Listed Below are six technical accounting terms introduced or emphasized in this chapter

Problem 18.1 Listed Below are six technical accounting terms introduced or emphasized in this chapter.

Job order costing
Process Costing
Conversion Costs
Equivalent Units
Cost of Finished Goods Manufactured
Production Cost Report

Each of the following statements may (or may not) describe these technical terms. For each statement, indicate the term described, or answer "none" if the statement does not correctly describe any of the terms.

a. The type of cost accounting method likely to be used in a Coca-Cola bottling plant.
b. Direct Labor and overhead consumed in a production process
c. A measure of the quantity of production work done during a time period, including work on partially completed units.
d. Process cost information for the period, including physical flow and total cost to account for.
e. The type of cost accounting method likely to be used by a construction company.

Click here for the solution: Listed Below are six technical accounting terms introduced or emphasized in this chapter

Maggie Sharrer, a recent graduate of Rolling's accounting program, evaluated the operating performance of Poway Company's six divisions

Exercise 6-10 (E6-10) Make incremental analysis concerning elimination of division.
Maggie Sharrer, a recent graduate of Rolling's accounting program, evaluated the operating performance of Poway Company's six divisions. Maggie made the following presentation to Poway's Board of Directors and suggested the Erie Division be eliminated. “If the Erie Division is eliminated,” she said, “our total profits would increase by $24,500.”
The Other Five Divisions Erie Division Total
Sales $1,664,200 $100,000 $1,764,200
Cost of goods sold 978,520 76,500 1,055,020
Gross profit 685,680 23,500 709,180
Operating expenses 527,940 48,000 575,940
Net income $ 157,740 $(24,500) $ 133,240

In the Erie Division, cost of goods sold is $60,000 variable and $16,500 fixed, and operating expenses are $25,000 variable and $23,000 fixed. None of the Erie Division' fixed costs will be eliminated if the division is discontinued.

Instructions
Is Maggie right about eliminating the Erie Division? Prepare a schedule to support your answer.


Click here for the solution: Maggie Sharrer, a recent graduate of Rolling's accounting program, evaluated the operating performance of Poway Company's six divisions

Match each of the following six terms with the phrase that most closely describes it

Match each of the following six terms with the phrase that most closely describes it. Each answer below may be used only once.

______ 1. activity-based costing
______ 2. cost of goods available for sale
______ 3. period costs
______ 4. process costing system
______ 5. just-in-time system
______ 6. work in process

(A) Costs assigned to the goods produced; also known as manufacturing costs
(B) Materials costs that are not traced directly to products produced
(C) System that seeks to minimize Raw Materials Inventory and Work in Process Inventory
(D) Cost of items that are completed and transferred from Work in Process Inventory to Finished Goods Inventory
(E) Costs that are identified with accounting periods rather than with goods produced
(F) Actual overhead is greater than overhead that has been applied to products
(G) Method of assigning overhead costs that uses multiple allocation bases
(H) System that uses job-order sheets to collect costs for each individual job
(I) Cost of all materials and parts that are directly traced to the items produced
(J) Beginning balance in the Finished Goods Inventory plus cost of goods manufactured
(K) Overhead applied to products is greater than the actual overhead costs incurred
(L) Used by companies that produce large quantities of identical items
(M) Cost of all manufacturing activities other than direct material and direct labor
(N) Inventory account that contains the cost of goods that are only partially completed

Click here for the solution: Match each of the following six terms with the phrase that most closely describes it

On May 31, six brothers decided to form the Grimm Brothers Partnership to publish and print children's stories

On May 31, six brothers decided to form the Grimm Brothers Partnership to publish and print children's stories. The contributions of the brothers and their partnership interests are listed below. They share the economic risk of loss from liabilities according to their partnership interests.

Individual Asset Basis FMV Partnership to Partner Interest

Al Cash $15,000 $15,000 15%
Bob accounts Receiv. 0 20,000 20%
Clay Office equip. 13,000 15,000 15%
Dave Land 50,000 15,000 15%
Ed Building 15,000 150,000 20%
Fred Services ? 15,000 15%

The following other information about the contributions may be of interest:

1. Bob contributes accounts receivable from this proprietorship, which uses the cash method of accounting.
2. Clay uses the office equipment in a small business he owns. When he joins the partnership, he sells the remaining business assets to an outsider. He has claimed $8,000 of MACRS depreciation on the office equipment.
3. The partnership assumes a $130,000 mortgage on the building Ed contributes. Ed claimed $100,000 of straight-line MACRS depreciation on the commercial property.
4. Fred, an attorney, drew up all the partnership agreements and filed the neccessary paperwork. He receives a full 15% capital and profits interest for his services.

a. How much gain, loss or income must each partner recognize as a result of the formation?
b. How much gain, loss, or income must the partnership recognize as a result of the formation?
c. What is each partner's basis in the partnership interest?
d. What is the partnership's basis in its assets?
e. What is the partnership's initial book value of each asset?
f. What effects do the depreciation recapture provisions have on the property contributions?
g. How would your answer to Part a change if Fred received only a profits interest?
h. What are the tax consequences to the partners and the partnership when the partnership sells for $9,000 the land contributed by Dave? Prior to the sale, the partnership held the land as an investment for two years.

Click here for the solution: On May 31, six brothers decided to form the Grimm Brothers Partnership to publish and print children's stories

Portia Carter is the president of a company that owns six multiplex movie theaters

Portia Carter is the president of a company that owns six multiplex movie theaters. Carter has delegated decision-making authority to the theater managers for all decisions except those relating to capital expenditures and film selection. The theater managers' compensation depends on the profitability of their theaters. Max Burgman, the manager of the Park Theater, had the following master budget and actual results for the month.

Master Actual
Budget Results
Tickets sold 120,000 110,000
Revenue--tickets $ 840,000 $ 880,000
Revenue--concessions 480,000 330,000
Total revenue $1,320,000 $1,210,000
Controllable variable costs
Concessions 120,000 99,000
Direct labor 420,000 330,000
Variable overhead 540,000 550,000
Contribution margin $ 240,000 $ 231,000
Controllable fixed costs
Rent 55,000 55,000
Other administrative expenses 45,000 50,000
Theater operating income $ 140,000 $ 126,000

1. Assuming that the theaters are profit centers, prepare a performance report for the Park Theater using the chart below. Include a flexible budget. Determine the variances between actual results, the flexible budget, and the master budget.

2. Evaluate Burgman's performance as a manager. 3. Assume that the managers are assigned responsibility for capital expenditures and that the theaters are thus investment centers. Park Theater is expected to generate a desired ROI of at least 6 percent on average invested assets of $2,000,000.
a. Compute the theater’s return on investment and residual income using the chart below.
b. Using the ROI and residual income, evaluate Burgman’s performance as a manager.

Click here for the solution: Portia Carter is the president of a company that owns six multiplex movie theaters

You expect to receive a payment of 1,000,000 in British pounds after six months the pound is currently worth $1.60 (i.e. 1 pound = $1.60), but the six-month futures price is $1.56 (i.e. 1 pound = $1.56)

You expect to receive a payment of 1,000,000 in British pounds after six months the pound is currently worth $1.60 (i.e. 1 pound = $1.60), but the six-month futures price is $1.56 (i.e. 1 pound = $1.56). You expect the price of the pound to decline (i.e. the value of the dollar to rise.) If this expectation is fulfilled, you will suffer a loss when the pounds are converted into dollars when you receive them six months in the future.
a. Given the current price, what is the expected payment in dollars?
b. Given the futures price, how much would you receive in dollars?
c. If, after six months the pound is worth $1.35, what is your loss from the decline in the value of the pound?
d. To avoid this potential loss, you decide to hedge and sell a contract for the future delivery of pounds at the going futures price of $1.56. What is the cost to you of this protection from the possible decline in the value of the pound?
e. If, after hedging, the price of the pound falls to $1.35, what is the maximum amount that you lose? Why is your answer different from (c)?
f. If, after hedging the price of the pound rises to $1.80, how much do you gain from your position?
g. How would your answer to part (f) be different if you had not hedged and the price of the pound had risen to $1.80?

Click here for the solution: You expect to receive a payment of 1,000,000 in British pounds after six months the pound is currently worth $1.60 (i.e. 1 pound = $1.60), but the six-month futures price is $1.56 (i.e. 1 pound = $1.56)

(Using Spot and Forward Exchange Rates) Suppose the spot exchange rate for the Canadian dollar in Can $1.05 and the six- month forward rate is Can $1.07

(Using Spot and Forward Exchange Rates) Suppose the spot exchange rate for the Canadian dollar in Can $1.05 and the six- month forward rate is Can $1.07.

a) Which is worth more, a U.S. dollar or a Canadian dollar?

b) Assuming absolute PPP holds, what is the cost of the United States of an Elkhead beer if the price in Canada is Can$2.50? Why might the beer actually sell at a different price in the United States?

c) Is the U.S. dollar selling at a premium or a discount relative to the Canadian dollar?

d) Which currency is expected to appreciate in value?

e) Which county do you think has higher interest rates- the United States or Canada? Explain.

Click here for the solution: (Using Spot and Forward Exchange Rates) Suppose the spot exchange rate for the Canadian dollar in Can $1.05 and the six- month forward rate is Can $1.07