _ Supplies _ Equipment _ Payable _ Equity
1. _$15,000 _$15,000 Investment
2. _2,000 _$5,000 _$3,000
3. _750 _$750
4. _4,600 _$3,700 _8,300 Service Revenue
5. _1,500 _1,500
6. _2,000 _2,000 Dividends
7. _650 −650 Rent Expense
8. _450 _450
9. _4,900 _4,900 Salaries Expense
10. _500 −500 Utilities Expense
Instructions
(a) Describe each transaction that occurred for the month.
(b) Determine how much stockholders’ equity increased for the month.
(c) Compute the amount of net income for the month.
Click here for the solution: An analysis of the transactions made by S. Moses & Co., a certified public accounting firm, for the month of August is shown below
Deer Park, a public camping ground near the Lake Mead National Recreation Area, has compiled the following financial information as of December 31, 2008
ACC 557 Week 1 Assignment
E1-14 Deer Park, a public camping ground near the Lake Mead National Recreation Area, has compiled the following financial information as of December 31, 2008.
Revenues during 2008—camping fees $140,000 Notes payable $ 60,000
Revenues during 2008—general store 50,000 Expenses during 2008 150,000
Accounts payable 11,000 Supplies on hand 2,500
Cash on hand 23,000 Common stock 20,000
Original cost of equipment 105,500 Retained earnings ?
Market value of equipment 140,000
Instructions
(a) Determine Deer Park’s net income for 2008.
(b) Prepare a balance sheet for Deer Park as of December 31, 2008.
Click here for the solution: Deer Park, a public camping ground near the Lake Mead National Recreation Area, has compiled the following financial information as of December 31, 2008
E1-14 Deer Park, a public camping ground near the Lake Mead National Recreation Area, has compiled the following financial information as of December 31, 2008.
Revenues during 2008—camping fees $140,000 Notes payable $ 60,000
Revenues during 2008—general store 50,000 Expenses during 2008 150,000
Accounts payable 11,000 Supplies on hand 2,500
Cash on hand 23,000 Common stock 20,000
Original cost of equipment 105,500 Retained earnings ?
Market value of equipment 140,000
Instructions
(a) Determine Deer Park’s net income for 2008.
(b) Prepare a balance sheet for Deer Park as of December 31, 2008.
Click here for the solution: Deer Park, a public camping ground near the Lake Mead National Recreation Area, has compiled the following financial information as of December 31, 2008
Wednesday, October 14, 2015
Hy and Lowe is a public firm that offers two primary services, auditing and tax return preparation
ACC 560 Week 3 Assignment
P4-5A Hy and Lowe is a public firm that offers two primary services, auditing and tax return preparation. A controversy has developed between the partners of the two service lines as to who is contributing the greater amount to the bottom line. The area of contention is the assignment of overhead. The tax partners argue for assigning overhead on the basis of 40% of direct labor dollars, while the audit partners argue for implementing activity-based costing. The partners agree to use next year's budgeted data for purposes of analysis and comparison. The following overhead data are collected to develop the comparison.
Activity Cost Pool Cost Driver Estimated Overhead Expected Use of Cost Drivers Expected Use of Cost Drivers per Service Audit Tax
Employee training Direct labor dollars $216,000 $1,800,000 $1,000,000 $800,000
Typing and secretarial Number of reports/forms 76,200 2,500 600 1,900
Computing Number of minutes 204,000 60,000 25,000 35,000
Facility rental Number of employees 142,500 40 22 18
Travel Per expense reports 81,300 Direct 56,000 25,300 $720,000
Instructions:
a. Using traditional product costing as proposed by the tax partners, compute the total overhead cost assigned to both services (audit and tax) of Hy and Lowe.
b. 1. Using activity-based costing, prepare a schedule showing the computations of the activity-based overhead rates (per cost driver).
2. Prepare a schedule assigning each activity's overhead cost pool to each service based on the use of the cost drivers.
c. Classify each of the activities as a value-added activity or a non-value added activity.
d. Comment on the comparative overhead cost for the two services under both traditional costing and ABC.
Click here for the solution: Hy and Lowe is a public firm that offers two primary services, auditing and tax return preparation
P4-5A Hy and Lowe is a public firm that offers two primary services, auditing and tax return preparation. A controversy has developed between the partners of the two service lines as to who is contributing the greater amount to the bottom line. The area of contention is the assignment of overhead. The tax partners argue for assigning overhead on the basis of 40% of direct labor dollars, while the audit partners argue for implementing activity-based costing. The partners agree to use next year's budgeted data for purposes of analysis and comparison. The following overhead data are collected to develop the comparison.
Activity Cost Pool Cost Driver Estimated Overhead Expected Use of Cost Drivers Expected Use of Cost Drivers per Service Audit Tax
Employee training Direct labor dollars $216,000 $1,800,000 $1,000,000 $800,000
Typing and secretarial Number of reports/forms 76,200 2,500 600 1,900
Computing Number of minutes 204,000 60,000 25,000 35,000
Facility rental Number of employees 142,500 40 22 18
Travel Per expense reports 81,300 Direct 56,000 25,300 $720,000
Instructions:
a. Using traditional product costing as proposed by the tax partners, compute the total overhead cost assigned to both services (audit and tax) of Hy and Lowe.
b. 1. Using activity-based costing, prepare a schedule showing the computations of the activity-based overhead rates (per cost driver).
2. Prepare a schedule assigning each activity's overhead cost pool to each service based on the use of the cost drivers.
c. Classify each of the activities as a value-added activity or a non-value added activity.
d. Comment on the comparative overhead cost for the two services under both traditional costing and ABC.
Click here for the solution: Hy and Lowe is a public firm that offers two primary services, auditing and tax return preparation
Sunday, September 13, 2015
The PCAOB has the authority to set audit standards for all audits of public companies
2-60. (Audit Standards for NonPublic Companies, LO 5, 9, 10) The PCAOB has the authority to set audit standards for all audits of public companies. The AICPA continues to set audit standards for nonpublic companies through its auditing standards board.
Required:
a. What are the pros and cons of having the same audit standards for both public and nonpublic entities?
b. In what ways might you expect auditing standards for audits of nonpublic companies to differ from the standards for public companies? Identify three (there are not necessarily three right or wrong answers-this is an opinion and discussion question only). Identify the rationale for your answers.
c. A CPA is performing an audit of a local municipality. Where should the auditor look to determine audit standards that must be followed?
d. What role should an audit committee play in determining which standards an audit firm will use in auditing their company? Explain.
Click here for the solution: The PCAOB has the authority to set audit standards for all audits of public companies
Required:
a. What are the pros and cons of having the same audit standards for both public and nonpublic entities?
b. In what ways might you expect auditing standards for audits of nonpublic companies to differ from the standards for public companies? Identify three (there are not necessarily three right or wrong answers-this is an opinion and discussion question only). Identify the rationale for your answers.
c. A CPA is performing an audit of a local municipality. Where should the auditor look to determine audit standards that must be followed?
d. What role should an audit committee play in determining which standards an audit firm will use in auditing their company? Explain.
Click here for the solution: The PCAOB has the authority to set audit standards for all audits of public companies
Tuesday, September 8, 2015
Elise, CPA, owns a public accounting firm and wishes to establish a separate partnership to offer data processing services
MULTIPLE CHOICE
1. Elise, CPA, owns a public accounting firm and wishes to establish a separate partnership to offer data processing services to the public and other public accountants.
2. In some situations, the interpretations of the Rules of Conduct permit former partners to have relationships with a client of the firm without affecting the firm’s independence. Which of the following situations would not cause a loss of independence?
3. Anna Greer, a CPA in public practice, contacts Blake Sawyers, an employee of Jackson & Jackson, LLP, and makes him an offer of employment without first notifying Jackson & Jackson, LLP. According to the AICPA’s Code of Professional Conduct, Anna’s behavior:
4. When the question arises whether a CPA firm may do both bookkeeping and auditing services for the same public company client, the Interpretations of the AICPA’s Code of Professional Conduct:
5. A member in public practice may perform for a contingent fee any professional services for a client for whom the member or member’s firm performs:
6. “Independence” in auditing means:
7. Interpretations of the rules regarding independence allow an auditor to serve as:
8. Which of the following statements is true? The CPA firm will lose its independence if:
9. Which of the following statements is not true with respect to audit committees?
10. According to the Principles section of the Code of Professional Conduct, all members:
Click here for the solution: Elise, CPA, owns a public accounting firm and wishes to establish a separate partnership to offer data processing services
1. Elise, CPA, owns a public accounting firm and wishes to establish a separate partnership to offer data processing services to the public and other public accountants.
2. In some situations, the interpretations of the Rules of Conduct permit former partners to have relationships with a client of the firm without affecting the firm’s independence. Which of the following situations would not cause a loss of independence?
3. Anna Greer, a CPA in public practice, contacts Blake Sawyers, an employee of Jackson & Jackson, LLP, and makes him an offer of employment without first notifying Jackson & Jackson, LLP. According to the AICPA’s Code of Professional Conduct, Anna’s behavior:
4. When the question arises whether a CPA firm may do both bookkeeping and auditing services for the same public company client, the Interpretations of the AICPA’s Code of Professional Conduct:
5. A member in public practice may perform for a contingent fee any professional services for a client for whom the member or member’s firm performs:
6. “Independence” in auditing means:
7. Interpretations of the rules regarding independence allow an auditor to serve as:
8. Which of the following statements is true? The CPA firm will lose its independence if:
9. Which of the following statements is not true with respect to audit committees?
10. According to the Principles section of the Code of Professional Conduct, all members:
Click here for the solution: Elise, CPA, owns a public accounting firm and wishes to establish a separate partnership to offer data processing services
Monday, August 31, 2015
Your client, Raptor Manufacturing, is a large public company that manufactures afterburning turbofan engines for F-22 fighter jets
Use the following information for Problems 12-30 and 12-31:
Your client, Raptor Manufacturing, is a large public company that manufactures afterburning turbofan engines for F-22 fighter jets.
AND SO ON
Problem 12-30 Identify and list the company controls in place related to purchase transactions and cash disbursements.
(a) For each control identified:
• state the purpose of the control.
• state which management assertion(s) are related to the control.
• list the procedures and documents needed to test the control.
(b) What are some additional controls that could be implemented to improve Raptor Manufacturing’s control environment pertaining to its purchases and cash disbursements cycle?
Problem 12-31 Which of the controls identified in Problem 12-30 could be audited using a dual purpose test. How would this change the procedures and documents needed?
Click here for the solution: Your client, Raptor Manufacturing, is a large public company that manufactures afterburning turbofan engines for F-22 fighter jets
Your client, Raptor Manufacturing, is a large public company that manufactures afterburning turbofan engines for F-22 fighter jets.
AND SO ON
Problem 12-30 Identify and list the company controls in place related to purchase transactions and cash disbursements.
(a) For each control identified:
• state the purpose of the control.
• state which management assertion(s) are related to the control.
• list the procedures and documents needed to test the control.
(b) What are some additional controls that could be implemented to improve Raptor Manufacturing’s control environment pertaining to its purchases and cash disbursements cycle?
Problem 12-31 Which of the controls identified in Problem 12-30 could be audited using a dual purpose test. How would this change the procedures and documents needed?
Click here for the solution: Your client, Raptor Manufacturing, is a large public company that manufactures afterburning turbofan engines for F-22 fighter jets
Sunday, July 12, 2015
St. Joe Trucking has sold an issue of $6 cumulative preferred stock to the public at a price of $60 per share
St. Joe Trucking has sold an issue of $6 cumulative preferred stock to the public at a price of $60 per share. After issuance costs, St. Joe netted $57 per share. The company has a marginal tax rate of 40 percent.
a. Calculate the after-tax cost of this preferred stock offering assuming that this stock is a perpetuity.
b. if the stock is callable in 5 years at $66 per share and investors expect it to be called at that time, what is the after-tax cost of this preferred stock offering? (Compute to the nearest whole percent.)
Click here for the solution: St. Joe Trucking has sold an issue of $6 cumulative preferred stock to the public at a price of $60 per share
a. Calculate the after-tax cost of this preferred stock offering assuming that this stock is a perpetuity.
b. if the stock is callable in 5 years at $66 per share and investors expect it to be called at that time, what is the after-tax cost of this preferred stock offering? (Compute to the nearest whole percent.)
Click here for the solution: St. Joe Trucking has sold an issue of $6 cumulative preferred stock to the public at a price of $60 per share
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