Pittman Company is a small but growing manufacturer of telecommunications equipment. The company has no sales force of its own; rather, it relies completely on independent sales agents to market its products. These agents are paid a sales commission of 15% for all items sold.

Barbara Cheney, Pittman’s controller, has just prepared the company’s budgeted income statement for next year as follows:

*Primarily depreciation on storage facilities.

As Barbara handed the statement to Karl Vecci, Pittman’s president, she commented, “I went ahead and used the agents’ 15% commission rate in completing these statements, but we’ve just learned that they refuse to handle our products next year unless we increase the commission rate to 20%.”

“That’s the last straw,” Karl replied angrily. “Those agents have been demanding more and more, and this time they’ve gone too far. How can they possibly defend a 20% commission rate?”

“They claim that after paying for advertising, travel, and the other costs of promotion, there’s nothing left over for profit,” replied Barbara.

“I say it’s just plain robbery,” retorted Karl. “And I also say it’s time we dumped those guys and got our own sales force. Can you get your people to work up some cost figures for us to look at?”

“We’ve already worked them up,” said Barbara. “Several companies we know about pay a 7.5% commission to their own salespeople, along with a small salary. Of course, we would have to handle all promotion costs, too. We figure our fixed expenses would increase by $2,625,000 per year, but that would be more than offset by the $3,500,000 (20% × $17,500,000) that we would avoid on agents’ commissions.”

The breakdown of the $2,625,000 cost follows:

“Super,” replied Karl. “And I noticed that the $2,625,000 equals what we’re paying the agents under the old 15% commission rate.”

“It’s even better than that,” explained Barbara. “We can actually save $80,500 a year because that’s what we’re paying our auditors to check out the agents’ reports. So our overall administrative expenses would be less.”

“Pull all of these numbers together and we’ll show them to the executive committee tomorrow,” said Karl. “With the approval of the committee, we can move on the matter immediately.”

Required:

1. Compute Pittman Company’s break-even point in dollar sales for next year assuming:

a. The agents’ commission rate remains unchanged at 15%.

b. The agents’ commission rate is increased to 20%.

c. The company employs its own sales force.

2. Assume that Pittman Company decides to continue selling through agents and pays the 20% commission rate. Determine the dollar sales that would be required to generate the same net income as contained in the budgeted income statement for next year.

3. Determine the dollar sales at which net income would be equal regardless of whether Pittman Company sells through agents (at a 20% commission rate) or employs its own sales force.

4. Compute the degree of operating leverage that the company would expect to have at the end of next year assuming:

a. The agents’ commission rate remains unchanged at 15%.

b. The agents’ commission rate is increased to 20%.

c. The company employs its own sales force.

Use income before income taxes in your operating leverage computation.

Textron Manufacturing Inc. assembles industrial testing instruments in two departments, assembly and testing. Operating data for the current and prior year follow:

The firm assembled and tested 30,000 instruments in both years.

Required:

1. Calculate the direct labor rate and efficiency variances for both departments in both years.

2. Calculate the direct labor partial operational productivity ratio for both departments in both years. (Round your answers to 4 decimal places.)

3. Calculate the partial financial productivity ratio for both departments in both years. (Round your answers to 4 decimal places.)

Kay Company receives a cash payment of $4,000 on November 12 for services it will perform in December. Assume that December 31 is Kay Company’s fiscal year end. What adjusting journal entry should Kay record at December 31 related to the payment received in November?

Question 3 options:

Question 4 (1 point)

The employees of Kay Company work during the last week of the December and earn $5,000 of wages. Kay Company’s regular payroll cycle will pay the paychecks for the December work in January. According to the expense recognition principle (accrual accounting), when will Kay Company recognize the expense from the employees’ labor?

Question 4 options:

Seth Erkenbeck, a recent college graduate, has just completed the basic format to be used in preparing the statement of cash flows (indirect method) for ATM Software Developers. All amounts are in thousands (000s).

Listed below in random order are line items to be included in the statement of cash flows.

Required:

Prepare the statement of cash flows for ATM Software Developers using the indirect method. (List cash outflows and any decrease in cash as negative amounts. Enter your answers in thousands (i.e., 10,000,000 should be entered as 10,000).)

On January 1 of the current year, Townsend Co. commenced operations. It operated its plant at 100% of capacity during January. The following data summarized the results for January:

a. Prepare an income statement using absorption costing.

b. Prepare an income statement using variable costing.

P10–10 NPV: Mutually exclusive projects Hook Industries is considering the replacement of
one of its old drill presses. Three alternative replacement presses are under consideration.
The relevant cash flows associated with each are shown in the following table.
The firm’s cost of capital is 15%.
LG 3
LG 2 LG 3
LG 3
Press A Press B Press C
Initial investment (CF0) $85,000 $60,000 $130,000
Year (t) Cash inflows (CFt)
1 $18,000 $12,000 $50,000
2 18,000 14,000 30,000
3 18,000 16,000 20,000
4 18,000 18,000 20,000
5 18,000 20,000 20,000
6 18,000 25,000 30,000
7 18,000 — 40,000
8 18,000 — 50,000
a. Calculate the net present value (NPV) of each press.
b. Using NPV, evaluate the acceptability of each press.
c. Rank the presses from best to worst using NPV.
d. Calculate the profitability index (PI) for each press.
e. Rank the presses from best to worst using PI.

what is meant by a taxpayer's "preservation age" and why is this concept important?

Man's Clothing is a manufacturer of designer suits. For June 2016, each suit is budgeted to take 3 ​labor-hours. The budgeted number of suits to be manufactured in June 2016 is 1,160. Man's Clothing allocates fixed manufacturing overhead to each suit using budgeted direct manufacturing​ labor-hours per suit. Data pertaining to fixed manufacturing overhead costs for June 2016 are​ budgeted, $52,200​, and​ actual, $63,870. In June 2016 there were 1,200 suits started and completed. There were no beginning or ending inventories of suits.

Requirements

1. Compute the spending variance for fixed manufacturing overhead. Comment on the results.

2. Compute the​ production-volume variance for June 201. What inferences can the clothing company draw from this​ variance?

Sales, Production, Direct Materials Purchases, and Direct Labor Cost Budgets

The budget director of Gourmet Grill Company requests estimates of sales, production, and other operating data from the various administrative units every month. Selected information concerning sales and production for July is summarized as follows:

a. Estimated sales for July by sales territory:

b. Estimated inventories at July 1:

c. Desired inventories at July 31:

d. Direct materials used in production:

e. Anticipated purchase price for direct materials:

f. Direct labor requirements:

Required:

1. Prepare a sales budget for July.

2. Prepare a production budget for July. For those boxes in which you must enter subtracted or negative numbers use a minus sign.

3. Prepare a direct materials purchases budget for July. For those boxes in which you must enter subtracted or negative numbers use a minus sign.

4. Prepare a direct labor cost budget for July.

Feedback

Remember to take into account expected units to be sold, desired units in ending inventory and estimated units in beginning inventory when calculating total units to be produced.

Once sales quantities are estimated, the expected sales revenue can be determined.

Remember to take into account materials required for production, desired ending materials inventory and estimated beginning materials inventory when calculating direct materials to be purchased.

Learning Objective 4.

Thunder Creek Company is preparing budgets for the first quarter of 2018.

#1 Create a sales budget.

Thunder Creek Company expects sales of 18,000 units in January 2018, 24,000 units in February, 30,000 units in March, 34,000 in April, and 36,000 in May. The sales price is $48 per unit.

#2 Create a production budget.

Thunder Creek wants to finish each month with 20% of next month's sales in units.

#3 Create a Direct Materials Budget

Thunder Creek Company uses 2 pounds of direct materials for each unit it produces, at a cost of $4.00 per pound. The company begins the year with 9,500 pounds of material in Raw Materials Inventory. Management desires an ending inventory of 25% of next month's materials requirements

Cambi Company began operations on January 1, 2016. In the second quarter of 2017, it adopted the FIFO method of inventory valuation. In the past, it used the LIFO method. The company’s interim income statements as originally reported under the LIFO method follow:

If the FIFO method had been used since the company began operations, cost of goods sold in each of the previous quarters would have been as follows:

Sales for the second quarter of 2017 are $34,000, cost of goods sold under the FIFO method is $10,400, and operating expenses are $4,800. The effective tax rate remains 40 percent. Cambi Company has 1,000 shares of common stock outstanding.

Prepare a schedule showing the calculation of net income and earnings per share that Cambi reports for the three-month period and the six-month period ended June 30, 2017. (Round "Earnings per share" answers to 2 decimal places.)

H&H is a tannery that supplies high quality exotic leather to major international fashion houses and customers globally. Tanning is the process of treating skins and hides of animals to produce leather. The three major steps in the production of leather are curing, beamhouse operations and tanning. Due to the increased demand and limited production space, H&H sourced pre-tanned leather (the supplier has already completed the curing and beamhouse operations processes), and raw and untreated skin (another separate supplier). The company has a production area of 7500 sq m.

The weekly demand for tanned leather is at least 22,000 sq ft. There is a supplier who provides H&H pre-tanned leather at three different grade: Grade A, B, and C. After purchasing the pre-tanned leather, H&H will then perform the last step in tanning the leather before shipping it to clients. H&H has a small section within the production facility that could perform curing and beamhouse operations on raw and untreated skin, up to 12,000 sq ft per week. It costs $15 per sq ft for H&H to perform the pre-tanned process while it could purchase up to 10,000 sq ft of grade A pre-tanned leather, 14,000 sq ft of grade B pre-tanned leather, 18,000 sq ft of grade C pre-tanned leather per week at $60 per sq ft, $53 per sq ft, and $46 per sq ft, respectively. It costs H&H $34 per sq ft to purchase raw and untreated skin.

The tanning process will result in shrinkage and the final yield depends on several factors such as the raw skin quality and pre-tanned process quality. 1 sq ft of Grade A pre-tanned leather will result in 0.95 sq ft of finished leather, while 1 sq ft of Grade B pre-tanned leather will result in 0.80 sq ft of finished leather and 1 sq ft of Grade C pre-tanned leather will result in 0.70 sq ft of finished leather. H&H in-house produced pre-tanned leather generally results in a yield of 0.75 sq ft of finished leather for every 1 sq ft of pre-tanned leather. The tanning equipment has the equivalent of 1200 production hours per week. For the tanning process, every sq ft of Grade A, B and C pre-tanned leather would require 1 minute, 2 minutes and 4 minutes, respectively. The in-house produced pre-tanned leather would require 5 minutes per sq ft for the tanning process.

(a) You are just hired as a purchasing officer at H&H. Develop an LP model to minimise the cost of leather purchasing, solve it with Microsoft Excel and make your recommendations, and show the Sensitivity Report. State assumptions you made in formulation if there are any.   

Answer the following questions by using the Microsoft Excel solution output you obtained for Question 1(a) and do not re-run your LP model in Excel for the following scenarios.   

(b) During the presentation to showcase your recommendation, a colleague raised a query on why the cost of running the tanning machines is not being taken into consideration? The management proposed that you re-run your analysis again noting the cost of running the tanning machines. What is your response to this demand?

(c) Your manager asked you if it makes sense to increase the capacity of the in-house capability in curing and beamhouse operations which currently stands at 12,000 sq ft per week. Interpret the solution output and develop your advice.

How double entry bookkeeping differs from earlier bookkeeping methods? (No copy paste please/300-400 words/also quote references)

LIFO Perpetual Inventory

The beginning inventory at Dunne Co. and data on purchases and sales for a three-month period are as follows:

Required:

1. Record the inventory, purchases, and cost of goods sold data in a perpetual inventory record similar to the one illustrated in Exhibit 3, using the last-in, first-out method. Under LIFO, if units are in inventory at two different costs, enter the units with the HIGHER unit cost first in the Cost of Goods Sold Unit Cost column and LOWER unit cost first in the Inventory Unit Cost column.

2. Determine the total sales, the total cost of goods sold, and the gross profit from sales for the period.

3. Determine the ending inventory cost as of June 30.
$

Wolsey Industries Inc. expects to maintain the same inventories at the end of 20Y3 as at the beginning of the year. The total of all production costs for the year is therefore assumed to be equal to the cost of goods sold. With this in mind, the various department heads were asked to submit estimates of the costs for their departments during the year. A summary report of these estimates is as follows: 1 Estimated Fixed Cost Estimated Variable Cost (per unit sold) 2 Production costs: 3 Direct materials — $66.00 4 Direct labor — 32.00 5 Factory overhead $190,000.00 20.00 6 Selling expenses: 7 Sales salaries and commissions 102,000.00 6.00 8 Advertising 37,000.00 — 9 Travel 10,000.00 — 10 Miscellaneous selling expense 7,800.00 1.00 11 Administrative expenses: 12 Office and officers’ salaries 138,400.00 — 13 Supplies 12,000.00 2.00 14 Miscellaneous administrative expense 14,000.00 1.00 15 Total $511,200.00 $128.00 It is expected that 21,300 units will be sold at a price of $160 a unit. Maximum sales within the relevant range are 25,900 units. Required: 1. Prepare an estimated income statement for 20Y3. Refer to the Labels and Amount Descriptions list provided for the exact wording of the answer choices for text entries. Enter all amounts as positive values. 2. What is the expected contribution margin ratio? 3. Determine the break-even sales in units and dollars. Round your answers to the nearest whole number. 4. Construct a cost-volume-profit chart on your own paper. What is the break-even sales? 5. What is the expected margin of safety in dollars and as a percentage of sales? Round your answers to the nearest whole number. 6. Determine the operating leverage. Round to one decimal place.