OC userin Accounting·2 Jan 201813 In 200A and 200C, Likes to Change Their Mind Inc. used the income statement method to determine its bad debt expense for the year. In 200B, the company used the ageing of accounts recievable method. This would be in contravention of which generally accepted accounting principle? a. Time period principle b. Monetary unit principle C. Going-concern principle d. Entity principle e. None of the above The correct answer is 'e'.
OC userin Accounting·31 Dec 2017PROBLEM 5-22 Basics of CVP Analysis; Cost Structure [LO5-1, L05-3, L05-4, L05-5, L05-6] Due to erratic sales of its sole product—a high-capacity battery for laptop computers—PEM, Inc., has been experiencing difficulty for some time. The company's contribution format income state- ment for the most recent month is given below: Sales (19,500 units X $30 per unit) ..... Variable expenses .. Contribution margin. Fixed expenses ... Net operating loss ... ....... $585,000 409,500 175,500 180,000 $ (4,500) Required: 1. Compute the company's CM ratio and its break-even point in both unit sales and dollar sales. 2. The president believes that a $16,000 increase in the monthly advertising budget, combined with an intensified effort by the sales staff, will result in an $80,000 increase in monthly sales. If the president is right, what will be the effect on the company's monthly net operating income or loss? (Use the incremental approach in preparing your answer.) 3. Refer to the original data. The sales manager is convinced that a 10% reduction in the selling price, combined with an increase of $60,000 in the monthly advertising budget, will double 4. unit sales. What will the new contribution format income statement look like if these changes are adopted? Refer to the original data. The Marketing Department thinks that a fancy new package for the laptop computer battery would help sales. The new package would increase packaging costs by 75 cents per unit. Assuming no other changes, how many units would have to be sold each month to earn a profit of $9,750? 5. Refer to the original data. By automating, the company could reduce variable expenses by $3 per unit. However, fixed expenses would increase by $72,000 each month a. Compute the new CM ratio and the new break-even point in both unit sales and dollar sales. b. Assume that the company expects to sell 26,000 units next month. Prepare two contribu- tion format income statements, one assuming that operations are not automated and one assuming that they are. (Show data on a per unit and percentage basis, as well as in total, for each alternative.) c. Would you recommend that the company automate its operations? Explain.
OC userin Accounting·28 Dec 2017PROBLEM 2-25 Cost Classification and Cost Behavior [LO2-1, LO2-2, LO2-3, LO2-4] The Dorilane Company specializes in producing a set of wood patio furniture consisting of a table and four chairs. The set enjoys great popularity, and the company has ample orders to keep produc- tion going at its full capacity of 2,000 sets per year. Annual cost data at full capacity follow: Direct labor Advertising ...... Factory supervision ..... Property taxes, factory building Sales commissions. Insurance, factory ...... Depreciation, administrative office equipment. Lease cost, factory equipment ...... Indirect materials, factory .. Depreciation, factory building Administrative office supplies (billing) Administrative office salaries. Direct materials used (wood, bolts, etc.) ..... Utilities, factory ....... $118.000 $50,000 $40,000 $3,500 $80,000 $2,500 $4,000 $12,000 $6,000 $10,000 $3,000 $60,000 $94,000 $20,000 Required: 1. Prepare an answer sheet with the column headings shown below. Enter each cost item on your answer sheet, placing the dollar amount under the appropriate headings. As examples, this has been done already for the first two items in the list above. Note that each cost item is classified in two ways: first, as variable or fixed with respect to the number of units produced and sold; and second, as a selling and administrative cost or a product cost. (If the item is a product cost, it should also be classified as either direct or indirect as shown.) Cost Behavior Variable Fixed Period (Selling or Administrative) Cost Product Cost Direct Indirect Cost Item $118,000 $118,000 Direct labor .......... Advertising ..... $50,000 $50,000 *To units of product. 2. Total the dollar amounts in each of the columns in (1) above. Compute the average product cost of one patio set. 3. 4. Assume that production drops to only 1,000 sets annually. Would you expect the average product cost per set to increase, decrease, or remain unchanged? Explain. No computations are necessary. Refer to the original data. The president's brother-in-law has considered making himself a patio set and has priced the necessary materials at a building supply store. The brother-in-law has asked the president if he could purchase a patio set from the Dorilane Company "at cost," and the president agreed to let him do so. a. Would you expect any disagreement between the two men over the price the brother- in-law should pay? Explain. What price does the president probably have in mind? The brother-in-law? b. Because the company is operating at full capacity, what cost term used in the chapter might be justification for the president to charge the full, regular price to the brother-in- law and still be selling "at cost"?
OC userin Accounting·29 Dec 2017EXERCISE 3-11 Schedules of Cost of Goods Manufactured and Cost of Goods Sold; Income Statement [LO3-6] The following data from the just completed year are taken from the accounting records of Mason Company: Sales .................. Direct labor cost .......... Raw material purchases ....... Selling expenses ............ Administrative expenses ......... Manufacturing overhead applied to work in process ... Actual manufacturing overhead costs $524,000 $70,000 $118,000 $140,000 $63,000 $90,000 $80,000 ............ Beginning of Year Inventories End of Year Raw materials ... Work in process ...... Finished goods .... $7,000 $10,000 $20,000 $15,000 $5,000 $35,000 Required: 1. Prepare a schedule of cost of goods manufactured. Assume all raw materials used in produc- tion were direct materials. 2. Prepare a schedule of cost of goods sold. 3. Prepare an income statement.
OC userin Accounting·28 Dec 201715 Economic resources that are controlled by the accounting entity as a result of past transactions and from which future benefits can be obtained are also known as? a. Revenues b. Liabilities C. Assets d. Equity e. None of the above The correct answer is 'c'.
OC userin Accounting·26 Dec 2017EXERCISE 6-4 Basic Segmented Income Statement [L06-4] Royal Lawncare Company produces and sells two packaged products, Weedban and Greengrow. Revenue and cost information relating to the products follow: Weedban Product Greengrow $7.50 $5.25 $21,000 Selling price per unit ...................... Variable expenses per unit ................. Traceable fixed expenses per year ........... $6.00 $2.40 $45,000 Common fixed expenses in the company total $33,000 annually. Last year the company produced and sold 15,000 units of Weedban and 28,000 units of Greengrow. Required: Prepare a contribution format income statement segmented by product lines.
OC userin Accounting·26 Dec 20172-10 Does the concept of the relevant range apply to fixed costs? Explain.
OC userin Accounting·23 Dec 2017PROBLEM 5-20 Various CVP Questions: Break-Even Point; Cost Structure; Target Sales [LO5-1, L05-3, LO5-4, L05-5, LO5-6, L05-8] Northwood Company manufactures basketballs. The company has a ball that sells for $25. At present, the ball is manufactured in a small plant that relies heavily on direct labor workers. Thus, variable expenses are high, totaling $15 per ball, of which 60% is direct labor cost. Last year, the company sold 30,000 of these balls, with the following results: Sales (30,000 balls) ...... Variable expenses ...... Contribution margin .... Fixed expenses .. Net operating income ..... $750,000 450,000 300,000 210,000 $ 90,000 Required: 1. Compute (a) the CM ratio and the break-even point in balls, and (b) the degree of operating leverage at last year's sales level. 2. Due to an increase in labor rates, the company estimates that variable expenses will increase by $3 per ball next year. If this change takes place and the selling price per ball remains con- stant at $25, what will be the new CM ratio and break-even point in balls? 3. Refer to the data in (2) above. If the expected change in variable expenses takes place, how many balls will have to be sold next year to earn the same net operating income, $90,000, as 5. last year? Refer again to the data in (2) above. The president feels that the company must raise the sell- ing price of its basketballs. If Northwood Company wants to maintain the same CM ratio as last year, what selling price per ball must it charge next year to cover the increased labor costs? Refer to the original data. The company is discussing the construction of a new, automated manufacturing plant. The new plant would slash variable expenses per ball by 40%, but it would cause fixed expenses per year to double. If the new plant is built, what would be the company's new CM ratio and new break-even point in balls? Refer to the data in (5) above. a. If the new plant is built, how many balls will have to be sold next year to earn the same net operating income, $90,000, as last year? b. Assume the new plant is built and that next year the company manufactures and sells 30,000 balls (the same number as sold last year). Prepare a contribution format income statement and compute the degree of operating leverage. c. If you were a member of top management, would you have been in favor of constructing the new plant? Explain. 6.
OC userin Accounting·23 Dec 2017EXERCISE 5-14 Break-Even and Target Profit Analysis (L05-3, L05-4, L05-5, L05-6] Lindon Company is the exclusive distributor for an automotive product that sells for $40 per unit and has a CM ratio of 30%. The company's fixed expenses are $180,000 per year. The company plans to sell 16,000 units this year. Required: 1. What are the variable expenses per unit? 2. Using the equation method: a. What is the break-even point in unit sales and in dollar sales? b. What amount of unit sales and dollar sales is required to earn an annual profit of $60,000? C. Assume that by using a more efficient shipper, the company is able to reduce its variable expenses by $4 per unit. What is the company's new break-even point in unit sales and in dollar sales? 3. Repeat (2) above using the formula method.
OC userin Accounting·22 Dec 201712 Which of the following are not acceptable amortization methods? a. Units-of-production method b. Declining-balance method C. Straight-line method d. Weighted average method e. None of the above The correct answer is 'd'.
OC userin Accounting·22 Dec 2017PROBLEM 14-9 Understanding a Statement of Cash Flows (L014-1, L014-2] Brock Company is a merchandiser that prepared the statement of cash flows and income statement provided below: Brock Company Statement of Cash Flows-Indirect Method $ 275 Operating Activities Net income ... Adjustments to convert net income to a cash basis: Depreciation ........ Increase in accounts receivable.... Decrease in inventory ........ Decrease in accounts payable .......... Decrease in accrued liabilities ........ Increase in income taxes payable ................ Gain on sale of equipment... Net cash provided by operating activities ........... boa Investing Activities Additions to property, plant, and equipment ......... Proceeds from sale of equipment .... Net cash used in investing activities .............. long & nô Financing Activities Issuance of bonds payable ..... Issuance of common stock ............ Cash dividends paid ......... Net cash provided by financing activities ........... Net increase in cash and cash equivalents .......... Beginning cash and cash equivalents ............ Ending cash and cash equivalents ............ 34 Brock Company Income Statement Net sales .......... Cost of goods sold ............. .............. Gross margin ................ ............ Selling and administrative expenses ............. Net operating income ........... Nonoperating items: Gain on sale of equipment .... Income before taxes ... Income taxes . . . . . . . . $5,200 2,980 2,220 1,801 419 423 Net income .......................... $ 275 Required: Assume that you have been asked to teach a workshop to the employees within Brock Compa- ny's Marketing Department. The purpose of your workshop is to explain how the statement of cash flows differs from the income statement. Your audience is expecting you to explain the logic underlying each number included in the statement of cash flows. Prepare a memo that explains the format of the statement of cash flows and the rationale for each number included in Brock's state- ment of cash flows.
OC userin Accounting·21 Dec 2017CASE 2-27 Scattergraph Analysis: Selection of an Activity Base [LO2-5] Angora Wraps of Pendleton, Oregon, makes fine sweaters out of pure angora wool. The business is seasonal, with the largest demand during the fall, the winter, and Christmas holidays. The company must increase production each summer to meet estimated demand. The company has been analyzing its costs to determine which costs are fixed and variable for planning purposes. Below are data for the company's activity and direct labor costs over the last year. Thousands of Units Produced Number of Paid Days Direct Labor Cost Month January February .. March 75 April ..... May ..... $14,162 $12,994 $15,184 $15,038 $15,768 $15,330 $13,724 $14,162 $15,476 $15,476 June ..... 102 July ....... August ... September October ............. 136 138 132 November .... December ... Na $12,972 $14,074 o The number of workdays varies from month to month due to the number of weekdays, holi- days, and days of vacation in the month. The paid days include paid vacations in July) and paid holidays (in November and December). The number of units produced in a month varies depend- ing on demand and the number of workdays in the month. The company has eight workers who are classified as direct labor. Required: 1. Plot the direct labor cost and units produced on a scattergraph. (Place cost on the vertical axis and units produced on the horizontal axis.) 2. Plot the direct labor cost and number of paid days on a scattergraph. (Place cost on the vertical axis and the number of paid days on the horizontal axis.) 3. Which measure of activity-number of units produced or paid days—should be used as the activity base for explaining direct labor cost? Explain.
OC userin Accounting·21 Dec 2017EXERCISE 3-8 Applying Overhead; Computing Unit Product Cost [L03-2, LO3-3] A company assigns overhead cost to completed jobs on the basis of 125% of direct labor cost. The job cost sheet for Job 313 shows that $10,000 in direct materials has been used on the job and that $12,000 in direct labor cost has been incurred. A total of 1,000 units were produced in Job 313. Required: What is the total manufacturing cost assigned to Job 313? What is the unit product cost for Job 313?
OC userin Accounting·20 Dec 2017EXERCISE 12-16 Identification of Relevant Costs [LO12-1] Bill has just returned from a duck hunting trip. He has brought home eight ducks. Bill's friend, John, disapproves of duck hunting, and to discourage Bill from further hunting, John has presented him with the following cost estimate per duck: $150 58 Camper and equipment: Cost, $12,000; usable for eight seasons; 10 hunting trips per season. ........... Travel expense (pickup truck): 100 miles at $0.31 per mile (gas, oil, and tires-$0.21 per mile; depreciation and insurance-$0.10 per mile) ....... Shotgun shells (two boxes) Boat: Cost, $2,320, usable for eight seasons; 10 hunting trips per season Hunting license Cost, $30 for the season; 10 hunting trips per season .......... Money lost playing poker: Loss, $24 (Bill plays poker every weekend) .................. Bottle of whiskey: Cost, $15 (used to ward off the cold) ........... Total cost .. Cost per duck ($272 = 8 ducks) .... $272 Required: 1. Assuming that the duck hunting trip Bill has just completed is typical, what costs are relevant to a decision as to whether Bill should go duck hunting again this season? 2. Suppose that Bill gets lucky on his next hunting trip and shoots 10 ducks in the amount of time it took him to shoot 8 ducks on his last trip. How much would it have cost him to shoot the last two ducks? Explain. 3. Which costs are relevant in a decision of whether Bill should give up hunting? Explain.
OC userin Accounting·20 Dec 201718 Accounting for expenses as capital expenditures: a. Increases current income because it charges current period operating expenses over future accounting periods b. Decreases current income because it charges future period operating expenses to the current period C. Increases current income because it charges future period operating expenses to the current period d. Decreases current income because it charges current period operating expenses over future accounting periods e. None of the above The correct answer is 'a'.
