THUMB Ltd, which manufactures a single product, is considering whether to use absorption costing or marginal costing to report its budgeted profit in its management accounts. The following information is available:

K /unit Direct materials 4.00

Direct labour 15.00

Total 19.00

Selling price 50.00

Fixed production overheads are budgeted to be K300,000 per month and are absorbed on an average activity level of 100,000 units per month. For the month of April 2020, sales are expected to be 100,000 units although production units will be 120,000 units. Fixed selling costs of K150,000 per month will need to be included in the budget as will the variable selling costs of K2.00 per unit. There are no opening inventories expected at 1 April 2020. Required: (a) Prepare the budgeted statement of profit or loss for the month of April 2020 for THUMB Ltd using absorption costing. Clearly show the valuation of any inventory figures. [6 Marks] (b) Prepare the budgeted statement of profit or loss for the month of April 2020 for THUMB Ltd using marginal costing. Clearly show the valuation of any inventory figures.

At the beginning of the current period, Muebles de Pavo Real, a furniture company out of Madrid, Spain, had the following data referring to its inventory at the end of March. They use the FIFO method for costing. They sold 1800 chairs: 300 of type A and 1000 of Type B and 500 of type C. They apply the lower of cost or market to the total inventory. Determine the cost of goods sold. Remember write-downs of inventory are included in the COGS.

Cost/purchases

Type A

Type B 

Type C

March 1—Beginning Inventory

200- € 200 each

800 - € 50 each

250 - € 100 each

March 10—purchases 

10 - € 205 each

200 - € 45 each

125 - € 102 each

March 15—purchases

100 - € 52 each

250- € 106 each 

March 20—purchases 

90 - € 210 each

100 - € 110 each 

March 25—purchases 

150- € 205 each

175 - € 55 each

March 30—purchases 

50 - € 207 each

450 - € 50 each

Market for chairs at end of March

Type A

Type B

Type C

€ 202

€ 53

€ 90

Sales:

Type A:                                Type B:                                 Type C:

190 @ € 340                         500 @ € 75                           500 @ € 175

100 @ € 360                         400 @ € 80

10 @ € 365                           100 @ € 90             

Cost using FIFO (10 points)

Type A       

Type B       

Type C                                                                                Total:  

Value of ending inventory (5 points)

FIFO:  

Market  

Adjustment:                                                                        Value of ending Inventory:  

Gross Profit Margin: 

Cost of Production Report The debits to Work in Process—Roasting Department for Morning Brew Coffee Company for August, together with information concerning production, are as follows: Work in process, August 1, 1,100 pounds, 10% completed $4,917* *Direct materials (1,100 X $4.3) $4,730 Conversion (1,100 X 10% X $1.7) $187 $4,917 Coffee beans added during August, 34,000 pounds 144,500 Conversion costs during August 61,038 Work in process, August 31, 1,800 pounds, 40% completed ? Goods finished during August, 33,300 pounds ? All direct materials are placed in process at the beginning of production. a. Prepare a cost of production report, presenting the following computations: Direct materials and conversion equivalent units of production for August Direct materials and conversion costs per equivalent unit for August Cost of goods finished during August Cost of work in process at August 31 If an amount is zero, enter in "0". For the cost per equivalent unit, round your answer to two decimal places. Morning Brew Coffee Company Cost of Production Report-Roasting Department For the Month Ended August 31 Unit Information Units charged to production: Inventory in process, August 1 1,100 Received from materials storeroom Total units accounted for by the Roasting Department Units to be assigned costs: Equivalent Units Whole Units Direct Materials (1) Conversion (1) Inventory in process, August 1 1,100 0 1,100 Started and completed in August 33,300 Transferred to finished goods in August Inventory in process, August 31 Total units to be assigned costs Cost Information Costs per equivalent unit: Direct Materials Conversion Total costs for August in Roasting Department $ $ Total equivalent units Cost per equivalent unit (2) $ $ Costs assigned to production: Direct Materials Conversion Total Inventory in process, August 1 $ Costs incurred in August Total costs accounted for by the Roasting Department $ Costs allocated to completed and partially completed units: Inventory in process, August 1 balance $ To complete inventory in process, August 1 $ $ Cost of completed August 1 work in process $ Started and completed in August Transferred to finished goods in August (3) $ Inventory in process, August 31 (4) Total costs assigned by the Roasting Department $ b. Compute and evaluate the change in cost per equivalent unit for direct materials and conversion from the previous month (July). If required, round your answers to the nearest cent. Increase or Decrease Amount Change in direct materials cost per equivalent unit $ Change in conversion cost per equivalent unit

John Fleming, chief administrator for Valley View Hospital, is concerned about the costs for tests in the hospital’s lab. Charges for lab tests are consistently higher at Valley View than at other hospitals and have resulted in many complaints. Also, because of strict regulations on amounts reimbursed for lab tests, payments received from insurance companies and governmental units have not been high enough to cover lab costs.

Mr. Fleming has asked you to evaluate costs in the hospital’s lab for the past month. The following information is available:

1. Two types of tests are performed in the lab—blood tests and smears. During the past month, 900 blood tests and 3,300 smears were performed in the lab.

2. Small glass plates are used in both types of tests. During the past month, the hospital purchased 16,500 plates at a cost of $35,640. 2,300 of these plates were unused at the end of the month; no plates were on hand at the beginning of the month.

3. During the past month, 2,300 hours of labor time were recorded in the lab at a cost of $25,185.

4. The lab’s variable overhead cost last month totaled $18,170.

Valley View Hospital has never used standard costs. By searching industry literature, however, you have determined the following nationwide averages for hospital labs:

Plates: Three plates are required per lab test. These plates cost $2.25 each and are disposed of after the test is completed.

Labor: Each blood test should require 0.6 hours to complete, and each smear should require 0.30 hours to complete. The average cost of this lab time is $11.50 per hour.

Overhead: Overhead cost is based on direct labor-hours. The average rate for variable overhead is $7.40 per hour.

Required:

1. Compute a materials price variance for the plates purchased last month and a materials quantity variance for the plates used last month.

2. For labor cost in the lab:

a. Compute a labor rate variance and a labor efficiency variance.

b. In most hospitals, one-half of the workers in the lab are senior technicians and one-half are assistants. In an effort to reduce costs, Valley View Hospital employs only one-fourth senior technicians and three-fourths assistants. Would you recommend that this policy be continued?

3-a. Compute the variable overhead rate and efficiency variances.

3-b. Is there any relation between the variable overhead efficiency variance and the labor efficiency variance?

Milano Pizza is a small neighborhood pizzeria that has a small area for in-store dining as well as offering take-out and free home delivery services. The pizzeria’s owner has determined that the shop has two major cost drivers—the number of pizzas sold and the number of deliveries made.

The pizzeria’s cost formulas appear below:

In November, the pizzeria budgeted for 2,010 pizzas at an average selling price of $14 per pizza and for 210 deliveries.

Data concerning the pizzeria’s actual results in November appear below:

Required:

1. Compute the revenue and spending variances for the pizzeria for November. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)

Ratio of Liabilities to Stockholders' Equity and Times Interest Earned

The following data were taken from the financial statements of Hunter Inc. for December 31 of two recent years:

The income before income tax was $572,400 and $500,900 for the current and previous years, respectively.

a. Determine the ratio of liabilities to stockholders' equity at the end of each year. Round to one decimal place.

b. Determine the times interest earned ratio for both years. Round to one decimal place.

Question text

Activity-Based Costing
Slack Corporation has the following predicted indirect costs and cost drivers for 2016 for the given activity cost pools:

The following activity predictions were also made for the year:

It is assumed that the cost per unit of activity for a given activity does not vary between departments. Slack's president, Charles Slack, is trying to evaluate the company's product mix strategy regarding two of its five product models, ZX300 and SL500. The company has been using a company-wide overhead rate based on machine hours but is considering switching to either department rates or activity-based rates. The production manager has provided the following data for the production of a batch of 100 units for each of these models:

a. Determine the cost of one unit each of ZX300 and SL500, assuming a company-wide overhead rate is used based on total machine hours.

Round rate to two decimal places.
Overhead rate based on total machine hours Answer per machine hour

Use rounded overhead rate calculated above for calculations below. Round cost answers to the nearest whole number. Round cost per unit to two decimal places.

b. Determine the cost of one unit of ZX300 and SL500, assuming department overhead rates are used. Overhead is assigned based on machine hours in both departments.

Round rate to two decimal places, if applicable.
Overhead rate based on machine hours for Fabrication Dept. $Answer per machine hour
Overhead rate based on machine hours for Finishing Dept. $Answer per machine hour

Use rounded overhead rate calculated above for calculations below. Round cost answers to the nearest whole number, when needed. Round cost per unit to two decimal places, if needed.

c. Determine the cost of one unit of ZX300 and SL500, assuming activity-based overhead rates are used for maintenance, materials handling, machine setup, and inspection activities.
Round rate to two decimal places, if applicable.

Use rounded overhead rate calculated above for calculations below. Round cost answers to the nearest whole number, when needed. Round cost per unit to two decimal places, if needed.

9. A bond matures in 12 years and pays a 6 percent annual coupon. The bond has a face value of $1,000 and currently sells for $890. What is the bond’s current yield and yield to maturity?

10. The face value for Karen’s Limited bonds is $100,000 and has a 2 percent annual coupon. The 2 percent annual coupon bonds matures in 2022, and it is now 2012. Interest on these bonds is paid annually on December 31 of each year, and new annual coupon bonds with similar risk and maturity are currently yielding 12 percent. How much should Karen sell her bonds today?

11. Your client has been offered a 5-year, $1,000 par value bond with a 10 percent coupon. Interest on this bond is paid quarterly. If your client is to earn a nominal rate of return of 12 percent, compounded quarterly, how much should she pay for the bond?

12. What is the semi-annual coupon bond’s nominal yield to maturity (YTM), if the years to maturity is 15 years, and sells for 119% with coupons rate of 10%? Assume the par value of the bond is $1,000.

13. The current price of a 10-year, $1,000 par value bond is $1,158.91. Interest on this bond is paid every six months, and the nominal annual yield is 14 percent. Given these facts, what is the annual coupon rate on this bond?

14. Bond Relationships. Select one or more of the following phrases to complete the following sentences. increase , decrease, par, discount, premium, less than, more than, greater , less a. If the current interest rate exceeds the bond’s coupon rate, the bond will sell at a ___________. b. The value of a bond to increase if there is a/an ________ in interest rates. c. A bond’s coupon rate is more than the interest rate, therefore the bond is selling at a _____________. d. As interest rate increases the value of a bond will ______________. e. If the bondholder’s required rate of return equals the coupon interest rate, the bond will sell at _________. f. A premium bond sells for ____________ as maturity approaches. g. The discount bond sells for ____________ as maturity approaches. h. A bondholder with a short-term bond is exposed to ___________ interest rate risk than when owing a long-term bond.

15. Which of the following statements is most correct with regards to a 10 year bond with a 9% annual coupon rate and a YTM of 8%? a) The bond is selling at a discount. b) The bond’s current yield is greater than 9 percent. c) If the yield to maturity remains constant, the bond’s price one year from now will be lower than its current price.

1. What is audit evidence?
   1. Define audit evidence? Provide three examples of audit evidence and explain why you believe that each example is audit evidence
   2. Discuss the two attributes of audit evidence and provide one or more examples of each attribute to complete your discussions. Be specific and thorough when discussing each attribute or criteria.

Feather Friends, Inc., distributes a high-quality wooden birdhouse that sells for $80 per unit. Variable expenses are $40.00 per unit, and fixed expenses total $200,000 per year. Its operating results for last year were as follows:

Required:

Answer each question independently based on the original data:

1. What is the product's CM ratio?

2. Use the CM ratio to determine the break-even point in dollar sales.

3. If this year's sales increase by $59,000 and fixed expenses do not change, how much will net operating income increase?

4-a. What is the degree of operating leverage based on last year's sales?

4-b. Assume the president expects this year's sales to increase by 10%. Using the degree of operating leverage from last year, what percentage increase in net operating income will the company realize this year?

5. The sales manager is convinced that a 12% reduction in the selling price, combined with a $60,000 increase in advertising, would increase this year's unit sales by 25%.

a. If the sales manager is right, what would be this year's net operating income if his ideas are implemented?

b. Do you recommend implementing the sales manager's suggestions?

6. The president does not want to change the selling price. Instead, he wants to increase the sales commission by $1.90 per unit. He thinks that this move, combined with some increase in advertising, would increase this year's sales by 25%. How much could the president increase this year's advertising expense and still earn the same $880,000 net operating income as last year? Do not prepare an income statement; use the incremental analysis approach.

considering the Food and General Merchandise types of retailers (not Service): What type of retailer do you think is experiencing the biggest growth? Why? What type of retailer do you think is decreasing in popularity? Why? Now thinking of Service Retailers: Why are these types of retailers growing significantly? What specific service retailer do you think does a really good job, meaning it runs very efficiently and takes good care of its customers?

During 2016, Dana Company decided to begin investing its idle cash in marketable securities. The information contained below relates to Dana’s 2016 marketable security transactions:

Required:

Proof that the PV of nominal CFs at a nominal rate of interest is equal to PV of the parallel real CFs at a equivalent real rate of interest.