Oerstman, Inc., uses a standard costing system and develops its overhead rates from the current annual budget. The budget is based on an expected annual output of 125,000 units requiring 500,000 direct labor hours. (Practical capacity is 520,000 hours.) Annual budgeted overhead costs total $815,000, of which $580,000 is fixed overhead. A total of 119,200 units using 498,000 direct labor hours were produced during the year. Actual variable overhead costs for the year were $261,300, and actual fixed overhead costs were $556,150.

1. Compute the fixed overhead spending and volume variances.

2. Compute the variable overhead spending and efficiency variances. Do not round intermediate calculations

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

2018

2019

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. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Do not round your intermediate calculations.)

Southcott co is a firm of financial consultants which offers short revision courses on taxation and auditing for professional examinations. The firm has budgeted annual overheads totaling $152,625. Until recently the firm has applied overheads on a volume basis, based on the number of course days offered. The firm has no variable costs and the only direct costs are the consultants' own time which they divide equally between their two courses. The following information relates to the past year and is expected to remain the same for the coming year. Course No. of courses sold Duration of course No. of enquiries No. of brochures Auditing 50 2 days 175 300 Taxation 30 3 days 70 200 All courses run with a maximum number of students (30), as it is deemed that beyond this number the learning experience is severely diminished, and the same center is hired for all courses at a standard daily rate. The firm has the human resources to run only one course at any one time. Required 1. Calculate the overhead cost per course for auditing using traditional volume based absorption costing to the nearest dollar. 2. The firm is considering the possibility of adopting an activity-based costing (ABC) system and has identified the overhead costs as shown below. Details of overheads $ Center hire 62,500 Enquiries administration 27,125 Brochures 63,000 Total 152,625 Calculate the overhead cost of center hire which would be allocated to an auditing course under activity based costing to the nearest dollar. 3. Calculate the overhead cost of brochure printing which would be allocated to a taxation course under activity based costing to the nearest dollar. 4. Calculate the overhead cost of enquiries administration which would be allocated to a taxation course under activity based costing. 5. A member of Southcott Co.’s finance team has said that activity based costing (ABC) provides more accurate product costs than a traditional absorption costing system. He gave a number of statements supporting this claim. Which of the following statements does not support his claim?

Describe sustainable income and the importance of sustainable income in the evaluation of the income statement.

Choose at least two (2) items or events that will affect sustainable income of a company.

Propose the manner in which you would disclose these items or events to investors. Justify your response

Carreker, Inc., has a number of divisions, including the Alamosa Division, producer of surgical blades, and the Tavaris Division, a manufacturer of medical instruments. Alamosa Division produces a 2.4 cm steel blade that can be used by Tavaris Division in the production of scalpels. The market price of the blade is $25. Cost information for the blade is: Variable product cost $ 9.40 Fixed cost 5.60 Total product cost $15.00 Tavaris needs 19,000 units of the 2.4 cm blade per year. Alamosa Division is at full capacity (85,000 units of the blade).

1. If Carreker, Inc., has a transfer pricing policy that requires transfer at market price, what would the transfer price be?
$ per unit

Do you suppose that Alamosa and Tavaris divisions would choose to transfer at that price?
Yes

2. Now suppose that Carreker, Inc., allows negotiated transfer pricing and that Alamosa Division can avoid $1.75 of selling and distribution expense by selling to Tavaris Division. Which division sets the minimum transfer price, and what is it? Round your answers to the nearest cent, if needed.
  $ per unit

Which division sets the maximum transfer price, and what is it?
  $ per unit

Do you suppose that Alamosa and Tavaris divisions would choose to transfer somewhere in the bargaining range?

3. What if Alamosa Division plans to produce and sell only 70,000 units of the 2.4 cm blade next year? Which division sets the minimum transfer price, and what is it? Round your answers to the nearest cent, if needed.
  $ per unit

Which division sets the maximum transfer price, and what is it?
  $ per unit

Do you suppose that Alamosa and Tavaris divisions would choose to transfer somewhere in the bargaining range?

ackpot Mining Company operates a copper mine in central Montana. The company paid $1,550,000 in 2018 for the mining site and spent an additional $710,000 to prepare the mine for extraction of the copper. After the copper is extracted in approximately four years, the company is required to restore the land to its original condition, including repaving of roads and replacing a greenbelt. The company has provided the following three cash flow possibilities for the restoration costs (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.):

To aid extraction, Jackpot purchased some new equipment on July 1, 2018, for $249,000. After the copper is removed from this mine, the equipment will be sold for an estimated residual amount of $27,000. There will be no residual value for the copper mine. The credit-adjusted risk-free rate of interest is 10%.

The company expects to extract 11.1 million pounds of copper from the mine. Actual production was 2.7 million pounds in 2018 and 4.1 million pounds in 2019.

Required:
1. Compute depletion and depreciation on the mine and mining equipment for 2018 and 2019. The units-of-production method is used to calculate depreciation. (The expected format for rounding is presented in the appropriate rows of the table. Round your final answers to nearest whole dollar.)

1/ At the beginning of 2016, Robotics Inc. acquired a manufacturing facility for $12.8 million. $9.8 million of the purchase price was allocated to the building. Depreciation for 2016 and 2017 was calculated using the straight-line method, a 25-year useful life, and a $1.8 million residual value. In 2018, the estimates of useful life and residual value were changed to 20 total years and $580,000, respectively.

What is depreciation on the building for 2018? (Round answer to the nearest whole dollar.)
  

2/ Collison and Ryder Company (C&R) has been experiencing declining market conditions for its sportswear division. Management decided to test the assets of the division for possible impairment. The test revealed the following: book value of division’s assets, $27.1 million; fair value of division’s assets, $21.3 million; sum of estimated future cash flows generated from the division’s assets, $28.3 million.

What amount of impairment loss should C&R recognize? (Enter your answer in whole dollars.)
  

On October 1, 2018, the Allegheny Corporation purchased machinery for $314,000. The estimated service life of the machinery is 10 years and the estimated residual value is $6,000. The machine is expected to produce 550,000 units during its life.

Required:
Calculate depreciation for 2018 and 2019 using each of the following methods. Partial-year depreciation is calculated based on the number of months the asset is in service.

1. Straight line.
2. Sum-of-the-years’-digits.
3. Double-declining balance.
4. One hundred fifty percent declining balance.
5. Units of production (units produced in 2018, 28,000; units produced in 2019, 43,000).

Calculate depreciation for 2018 and 2019 using straight line method. Partial-year depreciation is calculated based on the number of months the asset is in service.

Calculate depreciation for 2018 and 2019 using sum-of-the-years’ digits. Partial-year depreciation is calculated based on the number of months the asset is in service.

Calculate depreciation for 2018 and 2019 using double-declining balance. Partial-year depreciation is calculated based on the number of months the asset is in service.

Madrid Corporation has 15,000 shares of $70 par common stock outstanding. On June 8, Madrid Corporation declared a 3% stock dividend to be issued August 12 to stockholders of record on July 13. The market price of the stock was $103 per share on June 8.

Journalize the entries required on June 8, July 13, and August 12. For a compound transaction, if an amount box does not require an entry, leave it blank. If no entry is required, select "No Entry Required" and leave the amount boxes blank.

Estimated Warranty Liability

Cook-Rite Co. sold $541,000 of equipment during January under a one-year warranty. The cost to repair defects under the warranty is estimated at 6% of the sales price. On August 15, a customer required a $348 part replacement, plus $174 of labor under the warranty.

Required:

(a) Provide the journal entry for the estimated warranty expense on January 31 for January sales.

(b) Provide the journal entry for the August 15 warranty work. If an amount box does not require an entry, leave it blank.

Hanover Products manufactures screws and bolts made to customer specifications. During August, they incurred the following manufacturing costs: ? Direct materials $28,019 ? Direct labor $15,276.75 ? Applied factory overhead $9,854.50 The following data pertain to these costs: Summary of Direct Materials Requisitions

Summary of Direct Labor Time Tickets

The overhead application rate is $4 per direct labor hour for Dept 1 and 175% of direct labor cost for Dept 2. The company had no beginning work in process for August, Job 8958, which cost $14,190.18 to manufacture, was completed in July and was sold on account in August for $19,000. The job cost sheet for this job is shown on below. Of the jobs begun in August, Job 8961 was completed and sold on account for $24,000,

ACG2071 - 2185

Page 2 of 2

Job 8962 and 8964 was completed but not sold and Job 8963 was still in process.

The Board of Directors of Sanderson Inc. and Gill Corp. reached an agreement in principle to merge the two companies and create a new company called SG Ltd.The basics of the agreement confirmed so far are outlined below: The new company will purchase all of the assets and assume all of the liabilities of Sanderson and Gill by issuing shares. After the sale the two companies will be wound up. Some but not all members of the top management of each company will be retained. The number of SG shares that will be issued has not yet been determined. The founding shareholders of Sanderson Corp., who owned 60% of the voting shares of Sanderson prior to the merger, have rights to veto any sale of patents, which they developed and registered. Some of the other shareholders of Sanderson also owned non-voting preferred shares of Sanderson. These preferred shares were convertible into common shares of Sanderson on a one-for-one basis. Required: Make an initial post to provide the chair of the merger committee with no more than two pieces of advice as to the accounting implications that will result from this merger, even though many of the details have not yet been ironed out.

Step 1:

You work for Thunderduck Custom Tables Inc. This is the first month of operations. The company designs and manufactures specialty tables. Each table is specially customized for the customer. This month, you have been asked to develop and manufacture two new tables for customers. You will design and build the tables. This is a no nail, no screw, and no glue manufacturing ( no indirect materials used). You will be keeping track of the costs incurred to manufacture the tables using Job #1 Cost Sheet and Job #2 Cost Sheet.

The cost of the direct materials that can be used to manufacture the table are as follows. These cost are on a per unit basis.

  Table Top $1,800.00

  Table Leg   $550.00

  Drawer   $380.00

The company uses a job order costing system and applies manufacturing overhead to jobs based on direct labor hours.   

The company estimates that there will be 12 direct labor hours worked during the month.

The estimated manufacturing overhead cost for the month is:  

a.Factory supervisor salary per month $4,000.00

b.Rent for the factory per month $1,400.00

c.Depreciation of factory equipment per month $600.00

  Total Estimated manufacturing overhead $6,000.00

What is the predetermined manufacturing overhead rate?   

Step 2:

The first order you received was to manufacture a table using a table top and four legs. This is your Job #1.

Step 3:

The customer that has ordered Job #2, wants a table that is the same as Job #1, but wants to also add a drawer to the table.

Step 4:

The following is a list of transactions that need to be recorded for the company for activity in the month of December. Record those in the "General Journal" tab of the excel file using the proper format. Please use the following accounts: Accounts Receivables, Raw materials, Work in process, Finished goods, Accumulated depreciation, Accounts payable, Salaries and wages payable, Sales revenue, Manufacturing overhead, Cost of goods sold, Salaries and wages expense, Advertising expenses, and Depreciation expense.

1-Dec Raw Materials purchased on account, $18,000.

5-Dec All Raw Materials needed for Job #1 were requisitioned from the material storage for use during the month. Assume all materials are direct. (After you journalize this entry please enter the information into Job #1 Cost Sheet)

10-Dec The following employee costs were incurred but not paid during the month:

There are three assembly employees that spend 2 hours each, $20 per hour to make the table for Job #1. (After you journalize this entry please enter the information into Job #1 Cost Sheet)

Salary for supervisor of the factory $4,500.

Administrative Salary $2,000.

15-Dec All Raw Materials needed for Job #2 were requisitioned from the material storage for use during the month. Assume all materials are direct. (After you journalize this entry please enter the information into Job #2 Cost Sheet)

16-Dec Rent for the month of December for the factory building incurred but not paid $1,400.

17-Dec Advertising costs incurred but not paid for the month was $1,600.

20-Dec Depreciation for the month of December was recorded on equipment was $750 ($150 for equipment used in the factory and the remainder for equipment used in selling and administrative activities).

22-Dec Manufacturing overhead cost was applied based on direct labor hours to Job #1 based on the POHR determined on the "Job Cost Sheet". (After you journalize this entry please enter the information into Job #1 Cost Sheet)

26-Dec Job #1 was completed and transferred to Finished Goods during the month.

28-Dec The completed table from Job #1 was sold on account to the customer for $23,000 during the month. (Hint: Make sure to account for the cost of the table that was sold using the cost from the job cost sheet.)

31-Dec Direct labor cost incurred but not paid for three employees to start manufacturing Job #2. The employees only worked one hour each, three hours total, $20 per hour during the month and they did not complete their work on the job. (After you journalize this entry please enter the information into Job #2 Cost Sheet)

31-Dec Manufacturing overhead cost was applied based on direct labor hours to Job #2 based on the POHR. Only three direct labor hours were worked on Job #2 during the month. (After you journalize this entry please enter the information into Job #2 Cost Sheet)

31-Dec Any underapplied or overapplied overhead for the month was closed out to Cost of Goods Sold.

Price, Variable Cost per Unit, Contribution Margin, Contribution Margin Ratio, Fixed Expense

For each of the following independent situations, calculate the amount(s) required.

Required:

1. At the break-even point, Jefferson Company sells 85,000 units and has fixed cost of $349,900. The variable cost per unit is $0.20. What price does Jefferson charge per unit? Round to the nearest cent.
$

2. Sooner Industries charges a price of $93 and has fixed cost of $481,500. Next year, Sooner expects to sell 19,300 units and make operating income of $175,000. What is the variable cost per unit? What is the contribution margin ratio? Round your variable cost per unit answer to the nearest cent. Enter the contribution margin ratio as a percentage, rounded to two decimal places.

3. Last year, Jasper Company earned operating income of $28,920 with a contribution margin ratio of 0.3. Actual revenue was $241,000. Calculate the total fixed cost. Round your answer to the nearest dollar, if required.
$

4. Laramie Company has variable cost ratio of 0.55. The fixed cost is $102,650 and 21,900 units are sold at breakeven. What is the price? What is the variable cost per unit? The contribution margin per unit? (Round answers to the nearest cent.)

You have just been hired as a new management trainee by Earrings Unlimited, a distributor of earrings to various retail outlets located in shopping malls across the country. In the past, the company has done very little in the way of budgeting and at certain times of the year has experienced a shortage of cash. Since you are well trained in budgeting, you have decided to prepare a master budget for the upcoming second quarter. To this end, you have worked with accounting and other areas to gather the information assembled below.

The company sells many styles of earrings, but all are sold for the same price—$14 per pair. Actual sales of earrings for the last three months and budgeted sales for the next six months follow (in pairs of earrings):

January (actual) $21,600   June (budget) $51,600

February (actual)  $27,600   July (budget) $31,600

March (actual) $41,600   August (budget) $29,600

April (budget) $66,600   September (budget) $26,600

May (budget) $101,600                            

The concentration of sales before and during May is due to Mother’s Day. Sufficient inventory should be on hand at the end of each month to supply 40% of the earrings sold in the following month.

Suppliers are paid $4.80 for a pair of earrings. One-half of a month’s purchases is paid for in the month of purchase; the other half is paid for in the following month. All sales are on credit. Only 20% of a month’s sales are collected in the month of sale. An additional 70% is collected in the following month, and the remaining 10% is collected in the second month following sale. Bad debts have been negligible.

Monthly operating expenses for the company are given below:

Variable:                                          

Sales commissions                         4% of sales

Fixed:                                

Advertising   $280,000              

Rent $26,000  

Salaries $122,000              

Utilities $11,000  

Insurance $3,800    

Depreciation $22,000  

Insurance is paid on an annual basis, in November of each year.

The company plans to purchase $20,000 in new equipment during May and $48,000 in new equipment during June; both purchases will be for cash. The company declares dividends of $21,000 each quarter, payable in the first month of the following quarter.

The company’s balance sheet as of March 31 is given below:

Assets

Cash      $             82,000

Accounts receivable ($38,640 February sales; $465,920 March sales)                      504,560

Inventory                           127,872

Prepaid insurance                          25,000

Property and equipment (net)                   1,030,000

Total assets        $             1,769,432

Liabilities and Stockholders’ Equity

Accounts payable             $             108,000

Dividends payable                         21,000

Common stock               960,000

Retained earnings                          680,432

Total liabilities and stockholders’ equity $             1,769,432

The company maintains a minimum cash balance of $58,000. All borrowing is done at the beginning of a month; any repayments are made at the end of a month.

The company has an agreement with a bank that allows the company to borrow in increments of $1,000 at the beginning of each month. The interest rate on these loans is 1% per month and for simplicity we will assume that interest is not compounded. At the end of the quarter, the company would pay the bank all of the accumulated interest on the loan and as much of the loan as possible (in increments of $1,000), while still retaining at least $58,000 in cash.

Required:

Prepare a master budget for the three-month period ending June 30. Include the following detailed schedules:

1. a. A sales budget, by month and in total.

    b. A schedule of expected cash collections, by month and in total.

    c. A merchandise purchases budget in units and in dollars. Show the budget by month and in total.

    d. A schedule of expected cash disbursements for merchandise purchases, by month and in total.

2. A cash budget. Show the budget by month and in total. Determine any borrowing that would be needed to maintain the minimum cash balance of $58,000.

3. A budgeted income statement for the three-month period ending June 30. Use the contribution approach.

4. A budgeted balance sheet as of June 30.