Flexible Budgeting and Variance Analysis

I Love My Chocolate Company makes dark chocolate and light chocolate. Both products require cocoa and sugar. The following planning information has been made available:

I Love My Chocolate Company does not expect there to be any beginning or ending inventories of cocoa or sugar. At the end of the budget year, I Love My Chocolate Company had the following actual results:

Required:

1. Prepare the following variance analyses for both chocolates and the total, based on the actual results and production levels at the end of the budget year:

     a. Direct materials price variance, direct materials quantity variance, and total variance.

     b. Direct labor rate variance, direct labor time variance, and total variance.

Enter a favorable variance as a negative number using a minus sign and an unfavorable variance as a positive number.

2. The variance analyses should be based on the   amounts at   volumes. The budget must flex with the volume changes. If the   volume is different from the planned volume, as it was in this case, then the budget used for performance evaluation should reflect the change in direct materials and direct labor that will be required for the   production. In this way, spending from volume changes can be separated from efficiency and price variances.

Analyzing Manufacturing Cost Accounts

Fire Rock Company manufactures designer paddle boards in a wide variety of sizes and styles. The following incomplete ledger accounts refer to transactions that are summarized for June:

In addition, the following information is available:

a. Materials and direct labor were applied to six jobs in July:

b. Factory overhead is applied to each job at a rate of 170% of direct labor cost.

c. The June 1 Work in Process balance consisted of two jobs, as follows:

d. Customer jobs completed and units sold in July were as follows:

1. Determine the missing amounts associated with each letter and complete the following table. If required, round amounts to the nearest dollar. If an answer is zero, enter in "0". Enter all amounts as positive numbers.

a. Materials Requisitions $

b. Work in Process Beginning Balance $

c. Direct Materials $

d. Direct Labor $

e. Factory overhead applied $

f. Completed jobs $

g. Cost of goods sold $

h. Indirect labor $

2. Determine the June 30 balances for each of the inventory accounts and factory overhead. Use the minus sign to indicate any credit balances.

Hairco makes and sells hair products at an awesome salon. The hair products are made of aloe, gel, and tea tree oil. Given the following information about Hairco’s January operations, answer the questions below. Budgeted MOH: $800 per month. Budgeted Machine Hours (Hairco’s chosen allocation base for MOH): 200.

Inventory Balances 1/1 1/31

Hair Products $ 1000 1200

Aloe 50 65

Partly-mixed hair products 400 385

Gel 300 280

Tea Tree Oil 450 620

During January, Hairco bought 200 ounces of aloe at $0.75 per ounce, 6000 ounces of gel at $0.50 per ounce, and 800 ounces of tea tree oil for $3 an ounce. The machines were used 190 hours. It also incurred the following costs.

Depreciation on machines $30 per month

Depreciation on tools $10 per month

Cashier in store 40 hours a week at $12 per hour for 4 weeks

Rent on factory $150 per month

Factory custodian 10 hours per week at $8 per hour for 4 weeks

Utilities for factory $200 per month + $0.05 per kilowatt hour.

Shampoo mixer 40 hours per week (4 weeks) at $10 per hour

Categorize the inventory items listed above.

Categorize each of the costs listed above as Direct Materials, Direct Labor, Manufacturing Overhead or Period (Nonmanufacturing) cost AND as fixed or variable.

Hairco sold $15,000 worth of hair products in January. Create an income statement for the month. Like many companies, Hairco uses actuals for DM & DL, and the Budgeted MOH rate to calculate MOH.

In March, Hairco gets its utility bill (2000 kilowatt hours were used) for January, the last of its MOH costs for that month. How much is Hairco’s MOH over or under-applied? What are its options for disposing of this amount?

Show all these.

Please explain to me how they calculating 10.4 M , 1.4M and also 4.4M A construction company entered into a fixed-price contract to build an office building for $26 million. Construction costs incurred during the first year were $6 million and estimated costs to complete at the end of the year were $9 million. During the first year the company billed its customer $9 million, of which $3 million was collected before year-end. What would appear in the year-end balance sheet related to this contract using the percentage-of-completion method? (Enter your answers in whole dollars.) Assets: Accounts receivable $6,000,000 Costs plus profit in excess of billings $1,400,000 Explanation: Assets: Accounts receivable ($9 million – 3 million) = $6,000,000 Cost plus profit ($6 million + $4.4 million*) in excess of billing ($9 million) = $1,400,000 * First year gross profit = $10,400,000 – 6,000,000 = $4,400,000

                                                Williams                                               Roberts

Cash                                      160,000                                                 50,000

Inventory                            550,000                                                 160,000

Equipment                          1,500,000                                             670,000

      Totals                             2,210,000                                             880,000

Totals Liabilities 740,000 280,000

c/s $20 par                          600,000                                                 300,000

other contr cap                 375,000                                                 105,000

retained earnings             495,000                                                 195,000

       totals                             2,210,000                                             880,000

inventory has a FMV of 170,000 for Roberts and the equipment has a FMV of 715,000. The book value and FMV of liabilities are the same. Assuming Williams wishes to acquire Roberts for cash in an asset acquisition, determine the following cutoff amounts:

1. Purchase price above which Williams would record goodwill?
2. Purchase price which Williams would record a 60,000 gain?
3. Purchase price below which Williams would obtain a bargain?
4. Purchase price which Williams would record 85,000 of goodwill?

Brazen, Ltd. has $75,000 to invest. The company is trying to decide between two different projects.  The alternatives are:

Project A Project B

The working capital needed for project B will be released at the end of six years for investment elsewhere. Brazen’s discount rate is 12%.

Required:

Which project (if either) would you recommend that the company pursue? Show all calculations in excel using the net present value format. Must show a schedule that reflects each of the six years (as modeled in class and outlined in the PowerPoint presentation). Prepare separate calculations for each project.

Check for the question with "Cash flows estimation and capital budgeting:" in this test and answer the following questions (show your work in details here):

a. What is the initial cash outlay? (4 pts.)
b. What is the free cash flow for year 1? (4 pts)
c. What is the additional Year-3 cash flow (i.e, the after-tax salvage and the return of working capital – also called terminal value)? (4 pt)

(please show your work in details and highlight your answers)

Cash flows estimation and capital budgeting:
You are the head of finance department in XYZ Company. You are considering adding a new machine to your production facility. The new machine’s base price is $10,100.00, and it would cost another $3,280.00 to install it. The machine falls into the MACRS 3-year class (the applicable MACRS depreciation rates are 33.33%, 44.45%, 14.81%, and 7.41%), and it would be sold after three years for $2,150.00. The machine would require an increase in net working capital (inventory) of $780.00. The new machine would not change revenues, but it is expected to save the firm $29,185.00 per year in before-tax operating costs, mainly labor. XYZ's marginal tax rate is 39.00%.

If the project's cost of capital is 16.75%, what is the NPV of the project?

Round your answer to two decimal places. For example, if your answer is $345.667 round as 345.67 and if your answer is .05718 or 5.718% round as 5.72.

Prices of zero-coupon bonds reveal the following pattern of forward rates:

In addition to the zero-coupon bond, investors also may purchase a 3-year bond making annual payments of $50 with par value $1,000.

a. What is the price of the coupon bond? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Price=

b. What is the yield to maturity of the coupon bond? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Yield to maturity= %

c. Under the expectations hypothesis, what is the expected realized compound yield of the coupon bond? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Realized compound yield= %

d. If you forecast that the yield curve in 1 year will be flat at 9.0%, what is your forecast for the expected rate of return on the coupon bond for the 1-year holding period? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Holding period return= %

[The following information applies to the questions displayed below.]

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

Prepare the appropriate journal entries for Macy Co. to record each of the May transactions. Macy is a retailer that uses the gross method and a perpetual inventory system, and purchases these units for resale. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Part B

GH Artist Supply, Inc. is a new company that specializes in panels and frames for artists.

In a new product line, GH managers plan to create new, eco-friendly panels in three sizes: large, medium, and small.

The current budget plan for the first year of operations provides the following information:

Required

Two managers within GH are arguing about the best way to calculate the break-even point in this multi-product scenario. Each has their own method they would like to use.

Compute the break-even point using the two common methods used for multi-product scenarios.

For each method, describe the assumption that is unique to that method.

Determine the amount of sales (units) that would be necessary under Break-Even Sales Under Present and Proposed Conditions Darby Company, operating at full capacity, sold 74,250 units at a price of $126 per unit during the current year. Its income statement for the current year is as follows: Sales $9,355,500 Cost of goods sold 4,620,000 Gross profit $4,735,500 Expenses: Selling expenses $2,310,000 Administrative expenses 2,310,000 Total expenses 4,620,000 Income from operations $115,500 The division of costs between fixed and variable is as follows: Variable Fixed Cost of goods sold 70% 30% Selling expenses 75% 25% Administrative expenses 50% 50% Management is considering a plant expansion program that will permit an increase of $756,000 in yearly sales. The expansion will increase fixed costs by $75,600, but will not affect the relationship between sales and variable costs. Required: 1. Determine the total variable costs and the total fixed costs for the current year. Enter the final answers rounded to the nearest dollar. Total variable costs $ 43.56 Total fixed costs $ 43.56 2. Determine (a) the unit variable cost and (b) the unit contribution margin for the current year. Enter the final answers rounded to two decimal places. Unit variable cost $ 43.56 Unit contribution margin $ 3. Compute the break-even sales (units) for the current year. Enter the final answers rounded to the nearest whole number. units 4. Compute the break-even sales (units) under the proposed program for the following year. Enter the final answers rounded to the nearest whole number. units 5. Determine the amount of sales (units) that would be necessary under the proposed program to realize the $115,500 of income from operations that was earned in the current year. Enter the final answers rounded to the nearest whole number. units 6. Determine the maximum income from operations possible with the expanded plant. Enter the final answer rounded to the nearest dollar. $ 7. If the proposal is accepted and sales remain at the current level, what will the income or loss from operations be for the following year? Enter the final answer rounded to the nearest dollar. $ Income 8. Based on the data given, would you recommend accepting the proposal? In favor of the proposal because of the reduction in break-even point. In favor of the proposal because of the possibility of increasing income from operations. In favor of the proposal because of the increase in break-even point. Reject the proposal because if future sales remain at the current level, the income from operations will increase. Reject the proposal because the sales necessary to maintain the current income from operations would be below the current year sales.

Windward Corporation uses the Specific Identification inventory method.

The Company has the following inventory items and costs for the Period.

Beginning inventory of 3 units purchased for $4,100 each.
January 20, purchase 2 units for $4,200 each.
February 3, purchase 3 units for $4,500 each.
February 14, sold 5 units for $5,800 each (3 units from the beginning Inventory and 2 units from the February 3rd purchase)
1. What is the total cost of the units in inventory at March 31? $
2. What is the total Sales for the quarter ending March 31? $
3. What is the Cost of Goods Sold for the quarter ending March 31? $
4.What is Gross Margin for the quarter ending March 31? $

2. CDM Corporation erroneously included $24,600 of goods on consignment from another company in ending inventory.

What effect does this have on the following items? (determine the amount and use a positive number to designate an overstated amount and a negative number to designate an understated amount).

a. Ending Inventory $ ???
b. Cost of Goods Sold $ ????
c. Gross Margin $ ???
d. Net Income$ ???

Question: Briefly describe modern portfolio theory and relate it to the approaches supported by Walt and Shane. Be sure to mention diversifiable risk, undiversifiable risk, and total risk, along with the role of beta.

Walt Davies and Shane O’Brien are district managers for Lee, Inc. Over time, as they moved through the firm’s sales organization, they became close friends. Walt, who is 33 years old, currently lives in Princeton, New Jersey. Shane, who is 35, lives in Houston, Texas. Recently, they were discussing various company matters, as well as bringing each other up to date on their families, when the subject of investments came up. Each had always been fascinated by the stock market, and now that they had achieved some degree of financial success, they had begun actively investing.

As they discussed their investments, Walt said he thought the only way an individual who does not have hundreds of thousands of dollars can invest safely is to buy mutual funds. He emphasized that to be safe, a person needs to hold a broadly diversified portfolio and that only those with a lot of money and time can achieve independently the diversification that can be readily obtained by purchasing mutual fund shares.

Shane disagreed. He said, “Diversification! Who needs it?” He thought that what one must do is look carefully at stocks possessing desired risk-return characteristics and then invest all one’s money in the single best stock. Walt told him he was crazy. He said, “You’re just gambling.” Shane disagreed, explaining how his stockbroker had acquainted him with beta. Shane said that the higher the beta, the more risky the stock, and therefore the higher its return. By looking up the betas for potential stock investments on the Internet, he can pick stocks that have an acceptable risk level for him. Shane explained that with beta, one does not need to diversify; one merely needs to be willing to accept the risk reflected by beta.

The conversation continued, with Walt indicating that although he knew nothing about beta, he didn’t believe one could safely invest in one stock. Shane continued to argue that betas apply not just to a single stock but also to mutual funds. He said, “What’s the difference between a stock with a beta of, say, 1.2 and a mutual fund with a beta of 1.2? They have the same risk and should provide similar returns.”

As Walt and Shane discussed their differing opinions relative to investment strategy, they began to get angry. Neither was able to convince the other that he was right. Their voices now raised, they attracted the attention of the company’s vice president of finance, Elinor Green, who was nearby. She came over and said she had overheard their argument and thought that, given her expertise on financial matters, she might be able to resolve their disagreement. After hearing their views, Elinor responded, “I have some good news and some bad news for each of you. There is some validity to what each of you says, but there also are some errors in each of your explanations. Walt is right that diversification reduces risk. Shane is right that a mutual fund and a stock having the same beta should produce the same return.” Just then, the company president interrupted them, needing to talk to Elinor immediately. Elinor apologized for having to leave and offered to continue their discussion later that evening.

COUNTRY: USA!!

For the following liability accounts, propose a substantive audit procedure (either an analytical test or a test of details) to test the year end balance of the following various liability accounts listed below. As an example - to audit the liability account mortgage interest payable at year-end, you would check to see when the last interest payment was, and then based upon the loan balance and interest rate and the number of days to year-end, you could compute an interest payable amount. Alternately, you could take the amount of mortgage interest expense for the year and divide by 12. That should be the maximum mortgage interest payable at year end. Here are the 5 liability accounts I would like you to propose audit procedures for:

1. Sales tax payable

2. Accrued wages

3. Accrued employer match for medicare/social security payroll taxes

4. Accrued employee portion of payroll taxes, including income tax withheld.

5. Utilities payable

BE SPECIFIC and descriptive about the audit procedures you propose.

Here is some additional information that you will need:

Sales tax is paid monthly.

Payroll is paid every two weeks.

The last payroll paid covered the two weeks ending 12/24, and was paid on 12/31.

Payroll taxes associated with the 12/31 payroll will be paid the first week of January.

As auditor, you have access to completed payroll records and government payroll tax form filings. Please note: you CANNOT suggest a review of subsequent payment of these liabilities.

PLEASE DO ALL, WILL GIVE A THUMBS UP! :)