(Cost Function for Expedia) Expedia provides travel services on the Internet

3-34 Cost Function for Expedia

Expedia provides travel services on the Internet. 2002 was an important year for Expedia as it reported positive operating income after three years of operating losses. In the first quarter of 2001, Expedia reported an operating loss of $19 million on sales revenue of $57 million. In the first quarter of 2002, sales revenue had more than doubled to $116 million, and Expedia had operating income of $18 million. Assume that fixed costs were the same in 2002 as in 2001.

1. Compute the operating expenses for Expedia in the first quarter of 2001. In the first quarter of 2002.

2. Determine the cost function for Expedia, that is, the total fixed cost and the variable cost as a percentage of sales revenue. Use the same form as equation (1) on page 100.

3. Explain how Expedia’s operating income could increase by $37 million with an increase in sales of $59 million, while it had an operating loss of $19 million on its $57 million of sales in the first quarter of 01

Click here for the solution: (Cost Function for Expedia) Expedia provides travel services on the Internet

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

AirQual Test Corporation provides on-site air quality testing services

EXERCISE 10–16 Flexible Budget Performance Report

AirQual Test Corporation provides on-site air quality testing services. The company has provided the following data concerning its operations:

Fixed component Variable component Actual Per month per job total for February

Revenue . . . . . . . . . . . . . . . . . . . . . $360 $18950
Technician wages . . . . . . . . . . . . . $ 4600 $6 450
Mobile lab operating expenses . . . $ 2900 $35 $4530
Office expenses . . . . . . . . . . . . . . $2600 $2 $3 050
Advertising expenses . . . . . . . . . . $ 970 $995
Insurance . . . . . . . . . . . . . . . . . . $1680 $1680
Miscellaneous expenses . . . . . . . $ 500 $3 $465

The company uses the number of jobs as its measure of activity. For example, mobile lab operating expenses should be $2,900 plus $35 per job, and the actual mobile lab operating expenses for February was $4,530. The company expected to work 50 jobs in February, but actually worked 52 jobs.

Required:
Prepare a flexible budget performance report showing Air Qual Test Corporation’s activity variances and revenue and spending variances for February.

Click here for the solution: AirQual Test Corporation provides on-site air quality testing services

Amalgamated General Corporation is a consulting firm that also offers financial services through its credit division

P 12-7 Securities held-to-maturity, securities available for sale, and trading securities

Amalgamated General Corporation is a consulting firm that also offers financial services through its credit division. From time to time the company buys and sells securities intending to earn profits on short-term differences in price. The following selected transactions relate to Amalgamated's investment activities during the last quarter of 2011 and the first month of 2012. The only securities held by Amalgamated at October 1 were $30 million of 10% bonds of Kansas Abstractors, Inc., purchased on May 1 at face value. The company's fiscal year ends on December 31.

2011
Oct. 18 Purchased 2 million preferred shares of Millwork Ventures Company for $58 million as a speculative investment to be sold under suitable circumstances.
31 Received semiannual interest of $1.5 million from the Kansas Abstractors bonds.
Nov. 1 Purchased 10% bonds of Holistic Entertainment Enterprises at their $18 million face value, to be held until they mature in 2018. Semiannual interest is payable April 30 and October 31.
1 Sold the Kansas Abstractors bonds for $28 million because rising interest rates are expected to cause their fair value to continue to fall.
Dec. 1 Purchased 12% bonds of Household Plastics Corporation at their $60 million face value, to be held until they mature in 2028. Semiannual interest rate is payable May 31 and November 30.
20 Purchased U.S. Treasury bonds for $5.6 million as trading securities, hoping to earn profits on short-term differences in prices.
21 Purchased 4 million common shares of NXS Corporation for $44 million as trading securities, hoping to earn profits on short-term differences in prices.
23 Sold the Treasury bonds for $5.7 million.
29 Received cash dividends of $3 million from the Millwork Ventures Company preferred shares.
31 Recorded any necessary adjusting entry(s) and closing entries relating to the investments. The market share of the Millwork Ventures Company preferred stock was up $27.50 per share and $11.50 per share for the NXS Corporation common. The fair values of the bond investments were $58.7 million for Household Plastics Corporation and $16.7 million for Holistic Entertainment Enterprises.

2012
Jan. 7 Sold the NXS Corporation common shares for $43 million.

Required:
Prepare the appropriate journal entry for each transaction or event.

Click here for the solution: Amalgamated General Corporation is a consulting firm that also offers financial services through its credit division

Southwest Blue Airways provides air transportation services between Seattle and San Diego

Southwest Blue Airways provides air transportation services between Seattle and San Diego. A single Seattle to San Diego round-trip flight has the following operating statistics:

Fuel $7000
Flight Crew Salaries $5400
Airplane depriciation $2600
Variable cost per business class ticket $ 50
Variable cost pereconomy class ticket $ 40
Round trip ticket business class $ 550
Round trip ticket economy class $ 290

It is assumed that the fuel, crew salaries, and airplane depreciation are fixed, regardless of the number of seats sold for the round-trip flight.

a. Compute the break-even number of seats sold on a single round-trip flight for the overall product. Assume that the overall product is 20% business class and 80% economy class tickets.
b. How many business class and economy class seats would be sold at the break-even point?

Click here for the solution: Southwest Blue Airways provides air transportation services between Seattle and San Diego

(Ethics Case) International Network Solutions provides products and services related to remote access networking

Ethics Case 19-7 International Network Solutions

International Network Solutions provides products and services related to remote access networking. The company has grown rapidly during its first 10 years of operations. As its segment of the industry has begun to mature, though, the fast growth of previous years has begun to slow. In fact, this year revenues and profits are roughly the same as last year.

One morning, nine weeks before the close of the fiscal year, Rob Mashburn, CFO, and Jessica Lane, controller, were sharing coffee and ideas in Lane's office.

Lane:  About the Board meeting Thursday. You may be right. This may be the time to suggest a share buyback program.
Mashburn:  To begin this year, you mean?
Lane:  Right! I know Barber will be lobbying to use the funds for our European expansion. She's probably right about the best use of our funds, but we can always issue more notes next year. Right now, we need a quick fix for our EPS numbers.
Mashburn: Our shareholders are accustomed to increases every year.

Required:
1. How will a buyback of shares provide a “quick fix” for EPS?
2. Is the proposal ethical?
3. Who would be affected if the proposal is implemented?

Click here for the solution: (Ethics Case) International Network Solutions provides products and services related to remote access networking

Pronto Plumbing Company is a newly formed company specializing in plumbing services for home and business

ACC 560 Week 6 Assignment

E10-9 Pronto Plumbing Company is a newly formed company specializing in plumbing services for home and business. The owner, Paul Pronto, had divided the company into two segments: Home Plumbing Services and Business Plumbing Services. Each segment is run by its own supervisor, while basic selling and administrative services are shared by both segments.
Paul has asked you to help him create a performance reporting system that will allow him to measure each segment's performance in terms of its profitability. To that end, the following information has been collected on the Home Plumbing Services segment for the first quarter of 2008.

Budgeted Actual
Service revenue $25,000 $26,000
Allocated portion of:
Building depreciation 11,000 11,000
Advertising 5,000 4,200
Billing 3,500 3,000
Property taxes 1,200 1,000
Material and supplies 1,500 1,200
Supervisory salaries 9,000 9,400
Insurance 4,000 3,500
Wages 3,000 3,300
Gas and oil 2,700 3,400
Equipment depreciation 1,600 1,300

Instructions
a) Prepare a responsibility report for the first quarter of 2008 for the Home Plumbing Services segment.
b) Write a memo to Paul Pronto discussing the principles that should be used when preparing performance reports.

Click here for the solution: Pronto Plumbing Company is a newly formed company specializing in plumbing services for home and business

Jarman Consulting Inc. provides financial and estate planning services on a retainer basis for the executive officers of its corporate clients

Jarman Consulting Inc. provides financial and estate planning services on a retainer basis for the executive officers of its corporate clients. It incurred the following labor costs on services for three corporate clients during March 2006:

Direct Labor
Contract 1 $12,000
Contract 2 7,200
Contract 3 28,800
Total $48,000

Jarman allocated March overhead costs of $21,600 to the contracts based on the amount of direct labor costs incurred on each contract.

Required
a. Assuming the revenue from Contract 3 was $65,600, what amount of income did Jarman earn from this contract?
b. Based on the preceding information, will Jarman report finished goods inventory on its balance sheet for Contract 1? If so, what is the amount of this inventory? If not, explain why not.


Click here for the solution: Jarman Consulting Inc. provides financial and estate planning services on a retainer basis for the executive officers of its corporate clients

P 4-20 The following situations involve the provision of nonaudit services

Auditing P 4-20 The following situations involve the provision of nonaudit services. Indicate whether providing the service is a violation of AICPA rules or SEC rules including Sarbanes-Oxley requirements on independence. Explain your answer as necessary.

a. Providing bookkeeping services to a public company. The services were preapproved by the audit committee of the company.
b. Providing internal audit services to a public company that is not an audit client.
c. Designing and implementing a financial information system for a private company.
d. Recommending a tax shelter to a client that is publicly held. The services were preapproved by the audit committee.
e. Providing internal audit services to a public company audit client with the preapproval of the audit committee.
f. Providing bookkeeping services to an audit client that is a private company.


Click here for the solution: P 4-20 The following situations involve the provision of nonaudit services

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

Galloway Company is a small editorial services company owned and operated by Fran Briggs

Problem 3-5A Adjusting Entries and Adjusted Trial Balances

Galloway Company is a small editorial services company owned and operated by Fran Briggs. On July 31, 2012, the end of the current year, Galloway Company's accounting clerk prepared the unadjusted trial balance shown below.

AND SO ON

The data needed to determine year-end adjustments are as follows:
a. Unexpired insurance at July 31, $4,800.
b. Supplies on hand at July 31, $600.
c. Depreciation of building for the year, $3,100.
d. Depreciation of equipment for the year, $2,700.
e. Rent unearned at July 31, $1,750.
f. Accrued salaries and wages at July 31, $3,000.
g. Fees earned but unbilled on July 31, $10,750.

Required:
1. Journalize the adjusting entries using the following additional accounts: Salaries and Wages Payable; Rent Revenue; Insurance Expense; Depreciation Expense—Building; Depreciation Expense—Equipment; and Supplies Expense.
2. Determine the balances of the accounts affected by the adjusting entries, and prepare an adjusted trial balance.

Check: 2. Total of Debit Column: $819,550


Click here for the solution: Galloway Company is a small editorial services company owned and operated by Fran Briggs

Highline Hospital provides a wide range of health services in its community

7-44 Cash Budgeting for a Hospital

Highline Hospital provides a wide range of health services in its community. Highline’s board of directors has authorized the following capital expenditures:

Intra-aortic balloon pump $1,400,000
Computed tomographic scanner 850,000
X-ray equipment 550,000
Laboratory equipment 1,200,000
Total $4,000,000

The expenditures are planned for October 1, 20X7, and the board wishes to know the amount of borrowing, if any, necessary on that date. Rebecca Singer, hospital controller, has gathered the following information to be used in preparing an analysis of future cash flows. Billings, made in the month of service, for 20X7 are shown below, with actual amounts for January through June and estimated amounts for July through December:

Month Actual Amount
January $5,300,000
February 5,300,000
March 5,400,000
April 5,400,000
May 6,000,000
June 6,000,000
July (estimated) 5,800,000
August (estimated) 6,000,000
September (estimated) 6,600,000
October (estimated) 6,800,000
November (estimated) 7,000,000
December (estimated) 6,600,000

Ninety percent of Highline billings are made to third parties, such as BlueCross, federal or state governments, and private insurance companies. The remaining 10% of the billings are made directly to patients. Historical patterns of billing collections are
Third-Party Billings Direct-Patient Billings
Month of service 20% 10%
Month following service 50 40
Second month following service 20 40
Uncollectible 10 10

Singer expects the same billing and collection patterns that have been experienced during the first six months of 20X7 to continue during the last six months of the year. The following schedule presents the purchases that have been made during the past three months and the planned purchases for the last six months of 20X7.

Month Amount
April $1,300,000
May 1,450,000
June 1,450,000
July 1,500,000
August 1,800,000
September 2,200,000
October 2,350,000
November 2,700,000
December 2,100,000

All purchases are made on account, and accounts payable are remitted in the month following the purchase.
• Salaries for each month during the remainder of 20X7 are expected to be $1,800,000 per month plus 20% of that month’s billings. Salaries are paid in the month of service.
• Highline’s monthly depreciation charges are $150,000.
• Highline incurs interest expenses of $180,000 per month and makes interest payments of $540,000 on the last day of each calendar quarter.
• Endowment fund income is expected to continue to total $210,000 per month.
• Highline has a cash balance of $350,000 on July 1, 20X7, and has a policy of maintaining a minimum end-of-month cash balance of 10% of the current month’s purchases.
• Highline Hospital employs a calendar-year reporting period.

1. Prepare a schedule of budgeted cash receipts by month for the third quarter of 20X7.
2. Prepare a schedule of budgeted cash disbursements by month for the third quarter of 20X7.
3. Determine the amount of borrowing, if any, necessary on October 1, 20X7, to acquire the capital items totaling $4,000,000.

Click here for the solution: Highline Hospital provides a wide range of health services in its community

Legal Beagals Inc. is a legal services firm that files incorporation papers for small businesses

Legal Beagals Inc. is a legal services firm that files incorporation papers for small businesses. They charge $1,000 per application. This year's income statement shows the following:

Sales $1,440,000
Variable Expenses $1,008,000
Contribution margin $432,000
Fixed costs $250,000
Profit $182,000.

Required:
(a) Compute the break-even point in units.
(b) Compute the contribution margin ratio.
(c) Compute the current margin of safety.
(d) How many applications must the company sell to make a profit of $350,000?

Click here for the solution: Legal Beagals Inc. is a legal services firm that files incorporation papers for small businesses

3-33 (Job costing for services) The Hillman Company sells and services lawn mowers snow blowers and other equipment

3-33 (Job costing for services) The Hillman Company sells and services lawn mowers snow blowers and other equipment. The service department uses job order cost system to determine costs of each job, such as oil changes, tune-ups, and repairs. The department assigns conversion costs through a cost driver rate on the basis of direct labor hours. The cost driver rate additionally includes a markup of 25% on the job’s conversion costs in order to provide a reasonable profit for Hillman. The customer’s invoice itemizes prices for parts and labor, where the stated labor rate is the department’s cost driver rate that includes direct labor cost, assigned overhead costs, and the 25% markup on conversion costs. Hillman Company’s service department estimated the following information for 2006. Salaries of mechanics $120,000 Fringe benefits 54,000 General and administrative 18,000 Depreciation 42,000 Billable direct labor hours 4,500
a. Determine Hillman Company’s service department’s cost driver rate to be used to assign conversion costs on the basis of billable direct labor hours.
b. Job 254 required $47.40 of materials and 0.7 direct labor hours. Determine the price changed for job 254.

Click here for the solution: 3-33 (Job costing for services) The Hillman Company sells and services lawn mowers snow blowers and other equipment