Cost—Volume—Profit Equation, Basic Concepts, Solving for Unknowns (LO 1,2,3 and 5)

Goldilocks Company produces high-end combination shampoos and conditioners in individual-use bottles for hotels. Each bottle sells for $0.90.

The variable costs for each bottle (materials, labour, and overhead) total $0.63. The total fixed costs are $210,600. During the most recent year 830,000 bottles were sold.

Required:

1. What is the BEP in units for Goldilocks? What is the margin of safety in units for the recent year?

2. Prepare an income statement for Goldilocks's most recent year.

3. How many units must be sold for Goldilocks to earn a profit of $40,500?

4. Using the contribution margin percentage approach, what is the level of sales dollars needed for Goldilocks to earn operating income of 20 percent of sales?

Good Slings Inc. manufactures several wood and string instruments at its factory in Thunder Bay. In particular, it is well-known for its production of classic guitars. Assume that Good Slings uses a periodic inventory system and a physical count of inventory takes place at year end. The company accumulated the following costs and account balances for the year ended December 31, 2010 with respect to direct materials:

Balance of materials on January 1, 2010	$197,000
Balance of materials on December 31, 2010	$170,000
Materials purchases during 2010	$744,000

In addition, the following table shows Good Slings’ remaining costs for the year:

Indirect materials	$60,000
Direct labor	$287,000
Indirect labor	$158,000
Utilities, factory	$73,000
Utilities, office	$27,000
Insurance, factory	$17,000
Advertising	$21,000

Do not enter dollar signs or commas in the input boxes.

a) Calculate the cost of direct materials used in production for the year.

Materials used in production: $Answer
b) What is the total manufacturing overhead cost for the year?

Manufacturing Overhead: $Answer
c) Calculate total manufacturing costs.

Total Manufacturing Costs: $Answer
d) If there is no beginning work in process inventory and ending work in process inventory is $54,000, what is the cost of goods manufactured?

Cost of Goods Manufactured: $Answer

Write the calculation process, please

KU   Company   Private Limited uses a job-order costing system and a predetermined overhead rate based on machine hours.

At the beginning of the year, the company estimated manufacturing overhead for the year would be $250,000 and 10,000 machine hours would be used.

The following information pertains to the month of April of the current year:

Work-in-process, April 1:	Job #180	Job #181	Job #182
Prime cost	$17,500	$25,500	$24,000
Applied overheads	$ 2,500	$ 3,000	$ 7,500
April production activity:
Direct material requisitioned	$ 4,000	$ 4,800	$ 6,000
Direct labour costs	$ 3,200	$ 4,200	$ 2,800
Ma chine hours used	300	500	800

Actual manufacturing overhead costs for the month of April were $38,600. Job #180 and #182 were completed in April.

1. Prime costs for Job # 180 amounted to: A.       $21,500

B.         $24,000

C.         $24,700

D.         $27,200

E.         $28,058

F.         $34,700

2. Conversion costs for Job # 182 in the month of April amounted to : A.       $ 5,888

B.        $ 8,800

C.        $11,888

D.        $22,800

E.        $28,800

F.         None of the above

3. The amount of underapplied or overapplied overhead for the month of April was:

1. $0

B.        $11,600

C.        $38,600

D.        $40,000

E.        $210,000

F.         None of the above

Q2. MA Company uses a job cost system in costing its jobs. In addition to the two dire ct cost c ategories (dire ct material s and dire ct labor), the company applies manufacturing overhead costs on the basi s of dire ct labor hours worke d. For the month   of October, 2007,   the following information was extra cted from   its a ccounting records:

1. Beginning inventory (1.10.2007) – direct materials: $50,000
2. Beginning inventory, Work-in-process (WIP) – Job # 123: $80,000 c. Beginning inventory, Work-in-process (WIP) – Job # 125: $125,000

4. Beginning inventory, Work-in-process (WIP) – Job # 128: $68,000
5. Total direct materials issued to the various jobs during October were as followed:

i. Job #123: $ 50,000

ii. Job #125: $ 30,000 iii. Job #128: $125,000 iv. Job #129: $ 55,000 v. Job #130: $ 30,000 TOTAL $290,000

6. Total direct labor costs for the month amounted to $52,000, all production

workers were paid the same rate, the dire ct labor hours (DLH) worke d for ea ch job during the month were as follows:

1. Job #123:   400 DLH
2. Job #125:   600 DLH
3. Job #128: 1,000 DLH
4. Job #129:   400 DLH v. Job #130: 200 DLH TOTAL 2,600 DLH

7. Manufacturing overhead is alloc ated using a predetermined overhead rate (POHR). POHR is currently $12 per DLH.
8. Closing inventory – direct materials: $60,000
1. Job #129 and Job #130 remained unfinished on 31.10.2007.
10. Total Actual Manufacturing Overhead amounted to $30,200.

1. For the month of October, manufa cturing overhead was:

1. $ 800 overapplied
2. $ 800 underapplied
3. $1,200 overapplied
4. $1,200 underapplied
5. None of the above

2. Cost of goods manufa ctured for Job #128 was:

A.        $157,000

B.        $213,000

C.        $225,000

D.        $233,000

E.        None of the above

3. The dollar amount for the clos ing inventory, WIP of Job #130 was:

A.        $30,000

B.        $34,500

C.        $36,500

D.        $40,500

E.        None of the above

4. Material purchased duri ng October amounted to: A. $290,000

B.        $300,000

C.        $310,000

D.        $320,000

E.        None of the above

Selected transactions completed by Equinox Products Inc. during the fiscal year ended December 31, 2016, were as follows:

Record on journal page 10:

Jan. 3: Issued 15,000 shares of $20 par common stock at $30, receiving cash.

Feb. 15:Issued 4,000 shares of $80 par preferred 5% stock at $100, receiving cash.

May 1: Issued $500,000 of 10-year, 5% bonds at 104, with interest payable semiannually.

May 16: Declared a dividend of $0.50 per share on common stock and $1.00 per share on preferred stock. On the date of record, 100,000 shares of common stock were outstanding, no treasury shares were held, and 20,000 shares of preferred stock were outstanding. Journalize this transaction as a single entry.

May 26: Paid the cash dividends declared on May 16.

Jun. 1: Purchased 7,500 shares of Solstice Corp. at $40 per share, plus a $150 brokerage commission. The investment is classified as an available-for-sale investment.

June 8: Purchased 8,000 shares of treasury common stock at $33 per share.

June 22: Purchased 40,000 shares of Pinkberry Co. stock directly from the founders for $24 per share. Pinkberry has 125,000 shares issued and outstanding. Equinox Products Inc. treated the investment as an equity method investment.

June 30: Declared a $1.00 cash dividend per share on preferred stock. On the date of record, 20,000 shares of preferred stock were outstanding.

July 11: Paid the cash dividends declared on Jun. 30 to the preferred stockholders.

Aug. 27: Received $27,500 dividend from Pinkberry Co. investment of Jun. 22.

Then Record on journal page 11 the following:

Oct. 1: Purchased $90,000 of Dream Inc. 10-year, 5% bonds, directly from the issuing company, at their face amount plus accrued interest of $375. The bonds are classified as a held-to-maturity long-term investment.

Oct 7: Sold, at $38 per share, 2,600 shares of treasury common stock purchased on Jun. 8.

Oct 14: Received a dividend of $0.60 per share from the Solstice Corp. investment on Jun. 1.

Oct 29: Sold 1,000 shares of Solstice Corp. at $45, including commission.

Oct 31: Recorded the payment of semiannual interest on the bonds issued on May 1 and the amortization of the premium for six months. The amortization is determined using the straight-line method.

Dec. 31: Accrued interest for three months on the Dream Inc. bonds purchased on Oct. 1.

Dec 31: Pinkberry Co. recorded total earnings of $240,000. Equinox Products recorded equity earnings for its share of Pinkberry Co. net income.

Dec 31: The fair value for Solstice Corp. stock was $39.02 per share on December 31, 2016. The investment is adjusted to fair value, using a valuation allowance account. Assume Valuation Allowance for Available-for-Sale Investments had a beginning balance of zero.

Required: 1. Journalize the selected transactions. Refer to the Chart of Accounts for exact wording of account titles.

CHART OF ACCOUNTS- Equinox Products Inc.- General Ledger

ASSETS- 110 Cash 121 Accounts Receivable,122 Allowance for Doubtful Accounts ,131 Merchandise Inventory ,132 Interest Receivable, 133 Prepaid Expenses ,141 Investments-Solstice Corp., 142 Investment in Pinkberry Co. ,143 Investments-Dream Inc. Bonds ,144 Valuation Allowance for Available-for-Sale Investments ,181 Store Buildings and Equipment, 182 Accumulated Depreciation-Store Buildings and Equipment ,183 Office Buildings and Equipment ,184 Accumulated Depreciation-Office Buildings and Equipment ,191 Goodwill

LIABILITIES- 211 Accounts Payable, 221 Income Tax Payable, 225 Cash Dividends Payable ,251 Bonds Payable ,252 Discount on Bonds Payable, 253 Premium on Bonds Payable

EQUITY- 311 Preferred Stock, 312 Paid-in Capital in Excess of Par-Preferred Stock ,321 Common Stock, 322 Paid-in Capital in Excess of Par-Common Stock, 331 Retained Earnings ,341 Cash Dividends, 351 Treasury Stock ,352 Paid-in Capital from Sale of Treasury Stock ,361 Unrealized Gain (Loss) on Available-for-Sale Investments

REVENUE- 410 Sales, 611 Dividend Revenue, 621 Interest Revenue, 631 Income of Pinkberry Co. ,641 Gain on Sale of Investments

EXPENSES -511 Cost of Merchandise Sold ,512 Bad Debt Expense ,520 Sales Salaries Expense ,521 Sales Commissions, 522 Office Salaries Expense ,531 Advertising Expense ,532 Delivery Expense ,537 Store Supplies Expense ,538 Office Supplies Expense, 539 Office Rent Expense, 541 Income Tax Expense, 551 Depreciation Expense-Store Equipment ,552 Depreciation Expense-Office Equipment, 591 Miscellaneous Selling Expense ,592 Miscellaneous Administrative Expense ,710 Interest Expense, 731 Loss on Sale of Investments

For each of the statements below, indicate whether the statement is True or False AND provide one or two explanatory sentences to support your answer.

a. In New Zealand, the Capital Asset Pricing Model (CAPM) that is used to compute the cost of equity capital adjusts the risk free rate for the average investor tax rate but this adjustment is not made for the risk free rate component in the post-tax market risk premium.

b. Reinvestments in the firm’s net operating assets are deducted from NOPAT to arrive at free cash flows to the firm to maintain the firm’s operating capability and to grow the firm.

c. To ensure the free cash flows in the perpetuity (terminal) period grow at a constant terminal growth rate g, the relationships between components in the income statement and balance sheet must be the same in the last year of the horizon period and first year of the perpetuity (terminal) period.

d. When using the market multiples approach to value the target’s firm/enterprise value, we would use multiples based on comparable companies’ net profit after tax and book value of equity and apply these multiples to the target firm’s net operating profit after tax and net operating assets.

Problem 8-29 Completing a Master Budget [LO8-2, LO8-4, LO8-7, LO8-8, LO8-9, LO8-10]

The following data relate to the operations of Shilow Company, a wholesale distributor of consumer goods:

Current assets as of March 31:
Cash	$	7,200
Accounts receivable	$	18,800
Inventory	$	37,800
Building and equipment, net	$	123,600
Accounts payable	$	22,425
Common stock	$	150,000
Retained earnings	$	14,975

1. The gross margin is 25% of sales.

2. Actual and budgeted sales data:

March (actual)	$	47,000
April	$	63,000
May	$	68,000
June	$	93,000
July	$	44,000

3. Sales are 60% for cash and 40% on credit. Credit sales are collected in the month following sale. The accounts receivable at March 31 are a result of March credit sales.

4. Each month’s ending inventory should equal 80% of the following month’s budgeted cost of goods sold.

5. One-half of a month’s inventory purchases is paid for in the month of purchase; the other half is paid for in the following month. The accounts payable at March 31 are the result of March purchases of inventory.

6. Monthly expenses are as follows: commissions, 12% of sales; rent, $2,000 per month; other expenses (excluding depreciation), 6% of sales. Assume that these expenses are paid monthly. Depreciation is $927 per month (includes depreciation on new assets).

7. Equipment costing $1,200 will be purchased for cash in April.

8. Management would like to maintain a minimum cash balance of at least $4,000 at the end of each month. The company has an agreement with a local bank that allows the company to borrow in increments of $1,000 at the beginning of each month, up to a total loan balance of $20,000. The interest rate on these loans is 1% per month and for simplicity we will assume that interest is not compounded. The company would, as far as it is able, repay the loan plus accumulated interest at the end of the quarter.

Required:

Using the preceding data:

2. Complete the merchandise purchases budget and the schedule of expected cash disbursements for merchandise purchases.

3. Complete the cash budget.

4. Prepare an absorption costing income statement for the quarter ended June 30.

5. Prepare a balance sheet as of June 30.

Complete the merchandise purchases budget and the schedule of expected cash disbursements for merchandise purchases.

Merchandise Purchases Budget April May June Quarter Budgeted cost of goods sold $47,250 $51,000 Add desired ending merchandise inventory 40,800 Total needs 88,050 51,000 0 0 Less beginning merchandise inventory 37,800 Required purchases $50,250 $51,000 $0 $0 Budgeted cost of goods sold for April = $63,000 sales × 75% = $47,250. Add desired ending inventory for April = $51,000 × 80% = $40,800. Schedule of Expected Cash Disbursements—Merchandise Purchases April May June Quarter March purchases $22,425 $22,425 April purchases 25,125 25,125 50,250 May purchases June purchases Total disbursements $47,550 $25,125 $0 $72,675

Complete the cash budget. (Cash deficiency, repayments and interest should be indicated by a minus sign.)

Prepare an absorption costing income statement for the quarter ended June 30

Shilow Company Cash Budget April May June Quarter Beginning cash balance $7,200 Add collections from customers 56,600 Total cash available 63,800 0 0 0 Less cash disbursements: For inventory 47,550 For expenses 13,340 For equipment 1,200 Total cash disbursements 62,090 0 0 0 Excess (deficiency) of cash available over disbursements 1,710 0 0 0 Financing: Borrowings Repayments Interest Total financing 0 0 0 0 Ending cash balance $1,710 $0 $0 $0

	Shilow Company Income Statement For the Quarter Ended June 30 Cost of goods sold: 0 0 0 Selling and administrative expenses: 0 0 0

Prepare a balance sheet as of June 30.

• 
  

Raintree, CPA, is conducting a training session for you, a staff auditor, regarding the control environment. For each of the factors in the table below, identify the appropriate internal control component by double­clicking on the shaded cell and selecting the appropriate component from the list provided.

Factor	Component
1. Authorization of transaction
2. Participation of those charged with governance
3. Internal audit function
4. Assignment of authority, responsibility, and accountability
5. Adoption of new accounting principles
6. Proper presentation of transactions and related disclosures
7. New personnel
8. Segregation of duties
9. Human resource policies and practices
10. Incorporation of new technology
11. Pre­numbering of documents
12. Measurement and recording of proper monetary values
13. The way in which significant events are captured by the accounting system
14. Operating performance reviews
15. Corporate restructuring

Components( Control enviroment, Risk assesment, Information and communication systems, monitoring and existing control activities)

Lott Company uses a job order cost system and applies overhead to production on the basis of direct labor costs. On January 1, 2017, Job No. 50 was the only job in process. The costs incurred prior to January 1 on this job were as follows: direct materials $24,600, direct labor $14,760, and manufacturing overhead $19,680. As of January 1, Job No. 49 had been completed at a cost of $110,700 and was part of finished goods inventory. There was a $18,450 balance in the Raw Materials Inventory account.

During the month of January, Lott Company began production on Jobs 51 and 52, and completed Jobs 50 and 51. Jobs 49 and 50 were also sold on account during the month for $150,060 and $194,340, respectively. The following additional events occurred during the month.

1.		Purchased additional raw materials of $110,700 on account.
2.		Incurred factory labor costs of $86,100. Of this amount $19,680 related to employer payroll taxes.
3.		Incurred manufacturing overhead costs as follows: indirect materials $20,910; indirect labor $24,600; depreciation expense on equipment $14,760; and various other manufacturing overhead costs on account $19,680.
4.		Assigned direct materials and direct labor to jobs as follows.

Job No.		Direct Materials		Direct Labor
50		$12,300		$6,150
51		47,970		30,750
52		36,900		24,600

Prepare the journal entries to record the purchase of raw materials, the factory labor costs incurred, and the manufacturing overhead costs incurred during the month of January. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)

No.	Account Titles and Explanation	Debit	Credit
(1)
(2)
(3)

Prepare the journal entries to record the assignment of direct materials, direct labor, and manufacturing overhead costs to production. In assigning manufacturing overhead costs, use the overhead rate calculated in (a). (Credit account titles are automatically indented when amount is entered. Do not indent manually.)

No.	Account Titles and Explanation	Debit	Credit
(1)
(2)
(3)

Total the job cost sheets for any job(s) completed during the month. Prepare the journal entry to record the completion of any job(s) during the month. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Account Titles and Explanation	Debit	Credit

Prepare the journal entries to record the sale of any job(s) during the month. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)

No.	Account Titles and Explanation	Debit	Credit
(1)
	(To record sale of jobs)
(2)
	(To record cost of jobs)

What is the balance in the Finished Goods Inventory account at the end of the month? What does this balance consist of?

Finished Goods Inventory

$

Job No. 50/Job No. 51/Job No. 52/Jobs 50 and 51/Jobs 51 and 52/ or Jobs 50 and 52

What is the amount of over- or underapplied overhead?

Manufacturing Overhead

Tobin’s Frozen Pizza Inc. has determined from its production budget the following estimated production volumes for 12'' and 16'' frozen pizzas for November:

	Units
	12" Pizza		16" Pizza
Budgeted production volume	76,000		56,000

There are three direct materials used in producing the two types of pizza. The quantities of direct materials expected to be used for each pizza are as follows:

		12" Pizza		16" Pizza
Direct materials:
	Dough	0.55	lb. per unit	0.80	lbs. per unit
	Tomato	0.25		0.40
	Cheese	0.70		1.20

In addition, Tobin’s has determined the following information about each material:

	Dough		Tomato		Cheese
Estimated inventory, November 1	2,200	lbs.	1,000	lbs.	3,300	lbs.
Desired inventory, November 30	2,100	lbs.	1,000	lbs.	2,700	lbs.
Price per pound	$0.60		$0.70		$0.95

This information has been collected in the Microsoft Excel Online file. Open the spreadsheet, perform the required analysis, and input your answers in the question below.

Open spreadsheet

Prepare November's direct materials purchases budget for Tobin’s Frozen Pizza Inc. For those boxes in which you must enter subtracted or negative numbers use a minus sign. Round your final answers to the nearest dollar.

Tobin’s Frozen Pizza Inc.
Direct Materials Purchases Budget
For the Month Ending November 30
	Dough		Tomato		Cheese		Total
Units required for production:
12" pizza
16" pizza
Total units available
Total units to be purchased
Unit price	x	$	x	$	x	$
Total direct materials to be purchased		$		$		$		$

Case Inc. is a construction company specializing in custom patios. The patios are constructed of concrete, brick, fiberglass, and lumber, depending upon customer preference. On June 1, 2020, the general ledger for Case Inc. contains the following data. Raw Materials Inventory $3,800 Manufacturing Overhead Applied $34,900 Work in Process Inventory $5,775 Manufacturing Overhead Incurred $30,800 Subsidiary data for Work in Process Inventory on June 1 are as follows. Job Cost Sheets Customer Job Cost Element Rodgers Stevens Linton Direct materials $700 $700 $1,000 Direct labor 300 600 600 Manufacturing overhead 375 750 750 $1,375 $2,050 $2,350 During June, raw materials purchased on account were $5,100, and all wages were paid. Additional overhead costs consisted of depreciation on equipment $900 and miscellaneous costs of $400 incurred on account. A summary of materials requisition slips and time tickets for June shows the following. Customer Job Materials Requisition Slips Time Tickets Rodgers $700 $900 Koss 2,200 800 Stevens 500 300 Linton 1,400 1,200 Rodgers 300 300 5,100 3,500 General use 1,600 1,200 $6,700 $4,700 Overhead was charged to jobs at the same rate of $1.25 per dollar of direct labor cost. The patios for customers Rodgers, Stevens, and Linton were completed during June and sold for a total of $20,600. Each customer paid in full. (a) Journalize the June transactions: (1) for purchase of raw materials, factory labor costs incurred, and manufacturing overhead costs incurred; (2) assignment of direct materials, labor, and overhead to production; and (3) completion of jobs and sale of goods. (Credit account titles are automatically indented when amount is entered. Do not indent manually.) No. Account Titles and Explanation Debit Credit (1) di (To record purchase of raw materials) (To record factory labor costs paid) (To record manufacturing overhead costs incurred) (2) (To record assignment of direct materials) (To record assignment of factory labor) (To record assignment of manufacturing overhead) (3) (To record completion of jobs) (To record sale of goods) (To record the cost of goods sold) List of Accounts

Exercise 11-6 Martinez Company purchased equipment for $270,000 on October 1, 2017. It is estimated that the equipment will have a useful life of 8 years and a salvage value of $15,000. Estimated production is 40,800 units and estimated working hours are 19,700. During 2017, Martinez uses the equipment for 520 hours and the equipment produces 1,000 units. Compute depreciation expense under each of the following methods. Martinez is on a calendar-year basis ending December 31. (Round rate per hour and rate per unit to 2 decimal places, e.g. 5.35 and final answers to 0 decimal places, e.g. 45,892.) (a) Straight-line method for 2017 $ (b) Activity method (units of output) for 2017 $ (c) Activity method (working hours) for 2017 $ (d) Sum-of-the-years'-digits method for 2019 $ (e) Double-declining-balance method for 2018 $

Carlsville Company, which began operations in 2017, invests its idle cash in trading securities. The following transactions are from its short-term investments in trading securities. 2017 Jan. 20 Purchased 1,000 shares of Ford Motor Co. at $27 per share plus a $130 commission. Feb. 9 Purchased 2,500 shares of Lucent at $38 per share plus a $195 commission. Oct. 12 Purchased 800 shares of Z-Seven at $8.10 per share plus a $95 commission. Dec. 31 Fair value of the short-term investments in trading securities is $133,700. 2018 Apr. 15 Sold 1,000 shares of Ford Motor Co. at $30 per share less a $290 commission. July 5 Sold 800 shares of Z-Seven at $10.75 per share less a $100 commission. July 22 Purchased 1,700 shares of Hunt Corp. at $33 per share plus a $225 commission. Aug. 19 Purchased 1,900 shares of Donna Karan at $44.00 per share plus a $105 commission. Dec. 31 Fair value of the short-term investments in trading securities is $232,225. 2019 Feb. 27 Purchased 3,700 shares of HCA at $35 per share plus a $430 commission. Mar. 3 Sold 1,700 shares of Hunt at $28 per share less a $125 commission. June 21 Sold 2,500 shares of Lucent at $35.75 per share less a $37 commission. June 30 Purchased 1,300 shares of Black & Decker at $47.50 per share plus a $595 commission. Nov. 1 Sold 1,900 shares of Donna Karan at $44.00 per share less a $124 commission. Dec. 31 Fair value of the short-term investments in trading securities is $199,900. Required: Prepare journal entries to record these short-term investment activities for the years shown. On December 31 of each year, prepare the adjusting entry to record any necessary fair value adjustment for the portfolio of trading securities.

1) Cooper and Morton​, LLP, a law​ firm, is considering the replacement of its old accounting system with new software that should save $19,000 per year in net cash operating costs. The old system has zero disposal​ value, but it could be used for the next 12 years. The estimated useful life of the new software is 12 years with zero salvage​ value, and it will cost $190,000. The required rate of return is 14​%.

Requirements:

1.	What is the payback​ period?
2.	Compute the NPV.
3.	Management is unsure about the useful life. What would be the NPV if the useful life were
	(a) 5 years instead of 12 or​ (b) 20 years instead of 12​?
4.	Suppose the life will be 12 years, but the savings will be $15,000 per year instead of $19,000. What would be the​ NPV?
5.	Suppose the annual savings will be $16,000 for 8 years. What would be the​ NPV?

Identify the special challenge that small organizations face when implementing effective internal control systems.

You are required to research on globalisation and convergence of the IASB Conceptual framework and FASB GAAP. Provide at least 7 literature review of articles that has explored in the same area. Word limit is 1500 - 2000 words.