Horatio Inc. has three divisions which are operated as profit centers. Actual operating data for the divisions listed alphabetically are as follows. Compute the missing amounts. Operating Data Women’s Shoes Men’s Shoes Children’s Shoes Contribution margin $270,000 $ (3) $180,000 Controllable fixed costs 100,000 (4) (5) Controllable margin (1) 90,000 95,000 Sales 600,000 450,000 (6) Variable costs (2) 320,000 250,000 Prepare a responsibility report for the Women’s Shoes Division assuming (1) the data are for the month ended June 30, 2020, and (2) all data equal budget except variable costs which are $5,000 over budget. HORATIO INC. Women’s Shoe Division Responsibility Report For the Month Ended June 30, 2020 Difference Budget Actual Favorable Unfavorable Neither Favorable nor Unfavorable $ $ $ $ $ $

use the MACRS Table

a. Calculate current year depreciation expense on the furniture:

b. Calculate current year depreciation expense on the computer:

c. Calculate current year depreciation expense on the office machine:

d. Assume the office machinery remains in service throughout the next two calendar years. Calculate depreciation for 20X4.

e. Calculate the basis (net tax value) of the office machinery at the end of year three assuming it remains in service until that date:

f. Calculate current year depreciation expense on the mfg. equipment:

The firm I Love Cost Accounting, Co. provides cost accounting tutoring as well as CMA test prep classes. Cost accounting tutoring brings in $1,200,000 in revenue. CMA test prep classes bring in $4,000,000 in revenue.

Cost accounting tutoring costs the firm $2,100,000, and CMA test prep classes cost the firm $2,750,000.

If the firm drops cost accounting tutoring, then revenue for CMA test prep classes will decrease by 20%. And if the firm drops cost accounting tutoring, it cannot avoid $70,000 of the cost of providing cost accounting tutoring.

1. The Revenue Operations team (RevOps) provides system requirements to the Finance Engineering team (FinEng) when any change to the revenue accounting systems is needed. Examples of these changes include launching new products and features, modifications, and/or accounting policy changes. FinEng's role is to deploy the requirements within the revenue accounting systems. Once FinEng deploys the requirements in the systems, RevOps completes User Acceptance Testing (UAT) to ensure the changes to the system are performing as expected. When performing UAT, what factors would you consider?

Below are purchases and sales for Hector retail company for the year 2020.

January 1    purchased    10   UNITS at $20 each

January 2  purchased       20  UNITS at $25 each

January  3  purchased        20 UNITS at $ 30 each

January  4   Sold                    25 UNITS at $ 50 each

(A)

USING FIRST IN FIRST OUT METHOD (FIFO) DETERMINE THE FOLLOWING:

A,.COST OF GOOS SOLD

B. COST OF ENDING INVENTORY

C. GROSS PROFIT

(B)

USING LAST IN FIRST OUT METHOD (LIFO)

1. COST OF ENDING INVENTORY
2. COST OF GOODS SOLD
3. GROSS PROFIT

1)

Teddy Bear company sold a total of 30,000 stuffed tigers and lions. During August the following information

Tigers Lions

Actual Sell price 7.50 10.50

Budget Sell Price 5.50 10.50

Actual Sales Mix 69% 31%

Budget Sale Mix 75% 25%

Actual Variable costs 5.00 6.50

Budget Variable Cost 4.75 7.25

Budget unit sales 30,00 10,000

What is the total Sales mix Variance?

a) 21,600 favourable

b) 13,750 favourable

c) 4,500 favourable

d) 13,750 unfavourable

e) 4,500 unfavourable

2)

Teddy Bear company sold a total of 30,000 stuffed tigers and lions. During August the following information

Tigers Lions

Actual Sell price 7.50 10.50

Budget Sell Price 5.50 10.50

Actual Sales Mix 69% 31%

Budget Sale Mix 75% 25%

Actual Variable costs 5.00 6.50

Budget Variable Cost 4.75 7.25

Budget unit sales 30,00 10,000

What is the total sales quantity variance?

a) 21,600 favourable

b) 13,750 favourable

c) 4,500 favourable

d) 13,750 unfavourable

e) 4,500 unfavourable

General Fabricators assembles its product in two departments. It has two departments that process all units: Cutting and Finishing. During October, Cutting department allocated a total cost of $75,000 to units that were finished in the cutting process and transferred to the finishing process.

In October, beginning work in process in the finishing department was 75% complete as to conversion. Direct materials are added at the end of the finishing process. Conversion costs are added evenly in the finishing process. Beginning inventories in finishing department included $9,000 for transferred-in costs and $20,000 for conversion costs. Ending inventory in finishing department was 30% complete. Additional information about the departments in October follows:

Required:

1. Determine a) the amount of ending WIP, b) the amount of transferred- out cost (credit amount), usingWeighted Averagefor the finishing department.

Question 2                                                                                                           (Total: 26 marks)

Cavendish Cheese Company

makes three products within their single facility. Data concerning these products follow:

The mixing machines are potentially a constraint in the production facility. A total of 25,800 minutes are available per month on these machines.

Direct labour is a variable cost in this company.

Required:

1. How many minutes of mixing machine time would be required to satisfy demand for all three products?
2. How much of each product should be produced, rounded to the nearest whole unit, to maximize operating income?
3. Up to how much should the company be willing to pay, rounded to the nearest whole cent, for one additional minute of mixing machine time if the company has made the best use of the existing mixing machine capacity?

Pittman Company is a small but growing manufacturer of telecommunications equipment. The company has no sales force of its own; rather, it relies completely on independent sales agents to market its products. These agents are paid a sales commission of 15% for all items sold. Barbara Cheney, Pittman’s controller, has just prepared the company’s budgeted income statement for next year as follows: Pittman Company Budgeted Income Statement For the Year Ended December 31 Sales $ 25,000,000 Manufacturing expenses: Variable $ 11,250,000 Fixed overhead 3,500,000 14,750,000 Gross margin 10,250,000 Selling and administrative expenses: Commissions to agents 3,750,000 Fixed marketing expenses 175,000 * Fixed administrative expenses 2,160,000 6,085,000 Net operating income 4,165,000 Fixed interest expenses 875,000 Income before income taxes 3,290,000 Income taxes (30%) 987,000 Net income $ 2,303,000 *Primarily depreciation on storage facilities. As Barbara handed the statement to Karl Vecci, Pittman’s president, she commented, “I went ahead and used the agents’ 15% commission rate in completing these statements, but we’ve just learned that they refuse to handle our products next year unless we increase the commission rate to 20%.” “That’s the last straw,” Karl replied angrily. “Those agents have been demanding more and more, and this time they’ve gone too far. How can they possibly defend a 20% commission rate?” “They claim that after paying for advertising, travel, and the other costs of promotion, there’s nothing left over for profit,” replied Barbara. “I say it’s just plain robbery,” retorted Karl. “And I also say it’s time we dumped those guys and got our own sales force. Can you get your people to work up some cost figures for us to look at?” “We’ve already worked them up,” said Barbara. “Several companies we know about pay a 7.5% commission to their own salespeople, along with a small salary. Of course, we would have to handle all promotion costs, too. We figure our fixed expenses would increase by $3,750,000 per year, but that would be more than offset by the $5,000,000 (20% × $25,000,000) that we would avoid on agents’ commissions.” The breakdown of the $3,750,000 cost follows: Salaries: Sales manager $ 156,250 Salespersons 937,500 Travel and entertainment 625,000 Advertising 2,031,250 Total $ 3,750,000 “Super,” replied Karl. “And I noticed that the $3,750,000 equals what we’re paying the agents under the old 15% commission rate.” “It’s even better than that,” explained Barbara. “We can actually save $115,000 a year because that’s what we’re paying our auditors to check out the agents’ reports. So our overall administrative expenses would be less.” “Pull all of these numbers together and we’ll show them to the executive committee tomorrow,” said Karl. “With the approval of the committee, we can move on the matter immediately.” Required: 1. Compute Pittman Company’s break-even point in dollar sales for next year assuming: a. The agents’ commission rate remains unchanged at 15%. b. The agents’ commission rate is increased to 20%. c. The company employs its own sales force. 2. Assume that Pittman Company decides to continue selling through agents and pays the 20% commission rate. Determine the dollar sales that would be required to generate the same net income as contained in the budgeted income statement for next year. 3. Determine the dollar sales at which net income would be equal regardless of whether Pittman Company sells through agents (at a 20% commission rate) or employs its own sales force. 4. Compute the degree of operating leverage that the company would expect to have at the end of next year assuming: a. The agents’ commission rate remains unchanged at 15%. b. The agents’ commission rate is increased to 20%. c. The company employs its own sales force. Use income before income taxes in your operating leverage computation. Determine the dollar sales at which net income would be equal regardless of whether Pittman Company sells through agents (at a 20% commission rate) or employs its own sales force. (Do not round intermediate calculations.)

24. Taylor Trucking is considering purchasing a new truck. It is expected the truck will increase annual revenues by $31,000 and increase annual expenses by $19,800 including depreciation. The truck will cost $110,000 and will have a $2,000 salvage value at the end of its useful life. Compute the annual rate of return.

20%

20.7%

10%

10.2%

23. Evergreen Co. is contemplating the purchase of a new machine that has expected annual net cash inflows of $25,000 over its 3 year life. The net present value of the investment is $3,275; assuming a 9% discount rate. The present value factors from the present value of 1 table and the present value of an annuity table are .772 and 2.531, respectively. Compute the profitability index.

1.15

1.05

0.77

1.19

18. If an asset costs $250000 and is expected to have a $50000 salvage value at the end of its 10-year life, and generates annual net cash inflows of $50000 each year, the cash payback period is

6 years.

5 years.

3 years.

4 years.

11. SwiftyCompany is considering two capital investment proposals. Estimates regarding each project are provided below:

The company requires a 10% rate of return on all new investments.

The annual rate of return for Project Soup is

3.0%.

22.5%.

45%.

6%.

12. Use the following table,

A company has a minimum required rate of return of 8%. It is considering investing in a project that costs $349278 and is expected to generate cash inflows of $138000 each year for three years. The approximate internal rate of return on this project is

9%.

10%.

8%.

the IRR on this project cannot be approximated.

Financial Analysis Project

Requirements:

You will use the Financial Statements for

Coke

and

Pepsi

as provided on their websites to

complete the following analysis:

1.

Calculate the current ratio and quick ratio for both companies for 2016 and 2017. Write

a paragraph describing what these ratios indicate about the liquidity of Pepsi and Coke

in 2016 compared to 2017. Write a paragraph describing what these ratios indicate

about the liquidity of Pepsi compared to Coke for both years. Which company seems to

be more liquid? What are the advantages and disadvantages of liquidity?

2.

Calculate the accounts receivable turnover and days sales in receivables for both

companies for 2016 and 2017. Write a paragraph comparing 2016 with 2017 and Coke

with Pepsi using these two ratios to indicate the effectiveness of their accounts

receivable collection. Which of the two seems to be doing a better job with receivables?

How does this collection process affect the overall success of the company.

3.

Calculate inventory turnover and days in inventory for both companies for 2016 and

2017. Write a paragraph comparing 2016 with 2017 and Coke with Pepsi using these

two ratios to indicate how they manage their inventory. Which one of the two companies

has a better approach to inventory management? Why? What are the problems that

come with poor inventory management?

4.

Calculate the gross margin, profit margin and return on investment for both companies

for 2016 and 2017. Explain in a paragraph what these ratios show about each

company’s profitability compared to the year before and compared to each other.

Indicate which company shows the best prospects for future profits and explain in detail

why you think the ratios support your observation.

5.

Prepare a vertical analysis or same size income statement and balance sheet for Pepsi

and Coca Cola for 2016 and 2017. Write a paragraph highlighting what you learn from

the percentages of sales or total assets calculated from the financial statements. Write

also about the comparison between 2016 and 2017 and between Coke and Pepsi.

6.

Compare Pepsi’s income statement for 2016 with their income statement for 2017 –

calculate the change in dollars and percent for all of the revenues and expenses. What

do the changes indicate about Pepsi’s success in 2016 relative to 2017? Do the same

comparison for Coke’s income statement. What do the changes indicate about Coke’s

improvement or lack thereof between 2016 and 2017? With this comparison of both

companies over time now compare Coke vs. Pepsi and explain why one company is

better than the other.

7.

Based on all of your calculations and observations described above, make a

recommendation as to which company would be a better investment. Give the reasons

for your conclusion.

The marketing department of Jessi Corporation has submitted the following sales forecast for the upcoming fiscal year (all sales are on account):

The selling price of the company’s product is $16 per unit. Management expects to collect 75% of sales in the quarter in which the sales are made, 20% in the following quarter, and 5% of sales are expected to be uncollectible. The beginning balance of accounts receivable, all of which is expected to be collected in the first quarter, is $71,600.

The company expects to start the first quarter with 1,755 units in finished goods inventory. Management desires an ending finished goods inventory in each quarter equal to 15% of the next quarter’s budgeted sales. The desired ending finished goods inventory for the fourth quarter is 1,955 units.

Required:

1. a.Calculate the estimated sales for each quarter of the fiscal year and for the year as a whole.

b. Calculate the expected cash collections for each quarter of the fiscal year and for the year as a whole.

c. Calculate the required production in units of finished goods for each quarter of the fiscal year and for the year as a whole.

U.S. GAAP and International Financial Reporting Standards have largely similar guidance for accounting for business combinations. Under IFRS, the guidance is established in IFRS 3R, Business Combinations. One topic on which U.S. and IFRS differ is with respect to reporting noncontrolling interest for noncontrolling interest in consolidated financial statements.

Required

Briefly, i.e. no more than 3 paragraphs, explain the difference between IFRS and U.S. GAAP regarding valuation of noncontrolling interest in a consolidated financial statement.