Andretti Company has a single product called a Dak. The company normally produces and sells 86,000 Daks each year at a selling price of $60 per unit. The company’s unit costs at this level of activity are given below: Direct materials $ 8.50 Direct labor 10.00 Variable manufacturing overhead 2.50 Fixed manufacturing overhead 5.00 ($430,000 total) Variable selling expenses 1.70 Fixed selling expenses 3.00 ($258,000 total) Total cost per unit $ 30.70 A number of questions relating to the production and sale of Daks follow. Each question is independent. Required: 1-a. Assume that Andretti Company has sufficient capacity to produce 107,500 Daks each year without any increase in fixed manufacturing overhead costs. The company could increase its unit sales by 25% above the present 86,000 units each year if it were willing to increase the fixed selling expenses by $150,000. What is the financial advantage (disadvantage) of investing an additional $150,000 in fixed selling expenses? 1-b. Would the additional investment be justified? 2. Assume again that Andretti Company has sufficient capacity to produce 107,500 Daks each year. A customer in a foreign market wants to purchase 21,500 Daks. If Andretti accepts this order it would have to pay import duties on the Daks of $2.70 per unit and an additional $12,900 for permits and licenses. The only selling costs that would be associated with the order would be $1.70 per unit shipping cost. What is the break-even price per unit on this order? 3. The company has 700 Daks on hand that have some irregularities and are therefore considered to be "seconds." Due to the irregularities, it will be impossible to sell these units at the normal price through regular distribution channels. What is the unit cost figure that is relevant for setting a minimum selling price? 4. Due to a strike in its supplier’s plant, Andretti Company is unable to purchase more material for the production of Daks. The strike is expected to last for two months. Andretti Company has enough material on hand to operate at 25% of normal levels for the two-month period. As an alternative, Andretti could close its plant down entirely for the two months. If the plant were closed, fixed manufacturing overhead costs would continue at 40% of their normal level during the two-month period and the fixed selling expenses would be reduced by 20% during the two-month period. a. How much total contribution margin will Andretti forgo if it closes the plant for two months? b. How much total fixed cost will the company avoid if it closes the plant for two months? c. What is the financial advantage (disadvantage) of closing the plant for the two-month period? d. Should Andretti close the plant for two months? 5. An outside manufacturer has offered to produce 86,000 Daks and ship them directly to Andretti’s customers. If Andretti Company accepts this offer, the facilities that it uses to produce Daks would be idle; however, fixed manufacturing overhead costs would be reduced by 30%. Because the outside manufacturer would pay for all shipping costs, the variable selling expenses would be only two-thirds of their present amount. What is Andretti’s avoidable cost per unit that it should compare to the price quoted by the outside manufacturer?

1. Audit sampling requires that the auditor collect only a relatively small sub-sample of data, thereby initiating detection risk, i.e., the risk. . . that, based on the sample the auditor takes, the auditor will fail to detect a material misstatement in the financial statements. Data analytics seems to present a panacea to that notion of risk because, by auditing 100% of the sample, detection risk by definition is lower.
   1. It seems like data analytics is the perfect answer to the audit risk problem. So, comment on a variety of reasons that auditors might not be willing to rely on data analytics to drive audit risk down.
   2. Which do you think is costlier: sampling or data analytics? What are the different costs between sampling and data analytics?
   3. What role does cost-benefit play in the choice between employing statistical sampling versus data analytics?
2. Data analytics enables auditors to audit all transactions, rather than just a sample of transactions.
   1. Do you think that as the use of data analytics increases on audit engagements, the need for sampling will decrease?
   2. What role might the PCAOB or AICPA play in helping auditors determine when and how to incorporate data analytics into the audit?

Wixis Cabinets makes custom wooden cabinets for high-end stereo systems from specialty woods. The company uses a job-order costing system. The capacity of the plant is determined by the capacity of its constraint, which is time on the automated bandsaw that makes finely beveled cuts in wood according to the preprogrammed specifications of each cabinet. The bandsaw can operate up to 187 hours per month. The estimated total manufacturing overhead cost at capacity is $15,708 per month. The company bases its predetermined overhead rate on capacity, so its predetermined overhead rate is $84 per hour of bandsaw use.

The results of a recent month’s operations appear below:

Required:  

1-a. Prepare an income statement that records the cost of unused capacity on the income statement as a period expense.

1-b. How much of the cost of unused capacity can be shown on the income statement as a period expense?

Sabert manufactures the Mosaïc® line of heavyweight plastic cutlery. Colored a distinctive silver, Mosaïc’s® products allow one to “entertain with more style.” Currently, Sabert offers two “combo” assortments: (1) 32-piece (16 forks, 8 knives, 8 spoons); (2) 80-piece (40 forks, 20 knives, 20 spoons). Sabert sells the 32-piece pack for $2.80 and the 80-piece pack for $5.79. It costs Sabert $0.61 to manufacture the 32-piece pack and $1.17 to manufacture the 80-piece pack. H-E-B, a Texas-based supermarket chain, sells both sizes of the Mosaïc® cutlery. H-E-B estimates that in 2012 they will buy 247,600 units of the 32-piece pack and 198,300 units of the 80-piece pack. However, in response to customer feedback, H-E-B has asked Sabert to consider producing a third combo pack exclusively for H-E-B. The proposed combo would be a 56-piece (24 forks, 16 knives, 16 spoons), selling to H-E-B for $4.05 and costing Sabert $0.87 to manufacture. H-E-B has shared some market analysis information with Sabert (to support their request). Sabert marketing analysts have concluded that if they provide the new combo pack they will sell 202,100 units to H-E-B. But they estimate that only 8% of those unit sales will be new sales. Sixty-two percent of the new product’s sales will come from the 80-piece pack and the remaining 30% will come from the 32-piece pack.

(b)  If the 56-piece combo pack is introduced in 2012, what will be the incremental contribution (IC) to the product line?

On January 1, 2020, Swifty Company purchased 12% bonds having a maturity value of $230,000, for $247,437.40. The bonds provide the bondholders with a 10% yield. They are dated January 1, 2020, and mature January 1, 2025, with interest received on January 1 of each year. Swifty Company uses the effective-interest method to allocate unamortized discount or premium. The bonds are classified in the held-to-maturity category.

Prepare the journal entry at the date of the bond purchase. (Enter answers to 2 decimal places, e.g. 2,525.25. 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.)

Jan 01, 2020

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Prepare a bond amortization schedule. (Round answers to 2 decimal places, e.g. 2,525.25.)

Prepare a bond amortization schedule. (Round answers to 2 decimal places, e.g. 2,525.25.)

Five Measures of Solvency or Profitability

The balance sheet for Garcon Inc. at the end of the current fiscal year indicated the following:

Income before income tax was $297,600, and income taxes were $44,200 for the current year. Cash dividends paid on common stock during the current year totaled $42,354. The common stock was selling for $48 per share at the end of the year.

Determine each of the following. Round answers to one decimal place, except for dollar amounts which should be rounded to the nearest whole cent. Use the rounded answers for subsequent requirements, if required.

Cycle Wholesaling sold merchandise on account, with terms n/60, to Sarah’s Cycles on February 1 for $950 (cost of goods sold of $575). On February 9, Sarah’s Cycles returned to Cycle Wholesaling one-quarter of the merchandise from February 1 (cost of goods returned was $150). Cycle Wholesaling uses a perpetual inventory system, and it allows returns only within 15 days of initial sale.

Required:

1. 1. to 3. Prepare the journal entry to record the sales, Goods returned on February 9 and Cash collected on March 2.

2. 4. Calculate the gross profit percentage for the sale to Sarah’s Cycles.

Allied Merchandisers was organized on May 1. Macy Co. is a major customer (buyer) of Allied (seller) products.

Prepare journal entries to record the following transactions for Allied assuming it uses a perpetual inventory system and the gross method. (Allied estimates returns using an adjusting entry at each year-end.)

Nicolas Drinks Inc. (Nicolas) manufactures fizzy drinks such as cola and lemonade as
well as other soft drinks and its year end is 31 December 2017. You are the audit
manager of B&J CPAs LL.P. and are currently planning the audit of Nicolas.
You attended the planning meeting with the engagement partner and finance director
last week and recorded the minutes from the meeting shown below. You are reviewing
these as part of the process of preparing the audit strategy.
Minutes of planning meeting for Nicolas
Nicolas’ sales results have been strong this year and the company is forecasting
revenue of $85 million, which is an increase from the previous year. The company has
invested significantly in the cola and fizzy drinks production process at the factory. This
resulted in expenditure of $5 million on updating, repairing and replacing a significant
amount of the machinery used in the production process.
As the level of production has increased, the company has expanded the number of
warehouses it uses to store inventory. It now utilises 15 warehouses; some are owned
by Nicolas and some are rented from third parties. There will be inventory counts taking
place at all 15 of these sites at the year end.
A new accounting general ledger has been introduced at the beginning of the year, with
the old and new systems being run in parallel for a period of two months.
As a result of the increase in revenue, Nicolas has recently recruited a new credit
controller to chase outstanding receivables. The finance director thinks it is not
necessary to continue to maintain an allowance for receivables and so has released the
opening allowance of $1·5 million.
In addition, Nicolas has incurred expenditure of $4·5 million on developing a new brand
of fizzy soft drinks. The company started this process in January 2017 and is close to
launching their new product into the market place. The finance director stated that there
was a problem in November in the mixing of raw materials within the production process
which resulted in a large batch of cola products tasting different. A number of these
products were sold; however, due to complaints by customers about the flavour, no
further sales of these goods have been made. No adjustment has been made to the
valuation of the damaged inventory, which will still be held at cost of $1 million at the
year end.
As in previous years, the management of Nicolas is due to be paid a significant annual
bonus based on the value of year-end total assets.
Required:
1. Using the minutes provided, identify and describe SIX audit risks, and explain the
auditor’s response to each risk, in planning the audit of Nicolas Drinks Inc. (12
marks)
2. Describe substantive procedures the audit team should perform to obtain
sufficient and appropriate audit evidence in relation to the following three matters:
(i) The treatment of the $5 million expenditure incurred on improving the
factory production process;
(ii) The release of the $1·5 million allowance for receivables; and
(iii) The damaged inventory.

b) Electric Car Co (ECC). currently manufactures two different types of fully electronic cars in 2021. Type 8Y is a large SUV whereas Type 8W will be the fastest car in the world with 10 rocket thrusters. ECC has decided to use ABC costing instead of traditional costing. The 2021 budget to manufacture these new types include manufacturing overhead of $126,920,760 which has been allocated on each product’s inspection hours. The expected prime costs of two new types are as follows: Type 8Y Type 8W Prime Costs $20,915 $43,625 ECC’s controller believes the traditional costing system may be providing misleading cost information. They have developed an analysis of the 2021 budgeted manufacturing-overhead costs shown in the following chart. Activity Cost Driver Budgeted Activity Budgeted Cost Assembly Assembly hours 10,000 $63,460,000 Inspection Inspection hours 10,000 $27,920,000 Painting Gallons of paint 5,000 $22,850,000 Quality control Number of tests 8,000 $12,690,760 Total manufacturing-overhead cost $126,920,760 Actual data regarding the 2021 manufacturing of the Type 8Y and the Type 8W is shown in the following table with a total MOH of $216,920,760: Type 8Y Type 8W Budgeted Sales (units) 2,222 555 Assembly hours 767 2,955 Inspection hours 767 2,955 Paint Gallons 383 1477 Tests 612 2364 Required: 1) Using the traditional method i. Determine the company’s predetermined overhead rate(s) applied ii. Determine how much overhead was applied to Type 8Y iii. Provide the MOH true up journal entry required for this method at the end of the year 2) Using the ABC method i. Determine the company’s predetermined overhead rate(s) applied ii. Determine how much overhead was applied to Type 8Y iii. Provide the MOH true up journal entry required for this method at the end of the year

Windsor Corporation had 141,600 shares of stock outstanding on January 1, 2017. On May 1, 2017, Windsor issued 48,000 shares. On July 1, Windsor purchased 9,600 treasury shares, which were reissued on October 1. Compute Windsor’s weighted-average number of shares outstanding for 2017.

Denton Company manufactures and sells a single product. Cost data for the product are given:

The product sells for $51 per unit. Production and sales data for July and August, the first two months of operations, follow:

The company’s Accounting Department has prepared the following absorption costing income statements for July and August:

Required:

1. Prepare contribution format variable costing income statements for July and August.

2. Reconcile the variable costing and absorption costing net operating incomes.