Problem 15-5

Before Carla Corporation engages in the treasury stock transactions listed below, its general ledger reflects, among others, the following account balances (par value of its stock is $30 per share).

Record the treasury stock transactions (given below) under the cost method of handling treasury stock; use the FIFO method for purchase-sale purposes. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Buzz Appliances manufactures two​ products: Food Processors and Espresso Machines. The following data are​ available:

The company can manufacture two food processors per machine hour and three espresso machines per machine hour. The​ company's production capacity is

1 comma 6001,600

machine hours per month.

The company has demand of

1 comma 2001,200

espresso machines. How many espresso machines and food processors should they produce based on demand and available machine​ hours?

Preparing a Cash Budget

La Famiglia Pizzeria provided the following information for the month of October:

1. Sales are budgeted to be $152,000. About 85% of sales is cash; the remainder is on account.
2. La Famiglia expects that, on average, 70% of credit sales will be paid in the month of sale, and 28% will be paid in the following month.
3. Food and supplies purchases, all on account, are expected to be $117,000. La Famiglia pays 25% in the month of purchase and 75% in the month following purchase.
4. Most of the work is done by the owners, who typically withdraw $6,000 a month from the business as their salary. (Note: The $6,000 is a payment in total to the two owners, not per person.) Various part-time workers cost $7,300 per month. They are paid for their work weekly, so on average 90% of their wages are paid in the month incurred and the remaining 10% in the next month.
5. Utilities average $5,950 per month. Rent on the building is $4,100 per month.
6. Insurance is paid quarterly; the next payment of $1,200 is due in October.
7. September sales were $181,500 and purchases of food and supplies in September equaled $130,000.
8. The cash balance on October 1 is $2,147.

Required:

If required, round your answers to the nearest dollar.

1. Calculate the cash receipts expected in October.
$

2. Calculate the cash needed in October to pay for food purchases.
$

3. Prepare a cash budget for the month of October.

Departmental Overhead Rates

Mariposa, Inc., produces machine tools and currently uses a plantwide overhead rate, based on machine hours. Harry Whipple, the plant manager, has heard that departmental overhead rates can offer significantly better cost assignments than can a plantwide rate.

Mariposa has the following data for its two departments for the coming year:

Required:

1. Compute a predetermined overhead rate for the plant as a whole based on machine hours.
$ per machine hour

2. Compute predetermined overhead rates for each department using machine hours. Round your answers to one decimal place.

3. Suppose that a machine tool (Product X75) used 70 machine hours from Department A and 160 machine hours from Department B. A second machine tool (Product Y15) used 160 machine hours from Department A and 70 machine hours from Department B. Compute the overhead cost assigned to each product using the plantwide rate computed in Requirement 1.

Repeat the computation using the departmental rates found in Requirement 2.

Which of the two approaches gives the fairest assignment?

4. Repeat Requirement 3 assuming the expected overhead cost for Department B is $240,000.

Would you recommend departmental rates over a plantwide rate?

Predetermined Overhead Rate, Overhead Variances, Journal Entries

Craig Company uses a predetermined overhead rate to assign overhead to jobs. Because Craig's production is machine intensive, overhead is applied on the basis of machine hours. The expected overhead for the year was $6,461,400, and the practical level of activity is 363,000 machine hours.

   During the year, Craig used 369,500 machine hours and incurred actual overhead costs of $6,502,100. Craig also had the following balances of applied overhead in its accounts:

4. Assuming the overhead variance is material, prepare the journal entry that appropriately disposes of the overhead variance at the end of the year. If an amount box does not require an entry, leave it blank.

FDP Company produces a variety of home security products. Gary Price, the company's president, is concerned with the fourth-quarter market demand for the company's products. Unless something is done in the last two months of the year, the company is likely to miss its earnings expectations of Wall Street analysts. Price still remembers when FDP's earnings were below analysts' expectations by two cents a share three years ago, and the company's share price fell 19% the day earnings were announced. In a recent meeting, Price told his top management that something must be done quickly. One proposal by the marketing vice president was to give a deep discount to the company's major customers to increase sales, it may not help the bottom line; to the contrary, it could lower income. The controller said, "Since we have enough storage capacity, we might simply increase our production in the fourth quarter to increase our reported profit."

• Gary Price is not sure how the increase in production without a corresponding increase in sales could help boost the company's income. Explain to Price how income carries with respect to production level.
• Is there an ethical concern in this situation? If so, which parties are affected? Explain

Predetermined Overhead Rates, Overhead Variances, Unit Costs

Primera Company produces two products and uses a predetermined overhead rate to apply overhead. Primera currently applies overhead using a plantwide rate based on direct labor hours. Consideration is being given to the use of departmental overhead rates where overhead would be applied on the basis of direct labor hours in Department 1 and on the basis of machine hours in Department 2. At the beginning of the year, the following estimates are provided:

Actual results reported by department and product during the year are as follows:

Required:

1. Compute the plantwide predetermined overhead rate.
$ per direct labor hour

Calculate the overhead assigned to each product.

2. Calculate the predetermined departmental overhead rates. If required, round your answers to the nearest cent.

Calculate the overhead assigned to each product.

3. Using departmental rates, compute the applied overhead for the year.
$

What is the under- or overapplied overhead for the firm?
$  

4. Prepare the journal entry that disposes of the overhead variance calculated in Requirement 3, assuming it is not material in amount.

Management Accounting question

Auto Robot Ltd which manufactures two products P & Q has provided the following information.
P (shs) Q (shs) Selling price per unit 10 12
Variable cost per unit 2 8
Fixed cost 50,000 34,000
Required:-
i) Calculate the B. E. P. of each product in units and in shs.
ii) Calculate the margin of safety if budgeted sales are 10,000 units each
iii) Compute the profit of each product if sales in units are 20% above the B. E. P.

Northwood Company manufactures basketballs. The company has a ball that sells for $25. At present, the ball is manufactured in a small plant that relies heavily on direct labor workers. Thus, variable expenses are high, totaling $15.00 per ball, of which 60% is direct labor cost.

Last year, the company sold 48,000 of these balls, with the following results:

Required:

1. Compute (a) last year's CM ratio and the break-even point in balls, and (b) the degree of operating leverage at last year’s sales level.

2. Due to an increase in labor rates, the company estimates that next year's variable expenses will increase by $3.00 per ball. If this change takes place and the selling price per ball remains constant at $25.00, what will be next year's CM ratio and the break-even point in balls?

3. Refer to the data in (2) above. If the expected change in variable expenses takes place, how many balls will have to be sold next year to earn the same net operating income, $161,000, as last year?

4. Refer again to the data in (2) above. The president feels that the company must raise the selling price of its basketballs. If Northwood Company wants to maintain the same CM ratio as last year (as computed in requirement 1a), what selling price per ball must it charge next year to cover the increased labor costs?

5. Refer to the original data. The company is discussing the construction of a new, automated manufacturing plant. The new plant would slash variable expenses per ball by 40.00%, but it would cause fixed expenses per year to double. If the new plant is built, what would be the company’s new CM ratio and new break-even point in balls?

6. Refer to the data in (5) above.

a. If the new plant is built, how many balls will have to be sold next year to earn the same net operating income, $161,000, as last year?

b. Assume the new plant is built and that next year the company manufactures and sells 48,000 balls (the same number as sold last year). Prepare a contribution format income statement and compute the degree of operating leverage.

The following summarized data were provided by the records of Mystery Incorporated for the year ended December 31:

1. Based on these data, prepare a multi-step income statement for internal reporting purposes

.2-a. What was the amount of gross profit?

2-c. Which of the following(s) is true? (Select all that apply.)

3. Did the gross profit percentage in the current year improve, or decline, relative to the 48 percent gross profit percentage in the prior year?

There is _______ in the gross profit percentage when compared to 48% in the previous year.

S&L Financial buys and sells securities which it classifies as available-for-sale. On December 27, 2018, S&L purchased Coca-Cola bonds at par for $875,000 and sold the bonds on January 3, 2019, for $880,000. At December 31, the bonds had a fair value of $873,000, and S&L has the intent and ability to hold the investment until fair value recovers.

Prepare journal entries to record (a) any unrealized gains or losses occurring in 2018 and (b) the sale of the bonds in 2019, including recognition of any unrealized gains in 2019 prior to sale and reclassification of amounts out of OCI.

• Record the entry to adjust to fair value on the date of sale.

Note: Enter debits before credits.

• Record the entry to reverse the previous fair value adjustment.

Note: Enter debits before credits.

• Record the entry for sale of investment in Coca Cola bonds.

Note: Enter debits before credits.

Topic: creative accounting

a) What is the problem?

b) How to solve the problem/issue/case?

Special Order Review company has the following information relating to their plastics factory

Current Selling Price $10.00

Current Monthly Production 15,000 units

Total Direct Materials ( all Variable) $45,000.00

Total Direct Labor (all variable) $15,000.00

Total Overhead (50% variable) $50,000.00

Total Marketing Cost (75% variable) $30,000.00

A new customer has offered to buy 3000 units but will pay only $7.50. The special order will incur additional costs of $1.50 per unit but there will be no additional marketing costs paid.

REQUIRED: 1. Calculate the current variable cost per unit and fixed cost.

2. Calculate the gain or loss on the special order

Patricia, a CPA, is the new controller for a small construction company, Domingo Builders, that employs 75 people. The company specializes in custom homes greater than 3,500 square feet. The demand for large custom homes has significantly decreased because of the downturn in the economy. As a result of economic conditions their target market is dwindling, significantly affecting the company’s finances.

The ability to collect an outstanding receivable that is significant and material is in doubt. Prior to year-end Patricia discusses the outstanding receivable with the CEO. Patricia believes that the company owing the outstanding receivable will not last for another year. Patricia believes that the allowance for uncollectible accounts must be adjusted to a value that is reasonably realizable. The CEO disagrees.

The CEO is concerned that if the allowance adjustments are made, then Domingo will not look financially sound. Additionally, the CEO is concerned about the opinion that the auditor may provide as a result of the allowance adjustment. Anything less than a “clean opinion” would jeopardize Domingo’s ability to secure a much-needed bank loan. If the company cannot secure the loan next year, then Domingo might be out of business too.  

The CEO urges Patricia to ignore the allowance adjustment. After all, it is not certain that the outstanding receivable will be uncollectible; the company has not filed for bankruptcy. The CEO believes that Domingo can just weather the storm and will recover from the economic downturn. “I know business will pick up”.

Patricia reflects on what can be done. From her previous experience in public accounting, Patricia reflects on the audit process and information that she thinks the auditors would need to know.