The variable costing concept removes fixed costs, which are uncontrollable, from the decision-making process (see variable costing income statement). This forces management to focus on the variable factors of production, sales revenue and variable costs. I remember learning this concept in economics at LBCC, where a company should shut down if a product’s price falls below variable cost and just incur fixed costs.

Have you ever heard the saying “The company loses $1.00 on every unit sold, but we are confident the losses can be made up on volume.” Really?

In theory, companies should not operate with a negative contribution margin (sales revenue-variable costs), but my guess is that some do especially in this economic environment?

Do you think companies actually operate (or produce products) with a negative contribution margin?

1. Consider the audit risk model and its effect on the amount of evidence examined by the auditor.
   1. Describe each of the four risks in the model and indicate how it is related to the amount of evidence (directly or inversely)
   2. Describe how that business risk maybe factored into acceptable audit risk.
   3. How is risk of material misstatement calculated? Would the auditor rather see a higher or lower value?
   4. Can the risks be calculated precisely? Why or why not?

At what levels are unemployment liabilities incurred? What are some additional employer-borne liabilities that exist with having employees?

1. Discuss internal audit’s role for detecting and preventing corrupt practices within an organization, as well as the importance of ensuring that management has effective systems in place to detect and prevent corrupt practices.

Johnson Company leases computer equipment to customers under sales-type leases. The equipment has no residual value at the end of the lease and the leases do not contain purchase options. Johnson desires a return of 8% interest on a five-year lease of equipment with a fair value of $970,425.

(The present value of an annuity due of $1 at 8% for five years is 4.313.) OR

(Hint: Change the calculator setting to BGN for the annuity due.)

What is the annual lease payment?

)What is the total amount of interest revenue that Johnson will earn over the life of the lease?

Exercise 3-16 Santana Mortgage Company uses a process cost system to accumulate costs in its Application Department. When an application is completed, it is forwarded to the Loan Department for final processing. The following processing and cost data pertain to September. 1. Applications in process on September 1, 200 2. Applications started in September, 1,000 3. Completed applications during September, 700 4. Applications still in process at September 30 were 100% complete as to materials (forms) and 60% complete as to conversion costs. Beginning WIP: Direct materials $1,320 Conversion costs 5,060 September costs: Direct materials $5,100 Direct labor 12,500 Overhead 9,856 Materials are the forms used in the application process, and these costs are incurred at the beginning of the process. Conversion costs are incurred uniformly during the process. Santana Mortgage Company uses the FIFO method. Also, assume that the applications in process on September 1 were 100% complete as to materials (application forms) and 40% complete as to conversion costs. Your answer is partially correct. Try again. Determine the equivalent units of service (production) for materials and conversion costs. Materials Conversion Costs The equivalent units of service (production) Your answer is incorrect. Try again. Compute the unit costs. (Round unit costs to 2 decimal places, e.g. 2.25.) Materials Conversion Costs Unit costs $ $ Your answer is incorrect. Try again. Prepare a cost reconciliation schedule. (Round unit costs to 2 decimal places, e.g. 2.25 and final answers to 0 decimal places, e.g. 1,225.) Costs accounted for: Applications completed: Work in process, September 1 $ Conversion costs $ Started and completed $ Work in process, September 30: Materials Conversion costs Total costs $ Click if you would like to Show Work for this question: Open Show Work Question Attempts: 8 of 15 used Save for later Submit Answer Exercise 3-16 Santana Mortgage Company uses a process cost system to accumulate costs in its Application Department. When an application is completed, it is forwarded to the Loan Department for final processing. The following processing and cost data pertain to September. 1. Applications in process on September 1, 200 2. Applications started in September, 1,000 3. Completed applications during September, 700 4. Applications still in process at September 30 were 100% complete as to materials (forms) and 60% complete as to conversion costs. Beginning WIP: Direct materials $1,320 Conversion costs 5,060 September costs: Direct materials $5,100 Direct labor 12,500 Overhead 9,856 Materials are the forms used in the application process, and these costs are incurred at the beginning of the process. Conversion costs are incurred uniformly during the process. Santana Mortgage Company uses the FIFO method. Also, assume that the applications in process on September 1 were 100% complete as to materials (application forms) and 40% complete as to conversion costs. Your answer is partially correct. Try again. Determine the equivalent units of service (production) for materials and conversion costs. Materials Conversion Costs The equivalent units of service (production) Your answer is incorrect. Try again. Compute the unit costs. (Round unit costs to 2 decimal places, e.g. 2.25.) Materials Conversion Costs Unit costs $ $ Your answer is incorrect. Try again. Prepare a cost reconciliation schedule. (Round unit costs to 2 decimal places, e.g. 2.25 and final answers to 0 decimal places, e.g. 1,225.) Costs accounted for: Applications completed: Work in process, September 1 $ Conversion costs $ Started and completed $ Work in process, September 30: Materials Conversion costs Total costs $ Click if you would like to Show Work for this question: Open Show Work Question Attempts: 8 of 15 used Save for later Submit Answer

The balances in the accounts of Maybe Ltd at 30 June 2019 and 30 June 2020 are:

Other information:

Share capital is increased by the bonus issue of 24 000 shares for $1.00 each out of retained earnings. Plant is acquired during the period at a cost of $36 000, while plant with a carrying amount of $nil (cost of $24 000, accumulated depreciation of $24 000) is scrapped.

Required:

a)      Reconstruct the allowance for doubtful debts and accounts receivable.

(6.5 marks)

b)      Reconstruct inventory and accounts payable

c)      Reconstruct accrued salaries

d)      Reconstruct property, plant and equipment and a

1. Comparing ABC and Plantwide Overhead Cost Assignments

   Wellington Chocolate Company uses activity-based costing (ABC). The controller identified two activities and their budgeted costs:

   Setting up equipment	$270,000
   Other overheard	$2,160,000

   Setting up equipment is based on setup hours, and other overhead is based on oven hours.
   Wellington produces two products, Fudge and Cookies. Information on each product is as follows:

   	Fudge			Cookies
   Units produced	8,000			445,000
   Setup hours	4,000			1,000
   Oven hours	1,800			12,600

   Required:

   Round your answers to the nearest whole dollar, unless otherwise directed.

   1. Calculate the activity rate for (a) setting up equipment and (b) other overhead.

   a. Setting up equipment	$ per setup hour
   b. Other overhead	$ per oven hour

   2. How much total overhead is assigned to Fudge using ABC?
   $

   3. What is the unit overhead assigned to Fudge using ABC? Round to the nearest cent.
   $per unit

   4. Now, ignoring the ABC results, calculate the plantwide overhead rate, based on oven hours. Round to the nearest cent.
   $ per oven hour

   5. How much total overhead is assigned to Fudge using the plantwide overhead rate?
   $

   6a. The difference in the total overhead assigned to Fudge is different under the ABC system and non–ABC system because  .

   6b. What is the difference in total overhead assigned to fudge under the two methods?

   $

On December 31, 2017, Sage Company signed a $1,022,000 note to Pronghorn Bank. The market interest rate at that time was 11%. The stated interest rate on the note was 9%, payable annually. The note matures in 5 years. Unfortunately, because of lower sales, Sage’s financial situation worsened. On December 31, 2019, Pronghorn Bank determined that it was probable that the company would pay back only $613,200 of the principal at maturity. However, it was considered likely that interest would continue to be paid, based on the $1,022,000 loan.

Determine the amount of cash Sage received from the loan on December 31, 2017. (Round present value factors to 5 decimal places, e.g. 0.52513 and final answer to 0 decimal places, e.g. 5,275.)

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Prepare a note amortization schedule for Pronghorn Bank up to December 31, 2019. (Round answers to 0 decimal places, e.g. 5,275.)

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Determine the loss on impairment that Pronghorn Bank should recognize on December 31, 2019. (Round present value factors to 5 decimal places, e.g. 0.52500 and final answer to 0 decimal places, e.g. 5,275.)

Richard, barry and Andrew decided to enter into a partnership agreement as from 1^st July 2018, some of the provisions of which were as follows.

1. Richard to contribute $24000 cash, inventory the fair value of which was $51000, plant and machinery $94320, accounts receivable totalling $15240
2. Barry to contribute $45000 cash and act as manager for the business at an annual salary of $38400 to be allocated to him at the end of each year.
3. Andrew to contribute $19800 cash, land $144000, premises $288000, furniture and fittings $48600, and motor vehicles $37800. A mortgage of $216000 secured over the premises was outstanding and the partnership agreed to assume the mortgage.
4. Profits or losses of the firm to be divided between or borne by Richard, barry and Andrew in the proportion of 2:1:3 respectively.
5. Interest to be allowed at 8% p.a. on the capital contribution by the partners. Interest at 10% p.a. to be charged on partners’ drawings.
6. During the year ended 30 June 2019, the income of the partnership totaled $144960, and the expenses (excluding interest on capital and drawings and Barry’s salary) amounted to $51600.
7. Richard withdrew $14400 on 1 October 2018 and $9600 on 1 January 2019; Barrie withdrew $4800 only on 1 April 2019; Andrew withdrew $12000 on 30 June 2019.

Required

Prepare general journal entries necessary to open the records of the partnership.

Prepare the balance sheet of the partnership immediately after formation.

Prepare a Profit Distribution account for the year ended 30 June 2019.

Austin Company reports the following components of stockholders’ equity on December 31, 2016:

In year 2017, the following transactions affected its stockholders’ equity accounts.

• Requirement
• General Journal
• General Ledger
• Trial Balance
• Statement of RE
• Stockholders Equity
• Impact on Equity

General Journal tab - Prepare the necessary journal entries.

Statement of Retained Earnings tab - Prepare the Statement of Retained Earnings for the Austin Corporation for the year ended December 31, 2017.

Stockholders' Equity tab - Prepare the Stockholders' equity section of Austin Corporation's December 31, 2017 balance sheet.

Impact on Equity tab - For each transaction, indicate the total change in Stockholders' Equity, if any. Verify that total equity, as calculated, agrees with the amount reported on the Stockholders' Equity tab.

Rally, Inc. produces the Mayhem Raider, an all-terrain utility vehicle. It currently purchases the Mayhem Raider's engine from a supplier but is considering making the engine in-house. The firm produces 100 engines per month.

Cost to buy: $5,000 per engine.

Cost to make: $300,000 in machinery and labor cost per month. $210,000 in other costs per month.

The Mayhem Raider is at the early stages of its product life cycle. Making the engines in-house should allow the firm's to have better long-term control over this product over and can lead to significant cost efficiencies in the future.

Which of the following is TRUE?

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.