Slick Corporation is a small producer of synthetic motor oil. During May, the company produced 5,000 cases of lubricant. Each case contains 12 quarts of synthetic oil. To achieve this level of production, Slick purchased and used 16,500 gallons of direct materials at a cost of $20,924. It also incurred average direct labor costs of $14 per hour for the 4,239 hours worked in May by its production personnel. Manufacturing overhead for the month totaled $9,956, of which $2,200 was considered fixed. Slick's standard cost information for each case of synthetic motor oil is as follows.

Required:

c. Compute the manufacturing overhead spending and volume variances.

d. Prepare the journal entries to:

1. Charge materials (at standard) to Work in Process.

2. Charge direct labor (at standard) to Work in Process.

3. Charge manufacturing overhead (at standard) to Work in Process.

4. Transfer the cost of the 5,000 cases of synthetic motor oil produced in May to Finished Goods.

5. Close any over- or underapplied overhead to cost of goods sold.

Genuine Spice Inc. began operations on January 1 of the current year. The company produces 8-ounce bottles of hand and body lotion called Eternal Beauty. The lotion is sold wholesale in 12-bottle cases for $100 per case. There is a selling commission of $20 per case. The January direct materials, direct labor, and factory overhead costs are as follows:

Part A—Break-Even Analysis

The management of Genuine Spice Inc. wishes to determine the number of cases required to break even per month. The utilities cost, which is part of factory overhead, is a mixed cost. The following information was gathered from the first six months of operation regarding this cost:

Part B—August Budgets

During July of the current year, the management of Genuine Spice Inc. asked the controller to prepare August manufacturing and income statement budgets. Demand was expected to be 1,500 cases at $100 per case for August. Inventory planning information is provided as follows:

Finished Goods Inventory:

Materials Inventory:

There was negligible work in process inventory assumed for either the beginning or end of the month; thus, none was assumed. In addition, there was no change in the cost per unit or estimated units per case operating data from January.

Part C—August Variance Analysis

During September of the current year, the controller was asked to perform variance analyses for August. The January operating data provided the standard prices, rates, times, and quantities per case. There were 1,500 actual cases produced during August, which was 250 more cases than planned at the beginning of the month. Actual data for August were as follows:

The prices of the materials were different than standard due to fluctuations in market prices. The standard quantity of materials used per case was an ideal standard. The Mixing Department used a higher grade labor classification during the month, thus causing the actual labor rate to exceed standard. The Filling Department used a lower grade labor classification during the month, thus causing the actual labor rate to be less than standard.

1. Determine the fixed and variable portions of the utility cost using the high-low method. Round your per unit cost to two decimal places.

2. Determine the contribution margin per case. Round your answer to two decimal places.  per case

3. Determine the fixed costs per month, including the utility fixed cost from part (1). Refer to the lists of Amount Descriptions for the exact wording of the answer choices for text entries.

4. Determine the break-even number of cases per month. cases

5. Prepare the August production budget. For those boxes in which you must enter subtractive or negative numbers use a minus sign.

Neil Corporation has three projects under consideration. The cash flows for each of them are shown in the following​ table:

The firm has a cost of capital of 16​%.

a.  Calculate each​ project's payback period.

Which project is preferred according to this​ method?

b.  Calculate each​ project's net present value ​(NPV).

Which project is preferred according to this​ method?

Marvel Parts, Inc., manufactures auto accessories. One of the company’s products is a set of seat covers that can be adjusted to fit nearly any small car. The company has a standard cost system in use for all of its products. According to the standards that have been set for the seat covers, the factory should work 1,000 hours each month to produce 2,000 sets of covers. The standard costs associated with this level of production are:

During August, the factory worked only 1,050 direct labor-hours and produced 2,400 sets of covers. The following actual costs were recorded during the month:

At standard, each set of covers should require 3.0 yards of material. All of the materials purchased during the month were used in production.

Required:

1. Compute the materials price and quantity variances for August.

2. Compute the labor rate and efficiency variances for August.

3. Compute the variable overhead rate and efficiency variances for August.

(Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)

Brief Exercise 2-3 T-accounts [LO2-3]

The Marchetti Soup Company entered into the following transactions during the month of June: (1) purchased inventory on account for $170,000 (assume Marchetti uses a perpetual inventory system); (2) paid $45,000 in salaries to employees for work performed during the month; (3) sold merchandise that cost $130,000 to credit customers for $225,000; (4) collected $205,000 in cash from credit customers; and (5) paid suppliers of inventory $150,000.

Post the above transactions to the below T-accounts. Assume that the opening balances in each of the accounts is zero except for cash, accounts receivable, and accounts payable that had opening balances of $67,500, $48,000, and $27,000, respectively. (Enter the transaction number in the column next to the amount.)

Swathmore Clothing Corporation grants its customers 30 days’ credit. The company uses the allowance method for its uncollectible accounts receivable. During the year, a monthly bad debt accrual is made by multiplying 2% times the amount of credit sales for the month. At the fiscal year-end of December 31, an aging of accounts receivable schedule is prepared and the allowance for uncollectible accounts is adjusted accordingly. At the end of 2017, accounts receivable were $584,000 and the allowance account had a credit balance of $48,000. Accounts receivable activity for 2018 was as follows: Beginning balance $ 584,000 Credit sales 2,670,000 Collections (2,533,000 ) Write-offs (44,000 ) Ending balance $ 677,000 The company’s controller prepared the following aging summary of year-end accounts receivable: Summary Age Group Amount Percent Uncollectible 0–60 days $ 395,000 5 % 61–90 days 94,000 14 91–120 days 54,000 24 Over 120 days 134,000 35 Total $ 677,000 Required: 1. Prepare a summary journal entry to record the monthly bad debt accrual and the write-offs during the year. 2. Prepare the necessary year-end adjusting entry for bad debt expense. 3-a. What is total bad debt expense for 2018? 3-b. How would accounts receivable appear in the 2018 balance sheet?

This year Burchard Company sold 29,000 units of its only product for $19.20 per unit. Manufacturing and selling the product required $114,000 of fixed manufacturing costs and $174,000 of fixed selling and administrative costs. Its per unit variable costs follow. Material $ 3.40 Direct labor (paid on the basis of completed units) 2.40 Variable overhead costs 0.34 Variable selling and administrative costs 0.14 Next year the company will use new material, which will reduce material costs by 70% and direct labor costs by 30% and will not affect product quality or marketability. Management is considering an increase in the unit selling price to reduce the number of units sold because the factory’s output is nearing its annual output capacity of 34,000 units. Two plans are being considered. Under plan 1, the company will keep the selling price at the current level and sell the same volume as last year. This plan will increase income because of the reduced costs from using the new material. Under plan 2, the company will increase the selling price by 30%. This plan will decrease unit sales volume by 15%. Under both plans 1 and 2, the total fixed costs and the variable costs per unit for overhead and for selling and administrative costs will remain the same. Required: 1. Compute the break-even point in dollar sales for both (a) plan 1 and (b) plan 2. (Round "per unit answers" and "CM ratio" percentage answer to 2 decimal places.)

Single Plantwide and Multiple Production Department Factory Overhead Rate Methods and Product Cost Distortion

The management of Firebolt Industries Inc. manufactures gasoline and diesel engines through two production departments, Fabrication and Assembly. Management needs accurate product cost information in order to guide product strategy. Presently, the company uses a single plantwide factory overhead rate for allocating factory overhead to the two products. However, management is considering the multiple production department factory overhead rate method. The following factory overhead was budgeted for Firebolt:

Direct labor hours were estimated as follows:

In addition, the direct labor hours (dlh) used to produce a unit of each product in each department were determined from engineering records, as follows:

a. Determine the per-unit factory overhead allocated to the gasoline and diesel engines under the single plantwide factory overhead rate method, using direct labor hours as the activity base.

b. Determine the per-unit factory overhead allocated to the gasoline and diesel engines under the multiple production department factory overhead rate method, using direct labor hours as the activity base for each department.

c. Recommend to management a product costing approach, based on your analyses in (a) and (b).

Management should select the ___________ factory overhead rate method of allocating overhead costs. The __________ factory overhead rate method indicates that both products have the same factory overhead per unit. Each product uses the direct labor hours __________. Thus, the __________ rate method avoids the cost distortions by accounting for the overhead __________.

Based on the Internal Controls and Transaction-Related Audit Objective follow the procedures below in determining the Control Activity, Existence Test and Error Test in bold. Follow by a brief explanation of why this is suitable for the specific category.

·         Determine the Control activity for your assigned control. e.g Separation of Duties. Adequate documents and records, etc

·         What test would you run to determine the Existence of the Control. e.g Observation, Inspection, etc.

·         What test would you run to determine that there are no errors of the type the control is designed to identify? e.g. Occurrence, Completeness, etc.

The intangible assets section of Grouper Corporation’s balance sheet at December 31, 2017, is presented here.

The patent was acquired in January 2017 and has a useful life of 10 years. The copyright was acquired in January 2011 and also has a useful life of 10 years. The following cash transactions may have affected intangible assets during 2018.

Prepare journal entries to record the 2018 amortization expense for intangible assets. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.) How is it calculated?

Please show work and calculations on how you got to answer.

On June 30, 2018, Georgia-Atlantic, Inc. leased a warehouse facility from IC Leasing Corporation. The lease agreement calls for Georgia-Atlantic to make semiannual lease payments of $450,399 over a four-year lease term, payable each June 30 and December 31, with the first payment at June 30, 2018. Georgia-Atlantic’s incre-mental borrowing rate is 11%, the same rate IC uses to calculate lease payment amounts. Depreciation is recorded on a straight-line basis at the end of each fiscal year. The fair value of the warehouse is $3.01 million.

Use this Present Value of annuity due factor = 6.68297

1. Determine the present value of the lease payments at June 30, 2018 (to the nearest $000) that Georgia-Atlantic uses to record the right-of-use asset and lease liability.
2. What amounts related to the lease would Georgia-Atlantic report in its balance sheet at December 31, 2018 (ignore taxes)?
3. What amounts related to the lease would Georgia-Atlantic report in its income statement for the year ended December 31, 2018 (ignore taxes)?

Question 3: Variance Analysis (20 marks in total)

You have introduced a standard cost accounting system for FOL. The following standard costs have been developed for producing 1kg of the Cattle drench.

Production and cost information for May was:

Required

1. Calculate the following standard cost variances for May and provide general journal entries to record the cost flows for May.

(a) materials price

(b) materials usage

(c) direct labour rate

(d) direct labour efficiency

(e) total overhead

Navidale, a listed engineering company, manufactures large scale plant and machinery for industrial companies. Until ten years ago, Navidale Limited purshed a strategy of organic growth. Since then, it has followed an aggressive policy of acquiring smaller engineering companies, which it feels have developed new technologies and methods, which could be used in its manufacturing process. However, it is estimated that only between 30% and 40% of the acquisitions made in the last ten years have successfully increased the company's shareholder value. Navidale Limited is currently considering acquiring Lochinvar, an unlisted company, which has three departments. Department A manufactures machinery for industrial companies, Department B produces electrical goods for the retail market, and the smaller Department C operates in the construction industry. Upon acquisition, Department A will become part of Navidale, as it contains the new technololgies which Navidale is seeking, but Departments B and C will be unbundled, whith the assets attached to Department C sold and Department B being spun off into a new company called Ndege Co.

Given below extracts of financial information for the two companies for the year ended 30 April 2014.

Navidale Co   Lochinvar Co

R Million R Million

Sales revenue: R790-2 R124.6

Profit before depreciation, interest and tax (PBDIT) R244.4    R37.4 million;

Interest R 13.8 R 4.3

Depreciation R 72.4 R 10.1

Pre tax profit R 158.2 R23.0

Non-current assets R723.9 R98.2

Current assets R142.6 R46.5

7% unsecured bond - R40.0

Other non-current and current liabilities R212.4 R20.2

Share capital (50c/share) R190.0 R20.0

Reserves R464.1 R64.5

Share of current and non-current assets and profit for Navidale Co's three departments:

Department A Department B Department C

Share of current and non-current assets 40% 40% 20%

Share of PBDIT and pre-tax profit 50% 40% 10%

Other information

(i) It is estimated that for Department C, the realisable value of its non-current assets is 100% of their book value, but its current assets' realisable value is only 90% of their book value. The costs related to closing Department C are estimated to be R3 million.

(ii) The funds raised from the disposal of Department C will be used to pay off Lonchivar Co's other non-current and current liabilities.

(iii)The 7% unsecured bond will be taken over by Ndege Co. It can be assumed that the current market value of the bond is equal to its book value.

(iv) At present, around 10% of the Department B's PBDIT come from sales made to Department C.

(v) Ndege Co's cost of capital is estimated to be at 10%. It is estimated that in the first year of operation Ndege Co's free cash flows to firm will grow by 20% and then by 5-2% annually thereafter.

(vi) The tax rate applicable to all the companies is 20%, and Ndege Co can claim 10% tax allowable depreciation on its non-current assets. It can be assumed that the amount of tax allowable depreciation is the same as the investment needed to maintain Ndege Co's operations.

(vii) Navidale Co's current share price is R3 per share and it is estimated that Lochinvar Co's price-to-earnings (PE) ratio is 25% higher than Navidale Co's PE ratio. After the acquisition, when Department A becomes part of Navidale Co, it is estimated that Navidale Co's PE ratio will increase by 15%.

(viii) It is estimated that the combined company's annual after-tax earnings will increase by R7 million due to the synergy benefits resulting from combining Navidale Co and Department A.

Required:

4.1 Discuss the possible reasons why Navidale Co may have switched its strategy of organic growth to one of growing by acquiring companies.(4)

4.2 Discuss the possible actions Navidale Co could take to reduce the risk that the acquisition of Lochinvar Co fails to increase shareholder value (7)

4.3 Estimate, showing all relevant calculations, the maximum premium Navidale Co could pay to acquire Lonchivar Co, explaining the approach taken and any assumptions made. (14)

Wil, Dave and Corinne are in a partnership as window repairers. Their business is called “Windows R Us”. Consider the following:

a. The business is run from an industrial shed which Dave owns. Dave pays for the upkeep of his shed, and the shed has remained basically unaltered since the business starting using it. However, due to rezoning of the area, the premises have substantially increased in value.

Explain the nature of the property in relation to the partnership and, if the premises is sold, whether profits must be shared.

b. Corinne purchases some expensive tinted glass on credit from a glass wholesaler –“Glass House”. Although Corinne actually wants the expensive tinted glass for her own private use (for a home she is building with her boyfriend Rove), she gives the impression to the salesperson at the Glass House that the purchase is on behalf of Windows R Us. Corinne has entered into this transaction on behalf of the partnership even though there was no express authority in the partnership agreement for Corinne to do so. Who will be liable for the debt incurred by Corinne?

c. (i) Dave and Corinne want to continue the business, but Wil is feeling like he wants to do something else with his life now, and thinks he would like to retire from the partnership. Advise Wil in relation to what action he should take regarding his liability for debts incurred by the partnership after he ceases to be a partner.

(ii) Unfortunately, before Wil makes up his mind as to whether he wants to retire, he dies suddenly. The partnership agreement does not include any provisions relating to the death of a partner.

Discuss the impact of Wil’s death on the partnership, and what happens with his share of the partnership.