Trico Company set the following standard unit costs for its single product.

The predetermined overhead rate is based on a planned operating volume of 80% of the productive capacity of 65,000 units per quarter. The following flexible budget information is available.

During the current quarter, the company operated at 90% of capacity and produced 58,500 units of product; actual direct labor totaled 465,000 hours. Units produced were assigned the following standard costs.

Actual costs incurred during the current quarter follow.

1.Compute the direct materials cost variance, including its price and quantity variances

2. Compute the direct labor cost variance, including its rate and efficiency variances.

3. Compute the overhead controllable and volume variances.

4. fixed overhead volume variance

Use the following information to answer question 1) A-F. Assume today is 12/27/2016. An assistant portfolio manager reviewed the prospectus of a General Electric Corporate (US) bond that will be issued on January 15 of 2017. The Offering Price is 104.50. The call schedule for this $200 million, 5.75% coupon 20-year issue specifies the following:

The Bonds will be redeemable at the option of the Company at any time in whole or in part, upon not fewer than 30 nor more than 60 days’ notice, at the following redemption prices (which are expressed in percentages of principal amount) in each case together with accrued interest to the date fixed for redemption:

If redeemed January 15,

Sinking Fund: The prospectus further specifies that:

The Company will provide for the retirement by redemption of $40 million of the principal amount of the Bonds each January 15th of the years 2032 to and including 2036 at the principal amount thereof (100%), together with accrued interest to the date of redemption.

Your comment on this statement:

Answer the following as of issue date: 1/15/2017.

1. What is the bond’s current yield?
2. What is the bond’s yield to maturity?
3. What is bond’s yield to first call?
4. What is bond’s yield to first sink?
5. What is yield to the 2031 call?

Pension accounting would be substantially easier if the components of pension expense were simply the five items, which account for most of the changes in the PBO and the market value of pension plan assets. Identify and discuss the five components of pension expense.

The Board of Directors has asked you to explain the method used to handle uncollectible Accounts Receivables. They know that you use the Allowance Method but are not familiar with the difference between the Direct Method versus the Allowance Method. Using the textbook as a source, explain each type of method and why ABC Company has selected the Allowance Method. Download the memo template provided below to respond. Keep in mind the intended audience of the memo.

References:

Crazy Computer Store sells a back-to-school bundle that consists of a laptop computer, printer, and tablet to a customer for $2,400. Crazy Computer also sells the products on a stand-alone basis for the following amounts: the laptop for $1,800, the printer for $350, and the tablet for $500. The customer receives a $250 discount for buying the three products as a bundle. Crazy Computer normally sells the laptop and printer as a package for a price of $1,900. The tablet is normally not discounted.

Required:

How should the transaction price be allocated among the products?

Woodmier Lawn Products introduced a new line of commercial sprinklers in 2017 that carry a one-year warranty against manufacturer’s defects. Because this was the first product for which the company offered a warranty, trade publications were consulted to determine the experience of others in the industry. Based on that experience, warranty costs were expected to approximate 3% of sales. Sales of the sprinklers in 2017 were $2,850,000. Accordingly, the following entries relating to the contingency for warranty costs were recorded during the first year of selling the product:

  
In late 2018, the company's claims experience was evaluated and it was determined that claims were far more than expected—4% of sales rather than 3%.

Required:
1. Assuming sales of the sprinklers in 2018 were $3,950,000 and warranty expenditures in 2018 totaled $98,500, prepare any journal entries related to the warranty.
2. Assuming sales of the sprinklers were discontinued after 2017, prepare any journal entries in 2018 related to the warranty.

Lemon Ltd. offers executive training seminars using, in part, recorded lectures of a well-known speaker. The agreement calls for Lemon to pay a royalty for the use of the lectures. The lecturer's agent offers Lemon two options. The first option is revenue-based and Lemon agrees to pay 25 percent of its revenues to the speaker. The second option is a flat rate of $358,800 annually for the use of the lectures in these seminars. The royalty agreement will run one year and the royalty option chosen cannot be changed during the agreement. All other royalty terms are the same.

Lemon charges $1,600 for the seminar and the variable costs for the seminar (excluding any royalty) is $400. Annual fixed costs (excluding any royalties) are $538,200.

Required:

a. What is the annual break-even level assuming:

1. 1. The revenue-based royalty agreement?
2. 2. The flat-rate royalty agreement?

b. At what annual volume would the operating profit be the same regardless of the royalty option chosen?

c. Assume an annual volume of 1,500 seminars. What is the operating leverage assuming:

1. 1. The revenue-based royalty agreement?
2. 2. The flat-rate royalty agreement?

d. Assume an annual volume of 1,500 seminars. What is the margin of safety assuming:

1. 1. The revenue-based royalty agreement?
2. 2. The flat-rate royalty agreement?

During 2018, WMC Corporation discovered that its ending inventories reported on its financial statements were misstated by the following amounts:

   
WMC uses the periodic inventory system and the FIFO cost method.

Required:
1-a. Determine the effect of 2016 errors on retained earnings at January 1, 2018, before any adjustments. (Ignore income taxes.)
1-b. Determine the effect of 2017 errors on retained earnings at January 1, 2018, before any adjustments. (Ignore income taxes.)
2. Prepare a journal entry to correct the error made in 2017.

Wardell Company purchased a mini computer on January 1, 2016, at a cost of $45,100. The computer has been depreciated using the straight-line method over an estimated five-year useful life with an estimated residual value of $4,600. On January 1, 2018, the estimate of useful life was changed to a total of 10 years, and the estimate of residual value was changed to $900.

Required:
1. Prepare the appropriate adjusting entry for depreciation in 2018 to reflect the revised estimate.
2. Prepare the appropriate adjusting entry for depreciation in 2018 to reflect the revised estimate. Assuming that the company uses the sum-of-the-years'-digits method instead of the straight-line method.

Berry Company is an architectural firm located in Toronto, Ontario. The company works with small and medium-size construction businesses to prepare building plans according to client contract. Berry employs 10 professionals and 5 staff. The following data are provided for last year:

Number of designs completed and sold                      700

Beginning inventory of direct materials                $20,000

Beginning inventory of designs in process          $60,000

Ending inventory of direct materials                                 $0

Ending inventory of designs in process                $100,000

Purchases, direct materials                                    $40,000

Direct labour                                                             $800,000

Manufacturing overhead                                         $100,000

Administrative expense                                           $150,000

Selling expense                                                        $60,000

Required:

1. Calculate the cost of services sold.

2. Assume that the average fee for a design is $2,100 Prepare an income statement for Berry Company.

3. Refer to the cost of services sold (calculated in Requirement 1). What is the dominant cost Will this always be true of service organizations? If not, provide an example of an exception

4. Why does Berry Company show zero inventory of finished plans? What change(s) in the company could result in a positive finished goods inventory?

Please answer all questions

Select the best answer for each of the following unrelated items.

1. Why have several research studies failed to find strong evidence of the usefulness of the information content of reserve recognition accounting (RRA)?
   1. The relevance of RRA information is low.
   2. The reliability of RRA information is low.
   3. RRA is supplementary information.
   4. RRA uses a 10% discount factor for all oil and gas firms.

2. Which of the following statements best describes the characteristics of the measurement and the information approaches to financial reporting?
   1. The measurement approach uses RRA to recognize assets and liabilities in the statement of financial position.
   2. The information approach has always had a measurement component.
   3. The information approach uses value in use to recognize the year-end values of assets in statements of financial position.
   4. IFRS does not permit assets to be re-valued when a firm uses the measurement approach.

3. Which of the following situations best characterizes the owner-manager agency problem in a firm?
   1. The owner cannot observe the manager’s effort
   2. The availability of managerial talent is scarce in the economy
   3. Managers do not have control over owners’ sales of firm shares to other parties
   4. Managers are often compensated by a combination of salary, bonus, and stock options

4. When regulation does not indicate the nature of disclosure, which of the following statements is correct?

1. Accountants need to behave ethically and encourage firms to produce high-quality information.
2. Accountants need not take an active role in encouraging full disclosure because regulation does not prescribe how to report.
3. Full disclosure will lead to lowering of share prices.
4. Voluntary disclosures will eliminate efficient market anomalies.

6. Why is it important for firms to disclose low-persistence accounting items?
   1. Because investors are interested in the extent to which current reported earnings will persist into the future.
   2. Because managerial bonuses are typically based on low-persistence components of net income.
   3. Because low-persistence items reverse.
   4. Because low-persistence items are valued by investors.

7. Which of the following actions of the manager of a borrowing firm might cause a moral hazard problem between the manager and the lender?
   1. The manager pays excessive dividends to the shareholders.
   2. The manager undertakes low-risk projects.
   3. The manager pays off the loan prior to the maturity date.
   4. The manager decides to smooth its net income over time.

8. One of the problems that might cause market failure in the production of financial accounting information is said to be lack of unanimity. Which of the following statements best characterizes the notion of lack of unanimity that might lead to market failures?
   1. Investors disagree amongst themselves about how much information should be produced.
   2. Managers disagree amongst themselves about how much information should be produced.
   3. Managers and auditors disagree about how much information should be produced.
   4. Investors and managers disagree about how much information should be produced.

1. Managerial compensation is often based on the net income of a firm (or bonus) as well as share prices of the firm (or employee stock options, ESOs). Which of the following statements about the efficiency of the resulting managerial compensation plan is correct?
   1. The higher the correlation between net income and share prices, the more efficient the management compensation contract.
   2. When management compensation consists of only a bonus or only ESOs, this leads to an efficient management compensation contract.
   3. The lower the correlation between net income and share prices, the more efficient the management compensation contract.
   4. Using a fixed salary and a bonus to compensate managers results in a more efficient management compensation contract than having a bonus and employee stock options in the contract.

10. Which of the following statements provides the best description of agency cost in a situation where an owner of a firm has entered into an employment contract with the manager of the firm?
    1. The agency cost of a contract is the manager’s total annual compensation as a percentage of the market value of assets plus the book value of debt.
    2. Agency cost is the amount by which the owner’s utility from the contract is less than the owner’s utility for the first-best contract.
    3. The agency cost of a contract is the proportion of the manager’s total compensation as a percentage of the firm’s revenues.
    4. The agency cost of a contract equals the manager’s reservation utility.

Haas Company manufactures and sells one product. The following information pertains to each of the company’s first three years of operations:

During its first year of operations, Haas produced 60,000 units and sold 60,000 units. During its second year of operations, it produced 75,000 units and sold 50,000 units. In its third year, Haas produced 40,000 units and sold 65,000 units. The selling price of the company’s product is $61 per unit.

1. Compute the company’s break-even point in unit sales.

2. Assume the company uses variable costing:

a. Compute the unit product cost for Year 1, Year 2, and Year 3.

b. Prepare an income statement for Year 1, Year 2, and Year 3.

3. Assume the company uses absorption costing:

a. Compute the unit product cost for Year 1, Year 2, and Year 3.

b. Prepare an income statement for Year 1, Year 2, and Year 3.

List 5 ways companies increase their income that is not per GAAP and may be construed as fraudulent.

Implementation of Activity-based costing (ABC) The case of a Juice Company John Orland, controller of the Juice Company, has been concerned over the erosion of the recent financial results especially for the standard flavors (A and B) which used to earn a hefty 20 per cent of profit margin.

Recently, Dan Brun, the sales manager has expanded the lines of products to encompass new flavors (B & C) which were in high demand by customers who were willing to pay 5 to 10 % premium.

Richard Dunn, the manufacturing manager, was also excited to introduce the new flavors since they were expected to generate higher margins while using the same technology as standard flavors. However, he noticed that the introduction of new flavors added some technical complexities to the production process. For instance, unlike Flavors A & B, which were produced in huge volume and in long production runs, difficulties started to arise with the new flavors which were produced in smaller batches but required more changeovers and more production runs (see Exhibit 3).

The Juice Company produced the different flavors in the same factory. Each flavor had a bill of materials that determines the quantity and cost of direct materials used for the production of each flavor. Additionally, a cost sheet was used to track the direct labor expenses incurred at each operating step for each of the four flavors. All overhead costs were grouped at the plant level and allocated to each flavor on the basis of direct labor cost. The rate was set at 400 % of direct labor costs (see Exhibit 2).

John was intrigued by the behavior of their main competitors who were more interested in competing in, what appears according to the company’s current costing system, to be low profit margin flavors (A and B) than in high profit margins (Flavors C &D). Such behavior has led the controller to question the accuracy of that costing system and to conclude that the current method of allocation of indirect costs is distorting their product costs thereby causing inappropriate pricing.

To remedy the distortions caused by the traditional method of costing based on one single cost pool of indirect costs, John decided to implement Activity-based costing (ABC) method which focuses on the activities, how they are performed, and the resources they consumed and to assign activities costs to products based on how much demand each of these products puts on these activities. After careful analysis of the company’s operations, the controller identified four main activities: process production run, set up equipment, manage products, and run machines. The demand on these activities by different flavors is illustrated in Exhibit 3.

He began by identifying the resources that were being consumed by activities. These resources were grouped in six categories as shown in Exhibit 1. 2

After interviewing the department heads in charge of support staff wages and benefits and insurance, he found out that their services are used by three activities: process production run (40%), set up (40%), and the remaining 20 % consumed to manage products.

Next, the controller tackled the information system item and determines, after interview with the head of the information system department, that process production runs accounts for 30 % of their services while 70 % are used to manage products.

The results of his investigations about the usage of the equipment revealed that it was entirely used to run machines. Maintenance services were shared equally between the production run activity and run machine activity. Finally, utility was shared equally by the four activities.

Questions

1. Describe the problem the company is facing

. Calculate the costs for the four favors using ABC

3. Explain why, in this case, the ABC costs are different from those calculated under the traditional method based one single cost pool of indirect costs and provide examples from the case that support your analysis.

4. What would you do as a manager?

Exhibit 1

Exhibit 1 Resources Used Costs of Resources

Support staff wages $ 30,000

Benefits and insurances 12,000

Information Systems 10,000

Equipment 7,000

Maintenance 4,000

Utilities 3,000

Total $ 66,000

Exhibit 2:

Traditional Income Statement

Flavor A Flavor B Flavor C Flavor D Total

Sales $ 86,000.00 $ 52,000 $ 16,000 $ 3,600 $157,600.00

Direct Material costs 28000 20000 5500 400 53900

Direct labor costs 9500 5000 1500 500 16500

Overhead costs at 400%

of Direct labor costs 38000 20000 6000 2000 66000

Operating Income $10,500.00 $7,000.00 $ 3,000.00 $ 700.00 $ 21,200.00

Profit margin 12% 13% 19% 19% 13%

Exibit 3: direct costs and and activity cost drivers

Flavor A Flavor B Flavor C Flavor D Total

Sales in units 60,000 50,000 10,000 2,000 122,000

Sales in Dlollars $ 86,000.00 $ 52,000 $ 16,000 $ 3,600 $ 157,600.00

Unit selling price $ 1.43 $ 1.04 $ 1.60 $ 1.80

Machine hours per unit 0.1    0.1 0.1 0.1 12200

Production runs 50 50 38 12 150

Set up times ( hours) 150 120 200 100 570

Manage products 1 1 1 1 4