acct221 all weeks homework latest 2015 [ all 8 homework ]
week 1
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The board plans to pay out annual dividends equal to net income for each of the next four years. The anticipated income is $300,000 in 20X1, $0 in 20X2, $900,000 in 20X3, and $1,800,000 in 20X4.
Prepare a table showing how much in dividends would be paid to common shareholders if the preferred stock is issued as cumulative versus noncumulative. To maximize the anticipated return to common over the next 4 years, should the board conclude to issue the preferred stock as cumulative or noncumulative? If the anticipated income pattern were different, could a different conclusion be reached?
"Magic Blade's stock has risen rapidly to $50 per share. The increase is due to excitement about its new knife that uses a light beam to slice fruits and vegetables. This process enhances the final appearance and quality of salads and fruit trays.
The board of directors is considering strategies to divide the corporate ownership into more shares of stock, and bring about some reduction in the price per share. They are considering a stock split, small stock dividend, or large stock dividend. The board is unsure of the accounting effects of such transactions, and has requested information about how stockholders' equity would be impacted."
"Prior to the contemplated stock transaction, equity consisted of:
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"Common stock, $2 par, 2,000,000 shares authorized, 500,000
shares issued and outstanding" $10,00,000
Paid-in capital in excess of par 20,00,000
Retained
Total stockholders' equity $90,00,000
(a) Assuming the board were to declare a 2 for 1 split, how would the revised stockholders' equity appear?
(b) Assuming the board were to declare a 15% stock dividend, how would the revised stockholders' equity appear?
(c) Assuming the board were to declare a 50% stock dividend, how would the revised stockholders' equity appear?
(d) Prepare journal entries that would be needed (if necessary) to record the proposed transactions from part (a), (b), and (c).
Kenya Corporation had an equity structure that consisted of $1 par value common stock, $3,500,000; paid-in capital in excess of par, $17,500,000; and retained
"Transaction A
Believing that its share price was depressed due to general
"Transaction B
Subsequent to Transaction A, the stock price increased to $17 per share, and half of the treasury shares were sold in the open
"Transaction C
Subsequent to Transaction B, Kenya experienced business difficulties that necessitated it selling the remaining treasury shares to raise additional
(a) Assuming that all 3,500,000
(b) Prepare an appropriate journal entry to record Transaction A. Kenya records treasury shares at cost.
(c) Prepare an appropriate journal entry for Transaction B.
(d) Prepare an appropriate journal entry for Transaction C.
(e) Is there any income statement impact from these transactions? What is the impact on total stockholders' equity from each of the three transactions?
Krull Corporation presented the following selected information. The company has a calendar year end.
"Before considering the effects of dividends, if any, Krull's net income for 20X7 was $2,500,000.
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"Before considering the effects of dividends, if any, Krull's net income for 20X8 was $3,000,000.
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"Krull declared $750,000 of dividends on November 15, 20X7. The date of record was January 15, 20X8. The dividends were paid on February 1, 20X8.
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"Stockholders' equity, at January 1, 20X7, was $5,000,000. No transactions impacted stockholders' equity throughout 20X7 and 20X8, other than the impact of
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(a) Prepare journal entries, if needed, to reflect the dividend declaration, the date of record, and the date of payment.
(b) How much was net income for 20X7 and 20X8?
(c) How much was total equity at the end of 20X7 and 20X8?
(d) Is total "working capital" reduced on the date of declaration, date of record, and/or date of payment?
Prepare journal entries to record each of the following independent stock issue situations.
(a) Sherri Hui Corporation issued 100,000 shares of $1 par value common stock. The issue price was $30 per share.
(b) Ariana Corporation issued 50,000 shares of no par common stock for $10 per share.
(c) Laser Golf issued 40,000 shares of $100 par value preferred stock. The issue price was $102 per share.
(d) Charleston Industries issued 5,000 shares of $5 par value common stock for land with a fair value of $75,000.
Evaluate the following list, and decide if each described attribute more likely relates to a common stock or preferred stock issue.
Common Preferred
The stock is described as 6%, cumulative ?
The stock includes voting rights
The stock is last in line in the event of liquidation
The stock is convertible
The stock ordinarily pays a fixed dividend
The stock may be subject to significant appreciation
The stock has a "call price"
The stock has a mandatory redemption date
(a) Prepare the journal entry to record the initial
(b) Prepare the journal entry that Beckwith would record on each interest date.
(c) Prepare the journal entry that Beckwith would record at maturity of the bonds.
(d) How much
Devol Computing invested in $100,000 of face amount of 6-year bonds issued by Horton Micro Chip Company on January 1, 20X1. The bonds were purchased at 103, and bear interest at a stated rate of 8% per annum, payable semiannually.
(a) Prepare the journal entry to record the initial
(b) Prepare the journal entry that Devol would record on each interest date.
(c) Prepare the journal entry that Devol would record at maturity of the bonds.
(d) How much
Petersen Stores invested in $100,000 of face amount of 4-year bonds issued by Erik Food Supply Company on January 1, 20X1. The bonds were purchased at 98, and bear interest at a stated rate of 8% per annum, payable semiannually.
(a) Prepare the journal entry to record the initial investment on January, 20X1.
(b) Prepare the journal entry that Petersen would record on each interest date.
(c) Prepare the journal entry that Petersen would record at maturity of the bonds.
(d) How much
Davis Steel Company acquired 30% of the
June 1 Purchased 30,000 shares of Reginald for $28 per share.
June 30 The fair value of Reginald's stock was $31 per share, and the company reported June income of $80,000.
July 15 The fair value of Reginald's stock was $30 per share, and the company declared and paid a dividend of $0.50 per share.
July 31 The fair value of Reginald's stock was $29 per share, and the company reported July income of $60,000.
(a) What method should be used to account for this investment?
(b) Prepare journal entries to account for the activity pertaining to the investment in Reginald Metals.
(c) If the investment in Reginald Metals was insufficient to allow Davis to exert significant influence, how would the accounting approach differ?
Season Corporation had excess cash on hand on January 1, 20X1, and invested in three separate bond issues on that date. Each bond investment had a maturity date of December 31, 20X6, and a maturity value of $100,000. The bond issues each pay interest on June 30 and December 31 of each year, and it is intended that these investments be held to maturity. Additional information about each investment follows:
Spring Company bonds were purchased at par and pay 7% annual interest.
Summer Company bonds were purchased for $95,168.33 and pay 6% annual interest.
Fall Company bonds were purchased for $104,831.67 and pay 8% annual interest.
(a) Prepare a table showing the accounting implications for the Spring Company bonds. Include columns for the date, cash flows, amount of interest income to record on each payment date, and the resulting bond investment account balance (the blank worksheets should be helpful in allowing you to
(b) Prepare a table showing the accounting implications for the Summer Company bonds. Include columns for the date, cash flows, amount of interest income to record on each payment date, discount amortization, and the resulting bond investment account balance (the blank worksheets should be helpful in allowing you to complete this problem expeditiously).
(c) Prepare a table showing the accounting implications for the Fall Company bonds. Include columns for the date, cash flows, amount of interest income to record on each payment date, premium amortization, and the resulting bond investment account balance (the blank worksheets should be helpful in allowing you to complete this problem expeditiously).
(d) Examine the
Season Corporation had excess cash on hand on January 1, 20X1, and invested in three separate bond issues on that date. Each bond investment had a maturity date of December 31, 20X6, and a maturity value of $100,000. The bond issues each pay interest on June 30 and December 31 of each year, and it is intended that these investments be held to maturity. Additional information about each investment follows:
Spring Company bonds were purchased at par and pay 7% annual interest.
Summer Company bonds were purchased for $95,168.33 and pay 6% annual interest.
Fall Company bonds were purchased for $104,831.67 and pay 8% annual interest.
(a) Prepare a table showing the accounting implications for the Spring Company bonds. Include columns for the date, cash flows, amount of interest income to record on each payment date, and the resulting bond investment account balance (the blank worksheets should be helpful in allowing you to complete this problem expeditiously).
(b) Prepare a table showing the accounting implications for the Summer Company bonds. Include columns for the date, cash flows, amount of interest income to record on each payment date, discount amortization, and the resulting bond investment account balance (the blank worksheets should be helpful in allowing you to complete this problem expeditiously).
(c) Prepare a table showing the accounting implications for the Fall Company bonds. Include columns for the date, cash flows, amount of interest income to record on each payment date, premium amortization, and the resulting bond investment account balance (the blank worksheets should be helpful in allowing you to complete this problem expeditiously).
(d) Examine the interest rates, and comment on why some bonds were available for purchase at par, while others involved a discount or premium.
Coastal Pine Corporation acquired 40% of the stock of Delta Shipping. Coastal Pine's investment is a long-term strategic investment. Coastal Pine anticipates that its investment will permit it to elect certain board members and otherwise exercise influence over the plans and policies implemented by Delta.
Coastal Pine paid $20,000,000 for its 40% interest. The acquisition occurred on January 1, 20X4. On that date, Delta Shipping had total stockholders' equity of $50,000,000. During 20X4, Delta earned $13,000,000 and paid $3,000,000 in dividends. Both companies have December 31 year ends.
(a) Prepare Coastal's entries to account for the activity pertaining to the investment in Delta Shipping.
(b) Calculate the change in Delta's total equity during the year, and compare this to the change in Coastal's Investment in Delta account. Are they correlated, and does this help explain the term "equity" method of accounting?
Gainesville Corporation's income statement revealed sales of $700,000; gross profit of $300,000; selling and administrative costs of $140,000; and income taxes of $45,000. The selling and administrative expenses included $10,000 for depreciation. The company's operating activities generated positive
Beginning-of-Period Balance End-of-Period Balance
Account receivable $70,000 $82,000
Inventory 50,000 41,000
"Ozark Corporation reported net income of $100,000 for 20X5. The income statement revealed sales of $1,000,000; gross
The selling and administrative expenses included $25,000 for depreciation. No equipment was sold during the year. Equipment purchases were made with cash. Prepaid insurance included in the balance sheet related to administrative costs. All accounts payable included in the balance sheet relate to inventory purchases. The change in retained
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Using the indirect approach, prepare a statement of
OZARK CORPORATION
Balance Sheet
December 31, 20X4 and 20X5
Assets 20X5 20X4
Cash $4,58,700 $4,71,450
Accounts receivable 1,99,250 1,71,500
Inventories 2,48,600 2,78,800
Prepaid insurance 13,000 11,000
Land 2,50,000 2,50,000
Building and equipment 15,00,000 13,00,000
Less: Accumulated depreciation (2,05,000) (1,80,000)
Total assets $24,64,550 $23,02,750
Liabilities
Accounts payable $85,700 $93,400
Interest payable 10,500 15,000
Income taxes payable 22,000 8,000
Stockholders' equity
Common
Paid in capital in excess of par 9,90,000 9,00,000
Retained
Total liabilities and equity $24,64,550 $23,02,750
Waguespack Corporation and Hedrick Corporation had identical cash positions at the beginning and end of 20X9. Each company also reported a net income of $150,000 for 20X9. Evaluate their cash flow statements that follow. Which company is displaying elements of cash flow stress? What factors cause you to reach this conclusion? What is the importance of evaluating a company's cash flow statement?
WAGUESPACK CORPORATION
Statement of Cash Flows
For the year ending December 31, 20X9
Cash flows from operating activities:
Net income $1,50,000
Add (deduct) noncash effects on operating income
Depreciation expense $20,000
Gain on sale of equipment (1,85,200)
Increase in accounts receivable (45,000)
Decrease in inventory 37,500
Increase in accounts payable 11,400
Decrease in income taxes payable (3,000) (1,64,300)
Net cash provided by operating activities $(14,300)
Cash flows from investing activities:
Sale of equipment 2,04,900
Cash flows from financing activities:
Proceeds from long-term borrowing 20,000
Net increase in cash $2,10,600
Cash balance at January 1, 20X9 66,000
Cash balance at December 31, 20X9 $2,76,600
HEDRICK CORPORATION
Statement of Cash Flows
For the year ending December 31, 20X9
Cash flows from operating activities:
Net income $1,50,000
Add (deduct) noncash effects on operating income
Depreciation expense $1,60,000
Decrease in accounts receivable 43,700
Increase in inventory (87,500)
Decrease in accounts payable (8,100)
Decrease in income taxes payable (8,600) 99,500
Net cash provided by operating activities $2,49,500
Cash flows from investing activities:
Cash flows from financing activities:
Repayment of long-term borrowing (18,500)
Net increase in cash $2,10,600
Cash balance at January 1, 20X9 66,000
Cash balance at December 31, 20X9 $2,76,600
"Fred Slezak presented the following comparative balance sheet:
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FRED SLEZAK CORPORATION
Comparative Balance Sheet
December 31, 20X5 and 20X4
Assets 20X5 20X4
Current assets
Cash $6,64,000 $9,000
Accounts receivable 3,75,000 3,45,000
Inventories 1,50,000 1,60,000
Prepaid expenses 35,000 25,000
Total current assets $12,24,000 $5,39,000
Property, plant, & equipment
Land $3,00,000 $4,00,000
Building 7,00,000 7,00,000
Equipment 5,30,000 4,50,000
$15,30,000 $15,50,000
Less: Accumulated depreciation (3,00,000) (2,70,000)
Total property, plant, & equipment $12,30,000 $12,80,000
Total assets $24,54,000 $18,19,000
Liabilities
Current liabilities
Accounts payable $1,12,000 $1,19,000
Interest payable 2,000 -
Total current liabilities $1,14,000 $1,19,000
Long-term liabilities
Long-term note payable 80,000 -
Total liabilities $1,94,000 $1,19,000
Stockholders' equity
Common stock ($1 par) $7,00,000 $6,00,000
Paid-in capital in excess of par 8,00,000 4,00,000
Retained earnings 7,60,000 7,00,000
Total stockholders' equity $22,60,000 $17,00,000
Total liabilities and equity $24,54,000 $18,19,000
Additional information about transactions and events occurring in 20X5 follows:
Dividends of $55,000 were declared and paid.
Accounts payable and accounts receivable relate solely to purchases and sales of inventory. Prepaid items related only to advertising expenses.
The decrease in land resulted from the sale of a parcel at a $45,000 loss. No land was purchased during the year. Equipment was purchased during the year in exchange for a promissory note payable. No equipment was sold.
The increase in paid-in capital resulted from issuing additional shares for cash.
The income statement for the year ending December 31, 20X5, included the following key amounts:
Sales $20,00,000
Cost of goods sold 12,00,000
Salaries expense 4,00,000
Advertising expense 1,50,000
Depreciation expense 30,000
Utilities expense 15,000
Interest expense 5,000
Loss on sale of land 45,000
Income tax expense 40,000
Net income 1,15,000
Prepare Fred Slezak's statement of cash flows for the year ending 20X5. Use the indirect approach, and include required supplemental information about cash paid for interest and taxes.
Gainesville Corporation's income statement revealed sales of $700,000; gross profit of $300,000; selling and administrative costs of $140,000; and income taxes of $45,000. The selling and administrative expenses included $10,000 for depreciation. The company's operating activities generated positive cash flow of $129,000. Use the "indirect" approach to demonstrate how this amount was calculated. The following additional information is available:
Beginning-of-Period Balance End-of-Period Balance
Account receivable $70,000 $82,000
Inventory 50,000 41,000
Accounts payable 37,000 44,000
week 4
Beginning work in process on September 1 consisted of 75,000 tons that were 80%
Ending work in process on September 30 consisted of 60,000 tons that were 70% complete with respect to raw materials and 40% complete with respect to conversion costs.
860,000 tons of material were put into production, and 875,000 tons exited production. There is no spoilage or loss of tonnage in the production process.
Beginning work in process carried a total cost of $265,000, divided 40/20/40 with respect to direct material/direct labor/factory overhead. Additional costs incurred during the month were $3,000,000, divided 50% to direct material and the remainder on a 1:2
(a) Prepare a cost of production report for September.
(b) Prepare journal entries to reflect the introduction of additional costs during September, as well as the transfer of completed units to finished goods.
Fullerton Aggregate processes raw shale into lightweight aggregate material. This process requires heat treating shale and injecting it with fly ash as it passes through rotating kilns. The shale both expands and hardens in the process, and is ideally suited to road construction. Fullerton uses the weighted-average process costing method to account for production. The following information is available for a recent period:
Beginning work in process on September 1 consisted of 75,000 tons that were 80% complete with respect to raw materials and 50% complete with respect to conversion costs.
Ending work in process on September 30 consisted of 60,000 tons that were 70% complete with respect to raw materials and 40% complete with respect to conversion costs.
860,000 tons of material were put into production, and 875,000 tons exited production. There is no spoilage or loss of tonnage in the production process.
Beginning work in process carried a total cost of $265,000, divided 40/20/40 with respect to direct material/direct labor/factory overhead. Additional costs incurred during the month were $3,000,000, divided 50% to direct material and the remainder on a 1:2 ratio between direct labor and factory overhead.
(a) Prepare a cost of production report for September.
(b) Prepare journal entries to reflect the introduction of additional costs during September, as well as the transfer of completed units to finished goods.
Ekpro Products manufactures containment chambers for environmentally friendly incinerators. Each chamber is built to customer specifications. Most of the direct labor time is spent on welding activities. Following is the
Ekpro Job Cost Sheet
Job: Benzate
Direct Labor Direct Material Applied Overhead Total
Hours Rate Total Qty Cost Per Unit Total Qty Rate Total
May 8, 20X7
Rod Burner 9 $25 $225 $225
Sandy Sharp 1 $12 $12 $12
Steel 10 $80 $800 $800
May 9, 20X7
Sandy Sharp 2 $12 $24 $24
Applied Overhead ? ? $360 $360
12 $261 $800 $360 $1,421
(a) What types of costs do you imagine would be included in factory overhead? If overhead is applied based on direct labor hours, what is the application rate?
(b) Ekpro is considering installation of a robotic machine that will do all welding operations. How might this decision impact the total overhead and the application method?
(c) How does the applied overhead relate to the actual overhead? When they are not the same, what happens to the difference? Why is actual overhead not assigned to each job?
"Zeus Corporation produces cultured diamonds via a secretive process that grows the diamonds in a vacuum chamber filled with a carbon gas cloud. The diamonds are produced in a single continuous process, and Zeus uses the weighted-average process costing method of accounting for production.
The production process requires constant utilization of facilities and equipment, as well as direct labor by skilled technicians. As a result, direct labor and factory overhead are both deemed to be introduced uniformly throughout production."
At the beginning of June, 20X9, 4,000 diamonds were in process. During June, an additional 8,000 diamonds were started, and 7,000 diamonds were completed and transferred to finished goods.
As of the beginning of the month, work in process was 80% complete with respect to materials and 60% complete with respect to conversion costs.
As of the end of the month, work in process was 70% complete with respect to materials and 40% complete with respect to conversion costs.
Prepare a "unit reconciliation" schedule that includes calculations showing the equivalent units of materials, direct labor, and factory overhead for June.
Ashley Corporation provided the following list of cost data related to its manufacturing operations for the month of September 20X4.
Beginning raw materials inventory $9,66,400
Raw materials purchased (net) 23,45,500
Ending raw materials inventory 8,18,200
Direct labor costs 3,22,300
Indirect materials 1,25,500
Indirect labor 88,900
Factory utilities and maintenance 4,56,000
Factory depreciation 56,600
Other factory related overhead 24,400
Beginning work in process 7,77,000
Ending work in process 7,17,000
(a) Arrange the cost data into a statement of cost of goods manufactured.
(b) If Ashley's cost of goods sold for the month was $4,000,000, how much was the increase or decrease in finished goods inventory for the month of September?
"Hawthorn Corporation manufactures custom all-terrain vehicles (ATVs) and uses a job costing system to assign and track costs. March's beginning inventory consisted of the following components:
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Raw materials $65,000
Work in process 27,000
Finished goods 80,000
"The above beginning work in process consisted only of Job #02.778. The finished goods inventory consisted of Job #01.987 ($42,500) and Job #02.665 ($37,500).
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"The following descriptions summarize the various transactions that occurred during March:
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Purchased $112,000 of raw materials.
Used $117,000 of raw materials in the production process. Of this amount, $95,000 consisted of parts and other materials "directly" incorporated into ATVs. The remainder was "indirect" material for shop supplies and small dollar items that are not otherwise traceable to specific ATVs.
Total wages and salaries were $225,000. This total was 60% attributable to direct labor, 10% to indirect labor, 5% to sales commissions, and 25% to general and administrative activities.
Depreciation for the period totaled $28,000. Of this amount, 75% related to factory and factory related equipment, and is contemplated in the factory overhead rates. The other 25% is related to general and administrative activities.
Other general and administrative costs, excluding wages and depreciation, totaled $15,000.
Other factory overhead costs, excluding indirect materials, wages, and depreciation, totaled $35,500.
Hawthorn applies factory overhead at 75% of direct labor costs.
"The ending work in process consisted of two
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(a) Prepare T-accounts showing how the above costs
Raw Materials Selling Expenses
Work in Process General & Administrative Expenses
Finished Goods Sales
Cost of Goods Sold Cash
Factory Overhead Accumulated Depreciation
(b) Was overhead underapplied or overapplied? What is the disposition of the difference between actual and applied factory overhead?
(c) Prepare an income statement for March. Income taxes of $50,000 were incurred during March.
(d) Prepare summary journal entries to record March's transactions.
Perfect Pad manufacturers floor mats for trailers that are used to transport horses. The mats provide for a firm footing surface that quickly sheds water. Mats are made to customer specifications via orders submitted over an internet site. The mats are completed and shipped in about one day. As a result, Perfect Pad does not maintain any work in process or finished goods inventory. The following costs were incurred in producing and selling mats during August:
Synthetic rubber used in the mat $1,34,300
Lubricant used in the molding machine 14,000
Factory rent 9,600
Electricity to run the molding machine 2,600
Labor cost of machine operators 34,100
Internet sales site 1,500
Administrative salaries 12,500
Depreciation of molding machine 7,400
Salary of factory safety inspector 3,500
Office rent 13,500
Evaluate these costs, and determine the amount of direct material, direct labor, factory overhead, and selling/general/administrative costs. Next, identify how much is considered to be a "prime cost" and how much is considered to be a "conversion cost."
week 5
Sales were $20,000,000, consisting of 5,000,000 sticks. sale price=20000000/5000000=4
Total variable costs were $11,000,000. va variable cost=11000000/5000000=2.2
Total fixed costs were $8,000,000.
Net income was $1,000,000.
The general economic conditions appear to be deteriorating heading into 20X7, and there is some concern about a reduction in sales volume. The following questions should each be answered independent of one another.
(a) What is the company's break-even point in "sticks?" Can the company sustain a 30% reduction in total volume, and remain profitable?
(b) The company's sole shareholder, Doug Anderson, generally lives off of dividends paid by the business. The business typically declares and pays a dividend equal to 25% of net income. If Doug needs to receive $100,000 in dividends for normal living expenses, what total revenues must Anderson Metals produce in 20X7?
(c) If total volume is expected to decrease by 20%, and the company wishes to continue to produce a $1,000,000 net income by raising the per unit selling price, what revised per stick price must be imposed? Will this strategy necessarily work?
(d) If the company expects a drop in raw material prices to reduce total variable costs to $2 per stick, but all other revenue and cost factors to be unaffected, what will be the revised break-even point in sales and units?
Bright Eyes manufactures and sells two products. The first product is a disposable contact lens set that lasts about 3 months. The second product is a wetting solution. Customers of the first product use one bottle of solution each month. As a result, bottles of solution outsell lens sets by a 3:1
(a) What level of total sales is necessary to achieve break even?
(b) If a competitor began selling a wetting solution that forced Bright Eyes to reduce the price for its solution to $3 (to maintain
Greg Morrison recently graduated from mortuary school. He is considering opening his own funeral home. A funeral home is a high-fixed cost business, as it requires considerable expenditures for facilities, labor, and equipment, no matter how many families are served. Assume the annual fixed cost of operations is $800,000. Further assume that the only significant variable cost relates to burial containers like urns and caskets. An average casket costs $1,200. Greg's banker has asked a variety of questions in contemplation of providing a
(a) If the average family is charged $6,000 for services and a burial container, how many families must be served to clear the break-even point?
(b) If the banker believes Greg will only serve 100 families during the first year in business, how much will the business lose during its first year of operation?
(c) If Greg believes his profits will be at least $100,000 during the first year, how much is he anticipating for total revenue?
(d) The banker has suggested that Greg can reduce his fixed costs by $150,000 if he will not buy any vehicles. Greg can instead rent vehicles as needed. The variable cost of renting is $700 per family served. Will this suggestion help Greg reach the break-even point sooner?
Mel Cheek is a fishing guide on the Chenega River. The fish are usually found 20 to 50 miles upriver. Once the fish are located, Mel slows the boat to trolling speed and fishes for about 6 hours before returning to dock. Mel has noted that overall fuel costs vary based on "miles upriver" and he is considering changing his guide fee to separately charge customers for estimated fuel costs. Below is Mel's log for 15 typical days showing "miles upriver to locate fish" and "total fuel cost".
Day Miles Upriver Fuel Cost
1 37 $86
2 41 93
3 22 73
4 28 80
5 49 99
6 25 74
7 33 85
8 37 87
9 44 93
10 24 77
11 29 80
12 45 96
13 35 83
14 36 87
15 31 80
Total 516 $1,273
(a) Use the high-low method to determine the "fixed fuel cost" associated with the trolling time, and the "variable fuel cost" associated with running up and down the river.
(b) If the sole objective of the fuel charge is to approximately recover actual costs incurred each day, would "$2.50 per mile upriver" be a fair formula? What alternative formula might you suggest?
week 6
Compute the total variance for materials, and determine how much is related to price and how much is related to quantity.
"Custom Clubs produces handmade golf clubs. The process is labor intensive. The speed at which a club can be built depends on the skill level of the individual worker. Management has established a standard of 2 labor hours per club. The standard wage rate is $12 per hour. During a recent month, 2,500 custom clubs were produced. Management was pleased that only 4,900 labor hours were worked; however, total wages amounted to $63,700.
Compute the total variance for labor, and determine how much is related to rate and efficiency components.
week 7
"Storm Tools has formed a new business unit to produce battery-powered drills. The business unit was formed by the transfer of selected assets and obligations from the parent company. The unit's initial balance sheet on January 1 contained
The business unit is expected to repay the note at $50,000 per month, plus all accrued interest at 1/2% per month. Payments are made on the last day of each month.
The unit is scheduled to produce 25,000 drills during January, with an increase of 2,500 units per month for the next three months. Each drill requires $40 of raw materials. Raw materials are purchased on account, and paid in the month following the month of
The unit expects to sell 20,000 drills in January; 25,000 in February, 25,000 in March, and 30,000 per month thereafter. The selling price is $100 per drill. Half of the drills will be sold for cash through a website. The others will be sold to retailers on account, who pay 40% in the month of purchase, and 60% in the following month. Uncollectible
Each drill requires 20 minutes of direct labor to assemble. Labor rates are $24 per hour. Variable factory overhead is applied at $9 per direct labor hour. The fixed factory overhead is $25,000 per month; 60% of this amount is related to depreciation of plant and equipment. With the exception of depreciation, all overhead is funded as incurred.
Selling, general, and administrative costs are funded in cash as incurred, and consist of fixed components (salaries, $100,000; office, $40,000; and advertising, $75,000) and variable components (15% of sales).
Prepare a monthly comprehensive budget plan for Storm's new
Jeff Miller owns Miller Auto Body Repair. During some months, he seems to have sufficient cash to meet all needs and maintain a comfortable cash reserve balance. During other months, he is frustrated because his operating cash supply is severely depleted. As a result, he is establishing a borrowing agreement with a local bank. His objective is to borrow (on the first day of the month) or repay (on the last day of the month) on the
Evaluate the following facts relating to the period July 1 to September 30, and prepare a monthly cash budget. Whenever repayments are made on the loan, the repayment is to include all accrued interest from the time of the loan origination. Interest accrues at 1% per month. Miller Auto Body had $12,500 of cash on hand on July 1.
Sales for May and June were $250,000 and $300,000, respectively. Anticipated sales for July to September are as follows:
July $2,25,000
August 3,60,000
September 3,10,000
Because much of the repair work is done for
Total selling, general, and administrative costs consist of a monthly fixed component of $70,000, and variable costs that run 15% of sales. The fixed SG&A costs include noncash depreciation of $25,000; all other SG&A is fully funded in cash each month.
Repair parts are expected to equal 30% of sales, and are funded half in the month of sale and the other half in the next following month. Direct labor is expected to equal 20% of sales and is funded in the month incurred. Shop overhead is equal to 30% of direct labor. 40% of the total shop overhead is paid in cash within the month, and the other 60% relates to noncash depreciation.
Miller Auto Body is a sole proprietorship and does not pay income tax. However, the earnings must be included in Jeff's personal tax return. As a result, Miller Auto Body pays out $5,000 in cash each month to Jeff to cover his estimated tax obligation.
Jeff has been notified that he must install an environmental paint filter system. This $85,000 expenditure will be funded in August at the time of installation. Jeff also plans to sell a truck in September for $25,000, resulting in a loss of $3,000.
weeek 8
Pure Comfort manufactures and sells mattresses with adjustable air chambers. Pure Comfort has been producing and selling approximately 500,000 units per year. Each units sells for $600, and there are no variable selling, general, or administrative costs. The company has been approached by a foreign supplier who wishes to provide the air compressor component for $90 per unit. Total annual manufacturing costs, including air compressors, is as follows:
Direct materials $500,00,000
Direct labor 800,00,000
Variable factory overhead 160,00,000
Fixed factory overhead 350,00,000
If Pure Comfort outsources the air compressor, it is expected that direct materials will be reduced by 20%, direct labor by 30%, and variable factory overhead by 25%. There will be no reduction in fixed factory overhead.
(a) Should Pure Comfort outsource the air compressor?
(b) If outsourcing the air compressor will
Summit Paintball Supply manufactures paintballs used by recreational gamers. The cost of producing a box of 2,500 paintballs is as follows:
Direct materials $12.50
Direct labor 6.25
Variable factory overhead 18.75
Fixed factory overhead 25.00
Variable selling, general, and administrative costs 18.75
Fixed selling, general, and administrative costs 4.00
The fixed factory overhead and fixed SG&A cost is allocated based on an assumption that the business will produce 400,000 boxes of paintballs per year. The company has capacity to produce 500,000 boxes without impacting either category of fixed cost.
(a) The
(b) Management has received a special order request for 100,000 boxes of "private label" paintballs. The order specifies a per box price of $75. How will profitability be impacted if the order is accepted?
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