Budgeting is generally thought to be an important function within an organization from a planning, control, and performance assessment perspective. Discuss whether you believe that budgeting process should be a priority in the organizationn and why or why not. Be sure that you address the planning, control, and performance assessment characteristics of operations in your response. Ensure your response addresses budgeting of income, balance sheet, and cash flows.

Thermal Rising, Inc., makes paragliders for sale through specialty sporting goods stores. The company has a standard paraglider model, but also makes custom-designed paragliders. Management has designed an activity-based costing system with the following activity cost pools and activity rates: Activity Cost Pool Activity Rate Supporting direct labor $ 20 per direct labor-hour Order processing $ 202 per order Custom design processing $ 265 per custom design Customer service $ 432 per customer Management would like an analysis of the profitability of a particular customer, Big Sky Outfitters, which has ordered the following products over the last 12 months: Standard Model Custom Design Number of gliders 14 2 Number of orders 1 2 Number of custom designs 0 2 Direct labor-hours per glider 26.50 33.00 Selling price per glider $ 1,700 $ 2,390 Direct materials cost per glider $ 464 $ 570 The company’s direct labor rate is $20 per hour. Required: Using the company’s activity-based costing system, compute the customer margin of Big Sky Outfitters. (Do not round intermediate calculations. Round your final answer to the nearest dollar.)

ABC Company issued the following when opening business on Jan 1, 2017:

1000 Shares of 4% $50 par value preferred stock for $100000

40000 Shares of 4% $5 par value common stock for $800000 2

017 Reported income: $350000 ---- no dividends paid in 2017

2018 Reported income: $400000 ---- $70000 dividends paid in 2018

How is the dividend divided between common and preferred stockholders if the preferred stock in non-cumulative non-participating? EPS for 2017? EPS for 2017?

How is the dividend divided between common and preferred stockholders if the preferred stock in cumulative non-participating? EPS for 2017? EPS for 2017?

J & J Enterprises is considering a cash acquisition of Patterson Steel Company for $5,000,000. Patterson will provide the following pattern of cash inflows and synergistic benefits for the next 20 years. There is no tax loss carry-forward.

	Years
	1–5	6–15	16–20
Cash inflow (aftertax)	$540,000	$700,000	$900,000
Synergistic benefits (aftertax)	$ 50,000	$ 70,000	$ 80,000

The cost of capital for the acquiring firm is 15 percent.

a. Calculate the net present value. (Use a Financial calculator to arrive at the answers. Negative answer should be indicated by a minus sign. Do not round intermediate calculations. Round the final answer to nearest whole dollar.)

Net present value           $

After expanding Smith Sales Company, Tom Smith asked you to become the controller of the company. Upon accepting the job, you realize that by offering a warranty on several products, Smith Sales Company could significantly raise revenues. Tom understands the benefits of offering warranties, but does not understand the accounting for them.

Requirements: (Part A: 50 points maximum; part B: 50 points maximum)

A. Explain to Tom:

     1. The rational for accounting for contingent liabilities, and

     2. The procedure for estimating and recording warranty expense.

Ravenna Company is a merchandiser that uses the indirect method to prepare the operating activities section of its statement of cash flows. Its balance sheet for this year is as follows:

	Ending Balance			Beginning Balance
Cash	$	121,800		$	146,550
Accounts receivable		95,900			103,400
Inventory		128,800			117,500
Total current assets		346,500			367,450
Property, plant, and equipment		339,000			329,000
Less accumulated depreciation		113,000			82,250
Net property, plant, and equipment		226,000			246,750
Total assets	$	572,500		$	614,200
Accounts payable	$	75,200		$	133,500
Income taxes payable		58,300			80,200
Bonds payable		141,000			117,500
Common stock		164,500			141,000
Retained earnings		133,500			142,000
Total liabilities and stockholders’ equity	$	572,500		$	614,200

During the year, Ravenna paid a $14,100 cash dividend and it sold a piece of equipment for $7,050 that had originally cost $16,800 and had accumulated depreciation of $11,200. The company did not retire any bonds or repurchase any of its own common stock during the year.

a. What is the amount of gross cash outflows reported in the investing section of the company’s statement of cash flows?

b.What is the company’s net cash provided by (used in) investing activities?

c.What is the amount of gross cash inflows reported in the financing section of the company’s statement of cash flows?

d.What is the company’s net cash provided by (used in) financing activities?

On January 1, 20X1, Mighty Entity pays the fair value of $50,000 for a new piece of machinery with an estimated useful life of 8 years. The machine has a drum that must be replaced every four years and costs $20,000 to replace. Continued operation of the machine requires an inspection every four years after purchase and the inspection cost is $4,000. Under IFRS, what is the depreciation expense of year 2?

Automotive Products ​(AP​) designs and produces automotive parts. In 2017​, actual variable manufacturing overhead is $ 308,600. AP's simple costing system allocates variable manufacturing overhead to its three customers based on​ machine-hours and prices its contracts based on full costs. One of its customers has regularly complained of being charged non-competitive​ prices, so AP's controller Declan Smith realizes that it is time to examine the consumption of overhead resources more closely. He knows that there are three main departments that consume overhead​ resources: design, ​ production, and engineering. Interviews with the department personnel and examination of time records yield the following detailed​ information:

			Usage of Cost Drivers by Customer
			Contract
		Manufacturing	Rural	Janek	Island
Department	Cost Driver	Overhead in 2017	Motors	Motors	Auto
Design	CAD-design-hours	$39,000	110	200	80
Engineering	Engineering-hours	29,600	70	60	240
Production	Machine-hours	240,000	120	2,800	1,080
Total		$308,600

1.	Compute the manufacturing overhead allocated to each customer in 20172017 using the simple costing system that uses​ machine-hours as the allocation base.
2.	Compute the manufacturing overhead allocated to each customer in 20172017 using​ department-based manufacturing overhead rates.

On February 1, 2018, Cromley Motor Products issued 9% bonds, dated February 1, with a face amount of $60 million. The bonds mature on January 31, 2022 (4 years). The market yield for bonds of similar risk and maturity was 10%. Interest is paid semi-annually on July 31 and January 31. Barnwell Industries acquired $60,000 of the bonds as a long term investment. The fiscal years of both firms end December 31. (FV of $1, PV of $1, FVA of 41, PVA of $1, FVAD of $1, PVAD of $1) (Use appropriate factor(s) from tables provided.) Required: 1. Determine the price of the bonds issued February 1, 2018. 2-a. Prepare amortization schedules that indicate Cromley's effective interest expense for each interest period during the term to maturity. 2-b. Prepare amortization schedules that indicate Barnwell's effective interest revenue for each interest period during the term to maturity. 3. Prepare the journal entries to record the issuance of the bonds by Cromley and Barnwell's investment on February 1, 2018. 4. Prepare the journal entries by both firms to record all subsequent events related to the bonds through January 31, 2020.

Ravenna Company is a merchandiser that uses the indirect method to prepare the operating activities section of its statement of cash flows. Its balance sheet for this year is as follows:

	Ending Balance			Beginning Balance
Cash	$	121,800		$	146,550
Accounts receivable		95,900			103,400
Inventory		128,800			117,500
Total current assets		346,500			367,450
Property, plant, and equipment		339,000			329,000
Less accumulated depreciation		113,000			82,250
Net property, plant, and equipment		226,000			246,750
Total assets	$	572,500		$	614,200
Accounts payable	$	75,200		$	133,500
Income taxes payable		58,300			80,200
Bonds payable		141,000			117,500
Common stock		164,500			141,000
Retained earnings		133,500			142,000
Total liabilities and stockholders’ equity	$	572,500		$	614,200

During the year, Ravenna paid a $14,100 cash dividend and it sold a piece of equipment for $7,050 that had originally cost $16,800 and had accumulated depreciation of $11,200. The company did not retire any bonds or repurchase any of its own common stock during the year.

a.What is the amount and direction (+ or −) of the accounts receivable adjustment to net income in the operating activities section of the statement of cash flows?

b.What does this adjustment represent?

c.If the company debited cost of goods sold and credited inventory for $940,000 during the year, what is the total amount of inventory purchases recorded on the debit side of the Inventory T-account and the credit side of the Accounts Payable T-account?

d.What is the total amount of the debits recorded in the Accounts Payable T-account during the year?

e.What does the amount of these debits represent?

In this milestone, you will move through the next phase of the accounting cycle by creating the trial balance, adjusting entries, and adjusted trial balance. Completing the adjusting entries implements the matching, timing, and periodicity of the generally accepted accounting principles. Omission of this step will show a higher net income than there actually is, which could cause users of the financial statements to make an incorrect decision and suffer financially. Prompt: You will find the provided data for your second milestone in the appendix at the end of this document. The data have been separated from the prompt so that you can more easily view the full scope of this assignment. Links have been provided to help you locate the information. Specifically, the following critical elements must be addressed: I. Incorporate the feedback that you received from your Milestone One submission on Steps 1–4. A. Step One: Complete the “July Journal Entries” tab in your workbook using the Step One data in the appendix. B. Step Two: Complete the “August Journal Entries” tab in your workbook using the Step Two data in the appendix. C. Step Three: Complete the “September Journal Entries” tab in your workbook using the Step Three data and updated scenario information in the appendix. Note that there was an additional line of products added this month, so you must first complete the “Inventory Valuation” tab in your workbook and copy the journal entries from the inventory evaluation page into your journal for this month to ensure the impact of merchandising is reflected in your reporting. D. Step Four: Transfer posted entries to T accounts. II. Apply the accrual basis of accounting to correctly create adjusting entries in the preparation of financial statements: A. Step Five: Prepare the unadjusted trial balance. Note that you should use the T account balances completed in the previous step to prepare the unadjusted trial balance portion of the “Trial Balance” tab in your workbook. B. Step Six: Complete the “Adjusting Entries” tab in your workbook using the Step Six data in the appendix. Note that you should take the adjusting entries from this worksheet and enter them into the “Trial Balance” tab in your workbook. C. Step Seven: Apply adjusting entries to create the adjusted trial balance. Note that the adjusting entries from Step Six will apply to affected accounts in the unadjusted trial balance to arrive at the adjusted trial balance. Rubric Guidelines for Submission: Your completed accounting workbook should have all tabs fully and accurately populated in the provided Excel template. Critical Elements Evident (100%) Not Evident (0%) Value Incorporate the Feedback Fully incorporates feedback from Milestone One on Steps 1–4 of the workbook Fails to incorporate feedback from Milestone One on Steps 1– 4 of the workbook 25 Apply the Accrual Basis of Accounting: Step Five Prepares the unadjusted trial balance Does not prepare the unadjusted trial balance 25 Apply Accrual Basis of Accounting: Step Six Prepares the adjusting entries Does not prepare the adjusting entries 25 Apply Accrual Basis of Accounting: Step Seven Prepares the adjusted trial balance Does not prepare the adjusted trial balance 25 Total 100% Appendix: Workbook Data for Milestone Two Step One Data (Click on the link to return to the prompt.) The following events occur in July, 2018: July 1: You take $10,000 from your personal savings account and buy common stock in Peyton Approved. July 1: Purchase $6,500 in baking supplies from vendor, on account. July 3: Your parents lend the company $10,000 cash in exchange for a two-year, 6% note payable. Interest and the principal are repayable at maturity. July 7: Enter into a lease agreement for bakery space. The agreement is for 1 year. The rent is $1,500 per month, and the last month’s rent payment of $1,500 is required at time of lease agreement. The payment was made in cash. Lease period is effective July 1, 2018, through June 30, 2019. July 10: Pay $375 to the county for a business license. July 11: Purchase a cash register for $250 (deemed to be not material enough to qualify as depreciable equipment—use misc. exp.). July 13: You have baking equipment, including an oven and mixer, which you have been using for your home-based business and will now start using in the bakery. You estimate that the equipment is currently worth $6,000, and you transfer the equipment into the business in exchange for additional common stock. The equipment has a 5-year useful life. July 13: Pay $200 for business cards/flyers/posters/ads to use for advertising. July 14: Pay $300 for office supplies. July 15: Hire part-time helper to be paid $12 per hour. Pay periods are the 1st through the 15th and 16th through the end of the month, with paydays being the 20th for the first pay period and the 5th of the following month for the second pay period. (No entry is required on this date; it is here for informational purposes only.) July 30: Received telephone bill for July in amount of $75. Payment is due on August 10. July 31: Pay $2,400 for a 12-month insurance policy. Policy effective dates are August 1, 2018, through July 31, 2019. July 31: Accrue wages earned for employee for period of 16th through 31st of July (Wage calculations table provided below). July 31: Total July bakery sales were $15,000. $5,000 of these sales are on accounts receivable. Step Two Data (Click on the link to return to the prompt.) The following events occur in August, 2018: August 5: Paid employee for period ending 7/31. August 8: Receive payments from customers towards accounts receivable in amount of $3,800. August 10: Paid July telephone bill. August 15: Purchase additional baking supplies in amount of $5,000 from vendor, on account. August 15: Accrue wages earned for employee from period of 1st through 15th of August (Wage calculations table provided below). August 15: Pay rent on bakery space. August 18: Receive payments from customers towards accounts receivable in amount of $3,000. August 20: Paid $8,500 toward baking supplies vendor payable. August 20: Pay employee for period ending 8/15. August 22: $300 in office supplies purchased. August 31: Received telephone bill for August in amount of $75. Payment is due on September 10. August 31: Accrue wages earned for employee for period of August 16th through August 31st (Wage calculations table provided below). August 31: August bakery sales total $20,000. $7,500 of this total is on accounts receivable. Step Three (Click on the link to return to the prompt.) Updated Scenario: Many customers have been asking for more hypoallergenic products, so in September you start carrying a line of hypoallergenic shampoos on a trial basis. The following information relates to the purchase and sales of the shampoo:  You use the perpetual inventory method. You are uncertain as to which valuation method to use—FIFO, LIFO, or weighted average, so you calculate inventory using all three and then decide which one you would like to choose. Data: The following events occur in September, 2018: September 1: Paid dividends to self in amount of $10,000. September 5: Pay employee for period ending 8/31. September 7: Purchase merchandise for resale. See “Inventory Valuation” tab for details. September 8: Receive payments from customers toward accounts receivable in amount of $4,000. September 10: Pay August telephone bill. September 11: Purchase baking supplies in amount of $7,000 from vendor on account. September 13: Paid on supplies vendor account in amount of $5,000. September 15: Accrue employee wages for period of September 1 through September 15. September 15: Pay rent on bakery space: $1,500. September 15: Record merchandise sales transaction. See “Inventory Valuation” tab for details. September 15: Record impact of sales transaction on COGS and the inventory asset. See “Inventory Valuation” tab for details. September 20: Pay employee for period ending 9/15. September 20: Purchase merchandise inventory for resale to customers. See “Inventory Valuation” tab for details. September 24: Record sales of merchandise to customers. See “Inventory Valuation” tab for details. September 24: Record impact of sales transaction on COGS and the inventory asset. See “Inventory Valuation” tab for details. September 30: Purchase merchandise inventory for resale to customers. See “Inventory Valuation” tab for details. September 30: Accrue employee wages for period of September 16th through September 30th September 30: Total September bakery sales are $20,000. $6,000 of these sales are on accounts receivable. Step Six Data (Click on the link to return to the prompt.) On September 30, the following adjustments must be made:  [Note: This is a sample.] Depreciation of baking equipment transferred to company on 7/13. Assume a half month of depreciation in July using the straight-line method.  Accrue interest for note payable. Assume a full month of interest for July. (6% annual interest on $10,000 loan from parents.)  Record insurance used for the year.  Actual baking supplies on-hand as of September 30 are $1,100.  Office supplies on-hand as of September 30 are $50. Wage calculation data: Month Hours Rate Pay 31 Jul. 10 12 120 15 Aug. 40 12 480 31 Aug. 35 12 420 15 Sep. 38 12 456 30 Sep. 40 12 480

In service organisations different costing systems may be appropriate for different types of services. Provide an example of a service organisation that may be suited to each of the following costing systems, and in each case, explain your choice: i) job costing ii) process costing iii) some form of hybrid costing

15. How can you encourage and support individuals and work groups to become more efficient?

Sales and Production Budget II You have been assigned to prepare the cash budget, which is one portion of the master budget for Marble Company. According to a credit agreement with the company’s bank, Marble Company promises to have a minimum cash balance of $65,000 at each month-end. In return, the bank has agreed that the company can borrow up to $175,000 at a monthly interest rate of 2%, paid on the last day of each month. The interest is computed based on the beginning balance of the loan for the month. The company repays loan principal with any cash in excess of $40,000 on the last day of each month. The company has a cash balance of $60,000 and a loan balance of $125,000 at January 1. Marble Co. budgeted the following cash receipts (excluding cash receipts from loans received) and cash payments (excluding cash payments for loan principal and interest payments) for the first three months of next year.

	Cash Receipts	Cash Payments
January	$600,000	$450,000
February	$475,000	$330,000
March	$450,000	$525,000

1. Prepare monthly cash budgets for January, February, and March. (Negative balances and Loan repayment amounts (if any) should be indicated should be indicated in parentheses “( )”.)
2. If the cash receipts and payments changed to the values shown in the table below, how would the budget change?

3. Cash Receipts		Cash Payments
   January February March	$500,000    $475,000 $500,000	$450,000 $375,000 $525,000

4. Write a business letter to the CEO analyzing the cash budgets of this company and state your recommendations based on the initial cash receipts and cash payments and on the cash receipts and cash payments changes.

Shaker Stairs Co. designs and builds factory-made premium wooden stairways for homes. The manufactured stairway components (spindles, risers, hangers, hand rails) permit installation of stairways of varying lengths and widths. All are of white oak wood. Budgeted manufacturing overhead costs for the year 2017 are as follows.

Overhead Cost Pools		Amount
Purchasing		$73,800
Handling materials		82,080
Production (cutting, milling, finishing)		211,000
Setting up machines		96,250
Inspecting		96,000
Inventory control (raw materials and finished goods)		127,680
Utilities		270,000
Total budgeted overhead costs		$956,810

For the last 4 years, Shaker Stairs Co. has been charging overhead to products on the basis of machine hours. For the year 2017, 100,000 machine hours are budgeted.

Jeremy Nolan, owner-manager of Shaker Stairs Co., recently directed his accountant, Bill Seagren, to implement the activity-based costing system that he has repeatedly proposed. At Jeremy Nolan’s request, Bill and the production foreman identify the following cost drivers and their usage for the previously budgeted overhead cost pools.

Activity Cost Pools		Cost Drivers		Expected Use of Cost Drivers
Purchasing		Number of orders		600
Handling materials		Number of moves		8,000
Production (cutting, milling, finishing)		Direct labor hours		100,000
Setting up machines		Number of setups		1,250
Inspecting		Number of inspections		6,000
Inventory control (raw materials and finished goods)		Number of components		168,000
Utilities		Square feet occupied		90,000

Steve Hannon, sales manager, has received an order for 250 stairways from Community Builders, Inc., a large housing development contractor. At Steve’s request, Bill prepares cost estimates for producing components for 250 stairways so Steve can submit a contract price per stairway to Community Builders. He accumulates the following data for the production of 250 stairways.

Direct materials		$103,700
Direct labor		$112,100
Machine hours		14,600
Direct labor hours		5,100
Number of purchase orders		60
Number of material moves		800
Number of machine setups		100
Number of inspections		450
Number of components		16,000
Number of square feet occupied		8,000

Correct answer iconYour answer is correct.

Compute the predetermined overhead rate using traditional costing with machine hours as the basis. (Round answer to 2 decimal places, e.g. 12.25.)

Predetermined overhead rate

$

per machine hour

Correct answer iconYour answer is correct.

What is the manufacturing cost per stairway under traditional costing? (Round answer to 2 decimal places, e.g. 12.25.)

Cost per stairway

$

Correct answer iconYour answer is correct.

Calculate activity-based overhead rate for each activity. (Round answers to 2 decimal places, e.g. 12.25.)

Activity		Overhead Rate
Purchasing		$	per order
Handling materials		$	per move
Production		$	per D/L hour
Setting up machines		$	per setup
Inspecting		$	per inspection
Inventory control		$	per component
Utilities		$	per sq. ft.

Incorrect answer iconYour answer is incorrect.

Caluclate total overhead assigned under ABC.

Total overhead assigned

$

eTextbook and Media

Incorrect answer iconYour answer is incorrect.

What is the manufacturing cost per stairway under the proposed activity-based costing? (Round answer to 2 decimal places, e.g. 12.25.)

Total cost per stairway

$