Direct Materials, Direct Labor, and Factory Overhead Cost Variance Analysis

Mackinaw Inc. processes a base chemical into plastic. Standard costs and actual costs for direct materials, direct labor, and factory overhead incurred for the manufacture of 4,400 units of product were as follows:

Each unit requires 0.25 hour of direct labor.

Required:

a. Determine the direct materials price variance, direct materials quantity variance, and total direct materials cost variance. Enter a favorable variance as a negative number using a minus sign and an unfavorable variance as a positive number.

b. Determine the direct labor rate variance, direct labor time variance, and total direct labor cost variance. Enter a favorable variance as a negative number using a minus sign and an unfavorable variance as a positive number.

c. Determine variable factory overhead controllable variance, the fixed factory overhead volume variance, and total factory overhead cost variance. Enter a favorable variance as a negative number using a minus sign and an unfavorable variance as a positive number.

Lovell Computer Parts Inc. is in the process of setting a selling price on a new component it has just designed and developed. The following cost estimates for this new component have been provided by the accounting department for a budgeted volume of 45,000 units.

Lovell Computer Parts management requests that the total cost per unit be used in cost-plus pricing its products. On this particular product, management also directs that the target price be set to provide a 18% return on investment (ROI) on invested assets of $1,000,000.

A.) Compute the markup percentage and target selling price that will allow Lovell Computer Parts to earn its desired ROI of 18% on this new component.

B.) Assuming that the volume is 36,000 units, compute the markup percentage and target selling price that will allow Lovell Computer Parts to earn its desired ROI of 18% on this new component.

Comprehensive Accounting Cycle Review

ACR7.1  (Perpetual Method) Jeter Co. uses a perpetual inventory system and both an accounts receivable and an accounts payable subsidiary ledger. Balances related to both the general ledger and the subsidiary ledgers for Jeter are indicated in the working papers presented below. Also below are a series of transactions for Jeter Co. for the month of January. Credit sales terms are 2/10, n/30. The cost of all merchandise sold was 60% of the sales price.

Instructions

(a)  

Record the January transactions in a sales journal, a single-column purchases journal, a cash receipts journal as shown in Illustration 7.9, a cash payments journal as shown in Illustration 7.16, and a two-column general journal.

(b)  

Post the journals to the general ledger.

(c)  Prepare a trial balance at January 31, 2020, in the trial balance columns of the worksheet. Complete the worksheet using the following additional information.

• 1.Office supplies at January 31 total $900.
• 2.Insurance coverage expires on October 31, 2020.
• 3.Annual depreciation on the equipment is $1,500.
• 4.Interest of $50 has accrued on the note payable.

(d)  

Prepare a multiple-step income statement and an owner's equity statement for January and a classified balance sheet at the end of January.

(e)  

Prepare and post adjusting and closing entries.

(f)  

Prepare a post-closing trial balance, and determine whether the subsidiary ledgers agree with the control accounts in the general ledger.

ACR7.2  (Periodic Inventory) McBride Company has the following opening account balances in its general and subsidiary ledgers on January 1 and uses the periodic inventory system. All accounts have normal debit and credit balances.

In addition, the following transactions have not been journalized for January 2020.

Instructions

(a)  

Record the January transactions in the appropriate journal—sales, purchases, cash receipts, cash payments, and general.

(b)  

Post the journals to the general and subsidiary ledgers. Add and number new accounts in an orderly fashion as needed.

(c)  Prepare a trial balance at January 31, 2020, using a worksheet. Complete the worksheet using the following additional information.

• 1.Supplies at January 31 total $700.
• 2.Insurance coverage expires on October 31, 2020.
• 3.Annual depreciation on the equipment is $1,500.
• 4.Interest of $30 has accrued on the note payable.
• 5.Inventory at January 31 is $15,000.

(d)  

Prepare a multiple-step income statement and an owner's equity statement for January and a classified balance sheet at the end of January.

(e)  

Prepare and post the adjusting and closing entries.

(f)  

Prepare a post-closing trial balance, and determine whether the subsidiary ledgers agree with the control accounts in the general ledger.

1) An negative feature of Exchange Traded Funds (ETFs) is:

A. the price of the fund may not match the Net Asset Value

B. the investor has less control over tax implications of trading than with a mutual fund

C. ETFs charge higher fees to investors than mutual funds

D. none of the above

2) An negative feature of mutual funds is:

A. the price of the fund may not match the Net Asset Value

B. the investor has less control over tax implications of trading than with an ETF

C. mutual funds typically have very high beta

D. none of the above

3) An attractive feature of mutual funds is:

A. the price of the fund always matches the Net Asset Value

B. the investor has more control over tax implications of trading than with a mutual fund

C. mutual funds typically charge lower fees to investors than ETFs

D. mutual funds consistently produce positive alphas

4) When we analyze the performance of an actively managed mutual fund we find that the fund generated a beta of 0.5 and an alpha of -1%.

A. this result shows that the manager took relatively low risk when investing

B. the alpha reported is good, considering the level of risk taken

C. both (A) and (B) are true

D. none of the above

5) A negative alpha for a mutual fund means:

A. the fund invested in assets which were below average levels of risk

B. the fund manager’s returns were lower than expected

C. the fund’s shares decreased in value during the period being analyzed

D. all of the above

6) An index fund should _______ for us to conclude that it performed well.

A. have a positive alpha

B. have a beta significantly greater than 1

C. have a beta equal to 1.

D. have an alpha equal to 0.

7) When we analyze the performance of an actively managed mutual fund we find that the fund generated a beta of 1.5 and an alpha of 2%.

A. the alpha is low, considering the high risk that was taken

B. this result shows that the manager did not add any value to performance with his/her decision-making

C. both (A) and (B) are true

D. none of the above

Duchess Company's records show the following account balances at December 31,2018

Sales 19,000,000

Cost of Goods Sold 11,000,000

General an administrative expenses 1,200,000

Selling Expenses 700,000

Interest expense 900,000

Income tax has not yet been determined. The following events also occurred during 2018. All transactions are material in amount.

1. 500,000 in restructuring costs were incurred in connection with plant closings.

2. Inventory costing 600,000 was written off as obsolete. Material losses of this type are considered to be unusual.

3. The company experienced a negative foreign currency translation adjustment of 400,000 and had unrealized gain investments of 380,000.

Required: Prepare a single, continuous multiple-step statement of comprehensive income for 2018. The company's effective tax rate on all items affecting comprehensive income is 40%. Each component of other comprehensive income should be displayed net of tax. Calculate earnings per share if there were 1,000,000 shares outstanding at January 1, 2018 and 400,000 additional shares were issued in July 2018.

Calculate the times earned interest ratio(amounts to be deducted should be indicated with a minus sign)

Managers are motivated to accomplish objectives if they feel that their efforts will be fairly evaluated. Discuss in detail why an organization may use different bases for evaluating the performance of managers of different types of responsibility centers.

Kragan Clothing Company manufactures its own designed and labeled athletic wear and sells its products through catalog sales and retail outlets. While Kragan has for years used activity-based costing in its manufacturing activities, it has always used traditional costing in assigning its selling costs to its product lines. Selling costs have traditionally been assigned to Kragan’s product lines at a rate of 70% of direct materials costs. Its direct materials costs for the month of March for Kragan’s “high-intensity” line of athletic wear are $405,000. The company has decided to extend activity-based costing to its selling costs. Data relating to the “high-intensity” line of products for the month of March are as follows.

Compute the selling costs to be assigned to the “high-intensity” line of athletic wear for the month of March (1) using the traditional product costing system (direct materials cost is the cost driver), and (2) using activity-based costing.

By what amount does the traditional product costing system undercost or overcost the “high-intensity” product line?

The Company uses a single department production process. Materials are added at the start of the production process and labor and overhead are added as indicated. For January 2018, the Company records have the following information:

UNITS:
Beginning WIP:                                                                                                          10,000 units

100% complete for materials, 50% complete for labor; 3% complete for overhead

Units started in process                                                                                               50,000 units

Units completed                                                                                                          49,000 units

Ending WIP:                                                                                                             11,000 units

100% complete for materials, 60% complete for labor; 20% complete for overhead

PRODUCTION COSTS:

Work in Process, Beginning of the Month:
Materials                                          $ 22,000
Labor                                                   18,000
Overhead                                            11,000             51,000

Current Month Costs:
Materials                                          $ 320,000
Labor                                                   180,160
Overhead                                            152,840           653,000

                                    Total Costs:                        $   704,000

Prepare a Cost of Production Summary using the FiFO method (calculations for equivalent units of production, cost per equivalent unit of production, total cost for units completed and WIP, ending). Prepare your calculations for Materials, Labor, and Overhead separately. Prepare the appropriate journal entries at month end.

Hope Company bought 30% of Faith Corporation in the beginning of 2021. Hope's purchase price of $3,000,000 equaled 30% of the book value of Faith's net identifiable assets, which also equaled 30% of the fair value of Faith. During 2021, Faith reported net income in the amount of $4,000,000 and declared and paid dividends in the amount of $300,000. At the end of 2021, Faith’s fair value was $12,000,000. Hope mistakenly accounted for the investment using the fair value through net income method instead of using the equity method. What effect would this error have on the investment account and net income, respectively, for 2021?

Level 4

In this group projects:

Assume that you are an accountant in Maida Vale company. Your manager provided you with the following balances that shows the balances for the year ended December 31, 2018 ( as shown below). He asked you to prepare the trail balance for the company. While you were looking at the trial balance, you found that some numbers are missing. When you informed your manager about the them, he provided you with some documents that will help you to figure out the missing information.

The purchases and sales transaction history during the year:

An allowance of 10% of the receivables needs to be reflected however, the account of allowance is debited with 50000

[The following information applies to the questions displayed below.] Beech Corporation is a merchandising company that is preparing a master budget for the third quarter of the calendar year. The company’s balance sheet as of June 30th is shown below: Beech Corporation Balance Sheet June 30 Assets Cash $ 73,000 Accounts receivable 125,000 Inventory 56,000 Plant and equipment, net of depreciation 221,000 Total assets $ 475,000 Liabilities and Stockholders’ Equity Accounts payable $ 82,000 Common stock 309,000 Retained earnings 84,000 Total liabilities and stockholders’ equity $ 475,000 5.value: 20.00 pointsRequired information Beech’s managers have made the following additional assumptions and estimates: 1. Estimated sales for July, August, September, and October will be $320,000, $340,000, $330,000, and $350,000, respectively. 2. All sales are on credit and all credit sales are collected. Each month’s credit sales are collected 35% in the month of sale and 65% in the month following the sale. All of the accounts receivable at June 30 will be collected in July. 3. Each month’s ending inventory must equal 25% of the cost of next month’s sales. The cost of goods sold is 70% of sales. The company pays for 40% of its merchandise purchases in the month of the purchase and the remaining 60% in the month following the purchase. All of the accounts payable at June 30 will be paid in July. 4. Monthly selling and administrative expenses are always $40,000. Each month $6,000 of this total amount is depreciation expense and the remaining $34,000 relates to expenses that are paid in the month they are incurred. 5. The company does not plan to borrow money or pay or declare dividends during the quarter ended September 30. The company does not plan to issue any common stock or repurchase its own stock during the quarter ended September 30. Required: 1. Prepare a schedule of expected cash collections for July, August, and September. Also compute total cash collections for the quarter ended September 30. 2-a. Prepare a merchandise purchases budget for July, August, and September. Also compute total merchandise purchases for the quarter ended September 30. 2-b. Prepare a schedule of expected cash disbursements for merchandise purchases for July, August, and September. Also compute total cash disbursements for merchandise purchases for the quarter ended September 30. 3. Prepare an income statement for the quarter ended September 30. 4. Prepare a balance sheet as of September 30.

Question:

Complete the items below that would appear on a book/tax reconciliation for Schedule M-1 on the IRS Form 1120, U.S. Corporation Income Tax Return, for InterTax’s first year of operations. Based on the data provided in the exhibit, enter the appropriate values in the associated cells below. Please enter additions as positive whole numbers and subtractions as negative whole numbers. If an amount is zero, enter a zero (0).

Note: The deduction for organizational expenses in the year was $5,707.

InterTac Inc.

INCOME STATEMENT:

Note: There were no shareholder distributions during the year.

1. Decision on Accepting Additional Business

   Brightstone Tire and Rubber Company has capacity to produce 153,000 tires. Brightstone presently produces and sells 117,000 tires for the North American market at a price of $111 per tire. Brightstone is evaluating a special order from a European automobile company, Euro Motors. Euro is offering to buy 18,000 tires for $93.95 per tire. Brightstone's accounting system indicates that the total cost per tire is as follows:

   Direct materials	$42
   Direct labor	16
   Factory overhead (70% variable)	26
   Selling and administrative expenses (40% variable)	22
   Total	$106

   Brightstone pays a selling commission equal to 5% of the selling price on North American orders, which is included in the variable portion of the selling and administrative expenses. However, this special order would not have a sales commission. If the order was accepted, the tires would be shipped overseas for an additional shipping cost of $6 per tire. In addition, Euro has made the order conditional on receiving European safety certification. Brightstone estimates that this certification would cost $106,200.

   a. Prepare a The area of accounting concerned with the effect of alternative courses of action on revenues and costs.differential analysis dated January 21 on whether to reject (Alternative 1) or accept (Alternative 2) the special order from Euro Motors. If an amount is zero, enter zero "0". If required, round interim calculations to two decimal places.

   Differential Analysis
   Reject Order (Alt. 1) or Accept Order (Alt. 2)
   January 21
   	Reject Order (Alternative 1)	Accept Order (Alternative 2)	Differential Effect on Income (Alternative 2)
   Revenues	$	$	$
   Costs:
   Direct materials
   Direct labor
   Variable factory overhead
   Variable selling and admin. expenses
   Shipping costs
   Certification costs
   Income (Loss)	$	$	$

   Feedback

   Determine whether to reject (Alternative 1) or accept (Alternative 2) the special order from Euro Motors.
   

   • Accept the special order
   • Reject the special order

   b. What is the minimum price per unit that would be financially acceptable to Brightstone? Round your answer to two decimal places.
   $per unit

Awesome Products Company manufactures a product sold to retailers. It is considering suppliers for its process. The supplier quality involves four activity areas:

The following supplier information is given:

Which supplier is least costly?

a.Y2

b.Z1

c.X3

d.They are equally costly.

Awesome Products Company manufactures a product sold to retailers. It is considering suppliers for its process. The supplier quality involves four activity areas:

The following supplier information is given:

Which supplier is least costly?

a.Y2

b.Z1

c.X3

d.They are equally costly.

The following inventory transactions occurred at Zinc, Inc., which uses a perpetual inventory system:

October 2 Purchased 50 units of inventory from supplier on credit. The goods cost $30 each and the credit terms were 2/10, n/30. The shipping costs were $100 under the terms FOB destination and Zinc received the inventory on October 3rd.

October 4 Returned 5 units of inventory from the October 2nd transaction to to the supplier.

October 6    Sold 15 of the units purchased on October 2nd for $50 each to customers for cash.

October 7 Accepted a return of one unit of inventory from an October 6th customer for a cash refund.

October 10 Established a petty cash fund for $300.

October 11 Paid the supplier for one-half of the inventory purchased on October 2nd, net of any returns.

October 15 Used $20 out of petty cash to pay for stamps (postage expense).

October 28 Purchased 10 units of inventory from a supplier on credit. The good cost #25 each and no credit terms were granted. The shipping costs were $50 under the terms FOB destination and Zinc received the inventory on November 2.

October 30 Paid the remaining balance owed to the supplier from the October 2nd transaction.

October 31 Replenished petty cash.

Using the space provided below and on the next page, record the appropriate journal entries for these transactions with the appropriate date (no journal entry description is required). Include only journal entries that relate to October business. If no journal entry is needed, write the transaction date and NO Entry.