Question 2 [100 marks]

In Jasmine Ltd’s production cost centre, two units are produced: Unit Aand Unit B, the total overhead cost being €1000. This is made up of two costs:

1. Machine set-up costs of €800; and

2. Inspection costs of €200.

Overhead is absorbed on the basis of direct labour hours. The total direct labour hours (DLH) amount to 200 DLH.

1. Unit A requires 150 DLH; and

2. Unit B 50 DLH.

The machinery for Unit A only needs to be set-up once whereas Unit Brequires nine set-ups. Unit A and Unit B both require two inspections each.

Required

a) Calculate the overhead recovery charge that should be made to each product, based on:

1. Absorption costing method based on Direct Labour Hours.
   [20 marks]

2. The ABC method based on machine set-up costs and inspection costs.

   [50 marks]

b) Show the comparison of each method and write a short note explaining

why the difference occurs.

[30 marks]

On December 30, Billy’s Boat Yard (BBY) had $90,000 of cash, $20,000 of liabilities, $30,000 of common stock, and $40,000 of unrestricted retained earnings. On December 31, BBY appropriated retained earnings in the amount of $18,000 for a future remodeling project.Page 624

Required

1. Record the December 31 appropriation in the following statements model:

2. Determine the amount of dividends that BBY can pay immediately after the December 31 appropriation.
3. Determine the total amount of retained earnings immediately after the December 31 appropriation.
4. Determine the total amount of cash immediately after the December 31 appropriation.

Outback Outfitters sells recreational equipment. One of the company’s products, a small camp stove, sells for $130 per unit. Variable expenses are $91 per stove, and fixed expenses associated with the stove total $175,500 per month.

Required:

1. What is the break-even point in unit sales and in dollar sales?

2. If the variable expenses per stove increase as a percentage of the selling price, will it result in a higher or a lower break-even point? (Assume that the fixed expenses remain unchanged.)

3. At present, the company is selling 20,000 stoves per month. The sales manager is convinced that a 10% reduction in the selling price would result in a 25% increase in monthly sales of stoves. Prepare two contribution format income statements, one under present operating conditions, and one as operations would appear after the proposed changes.

4. Refer to the data in Required 3. How many stoves would have to be sold at the new selling price to attain a target profit of $71,000 per month?

6. The Jefferson Co. purchased a machine on January 1, 201 The machine cost $595,000. It had an estimated life of ten years, or 30,000 units, and an estimated residual value of $40,000. In 2016, Jeffries produced 3,000 units.
   
   Required:
   
   Compute the depreciation charge for 2016 using each of the following methods:
   

Matthew, Inc. owns 30 percent of the outstanding stock of Lindman Company and has the ability to significantly influence the investee’s operations and decision making. On January 1, 2018, the balance in the Investment in Lindman account is $409,000. Amortization associated with this acquisition is $11,400 per year. In 2018, Lindman earns an income of $83,000 and declares cash dividends of $41,500. Previously, in 2017, Lindman had sold inventory costing $50,400 to Matthew for $72,000. Matthew consumed all but 25 percent of this merchandise during 2017 and used the rest during 2018. Lindman sold additional inventory costing $59,400 to Matthew for $90,000 in 2018. Matthew did not consume 40 percent of these 2018 purchases from Lindman until 2019.

1. What amount of equity method income would Matthew recognize in 2018 from its ownership interest in Lindman?

2. What is the equity method balance in the Investment in Lindman account at the end of 2018?

a. Equity income

b.Investment in Lindman account.

Q1: Corporate Performance Measurement: Despite the sophistication that financial accounting has reached thus far, accounting net income disclosed in corporate reporting is not a scientifically proven figure.?

Required: Address the statement in light of what we discussed in the lecture and the prescribed readings:

readings list you should read to answer Q1:

 Solomons, D. (1961). Economic and accounting concepts of income. The Accounting Review, 36(3), 374-383.

 Kimball, H. G. (1935). The Importance of Understanding Income and Profits. The Accounting Review, 131-135.

 Schmidt, F. (1931). Is appreciation profit?. The Accounting Review, 289-293.

 Kelley, A. C. (1951). Can Corporate Incomes Be Scientifically Ascertained?. The Accounting Review, 26(3), 289-298.

 Brief, R. P., & Owen, J. (1970). The estimation problem in financial accounting. Journal of Accounting Research, 8(2), 167-177.

Q2: What do you think of an accountant who does not mind swearing by the All-Mighty that the income s/he discloses in the income statement is true?

Give detailed answers to the following questions:

1. Describe the market research—type and purpose—that you conducted, or will conduct, prior to your business start-up. Why is such research necessary and why is it necessary to continue, through the business operation, to conduct appropriate research?
2. Explain how and why business plans need to be regularly reviewed. How do you, or how do you think you will, conduct reviews in your organisation? Describe the processes and steps involved.
3. How can such reviews be utilised to take advantage of new business opportunities?
4. Through what procedures is it possible to identify new markets?
5. In what ways might plans and goals need to be adjusted as a result of market research?

(1,000–2,000 words)

Golden Corp., a merchandiser, recently completed its 2018 operations. For the year, (1) all sales are credit sales, (2) all credits to Accounts Receivable reflect cash receipts from customers, (3) all purchases of inventory are on credit, (4) all debits to Accounts Payable reflect cash payments for inventory, (5) Other Expenses are all cash expenses, and (6) any change in Income Taxes Payable reflects the accrual and cash payment of taxes. The company’s balance sheets and income statement follow.

Problem 12-6A Indirect: Statement of cash flows LO P1, P2, P3

Additional Information on Year 2018 Transactions

1. Purchased equipment for $36,000 cash.
2. Issued 12,000 shares of common stock for $5 cash per share.
3. Declared and paid $89,000 in cash dividends.

Required:
Prepare a complete statement of cash flows; report its cash inflows and cash outflows from operating activities according to the indirect method. (Amounts to be deducted should be indicated with a minus sign.)

How can we use algebraic skills and properties to conduct business and solve business problems? What is an example of a way we can use algebraic skills to make decisions?

The information below pertains to Kingbird Company for 2018.

Net income for the year $1,150,000

6% convertible bonds issued at par ($1,000 per bond); each bond is convertible into 30 shares of common stock 2,040,000

6% convertible, cumulative preferred stock, $100 par value; each share is convertible into 3 shares of common stock 4,130,000

Common stock, $10 par value 6,030,000

Tax rate for 2018 40%

Average market price of common stock $25 per share There were no changes during 2018 in the number of common shares, preferred shares, or convertible bonds outstanding. There is no treasury stock. The company also has common stock options (granted in a prior year) to purchase 73,600 shares of common stock at $20 per share.

Compute diluted earnings per share for 2018.

1.

Andrew Clark's shoe company has the following information:

Selling price per pair of shoes: $100

Direct materials per pair of shoes: $30

Direct labor per pair of shoes: $20

Variable Selling expense per pair of shoes: $5

Variable overhead per pair of shoes: $10

Fixed overhead per month: $10,000

Fixed Selling expenses per month: $20,000 I

n January, 2,000 pairs of shoes were produced and 1,800 pairs of shoes were sold.

Using variable contribution margin costing, what is the contribution margin for January?

Group of answer choices

$81,000

$63,000

$70,000

$72,000

Using absorption costing, what is the gross margin for January?

Group of answer choices

$63,000

$62,010

$54,000

$36,000

2.

Brat Pack books has the following financial information for the month of October:

Direct labor per book: $3

Direct material per book: $2

Manufacturing overhead per book: $1

Variable selling expense per book: $0.50

Fixed Manufacturing overhead: $5,000

Fixed selling expenses: $2,000

If there were 4,000 books produced and sold in October, what is the variable cost per book using the contribution margin method?

Group of answer choices

$5.00

$7.25

$6.00

$6.50

If there were 4,000 books produced and sold in October, what is the cost of goods sold per book using the absorption costing method?

Group of answer choices

$6.25

$5.00

$6.50

$7.25

3.

Reynolds Corp has the following information:

Selling price: $15 per unit

Direct labor: $4 per unit

Direct materials: $2 per unit

Fixed Manufacturing Expense: $50,000

What is their breakeven point?

Group of answer choices

8,334 Units

3,334 Units

5,000 Units

5,556 Units

The following transactions occurred during December, the first month of operations for Harris Company. Prepare journal entries and create a T-account for accounts payable that includes the following five transactions.