Genuine Spice Inc. began operations on January 1 of the current year. The company produces eight- 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: DIRECT MATERIALS Cost Behavior Units per Case Cost per Unit Cost per Case Cream base Variable 100 oz. $0.02 $ 2.00 Natural oils Variable 30 oz. 0.30 9.00 Bottle (8-oz.) Variable 12 bottles 0.50 6.00 $17.00 DIRECT LABOR Department Cost Behavior Time per Case Labor Rate per Hour Cost per Case Mixing Variable 20 min. $18.00 $6.00 Filling Variable 5 14.40 1.20 25 min. $7.20 FACTORY OVERHEAD Cost Behavior Total Cost Utilities Mixed $600 Facility lease Fixed 14,000 Equipment depreciation Fixed 4,300 Supplies Fixed 660 $19,560 Part A—Break-Even Analysis The management of Genuine Spice Inc. wants 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: Case Production Utility Total Cost January 500 $600 February 800 660 March 1,200 740 April 1,100 720 May 950 690 June 1,025 705 Required-Part A: 1. Determine the fixed and variable portion of the utility cost using the high-low method. 2. Determine the contribution margin per case. 3. Determine the fixed costs per month, including the utility fixed cost from part (1). 4. Determine the break-even number of cases per month. 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: Cases Cost Estimated finished goods inventory, August 1 300 $12,000 Desired finished goods inventory, August 31 175 7,000 Materials Inventory: Cream Base Oils Bottles (oz.) (oz.) (bottles) Estimated materials inventory, August 1 250 290 600 Desired materials inventory, August 31 1,000 360 240 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. Required-Part B: 5. Prepare the August production budget.* 6. Prepare the August direct materials purchases budget.* 7. Prepare the August direct labor cost budget. Round the hours required for production to the nearest hour.* 8. Prepare the August factory overhead cost budget. If an amount box does not require an entry, leave it blank. (Entries of zero (0) will be cleared automatically by CNOW.)* 9. Prepare the August budgeted income statement, including selling expenses. NOTE: Because you are not required to prepare a cost of goods sold budget, the cost of goods sold calculations will be part of the budgeted income statement.* *Enter all amounts as positive numbers. 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: Actual Direct Materials Price per Unit Quantity per Case Cream base $0.016 per oz. 102 oz. Natural oils $0.32 per oz. 31 oz. Bottle (8-oz.) $0.42 per bottle 12.5 bottles Actual Direct Actual Direct Labor Labor Rate Time per Case Mixing $18.20 19.50 min. Filling 14.00 5.60 min. Actual variable overhead $305.00 Normal volume 1,600 cases The prices of the materials were different from 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 Required-Part C: 10. Determine and interpret the direct materials price and quantity variances for the three materials. 11. Determine and interpret the direct labor rate and time variances for the two departments. Round hours to the nearest tenth of an hour. 12. Determine and interpret the factory overhead controllable variance. 13. Determine and interpret the factory overhead volume variance. 14. Why are the standard direct labor and direct materials costs in the calculations for parts (10) and (11) based on the actual 1,500-case production volume rather than the planned 1,375 cases of production used in the budgets for parts (6) and (7)?

Physical Units Method

Alomar Company manufactures four products from a joint production process: barlon, selene, plicene, and corsol. The joint costs for one batch are as follows:

At the split-off point, a batch yields 1,041 barlon, 2,290 selene, 2,394 plicene, and 4,683 corsol. All products are sold at the split-off point: barlon sells for $15 per unit, selene sells for $20 per unit, plicene sells for $24 per unit, and corsol sells for $36 per unit.

Required:

1. Allocate the joint costs using the physical units method. If required, round your percentage allocation to four decimal places and round allocated costs to the nearest dollar. Note: The total of the allocated cost does not equal to the one provided in the question data due to rounding error.

2. Suppose that the products are weighted as shown below:

Allocate the joint costs using the weighted average method. If required, round your percentage allocation to four decimal places and round allocated costs to the nearest dollar.

The recent collapse in the banking sector caused many banks to close and many others to merge with other banks, in some cases from very different parts of the country. How would these changes have affected the historical connections that many borrowers and lenders had? And how would those changes have affected the capital structure of most firms?

Net Present Value Method, Present Value Index, and Analysis

United Bankshores, Inc. wishes to evaluate three capital investment proposals by using the net present value method. Relevant data related to the proposals are summarized as follows:

Required:

1. Assuming that the desired rate of return is 15%, prepare a net present value analysis for each proposal. Use the present value of $1 table above. If required, use the minus sign to indicate a negative net present value. If required, round to the nearest dollar.

2. Determine a present value index for each proposal. If required, round your answers to two decimal places.

3. Which proposal offers the largest amount of present value per dollar of investment?

Sail Away takes special orders to manufacture sail boats for high end customers. Complete the job cost sheets for Sail Away for September based on the following information. Prepare journal entries to record the transactions as well as post to the job cost sheets.

a. Purchased raw materials on credit, $145,000.
b. Materials requisitions: Job 240, $48,000; Job 241, $36,000; Job 242, $42,000; indirect materials were $12,000.
c. Paid $130,000 for factory wages.
d. Time tickets used to charge labor to jobs: Job 240, $40,000; Job 241, $30,000; Job 242, $35,000, indirect labor is $25,000.
e. The company incurred the following additional overhead costs: depreciation of factory building, $70,000; depreciation of factory equipment, $60,000; expired factory insurance, $10,000; utilities and maintenance cost of $20,000 were paid in cash. (Hint: Be careful – Cash is not your only credit).
f. Applied overhead to all three jobs. The predetermined overhead rate is 190% of direct labor cost.
g. Transferred jobs 240 and 242 to Finished Goods Inventory.
h. Sold job 240 for $300,000 for cash.
i. Closed the under- or over-applied overhead account balance.

• What do you really think about the accounting profession?
• What might you find most challenging or interesting about taking an accounting course?
• Need some inspiration from what others have said or found challenging about accounting?

As stated in the Executive Summary of the Journal of Accountancy article, three of the most common complaints made against small to midsize CPA firms involve failure to return client records on a timely basis, failure to exercise due professional care and conflicts of interest. Select one of these issues and discuss why you feel it is the most important.

On January 1, 2016, you deposited $5,300 in a savings account. The account will earn 9 percent annual compound interest, which will be added to the fund balance at the end of each year. Required: 1. What will be the balance in the savings account at the end of 7 years? (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1.) (Use appropriate factor(s) from the tables provided. Round your final answers to 2 decimal places.) 2. What is the total interest for the 7 years? (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1.) (Use appropriate factor(s) from the tables provided. Round your final answers to 2 decimal places.) 3. How much interest revenue did the fund earn in 2016 and in 2017? (Round your final answers to 2 decimal places.)

Viejol Corporation has collected the following information after its first year of sales. Sales were $1,600,000 on 100,000 units, selling expenses $200,000 (40% variable and 60% fixed), direct materials $508,000, direct labor $290,400, administrative expenses $278,000 (20% variable and 80% fixed), and manufacturing overhead $380,000 (70% variable and 30% fixed). Top management has asked you to do a CVP analysis so that it can make plans for the coming year. It has projected that unit sales will increase by 10% next year.

If the company meets its target net income number, by what percentage could its sales fall before it is operating at a loss? That is, what is its margin of safety ratio?

1. Rachel was recently hired by Moncton Express Inc (MEI) to assist its payable clerk in bringing the accounts up to date. Rachel was asked to record the following transactions:

August 15: MEI purchased a new inventory monitoring system. MEI issued a $6,000 non-interest bearing note payable, due on October 15.

August 18: MEI borrowed $10,000 from the bank in the form of a demand note. MEI authorizes the bank to take the interest payments from its bank account. Interest is payable on the last day of each month at 4% per annum.

August 21: MEI purchased $8,000 of inventory, plus HST, on account. The terms offered are 3/10, net 45.

September 20: MEI purchased a waste management system. MEI issues an $8,000, non-interest bearing note payable due in one year.

September 23: MEI purchases $3,000 of inventory, plus HST, on account. The terms offered are 3/10, net 45.

September 24: Rachel pays the August 21 and September 23 invoices.

September 30: Rachel accrues for unbilled utilities totalling $1,700.

Other information:

• MEI uses the gross method to record accounts payable
• MEI’s year-end is December 31, and interim statements are normally prepared on a monthly basis.
• MEI’s latest interim statements are for the month ended July 31. The necessary accruals were made at that time, except that MEI only records depreciation expense at year-end.
• The market rate of interest for MEI’s short-term borrowings is 5%.

Required:

Prepare journal entries to record the documented events and the necessary accruals for the months of August and September.   Calculate interest accruals based on the number of days, rather than months. Round your answers to the nearest dollar.

Patrick Corporation acquired 100 percent of O’Brien Company’s outstanding common stock on January 1, for $796,500 in cash. O’Brien reported net assets with a carrying amount of $448,000 at that time. Some of O’Brien’s assets either were unrecorded (having been internally developed) or had fair values that differed from book values as follows: Book Values Fair Values Trademarks (indefinite life) $ 102,000 $ 299,000 Customer relationships (5-year remaining life) 0 96,600 Equipment (10-year remaining life) 359,000 329,000 Any goodwill is considered to have an indefinite life with no impairment charges during the year. Following are financial statements at the end of the first year for these two companies prepared from their separately maintained accounting systems. O’Brien declared and paid dividends in the same period. Credit balances are indicated by parentheses. Patrick O'Brien Revenues $ (1,815,000 ) $ (856,000 ) Cost of goods sold 484,000 396,000 Depreciation expense 104,100 95,400 Amortization expense 28,200 0 Income from O'Brien (348,280 ) 0 Net income $ (1,546,980 ) $ (364,600 ) Retained earnings 1/1 $ (764,000 ) $ (312,000 ) Net income (1,546,980 ) (364,600 ) Dividends declared 154,000 92,000 Retained earnings 12/31 $ (2,156,980 ) $ (584,600 ) Cash $ 238,000 $ 121,000 Receivables 322,000 68,400 Inventory 202,000 168,000 Investment in O'Brien 1,016,780 0 Trademarks 518,000 79,800 Customer relationships 0 0 Equipment (net) 944,000 276,000 Goodwill 0 0 Total assets $ 3,240,780 $ 713,200 Liabilities $ (683,800 ) $ (28,600 ) Common stock (400,000 ) (100,000 ) Retained earnings 12/31 (2,156,980 ) (584,600 ) Total liabilities and equity $ (3,240,780 ) $ (713,200 ) Which investment method did Patrick use to compute the $348,280 income from O'Brien? Determine the totals to be reported for this business combination for the year ending December 31. Verify the totals determined in part (b) by producing a consolidation worksheet for Patrick and O’Brien for the year ending December 31. Patrick Corporation acquired 100 percent of O’Brien Company’s outstanding common stock on January 1, for $796,500 in cash. O’Brien reported net assets with a carrying amount of $448,000 at that time. Some of O’Brien’s assets either were unrecorded (having been internally developed) or had fair values that differed from book values as follows: Book Values Fair Values Trademarks (indefinite life) $ 102,000 $ 299,000 Customer relationships (5-year remaining life) 0 96,600 Equipment (10-year remaining life) 359,000 329,000 Any goodwill is considered to have an indefinite life with no impairment charges during the year. Following are financial statements at the end of the first year for these two companies prepared from their separately maintained accounting systems. O’Brien declared and paid dividends in the same period. Credit balances are indicated by parentheses. Patrick O'Brien Revenues $ (1,815,000 ) $ (856,000 ) Cost of goods sold 484,000 396,000 Depreciation expense 104,100 95,400 Amortization expense 28,200 0 Income from O'Brien (348,280 ) 0 Net income $ (1,546,980 ) $ (364,600 ) Retained earnings 1/1 $ (764,000 ) $ (312,000 ) Net income (1,546,980 ) (364,600 ) Dividends declared 154,000 92,000 Retained earnings 12/31 $ (2,156,980 ) $ (584,600 ) Cash $ 238,000 $ 121,000 Receivables 322,000 68,400 Inventory 202,000 168,000 Investment in O'Brien 1,016,780 0 Trademarks 518,000 79,800 Customer relationships 0 0 Equipment (net) 944,000 276,000 Goodwill 0 0 Total assets $ 3,240,780 $ 713,200 Liabilities $ (683,800 ) $ (28,600 ) Common stock (400,000 ) (100,000 ) Retained earnings 12/31 (2,156,980 ) (584,600 ) Total liabilities and equity $ (3,240,780 ) $ (713,200 ) Which investment method did Patrick use to compute the $348,280 income from O'Brien? Determine the totals to be reported for this business combination for the year ending December 31. Verify the totals determined in part (b) by producing a consolidation worksheet for Patrick and O’Brien for the year ending December 31. Patrick Corporation acquired 100 percent of O’Brien Company’s outstanding common stock on January 1, for $796,500 in cash. O’Brien reported net assets with a carrying amount of $448,000 at that time. Some of O’Brien’s assets either were unrecorded (having been internally developed) or had fair values that differed from book values as follows: Book Values Fair Values Trademarks (indefinite life) $ 102,000 $ 299,000 Customer relationships (5-year remaining life) 0 96,600 Equipment (10-year remaining life) 359,000 329,000 Any goodwill is considered to have an indefinite life with no impairment charges during the year. Following are financial statements at the end of the first year for these two companies prepared from their separately maintained accounting systems. O’Brien declared and paid dividends in the same period. Credit balances are indicated by parentheses. Patrick O'Brien Revenues $ (1,815,000 ) $ (856,000 ) Cost of goods sold 484,000 396,000 Depreciation expense 104,100 95,400 Amortization expense 28,200 0 Income from O'Brien (348,280 ) 0 Net income $ (1,546,980 ) $ (364,600 ) Retained earnings 1/1 $ (764,000 ) $ (312,000 ) Net income (1,546,980 ) (364,600 ) Dividends declared 154,000 92,000 Retained earnings 12/31 $ (2,156,980 ) $ (584,600 ) Cash $ 238,000 $ 121,000 Receivables 322,000 68,400 Inventory 202,000 168,000 Investment in O'Brien 1,016,780 0 Trademarks 518,000 79,800 Customer relationships 0 0 Equipment (net) 944,000 276,000 Goodwill 0 0 Total assets $ 3,240,780 $ 713,200 Liabilities $ (683,800 ) $ (28,600 ) Common stock (400,000 ) (100,000 ) Retained earnings 12/31 (2,156,980 ) (584,600 ) Total liabilities and equity $ (3,240,780 ) $ (713,200 ) Which investment method did Patrick use to compute the $348,280 income from O'Brien? Determine the totals to be reported for this business combination for the year ending December 31. Verify the totals determined in part (b) by producing a consolidation worksheet for Patrick and O’Brien for the year ending December 31. Patrick Corporation acquired 100 percent of O’Brien Company’s outstanding common stock on January 1, for $796,500 in cash. O’Brien reported net assets with a carrying amount of $448,000 at that time. Some of O’Brien’s assets either were unrecorded (having been internally developed) or had fair values that differed from book values as follows: Book Values Fair Values Trademarks (indefinite life) $ 102,000 $ 299,000 Customer relationships (5-year remaining life) 0 96,600 Equipment (10-year remaining life) 359,000 329,000 Any goodwill is considered to have an indefinite life with no impairment charges during the year. Following are financial statements at the end of the first year for these two companies prepared from their separately maintained accounting systems. O’Brien declared and paid dividends in the same period. Credit balances are indicated by parentheses. Patrick O'Brien Revenues $ (1,815,000 ) $ (856,000 ) Cost of goods sold 484,000 396,000 Depreciation expense 104,100 95,400 Amortization expense 28,200 0 Income from O'Brien (348,280 ) 0 Net income $ (1,546,980 ) $ (364,600 ) Retained earnings 1/1 $ (764,000 ) $ (312,000 ) Net income (1,546,980 ) (364,600 ) Dividends declared 154,000 92,000 Retained earnings 12/31 $ (2,156,980 ) $ (584,600 ) Cash $ 238,000 $ 121,000 Receivables 322,000 68,400 Inventory 202,000 168,000 Investment in O'Brien 1,016,780 0 Trademarks 518,000 79,800 Customer relationships 0 0 Equipment (net) 944,000 276,000 Goodwill 0 0 Total assets $ 3,240,780 $ 713,200 Liabilities $ (683,800 ) $ (28,600 ) Common stock (400,000 ) (100,000 ) Retained earnings 12/31 (2,156,980 ) (584,600 ) Total liabilities and equity $ (3,240,780 ) $ (713,200 ) Which investment method did Patrick use to compute the $348,280 income from O'Brien? Determine the totals to be reported for this business combination for the year ending December 31. Verify the totals determined in part (b) by producing a consolidation worksheet for Patrick and O’Brien for the year ending December 31. Patrick Corporation acquired 100 percent of O’Brien Company’s outstanding common stock on January 1, for $796,500 in cash. O’Brien reported net assets with a carrying amount of $448,000 at that time. Some of O’Brien’s assets either were unrecorded (having been internally developed) or had fair values that differed from book values as follows: Book Values Fair Values Trademarks (indefinite life) $ 102,000 $ 299,000 Customer relationships (5-year remaining life) 0 96,600 Equipment (10-year remaining life) 359,000 329,000 Any goodwill is considered to have an indefinite life with no impairment charges during the year. Following are financial statements at the end of the first year for these two companies prepared from their separately maintained accounting systems. O’Brien declared and paid dividends in the same period. Credit balances are indicated by parentheses. Patrick O'Brien Revenues $ (1,815,000 ) $ (856,000 ) Cost of goods sold 484,000 396,000 Depreciation expense 104,100 95,400 Amortization expense 28,200 0 Income from O'Brien (348,280 ) 0 Net income $ (1,546,980 ) $ (364,600 ) Retained earnings 1/1 $ (764,000 ) $ (312,000 ) Net income (1,546,980 ) (364,600 ) Dividends declared 154,000 92,000 Retained earnings 12/31 $ (2,156,980 ) $ (584,600 ) Cash $ 238,000 $ 121,000 Receivables 322,000 68,400 Inventory 202,000 168,000 Investment in O'Brien 1,016,780 0 Trademarks 518,000 79,800 Customer relationships 0 0 Equipment (net) 944,000 276,000 Goodwill 0 0 Total assets $ 3,240,780 $ 713,200 Liabilities $ (683,800 ) $ (28,600 ) Common stock (400,000 ) (100,000 ) Retained earnings 12/31 (2,156,980 ) (584,600 ) Total liabilities and equity $ (3,240,780 ) $ (713,200 ) Which investment method did Patrick use to compute the $348,280 income from O'Brien? Determine the totals to be reported for this business combination for the year ending December 31. Verify the totals determined in part (b) by producing a consolidation worksheet for Patrick and O’Brien for the year ending December 31.

Wagner Company developed the following standard costs for its product for 2011:

Direct Materials - 4 pounds at $4.50 per pound
Direct Labor - 2 hours at $10.50 per hour

Based on their flexible budget, budgeted Manufacturing Overhead costs are $80,000 of fixed costs plus variable costs of $4 per direct labor hour. Normal capacity is set at 20,000 units of product OR 40,000 DIRECT LABOR HOURS. (20,000 units x 2 labor hours per unit)

Actual costs for 2011 were as follows:

a. 19,000 units of product were actually produced
b. Direct labor costs were $362,700 for 37,200 direct labor hours actually worked.
c. Actual direct materials purchased and used during the yeear cost $361,900 for 77,000 pounds.
d. Total actual manufcaturing overhead costs were $227,000.

Compute the following yearly variances for Wagner company for 2011 and indicate whether the variance is favorable (F) or unfavorable (U)

Use the following format for all variances: (Example: 1,000 U)

1. Direct Materials Price Variance

Compute the Direct Materials Quantity Variance

Compute the total Direct Materials Variance.

Compute the Direct Labor Price Variance

Compute the Direct Labor Quantity Variance

Compute the total Direct Labor Variance

Compute the Variable Overhead Controllable Variance

Compute the Fixed Overhead Volume Variance

Compute the total Manufacturing Overhead Variance

Compute the total cost variance and indicate if favorable or unfavorable.

The following selected transactions were completed during August between Summit Company and Beartooth Co.:

Part A:

A high quality of earnings is indicated by:

Part B:

The Horseshoe Company has cash of $50,000 accounts receivable of $100,000; inventory of $250,000, prepaid insurance of $200,000 and current liabilities of $300,000. What is their working capital?

Part C:

In evaluating the quality of a company's earnings, which of the following factors is LEAST important?