Suppose that Disney is considering one more Toy Story movie. The company is not confident in box office sales, but they do believe that the file will create merchandising opportunities (DVDs, toys, clothes,..etc). Their early analysis believes the move will have an NPV of -$43.00 million if you only look at ticket sales in the theater. However, they also believe that the movie will create sales of $80.00 million per year in merchandise. The merchandise sales will decline each year by 21.00% in perpetuity. Let’s assume that after-tax operating margin on these sales is 14.00%, and that Disney has a cost of capital at 8.00%. What is the cash flow created by the merchandise side effect in the first year? (answer in terms of millions, so 1,000,000 would be 1.00)

Let’s value this as a perpetuity. The merchandise sales will continue indefinitely, BUT the sales will decrease each year. What is the net NPV for creating the movie? (answer in terms of millions, so 1,000,000 would be 1.00)

On January 1^st, 2018. After its first year of operation, CC’s president, Allen Hale, is now trying to prepare the company’s master budget for the first two months (January and February) of 2019. Since you are his good friend and an accounting student, Mr. Hale has asked you to prepare the budget.

Based on the budgets from 2018, Mr. Hale has gathered the following information:

• Projected Sales for January 2019             $124,300
• Average Monthly Sales Increase                         3%
• Average Monthly Salary Expenses           $ 36,400
• Average Monthly Rent Expenses             $ 5,200
• Average Monthly Utility Expenses          $   6,400
• Average Monthly Misc. Expense             $   3,200
• Supplies Expense-percent of sales                        3%
• Commission-percent of sales                                6%

Begin your project by carefully reading all instructions given here and reviewing the balance sheets and budget worksheets contained in the Excel workbook.

Fill in the data table in the upper left hand corner of the “Budgets” worksheet (found on the second tab in the Excel workbook) with the values above and other values found in the assumptions given below. Using this information, prepare Chippewa Chocolates’ master budget for the first two months of 2019. All amounts should be rounded to whole dollars as necessary. Apply the following assumptions:

                  

1. Customers typically pay 45% of total sales in cash and the remaining 55% on account. The company expects to collect 100% of the credit sales in the month following the sale.

2. The cost of goods sold is 40% of budgeted sales and the company desires to maintain a minimum ending inventory equal to 25% of the next month’s cost of goods sold. All purchases are made on account.

3. The company pays 80% of inventory purchases in the month of purchase and the remaining 20% in the following month.

4. Depreciation expense on existing equipment is $4,000 each month. In addition, CC will spend $180,000 on January 1 for additional equipment. The equipment is expected to have a $7,200 salvage value and a four-year (48-month) useful life.

5. Salaries, utilities, and sales commissions are paid the month after they are incurred; all other expenses are paid in the month in which they are incurred.

6. The company borrows and repays funds on its credit line in increments of $1,000 on the last day of each month as necessary to maintain its targeted $44,000 cash balance. It pays interest of .3% per month in cash on the last day of the month on cash borrowed in the prior month.

Pearl Manufacturing Company provides glassware machines for major department store retailers. The company has been investigating a new piece of machinery for its production department. The old equipment has a remaining life of five years and the new equipment has a value of $239,400 with a five-year life. The expected additional cash inflows are $63,000 per year. What is the payback period for this investment?

• A. 2.5 years
• B. 4.5 years
• C. 3.8 years
• D. 5 years

MULTIPLE CHOICE

____1.    When only one class of stock is issued by a corporation, it should be termed

        A.  Authorized stock

        B.  Treasury stock

        C.  Common stock

        D.  Preferred stock

        E.  None of these

____2.    Which of the following statements is correct?

        A.    A corporation's issued stock may exceed its outstanding stock.

        B.    A corporation's outstanding stock may exceed its authorized stock.

        C.    A corporation's issued stock may exceed its     authorized stock.

        D.    A Corporation's treasury stock may exceed its issued  stock.

        E.    A corporation's treasury stock may exceed its authorized stock.

____3.    Which of the following rights allows a shareholder of a corporation to maintain his or her proportionate interest in the corporation?

        A.  Preemptive right

        B.  Participation right

        C.  Preferred right

        D.  Cumulative right

        E.  None of these.

____4.    The excess of the sales price of treasury stock over its cost should be credited to:

        A.  Retained Earnings

        B.  Paid-in Capital from Treasury Stock

        C.  Treasury Stock

        D.  Extraordinary Gain

        E.  None of these

____5.    Treasury stock is

      A.    Stock of other corporation owned by a corporation

      B.    A U.S. government security

        C.    A corporation's own stock that has been retired.

        D.    A corporation's own stock that has been reacquired and held for future use.

        E. None of these.

____6.    The balance of the Retained Earnings account represents:

        A.    cash set aside for specific use

        B.    cash available for daily operations

        C.    an excess of revenues over expenses for the current period

        D.    profits of a company since the date of its beginning less any losses, dividends to stockholders and any transfers to Contributed Capital

        E.    None of these

____7.    Each partner in a general partnership is liable

        A.  For his or her share of partnership liabilities

        B.  Jointly for the total debts of the partnership

        C.  Individually for the total debts of the partnership

        D.  For the acts of any other partner acting as a partner

        E.  For all of these

____8.    Which of the following sequences of dividend-related dates is in the correct chronological order (earliest date first)?

        A.    Declaration date, record date, payment date

        B.    Record date, declaration date, payment date

        C.    Declaration date, payment date, record date

        D.    Payment date, declaration date, record date

        E.    None of these

____9. All of the following would appear on a Statement of

      Stockholders Equity except

        A.    net income

        B.    an issuance of common stock

        C.    declaration of cash dividends

        D.    declaration of stock split

        E.    All of these

____10. If no formal agreement exists concerning distribution of

       partnership profits and losses, they are distributed

        A.  Using average capital balances

        B.  Using beginning capital balances

        C.  Based on each partner's seniority

        D.  Equally

        E.  None of these

Flexible Budget for Varying Levels of Activity

Nashler Company has the following budgeted variable costs per unit produced:

Direct materials $7.20
Direct labor 1.54 Variable overhead:
Supplies 0.23
Maintenance 0.19
Power 0.18
Budgeted fixed overhead costs per month include
supervision of $98,000,
depreciation of $76,000,
and other overhead of $245,000.
Required:
1. Prepare a flexible budget for all costs of production for the following levels of production:
160,000 units, 170,000 units, and 175,000 units.
Round your answers to the nearest cent, if required. Nashler Company Flexible Budget Variable cost per unit Range of Production in Units 160,000 Range of Production in Units 170,000 Range of Production in Units 175,000

2 What if Nashler Company’s cost of maintenance rose to $0.22 per unit? How would that affect the unit product costs calculated in Requirement 2? If required, round your answer to the nearest cent.
Increase

• Increase
• Decrease

by $ per unit

3 what is the per-unit total product cost for each of the production levels from Requirement 1? (Round each unit cost to the nearest cent.)

	Per-unit Product Cost
160,000	$
170,000	$
175,000

Accounting for Managers

25 most important ratios for analysis Definition of what the ratios are and what they compare, elements of the ratio and where to find those elements, type of ratio is this and what does it tell the user?

The data below represents the amount of grams of carbohydrates in a sample serving of breakfast cereal. 10 18 24 30 19 22 24 20 18 25 20 22 19

what is the variance?

Tustin Corporation has provided the following data for its two most recent years of operation:

Selling price per unit	$	68
Manufacturing costs:
Variable manufacturing cost per unit produced:
Direct materials	$	10
Direct labor	$	6
Variable manufacturing overhead	$	4
Fixed manufacturing overhead per year	$	220,000
Selling and administrative expenses:
Variable selling and administrative expense per unit sold	$	6
Fixed selling and administrative expense per year	$	61,000

	Year 1	Year 2
Units in beginning inventory	0	1,000
Units produced during the year	11,000	10,000
Units sold during the year	10,000	7,000
Units in ending inventory	1,000	4,000

The net operating income (loss) under variable costing in Year 1 is closest to:

Multiple Choice

• $480,000

• $139,000

• $420,000

• $159,000

Innovative Components, Inc. reported the following income statement data for 2013-2017.   

	2017	2016	2015	2014	2013
Net Sales	$3,144.6	$2,993.1	$2,790.5	$2,654.0	$2,478.9

What would be an appropriate sales growth rate based on the historical data?

. You are required to allocate the support department cost to operations department by taking any Saudi based operating company

Most guaranteed payments from partnerships and wages from S Corporations are subject to the full 15.3% FICA tax. Flow-through income from partnerships is sometimes subject to FICA tax while S corp flow-through income is not subject to FICA tax. Cash distributions are not subject to tax, nor are they a deductible expense. Services contributed to a partnership are often compensated through guaranteed payments from the partnership. These are treated as salary payments on which the partner receiving them must pay payroll taxes which is why partners sometimes try to classify themselves as limited partners who would not be responsible for management of the partnership, so their share of partnership income is not subject to self-employment taxes. S corporation shareholders generally prefer dividend distributions of their S corporations’ profits over compensation payments from their S corporations because the compensation payments are subject to FICA taxes and dividend distributions are not. (We cover S corporations in later in the course.) S Corporations often get the IRS’s attention for paying too little salary—unreasonably low compensation. C Corporations on the other hand want to increase salary to employees and lower dividends distributions because the corporation does not get a tax deduction for the dividends issued to the shareholders. A small closely-held C Corporation pays excess earnings to employee/owners as a bonus so its income tax liability decreases. Often, the employee/owners compensation exceeds the social security wage thresholds so an “end of year bonus” is not subject to the full 15.3% FICA tax. C Corporations often get the IRS’s attention for paying too much salary —unreasonably high compensation. In the eyes of the Service, these distinctions by pass-throughs have caused great abuses and tax avoidance. The GAO has reported in the past that S corporations had underreported their shareholder compensation by $24.6 billion, with corporations with fewer than three shareholders responsible for nearly all the underreporting. This issue reached a boiling point in Watson v. Commissioner, 668 F.3d 1008 (8th Cir. 2012). (I assume no relation to our classmate, Jason). In this case, Watson was an accountant in a firm he owned. He drew a salary of $24,000 even though the firm grossed nearly $3 million in revenue. Watson was a Certified Public Accountant with advanced degrees. The 8th Circuit Court ruled that a reasonable person would consider the dividends paid to Watson to be “remuneration for services performed” as opposed to a return on investment. To support its position, the IRS successfully asserted that the $24,000 shareholder salary was not enough to support Watson’s lifestyle. As such, his dividends were reclassified as wages and the firm was assessed huge employment taxes plus penalties and interest. Using the findings in Watson as a model and to prevent S corporations and their shareholders and LLCs operating as partnerships from avoiding payroll taxes by maximizing distributions and minimizing compensation payments, the IRS now requires S corporations and partnerships to pay shareholders and general partners who provide substantial services reasonable compensation. The IRS makes its compensation determinations using three factors: Employee performance; Salary comparisons; and Company conditions. Do these factors seem fair to you in judging the compensation an employee receives? Yes/No Why? Do you have a better way to determine how much compensation is enough?

Overhead Variances, Four-Variance Analysis, Journal Entries

Laughlin, Inc., uses a standard costing system. The predetermined overhead rates are calculated using practical capacity. Practical capacity for a year is defined as 1,000,000 units requiring 200,000 standard direct labor hours. Budgeted overhead for the year is $750,000, of which $300,000 is fixed overhead. During the year, 900,000 units were produced using 190,000 direct labor hours. Actual annual overhead costs totaled $800,000, of which $294,700 is fixed overhead.

Required:

1. Calculate the fixed overhead spending and volume variances.

Fixed Overhead Spending Variance	$	Favorable
Fixed Overhead Volume Variance	$	Unfavorable

2. Calculate the variable overhead spending and efficiency variances.

Variable Overhead Spending Variance	$	Unfavorable
Variable Overhead Efficiency Variance	$	Unfavorable

Feedback

3. Prepare the journal entries that reflect the following:

1. Assignment of overhead to production
2. Recognition of the incurrence of actual overhead
3. Recognition of overhead variances
4. Closing out overhead variances, assuming they are not material

Note: Close the variances with a debit balance first. For compound entries, if an amount box does not require an entry, leave it blank or enter "0".

a.	Work in Process
	Variable Overhead Control
	Fixed Overhead Control
b.	Variable Overhead Control
	Fixed Overhead Control
	Miscellaneous Accounts
c.	Fixed Overhead Volume Variance
	Variable Overhead Spending Variance
	Variable Overhead Efficiency Variance
	Fixed Overhead Spending Variance
	Fixed Overhead Control
	Variable Overhead Control
d.	Cost of Goods Sold
	Fixed Overhead Volume Variance
	Variable Overhead Spending Variance
	Variable Overhead Efficiency Variance
	Fixed Overhead Spending Variance
	Cost of Goods Sold

Feedback

Service Department Charges and Activity Bases

Middler Corporation, a manufacturer of electronics and communications systems, uses a service department charge system to charge profit centers with Computing and Communications Services (CCS) service department costs. The following table identifies an abbreviated list of service categories and activity bases used by the CCS department. The table also includes some assumed cost and activity base quantity information for each service for October.

CCS Service Category	Activity Base	Budgeted Cost		Budgeted Activity Base Quantity
Help desk	Number of calls	$78,890		2,300
Network center	Number of devices monitored	573,000		9,550
Electronic mail	Number of user accounts	66,500		6,650
Smartphone support	Number of smartphones issued	144,000		9,000

One of the profit centers for Middler Corporation is the Communication Systems (COMM) sector. Assume the following information for the COMM sector:

• The sector has 5,000 employees, of whom 50% are office employees.

• All the office employees have been issued a smartphone, and 80% of them have a computer on the network.

• 95 percent of the employees with a computer also have an e-mail account.

• The average number of help desk calls for October was 1 call per individual with a computer.

• There are 230 additional printers, servers, and peripherals on the network beyond the personal computers.

a. Determine the service charge rate for the four CCS service categories for October. Round your answers to two decimal places.

CCS Service Category	Service Charge Rate
Help desk	$
Network center	$
Electronic mail	$
Smartphone support	$

b. Determine the charges to the COMM sector for the four CCS service categories for October. Round your answers to the nearest dollar amount.

October charges to the COMM sector:
Help desk charge	$
Network center charge	$
Electronic mail charge	$
Smartphone support charge	$

Lynch Company manufactures and sells a single product. The following costs were incurred during the company’s first year of operations:

Variable costs per unit:
Manufacturing:
Direct materials	$	10
Direct labor	$	5
Variable manufacturing overhead	$	1
Variable selling and administrative	$	1
Fixed costs per year:
Fixed manufacturing overhead	$	385,000
Fixed selling and administrative	$	295,000

During the year, the company produced 35,000 units and sold 17,000 units. The selling price of the company’s product is $58 per unit.

Required:

1. Assume that the company uses absorption costing:

a. Compute the unit product cost.

b. Prepare an income statement for the year.

2. Assume that the company uses variable costing:

a. Compute the unit product cost.

b. Prepare an income statement for the year.

Heels, a shoe manufacturer, is evaluating the costs and benefits of new equipment that would custom fit each pair of athletic shoes. The customer would have his or her foot scanned by digital computer equipment; this information would be used to cut the raw materials to provide the customer a perfect fit. The new equipment costs $109,000 and is expected to generate an additional $42,000 in cash flows for 5 years. A bank will make a $109,000 loan to the company at a 12% interest rate for this equipment’s purchase. Use the following table to determine the break-even time for this equipment. All cash flows occur at year-end. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.)

	Chart Values are Based on: i = Year Cash Inflow (Outflow) x PV Factor = Present Value Cumulative Present Value of Inflow (Outflow) 0 $(109,000) x 1.0000 = $(109,000) $(109,000) 1 = 2 = 3 = 4 = 5 =