1. Mixed Costs and Cost Formula

   Callie's Gym is a complete fitness center. Owner Callie Ducain employs various fitness trainers who are expected to staff the front desk and to teach fitness classes. While on the front desk, trainers answer the phone, handle walk-ins and show them around the gym, answer member questions about the weight machines, and do light cleaning (wiping down the equipment, vacuuming the floor). The trainers also teach fitness classes (e.g., pilates, spinning, body pump) according to their own interest and training level. The cost of the fitness trainers is $600 per month and $20 per class taught. Last month, 100 classes were taught.

   Required:

   1. Develop a cost equation for total cost of labor.

   Total labor cost

   =

   $

   +

   $ per class taught

   2.	What was total variable labor cost last month?
   	$

   3.	What was total labor cost last month?
   	$

   4.	What was the unit cost of labor (per class) for last month?
   	$ per class

   5.	What if Callie increased the number of classes offered by 50 percent?

   a.	What would be the total labor cost?
   	$
   b.	The unit labor cost?
   	$
   c.	Explain why the unit labor cost decreased.

CP 9‐5

Paul’s Roofing Corporation paid monthly corporate income tax

installments of $500 commencing February 15, 2019. The company’s

income before income taxes for the year ended December 31, 2019

was $15,000. The corporate income tax rate is 40%. Paul’s Roofing paid

the 2019 corporate income taxes owing on January 31, 2020.

CHAPTER NINE / Debt Financing: Current and Non‐current Liabilities First US Edition

Required:

1. Record the February 15, 2019 payment.

2. Record the 2019 corporate income tax expense.

3. Record the January 31, 2020 payment.

Descriptions and general ledger account numbers are not necessary.

Show calculations where applicable.

holding too much inventory can be a problem. As a future manager, discuss the pros and cons of having inventory on hand. what can a manager do to ensure he/she has the right amount of inventory on hand?

The market price of a security is $70. Its expected rate of return is 14%. The risk-free rate is 6% and the market risk premium is 8.5%. What will be the market price of the security if its correlation coefficient with the market portfolio doubles (and all other variables remain unchanged)? Assume that the stock is expected to pay a constant dividend in perpetuity

Andretti Company has a single product called a Dak. The company normally produces and sells 88,000 Daks each year at a selling price of $64 per unit. The company’s unit costs at this level of activity are given below:

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 110,000 Daks each year without any increase in fixed manufacturing overhead costs. The company could increase its unit sales by 25% above the present 88,000 units each year if it were willing to increase the fixed selling expenses by $130,000. What is the financial advantage (disadvantage) of investing an additional $130,000 in fixed selling expenses?

1-b. Would the additional investment be justified?

2. Assume again that Andretti Company has sufficient capacity to produce 110,000 Daks each year. A customer in a foreign market wants to purchase 22,000 Daks. If Andretti accepts this order it would have to pay import duties on the Daks of $3.70 per unit and an additional $17,600 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 400 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 88,000 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?

Please consider the scenario below and be aware of poor internal controls over inventory.

The City of Milford Parks and Recreation Department operates three community swimming pools. Each pool has a concession stand that sells candy. Each concession stand is staffed with two workers. To be eligible for volume discounts, the Parks and Recreation Department orders the candy for all three pools. Sandy Wells is responsible for ordering the concession stand goodies. Sandy uses a locked closet down the hall from her office at the Parks and Recreation headquarters to store the candy. She checks the closet periodically, and, when supplies seem low, she orders more. Whenever a concession stand needs to restock inventory, a worker goes to the Parks and Recreation headquarters to get the needed candy. Because Sandy knows all of the concession workers, she usually just hands the worker the key to the candy closet so the worker can get whatever is needed. Sandy has attached a chart to the closet door to keep track of candy withdrawals. On that chart, each worker records the number of boxes of candy that he or she is taking and the pool to which it is going. By the end of the summer, Sandy becomes worried that someone else has a key to the candy closet. The candy seems to be disappearing more quickly than it did at the beginning of the summer. For the last month or so, she hasn't found time to compare the withdrawals on her chart with candy purchases, but something just doesn’t seem right.

Required: Please identify the control problems, and suggest how to correct the inappropriate inventory procedures.

WRT, a calendar year S corporation, has 100 shares of outstanding stock. At the beginning of the year, Mr. Wallace owned all 100 shares. On September 30, he gave 25 shares to his brother and 40 shares to his daughter. WRT’s ordinary income for the year was $216,000. What portion of this income must each shareholder include in income? Assume 365 days in a year. (Round income per day of ownership to 4 decimal places. Round your final answers to the nearest whole dollar amount.)

Brother $____

Daughter $______

Mr. Wallace $____

Eastern Manufacturing is involved with several situations that possibly involve contingencies. Each is described below. Eastern’s fiscal year ends December 31, and the 2018 financial statements are issued on March 15, 2019.

1. Eastern is involved in a lawsuit resulting from a dispute with a supplier. On February 3, 2019, judgment was rendered against Eastern in the amount of $113 million plus interest, a total of $128 million. Eastern plans to appeal the judgment and is unable to predict its outcome though it is not expected to have a material adverse effect on the company.
2. In November 2017, the State of Nevada filed suit against Eastern, seeking civil penalties and injunctive relief for violations of environmental laws regulating hazardous waste. On January 12, 2019, Eastern reached a settlement with state authorities. Based upon discussions with legal counsel, the Company feels it is probable that $146 million will be required to cover the cost of violations. Eastern believes that the ultimate settlement of this claim will not have a material adverse effect on the company.
3. Eastern is the plaintiff in a $206 million lawsuit filed against United Steel for damages due to lost profits from rejected contracts and for unpaid receivables. The case is in final appeal and legal counsel advises that it is probable that Eastern will prevail and be awarded $130 million.
4. At March 15, 2019, Eastern knows a competitor has threatened litigation due to patent infringement. The competitor has not yet filed a lawsuit. Management believes a lawsuit is reasonably possible, and if a lawsuit is filed, management believes damages of up to $39 million are reasonably possible.

   
Required:
1. Determine the appropriate means of reporting each situation.
2. Prepare the appropriate journal entries for these situations.

Assume that you work for Greeble's Department Store, and your manager wants to discuss the pros and cons of discontinuing its hardware department. That department appears to be generating losses, and your manager believes that discontinuing it will increase overall store profits.

Question:

What factors should Greeble's management consider when trying to decide whether to discontinue its hardware department?

The following costs result from the production and sale of 4,600 drum sets manufactured by Tight Drums Company for the year ended December 31, 2017. The drum sets sell for $310 each. The company has a 25% income tax rate.

Required:

1. Prepare a contribution margin income statement for the company.
2. Compute its contribution margin per unit and its contribution margin ratio.

Schmidt Company issued $ 260,000​, 8​%, 10​-year bonds payable at 92 on January​ 1, 2018.

Journalize the issuance of the bonds payable on January​ 1, 2018.

7. Journalize the payment of semiannual interest and amortization of the bond discount or premium​ (using the​ straight-line amortization​ method) on July​ 1, 2018.

8. Assume the bonds payable was instead issued at 106. Journalize the issuance of the bonds payable and the payment of the first semiannual interest and amortization of the bond discount or premium.

thanks

A company had inventory on November 1 of 5 units at a cost of $16 each. On November 2, they purchased 13 units at $18 each. On November 6 they purchased 9 units at $21 each. On November 8, 11 units were sold for $51 each. Using the LIFO perpetual inventory method, what was the value of the inventory on November 8 after the sale?

• $278

• $272

• $283

• $315

• $294

Search online for a recent announcement related to a strategic business decision (new product launch, opening or closing of a business, hiring or layoff of workers, launch of a sustainability program, etc.). Briefly describe the decision and explain the role you think management accounting might have played in the decision.

When the Essex Company formed three divisions a year ago, the president told the division managers an annual bonus would be given to the most profitable division. The bonus would be based on either the return on investment or residual income of the division. Investment is to be measured using gross book value or net book value. The following data are available:

            All the assets are long-lived assets that were purchased 15 years ago and have 15 years of useful life remaining. A zero terminal disposal price is predicted. Essex's minimum return on investment used for computing residual income is 10%.

            Required:

            Which method for computing profitability would each manager choose? Show supporting calculations. Where applicable, assume straight line depreciation.

Basic Facts: DEF is an equal general partnership engaged in medical practice. On January 1, 2007, D died, triggering the partnership’s buy/sell agreement. Just prior to his death, D’s outside basis was $130. According to the agreement, the partnership must pay D’s sole beneficiary, B, $500 in liquidation of her interest in the partnership. Neither the partnership agreement nor the buy/sell agreement mentions goodwill. There is no §754 election in place. On the date of death, DEF’s balance sheet (with FMVs) was as follows:

            Assets                                                                         Liabilities & Capital

                                    AB/Book         FMV                                        Liabilities        $150               

Cash                            $120                $120

Acc’ts Rec.                  0                      150

Installment Oblig.       150                  270

Equipment                  90                    300

Land                            30                    510

Goodwill                     0                      300

                                    $390                $1650

                                                                                                Capital Accounts

                                                                                                Tax/Bk                        FMV   

                                                                                    D          $80                  $500

                                                                                    E          80                    500

                                                                                    F          80                    500

                                                                                                $240                $1500

Assume that the equipment was purchased by the partnership for $400, and that the land is used in the partnership’s business.

Questions:

1. Before the distribution to B in liquidation of her interest in the partnership, what is her outside basis?
2. If there were a §754 election in place what would be the amount of the §743(b) adjustment, and among which assets (and in what amount) would it be allocated?
3. What are the income tax consequences to B of the $500 distribution?
4. What difference would it have made if the agreement explicitly allocated $100 to goodwill?
5. What difference would it have made if there were no buy/sell agreement and B (who is also a doctor) becomes a partner in D’s place?