During the month, the following transactions occurred for Trevor’s Supply Company. The company uses the perpetual inventory method.
Dec. 1 |
Accepted a 4-month, 6% note from a customer in settlement of $12,400 account. |
3 |
Wrote off as uncollectible specific accounts totaling $680. |
8 |
Purchased $17,200 of inventory on account, terms 2/10, n/30. |
11 |
Sold $25,000 of inventory that cost $17,500, terms 1/15, n/45. |
12 |
Paid $13,750 for employee salaries. |
15 |
Customers returned $8,000 of inventory sold on December 11th that cost $5,200. |
17 |
Collected the balance due from the December 11th sale. |
18 |
Paid the balance due on the December 8th purchase. |
24 |
Received $370 on an account previously written off. |
27 |
Purchased advertising supplies for $1,300 on account. |
31 |
Paid freight on inventory sold, $3,218. |
Instructions
(a) Journalize the transactions using the accounts listed in part b. Round all amounts to the nearest dollar.
(b) Post to the T accounts. Beginning balances are already shown.
(c) Journalize the following adjustments:
1. |
Interest accrual for the note. |
2. |
Bad debts are expected to be 20% of the ending accounts receivable. |
3. |
A count of advertising supplies at month end, reveals that $560 remains unused. |
4. |
The income tax rate is 30% based on $9,645 taxable income. |
(d) Post adjusting entries to the T accounts.
(e) Prepare a trial balance.
(f) Prepare the financial statements for the year ending December 31. The income statement should be formatted as a Multiple Step Income Statement as detailed in Chapter 5.
(g) Ratio analysis
In: Accounting
We have all heard the saying "The buck stops here". The Treadway report indirectly states that the "buck" stops with the Board of Directors and Senior Management. In addition, the Sarbanes-Oxley act provides both specific requirements and severe punishments for non-compliance.
For your initial post discuss why the "Tone at the top" of an organization is essential to a successful Enterprise Risk Management program. Please be specific in your post and use detailed examples of the benefits of a strong and focused tone at the top versus a weak tone at the top.
In your subsequent post(s) discuss how risk management can be integrated into a company's culture. Give specific examples. What are some of the barriers?
In: Accounting
The Hyatt Company is trying to decide whether it should purchase new equipment and continue to make its subassemblies internally or if production should be discontinued and the subassembly purchased from an outside supplier. Either way production cannot continue using the current equipment.
New equipment for producing the subassemblies can be purchased at a cost of $400,000. The equipment would have a five-year useful life (the company uses straight-line depreciation) and a $50,000 salvage value.
Alternatively, the subassemblies could be purchased from an outside supplier. The supplier has offered to provide the subassemblies for $9 each under a five-year contract.
Hyatt Company's present costs per unit of producing the subassemblies internally (with the old equipment) are given below. The costs are based on a current activity level of 40,000 subassemblies per year:
Direct Materials |
$ 3.00 |
Direct Labour |
$ 4.20 |
Variable Overhead |
$ 0.60 |
Fixed Overhead ($0.80 supervision, $0.90 depreciation, |
|
and $2 general company overhead) |
$ 3.70 |
Total Cost per Unit |
$11.50 |
The new equipment would be more efficient and would reduce direct labour costs and variable overhead costs by 25%. Supervision cost and direct materials cost per unit would not be affected by the new equipment. The company has no other use for the space now being used to produce the subassemblies. The company's total general company overhead would not be affected by this decision. Assume direct labour is a variable cost.
Required:
Assume that 40,000 subassemblies are needed each year. Prepare an analysis of the two alternatives and make a recommendation to the management of the company of the appropriate course of action.
In: Accounting
Problem 6-23 CVP Applications; Contribution Margin Ratio: Degree of Operating Leverage [LO6-1, LO6-3, LO6-4, LO6-5, LO6-8]
Feather Friends, Inc., distributes a high-quality wooden birdhouse that sells for $80 per unit. Variable expenses are $40.00 per unit, and fixed expenses total $160,000 per year. Its operating results for last year were as follows:
Sales | $ | 2,080,000 |
Variable expenses | 1,040,000 | |
Contribution margin | 1,040,000 | |
Fixed expenses | 160,000 | |
Net operating income | $ | 880,000 |
Required:
Answer each question independently based on the original data:
1. What is the product's CM ratio?
2. Use the CM ratio to determine the break-even point in dollar sales.
3. If this year's sales increase by $48,000 and fixed expenses do not change, how much will net operating income increase?
4-a. What is the degree of operating leverage based on last year's sales?
4-b. Assume the president expects this year's sales to increase by 11%. Using the degree of operating leverage from last year, what percentage increase in net operating income will the company realize this year?
5. The sales manager is convinced that a 12% reduction in the selling price, combined with a $61,000 increase in advertising, would increase this year's unit sales by 25%.
a. If the sales manager is right, what would be this year's net operating income if his ideas are implemented?
b. If the sales manager's ideas are implemented, how much will net operating income increase or decrease over last year?
6. The president does not want to change the selling price. Instead, he wants to increase the sales commission by $2.30 per unit. He thinks that this move, combined with some increase in advertising, would increase this year's sales by 25%. How much could the president increase this year's advertising expense and still earn the same $880,000 net operating income as last year?
In: Accounting
Andretti Company has a single product called a Dak. The company normally produces and sells 86,000 Daks each year at a selling price of $60 per unit. The company’s unit costs at this level of activity are given below: Direct materials $ 8.50 Direct labor 10.00 Variable manufacturing overhead 2.50 Fixed manufacturing overhead 5.00 ($430,000 total) Variable selling expenses 1.70 Fixed selling expenses 3.00 ($258,000 total) Total cost per unit $ 30.70 A number of questions relating to the production and sale of Daks follow. Each question is independent. Required: 1-a. Assume that Andretti Company has sufficient capacity to produce 107,500 Daks each year without any increase in fixed manufacturing overhead costs. The company could increase its unit sales by 25% above the present 86,000 units each year if it were willing to increase the fixed selling expenses by $150,000. What is the financial advantage (disadvantage) of investing an additional $150,000 in fixed selling expenses? 1-b. Would the additional investment be justified? 2. Assume again that Andretti Company has sufficient capacity to produce 107,500 Daks each year. A customer in a foreign market wants to purchase 21,500 Daks. If Andretti accepts this order it would have to pay import duties on the Daks of $2.70 per unit and an additional $12,900 for permits and licenses. The only selling costs that would be associated with the order would be $1.70 per unit shipping cost. What is the break-even price per unit on this order? 3. The company has 700 Daks on hand that have some irregularities and are therefore considered to be "seconds." Due to the irregularities, it will be impossible to sell these units at the normal price through regular distribution channels. What is the unit cost figure that is relevant for setting a minimum selling price? 4. Due to a strike in its supplier’s plant, Andretti Company is unable to purchase more material for the production of Daks. The strike is expected to last for two months. Andretti Company has enough material on hand to operate at 25% of normal levels for the two-month period. As an alternative, Andretti could close its plant down entirely for the two months. If the plant were closed, fixed manufacturing overhead costs would continue at 40% of their normal level during the two-month period and the fixed selling expenses would be reduced by 20% during the two-month period. a. How much total contribution margin will Andretti forgo if it closes the plant for two months? b. How much total fixed cost will the company avoid if it closes the plant for two months? c. What is the financial advantage (disadvantage) of closing the plant for the two-month period? d. Should Andretti close the plant for two months? 5. An outside manufacturer has offered to produce 86,000 Daks and ship them directly to Andretti’s customers. If Andretti Company accepts this offer, the facilities that it uses to produce Daks would be idle; however, fixed manufacturing overhead costs would be reduced by 30%. Because the outside manufacturer would pay for all shipping costs, the variable selling expenses would be only two-thirds of their present amount. What is Andretti’s avoidable cost per unit that it should compare to the price quoted by the outside manufacturer?
In: Accounting
Problem 6-22 CVP Applications; Contribution Margin Ratio; Break-Even Analysis; Cost Structure [LO6-1, LO6-3, LO6-4, LO6-5, LO6-6]
Due to erratic sales of its sole product—a high-capacity battery for laptop computers—PEM, Inc., has been experiencing financial difficulty for some time. The company’s contribution format income statement for the most recent month is given below:
Sales (13,200 units × $20 per unit) | $ | 264,000 | |
Variable expenses | 158,400 | ||
Contribution margin | 105,600 | ||
Fixed expenses | 117,600 | ||
Net operating loss | $ | (12,000 | ) |
Required:
1. Compute the company’s CM ratio and its break-even point in unit sales and dollar sales.
2. The president believes that a $6,900 increase in the monthly advertising budget, combined with an intensified effort by the sales staff, will result in an $88,000 increase in monthly sales. If the president is right, what will be the increase (decrease) in the company’s monthly net operating income?
3. Refer to the original data. The sales manager is convinced that a 10% reduction in the selling price, combined with an increase of $39,000 in the monthly advertising budget, will double unit sales. If the sales manager is right, what will be the revised net operating income (loss)?
4. Refer to the original data. The Marketing Department thinks that a fancy new package for the laptop computer battery would grow sales. The new package would increase packaging costs by $0.40 per unit. Assuming no other changes, how many units would have to be sold each month to attain a target profit of $4,200?
5. Refer to the original data. By automating, the company could reduce variable expenses by $3 per unit. However, fixed expenses would increase by $52,000 each month.
a. Compute the new CM ratio and the new break-even point in unit sales and dollar sales.
b. Assume that the company expects to sell 20,200 units next month. Prepare two contribution format income statements, one assuming that operations are not automated and one assuming that they are. (Show data on a per unit and percentage basis, as well as in total, for each alternative.)
c. Would you recommend that the company automate its operations (Assuming that the company expects to sell 20,200)?
In: Accounting
The Town of Weston has a Water Utility Fund with the following trial balance as of July 1, 2016, the first day of the fiscal year:
Debits |
Credits |
|
Cash |
$ 333,000 |
|
Customer accounts receivable |
201,800 |
|
Allowance for uncollectible accounts |
$ 30,300 |
|
Materials and supplies |
121,200 |
|
Restricted assets (cash) |
253,000 |
|
Utility plant in service |
7,004,000 |
|
Accumulated depreciation-utility plant |
2,603,000 |
|
Construction work in progress |
103,000 |
|
Accounts payable |
123,600 |
|
Accrued expenses payable |
77,300 |
|
Revenue bonds payable |
3,503,000 |
|
Net position |
1,678,800 |
|
Total |
$8,016,000 |
$8,016,000 |
During the year ended June 30, 2017, the following transactions and events occurred in the Town of Weston Water Utility Fund:
Materials and supplies |
$ 189,000 |
Costs of sales and services |
363,000 |
Administrative expenses |
204,000 |
Construction work in progress |
222,000 |
Required:
In: Accounting
Exercise 6-9 Compute and Use the Degree of Operating Leverage [LO6-8]
Engberg Company installs lawn sod in home yards. The company’s most recent monthly contribution format income statement follows:
Amount | Percent of Sales | |||||
Sales | $ | 127,000 | 100 | % | ||
Variable expenses | 50,800 | 40 | % | |||
Contribution margin | 76,200 | 60 | % | |||
Fixed expenses | 23,000 | |||||
Net operating income | $ | 53,200 | ||||
Required:
1. What is the company’s degree of operating leverage?
2. Using the degree of operating leverage, estimate the impact on net operating income of a 16% increase in sales.
3. Construct a new contribution format income statement for the company assuming a 16% increase in sales.
In: Accounting
On September 1, Duffs Beer Distributor had an inventory of 60 cases of beer at a cost of $21 each. The company uses a perpetual inventory system. During September, the following transactions occurred. Sept 6 Purchased 75 cases at $20 each from Iron City Brewers, terms 2/10, n/30. Sept 9 Paid freight of $75 on the cases purchased from Iron City Brewers. Sept 10 Returned 2 cases to Iron City Brewers for $40 credit because they did not meet specifications. They had a “skunky” smell. Sept 11 Paid Iron City Brewers what was owed from the Sept 6th purchase. Sept 12 Sold 41 cases costing $21 each for $34 each to the Drunken Clam, terms 2/10,n/30. Sept 14 Granted credit of $34 to the Drunken Clam for the return of one case that was not ordered. Sept 21 Received payment in full from the Drunken Clam. Prepare journal entries IN GOOD FORM for the September transactions. Include Sales and cost of goods sold entries if applicable.
In: Accounting
In: Accounting
International business and environment
The MIR requires teams to gather current, or the most recently available, data on the market’s people, economy, government, and technological status from online sources.
In: Accounting
Statement of Cost of Goods Manufactured for a Manufacturing Company
Cost data for Sandusky Manufacturing Company for the month ended January 31 are as follows:
Inventories | January 1 | January 31 | ||
Materials | $208,750 | $187,880 | ||
Work in process | 139,860 | 125,880 | ||
Finished goods | 108,550 | 127,760 |
Direct labor | $375,750 | |
Materials purchased during January | 400,800 | |
Factory overhead incurred during January: | ||
Indirect labor | 40,080 | |
Machinery depreciation | 24,220 | |
Heat, light, and power | 8,350 | |
Supplies | 6,680 | |
Property taxes | 5,850 | |
Miscellaneous costs | 10,860 |
a. Prepare a cost of goods manufactured statement for January.
Sandusky Manufacturing Company | |||
Statement of Cost of Goods Manufactured | |||
For the Month Ended January 31 | |||
$ | |||
Direct materials: | |||
$ | |||
$ | |||
$ | |||
Factory overhead: | |||
$ | |||
Total factory overhead | |||
Total manufacturing costs incurred during January | |||
Total manufacturing costs | $ | ||
Cost of goods manufactured | $ |
b. Determine the cost of goods sold for
January.
$
Check My Work
In: Accounting
Austin Co. manufactures a product called Aster in a
three-process series. All materials are introduced at the beginning
of the first process. Austin uses the first-in, first-out method of
inventory costing. Unit and cost data for the first process
(Department A) for the month of December follow:
Units | Completion | Cost | |
Work in process inventory: | |||
December 1 | 12,000 | 60% | $140,400 |
December 31 | 5,000 | 40% | ? |
Started in December: | 14,000 | ||
Direct materials cost | 106,400 | ||
Conversion cost | 70,310 | ||
Completed in December | 21,000 | ? |
Prepare Austin's Department A cost of production report for December.
Round your cost per equivalent unit amounts to two decimal places. Round all other amounts to the nearest dollar. If an amount value is zero enter "0" as answer.
Austin Company | |||
Cost of Production Report—Department A | |||
For the Month Ended December 31 | |||
Unit Information | |||
Units charged to production: | |||
Inventory in process, December 1 | |||
Received from materials storeroom | |||
Total units accounted for by Department A | |||
Units to be assigned cost: | |||
Equivalent Units | |||
Whole Units | Direct Materials | Conversion | |
Inventory in process, December 1 (60% completed) | |||
Started and completed in December | |||
Transferred to Dept. B in December | |||
Inventory in process, December 31 (40% complete) | |||
Total units to be assigned costs | |||
Cost Information | |||
COSTS: | |||
Direct Materials Costs | Conversion Costs | ||
Costs per equivalent unit: | |||
Total costs for December in Department A | $ | $ | |
Total equivalent units | |||
Cost per equivalent unit | $ | $ | |
Costs charged to production: | |||
Direct Materials Costs | Conversion Costs | Total Costs | |
Inventory in process, December 1 | $ | ||
Costs incurred in December | |||
Total costs accounted for by Department A | $ | ||
Costs allocated to completed and partially completed units: | |||
Inventory in process, December 1, balance | $ | ||
To complete inventory in process, December 1 | $ | $ | |
Started and completed in December | |||
Transferred to finished goods in December | $ | ||
Inventory in process, December 31 | |||
Total costs assigned by Department A | $ |
In: Accounting
|
|
In: Accounting
Your assistant prepared the following bank reconciliation
statement. It appears that the statement is unacceptable and the
task of preparing a proper reconciliation falls upon you.
Brandon Company | |||
Bank Reconciliation | |||
May 31, 2017 | |||
Balance per books May 31 | $9,585 | ||
Add: | |||
Electronic Fund Transfer | $1,111 | ||
Deposit in transit | 2,506 | 3,617 | |
$13,202 | |||
Deduct: | |||
Bank charges | $27 | ||
NSF cheque, Rhonda Teal | 534 | ||
Outstanding cheques | 1,851 | ||
Error in cheque #78: correctly
issued and processed by the bank for $796, but incorrectly recorded in the books as $743 (Accounts Payable–Delta Co.) |
53 | 2,465 | |
Indicated bank balance | $10,737 | ||
Balance per bank statement | 9,427 | ||
Discrepancy | $1,310 | ||
Required:
1. Prepare a proper bank reconciliation showing the true
Cash balance.
BRANDON COMPANY Bank Reconciliation May 31, 2017
Company's Books Bank Statement Balance per books Balance per
bank Add Add Deduct Deduct
1
Record to collection of EFT.
2
Record to error, bank service charges, and NSF cheque.
2. Prepare the necessary journal entries.
(If no entry is required for a transaction/event, select
"No journal entry required" in the first account
field.)
In: Accounting