Question 05: a) Big Bite Barbeque is engaged in the business of ready to cook barbeque shots. The preparation of barbeque shots passes through 3 culinary processes namely: marinating & slicing. Packing process is outsourced.

Departmental supervisors report that ending WIP is:

• 100% complete as to materials in marinating and slicing department.

• 100% complete as to labor in marinating and 45% complete in slicing department.

• 25% complete as to FOH in marinating and 70% complete in slicing department.

Required: Construct a CPR for marinating department for the month ended June 30, 2017 showing proper calculations.

b) Hill-way Pharmaceuticals prepare cough syrups for children under the age of 10 years. The process alcohol, hydrazine & other chemical stabilizers in a process that results in 2 products:

• Cough syrup (800 liters)

• Liquor (400 liters)

Common cost of processing are £46,700. Cough syrup is sold for £2 per 100ml and liquor for £1.8 per 250ml.

REQUIRED: Allocate the common costs on basis of physical output & sales value method.

Question 04: Daisy Farms (Pvt.) Ltd is engaged in the business of producing premium quality cheese. The cheese is available in 2 packing sizes:

The following information is available for the month of February 2017:

• The variable cost of producing every 10g of cheese is $0.05.

• Rent of the dairy farm is $350 per month.

• Electricity charges are $0.5 per unit. Small packs requires 2 units of electricity while large packs needs 3 units of electric power. Fixed line rent is $250 per month.

• Fixed costs are allocated to the products on basis of their sales price.

REQUIRED: Determine the following:

1. The contribution earned by each pack of cheese.

2. The no. of large packs to be sold in February to acquire breakeven.

3. The $ sales revenue of small packs in February to acquire breakeven.

4. The total contribution if 200 small packs & 131 large packs of cheese were sold in February 2017.

Kubin Company’s relevant range of production is 30,000 to 35,000 units. When it produces and sells 32,500 units, its average costs per unit are as follows:

Required:

1. Assume the cost object is units of production:

a. What is the total direct manufacturing cost incurred to make 32,500 units?

b. What is the total indirect manufacturing cost incurred to make 32,500 units?

2. Assume the cost object is the Manufacturing Department and that its total output is 32,500 units.

a. How much total manufacturing cost is directly traceable to the Manufacturing Department?

b. How much total manufacturing cost is an indirect cost that cannot be easily traced to the Manufacturing Department?

3. Assume the cost object is the company’s various sales representatives. Furthermore, assume that the company spent $146,250 of its total fixed selling expense on advertising and the remainder of the total fixed selling expense comprised the fixed portion of the company's sales representatives’ compensation.

a. When the company sells 32,500 units, what is the total direct selling expense that can be readily traced to individual sales representatives?

b. When the company sells 32,500 units, what is the total indirect selling expense that cannot be readily traced to individual sales representatives?

Question 01: Select the best answers for the following questions:

1. Sales price – Variable Prime cost – Variable FOH per unit

a) Factory cost b) Contribution margin

c) Common cost share d) Margin of safety

2. is the FOH rate applied to the whole production facility

a) Predetermined FOH rate b) Blanket FOH rate

c) Budgeted FOH rate d) Both (a) & (c)

3. The completion percentage for previous department in EPQ is usually

a) 50% b) 100%

c) More than 50% but less than 100% d) 75%

4. If margin of safety is $2,000 and breakeven sales are 5,000 units then planned sales are

a) $7,000 b) $2,000

c) 60% d) None of these

5. Is usually not allocated any cost in joint product costing approach

a) By-product b) Low quality joint product

c) Low quantity joint product d) Further processed product

6. In breakeven chart the area below the breakeven point reflects

a) Profit b) Loss

c) Variable cost d) Revenue

7. If planned sales are 500 units & breakeven sales are 200 units then MOS ratio =

a) 50% b) 60%

c) 70% d) 80%

8. Total Factory Cost = Prime Cost + Conversion Cost -

a) FOH b) Indirect labor

c) Direct Labor d) Both (b) & (c)

9. In decision making & CVP analysis sunk cost is

a) Relevant cost b) Avoidable cost

c) Un-avoidable cost d) Irrelevant cost

10. If per unit contribution margin is $2.5 & fixed costs are $30,000 breakeven point in units is

a) 75,000 b) 12,000

c) 63,000 d) None of these

In 1997, the Saudi Black Cement Co began operating a cement plant outside of Riyadh, KSA. The Company employed over 100 local residents and by 2000 had invested SAR 60 million in this plant. The plant, however emitted large amounts of pollution as well as causing constant vibrations and loud noise. Local residents filed suit against the Company claiming that the air pollution, the noise, and the vibrations were harming their health and property. The suit asked that the court issue an injunction that would close down the plant until the pollutions and vibrations could be eliminated. The Company was already using the best available technology, which meant that the suit was asking that the pant be closed down indefinitely. The court refused to issue the injunction. It reasoned that the costs of closing the plant far outweighed the benefits to be gained by the residents. Instead, the court ruled that the cement company should pay residents a one-time fee for damages that could be proven to exist already, and then pay them a monthly fee to compensate them for ongoing harms. This fee was calculated to be a fair market price for what the residents would receive if they were inclined and able to rent their property. Questions: Was the decision of the court in this case fair. If so, why? If not, why not?

Q1. Accounting in the financial institutions has special characteristics compared to the non-financial institutions, discuss this statement and explain characteristics of balance sheets, income statement and cash flow statement in banks.

Coronado Company follows the practice of pricing its inventory at the lower-of-cost-or-market, on an individual-item basis.

From the information above, determine the amount of Coronado Company inventory.

P8-9 Milford Company determined its ending inventory at cost and at lower of cost and net realizable value at December 31, 2015, 2016, and 2017, as follows:

Cost Lower of Cost and Net Realizable Value

Dec. 31, 2015 $60,000 $60,000

Dec. 31, 2016 79,000 74,500

Dec. 31, 2017 78,800 69,000

Instructions (a) Prepare the journal entries that are required at December 31, 2016 and 2017, assuming that a periodic inventory system and the direct method of adjusting to NRV are used. (b) Prepare the journal entries that are required at December 31, 2016 and 2017, assuming that a periodic inventory system is used, with inventory recorded at cost and reduced to NRV through the use of an allowance account.

Daybook Inc. budgeted production of 403,500 personal journals in 20Y6. Paper is required to produce a journal. Assume six square yards of paper are required for each journal. The estimated January 1, 20Y6, paper inventory is 40,400 square yards. The desired December 31, 20Y6, paper inventory is 38,900 square yards. Paper costs $0.40 per square yard.

Each journal requires assembly. Assume that eight minutes are required to assemble each journal. Assembly labor costs $13.00 per hour.

Prepare a cost of goods sold budget for Daybook Inc. using the information above. Assume the estimated inventories on January 1, 20Y6, for finished goods and work in process were $28,000 and $16,500, respectively. Also assume the desired inventories on December 31, 20Y6, for finished goods and work in process were $30,000 and $14,300, respectively. Factory overhead was budgeted at $214,600. Round your interim calculations to nearest cent, if required.

Magnolia Manufacturing makes wing components for large aircraft. Kevin Choi is the pro-

duction manager, responsible for manufacturing, and Michelle Michaels is the marketing

manager. Both managers are paid a flat salary and are eligible for a bonus. The bonus is

equal to 1 percent of their base salary for every 10 percent profit that exceeds a target. The

maximum bonus is 5 percent of salary. Kevin’s base salary is $180,000 and Michelle’s is

$240,000.

The target profit for this year is $6 million. Kevin has read about a new manufacturing

technique that would increase annual profit by 20 percent. He is unsure whether to employ the

new technique this year, wait, or not employ it at all. Using the new technique will not affect

the target.

Required

a. Suppose that profit without using the technique this year will be $6 million. By how much

will Kevin’s bonus change if he decides to employ the new technique? By how much will

Michelle’s bonus change if Kevin decides to employ the new technique?

b. Suppose that profit without using the technique this year will be $8.5 million. By how

much will Kevin’s bonus change if he decides to employ the new technique? By how much

will Michelle’s bonus change if Kevin decides to employ the new technique?

c. Suppose that profit without using the technique this year will be $4.8 million. By how

much will Kevin’s bonus change if he decides to employ the new technique? By how much

will Michelle’s bonus change if Kevin decides to employ the new technique?

d. Is it ethical for Kevin to consider the impact of the new technique on his bonus when

deciding whether or not to use it? Explain.

e. Assess the management control system used at Magnolia Manufacturing and provide

recommendations for changes, if any are required. Be sure to discuss:

• Decision authority

• Performance measures

• Compe nsation

3. A receives a gift from B. B’s basis in the property was $200,000 and the fair market value of the property was $500,000 on the date of the gift. B held the property for 5 years and incurred $25,000 of gift tax due to the gift. A week after A receives the property, A sells the property. What are the tax results to A if A sells the property for $510,000? $450,000?

4. Same facts as above except B had a basis of $750,000 in the property. What are the results to A now?

5. Assume that B knew the tax rules applicable to gifts in question 4. Why wouldn’t B sell the property, take a $200,000 loss and make a gift of cash to B of $500,000?

On October 1, 2020, Sage Equipment Company sold a pecan-harvesting machine to Valco Brothers Farm, Inc. In lieu of a cash payment Valco Brothers Farm gave Arden a 2-year, $135,200, 8% note (a realistic rate of interest for a note of this type). The note required interest to be paid annually on October 1. Sage’s financial statements are prepared on a calendar-year basis. Assuming Valco Brothers Farm fulfills all the terms of the note, prepare the necessary journal entries for Sage Equipment Company for the entire term of the note. Assume that reversing entries are not made on January 1, 2021 and January 1, 2022

The Alpine House, Inc., is a large retailer of snow skis. The company assembled the information shown below for the quarter ended March 31:

Required:

1. Prepare a traditional income statement for the quarter ended March 31.

2. Prepare a contribution format income statement for the quarter ended March 31.

3. What was the contribution margin per unit?