Activity-Based Product Costing

Sweet Sugar Company manufactures three products (white sugar, brown sugar, and powdered sugar) in a continuous production process. Senior management has asked the controller to conduct an activity-based costing study. The controller identified the amount of factory overhead required by the critical activities of the organization as follows:

The activity bases identified for each activity are as follows:

The activity-base usage quantities and units produced for the three products were determined from corporate records and are as follows:

Each product requires 0.9 machine hour per unit.

Required:

If required, round all per unit amounts to the nearest cent.

1. Determine the activity rate for each activity.

2. Determine the total and per-unit activity cost for all three products.

3. Why aren’t the activity unit costs equal across all three products since they require the same machine time per unit?

The unit costs are different because the products consume many activities in ratios different from the  

You are the financial accountant for Superstore Ltd, and are in the process of preparing its financial statements for the year ended 30 June 2018.  Whilst preparing the financial statements, you become aware of the following situations:

On 1 July 2017, the directors made a decision, using information obtained over the last couple of years, to revise the useful life of an item of manufacturing equipment.  The equipment was acquired on 1 July 2015 for $800,000, and has been depreciated on a straight-line basis, based on an estimated useful life of 10 years and residual value of nil.  Superstore Ltd uses the cost model for manufacturing equipment.  The directors estimate that as at 1 July 2017, the equipment has a remaining useful life of 6 years and a residual value of nil.  No depreciation has been recorded as yet for the year ended 30 June 2018 as the directors were unsure how to account for the change in the 2018 financial statements, and unsure whether the 2016 and 2017 financial statements will need to be revised as a result of the change.

In June 2018, the accounts payable officer discovered that an invoice for repairs to equipment, with an amount due of $20,000, incurred in June 2017, had not been paid or provided for in the 2017 financial statements.  The invoice was paid on 12 July 2018.  The repairs are deductible for tax purposes.  The accountant responsible for preparing the company’s income tax returns will amend the 2017 tax return, and the company will receive a tax refund of $6,000 as a result (30% x $20,000).  No journal entries have been done as yet in the accounting records of Superstore Ltd, as the directors are unsure how to account for this situation, and what period adjustments need to be made in.

Superstore Ltd holds shares in a listed public company, ABC Ltd, which are valued in the draft financial statements on 30 June 2018 at their market value on that date - $600,000.  A major fall in the stock market occurred on 10 July 2018, and the value of Superstore’s shares in ABC Ltd declined to $250,000.

On 21 July 2018, you discovered a cheque dated 20 April 2018 of $32,000 authorised by the company’s previous accountant, Max. The payment was for the purchase of a swimming pool at Max’s house.  The payment had been recorded in the accounting system as an advertising expense.  You advise the directors of this fraudulent activity, and they will investigate.

Assume that each event is material.

Required:

i) State the appropriate accounting treatment for each situation. Provide explanations and references to relevant paragraphs in the accounting standards to support your answers.  Where adjustments to Superstore Ltd’s financial statements are required, explain which financial statements need to be adjusted (ie. 2016, 2017, 2018 or 2019).  

ii) Prepare any note disclosures and adjusting journal entries that are needed in the 2018 financial statements for each situation

Ginocera Inc. is a designer, manufacturer, and distributor of custom gourment kitchen knives. A new kitchen knife series called the Kitchen Ninja was released for production in early 20Y8. In January, the company spent $600,000 to develop a late-night advertising infomercial for the new product. During 20Y8, the company spent an additional $1,400,000 promoting the product through these infomercials, and $800,000 in legal costs. The knives were ready for manufacture on January 1, 20Y8.

Ginocera uses a job order cost system to accumulate costs associated with the Kitchen Ninja Knife. The unit direct materials cost for the knife is:

The production process is straightforward. First, the hardened steel blanks, which are purchased directly from a raw material supplier, are stamped into a single piece of metal that includes both the blade and the shaft. The stamping machine requires one hour per 250 knives.

After the knife shafts are stamped, they are brought to an assembly area where an employee attaches the handle to the shaft and packs the knife into a decorative box. The direct labor cost is $0.50 per unit.

The knives are sold to stores. Each store is given promotional materials, such as posters and aisle displays. Promotional materials cost $60 per store. In addition, shipping costs average $0.20 per knife.

Total completed production was 1,200,000 units during the year. Other information is as follows:

Factory overhead cost is applied to jobs at the rate of $800 per stamping machine hour after the knife blanks are stamped. There were an additional 25,000 stamped knives, handles, and cases in process and waiting to be assembled on December 31, 20Y8.

Income Statement

1. Prepare an annual income statement for the Kitchen Ninja knife series, including supporting calculations, from the information provided. Refer to the list of Amount Descriptions for exact wording of the answer choices for text entries. In your computations, if required, round interim per-unit costs to two decimal places.

The funded status of Hilton Paneling Inc.'s defined benefit pension plan and the balances in prior service cost and the net gain–pensions, are given below.

Retirees were paid $251,000, and the employer contribution to the pension fund was $264,000 at the end of 2021. The expected rate of return on plan assets was 10%, and the actuary’s discount rate is 6%. There were no changes in actuarial estimates and assumptions regarding the PBO.

Required:
1. Determine the actual return on plan assets of 2021.
2. Determine the loss or gain on plan assets of 2021.
3. Determine the service cost of 2021.
4. Determine the pension expense of 2021.
5. Average remaining service life of active employees (used to determine amortization of the net gain).

(For all requirements, enter your answers in thousands (i.e. 200,000 should be entered as 200).)

Following is information on two alternative investments being considered by Jolee Company. The company requires a 6% return from its investments. (PV of $1, FV of $1, PVA of $1 and FVA of $1). (Use appropriate factor(s) from the tables provided.)
  

a. For each alternative project compute the net present value.
b. For each alternative project compute the profitability index, if the company can only select one project, which should it choose?
a)

b

1a. What are the three auditing standards that constitute GAAS? -Discuss

2b. How does a person become a licensed CPA in New York state?-Discuss

1. “What is the joint cost? Explain why joint costs have to be allocated to various products. List the four basic methods of allocating joint costs to joint products and discuss in details. Identify what a by-product is with examples.”

2. “Significance of Joint Cost Allocation with Arguments in favor and Against “Discuss the Statement.

imon Company’s year-end balance sheets follow.

1. Compute the current ratio for the year ended 2017, 2016, and 2015.
2. Compute the acid-test ratio for the year ended 2017, 2016, and 2015.

Tony and Suzie graduate from college in May 2018 and begin developing their new business. They begin by offering clinics for basic outdoor activities such as mountain biking or kayaking. Upon developing a customer base, they’ll hold their first adventure races. These races will involve four-person teams that race from one checkpoint to the next using a combination of kayaking, mountain biking, orienteering, and trail running. In the long run, they plan to sell outdoor gear and develop a ropes course for outdoor enthusiasts.

On July 1, 2018, Tony and Suzie organize their new company as a corporation, Great Adventures Inc. The articles of incorporation state that the corporation will sell 21,000 shares of common stock for $1 each. Each share of stock represents a unit of ownership. Tony and Suzie will act as co-presidents of the company. The following transactions occur from July 1 through December 31.

The following information relates to year-end adjusting entries as of December 31, 2018.

a) Depreciation of the mountain bikes purchased on July 8 and kayaks purchased on August 4 totals $4,460.

b) Six months’ worth of insurance has expired.

c) Four months’ worth of rent has expired.

d) Of the $1,500 of office supplies purchased on July 4, $370 remains.

e) Interest expense on the $38,000 loan obtained from the city council on August 1 should be recorded.

f) Of the $2,600 of racing supplies purchased on December 12, $160 remains.

g) Suzie calculates that the company owes $14,200 in income taxes.

*Requirement(s):

explain
merger or acquisition consolidation, which is its characteristics, and an example.
stock for stock acquisition,which are its characteristics and an example

Assets for stock acquisition, which are its characteristics and an example.

Exercise 16-24 Incorrect answer. Your answer is incorrect. Try again. The Martinez Corporation issued 10-year, $4,000,000 par, 7% callable convertible subordinated debentures on January 2, 2017. The bonds have a par value of $1,000, with interest payable annually. The current conversion ratio is 13:1, and in 2 years it will increase to 17:1. At the date of issue, the bonds were sold at 98. Bond discount is amortized on a straight-line basis. Martinez’s effective tax was 35%. Net income in 2017 was $10,950,000, and the company had 1,980,000 shares outstanding during the entire year. (a) Compute both basic and diluted earnings per share. (Round answers to 2 decimal places, e.g. $2.55.) Basic earnings per share $Entry field with incorrect answer 3.14 Diluted earnings per share $Entry field with incorrect answer 2.91 Click if you would like to Show Work for this question:

Mast Corporation seeks your assistance in developing cash and other budget information for May, June, and July. At April 30, the company had cash of $11,000, accounts receivable of $872,000, inventories of $130,800, and accounts payable of $38,087. The budget is to be based on the following assumptions.

• Each month’s sales are billed on the last day of the month.
• Customers are allowed a 2 percent discount if payment is made within 10 days after the billing date. Receivables are recorded in the accounts at their gross amounts (not net of discounts).
• The billings are collected as follows: 60 percent within the discount period, 25 percent by the end of the month, and 12 percent by the end of the following month. Three percent is uncollectible.

Purchase data are as follows.

• Of all purchases of merchandise and selling, general, and administrative expenses, 63 percent is paid in the month purchased and the remainder in the following month.
• The number of units in each month’s ending inventory equals 120 percent of the next month’s units of sales.
• The cost of each unit of inventory is $10.
• Selling, general, and administrative expenses, of which $4,000 is depreciation, equal 20 percent of the current month’s sales.
• Actual and projected sales follow:

Required:

a. Compute the budgeted purchases in dollars for May.
b. Compute the budgeted purchases in dollars for June.
c. Compute the budgeted cash collections during May. (Do not round intermediate calculations. Round your final answer to nearest whole dollar.)
d. Compute the budgeted cash disbursements during June. (Do not round intermediate calculations. Round your final answer to nearest whole dollar.)
e. Compute the budgeted number of units of inventory to be purchased during July.

Why do you believe that it is important for auditors to act in an ethical manner? Examine the ethical code for accountants promulgated by your state licensing board. What does it say? Pick another state's ethical code for accountants and compare it to your state's code. How is it similar? Are there any differences?

Assume that the following facts pertain to a non-cancelable lease agreement between Coco Inc. and Bubs, Corp, a Lessee.

Inception date

January 1, 2017

Residual value of equipment at end of lease term, unguaranteed

$50,000

Lease term

6 years

Economic life of leased equipment

8 years

Fair value of asset at January 1, 2017

$400,000

Lessor's implicit rate

12%

Lessee's incremental borrowing rate

10%

The lessee assumes responsibility for all executory costs, which are expected to amount to $2,000 per year. The asset will revert to the lessor at the end of the lease term. The lessee uses the straight-line depreciation method for all equipment.

Create an amortization schedule that would be suitable for the lessee for the lease term.

Prepare journal entries for the lessee for 2017 and 2018 to record the lease agreement and all expenses related to the lease. Assume the Lessee's annual accounting period ends on December 31 and that reversing entries are used when appropriate.

Analyze the specific outcomes and write an analysis directed toward the team at Coco Inc. describing what the numbers mean and how they relate to the business.

Task Background You are a manager in the audit division at Miller Yates Howarth (MYH), an accounting firm with offices throughout the major regional centres of NSW and Queensland. Although a medium sized firm by national standards, MYH is the second largest regional accounting firm in Australia. Most of MYH’s audit clients are in the agriculture, mining, manufacturing and property industries. All those industries are currently under pressure, either from a downturn in commodity prices or fierce competition from overseas competitors. Ratios extracted from an unaudited set of financial reports at 30 June 2018 together with audited comparatives for the year ended 30 June 2017 and 2016 are set out below for your review. You are gathering information to prepare the audit plan of Trunkey Creek Wines Limited for the year ended 30 June 2018. Trunkey Creek Wines (TCW) is one of MYH’s most significant and longstanding clients. The following information has been gathered to date. Principal activities of TCW • growing grapes for wine production; • production and distribution of red, white and sparkling wines; • beef cattle production on land surplus to grape production; and • investment of surplus funds. TCW was originally a family company incorporated in 1968 and has operated successfully and profitably since that date. In the 1990’s shares were sold to a small number of investors to increase funds for the development and upgrading of the winery and the purchase of additional land for the vineyards. Insufficient rainfall had meant that some land was no longer suitable for wine grape production, as a result, TWC moved into Wagyu beef cattle production on this surplus land. The Wagyu operation is now starting to return a profit. TWC now find that the 2 degrees increase in temperature at some vineyards is affecting the production of sparkling wine and are now looking at purchasing land in cooler climates. TWC has built up a strong following for their sparkling wine which earns significant profits in both domestic and overseas markets. TWC are currently negotiating the land purchase and part funding in part from medium term bank loans. The remaining purchase price will be sourced from surplus funds. The Wagyu beef is sold through the Wagyu Selling Group (WSG) in which TWC has shares. These shares form a material part of TWC’s investment portfolio. WSG buys, butchers and sells the Charles Sturt University Subject Outline ACC568 201860 S I Version 1 - Published 31 May 2018 Page 21 of 38 Wagyu beef to high end domestic restaurants and regularly sends frozen shipments to Japan and China. TWC are heavily marketing their pinot, both domestically and overseas, as a perfect accompaniment to the Wagyu beef. The directors of TCW are: • Mrs Claire Harewood, Chairman. Mrs Harewood has significant experience in the industry and replaced her husband as chair when he died 10 years ago. • Mr Phillip Strange, Chief Executive Officer • Mr. Joe Quade • Mr Steven Harewood, son of Claire Harewood and has oversight of the Wagyu beef operation • Dr Mary Owens • Ms Hilary Jones • Mr Geoffrey Owens Your audit partner, John Richards, has approached you and advised that there are several areas he is concerned about and he wants to you to report back to him about these areas before you complete your audit program. These areas and accounts are: • Accounts receivable • Investments • Property assets • Marketing expense Ratio 2018 (Unaudited) 2017 (Audited) 2016 (Audited) Return on equity % 10.80 17.5 15.2 Return on beef production assets % 1.67 -0.82 -3.45 Return on grape and wine production assets % 12.2 14.5 16.2 Gross margin % 24.5 30.00 31.76 Net profit margin % 14.38 20.27 17.85 Marketing expense % of total S & A expenses 23.67 17.89 15.2 Times interest earned 6.67 7.51 8.10 Days in inventory - wine367 423 460 Days in accounts receivable - wine 50.2 60.65 53.24 Days in accounts receivable - beef 57 36 24 Current ratio:1 2.80 2.54 2.66 Quick asset ratio:1 1.18 1.15 1.20 Debt to equity ratio:1 0.54 0.63 0.67 Internal control The financial controller at TCW has been refining the system of internal controls and informs Charles Sturt University Subject Outline ACC568 201860 S I Version 1 - Published 31 May 2018 Page 22 of 38 you, at the planning stage of the current year's audit, that he has put together an internal control manual for the company. He has stated that this manual will create greater awareness of controls in the company, particularly with management which, in the past, has not been overly conscious of the need to implement and enforce effective internal controls. Management staff receive bonuses based on certain agreed-upon target ratios which include measures such as targeted monthly sales volumes, variance of actual to budget departmental overheads and profit before interest and tax. The Board takes an active interest in the performance of the company and is quick to request explanations on variances from the agreedupon monthly budgets. Two years ago, the company devoted significant time and resources to the development and implementation of a new IT system. All teething problems associated with the implementation phase have now been resolved, and the financial controller is satisfied that the automated controls in place are assisting in producing accurate and complete accounting records. The management accountant also looks after the IT function as the position is not regarded by management as being a full-time job. Once application programs have been tested, strict password control exists over access to the programs. Passwords are not required for access to databases. To assist in the planning for the current year's audit engagement, you extracted the following information from a review of the systems notes in the permanent file and a perusal of the new internal control manual: • There are three section managers, one each for grape production, wine production and beef production. Each can order supplies for their respective operations up to a limit of $10,000 for each order. Orders between $10,000 and $30,000 must be approved by the management accountant. Orders over $30,000 must be approved by the CEO. Orders over $50,000 must be approved by the Board. • Orders must be made through the computer ordering system which has direct links to the approved suppliers. • Supplier information is contained in a supplier master file. Each supplier has a unique supplier code. If a section manager orders from an unapproved supplier, the order is rejected and sent to the management accountant for approval. • The supplier information file is maintained by the accounts clerk. Changes to the file are approved manually by the management accountant. • When supplies are received at the winery, the storeman checks the supplies received to the online copy of the order and the delivery docket provided by the supplier. Any discrepancies are noted on the online copy of the order. • The delivery docket is filed by the storeman in a folder that is kept at the winery. • The invoice is received electronically from the supplier and matched to the order by the accounts clerk. If the order and the invoice match the invoice is included in a payments file. • The payments file is approved online by the management accountant once a week and used to generate an ABA file which is then uploaded to the bank by the management accountant. • When the payments file is approved by the management accountant, the invoice is automatically recorded as being paid in the accounting system. • When services such as repairs are ordered for the winery by the wine production manager, a service order is generated within the computer system and automatically sent to the service provider. Charles Sturt University Subject Outline ACC568 201860 S I Version 1 - Published 31 May 2018 Page 23 of 38 • When the service has been delivered, the wine production manager or the storeman signs the service delivery docket on the service man’s tablet. • The invoice from the service company, with a copy of the signed service delivery docket, is received online by the accounts clerk. • The accounts clerk checks the signed service delivery docket to the invoice and the order and adds the invoice to the payments file for final approval by the management accountant. • In the case of discrepancies, the accounts clerk contacts the supplier and the wine production manager to resolve the issue. Payments are not made until the issue has been resolved. Required Write a report, including a brief executive summary, to your managing partner that addresses the questions below. Where indicated, use the required format to answer that question. Question 1A 8% Analyse the ratios and additional information associated with the four accounts listed by your audit partner, John Richards. Identify the potential audit risks and any audit steps that need to be undertaken to reduce audit risk. Answer this question using the following table: Account Analysis Audit Risk Audit Steps to reduce risk Question 1B 2% Analyse the ratios and additional information to outline business risks that TWC faces. Question 2A 7% Identify the internal controls in the system that are potentially effective, the risk that the control Charles Sturt University Subject Outline ACC568 201860 S I Version 1 - Published 31 May 2018 Page 24 of 38 could alleviate and one test of control for each of the identified potentially effective controls. Answer this question using the following headings: Effective control Risk alleviated Test of control Question 2B 2% List and justify the weaknesses in internal control for purchases and accounts payable. Weakness Justification Rationale This assessment task will assess the following learning outcome/s: • be able to demonstrate risk management methodologies and the role of internal controls in an audit context. • be able to design an audit plan and select and apply appropriate audit procedures for a financial statement audit. • be able to exercise critical and reflective judgement and appreciate the value of ethical practice