ACCOUNTING
When would you advise a firm to use direct intervention to set transfer prices? What are the disadvantages of such a practice?
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Friday, January 27, 2012
The following data reflect the current month’s activity for Sills, Inc
ACCOUNTING
Variable cost variances
The following data reflect the current month’s activity for Sills, Inc.:
Actual total direct labor …………………………………………………………. $546,000
Actual hours worked ……………………………………………………………… 26,000
Standard labor-hours allowed for actual output (flexible budget)…. 27,000
Direct labor price variance ……………………………………………………. $ 19,500 U
Actual variable overhead …………………………………………………………. $132,000
Standard variable overhead rate per standard direct labor-hour ……. $ 5.25
Variable overhead is applied based on standard direct labor-hours allowed.
Required:
Compute the labor and variable overhead price and efficiency variances.
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Variable cost variances
The following data reflect the current month’s activity for Sills, Inc.:
Actual total direct labor …………………………………………………………. $546,000
Actual hours worked ……………………………………………………………… 26,000
Standard labor-hours allowed for actual output (flexible budget)…. 27,000
Direct labor price variance ……………………………………………………. $ 19,500 U
Actual variable overhead …………………………………………………………. $132,000
Standard variable overhead rate per standard direct labor-hour ……. $ 5.25
Variable overhead is applied based on standard direct labor-hours allowed.
Required:
Compute the labor and variable overhead price and efficiency variances.
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Information on Carney Company's fixed overhead costs follows
ACCOUNTING
Fixed Cost Variances
Information on Carney Company's fixed overhead costs follows:
Overhead applied............. $360,000
Actual overhead............... 385,500
Budgeted overhead.......... 369,000
Required:
What are the fixed overhead price and production volume variances?
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Fixed Cost Variances
Information on Carney Company's fixed overhead costs follows:
Overhead applied............. $360,000
Actual overhead............... 385,500
Budgeted overhead.......... 369,000
Required:
What are the fixed overhead price and production volume variances?
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16.9. (Interest rate risk) Two years ago your corporate treasurer purchased for the firm a 20-year bond at its par value of $1,000
ACCOUNTING
16.9. (Interest rate risk) Two years ago your corporate treasurer purchased for the firm a 20-year bond at its par value of $1,000. The coupon rate on this security is 8 percent. Interest payments are made to bond holders once a year. Currently, bonds of this particular risk class are yielding investors 9 percent. A cash shortage has forced you to instruct your treasurer to liquidate the bond.
a. At what price will your bond be sold? Assume annual compounding.
b. What will be the amount of your gain or loss over the original purchase price?
c. What would be the amount of your gain or loss had the treasurer originally purchased a bond with a 4-year rather than a 20-year maturity?(Assume all the characteristics of the bonds are identical except their maturity periods.)
d. What do we call this type of risk assumed by your corporate treasurer?
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16.9. (Interest rate risk) Two years ago your corporate treasurer purchased for the firm a 20-year bond at its par value of $1,000. The coupon rate on this security is 8 percent. Interest payments are made to bond holders once a year. Currently, bonds of this particular risk class are yielding investors 9 percent. A cash shortage has forced you to instruct your treasurer to liquidate the bond.
a. At what price will your bond be sold? Assume annual compounding.
b. What will be the amount of your gain or loss over the original purchase price?
c. What would be the amount of your gain or loss had the treasurer originally purchased a bond with a 4-year rather than a 20-year maturity?(Assume all the characteristics of the bonds are identical except their maturity periods.)
d. What do we call this type of risk assumed by your corporate treasurer?
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Farmer Frank's produces items from local farm products and distributes them to supermarkets
ACCOUNTING
Ethics and Standard Costs
Farmer Frank’s produces items from local farm products and distributes them to supermarkets. Over the years, price competition has become increasingly important, so Susan Kramer, the company’s controller, is planning to implement a standard cost system for Farmer Frank’s. She asked her cost accountant, Margaret Chang, to gather cost information on the production of blueberry preserves (Farmer Frank’s most popular product). Margaret reported that blueberries cost $.75 per quart, the price she intends to pay to her good friend who has been operating a blueberry farm that has been unprofitable for the last few years. Because of an oversupply in the market, the price for blueberries has dropped to $.60 per quart. Margaret is sure that the $.75 price will be enough to pull her friend’s farm out of the red and into the black.
Required:
Is Margaret’s behavior regarding the cost information she provided to Susan unethical? Explain your answer.
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Ethics and Standard Costs
Farmer Frank’s produces items from local farm products and distributes them to supermarkets. Over the years, price competition has become increasingly important, so Susan Kramer, the company’s controller, is planning to implement a standard cost system for Farmer Frank’s. She asked her cost accountant, Margaret Chang, to gather cost information on the production of blueberry preserves (Farmer Frank’s most popular product). Margaret reported that blueberries cost $.75 per quart, the price she intends to pay to her good friend who has been operating a blueberry farm that has been unprofitable for the last few years. Because of an oversupply in the market, the price for blueberries has dropped to $.60 per quart. Margaret is sure that the $.75 price will be enough to pull her friend’s farm out of the red and into the black.
Required:
Is Margaret’s behavior regarding the cost information she provided to Susan unethical? Explain your answer.
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16.13 (Ratio analysis) Assuming a 360-day year, calculate what the average investment in inventory would be for a firm, given the following
ACCOUNTING
16.13 (Ratio analysis) Assuming a 360-day year, calculate what the average investment in inventory would be for a firm, given the following information in each case.
a. The firm has sales of $600,000, a gross profit margin of 10 percent, and an inventory turnover ratio of 6.
b. The firm has a cost-of-goods-sold figure of $480,000 and an average age of inventory of 40 days.
c. The firm has a cost-of-goods-sold figure of $1.15 million and an inventory turnover rate of 5.
d. The firm has a sales figure of $25 million, a gross profit margin of 14 percent, and an average age inventory of 45 days.
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16.13 (Ratio analysis) Assuming a 360-day year, calculate what the average investment in inventory would be for a firm, given the following information in each case.
a. The firm has sales of $600,000, a gross profit margin of 10 percent, and an inventory turnover ratio of 6.
b. The firm has a cost-of-goods-sold figure of $480,000 and an average age of inventory of 40 days.
c. The firm has a cost-of-goods-sold figure of $1.15 million and an inventory turnover rate of 5.
d. The firm has a sales figure of $25 million, a gross profit margin of 14 percent, and an average age inventory of 45 days.
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P 7-38 You are the in-charge on the audit of Vandervoort Company and are to review the preceding audit schedule
ACCOUNTING
Auditing P 7-38 You are the in-charge on the audit of Vandervoort Company and are to review the preceding audit schedule.
AND SO ON
Required:
a. List the deficiencies in the audit schedule.
b. For each deficiency, state how the audit schedule could be improved.
c. Prepare an improved audit schedule, using an electronic spreadsheet software program. Include an indication of the audit work done as well as the analysis of the client data.
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Auditing P 7-38 You are the in-charge on the audit of Vandervoort Company and are to review the preceding audit schedule.
AND SO ON
Required:
a. List the deficiencies in the audit schedule.
b. For each deficiency, state how the audit schedule could be improved.
c. Prepare an improved audit schedule, using an electronic spreadsheet software program. Include an indication of the audit work done as well as the analysis of the client data.
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Deep Blue manufactures floatation vests in Charleston, South Carolina
ACCOUNTING
Deep Blue manufactures floatation vests in Charleston, South Carolina. Deep Blue’s contribution margin income statement for the most recent month contains the following:
Sales in units ….. 31,000
Sales revenue….. $434,000
Variable expenses:
Manufacturing…………………………. 186,000
Marketing and administrative….. 110,000
Total variable expenses……………. 296,000
Contribution margin….. ......................…...138,000
Fixed expenses:
Manufacturing….. ……….130,000
Marketing and administrative…..92,000
Total fixed expenses……………….222,000
Operating income (loss)…………...$84000
Suppose Boats-n-more wishes to buy 4,600 vest from deep blue. Acceptance of the order will not increase Deep Blue’s variable marketing and administrative expenses. The Deep Blue has enough unused capacity to manufacture the additional vest. Boats-n-more has an offer of $5 per vest, which is below the normal sale price of $14.
Requirement
1. Prepare an increment analysis to determine whether or not Deep Blue should accept the special sales order.
2. Identify long term factors Deep Blue should consider in deciding whether to accept the special sales order.
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Deep Blue manufactures floatation vests in Charleston, South Carolina. Deep Blue’s contribution margin income statement for the most recent month contains the following:
Sales in units ….. 31,000
Sales revenue….. $434,000
Variable expenses:
Manufacturing…………………………. 186,000
Marketing and administrative….. 110,000
Total variable expenses……………. 296,000
Contribution margin….. ......................…...138,000
Fixed expenses:
Manufacturing….. ……….130,000
Marketing and administrative…..92,000
Total fixed expenses……………….222,000
Operating income (loss)…………...$84000
Suppose Boats-n-more wishes to buy 4,600 vest from deep blue. Acceptance of the order will not increase Deep Blue’s variable marketing and administrative expenses. The Deep Blue has enough unused capacity to manufacture the additional vest. Boats-n-more has an offer of $5 per vest, which is below the normal sale price of $14.
Requirement
1. Prepare an increment analysis to determine whether or not Deep Blue should accept the special sales order.
2. Identify long term factors Deep Blue should consider in deciding whether to accept the special sales order.
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E6-1: A government opts to set aside $10 million of general fund resources to finance a new city hall
ACCOUNTING
E. 6-1
1. A government opts to set aside $10 million of general fund resources to finance a new city hall. Construction is expected to begin in several years, when the city has been able to accumulate additional resources.
2. A government should distinguish underwriting and other issue costs from bond premiums and discounts and should
3. When a government issues bonds at premiums or discounts and records the proceeds in a capital projects fund, it should
4. A city holds U.S. Treasury notes as an investment in a capital projects fund. During the year the market value of the notes increases by $50,000. Of this amount, $14,000 can be attributed to a decline in prevailing interest rates and $36,000 to interest that has been earned but not yet received. As of year-end, the city should recognize as revenue
5. Which of the following accounts is least likely to be shown on the balance sheet of a debt service fund?
6. Special assessment debt should be reported on the balance sheet of a city if the debt is to be paid from assessments on property owners and
7. In its fund statements a government should recognize revenue from special assessments
8. In the year it imposes a special assessment, a government should recognize in its government-wide statements
9. Under existing federal statutes, arbitrage as it applies to state and local governments
10. Bond refunding are most likely to result in an economic gain when
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E. 6-1
1. A government opts to set aside $10 million of general fund resources to finance a new city hall. Construction is expected to begin in several years, when the city has been able to accumulate additional resources.
2. A government should distinguish underwriting and other issue costs from bond premiums and discounts and should
3. When a government issues bonds at premiums or discounts and records the proceeds in a capital projects fund, it should
4. A city holds U.S. Treasury notes as an investment in a capital projects fund. During the year the market value of the notes increases by $50,000. Of this amount, $14,000 can be attributed to a decline in prevailing interest rates and $36,000 to interest that has been earned but not yet received. As of year-end, the city should recognize as revenue
5. Which of the following accounts is least likely to be shown on the balance sheet of a debt service fund?
6. Special assessment debt should be reported on the balance sheet of a city if the debt is to be paid from assessments on property owners and
7. In its fund statements a government should recognize revenue from special assessments
8. In the year it imposes a special assessment, a government should recognize in its government-wide statements
9. Under existing federal statutes, arbitrage as it applies to state and local governments
10. Bond refunding are most likely to result in an economic gain when
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Q1: If two service departments service the same number of departments, which service department's costs are allocated first when using the step method
ACCOUNTING
1. If two service departments service the same number of departments, which service department's costs are allocated first when using the step method?
2. Which of the following service department cost allocation methods is most widely used by manufacturing companies?
3. Which of the following statements is (are) false regarding the effective use of management control systems.
(A) In general, cost allocations should not be used in management control systems because clear control over the cost being allocated cannot be determined.
(B) The primary reason to use a dual rate allocation system is to focus a manager's performance evaluation on factors under the manager's direct control.
4. The amount of resources used in an activity-based costing (ABC) system for a specific activity is computed by multiplying the:
5. Which of the following statements is false?
6. In general, the first budget prepared is the
7. Relative performance evaluations (RPE) are not designed to
8. Which of the following items would be classified as a batch-level cost in an activity-based cost management (ABM) system?
9. Which of the following activities is most likely to be classified as value-added for a manufacturing company?
10. The unused resource capacity is the difference between the resources supplied and the resources
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1. If two service departments service the same number of departments, which service department's costs are allocated first when using the step method?
2. Which of the following service department cost allocation methods is most widely used by manufacturing companies?
3. Which of the following statements is (are) false regarding the effective use of management control systems.
(A) In general, cost allocations should not be used in management control systems because clear control over the cost being allocated cannot be determined.
(B) The primary reason to use a dual rate allocation system is to focus a manager's performance evaluation on factors under the manager's direct control.
4. The amount of resources used in an activity-based costing (ABC) system for a specific activity is computed by multiplying the:
5. Which of the following statements is false?
6. In general, the first budget prepared is the
7. Relative performance evaluations (RPE) are not designed to
8. Which of the following items would be classified as a batch-level cost in an activity-based cost management (ABM) system?
9. Which of the following activities is most likely to be classified as value-added for a manufacturing company?
10. The unused resource capacity is the difference between the resources supplied and the resources
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3-12 Following are transactions and events of the General Fund of the City of Springfield for the fiscal year ended December 30, 2012
ACCOUNTING
3-12 Following are transactions and events of the General Fund of the City of Springfield for the fiscal year ended December 30, 2012.
1. Estimated revenues (legally budgeted)
Property taxes $5,000,000
Sales taxes 4,000,000
Licenses and permits 1,500,000
Miscellaneous 500,000
2. Appropriations
General government 5,000,000
Culture and recreation 4,500,000
Health and welfare 1,000,000
3. Revenues received (cash)
Property taxes $4,783,541
Sales taxes 4,501,009
Licenses and permits 1,700,000
Miscellaneous 800,000
4. Encumbrances issued (includes salaries and other recurring items)
Estimated
General government 5,100,000
Culture and recreation 4,650,000
Health and welfare 905,000
5. Goods and services received (paid in cash)
Estimated Actual
General government 5,100,000 $5,035,450
Culture and recreation 4,650,000 4,610,000
Health and welfare 905,000 891,550
6. Budget revisions
Increase appropriations:
General government $100,000
Culture and recreation 150,000
7. Fund balance-Unrestricted on January 1 , 2012, was $735,000. There were no outstanding encumbrances at that date.
A. Record the transactions using the appropriate journal entries.
B. Prepare a budgetary comparison schedule for the General Fund.
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3-12 Following are transactions and events of the General Fund of the City of Springfield for the fiscal year ended December 30, 2012.
1. Estimated revenues (legally budgeted)
Property taxes $5,000,000
Sales taxes 4,000,000
Licenses and permits 1,500,000
Miscellaneous 500,000
2. Appropriations
General government 5,000,000
Culture and recreation 4,500,000
Health and welfare 1,000,000
3. Revenues received (cash)
Property taxes $4,783,541
Sales taxes 4,501,009
Licenses and permits 1,700,000
Miscellaneous 800,000
4. Encumbrances issued (includes salaries and other recurring items)
Estimated
General government 5,100,000
Culture and recreation 4,650,000
Health and welfare 905,000
5. Goods and services received (paid in cash)
Estimated Actual
General government 5,100,000 $5,035,450
Culture and recreation 4,650,000 4,610,000
Health and welfare 905,000 891,550
6. Budget revisions
Increase appropriations:
General government $100,000
Culture and recreation 150,000
7. Fund balance-Unrestricted on January 1 , 2012, was $735,000. There were no outstanding encumbrances at that date.
A. Record the transactions using the appropriate journal entries.
B. Prepare a budgetary comparison schedule for the General Fund.
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BE 5-1 On July 1, 2011, Apache Company sold a parcel of undeveloped land to a construction company for $3,000,000
ACCOUNTING
BE 5-1 On July 1, 2011, Apache Company sold a parcel of undeveloped land to a construction company for $3,000,000. The book value of the land on Apache's books was $1,200,000. Terms of the sale required a down payment of $150,000 and 19 annual payments of $150,000 plus interest at an appropriate interest rate due on each July 1 beginning in 2012. Apache has no significant obligations to perform services after the sale. How much gross profit will Apache recognize in both 2011 and 2012 applying the cost recovery method?
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BE 5-1 On July 1, 2011, Apache Company sold a parcel of undeveloped land to a construction company for $3,000,000. The book value of the land on Apache's books was $1,200,000. Terms of the sale required a down payment of $150,000 and 19 annual payments of $150,000 plus interest at an appropriate interest rate due on each July 1 beginning in 2012. Apache has no significant obligations to perform services after the sale. How much gross profit will Apache recognize in both 2011 and 2012 applying the cost recovery method?
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7-13 The City of Sweetwater maintains an Employees’ Retirement Fund, a single-employer, defined benefit plan that provides annuity and disability
ACCOUNTING
7-13 The City of Sweetwater maintains an Employees’ Retirement Fund, a single-employer, defined benefit plan that provides annuity and disability benefits. The fund is financed by actuarially determined contributions from the city’s General Fund and by contributions from employees. Administration of the retirement fund is handled by General Fund employees, and the retirement fund does not bear any administrative expenses. The Statement of Net Assets for the Employees’ Retirement Fund as of July 1, 2011, is shown here:
CITY OF SWEETWATER
Employees' Retirement Fund
Statement of Net Assets
As of July 1, 2011
Assets
Cash $ 50,000
Accrued interest receivable 135,000
Investments, at fair value:
Bonds 4,500,000
Common stocks 1,300,000
Total assets 5,985,000
Liabilities
Accounts payable and accrued expenses 350,000
Net assets held in trust for preparation for benefits $5,635,000
During the year ended June 30, 2012, the following transaction occurred:
The interest receivable on investments was collected in cash.
Member contributions in the amount of $400,000 were received in cash. The city’s General Fund also contributed $600,000 in cash.
Annuity benefits of $700,000 and disability benefits of $150,000 were recorded as liabilities.
Accounts payable and accrued expenses in the amount of $900,000 were paid in cash.
Interest income of $240,000 and dividends in the amount of $40,000 were received in cash. In addition, bond interest income of $140,000 was accrued at year-end.
Refunds of $130,000 were made in cash to terminated, nonvested participants.
Common stocks, carried at a fair value of $500,000, were sold for $480,000. That $480,000, plus an additional $300,000, was invested in stocks.
At year-end, it was determined that the fair value of stocks held by the pension plan had decreased by $50,000; the fair value of bonds had increased by $30,000.
Nominal accounts for the year were closed.
a.) Record the transactions on the books of the Employees’ Retirement Fund.
b.) Prepared a Statement of Changes in Net Assets for the Employees’ Retirement Fund for the Year Ended June 30, 2012.
c.) Prepare a Statement of Net Assets for the Employees’ Retirement Fund as of June 30, 2012.
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7-13 The City of Sweetwater maintains an Employees’ Retirement Fund, a single-employer, defined benefit plan that provides annuity and disability benefits. The fund is financed by actuarially determined contributions from the city’s General Fund and by contributions from employees. Administration of the retirement fund is handled by General Fund employees, and the retirement fund does not bear any administrative expenses. The Statement of Net Assets for the Employees’ Retirement Fund as of July 1, 2011, is shown here:
CITY OF SWEETWATER
Employees' Retirement Fund
Statement of Net Assets
As of July 1, 2011
Assets
Cash $ 50,000
Accrued interest receivable 135,000
Investments, at fair value:
Bonds 4,500,000
Common stocks 1,300,000
Total assets 5,985,000
Liabilities
Accounts payable and accrued expenses 350,000
Net assets held in trust for preparation for benefits $5,635,000
During the year ended June 30, 2012, the following transaction occurred:
The interest receivable on investments was collected in cash.
Member contributions in the amount of $400,000 were received in cash. The city’s General Fund also contributed $600,000 in cash.
Annuity benefits of $700,000 and disability benefits of $150,000 were recorded as liabilities.
Accounts payable and accrued expenses in the amount of $900,000 were paid in cash.
Interest income of $240,000 and dividends in the amount of $40,000 were received in cash. In addition, bond interest income of $140,000 was accrued at year-end.
Refunds of $130,000 were made in cash to terminated, nonvested participants.
Common stocks, carried at a fair value of $500,000, were sold for $480,000. That $480,000, plus an additional $300,000, was invested in stocks.
At year-end, it was determined that the fair value of stocks held by the pension plan had decreased by $50,000; the fair value of bonds had increased by $30,000.
Nominal accounts for the year were closed.
a.) Record the transactions on the books of the Employees’ Retirement Fund.
b.) Prepared a Statement of Changes in Net Assets for the Employees’ Retirement Fund for the Year Ended June 30, 2012.
c.) Prepare a Statement of Net Assets for the Employees’ Retirement Fund as of June 30, 2012.
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