CASE 13–30 Make or Buy; Utilization of a Constrained Resource [LO1, LO3, LO5]
TufStuff, Inc. sells a wide range of drums, bins, boxes, and other containers that are used in the chemical industry. One of the company’s products is a heavy-duty corrosion-resistant metal drum, called the WVD drum, used to store toxic wastes. Production is constrained by the capacity of an automated welding machine that is used to make precision welds. A total of 2,000 hours of welding time is available annually on the machine. Because each drum requires 0.4 hours of welding time, annual production is limited to 5,000 drums. At present, the welding machine is used exclusively to make the WVD drums. The accounting department has provided the following financial data concerning the WVD drums:
WVD Drums
Selling price per drum . . . . . . . . . . . . . . $149.00
Cost per drum:
Direct materials . . . . . . . . . . . . . . . . . $52.10
Direct labor ($18 per hour) . . . . . . . . 3.60
Manufacturing overhead . . . . . . . . . . 4.50
Selling and administrative expense. . 29.80 90.00
Margin per drum . . . . . . . . . . . . . . . . . . $ 59.00
AND SO ON
ALL 5 REQUIREMENTS ANSWERED.
Click here for the solution: TufStuff, Inc. sells a wide range of drums, bins, boxes, and other containers that are used in the chemical industry
Showing posts with label sells. Show all posts
Showing posts with label sells. Show all posts
Monday, April 18, 2016
Friday, April 15, 2016
Computer Boutique sells computer equipment and home office furniture
Computer Boutique sells computer equipment and home office furniture. Currently, the furniture product line takes up approximately 50% of the company's retail floor space. The president of Computer Boutique is trying to decide whether the company should continue offering furniture or just concentrate on computer equipment. If furniture is dropped, salaries and other direct fixed costs can be avoided. In addition, sales of computer equipment can increase by 13%. Allocated fixed costs are assigned based on relative sales.
Computer Home
Office Equipment Furniture Total
Sales $1,200,000 $800,000 $2,000,000
Less cost of goods sold 700,000 500,000 1,200,000
Contribution margin 500,000 300,000 800,000
Less direct fixed costs:
Salaries 175,000 175,000 350,000
Other 60,000 60,000 120,000
Less allocated fixed costs:
Rent 14,118 9,882 24,000
Insurance 3,529 2,471 6,000
Cleaning 4,117 2,883 7,000
President's salary 76,470 53,350 130,000
Other 7,058 4,942 12,000
Total costs 340,292 380,708 649,000
Net Income $159,708 ($ 8,708) $151,000
Prepare an incremental analysis to determine the incremental effect on profit of discontinuing the furniture line.
Click here for the solution: Computer Boutique sells computer equipment and home office furniture
Computer Home
Office Equipment Furniture Total
Sales $1,200,000 $800,000 $2,000,000
Less cost of goods sold 700,000 500,000 1,200,000
Contribution margin 500,000 300,000 800,000
Less direct fixed costs:
Salaries 175,000 175,000 350,000
Other 60,000 60,000 120,000
Less allocated fixed costs:
Rent 14,118 9,882 24,000
Insurance 3,529 2,471 6,000
Cleaning 4,117 2,883 7,000
President's salary 76,470 53,350 130,000
Other 7,058 4,942 12,000
Total costs 340,292 380,708 649,000
Net Income $159,708 ($ 8,708) $151,000
Prepare an incremental analysis to determine the incremental effect on profit of discontinuing the furniture line.
Click here for the solution: Computer Boutique sells computer equipment and home office furniture
Tuesday, April 12, 2016
Advance Accounting Exam: 1. When the parent company sells a portion of its investment in a subsidiary
Advance Accounting Exam
1. When the parent company sells a portion of its investment in a subsidiary, the workpaper entry to adjust for the current year’s income sold to noncontrolling stockholders includes a (Points : 10)
2. The purchase by a subsidiary of some of its shares from noncontrolling stockholders results in the parent company’s share of the subsidiary’s net assets (Points : 10)
3. The purchase by a subsidiary of some of its shares from the noncontrolling stockholders results in an increase in the parent’s percentage interest in the subsidiary. The parent company’s share of the subsidiary’s net assets will increase if the shares are purchased: (Points : 10)
4. Which statement with respect to gains and losses on troubled debt restructuring is correct? (Points : 10)
5. A composition agreement is an agreement between the debtor and its creditors whereby the creditors agree to: (Points : 10)
6. Assets transferred by the debtor to a creditor to settle a debt are transferred at: (Points : 10)
7. In a troubled debt restructuring involving a modification of terms, the debtor’s gain on restructuring: (Points : 10)
8. The major difference between IFRS and US GAAP in accounting for inventories is that (Points : 10)
9. Accounting under IFRS and US GAAP is similar for all of the following topics except (Points : 10)
10. One difference between IFRS and GAAP in valuing inventories is that (Points : 10)
11. Accounting terminology that differs between IFRS and US GAAP include all of the following except (Points : 10)
12. A discount or premium on a forward contract is deferred and included in the measurement of the related foreign currency transaction if the contract is classified as a: (Points : 10)
13. The forward exchange rate quoted for the remaining term of a forward contract is used to account for the contract when the forward contract: (Points : 10)
14. A transaction gain or loss is reported currently in the determination of income if the purpose of the forward contract is to: (Points : 10)
15. An indirect exchange rate quotation is one in which the exchange rate is quoted: (Points : 10)
16. If the functional currency is determined to be the U.S. dollar and its financial statements are prepared in the local currency, SFAS 52, requires which of the following procedures to be followed? (Points : 10)
17. When the functional currency is identified as the U.S. dollar, land purchased by a foreign subsidiary after the controlling interest was acquired by the parent company should be translated using the: (Points : 10)
18. The process of translating the accounts of a foreign entity into its functional currency when they are stated in another currency is called: (Points : 10)
19. In considering interim financial reporting, how did the Accounting Principles Board conclude that each reporting should be viewed? (Points : 10)
20. Current authoritative pronouncements require the disclosure of segment information when certain criteria are met. Which of the following reflects the type of firm and type of financial statement for which this disclosure is required? (Points : 10)
21. If annual major repairs made in the first quarter and paid for in the second quarter clearly benefit the entire year, when should they be expensed? (Points : 10)
22. During the second quarter of 2011, Dodge Company sold a piece of equipment at a gain of $90,000. What portion of the gain should Dodge report in its income statement for the second quarter of 2011? (Points : 10)
23. Pete, Joe, and Ron are partners with capital balances of $135,000, $90,000, and $60,000, respectively. The partners share profits and losses equally. For an investment of $120,000 cash, Jerry is to be admitted as a partner with a one-fourth interest in capital and profits. Based on this information, the amount of Jerry’s investment can best be justified by which of the following? (Points : 10)
24. Bob and Fred form a partnership and agree to share profits in a 2 to 1 ratio. During the first year of operation, the partnership incurs a $20,000 loss. The partners should share the losses (Points : 10)
25. In a partnership, interest on capital investment is accounted for as a(n) (Points : 10)
26. The profit and loss sharing ratio should be (Points : 10)
27. During the liquidation of the partnership of Karr, Rice, and Long. Karr accepts, in partial settlement of his interest, a machine with a cost to the partnership of $150,000, accumulated depreciation of $70,000, and a current fair value of $110,000. The partners share net income and loss equally. The net debit to Karr's account (including any gain or loss on disposal of the machine) is (Points : 10)
28. A schedule prepared each time cash is to be distributed is called a(n) (Points : 10)
29. Offsetting a partner's loan balance against his debit capital balance is referred to as the (Points : 10)
30. If a partner with a debit capital balance during liquidation is personally solvent, the (Points : 10)
Click here for the solution: Advance Accounting Exam
1. When the parent company sells a portion of its investment in a subsidiary, the workpaper entry to adjust for the current year’s income sold to noncontrolling stockholders includes a (Points : 10)
2. The purchase by a subsidiary of some of its shares from noncontrolling stockholders results in the parent company’s share of the subsidiary’s net assets (Points : 10)
3. The purchase by a subsidiary of some of its shares from the noncontrolling stockholders results in an increase in the parent’s percentage interest in the subsidiary. The parent company’s share of the subsidiary’s net assets will increase if the shares are purchased: (Points : 10)
4. Which statement with respect to gains and losses on troubled debt restructuring is correct? (Points : 10)
5. A composition agreement is an agreement between the debtor and its creditors whereby the creditors agree to: (Points : 10)
6. Assets transferred by the debtor to a creditor to settle a debt are transferred at: (Points : 10)
7. In a troubled debt restructuring involving a modification of terms, the debtor’s gain on restructuring: (Points : 10)
8. The major difference between IFRS and US GAAP in accounting for inventories is that (Points : 10)
9. Accounting under IFRS and US GAAP is similar for all of the following topics except (Points : 10)
10. One difference between IFRS and GAAP in valuing inventories is that (Points : 10)
11. Accounting terminology that differs between IFRS and US GAAP include all of the following except (Points : 10)
12. A discount or premium on a forward contract is deferred and included in the measurement of the related foreign currency transaction if the contract is classified as a: (Points : 10)
13. The forward exchange rate quoted for the remaining term of a forward contract is used to account for the contract when the forward contract: (Points : 10)
14. A transaction gain or loss is reported currently in the determination of income if the purpose of the forward contract is to: (Points : 10)
15. An indirect exchange rate quotation is one in which the exchange rate is quoted: (Points : 10)
16. If the functional currency is determined to be the U.S. dollar and its financial statements are prepared in the local currency, SFAS 52, requires which of the following procedures to be followed? (Points : 10)
17. When the functional currency is identified as the U.S. dollar, land purchased by a foreign subsidiary after the controlling interest was acquired by the parent company should be translated using the: (Points : 10)
18. The process of translating the accounts of a foreign entity into its functional currency when they are stated in another currency is called: (Points : 10)
19. In considering interim financial reporting, how did the Accounting Principles Board conclude that each reporting should be viewed? (Points : 10)
20. Current authoritative pronouncements require the disclosure of segment information when certain criteria are met. Which of the following reflects the type of firm and type of financial statement for which this disclosure is required? (Points : 10)
21. If annual major repairs made in the first quarter and paid for in the second quarter clearly benefit the entire year, when should they be expensed? (Points : 10)
22. During the second quarter of 2011, Dodge Company sold a piece of equipment at a gain of $90,000. What portion of the gain should Dodge report in its income statement for the second quarter of 2011? (Points : 10)
23. Pete, Joe, and Ron are partners with capital balances of $135,000, $90,000, and $60,000, respectively. The partners share profits and losses equally. For an investment of $120,000 cash, Jerry is to be admitted as a partner with a one-fourth interest in capital and profits. Based on this information, the amount of Jerry’s investment can best be justified by which of the following? (Points : 10)
24. Bob and Fred form a partnership and agree to share profits in a 2 to 1 ratio. During the first year of operation, the partnership incurs a $20,000 loss. The partners should share the losses (Points : 10)
25. In a partnership, interest on capital investment is accounted for as a(n) (Points : 10)
26. The profit and loss sharing ratio should be (Points : 10)
27. During the liquidation of the partnership of Karr, Rice, and Long. Karr accepts, in partial settlement of his interest, a machine with a cost to the partnership of $150,000, accumulated depreciation of $70,000, and a current fair value of $110,000. The partners share net income and loss equally. The net debit to Karr's account (including any gain or loss on disposal of the machine) is (Points : 10)
28. A schedule prepared each time cash is to be distributed is called a(n) (Points : 10)
29. Offsetting a partner's loan balance against his debit capital balance is referred to as the (Points : 10)
30. If a partner with a debit capital balance during liquidation is personally solvent, the (Points : 10)
Click here for the solution: Advance Accounting Exam
Monday, March 21, 2016
Fong Sai-Yuk Company sells one product
E8-9 (Periodic versus Perpetual Entries) Fong Sai-Yuk Company sells one product. Presented below is information for January for Fong Sai-Yuk Company.
Jan 2 Inventory 100 units at $5 each
4 Sale 80 units at $8 each
11 Purchase 150 units at $6 each
13 Sale 120 units at $8.75 each
20 Purchase 160 units at $7 each
27 Sale 100 units at $9 each
Instructions
a.) Assume Fong Sai-Yuk uses a periodic system. Prepare all necessary journal entries, including the end of month closing entry to record cost of goods sol. A physical count indicates that ending inventory for January is 110 units.
b.) Compute gross profit using the periodic system.
c.) Assume Fong Sai-Yuk uses a perpetual system. Prepare all necessary journal entries.
d.) Compute gross profit using the perpetual system.
Click here for the solution: Fong Sai-Yuk Company sells one product
Jan 2 Inventory 100 units at $5 each
4 Sale 80 units at $8 each
11 Purchase 150 units at $6 each
13 Sale 120 units at $8.75 each
20 Purchase 160 units at $7 each
27 Sale 100 units at $9 each
Instructions
a.) Assume Fong Sai-Yuk uses a periodic system. Prepare all necessary journal entries, including the end of month closing entry to record cost of goods sol. A physical count indicates that ending inventory for January is 110 units.
b.) Compute gross profit using the periodic system.
c.) Assume Fong Sai-Yuk uses a perpetual system. Prepare all necessary journal entries.
d.) Compute gross profit using the perpetual system.
Click here for the solution: Fong Sai-Yuk Company sells one product
Saturday, October 17, 2015
Shady Lady sells window coverings to both commercial and residential customers
E4-5 Shady Lady sells window coverings to both commercial and residential customers. The following information relates to its budgeted operations for the current year.
Commercial Residential
Revenues $300,000 $480,000
Direct material costs 30,000 50,000
Direct labor costs 100,000 300,000
Overhead costs 50,000 180,000 150,000 500,000
Operating income (loss) $120,000 ($ 20,000)
The controller, Wanda Lewis, is concerned about the residential product line. She cannot understand why this line is not more profitable given that the installations of window coverings are less complex to install for residential customers. In addition, the residential client base resides in close proximity to the company office, so travel costs are not as expensive on a per client visit for residential customers. As a result, she has decided to take a closer look at the overhead costs assigned to the two product lines to determine whether a more accurate product costing model can be developed. Here are the three activity cost pools and related information she developed:
Activity Cost Pools Estimated Overhead Cost Drivers
Scheduling and travel $90,000 Hours of travel
Setup time 70,000 Number of setups
Supervision 40,000 Direct labor cost
Expected Use of Cost Drivers per Product
Commercial Residential
Scheduling and travel 1,000 500
Setup time 450 250
Instructions:
a) Compute the activity-based overhead rates for each of the three cost pools, and determine the overhead cost assigned to each product line
b) Compute the operating income for the each product line, using the activity-based overhead rates
c) What do you believe Wanda Lewis should do?
Click here for the solution: Shady Lady sells window coverings to both commercial and residential customers
Commercial Residential
Revenues $300,000 $480,000
Direct material costs 30,000 50,000
Direct labor costs 100,000 300,000
Overhead costs 50,000 180,000 150,000 500,000
Operating income (loss) $120,000 ($ 20,000)
The controller, Wanda Lewis, is concerned about the residential product line. She cannot understand why this line is not more profitable given that the installations of window coverings are less complex to install for residential customers. In addition, the residential client base resides in close proximity to the company office, so travel costs are not as expensive on a per client visit for residential customers. As a result, she has decided to take a closer look at the overhead costs assigned to the two product lines to determine whether a more accurate product costing model can be developed. Here are the three activity cost pools and related information she developed:
Activity Cost Pools Estimated Overhead Cost Drivers
Scheduling and travel $90,000 Hours of travel
Setup time 70,000 Number of setups
Supervision 40,000 Direct labor cost
Expected Use of Cost Drivers per Product
Commercial Residential
Scheduling and travel 1,000 500
Setup time 450 250
Instructions:
a) Compute the activity-based overhead rates for each of the three cost pools, and determine the overhead cost assigned to each product line
b) Compute the operating income for the each product line, using the activity-based overhead rates
c) What do you believe Wanda Lewis should do?
Click here for the solution: Shady Lady sells window coverings to both commercial and residential customers
Wednesday, October 14, 2015
Tiger Golf Accessories sells golf shoes, gloves, and a laser-guided range-finder that measures distance
E6-9 Tiger Golf Accessories sells golf shoes, gloves, and a laser-guided range-finder that measures distance. Shown below are unit cost and sales data.
Pairs of Shoes Pairs of Gloves Range Finder
Unit sales price $100 $30 $250
Unit variable costs 60 10 200
Unit contribution margin $40 $20 $50
Sales mix 40% 50% 10%
Fixed costs are $620,000.
Instructions:
a. Compute the break-even point in units for the company.
b. Determine the number of units to be sold at the break-even point for each product line.
c. Verify that the mix of sales units determined in (b) will generate a zero net income.
Click here for the solution: Tiger Golf Accessories sells golf shoes, gloves, and a laser-guided range-finder that measures distance
Pairs of Shoes Pairs of Gloves Range Finder
Unit sales price $100 $30 $250
Unit variable costs 60 10 200
Unit contribution margin $40 $20 $50
Sales mix 40% 50% 10%
Fixed costs are $620,000.
Instructions:
a. Compute the break-even point in units for the company.
b. Determine the number of units to be sold at the break-even point for each product line.
c. Verify that the mix of sales units determined in (b) will generate a zero net income.
Click here for the solution: Tiger Golf Accessories sells golf shoes, gloves, and a laser-guided range-finder that measures distance
Spencer Company manufactures and sells three products
E6-11 Spencer Company manufactures and sells three products. Relevant per unit data concerning each product are given below.
Product
A B C
Selling price $9 $12 $14
Variable costs and expenses $3 $9.50 $12
Machine hours to produce 2 1 2
Instructions:
(a) Compute the contribution margin per unit of the limited resource (machine hour) for each product.
(b) Assuming 1,500 additional machine hours are available, which product should be manufactured?
(c) Prepare an analysis showing the total contribution margin if the additional hours are (1) divided equally among the products, and (2) allocated entirely to the product identified in (b) above.
Click here for the solution: Spencer Company manufactures and sells three products
Product
A B C
Selling price $9 $12 $14
Variable costs and expenses $3 $9.50 $12
Machine hours to produce 2 1 2
Instructions:
(a) Compute the contribution margin per unit of the limited resource (machine hour) for each product.
(b) Assuming 1,500 additional machine hours are available, which product should be manufactured?
(c) Prepare an analysis showing the total contribution margin if the additional hours are (1) divided equally among the products, and (2) allocated entirely to the product identified in (b) above.
Click here for the solution: Spencer Company manufactures and sells three products
Manning Industries manufactures and sells three different models of wet-dry shop vacuum cleaners
P6-3A Manning Industries manufactures and sells three different models of wet-dry shop vacuum cleaners. Although the shop vacs vary in terms of quality and features, all are good sellers. Manning is currently operating at full capacity with limited machine time. Sales and production information relevant to each model follows.
Product
Economy Standard Deluxe
Selling price $30 $50 $100
Variable costs and expenses $12 $18 $42
Machine hours required .5 .8 1.6
Instructions
(a) Ignoring the machine time constraint, which single product should Manning Industries produce?
(b) What is the contribution margin per unit of limited resource for each product?
(c) If additional machine time could be obtained, how should the additional time be used?
Click here for the solution: Manning Industries manufactures and sells three different models of wet-dry shop vacuum cleaners
Product
Economy Standard Deluxe
Selling price $30 $50 $100
Variable costs and expenses $12 $18 $42
Machine hours required .5 .8 1.6
Instructions
(a) Ignoring the machine time constraint, which single product should Manning Industries produce?
(b) What is the contribution margin per unit of limited resource for each product?
(c) If additional machine time could be obtained, how should the additional time be used?
Click here for the solution: Manning Industries manufactures and sells three different models of wet-dry shop vacuum cleaners
Friday, October 9, 2015
Grater Inc sells product A and product B
Grater Inc sells product A and product B. Revenue and cost information relating to the products follow: Product A Product B Selling Price per unit $48.00 $65.00 Variable expenses per unit $24.50 $29.20 Traceable fixed expenses per year $144,000 $101,500 Common fixed expenses in the company total $390,000 annually. Last year the company produced and sold 10,000 of Product A and 15,000 of Product B.
Prepare a contribution format income statement for the year segmented by product lines. Show details clearly.
Click here for the solution: Grater Inc sells product A and product B
Prepare a contribution format income statement for the year segmented by product lines. Show details clearly.
Click here for the solution: Grater Inc sells product A and product B
Sunday, October 4, 2015
Mucky Duck makes swimsuits and sells these suits directly to retailers
ACC 560 Week 5 Assignment
E8-3 Mucky Duck makes swimsuits and sells these suits directly to retailers. Although Mucky Duck has a variety of suits, it does not make the All-Body suit used by highly skilled swimmers. The market research department believes that a strong market exists for this type of suit. The department indicates that the All-Body suit would sell for approximately $110. Given its experience, Mucky Duck believes the All-Body suit would have the following manufacturing costs.
Direct materials $25
Direct labor 30
Manufacturing overhead 45
Total costs $100
Instructions:
a) Assume that Mucky Duck uses cost-plus pricing, setting the selling price 25% above its costs. What would be the price charged for the All-Body swimsuit?
b) Assume that Mucky Duck uses target costing. What is the price that Mucky Duck would charge the retailer for the All-Body swimsuit?
c) What is the highest acceptable manufacturing cost Mucky Duck would be willing to incur to produce the All-Body swimsuit, if it desired a profit of $25 per unit? (Assume target costing.)
Click here for the solution: Mucky Duck makes swimsuits and sells these suits directly to retailers
E8-3 Mucky Duck makes swimsuits and sells these suits directly to retailers. Although Mucky Duck has a variety of suits, it does not make the All-Body suit used by highly skilled swimmers. The market research department believes that a strong market exists for this type of suit. The department indicates that the All-Body suit would sell for approximately $110. Given its experience, Mucky Duck believes the All-Body suit would have the following manufacturing costs.
Direct materials $25
Direct labor 30
Manufacturing overhead 45
Total costs $100
Instructions:
a) Assume that Mucky Duck uses cost-plus pricing, setting the selling price 25% above its costs. What would be the price charged for the All-Body swimsuit?
b) Assume that Mucky Duck uses target costing. What is the price that Mucky Duck would charge the retailer for the All-Body swimsuit?
c) What is the highest acceptable manufacturing cost Mucky Duck would be willing to incur to produce the All-Body swimsuit, if it desired a profit of $25 per unit? (Assume target costing.)
Click here for the solution: Mucky Duck makes swimsuits and sells these suits directly to retailers
Sunday, September 27, 2015
Howit Inc. operates a retail operation that purchases and sells snowmobiles, amongst other outdoor products
P5-6B Howit Inc. operates a retail operation that purchases and sells snowmobiles, amongst other outdoor products. The company purchases all merchandise inventory on credit and uses a periodic inventory system. The accounts payable account is used for recording inventory purchases only; all other current liabilities are accrued in separate accounts. You are provided with the following selected information for the fiscal years 2005 through 2008, inclusive.
2005 2006 2007 2008
Income Statement Data
Sales $96,850 $ (e) $82,220
Cost of goods sold (a) 25,140 25,990
Gross profit 69,640 61,540 (i)
Operating expenses 63,500 (f) 52,060
Net income $ (b) $4,570 $ (j)
Balance Sheet Data
Merchandise inventory $13,000 $ (c) $14,700 $ (k)
Account payable 5,800 6,500 4,600 (l)
Additional Information
Purchases of merchandise
Inventory on account $25,890 $ (g) $24,050
Cash payments to supplies (d) (h) 24,650
Instructions
(a) Calculate the missing accounts.
(b) Sales declined over the 3-year fiscal period, 2006-2008. Does that mean that profitability necessarily also declined? Explain, computing the gross profit rate and the profit margin ratio for each fiscal year to help support your answer. (Round to one decimal place.)
Click here for the solution: Howit Inc. operates a retail operation that purchases and sells snowmobiles, amongst other outdoor products
2005 2006 2007 2008
Income Statement Data
Sales $96,850 $ (e) $82,220
Cost of goods sold (a) 25,140 25,990
Gross profit 69,640 61,540 (i)
Operating expenses 63,500 (f) 52,060
Net income $ (b) $4,570 $ (j)
Balance Sheet Data
Merchandise inventory $13,000 $ (c) $14,700 $ (k)
Account payable 5,800 6,500 4,600 (l)
Additional Information
Purchases of merchandise
Inventory on account $25,890 $ (g) $24,050
Cash payments to supplies (d) (h) 24,650
Instructions
(a) Calculate the missing accounts.
(b) Sales declined over the 3-year fiscal period, 2006-2008. Does that mean that profitability necessarily also declined? Explain, computing the gross profit rate and the profit margin ratio for each fiscal year to help support your answer. (Round to one decimal place.)
Click here for the solution: Howit Inc. operates a retail operation that purchases and sells snowmobiles, amongst other outdoor products
Ava Borzi is the new controller for Halo Software, Inc., which develops and sells education software
P16-29B Ava Borzi is the new controller for Halo Software, Inc., which develops and sells education software. Shortly before the December 31 fiscal year-end, Jeremy Busch, the company president, asks Borzi how things look for the year-end numbers. He is not happy to learn that earnings growth may be below 9% for the first time in the company's five-year history. Busch explains that financial analysts have again predicted a 9% earnings growth for the company and that he does not intend to disappoint them. He suggests that Borzi talk to the assistant controller, who can explain how the previous controller dealt with such situations. The assistant controller suggests the following strategies:
a. Persuade suppliers to postpone billing $18,000 in invoices until January 1.
b. Record as sales $120,000 in certain software awaiting sale that is held in a public warehouse.
c. Delay the year-end closing a few days into January of the next year so that some of next year's sales are included as this year's sales.
d. Reduce the estimated Bad debt expense from 3% of Sales revenue to 2%, given the company's continued strong performance.
e. Postpone routine monthly maintenance expenditures from December to January.
Requirements
1. Which of these suggested strategies are inconsistent with IMA standards?
2. What should Borzi do if Busch insists that she follow all of these suggestions?
Click here for the solution: Ava Borzi is the new controller for Halo Software, Inc., which develops and sells education software
a. Persuade suppliers to postpone billing $18,000 in invoices until January 1.
b. Record as sales $120,000 in certain software awaiting sale that is held in a public warehouse.
c. Delay the year-end closing a few days into January of the next year so that some of next year's sales are included as this year's sales.
d. Reduce the estimated Bad debt expense from 3% of Sales revenue to 2%, given the company's continued strong performance.
e. Postpone routine monthly maintenance expenditures from December to January.
Requirements
1. Which of these suggested strategies are inconsistent with IMA standards?
2. What should Borzi do if Busch insists that she follow all of these suggestions?
Click here for the solution: Ava Borzi is the new controller for Halo Software, Inc., which develops and sells education software
Wednesday, September 23, 2015
Mayer Biotechnical, Inc., develops, manufactures, and sells pharmaceuticals
Ethics Case 10-12 Research and development
Mayer Biotechnical, Inc., develops, manufactures, and sells pharmaceuticals. Significant research and development (R&D) expenditures are made for the development of new drugs and the improvement of existing drugs. During 2011, $220 million was spent on R&D. Of this amount, $30 million was spent on the purchase of equipment to be used in a research project involving the development of a new antibiotic.
The controller, Alice Cooper, is considering capitalizing the equipment and depreciating it over the five-year useful life of the equipment at $6 million per year, even though the equipment likely will be used on only one project. The company president has asked Alice to make every effort to increase 2011 earnings because in 2012 the company will be seeking significant new financing from both debt and equity sources. “I guess we might use the equipment in other projects later,” Alice wondered to herself.
Required:
1. Assuming that the equipment was purchased at the beginning of 2011, by how much would Alice's treatment of the equipment increase before tax earnings as opposed to expensing the equipment cost?
2. Discuss the ethical dilemma Alice faces in determining the treatment of the $30 million equipment purchase.
Click here for the solution: Mayer Biotechnical, Inc., develops, manufactures, and sells pharmaceuticals
Mayer Biotechnical, Inc., develops, manufactures, and sells pharmaceuticals. Significant research and development (R&D) expenditures are made for the development of new drugs and the improvement of existing drugs. During 2011, $220 million was spent on R&D. Of this amount, $30 million was spent on the purchase of equipment to be used in a research project involving the development of a new antibiotic.
The controller, Alice Cooper, is considering capitalizing the equipment and depreciating it over the five-year useful life of the equipment at $6 million per year, even though the equipment likely will be used on only one project. The company president has asked Alice to make every effort to increase 2011 earnings because in 2012 the company will be seeking significant new financing from both debt and equity sources. “I guess we might use the equipment in other projects later,” Alice wondered to herself.
Required:
1. Assuming that the equipment was purchased at the beginning of 2011, by how much would Alice's treatment of the equipment increase before tax earnings as opposed to expensing the equipment cost?
2. Discuss the ethical dilemma Alice faces in determining the treatment of the $30 million equipment purchase.
Click here for the solution: Mayer Biotechnical, Inc., develops, manufactures, and sells pharmaceuticals
Crest Industries sells a single model of satellite radio receivers for use in the home
Exercise 3-33 CVP with Income Taxes
Crest Industries sells a single model of satellite radio receivers for use in the home. The radios have the following price and cost characteristics:
Sales Price …………………………….. $ 80 per radio
Variable costs ………………………. $32 per radio
Fixed costs ……………………………... $360.00 per month
Crest is subject to an income tax rate of 40 percent.
Required
How many receivers must Crest sell earn a monthly operating profit of $90,000 after taxes?
Click here for the solution: Crest Industries sells a single model of satellite radio receivers for use in the home
Crest Industries sells a single model of satellite radio receivers for use in the home. The radios have the following price and cost characteristics:
Sales Price …………………………….. $ 80 per radio
Variable costs ………………………. $32 per radio
Fixed costs ……………………………... $360.00 per month
Crest is subject to an income tax rate of 40 percent.
Required
How many receivers must Crest sell earn a monthly operating profit of $90,000 after taxes?
Click here for the solution: Crest Industries sells a single model of satellite radio receivers for use in the home
Tuesday, September 15, 2015
Scotwood Industries, Inc., sells calcium chloride flake for use in ice melt products
11-8A. A question of Ethics: Revocation. Scotwood Industries, Inc.,
sells calcium chloride flake for use in ice melt products. Between July
and September 2004, Scotwood delivered thirty-seven shipments of flake
to Frank Miller & Sons, Inc. After each delivery, Scotwood billed
Miller, which paid thirty-five of the invoices and processed 30 to 50
percent of the flake. In August, Miller began complaining about the
product’s quality. Scotwood assured Miller that it would remedy the
situation. Finally, in October, Miller told Scotwood, “This is totally
unacceptable. We are willing to discuss Scotwood picking up the
material. “ Miller claimed that the flake was substantially defective
because it was chunked. Calcium chloride maintains its purity for up to
five years, but if it is exposed to and absorbs moisture, it chunks and
becomes unusable. In response to Scotwood’s suit to collect payment in
the unpaid invoices, Miller filed a counterclaim in a federal district
court for breach of contract, seeking to recover based on revocation of
acceptance, among other things. [Scotwood Industries, Inc . v. Frank
Miller & Sons, Inc., 435 F. Supp.2d 1160 (D.Kan.2006)]
(a) What is revocation of acceptance? How does a buyer effectively exercise this option? Do the facts in this case support this theory as a ground for Miller to recover damages? Why or why not?
(b) Is there an ethical basis for allowing a buyer to revoke acceptance of goods and recover damages? If so, is there an ethical limit to this right? Discuss.
Click here for the solution: Scotwood Industries, Inc., sells calcium chloride flake for use in ice melt products
(a) What is revocation of acceptance? How does a buyer effectively exercise this option? Do the facts in this case support this theory as a ground for Miller to recover damages? Why or why not?
(b) Is there an ethical basis for allowing a buyer to revoke acceptance of goods and recover damages? If so, is there an ethical limit to this right? Discuss.
Click here for the solution: Scotwood Industries, Inc., sells calcium chloride flake for use in ice melt products
Sunday, August 23, 2015
Martin sells a stock investment for $25,000 on August 2, 2010
Martin sells a stock investment for $25,000 on August 2, 2010. Martin's adjusted basis in the stock is $14,000.
a. If Martin acquired the stock on November 15, 2008, calculate the amount and the nature of the gain or loss.
b. If Martin had acquired the stock on September 11, 2007, calculate the amount and nature of the gain or loss.
Click here for the solution: Martin sells a stock investment for $25,000 on August 2, 2010
a. If Martin acquired the stock on November 15, 2008, calculate the amount and the nature of the gain or loss.
b. If Martin had acquired the stock on September 11, 2007, calculate the amount and nature of the gain or loss.
Click here for the solution: Martin sells a stock investment for $25,000 on August 2, 2010
Chippewas Company sells one product
(Periodic versus Perpetual Entries) Chippewas Company sells one product. Presented below is information for January for Chippewas Company.
Jan. 1 Inventory 100 units at $6 each
4 Sale 80 units at $8 each
11 Purchase 150 units at $6.50 each
13 Sale 120 units at $8.75 each
20 Purchase 160 units at $7 each
27 Sale 100 units at $9 each
Chippewas uses the FIFO cost flow assumption. All purchases and sales are on account.
(a) Assume Chippewas uses a periodic system. Prepare all necessary journal entries, including the end-of-month closing entry to record cost of goods sold. A physical count indicates that the ending inventory for January is 110 units.
(b) Compute gross profit using the periodic system.
(c) Assume Chippewas uses a perpetual system. Prepare all necessary journal entries.
(d) Compute gross profit using the perpetual system.
Click here for the solution: Chippewas Company sells one product
Jan. 1 Inventory 100 units at $6 each
4 Sale 80 units at $8 each
11 Purchase 150 units at $6.50 each
13 Sale 120 units at $8.75 each
20 Purchase 160 units at $7 each
27 Sale 100 units at $9 each
Chippewas uses the FIFO cost flow assumption. All purchases and sales are on account.
(a) Assume Chippewas uses a periodic system. Prepare all necessary journal entries, including the end-of-month closing entry to record cost of goods sold. A physical count indicates that the ending inventory for January is 110 units.
(b) Compute gross profit using the periodic system.
(c) Assume Chippewas uses a perpetual system. Prepare all necessary journal entries.
(d) Compute gross profit using the perpetual system.
Click here for the solution: Chippewas Company sells one product
Saturday, August 22, 2015
Hickory Home Company manufactures and sells two lines of furniture, case goods and upholstery
MULTIPLE CHOICE
1. Which of the following statements is true? (Points : 2)
2. Which of the following is not a possible commonly used term for costs that can be eliminated by taking a specified course of action? (Points : 2)
3. Hickory Home Company manufactures and sells two lines of furniture, case goods and upholstery. During the most recent accounting period, the Case Goods and Upholstery Divisions sold 15,000 and 2,000 units, respectively. The company's most recent financial statements are shown below:
Case Goods Division Upholstery Division
Sales $800,000 $200,000
Less: cost of goods sold:
Unit-level production cost 620,000 150,000
Gross margin 180,000 50,000
Less: operating expenses:
Unit-level selling and admin.expense 30,000 25,000
Corporate-level facility exp. (fixed) 26,000 26,000
Net income (loss) $124,000 $ (1,000)
If unit sales for both divisions increased 10%, the company would report which of the following? (Points : 2)
4. Select the correct statement regarding relevant costs and revenues. (Points : 2)
5. Home Safety Products currently outsources an electrical switch that is a component in its sprinkler systems. The switches are purchased for $12 each. The company is considering making the switches internally and has conducted a study to determine what the cost would be. Below are projected annual costs:
Unit-level costs $ 8
Batch-level costs per year $15,000
Product-level costs per year $10,000
Allocated facility-level costs $20,000
The company needs 10,000 of the switches each year. If Home Safety decides to make the parts under these conditions, the relevant cost per unit will be: (Points : 2)
6. Centennial Tours is trying to decide which one of two tours it will introduce. The costs and revenues associated with each alternative are listed below:
Tour A Tour B
Projected revenue $7,000 $11,000
Variable costs 1,000 6,000
Fixed costs 3,000 3,000
Profit $3,000 $1,000
What are the incremental (differential) costs of Tour B? (Points : 2)
7. For purposes of decision making, avoidable costs are costs that: (Points : 2)
8. Expected future revenues that differ among the alternatives under consideration are referred to as: (Points : 2)
9. Which of the following costs generally is an example of a product-level cost? (Points : 2)
10. Brannon Company plans to add a new item to its product line. Two possible products are under consideration. Each unit of Product A costs $12 to produce and has a contribution margin of $6, while each unit of Product B costs twice as much and has a contribution margin of $8. What is the differential revenue for this decision? (Points : 2)
11. Planning concerned with long-range decisions such as defining the scope of the business is referred to as: (Points : 2)
12. Expressing plans for a business in financial terms is commonly called: (Points : 2)
13. Select the incorrect statement about budgeting and human behavior. (Points : 2)
14. Which of the following budgets or schedules uses data contained in the selling and administrative expense budget? (Points : 2)
15. Which of the following is not a budgeted financial statement? (Points : 2)
16. Which of the following items will not appear on a cash budget? (Points : 2)
17. Select the incorrect statement. (Points : 2)
18. Maddon Company estimated that its inventory purchases for January and February 2010 would be $300,000 and $370,000, respectively. The company generally pays for 60% of its inventory purchases in the month of purchase because it receives a 2% discount for timely payment. The remaining 40% of purchases are paid for in the following month, and there is no discount for these payments. What will be the amount of cash payments for inventory in February 2010? (Points : 2)
19. The budgeting process that involves adding a month to the end of the budget period at the end of each month, thus maintaining a twelve-month planning horizon, is referred to as: (Points : 2)
20. Select the correct equation format for the purchases budget. (Points : 2)
Click here for the solution: Hickory Home Company manufactures and sells two lines of furniture, case goods and upholstery
1. Which of the following statements is true? (Points : 2)
2. Which of the following is not a possible commonly used term for costs that can be eliminated by taking a specified course of action? (Points : 2)
3. Hickory Home Company manufactures and sells two lines of furniture, case goods and upholstery. During the most recent accounting period, the Case Goods and Upholstery Divisions sold 15,000 and 2,000 units, respectively. The company's most recent financial statements are shown below:
Case Goods Division Upholstery Division
Sales $800,000 $200,000
Less: cost of goods sold:
Unit-level production cost 620,000 150,000
Gross margin 180,000 50,000
Less: operating expenses:
Unit-level selling and admin.expense 30,000 25,000
Corporate-level facility exp. (fixed) 26,000 26,000
Net income (loss) $124,000 $ (1,000)
If unit sales for both divisions increased 10%, the company would report which of the following? (Points : 2)
4. Select the correct statement regarding relevant costs and revenues. (Points : 2)
5. Home Safety Products currently outsources an electrical switch that is a component in its sprinkler systems. The switches are purchased for $12 each. The company is considering making the switches internally and has conducted a study to determine what the cost would be. Below are projected annual costs:
Unit-level costs $ 8
Batch-level costs per year $15,000
Product-level costs per year $10,000
Allocated facility-level costs $20,000
The company needs 10,000 of the switches each year. If Home Safety decides to make the parts under these conditions, the relevant cost per unit will be: (Points : 2)
6. Centennial Tours is trying to decide which one of two tours it will introduce. The costs and revenues associated with each alternative are listed below:
Tour A Tour B
Projected revenue $7,000 $11,000
Variable costs 1,000 6,000
Fixed costs 3,000 3,000
Profit $3,000 $1,000
What are the incremental (differential) costs of Tour B? (Points : 2)
7. For purposes of decision making, avoidable costs are costs that: (Points : 2)
8. Expected future revenues that differ among the alternatives under consideration are referred to as: (Points : 2)
9. Which of the following costs generally is an example of a product-level cost? (Points : 2)
10. Brannon Company plans to add a new item to its product line. Two possible products are under consideration. Each unit of Product A costs $12 to produce and has a contribution margin of $6, while each unit of Product B costs twice as much and has a contribution margin of $8. What is the differential revenue for this decision? (Points : 2)
11. Planning concerned with long-range decisions such as defining the scope of the business is referred to as: (Points : 2)
12. Expressing plans for a business in financial terms is commonly called: (Points : 2)
13. Select the incorrect statement about budgeting and human behavior. (Points : 2)
14. Which of the following budgets or schedules uses data contained in the selling and administrative expense budget? (Points : 2)
15. Which of the following is not a budgeted financial statement? (Points : 2)
16. Which of the following items will not appear on a cash budget? (Points : 2)
17. Select the incorrect statement. (Points : 2)
18. Maddon Company estimated that its inventory purchases for January and February 2010 would be $300,000 and $370,000, respectively. The company generally pays for 60% of its inventory purchases in the month of purchase because it receives a 2% discount for timely payment. The remaining 40% of purchases are paid for in the following month, and there is no discount for these payments. What will be the amount of cash payments for inventory in February 2010? (Points : 2)
19. The budgeting process that involves adding a month to the end of the budget period at the end of each month, thus maintaining a twelve-month planning horizon, is referred to as: (Points : 2)
20. Select the correct equation format for the purchases budget. (Points : 2)
Click here for the solution: Hickory Home Company manufactures and sells two lines of furniture, case goods and upholstery
Manning Co. manufactures and sells trophies for winners of athletic and other events
Manning Co. manufactures and sells trophies for winners of athletic and other events. Its manufacturing plant has the capacity to produce 18,000 trophies each month; current monthly production is 15,300 trophies. The company normally charges $141 per trophy. Cost data for the current level of production are shown below:
Direct materials 948,600
Direct Labor 290,700
Selling and administrative 41,310
Fixed Cost manufacturing 579,870
Selling administrative 134,640
The company has just received a special one-time order for 900 trophies at $73 each. For this particular order, no variable selling and administrative costs would be incurred. This order would also have no effect on fixed costs. Required: Should the company accept this special order? Why?
Click here for the solution: Manning Co. manufactures and sells trophies for winners of athletic and other events
Direct materials 948,600
Direct Labor 290,700
Selling and administrative 41,310
Fixed Cost manufacturing 579,870
Selling administrative 134,640
The company has just received a special one-time order for 900 trophies at $73 each. For this particular order, no variable selling and administrative costs would be incurred. This order would also have no effect on fixed costs. Required: Should the company accept this special order? Why?
Click here for the solution: Manning Co. manufactures and sells trophies for winners of athletic and other events
Cohen and Single, LLP, are auditing the ICFR and financial statements of Copley and Sons, a public company that sells supplies to government agencies
Problem 11-28 Cohen and Single, LLP, are auditing the ICFR and financial statements of Copley and Sons, a public company that sells supplies to government agencies. Copley and Sons has a 12/31 fiscal year end. Cohen and Single conclude that the financial statements for the current and prior year are fairly stated. However, they found a material weakness in ICFR. There is a lack of separation of duties because the companys’ CFO has the ability to change passwords on employee’s computer identification numbers and has unlimited access to a computer terminal through which any journal entry can be entered without approval and review. Management’s evaluation of ICFR is also as of 12/31, and management’s report states that ICFR is not effective due to the computer security problem causing the lack of separation of duties. Draft Cohen and Single’s combined audit report with opinions on the financial statements and ICFR as described.
Click here for the solution: Cohen and Single, LLP, are auditing the ICFR and financial statements of Copley and Sons, a public company that sells supplies to government agencies
Click here for the solution: Cohen and Single, LLP, are auditing the ICFR and financial statements of Copley and Sons, a public company that sells supplies to government agencies
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