The Regal Cycle Company manufactures three types of bicycles—a dirt bike, a mountain bike, and a racing bike. Data on sales and expenses for the past quarter follow:

*Allocated on the basis of sales dollars.

Management is concerned about the continued losses shown by the racing bikes and wants a recommendation as to whether or not the line should be discontinued. The special equipment used to produce racing bikes has no resale value and does not wear out.

Required:

1. What is the financial advantage (disadvantage) per quarter of discontinuing the Racing Bikes?

2. Should the production and sale of racing bikes be discontinued? Y or N

3. Prepare a properly formatted segmented income statement that would be more useful to management in assessing the long-run profitability of the various product lines.

Contribution Margin Analysis—Sales

Select Audio Inc. sells electronic equipment. Management decided early in the year to reduce the price of the speakers in order to increase sales volume. As a result, for the year ended December 31, the sales increased by $31,875 from the planned level of $1,048,125. The following information is available from the accounting records for the year ended December 31.

a. Prepare an analysis of the sales quantity and unit price factors. Use a minus sign for any negative amounts.

b. Did the price decrease generate sufficient volume to result in a net increase in contribution margin if the actual variable cost per unit was $10, as planned?

Required information

[The following information applies to the questions displayed below.]

Raner, Harris & Chan is a consulting firm that specializes in information systems for medical and dental clinics. The firm has two offices—one in Chicago and one in Minneapolis. The firm classifies the direct costs of consulting jobs as variable costs. A contribution format segmented income statement for the company’s most recent year is given:

3. Assume that sales in Chicago increase by $35,000 next year and that sales in Minneapolis remain unchanged. Assume no change in fixed costs.

a. Prepare a new segmented income statement for the company. (Round your percentage answers to 1 decimal place (i.e. 0.1234 should be entered as 12.3).)

E6-4 Analyzing Changes in Price, Cost Structure, Degree of Operating Leverage [LO 6-4, 6-5]

Cove’s Cakes is a local bakery. Price and cost information follows:

Required:
1. Calculate Cove’s new break-even point under each of the following independent scenarios: (Round your answer to the nearest whole number.)

a. Sales price increases by $1.50 per cake.



b. Fixed costs increase by $475 per month.



c. Variable costs decrease by $0.25 per cake.



d. Sales price decreases by $0.40 per cake.



2. Assume that Cove sold 355 cakes last month. Calculate the company’s degree of operating leverage. (Do not round intermediate calculations. Round your answer to 2 decimal places.)



3. Using the degree of operating leverage calculated in Requirement 2, calculate the change in profit caused by a 6 percent increase in sales revenue. (Round your final answer to 2 decimal places (i.e. .1234 should be entered as 12.34%.))

Ferkil Corporation manufacturers a single product that has a selling price of $20.00 per unit. Fixed expenses total $63,000 per year, and the company must sell 9,000 units to break even. If the company has a target profit of $17,500, sales in units must be:
Multiple Choice
•   10,682 units
•   9,875 units
•   11,500 units
•   12,150 units

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Data concerning Bedwell Enterprises Corporation's single product appear below:

         
Selling price per unit   $   180.00
Variable expenses per unit   $   93.50
Fixed expense per month   $   435,690


The unit sales to attain the company's monthly target profit of $23,000 is closest to: (Do not round intermediate calculations.)

Garrison 16e Rechecks 2018-06-19
Multiple Choice
•   5,037
•   2,548
•   4,906
•   5,303

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Aaron Corporation, which has only one product, has provided the following data concerning its most recent month of operations:

         
Selling price   $   95
         
Units in beginning inventory      0
Units produced      3,400
Units sold      3,030
Units in ending inventory      370


         
Variable costs per unit:        
Direct materials   $   20
Direct labor   $   34
Variable manufacturing overhead   $   6
Variable selling and administrative expense   $   4
Fixed costs:        
Fixed manufacturing overhead   $   64,700
Fixed selling and administrative expense   $   2,800


The total contribution margin for the month under variable costing is:
Multiple Choice
•   $26,430
•   $93,930
•   $29,230
•   $106,050
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Gabuat Corporation, which has only one product, has provided the following data concerning its most recent month of operations:

         
Selling price   $   135
         
Units in beginning inventory      0
Units produced      3,200
Units sold      2,660
Units in ending inventory      540


         
Variable costs per unit:        
Direct materials   $   53
Direct labor   $   23
Variable manufacturing overhead   $   7
Variable selling and administrative expense   $   8
Fixed costs:        
Fixed manufacturing overhead   $   41,600
Fixed selling and administrative expense   $   26,600


The total gross margin for the month under the absorption costing approach is:
Multiple Choice
•   $77,140
•   $103,740
•   $82,460
•   $159,600

On January 1, 2021, Instaform, Inc., issued 12% bonds with a face amount of $45 million, dated January 1. The bonds mature in 2040 (20 years). The market yield for bonds of similar risk and maturity is 14%. Interest is paid semiannually. (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.)

Required:
1-a. Determine the price of the bonds at January 1, 2021.
1-b. Prepare the journal entry to record their issuance by Instaform.
2-a. Assume the market rate was 11%. Determine the price of the bonds at January 1, 2021.
2-b. Assume the market rate was 11%. Prepare the journal entry to record their issuance by Instaform.
3. Assume Broadcourt Electronics purchased the entire issue in a private placement of the bonds. Using the data in requirement 2, prepare the journal entry to record the purchase by Broadcourt.

Please answer all questions from Req1A, 1B,2A,2B and Req3. Thank you.

Case 11A-7 Transfer Pricing; Divisional Performance [LO11-5] Weller Industries is a decentralized organization with six divisions. The company’s Electrical Division produces a variety of electrical items, including an X52 electrical fitting. The Electrical Division (which is operating at capacity) sells this fitting to its regular customers for $8.10 each; the fitting has a variable manufacturing cost of $4.58. The company’s Brake Division has asked the Electrical Division to supply it with a large quantity of X52 fittings for only $6.10 each. The Brake Division, which is operating at 50% of capacity, will put the fitting into a brake unit that it will produce and sell to a large commercial airline manufacturer. The cost of the brake unit being built by the Brake Division follows: Purchased parts (from outside vendors) $ 23.20 Electrical fitting X52 6.10 Other variable costs 14.32 Fixed overhead and administration 8.30 Total cost per brake unit $ 51.92 Although the $6.10 price for the X52 fitting represents a substantial discount from the regular $8.10 price, the manager of the Brake Division believes the price concession is necessary if his division is to get the contract for the airplane brake units. He has heard “through the grapevine” that the airplane manufacturer plans to reject his bid if it is more than $53 per brake unit. Thus, if the Brake Division is forced to pay the regular $8.10 price for the X52 fitting, it will either not get the contract or it will suffer a substantial loss at a time when it is already operating at only 50% of capacity. The manager of the Brake Division argues that the price concession is imperative to the well-being of both his division and the company as a whole. Weller Industries uses return on investment (ROI) to measure divisional performance. Required: 1. Assume that you are the manager of the Electrical Division. a. What is the lowest acceptable transfer price for the Electrical Division? b. Would you supply the X52 fitting to the Brake Division for $6.10 each as requested? 2. Calculate the net positive effect on the company's profit per brake unit the Electrical Division to supply the fittings to the Brake Division and if the airplane brakes can be sold for $53? 3. In principle, within what range would that transfer price lie?

Equivalent Units and Related Costs; Cost of Production Report; Entries

Dover Chemical Company manufactures specialty chemicals by a series of three processes, all materials being introduced in the Distilling Department. From the Distilling Department, the materials pass through the Reaction and Filling departments, emerging as finished chemicals.

The balance in the account Work in Process—Filling was as follows on January 1:

The following costs were charged to Work in Process—Filling during January:

During January, 38,400 units of specialty chemicals were completed. Work in Process—Filling Department on January 31 was 3,300 units, 40% completed.

Required:

1. Prepare a cost of production report for the Filling Department for January. If an amount is zero, enter "0". If required, round your cost per equivalent unit answers to two decimal places.

Feedback

2. Journalize the entries for (1) costs transferred from Reaction to Filling and (2) the costs transferred from Filling to Finished Goods.

Feedback

3. Determine the increase or decrease in the cost per equivalent unit from December to January for direct materials and conversion costs. If required, round your answers to two decimal places.

4. The cost of production report may be used as the basis for allocating product costs between Work in Process  and Finished Goods . The report can also be used to control costs by holding each department head responsible for the units entering production and the costs incurred in the department. Any differences in unit product costs from one month to another, such as those in part (3), can be studied carefully and any significant differences investigated.

Costs per Equivalent Unit The following information concerns production in the Baking Department for March. All direct materials are placed in process at the beginning of production. ACCOUNT Work in Process—Baking Department ACCOUNT NO. Date Item Debit Credit Balance Debit Credit Mar. 1 Bal., 4,200 units, 2/3 completed 10,780 31 Direct materials, 75,600 units 151,200 161,980 31 Direct labor 43,210 205,190 31 Factory overhead 24,308 229,498 31 Goods finished, 76,500 units 221,710 7,788 31 Bal. ? units, 2/5 completed 7,788 a. Based on the above data, determine each cost listed below. Round "cost per equivalent unit" answers to the nearest cent. 1. Direct materials cost per equivalent unit $ 2. Conversion cost per equivalent unit $ 3. Cost of the beginning work in process completed during March $ 4. Cost of units started and completed during March $ 5. Cost of the ending work in process $ b. Assuming that the direct materials cost is the same for February and March, did the conversion cost per equivalent unit increase, decrease, or remain the same in March?

Journal Entries for Credit Losses At the beginning of the year, Whitney Company had the following accounts on its books:

The following transactions, among others, occurred during the year:

Required

a. Prepare journal entries to record the credit sales, the collections on account, and the preceding transactions and adjustment.
b. Show how Accounts Receivable and the Allowance for Doubtful Accounts would appear on the December 31 balance sheet.

a.

b.

What are the various types of taxes used by governments? Who are the actors that make funding decisions? How are they accountable to the public? How does the public influence this process? Why is taxing and spending so controversial?

Garden Sales, Inc., sells garden supplies. Management is planning its cash needs for the second quarter. The company usually has to borrow money during this quarter to support peak sales of lawn care equipment, which occur during May. The following information has been assembled to assist in preparing a cash budget for the quarter:

1. Budgeted monthly absorption costing income statements for April–July are:

*Includes $22,000 of depreciation each month.

2. Sales are 20% for cash and 80% on account.

3. Sales on account are collected over a three-month period with 10% collected in the month of sale; 70% collected in the first month following the month of sale; and the remaining 20% collected in the second month following the month of sale. February’s sales totaled $205,000, and March’s sales totaled $245,000.

4. Inventory purchases are paid for within 15 days. Therefore, 50% of a month’s inventory purchases are paid for in the month of purchase. The remaining 50% is paid in the following month. Accounts payable at March 31 for inventory purchases during March total $104,300.

5. Each month’s ending inventory must equal 20% of the cost of the merchandise to be sold in the following month. The merchandise inventory at March 31 is $71,400.

6. Dividends of $29,000 will be declared and paid in April.

7. Land costing $37,000 will be purchased for cash in May.

8. The cash balance at March 31 is $51,000; the company must maintain a cash balance of at least $40,000 at the end of each month.

9. The company has an agreement with a local bank that allows the company to borrow in increments of $1,000 at the beginning of each month, up to a total loan balance of $200,000. The interest rate on these loans is 1% per month and for simplicity we will assume that interest is not compounded. The company would, as far as it is able, repay the loan plus accumulated interest at the end of the quarter

The company’s president is interested in knowing how reducing inventory levels and collecting accounts receivable sooner will impact the cash budget. He revises the cash collection and ending inventory assumptions as follows:

1. Sales continue to be 20% for cash and 80% on credit. However, credit sales from April, May, and June are collected over a three-month period with 25% collected in the month of sale, 65% collected in the month following sale, and 10% in the second month following sale. Credit sales from February and March are collected during the second quarter using the collection percentages specified in the main section.

2. The company maintains its ending inventory levels for April, May, and June at 15% of the cost of merchandise to be sold in the following month. The merchandise inventory at March 31 remains $71,400 and accounts payable for inventory purchases at March 31 remains $104,300.

Required:

1. Using the president’s new assumptions in (a) above, prepare a schedule of expected cash collections for April, May, and June and for the quarter in total.

2. Using the president’s new assumptions in (b) above, prepare the following for merchandise inventory:

a. A merchandise purchases budget for April, May, and June.

b. A schedule of expected cash disbursements for merchandise purchases for April, May, and June and for the quarter in total.

3. Using the president’s new assumptions, prepare a cash budget for April, May, and June, and for the quarter in total.

For its first year if operations, Altitude Inc. reports pretax GAAP income of $100,000 in 2020. Assume pretax income in 2021 and 2022 of $125,000 and $90,000 respectively. The enacted income tax rate in all years is 25%. The following additional information is available for the first three years of operation (with the exception of the one item in the 4th year).

• Prepaid rent in the amount of $20,000 was recorded on December 21, 2020 for 2021 rent.
• A warranty accrual of 30,000 was recorded on December 31, 2020. The warranty was paid evenly over the years 2021-2023.
• The company recorded interest revenue of $500 each of the three years on municipal bonds.

1. Compute the income tax payable each year for 2020, 2021, 2022
2. Determined the balance of any deferred tax assets or deferred tax liabilities at the end of each year (2020, 2021, 2022)
3. Record the journal entry related to taxes in 2020, 2021, 20222

Stockman Corp. purchased ten $1000, 8​% bonds of Power Source Corporation when the market rate of interest was 6​%. Interest is paid​ semiannually, and the bonds will mature in ten years.

Using the PV function in Excel Superscript ®​, compute the price Stockman paid​ (the present​ value) for the bond investment.​ (Assume that all payments of interest and principal occur at the end of the period. Round your answer to the nearest​ cent.)