Costs of Different Customer Classes

Kaune Food Products Company manufactures canned mixed nuts with an average manufacturing cost of $51 per case (a case contains 24 cans of nuts). Kaune sold 152,000 cases last year to the following three classes of customer:

The supermarkets require special labeling on each can costing $0.03 per can. They order through electronic data interchange (EDI), which costs Kaune about $60,000 annually in operating expenses and depreciation. Kaune delivers the nuts to the stores and stocks them on the shelves. This distribution costs $40,000 per year.

The small grocers order in smaller lots that require special picking and packing in the factory; the special handling adds $20 to the cost of each case sold. Sales commissions to the independent jobbers who sell Kaune products to the grocers average 6 percent of sales. Bad debts expense amounts to 7 percent of sales.

Convenience stores also require special handling that costs $29 per case. In addition, Kaune is required to co-pay advertising costs with the convenience stores at a cost of $15,000 per year. Frequent stops are made to each convenience store by Kaune delivery trucks at a cost of $30,000 per year.

Required:

EKPN Company prepared the following data in its static budget based on 150,000 machine hours: Direct Materials $ 450,000 Direct Labour 225,000 Variable Overhead 1,125,000 Fixed Overhead 2,100,000

Actual Results: Machine Hours 160,000 hours Direct Materials $475,000 Direct Labour 245,000 Variable Overhead 1,150,000 Fixed Overhead 2,110,000


(i). What was the budgeted variable costs per machine hour for variable overhead, rounded to the nearest whole cent? a) $7.03/machine hour b) $7.50/machine hour c) $19.53/machine hour d) $20.83/machine hour


(ii). What is the budgeted Direct Labour cost at the actual level of activity? a) $245,000 b) $240,000 c) $210,938 d) $20,000


(iii). What is the budgeted Fixed Overhead at the actual level of activity? a) $2,100,000 b) $2,110,000 c) $2,240,000 d) $3,260,000


(iv). What was the difference between the actual and budgeted Direct Material costs at the actual level of activity? a) $25,000 unfavourable b) $25,000 favourable c) $5,000 unfavourable d) $5,000 favourable


(v). What possible reason could explain the difference between the actual fixed overhead costs and the budgeted fixed overhead costs? a) EKPN Company’s actual machine hours were greater than the budgeted amount. b) EKPN Company’s actual machine hours were less than the budgeted amount. c) EKPN Company spent more on fixed costs than it expected. d) EKPN Company spent less on fixed costs than expected.


Q#2: 20 Marks

Nick’s Novelties, Inc. is considering the purchase of electronic pinball machines to place in game arcades. The machines would cost a total of $300,000, have an eight-year useful life, and have a total salvage value of $20,000. The company estimated that annual revenues and expenses associated with the machines would be as follows:

Revenues $200,000 Operating expenses: Commissions to game arcades $100,000 Insurance 7,000 Depreciation 35,000 Maintenance 18,000 160,000 Net operating income $ 40,000 Required: 1. Assume that Nick’s Novelties, Inc. will not purchase new equipment unless it provides a payback period of five years of less. Will the company purchase the pinball machines?

2. If Nick’s Novelties, Inc. has a discount rate of 18%, what is the NPV of this investment?






















EKPN Company prepared the following data in its static budget based on 150,000 machine hours: Direct Materials $ 450,000 Direct Labour 225,000 Variable Overhead 1,125,000 Fixed Overhead 2,100,000

Actual Results: Machine Hours 160,000 hours Direct Materials $475,000 Direct Labour 245,000 Variable Overhead 1,150,000 Fixed Overhead 2,110,000


(i). What was the budgeted variable costs per machine hour for variable overhead, rounded to the nearest whole cent? a) $7.03/machine hour b) $7.50/machine hour c) $19.53/machine hour d) $20.83/machine hour


(ii). What is the budgeted Direct Labour cost at the actual level of activity? a) $245,000 b) $240,000 c) $210,938 d) $20,000


(iii). What is the budgeted Fixed Overhead at the actual level of activity? a) $2,100,000 b) $2,110,000 c) $2,240,000 d) $3,260,000


(iv). What was the difference between the actual and budgeted Direct Material costs at the actual level of activity? a) $25,000 unfavourable b) $25,000 favourable c) $5,000 unfavourable d) $5,000 favourable


(v). What possible reason could explain the difference between the actual fixed overhead costs and the budgeted fixed overhead costs? a) EKPN Company’s actual machine hours were greater than the budgeted amount. b) EKPN Company’s actual machine hours were less than the budgeted amount. c) EKPN Company spent more on fixed costs than it expected. d) EKPN Company spent less on fixed costs than expected.


Q#2: 20 Marks

Nick’s Novelties, Inc. is considering the purchase of electronic pinball machines to place in game arcades. The machines would cost a total of $300,000, have an eight-year useful life, and have a total salvage value of $20,000. The company estimated that annual revenues and expenses associated with the machines would be as follows:

Revenues $200,000 Operating expenses: Commissions to game arcades $100,000 Insurance 7,000 Depreciation 35,000 Maintenance 18,000 160,000 Net operating income $ 40,000 Required: 1. Assume that Nick’s Novelties, Inc. will not purchase new equipment unless it provides a payback period of five years of less. Will the company purchase the pinball machines?

2. If Nick’s Novelties, Inc. has a discount rate of 18%, what is the NPV of this investment?

Explain the uses and limitations of a cash flow statement

Question 0ne (1) [15 Marks]
a) Briefly discuss five traits an individual wishing to start a business entity would consider.

b) Discuss the concept of a company having legal personality. Refer to legal authorities in
motivation of your answer.

Beech Corporation is a merchandising company that is preparing a master budget for the third quarter of the calendar year. The company’s balance sheet as of June 30th is shown below:

1.

value:
1.00 points

Required information

Beech’s managers have made the following additional assumptions and estimates:

1. Estimated sales for July, August, September, and October will be $400,000, $420,000, $410,000, and $430,000, respectively.

2. All sales are on credit and all credit sales are collected. Each month’s credit sales are collected 35% in the month of sale and 65% in the month following the sale. All of the accounts receivable at June 30 will be collected in July.

3. Each month’s ending inventory must equal 25% of the cost of next month’s sales. The cost of goods sold is 75% of sales. The company pays for 40% of its merchandise purchases in the month of the purchase and the remaining 60% in the month following the purchase. All of the accounts payable at June 30 will be paid in July.

4. Monthly selling and administrative expenses are always $56,000. Each month $8,000 of this total amount is depreciation expense and the remaining $48,000 relates to expenses that are paid in the month they are incurred.

5. The company does not plan to borrow money or pay or declare dividends during the quarter ended September 30. The company does not plan to issue any common stock or repurchase its own stock during the quarter ended September 30.

Required:

1. Prepare a schedule of expected cash collections for July, August, and September. Also compute total cash collections for the quarter ended September 30.

2-a. Prepare a merchandise purchases budget for July, August, and September. Also compute total merchandise purchases for the quarter ended September 30.

2-b. Prepare a schedule of expected cash disbursements for merchandise purchases for July, August, and September. Also compute total cash disbursements for merchandise purchases for the quarter ended September 30.

3. Prepare an income statement for the quarter ended September 30.

4. Prepare a balance sheet as of September 30.

Alice is single and self-employed in 2018. Her net business profit on her Schedule C for the year is $190,000.

What is her self-employment tax liability and additional Medicare tax liability for 2018? (Round your intermediate calculations to the nearest whole dollar amount. Leave no answer blank. Enter zero if applicable.)

Self-employment tax liability

Additional medicare tax liability

Nature of Uncollectible Accounts MGM Resorts International owns and operates hotels and casinos including the MGM Grand and the Bellagio in Las Vegas, Nevada. As of a recent year, MGM reported accounts receivable of $562,947,000 and allowance for doubtful accounts of $89,602,000. Johnson & Johnson manufactures and sells a wide range of healthcare products including Band-Aids and Tylenol. As of a recent year, J&J reported accounts receivable of $11,260,000,000 and allowance for doubtful accounts of $275,000,000. a. Compute the percentage of the allowance for doubtful accounts to the accounts receivable for MGM. Round your answer to one decimal place. % b. Compute the percentage of the allowance for doubtful accounts to the accounts receivable for Johnson & Johnson. Round your answer to one decimal place. % c. Possible reasons for the difference in the two ratios computed in (a) and (b) include: Casino operators historically lose money on operations. Casino operators have larger accounts receivable. Individuals who may have adequate creditworthiness could overextend themselves and lose more than they can afford if they get caught up in the excitement of gambling. Casino operations experience greater bad debt risk because it is difficult to control the creditworthiness of customers entering the casino.

Consider the following information about Earl Grey, Inc.

• Total assets $250 million
• Total debt $110 million
• Preferred stock $ 35 million
• Common stockholders' equity $105 million
• Net profits after taxes $25.5 million
• Number of preferred stock outstanding 1.5 million shares
• Number of common stock outstanding 9 million shares
• Preferred dividends paid $2.5 per share
• Common dividends paid $0.70 per share
• Market price of the preferred stock $32.55 per share
• Market price of the common stock $26.00 per share

Use the information above to find the following.

1. The company's book value
2. Its book value per share
3. The stock's earnings per share (EPS)
4. The dividend payout ratio
5. The dividend yield on the common stock
6. The dividend yield on the preferred stock

Directions:

1. You will report the ratios and your analysis in a Word document.
2. Your analysis should include a discussion of the strengths or weaknesses revealed in each ratio.
3. All six ratios should be discussed.

Riverbed Windows manufactures and sells custom storm windows for three-season porches. Riverbed also provides installation service for the windows. The installation process does not involve changes in the windows, so this service can be performed by other vendors. Riverbed enters into the following contract on July 1, 2017, with a local homeowner. The customer purchases windows for a price of $2,360 and chooses Riverbed to do the installation. Riverbed charges the same price for the windows irrespective of whether it does the installation or not. The customer pays Riverbed $2,100 (which equals the standalone selling price of the windows, which have a cost of $1,110) upon delivery and the remaining balance upon installation of the windows. The windows are delivered on September 1, 2017, Riverbed completes installation on October 15, 2017, and the customer pays the balance due. Riverbed estimates the standalone selling price of the installation based on an estimated cost of $430 plus a margin of 10% on cost. Prepare the journal entries for Riverbed in 2017.

Dillon Products manufactures various machined parts to customer specifications. The company uses a job-order costing system and applies overhead costs to jobs on the basis of machine-hours. At the beginning of the year, the company used a cost formula to estimate that it would incur $4,320,000 in manufacturing overhead cost at an activity level of 576,000 machine-hours.

      The company spent the entire month of January working on a large order for 12,300 custom made machined parts. The company had no work in process at the beginning of January. Cost data relating to January follow:

a. Raw materials purchased on account, $311,000.
b. Raw materials requisitioned for production, $263,000 (80% direct and 20% indirect).
c. Labor cost incurred in the factory, $159,000, (one-third direct labor and two-thirds indirect labor)
d. Depreciation recorded on factory equipment, $63,200.
e. Other manufacturing overhead costs incurred, $84,600 (credit Accounts Payable).
f. Manufacturing overhead cost was applied to production on the basis of 40,780 machine-hours actually worked during the month.

g. The completed job for 12,300 custom made machine parts was moved into the finished goods warehouse on January 31 to await delivery to the customer. (In computing the dollar amount for this entry, remember that the cost of a completed job consist of direct materials, direct labor, and applied overhead)

Required:

1. Prepare Journal entries to record items (a) through (f) above [ignore item (g) for the moment].

2.Prepare T-accounts for Manufacturing Overhead and Work in Process. Post the relevant items for your journal entries to these T-accounts.

3. Prepare a journal entry for the item (g) above.

4. If 10,200 of the custom made machine parts are shipped to the customer by February, how much of the job's cost will be included in the cost of good sold for February?

UBetcha Corporation acquired 30 percent of the voting stock of Trunks Corporation on January 2, 2019, for $1.6 million in cash. Trunks’ balance sheet and estimated fair values of its assets and liabilities on January 2, 2019 are as follows (in thousands).

In addition to its reported assets, Trunks has unreported franchise agreements (5‑year life) valued at $500,000. Its property and equipment has a 20‑year average remaining life. Trunks reported income of $750,000 and paid no dividends in 2019. Please note that Trunks uses the FIFO inventory method.

Required

1. How many shares of Trunks stock did Ubetcha acquire? Please show calculations so that partial credit can be granted.
2. Prepare a schedule, in good form, that shows the computation of Ubetcha’s equity in Trunks’ net income for 2019. Please show calculations so that partial credit can be granted.

Build the statement of comprehensive income and statement of financial position based on the information given below, as of December 31, 2016. Round numbers to the nearest integer.

The manager of a small hotel resort is considering expansion. He would like to issue bonds but do not quite understand why he may or may not receive what amount of money is stated on the face of the bond but he has to repay what is on the face of the bond. Write a report to the manager explaining the market forces that determine how much money will be collected. Also explain how the interest payment on bonds are calculated and paid. bear in mind that the stated interest rate and the market interest rate are the two interest rate that work together to determine the market price of a bond. write in essay format no log explanation.

Kruger Financing is a boutique investment firm with big ambitions. Masai, their CFO has been featured in multiple financial magazines and newspapers because the company has grown its investment revenues by an average of 25% in the past three years, while the industry average is about 7%.

On April 1, you read an article in the Financial Post Magazine in which Masai explains that he has been able to achieve this level of growth by providing a lot of autonomy to his sales staff. He says, “they are the people on the ground, talking to the clients, and they understand what they need. Businesses these days move fast; waiting a month for a loan to be disbursed could mean a lost opportunity for the businesses and for us. This is why our salespeople have the autonomy to disburse loans of up to $500,000 without going through our central credit department. I hire only the best, and I trust them to know a good opportunity when they see one. The small business loan has actually proven to be one of our most lucrative products.”

Masai goes on to explain that he motivates his sales staff by providing them with a large bonus incentive. For example, a salesperson at his company makes on average $68,000 of base salary, which is much lower than the industry average of $105,000. However, Kruger Financing has a very generous bonus system where employees receive a percentage of the fees earned on each financing transaction they close. With this, a salesperson could have a bonus of up to $150,000, while other companies in the industry normally cap bonuses at $40,000. The bonuses are paid out one month after year-end when all the results for the year have been reviewed.

On July 5, the cover of the Business Journal has a headline “Kruger Financing reports third-quarter loss due to internal fraud.” The article goes on to say that 20 Kruger Financing salespeople had issued loans in the range of $200,000 - $499,000 to themselves and close family members. The default rate on these loans was very high, so Kruger Financing has to take a write-down for its small business loans receivable.

A salesperson in the article was quoted as saying, “It was just hard sometimes to make it through the year on our base salary. You know you have all this money coming with your bonus at year-end, so you think you will just borrow the money and pay it back when you get your bonus. But then the bonus comes and you decide to keep it as you already spent the amount you borrowed and realize you need the bonus money for other expenses. If taking out a small business loan for yourself was so bad, why was it so easy to do?”

Required:

1.       Based on the fraud triangle, explain how each of the three factors (incentive, opportunity, and rationalization) were present, allowing a fraud to take place.

2.       What are some potential strategies and measures that Masai could put in place to reduce the risk of such occurrences happening again?

Explain the three main classifications of a statement of cash flows