Dependable Drivers Driving School charges $250 per student to prepare and administer written and driving tests

E19-19 Impact on breakeven point if sale price, variable costs, and fixed costs change

Dependable Drivers Driving School charges $250 per student to prepare and administer written and driving tests. Variable costs of $100 per student include trainers’ wages, study materials, and gasoline. Annual fixed costs of $75,000 include the training facility and fleet of cars.

Requirements
1. For each of the following independent situations, calculate the contribution margin per unit and the breakeven point in units by first referring to the original data provided:
a. Breakeven point with no change in information.
b. Decrease sales price to $220 per student.
c. Decrease variable costs to $50 per student.
d. Decrease fixed costs to $60,000.

2. Compare the impact of changes in the sales price, variable costs, and fixed costs on the contribution margin per unit and the breakeven point in units.

Click here for the solution: Dependable Drivers Driving School charges $250 per student to prepare and administer written and driving tests

The August Manufacturing Company in Rochester, Minnesota, assembles and tests electronic components used in handheld video phones

Product costing in an ABC system (9th Edition)

The August Manufacturing Company in Rochester, Minnesota, assembles and tests electronic components used in handheld video phones. Consider the following data regarding component T24:

The activities required to build the component follow:

Requirements
1. Complete the missing items for the two tables.
2. Why might managers favor this ABC system instead of August's older system, which allocated all conversion costs on the basis of direct labor?


Click here for the solution: The August Manufacturing Company in Rochester, Minnesota, assembles and tests electronic components used in handheld video phones

Sam is a senior auditor on the integrated audit of the Patriots Dynasty Corporation and is in charge of designing tests for the ICFR and financial statement audits

Problem 13-31 Sam is a senior auditor on the integrated audit of the Patriots Dynasty Corporation and is in charge of designing tests for the ICFR and financial statement audits. You are the staff auditor on the engagement. Sam asks you to make a start on the audit program for the human resources and payroll tests.

Required: Create a chart with two columns. Column A (shown below) lists different types of tests the team can utilize for testing ICFR and financial statement audits. In Column B give one example for each type of test listed in Column (a).

Column A Column B
Tests of controls for human resources transactions
Tests of controls for payroll cash disbursements
Dual purpose tests for human resources transactions
Dual purpose tests for payroll disbursements
Substantive analytical procedures for payroll-related expenses
Substantive analytical procedures for payroll-related liabilities
Tests of details of balances for payroll-related expenses
Tests of details of balances for payroll-related liabilities


Click here for the solution: Sam is a senior auditor on the integrated audit of the Patriots Dynasty Corporation and is in charge of designing tests for the ICFR and financial statement audits

Tests of account balances are intended to obtain audit evidence about the fairness of the inventory accounts

Problem 14-31 Tests of account balances are intended to obtain audit evidence about the fairness of the inventory accounts or, alternatively, identify material misstatements in the amounts presented. Audit procedures can only be selected after the auditor determines specific audit objectives related to management assertions.

Management Assertions
1. Existence or occurrence
2. Completeness
3. Rights and obligations
4. Valuation or allocation
5. Presentation and disclosure

Required: For each audit procedure below, identify the related management assertion(s) that the audit procedure tests and explain the audit objective of the procedure.
(a) Trace totals of inventory files to the general ledger, including proper classification as raw materials, WIP, or finished goods.
(b) Test additions to inventory by selecting a sample of recorded purchases from the inventory records and examining supporting documents.
(c) Review consignment contracts and scan inventory records for inclusion of amounts for any consigned items not owned.
(c) Reperform calculations supporting decisions about write-downs or write-offs of inventory and trace any adjustment amounts to the inventory records.
(d) Using computer-assisted auditing techniques reperform calculations testing mathematical accuracy, including totals extensions of price and quantity and unit or batch aggregations; recalculation is based on appropriate application of the client costing method (FIFO, LIFO, weighted average, specific identification, etc.).


Click here for the solution: Tests of account balances are intended to obtain audit evidence about the fairness of the inventory accounts

John Fleming, chief administrator for Valley View Hospital, is concerned about the costs for tests in the hospital's lab

John Fleming, chief administrator for Valley View Hospital, is concerned about the costs for tests in the hospital's lab. Charges for lab tests are consistently higher at Valley View than at other hospitals and have resulted in many complaints. Also, because of strict regulations on amounts reimbursed for lab tests, payments received from insurance companies and governmental units have not been high enough to cover lab costs.

Mr. Fleming has asked you to evaluate costs in the hospital's lab for the past month. The following information is available:

• Two types of tests are performed in the lab-blood tests and smears. During the past month, 1,800 blood tests and 2,400 smears were performed in the lab. Small glass plates are used in both types of tests. During the past month, the hospital purchased 12,000 plates at a cost of $28,200. This cost is net of a 6% quantity discount. 1,500 of these plates were unused at the end of the month; no plates were on hand at the beginning of the month.
• During the past month, 1,150 hours of labor time were recorded in the lab at a cost of $13,800.
• The lab's variable overhead cost last month totaled $7,820.

Valley View Hospital has never used standard costs. By searching industry literature, however, you have determined the following nationwide averages for hospital labs:
Plates: Two plates are required per lab test. These plates cost $2.50 each and are disposed of after the test is completed.
Labor: Each blood test should require 0.3 hours to complete, and each smear should require 0.15 hours to complete. The average cost of this lab time is $14 per hour.
Overhead: Overhead cost is based on direct labor-hours. The average rate for variable overhead is $6 per hour.

1. Compute a materials price variance for the plates purchased last month and a materials quantity variance for the plates used last month.
2. For labor cost in the lab:
• Compute a labor rate variance and a labor efficiency variance.
• In most hospitals, one-half of the workers in the lab are senior technicians and one-half are assistants. In an effort to reduce costs, Valley View Hospital employs only one-fourth senior technicians and three-fourths assistants. Would you recommend that this policy be continued? Explain.
3. Compute the variable overhead rate and efficiency variances. Is there any relation between the variable overhead efficiency variance and the labor efficiency variance? Explain.

Click here for the solution: John Fleming, chief administrator for Valley View Hospital, is concerned about the costs for tests in the hospital's lab