Class: ACCT-301 --> WEEK 7: TRANSFER PRICING AND CAREER RESEARCH TASK

How is transfer pricing used to assess performance? Have you ever worked with transfer pricing before? What kinds of companies would benefit the most by using this properly? How could they hurt themselves without using it or without applying it properly?

You are about to start working at car dealership that is currently reporting losses due to flooding but will be profitable in a few years. Assume you’re your risk adverse and your supervisor cannot fully monitor your actions. The key metrics at this dealership include both financial data (number of sales, margin on sales) as well as qualitative data (survey of experience). You are tasked with designing a compensation contract.

1. Define in your own terms moral hazard and adverse-selection Describe how the firm may want to establish a compensation contract for you given moral hazard and adverse selection issues.

2. Does this change depending on your level of risk aversion?

3. Discuss both tax and nontax factors from both the employee and employers perspective.

4. Suppose a firm has a tax loss in the current period of $200, which when added to prior tax losses gives it an NOL carryforward of $300. The top statutory tax rate is 21%. Assume an after-tax discount rate of 10% and future taxable income of $50 per year. What is the firm’s marginal explicit tax rate?

5. Create the compensation contract with points 1-4 in mind. Keep this contract to a single page. You will be graded on creativity, presentation, and writing clarity.

Thakin Industries Inc. manufactures dorm furniture in separate processes. In each process, materials are entered at the beginning, and conversion costs are incurred uniformly. Production and cost data for the first process in making a product are as follows.

(a1)

Compute the physical units of production.

b. For each plant compute equivalent units of production for materials and for conversion costs.

c). For each plant determine the unit costs of production. (Round unit costs to 2 decimal places, e.g. 5.25.)
d). For each plant show the assignment of costs to units transferred out and in process.

This semester, we learned that Congress designed the Code to include deductions that can be taken for losses that a taxpayer may experience. Two such deductions are (1) the bad debt deduction and (2) the deduction for casualty losses and theft. How does the IRS generally interpret deductions (i.e., broadly or narrowly)? How do we determine whether a taxpayer is entitled to each of these two deductions? What is the purpose of each of these two deductions? Are there any limits on the deduction at issue? Finally, what generally governs when a taxpayer may take each of these two deductions?

Rosenthal Company manufactures bowling balls through two processes: Molding and Packaging. In the Molding Department, the urethane, rubber, plastics, and other materials are molded into bowling balls. In the Packaging Department, the balls are placed in cartons and sent to the finished goods warehouse. All materials are entered at the beginning of each process. Labor and manufacturing overhead are incurred uniformly throughout each process. Production and cost data for the Molding Department during June 2020 are presented below.

(a)

Prepare a schedule showing physical units of production.

b) Determine the equivalent units of production for materials and conversion costs

c) Compute the unit costs of production

d) Determine the costs to be assigned to the units transferred out and in process for June

e) Prepare a production cost report for the Molding Department for the month of June

Baden Company has gathered the following information.

(a)

Compute equivalent units of production for materials and for conversion costs.

(b)  

Determine the unit costs of production.

(c)  

Show the assignment of costs to units transferred out and in process.

1. What are the assumptions behind the Pure (Unbiased) Expectations Theory and to what conclusion do those assumptions lead?

2. What is the difference (in words, not numbers) between the Federal Funds market and the market for Discount Window loans?

The Blending Department of Luongo Company has the following cost and production data for the month of April.

Units transferred out totaled  20,740. Ending work in process was  1,220 units that are 100% complete as to materials and 40% complete as to conversion costs.

(a)

Compute the equivalent units of production for (1) materials and (2) conversion costs for the month of April.

(b) Compute the unit costs for the month. (Round unit costs to 0 decimal places, e.g. $25.)

Unit cost for the month

(c) Determine the costs to be assigned to the units transferred out and in ending work in process.

Transferred out$
Work in process
Materials$
Conversion costs
Total costs$

O’Brien Company manufactures and sells one product. The following information pertains to each of the company’s first three years of operations:

During its first year of operations, O’Brien produced 100,000 units and sold 79,000 units. During its second year of operations, it produced 79,000 units and sold 95,000 units. In its third year, O’Brien produced 83,000 units and sold 78,000 units. The selling price of the company’s product is $77 per unit.

Required:

1. Assume the company uses variable costing and a FIFO inventory flow assumption (FIFO means first-in first-out. In other words, it assumes that the oldest units in inventory are sold first):

a. Compute the unit product cost for Year 1, Year 2, and Year 3.

b. Prepare an income statement for Year 1, Year 2, and Year 3.

Perform a present worth (PW)-based evaluation of the two alternatives below using a spreadsheet. The after-tax minimum acceptable rate of return (MARR) is 8% per year, Modified Accelerated Cost Recovery System (MACRS) depreciation applies, and T_e = 40%. The (GI - OE) estimate is made for the first 3 years; it is zero in year 4 when each asset is sold.

The PW for alternative X is determined to be____ $ .

The PW for alternative Y is determined to be____ $ .

Alternative (Click to select)XY is selected.

During the year, Janice invested $10,000 (tax basis and at-risk basis) into XYZ limited partnership (a passive investment). Her share of the limited partnership income for the year was $6,000, and Janice received a $5,000 distribution from XYZ limited partnership.

During the year, Janice also invested $6,000 (tax basis and at-risk basis) into ABC limited partnership (a passive investment). Her share of the limited partnership loss for the year was $7,000, and Janice received a $1,500 distribution from ABC limited partnership.

What will be the net income/loss reported on Schedule 1 line 5 of a 2019 tax return? Will there be a carry forward?

Hello,

Just want to compare.

Thanks,

Denver Cabinets Company (DCC) produces and sells specialty wooden cabinets. Production

is machine-intensive. DCC’s variable costs are direct materials, variable machining costs

and sales commissions. Robert Denver, the owner, is planning production for 2011.

Salespeople are paid a 6% commission on each Colonial or Modern models sold and an 8%

commission on each Distressed model sold. Fixed costs (administrative/selling and

production) total $8,750,000. Annual capacity is 50,000 machine hours which is limited by

the availability of machines. Variable machining costs are $200 per hour.

Type of Wooden Cabinet                                    Annual Demand in Units              Selling Price Per Unit             Direct Material cost per unit         Variable Machining Cost Per Unit

Colonial                                                                       4,000                                                 $3,000                                              $750                                                      $600

Modern                                                                        5,000                                                 $2,100                                              $500                                                      $500

Distressed                                                                  30,000                                                $800                                                $100                                                       $300

a. Calculate the machine hours per unit required to satisfy the estimated demand for

each type of cabinet.

b. Calculate the contribution margin per unit earned from each type of cabinet?

c. Advise Mr. Denver on the most profitable product mix based on these three models.

The company uses a single plantwide factory overhead rate. The budgeted Factory Overhead Costs for the year are $1,400,000 and allocates factory overhead based on direct labor hours. The company plans to make 100,000 shirts and 50,000 pairs of pants. It takes 2 direct labor hours to make a shirt and 3 direct labor hours to make a pair of pants. What are the total number of direct labor hours? What is the single plantwide factory overhead rate?

Answers should be entered as whole numbers with no signs or punctuation

Total direct labor hours:

Single plantwide factory overhead rate per direct labor hour:

How much FOH is allocated to a single shirt:

How much FOH is allocated to a single pair of paints: