You are responsible for updating the predetermined overhead rate for your company, analyzing the current costs, using projected changes, and creating the rate for the next year. You notice the maintenance cost had almost doubled last year compared to prior years. You need to analyze this situation more and determine ways to better track this increase. The factory manager has suggested you spread the costs over all the departments to smooth the increase.

1. Determine a costing system to use to help better analyze the increase. Explain how this system will allow for future analysis to identify the increases.
2. If the manager pushes to spread the costs, what are the options you have to ensure you are protecting the company from irregular increases?

Paul Swanson has an opportunity to acquire a franchise from The Yogurt Place, Inc., to dispense frozen yogurt products under The Yogurt Place name. Mr. Swanson has assembled the following information relating to the franchise:

1. A suitable location in a large shopping mall can be rented for $4,700 per month.
2. Remodeling and necessary equipment would cost $390,000. The equipment would have a 10-year life and a $39,000 salvage value. Straight-line depreciation would be used, and the salvage value would be considered in computing depreciation.
3. Based on similar outlets elsewhere, Mr. Swanson estimates that sales would total $500,000 per year. Ingredients would cost 20% of sales.
4. Operating costs would include $90,000 per year for salaries, $5,500 per year for insurance, and $47,000 per year for utilities. In addition, Mr. Swanson would have to pay a commission to The Yogurt Place, Inc., of 14.0% of sales.

Required:

1. Prepare a contribution format income statement that shows the expected net operating income each year from the franchise outlet.

2-a. Compute the simple rate of return promised by the outlet.

2-b. If Mr. Swanson requires a simple rate of return of at least 21%, should he acquire the franchise?

3-a. Compute the payback period on the outlet.

3-b. If Mr. Swanson wants a payback of two years or less, will he acquire the franchise?

Jamie and Cecilia Reyes are husband and wife and file a joint return. They live at 5677 Apple Cove Road, Boise ID 83722. Jaime’s social security number is 412-34-5670 (date of birth 6/15/1969) and Cecilia’s is 412-34-5671 (date of birth 4/12/1971). They provide more than half of the support of their daughter, Carmen (age 23). Social security number 412-34-5672. (date of birth 9/1/1995), who is a full-time veterinarian school student. Carmen received a $3,200 scholarship covering her room and board at college. She was not required to perform any services to receive the scholarship. Jaime and Cecilia furnish all of the support of Maria (Jamie’s grandmother), Social Security number 412-34-5673 (date of birth 11/6/1948), who is age 70 and lives in a nursing home. They also have a son, Gustavo (age 4), social security number 412-34-5674 (date of birth 3/14/2014). The Reyes and all of their dependents had qualifying health care coverage at all time during the tax year.

Jaime’s W-2 contained the following information:

Federal Wages (box 1) = $145,625.00

Federal W/H (box 2) = $ 16,112.25

Social Security wages (box 3) = $128,400.00

Social Security W/H (box 4) = $7,960.80

Medicare Wages (box 5) = $145,625.00

Medicare W/H (box 6) = $2,111.56

State Wages (box 16) = $145,625.00

State W/H (box 17) = $5.435.00

Other receipts for the couple were as follows:

Dividends (all qualified dividends) $2,500

Interest Income:

Union Bank $ 220

State of Idaho – Interest on tax refund $22

City of Boise School bonds $1,250

Interest from U.S savings bonds $410 (not used for educational purposes)

2017 federal income tax refund received in 2018 $2,007

2017 state income tax refund received in 2018 $218

Idaho lottery winnings $1,100

Casino slot machine winnings $2,250

Gambling losses at casino $6,500

Other information that the Reyeses provided for the 2018 tax year:

Mortgage interest on personal residence $11,081

Loan interest on fully equipped motor home $3,010

Doctor’s fee for a face lift for Mr. Reyes $8,800

Dentist’s fee for a new dental bridge for Mr. Reyes $3,500

Vitamins for the entire family $110

Real estate property taxes paid $5,025

DMV fees on motor home (tax portion) $1,044

DMV fees on family autos (tax portion) $436

Doctor’s bills for grandmother $2,960

Nursing Home for grandmother $10,200

Wheelchair for grandmother $1,030

Property Taxes on boat $134

Interest on personal credit card $550

Interest on loan to buy public school district bonds $270

Cash contributions to church (all contributions)    $6,100

Were in cash and none more than $250 at any one time)

Cash contribution to man at bottom of freeway off-ramp    $25

Contribution of furniture to Goodwill -cost basis    $4,000

Contribution of same furniture to listed above Goodwill -Fair market Value $410

Tax Return preparation fee for 2017 taxes $625

Required

Prepare a Form 1040 and appropriates schedules, Schedule A and Schedule B for the completion of the Reyes’s tax return. They do not want to contribute to the Presidential election campaign and do not want anyone to be a third-party designee. For any missing information, make reasonable assumptions. They had qualifying health coverage at all times during the year.

After reading an article about activity-based costing in a trade journal for the furniture industry, Santana Rey wondered if it was time to critically analyze overhead costs at Business Solutions. In a recent month, Santana found that setup costs, inspection costs, and utility costs made up most of its overhead. Additional information about overhead follows.

Activity		Cost		Driver
Setting up machines	$	18,040		22	batches
Inspecting components	$	5,100		5,100	parts
Providing utilities	$	10,200		5,100	machine hours

Overhead has been applied to output at a rate of 50% of direct labor costs. The following data pertain to Job 615.

Direct materials	$	2,700
Direct labor	$	3,100
Batches		4	batches
Number of parts		570	parts
Machine hours		660	machine hours

Required:
1. Classify each of its three overhead activities as unit level, batch level, product level, or facility level.
  

	Setting up machines Inspecting components Providing utilities

2. What is the total cost of Job 615 if Business Solutions applies overhead at 50% of direct labor cost?
  

	Total cost

3. What is the total cost of Job 615 if Business Solutions uses activity-based costing?

	Total manufacturing cost

On January 1, 2018, Mania Enterprises issued 12% bonds dated January 1, 2018, with a face amount of $20.1 million. The bonds mature in 2027 (10 years). For bonds of similar risk and maturity, the market yield is 10%. Interest is paid semiannually on June 30 and December 31. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1)

Required:
1. Determine the price of the bonds at January 1, 2018.
2. Prepare the journal entry to record the bond issuance by Mania on January 1, 2018.
3. Prepare the journal entry to record interest on June 30, 2018, using the effective interest method.
4. Prepare the journal entry to record interest on December 31, 2018, using the effective interest method.

A ten year loan of $10,000 at 8% annual effective can be repaid using any of the four following methods: (i) Amortization method, with annual payments at the end of each year. (ii) Repay the principal at the end of ten years while paying the 8% annual effective interest on the loan at the end of each year. In addition, make level annual deposits at the end of each year into a sinking fund earning 6% annual effective so that the sinking fund accumulates to $10,000 at the end of the 10th year. (iii) Same as ii, except that the sinking fund earns 8% annual effective. (iv) Same as ii, except that the sinking fund earns 12% annual effective. Rank the annual payment amounts of each method.

Question 4 Brown Manufacturing has four categories of overhead. The four categories and expected overhead costs for each category for next year are listed below: N$ Maintenance 200 000 Materials handling 32 000 Setups 100 000 Inspection 120 000 Currently, overhead is applied using a predetermined overhead rate based upon budgeted direct labour hours. For next year, 50 000 direct labour hours are budgeted. The company has accepted a new job and the sales manager wanted to have a cost estimate. The production department provided the following information for the new job: Direct materials N$6 000 Direct labour (1 000 hours) N$10 000 Machine hours 500 Number of material moves 12 Number of setups 2 Number of inspections 10 In the past, full manufacturing cost has been calculated by allocating overhead using a volume-based cost driver (direct labour hours). With the information supplied by the production department, the bookkeeper requested you to assist them with the introduction of an activity based costing system. You collected the following expected activity for the four activity based cost drivers: Machine hours 20 000 Material moves 1 600 Setups 2 500 Quality inspections 4 000 Required: 4.1 Determine the amount of overhead that would be allocated to the proposed job if a plant wide rate with direct labours is used. 4 4.2 Determine the total cost of the proposed job. 3 4.3 Determine the amount of overhead that would be applied to the proposed project if activity based drivers are used. 4 4.4 Determine the total cost of the proposed job if activity based costing is used. 7

Preston Company manufactures car seats in its San Antonio plant. Each car seat passes through the assembly department and the testing department. This problem focuses on the assembly department.

Physical Units		Direct		Conversion
		(Car Seats)		Materials	Costs
Work in​ process, October 1 Superscript aOctober 1a	6,000		$1,779,000			$585,000
Started during October 20172017	23,500
Completed during October 20172017	25,500
Work in​ process, October 31 Superscript bOctober 31b	4,000
Total costs added during October 20172017			$4,888,000			$2,863,500

Degree of​ completion: direct​ materials, ?%; conversion​ costs, 60​%.

Degree of​ completion: direct​ materials, ?%; conversion​ costs, 75​%.

1.	For each cost​ category, compute equivalent units in the assembly department. Show physical units in the first column of your schedule.
2.	What issues should the manager focus on when reviewing the​ equivalent-unit calculations?
3.	For each cost​ category, summarize total assembly department costs for October 20172017 and calculate the cost per equivalent unit.
4.	Assign costs to units completed and transferred out and to units in ending work in process.

		Equivalent Units
	Physical	Direct	Conversion
Flow of Production	Units	Materials	Costs
Work in process beginning
Started during current period
To account for
Completed and transferred out during current period
Work in process, ending
Accounted for
Work done to date

E6-22 Computing Target Profit, Preparing Contribution Margin Income Statement, Computing Margin of Safety [LO 6-2, 6-3]

Erin Shelton, Inc., wants to earn a target profit of $880,000 this year. The company’s fixed costs are expected to be $1,160,000 and its variable costs are expected to be 60 percent of sales. Erin Shelton, Inc., earned $780,000 in profit last year.

Required:
1. Calculate break-even sales for Erin Shelton, Inc.


  
2. Prepare a contribution margin income statement on the basis break-even sales. (Do not leave any cells blank, enter a zero wherever required.)



3. Calculate the required sales to meet the target profit of $880,000.



4. Prepare a contribution margin income statement based on sales required to earn a target profit of $880,000.



5. When the company earns $880,000 of net income, what is its margin of safety and margin of safety as a percentage of sales? (Round your "Percentage Sales" answer to 2 decimal places. (i.e. .1234 should be entered as 12.34%.))

Can someone show me how this is supposed to look in a table format. I want to double check that I'm formatting and doing the numbers properly. Thank you!

Timber Construction constructs furniture.  They’ve decided they need to layout out their budgets for the first Quarter of 2019 to see if they will make a profit and have cash for a future expansion that will cost $400,000. They always must keep $100,000 minimum in the checking account every month.  (Assume the beginning of the Quarter has the minimum cash balance.)  The CEO also wants to have a minimum of a 10% profit margin for the Quarter to ensure stability. The CEO has said she wants to sell 5000 units in January, 6000 units in February, and 5500 in March.  Looking forward into the second Quarter, she hopes to sell 7000 units in April.  Each item sale price will be set at $150/unit. To build each unit, the purchasing agent says he can get the lumber for $50/unit, paint for $4/unit, and miscellaneous supplies for $5/unit.  The production manager, based on past experience, says it costs about 2 hours/unit at $20/hour in labor costs.  You are able as CFO to pull the other costs for the budgets:  Utilities are about $6/unit, Factory salaries run $25,000/month, Factory property taxes average $5,000/month, and depreciation on Factory equipment is $22,000/month.  Advertising costs average $4,000/month.  Sales Commission is .5% of Gross Sales.  CEO Salary is $150,000/year; CFO Salary is $120,000/year; Admin Assistant is $48,000/year. (Ignore payroll taxes.)  Miscellaneous office expenses are about $1,000/month. Office Equipment is depreciated at $500/month.  Cash payments are processed in the month of.  The CEO would like 40% of next month’s production ready to sell so there is no shortages. Cash is collected 60% in the month of sale, and the remainder in the following month.  Expected balances for certain accounts are listed below for your use.

Accounts Receivable on 1/1 is $240,000

Accounts Payable on 1/1 is $180,000

Accounts Payable on 3/31 is $200,000

Retained Earnings on 1/1 is $1,400,000

Income Tax Rate is 30%

Finished Goods, 1/1 is $160,000

Finished Goods, 3/31 is $280,000

WIP, 1/1 is $20,000

WIP, 3/31 is $25,000

Raw Materials desired beginning, 1/1 is $60,000 (Lumber $49,000; Paint $5,000; Misc. Supplies $6,000)

Raw Materials desired ending, 3/31 is $84,000 (Lumber $70,000; Paint $6,000; Misc. Supplies $8,000)

What was the 3/31 balance in Accounts Receivable?

Will they have enough money on March 31 to move forward with the expansion?  Why or why not?

What is the profit margin? Does it meet the CEO’s minimum requirement?

Prepare a Sales Budget, Production Budget, Direct Materials Budget, Direct Labor Budget, Factory Overhead Budget, Cost of Goods Sold, Selling & Admin Expense Budget, Proforma Income Statement, Cash Receipts Budget, Cash Payments Budget, Cash Budget.

Use formulas and cell references when using Excel.

MULTIPLE CHOICE QUESTIONS

1. Kayaks-For-Fun produces two kayak models, "River" and "Sea". The River model sells for $500 and has variable costs of $100 per unit. The Sea model sells for $600 and has variable costs of $450 per unit. Allocated fixed costs per unit are $300 for the River model and $50 for the Sea model per unit. Which statement about their production and sales mix is true?

A. They would prefer to produce and sell the River model because its unit contribution margin is highest.

B. They would prefer to produce and sell the River model because it has the highest selling price.

C. They are indifferent about which model to produce and sell because the full cost is the same for both models.

D. They would prefer to produce and sell the Sea model because its unit contribution is highest.

E. None of the other answers are correct.

2. Kayaks-For-Fun produces two kayak models, "River" and "Sea". The River model sells for $500 and has variable costs of $100 per unit. The Sea model sells for $600 and has variable costs of $450 per unit. Allocated fixed costs per unit are $300 for the River model and $50 for the Sea model per unit. Kayaks-For-Fun has a total of 320 labor hours available each month. The specialized skills required to build the kayaks makes it difficult for management to find additional workers. Assume the River model requires 4 labor hours per unit and the Sea model requires 1 labor hour per unit (most of the variable cost for the Sea model is related to expensive materials required for production). Kayaks-For-Fun sells everything it produces. Which statement is true?

A. None of the other answers are correct

B. They would be indifferent between selling the River and the Sea model.

C. 20% of their sales should be the Sea model and 80% should be the River model.

D. They would prefer to sell the River model.

E. They would prefer to sell the Sea model

3. Kayaks-For-Fun produces two kayak models, "River" and "Sea". The River model sells for $500 and has variable costs of $100 per unit. The Sea model sells for $600 and has variable costs of $450 per unit. Allocated fixed costs per unit are $300 for the River model and $50 for the Sea model per unit.Assume Kayaks-For-Fun found additional labor, thereby eliminating that resource constraint. However, the company now faces limited available machine hours. It has a total of 3,000 machine hours available each month. The River model requires 16 machine hours per unit, and the Sea model requires 10 machine hours per unit. Kayaks-For-Fun sells everything it produces.Which statement is true about Kayaks-For-Fun?

A. It would prefer to sell the River model.

B. It would be indifferent about which model it sells.

C. None of the other answers are correct

D. It would prefer to sell the Sea model.

E. Machine hours should be used for allocating fixed manufacturing overhead.

4. Which of the following statements regarding relevant costs and sunk costs is incorrect?

A. Isolating relevant costs is desirable because only rarely will enough information be available to prepare a detailed income statement for multiple alternatives.

B. A sunk cost is a cost which cannot be avoided because it has already been incurred.

C. The type of cost presented to management for an equipment replacement decision should be limited to relevant costs.

D. Relevant costs can be studied using a differential approach but should not be considered with a total approach.

Why are Not for Profits susceptible to sophisticated scams?

In a responsibility accounting reporting system, as one moves up each level of responsibility in information. True or false

This problem is based on the transactions for the Sweet Homes Company in your text. Prepare journal entries for each transaction and identify the financial statement impact of each entry. The financial statements are automatically generated based on the journal entries recorded. Dec. 1 On December 1, Mike Sweet forms a consulting business, named Sweet Homes. Sweet Homes receives $68,000 cash from Mike Sweet as an owner contribution. Dec. 2 Sweet Homes pays $4,400 cash for supplies. The company's policy is to record all prepaid expenses in asset accounts. Dec. 3 Sweet Homes pays $52,000 cash for equipment. Dec. 4 Sweet Homes purchases $10,000 of supplies on credit from a supplier, CalTech Supply. Dec. 5 Sweet Homes provides consulting services and immediately collects $6,100 cash. Dec. 6 Sweet Homes pays $2,900 cash for December rent. Dec. 7 Sweet Homes pays $1,400 cash for employee salary. Dec. 8 Sweet Homes provides consulting services of $4,300 and rents its test facilities for $3,000. The customer is billed $7,300 for these services. Dec. 9 Sweet Homes receives $7,300 cash from the client billed on December 8. Dec. 10 Sweet Homes pays CalTech Supply $2,800 cash as partial payment for its December 4 $10,000 purchase of supplies. Dec. 11 Mike Sweet withdraws $1,300 cash from Sweet Homes for personal use. Dec. 12 Sweet Homes receives $4,100 cash in advance of providing consulting services to a customer. The company's policy is to record fees collected in advance in a balance sheet account. Dec. 13 Sweet Homes pays $4,300 cash (insurance premium) for a 24-month insurance policy. Coverage begins on December 1. The company's policy is to record all prepaid expenses in a balance sheet account. Dec. 14 Sweet Homes pays $2,020 cash for supplies. Dec. 15 Sweet Homes pays $2,205 cash for December utilities expense. Dec. 16 Sweet Homes pays $1,650 cash in employee salary for work performed in the latter part of December.

A comparative statement of financial position for Sheffield Industries Inc. follows:

SHEFFIELD INDUSTRIES INC. Statement of Financial Position December 31, 2020
	December 31
Assets	2020			2019
Cash	$22,500			$35,500
Accounts receivable	117,000			55,300
Inventory	231,000			199,000
Land	86,000			130,000
Equipment	278,000			204,000
Accumulated depreciation—equipment	(70,500	)		(42,900	)
Total	$664,000			$580,900
Liabilities and Shareholders’ Equity
Accounts payable	$52,700			$60,200
Bonds payable	164,400			218,400
Common shares	234,000			180,000
Retained earnings	212,900			122,300
Total	$664,000			$580,900

Additional information:

1.		Net income for the fiscal year ending December 31, 2020, was $142,000.
2.		Cash dividends of $51,400 were declared and paid. Dividends paid are treated as financing activities.
3.		Bonds payable amounting to $54,000 were retired through issuance of common shares.
4.		Land was sold at a gain of $3,000.
5.		No equipment was sold during the year.

(a) Prepare a statement of cash flows using the indirect method.