Activity-Based Supplier Costing

Clearsound uses Alpha Electronics and La Paz Company to buy two electronic components used in the manufacture of its cell phones: Component 125X and Component 30Y. Consider two activities: testing components and reordering components. After the two components are inserted, testing is done to ensure that the two components in the phones are working properly. Reordering occurs because one or both of the components have failed the test and it is necessary to replenish component inventories. Activity cost information and other data needed for supplier costing are as follows:

I. Activity Costs Caused by Suppliers (testing failures and reordering as a result)

II. Supplier Data

Required:

Determine the cost of each supplier by using ABC. Round Test and Reorder rates to the nearest dollar, and final answers to the nearest cent.

Delay in Posting of a Journal Entry

As assistant controller for a small firm, you are responsible for recording and posting of the daily cash receipts and disbursements to the ledger account. After you have posted the entries, your boss, the controller, prepares a trial balance and the financial statements. You make the following entries on June 30.

Cash                        1,430

Account Receivable 1,950

            Service Revenue       3,380

To record daily cash sales and sales on account

Advertising Exp        12,500

Utilities Exp               22,600

Rent Exp                   24,000

Salary & Wage Exp 17,400

          Cash                             76,500

To record daily cash disbursement

The daily cash disbursements are much larger on June 30 than on any other day because many of the company's major bills are paid on the last day of the month. After you have recorded these two transactions and before you have posted them to the ledger accounts, your boss comes to you with the following request:

As you are aware, the first half of the year has been a tough one in the consulting industry and for our business.  With first-half bonuses based on net income, I am wondering whether you or I will get a bonus this time around. However, I have a suggestion that should allow us to receive something for our hard work and at the same time not hurt anyone. Go ahead and post the June 30 cash receipts to the ledger, but don't bother to post that day's cash disbursements. Even though the treasurer writes checks on the last day of the month and you normally journalize the transaction on the same day, it is silly to bother posting entry to the ledger since it takes at least a week for the checks to clear the bank.

1. Recognize an ethical dilemma: Explain why the controller's request will result in an increase in net income. On the basis of your answer, what ethical dilemma(s) do you now face?

2. a. Do you agree with the controller that the omission of the journal entry on June 30 " will not hurt anyone"? Who may benefit from the omission of the entry? Who may be harmed?

     b. How are they likely to benefit or be harmed?

     c. What rights or claims may be violated?

     d. What specific interest are in conflict?

    e. What are your responsibilities and obligations?

3. As assistant controller, what are your options in dealing with the ethical dilemma(s) you identified in (1) above?

   Which provide stockholders and other outsiders with information that is most relevant, most complete, most neutral, and most free from error?

4. Among the alternatives, which one would you select? explain why?

​(Related to Checkpoint 9.2 and Checkpoint​ 9.3)  ​(Bond valuation)  The 8​-year ​$1 comma 000 par bonds of Vail Inc. pay 12 percent interest. The​ market's required yield to maturity on a​ comparable-risk bond is 11 percent. The current market price for the bond is $ 1 comma 150. a.  Determine the yield to maturity. b.  What is the value of the bonds to you given the yield to maturity on a​ comparable-risk bond? c.  Should you purchase the bond at the current market​ price? a. What is your yield to maturity on the Vail bonds given the current market price of the​ bonds? nothing​% ​ (Round to two decimal​ places.)

After reviewing the following calculation, provide a brief analysis of each of the ratios. Also provide a brief evaluation regarding the company’s performance as it relates to the four categories listed above, plus the DuPont Equation. Finally, discuss how these ratios will help make appropriate financial decisions as they relate to the role as a financial manager, and also assist in achieving the firm’s financial management goals.

1. Profitability Ratios
   1. Gross Margin Percentage-

Gross Margin Percentage = Net Income/Sales

For 2018: Gross Profit is 58.26B, Sales 130.86B

Gross Margin Percentage = 58.26B/130.86B

= 0.44520861989

For 2017: Gross Profit 57.52B, Sales 126.03B

Gross Margin Percentage = 57.52B/126.03B

= 0.45639927001

2. EBIT Margin Percentage

EBIT Margin Percentage = EBIT/Sales

For 2018: EBIT Margin Percentage = 2.88B/130.86B

EBIT Margin Percentage =: 2.88B/130.86B

= 0.02200825309

For 2017: EBIT Margin Percentage = 23.45B/126.03B

EBIT Margin Percentage = 23.45B/126.03B

= 0.18606680949

2. Resource Management Ratios:
   1. Age of Inventory – Measure the Firm’s management of its inventory

Age of Inventory (Days’ of Inventory) = 365/Inventory Turnover

Inventory Turnover = COGS/Inventory

For 2018: COGS = 72.61B, Inventory = 1.34B

Age of Inventory = 365days/Inventory Turnover

Inventory Turnover = COGS/Inventory

= 54.1865671642

365/54.1865671642

= 6.73B

For 2017: COGS=68.51B, Inventory 1.03B

=68.51/1.03

=66.5145631068

365/66.5145631068

=5.48752007006

2. Age of Accounts Receivable

Age of Accounts Receivables = 365days / AR Turnover

AR Turnover = Sales / Receivables

For 2018: Sales=130.86B, Receivables=25.86B

130.86/25.86=

AR Turnover= 5.06032482599

365/ 5.06032482599

= 72.1297569921

For 2017: Sales=126.03B, Receivables=23.49B

126.03/23.49=

5.36526181354

365/ 5.36526181354

=68.0302308974

3. Age of Accounts Payable

Age of Accounts Payable = 365 / AP Turnover

AP Turnover = Purchases / Payables

For 2018: Cost of Goods Sold- 72.61B

For 2017: Cost of Goods Sold- 68.51B

Inventory Purchases = (Ending Inventory – Beginning Inventory) + Cost of Goods Sold

For 2017: (1.03B – 1.2B) + 68.51

=68.34B

68.34B/7.06B

AP Turnover= 9.67988668555

365/9.67988668555

Age of AP = 37.70705297

For 2018: (1.03B-1.34B) + 72.61B

=72.3B/7.23B

=10B

365/10

=36.5

3. Liquidity Ratio:
   1. Current Ratio
4. Leverage Ratios
   1. Debt-to-Assets Ratio
   2. Debt-to-Equity Ratio
   3. Interest Coverage

In addition, you have decided to evaluate the Return on Equity (ROE) of the company by calculating the DuPont Ratio, including the Profit Margin, Asset Turnover, and Financial Leverage Ratios.

Year 2017:

Return on Equity (DuPont Ratio) = Profit Margin x Total Asset Turnover x Financial Leverage

Profit Margin = Net Income / Net Sales

=30.1B/126.03B

= 0.238832024121241

Total Asset Turnover = Net Sales / Average Total Assets

Average total Assets= 2016 Total Assets + 2017 Total Assets / 2

(244.18B+257.14B) /2

=250.66

TAT= 126.03/250.66

TAT= 0.5027926274634964

Financial Leverage = Total Assets / Total Equity

257.14B/44.69B

= 5.75385992392034

Profit Margin x Total Asset Turnover x Financial Leverage

0.238832024121241 x 0.5027926274634964 x 5.75385992392034

Return on Equity (DuPont Ratio) =0.6909406515199963

Adger Corporation is a service company that measures its output based on the number of customers served. The company provided the following fixed and variable cost estimates that it uses for budgeting purposes and the actual results for May as shown below:

When preparing its planning budget the company estimated that it would serve 35 customers per month; however, during May the company actually served 40 customers.

1. What amount of revenue would be included in Adger’s flexible budget for May?

2. What amount of employee salaries and wages would be included in Adger’s flexible budget for May?

3. What amount of travel expenses would be included in Adger’s flexible budget for May?

4. What amount of other expenses would be included in Adger’s flexible budget for May?

5. What net operating income would appear in Adger’s flexible budget for May?

6. What is Adger’s revenue variance for May? (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.)

7. What is Adger’s employee salaries and wages spending variance for May? (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.)

8. What is Adger’s travel expenses spending variance for May? (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.)

14. What activity variance would Adger report in May with respect to its revenue? (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.)

On January 1, 2019, the Julbeth Corporation grants its executives options to purchase 10,000 shares of the company’s $1 par common stock at a price of $25 per share. The options are exercisable beginning in two years and expire in four years. The fair value of the options is estimated to be $60,000 based on an appropriate option pricing model.

Required:

1. Create the journal entries to record compensation expense in each applicable year.

2. Create the journal entries to record the exercise of 7,000 options in 2019.

Requirement 1- Entry to record expense for both 12/31/19 and 12/31/20:

Requirement 2 - Entry to record exercise of options:

OmniSport Inc. is a wholesale distributor supplying a wide range of moderately priced sporting equipment to large chain stores. OmniSport has an enviable reputation for quality of its products. In fact, the demand for its products is so great that at times OmniSport cannot satisfy the demand and must delay or refuse some orders, in order to maintain its production quality. Additionally, OmniSport purchases some of its products from outside suppliers in order to meet the demand. These suppliers are carefully chosen so that their products maintain the quality image that OmniSport has attained. About 60 percent of OmniSport's products are purchased from other companies while the remainder of the products are manufactured by OmniSport. The company has a Plastics Department that is currently manufacturing the boot for in-line skates. OmniSport is able to manufacture and sell 5,000 pairs of skates annually, making full use of its machine capacity at available workstations. Presented below are the selling price and costs associated with OmniSport's skates.

Selling price per pair of skates $98

Costs per pair Molded plastic $8

Other direct materials 12

Machine time ($16/hr.) 24

Manufacturing overhead 18

Selling and admin. cost 15 77

Profit per pair $21

Because OmniSport believes it could sell 8,000 pairs of skates annually if it had sufficient manufacturing capacity, the company has looked into the possibility of purchasing the skates for distribution. Colcott Inc., a steady supplier of quality products, would be able to provide 6.000 pairs of skates per year at a price of $75 per pair delivered to OmniSport's facility. Jack Petrone, OmniSport's product manager, has suggested that the company could make better use of its Plastics Department by manufacturing snowboard bindings. To support his position, Petrone has a market study that indicates an expanding market for snowboards and a need for additional suppliers. Petrone believes that OmniSport could expect to sell 12,000 snowboard bindings annually at a price of $60 per binding. Petrone's estimate of the costs to manufacture the bindings is presented below.

Selling price per snowboard binding $60

Costs per binding Molded plastic $16

Other direct materials 4 Machine time ($16/hr.) 8

Manufacturing overhead 6

Selling and admin. cost 14 48

Profit per binding $12

Other information pertinent to OmniSport's operations is presented below. An allocated $6 fixed overhead cost per unit is included in the selling and administrative cost for all of the purchased and manufactured products. Total fixed and variable selling and administrative costs for the purchased skates would be $10 per pair. In the Plastics Department, OmniSport uses machine hours as the application base for manufacturing overhead. Included in the manufacturing overhead for the current year is $30,000 of fixed, factory-wide manufacturing overhead that has been allocated to the Plastics Department.

REQUIRED: To maximize OmniSport Inc.'s profitability, recommend which product or products should be manufactured and/or purchased. Prepare an analysis based on the data presented that will show the associated financial impact. Support your answer with appropriate calculations and strategic considerations

For the past several years, Jeff Horton has operated a part-time consulting business from his home. As of April 1, 2019, Jeff decided to move to rented quarters and to operate the business, which was to be known as Rosebud Consulting, on a full-time basis. Rosebud Consulting entered into the following transactions during April:

Record the following transactions on Page 2 of the journal:

At the end of April, the adjustment data were assembled. Analyze and use these data to complete requirements (5)

INSTRUCTIONS:
1. Journalize each transaction

2. Post to T-accounts/ four column accounts

3. Journalize and post the adjusting entries

4. Prepare an adjusted trial balance

Accounts in the Chart of Accounts for Rosebud Consulting Company: Cash, Accounts Receivable, Supplies, Prepaid Rent, Prepaid Insurance, Office Equipment, Accumulated Depreciation-Office Equipment, Accounts Payable, Salaries Payable, Service Revenue, Jeff Horton Capital, Jeff Horton Drawing, Unearned Revenue, Salary Expense, Supplies Expense, Rent Expense, Depreciation Expense, Insurance Expense, Advertising Expense, Utilities Expense, Telephone Expense

Lisa earns $65,000 per year. She is married and claims three allowances. Assume that her employer uses wage bracket tables method. Use withholding allowance, wage bracket table and IRS Publication 15.

a.If she is paid weekly, what is her withholding per paycheck?

b.If she is paid monthly, what is her withholding per paycheck?

c.If she is paid biweekly, what is her withholding per paycheck?

d.If she is paid semimonthly, what is her withholding per paycheck?

Armstrong Corporation manufactures bicycle parts. The company currently has a $19,300 inventory of parts that have become obsolete due to changes in design specifications. The parts could be sold for $7,100, or modified for $9,900 and sold for $21,300.

1A) Identify the relevance of the data given in the exercise to the decision about what to do with the obsolete parts (Irrelevant data or Relevant data).

1B) Calculate the benefit under each alternative for disposing of the obsolete parts.

1C) How should the obsolete parts be disposed?

1. Prepare a proposal for the client. You are trying to obtain this company as a client. Make up the information about yourself.
2. Assume that you are an independent contractor. You own your own business. You offer the following services to the public:
   1. Tax return preparation
   2. Financial advising
   3. Bookkeeping services (QuickBooks)
3. You wish to offer your bookkeeping services to the company known as Lynn’s Music Studio. The company has a CPA firm prepare the tax return but they have a need for a bookkeeper as the CPA firm charges too much. The CPA firm recommended your firm since you have a reputation for reliability and reasonable fees. You can obtain information about this company on pages 6-65 to 6-71 in your textbook. (Case 6-1).
   1. Gather all necessary information from Lynn’s Music Studio in the textbook.
   2. Determine all requirements necessary for the client Lynn Music Studio. You are offering only bookkeeping services. If you offer tax services you may upset the CPA firm that does the tax return and they may never refer you again.
   3. Write a proposal to the company being sure to include the following items:
      1. Cover letter
         1. Be sure to clearly identify yourself
         2. Introduce yourself as a self-employed bookkeeper. List your credentials such as a certified bookkeeping professional, any certifications such as for Microsoft or QuickBooks and the like.
         3. Be sure to state how long you have been in practice.
         4. Be sure to quote a fee for your services.
      2. Description of the organization as you understand it. Ask the client to clarify the information you have.
      3. Describe your responsibilities and the services you are offering and the services you are not offering
         1. You are not preparing the tax return
         2. You are not doing an audit
         3. Bank reconciliation?
         4. Uncollectable accounts analysis?
         5. Other items you are offering or not offering
      4. Describe your client’s responsibilities
         1. Providing you with the information needed such as
            1. Checks written
            2. Sales invoices
            3. Other items you need
         2. Providing you a place to work in her office or providing you with the information so you can work in your office.
      5. A cost benefit analysis. The CPA firm is charging a certain amount (Make it up). Show how you can do the same work at a lower price.
   4. Write a thank you letter to the CPA firm for referring you to this client.

mooth Riding Limo Company purchased a new limosine for $60,000 on April 30, 2016. The limo is expected to have a service life of 10 years or 110,000 miles and a residual value of $5,000. The limo was driven 12,000 miles in 2016 and 15,000 miles in 2017. Smooth Riding computes depreciation to the nearest whole month. Compute depreciation expense for 2016 and 2017 using the activity method Also, calculate the book value at the end of each year, 2016 and 2017. You must SHOW YOUR WORK! Points are given based on work shown and final answer.

Decision on Accepting Additional Business

Country Jeans Co. has an annual plant capacity of 63,100 units, and current production is 44,500 units. Monthly fixed costs are $41,400, and variable costs are $25 per unit. The present selling price is $33 per unit. On November 12 of the current year, the company received an offer from Miller Company for 14,800 units of the product at $26 each. Miller Company will market the units in a foreign country under its own brand name. The additional business is not expected to affect the domestic selling price or quantity of sales of Country Jeans Co.

a. Prepare a differential analysis dated November 12 on whether to reject (Alternative 1) or accept (Alternative 2) the Miller order. If an amount is zero, enter zero "0". For those boxes in which you must enter subtracted or negative numbers use a minus sign.

b. Having unused capacity available is ____________ to this decision. The differential revenue is_________ than the differential cost. Thus, accepting this additional business will result in a net ______________ .

c. What is the minimum price per unit that would produce a positive contribution margin? Round your answer to two decimal places.
$

Describe the distribution strategy for a specific company that you choose. What missed opportunities or problems are you seeing in this distribution approach? Make recommendations about a future distribution strategy for this company based on the following: What are the best distribution channels and methods for this company to use, and why? Does this company sell through a retail outlet(s) and if not should it? If the company added retail locations in what type(s) of facility should they be located? In what geographic area(s) should this product/service be available?

Flexible Overhead Budget Carson Wood Products Company prepared the following factory overhead cost budget for the Press Department for April of the current year, during which it expected to require 9,000 hours of productive capacity in the department: Variable overhead cost: Indirect factory labor $70,200 Power and light 2,610 Indirect materials 25,200 Total variable overhead cost $98,010 Fixed overhead cost: Supervisory salaries $34,300 Depreciation of plant and equipment 21,560 Insurance and property taxes 13,720 Total fixed overhead cost 69,580 Total factory overhead cost $167,590 Assuming that the estimated costs for May are the same as for April, prepare a flexible factory overhead cost budget for the Press Department for May for 7,000, 9,000, and 11,000 hours of production. Round your interim computations to the nearest cent, if required. Enter all amounts as positive numbers.