Assume that on January 1, 2017, Elmer’s Restaurants sells a computer system to Pharoah Finance Co. for $780,000 and immediately leases the computer system back. The relevant information is as follows.

Prepare the journal entries for both the lessee and the lessor for 2017 to reflect the sale and leaseback agreement.

Chapter 11 Process Analysis and Resource Utilization - Chapter Review

Bourbon County Court

“Why don’t they buy another copying machine for this office? I waste a lot of valuable time fooling with this machine when I could be preparing my legal cases,” noted Mr. H.C. Morris, as he waited in line. The self-service copying machine was located in a small room immediately outside the entrance of the courtroom. Mr. Morris was the county attorney. He often copied his own papers, as did other lawyers, to keep his legal cases and work confidential. This protected the privacy of his clients as well as his professional and personal ideas about the cases.

He also felt awkward at times standing in line with secretaries, clerks of the court, other attorneys, police officers and sheriffs, building permit inspectors, and the dog warden—all trying, he thought, to see what he was copying. The line for the copying machine often extended out into the hallways of the courthouse.

Mr. Morris mentioned his frustration with the copying machine problem to Judge Hamlet and his summer intern, Dot Gifford. Ms. Gifford was home for the summer and working toward a joint MBA/JD degree from a leading university.

“Mr. Morris, there are ways to find out if that one copying machine is adequate to handle the demand. If you can get the Judge to let me analyze the situation, I think I can help out. We had a similar problem at the law school with word processors and at the business school with student lab microcomputers.”

The next week Judge Hamlet gave Dot the go-ahead to work on the copying machine problem. He asked her to write a management report on the problem with recommendations so he could take it to the Bourbon County Board of Supervisors for their approval. The board faced deficit spending last fiscal year, so the tradeoffs between service and cost must be clearly presented to the board.

Dot’s experience with analyzing similar problems at school helped her know what type of information and data was needed. After several weeks of working on this project, she developed the information contained in Exhibits 11.36, 11.37, and 11.38.

Exhibit 11.36

Bourbon County Court—Customer Arrivals Per Hour (These Data Are Available in the Worksheet Bourbon County Court Case Data in MindTap.)

*A sample of customer arrivals at the copying machine was taken for five consecutive nine-hour work days plus five hours on Saturday for a total of fifty observations. The mean arrival rate is 8.92 arrivals per hour.

Exhibit 11.37

Bourbon County Court—Copying Service Times (These Data Are Available in the Worksheet Bourbon County Court Case Data in MindTap.)

*A sample of customers served at the copying machine was taken for five consecutive nine-hour work days plus five hours on Saturday for a total of fifty observations. The average service time is 0.0917 hours per copying job or 5.499 minutes per job. The equivalent service rate is 10.91 jobs per hour (i.e., ).

Exhibit 11.38

Bourbon County Court—Cost and Customer Mix

*The mix of customers standing in line was collected at the same time as the data in the other case exhibits. Direct wages do include employee benefits but not work opportunity costs or ill-will costs, etc.

Dot was not quite as confident in evaluating this situation as others because the customer mix and associated labor costs seemed more uncertain in the county courthouse. In the law school situation, only secretaries used the word processing terminals; in the business school situation, students were the ones complaining about long waiting times to get on a microcomputer terminal. Moreover, the professor guiding these two past school projects had suggested using queueing models for one project and simulation for the other project. Dot was never clear on how the method of analysis was chosen. Now, she wondered which methodology she should use for the Bourbon County Court situation.

To organize her thinking, Dot listed a few of the questions she needed to address as follows:

1. Assuming a Poisson arrival distribution and an exponential service time distribution, apply queueing models to the case situation and evaluate the results.

2. What are the economics of the situation using queueing model analysis?

3. What are your final recommendations using queueing model analysis.

4. Advanced Question: Do the customer arrival and service empirical (actual) distributions in the case match the theoretical distributions assumed in queueing models?

Discussion board post for my auditing class:

Think about this: assets equal liabilities plus equity. This is the balance sheet and if it balances, and you’ve audited it, then the income statement must be reasonably stated. Right? What’s the point in auditing the income statement if you’ve audited everything else on the balance sheet – and it all balances. In fact, you’ve probably noticed that the focus of all the audit work we’ve studied has been on the balance sheet. Please consider and discuss the reasons why we perform audit procedures on the income statement. Please write an articulate, thoughtful response to the question above. This response should be 200-250 words in length.

Lecimore Company has a centralized purchasing department that

is managed by Meg Shen. Shen has established policies and procedures to guide the clerical

staff and purchasing agents in the day-to-day operation of the department. She is satisfied

that these policies and procedures are in conformity with company objectives and believes

there are no major problems in the regular operations of the purchasing department.

Lecimore’s internal audit department was assigned to perform an operational audit of

the purchasing function. Their first task was to review the specific policies and procedures

established by Shen. The policies and procedures are as follows:

• All significant purchases are made on a competitive bid basis. The probability of

timely delivery, reliability of vendor, and so forth, are taken into consideration on a

subjective basis.

• Detailed specifications of the minimum acceptable quality for all goods purchased

are provided to vendors.

• Vendors’ adherence to the quality specifications is the responsibility of the materials

manager of the inventory control department and not the purchasing department.

The materials manager inspects the goods as they arrive to be sure that the quality

meets the minimum standards and then sees that the goods are transferred from the

receiving dock to the storeroom.

• All purchase requests are prepared by the materials manager based on the production

schedule for a four-month period.

The internal audit staff then observed the operations of the purchasing function and

gathered the following findings:

• One vendor provides 90% of a critical raw material. This vendor has a good delivery

record and is reliable. Furthermore, this vendor has been the low bidder over the

past few years.

• As production plans change, rush and expedite orders are made by production directly

to the purchasing department. Materials ordered for cancelled production

runs are stored for future use. The costs of these special requests are borne by the

purchasing department. Shen considers the additional costs associated with these

special requests as “costs of being a good member of the corporate team.”

Materials to accomplish engineering changes are ordered by the purchasing department

as soon as the changes are made by the engineering department. Shen is proud

of the quick response by the purchasing staff to product changes. Materials on hand

are not reviewed before any orders are placed.

• Partial shipments and advance shipments (that is, those received before the requested

date of delivery) are accepted by the materials manager, who notifies the purchasing

department of the receipt. The purchasing department is responsible for follow-up on

partial shipments. No action is taken to discourage advance shipments.

Based on the purchasing department’s policies and procedures and the findings of

Lecimore’s internal audit staff:

a. Identify deficiencies and/or inefficiencies in Lecimore Company’s purchasing

function.

b. Make recommendations for those deficiencies/inefficiencies that you identify.*

1) Plantwide Overhead Rate

2) Departmental Overhead Rate

3) Activity Based Costing

Example 1 (Plantwide Overhead Rate): A business needs to allocate factory overhead to a product. The direct material cost of the product is $200 and the direct labor cost is $150. The business applies factory overhead based on direct labor costs. Assume the business estimated factory overhead cost to be $350,000 and direct labor costs to be $250,000 for the year. The business can sell the product for $800.

Example 2 (Activity Based Costing):   A corporation reports the following (the estimated overhead costs/quantity relate to all products the company produces)

Activity                       Overhead Cost            Driver                          Total Quantity

Mixing                        $50,000                       Direct Labor hours      4,000 hours

Cooking                      $30,000                       Machine Hours           2,500 hours

Packaging                   $25,000                       Boxes                          50,000 boxes

The business produced 30,000 boxes of cookies. Additional information related to the 30,000 boxes:

Direct Material                       $20,000

Direct Labor                           22,500

Mixing            2,000 hours

Cooking          1,250 hours

Packaging       30,000 boxes

Exercise 17-15 Activity-based costing rates and allocations LO P3

A company has two products: standard and deluxe. The company expects to produce 38,375 standard units and 64,240 deluxe units. It uses activity-based costing and has prepared the following analysis showing budgeted cost and cost driver activity for each of its three activity cost pools.

   
Required:
1. Compute overhead rates for each of the three activities.
2. What is the expected overhead cost per unit for the standard units?
3. What is the expected overhead cost per unit for the deluxe units?
(Round activity rate and cost per unit answers to 2 decimal places.)

Wolfpack Company is a merchandising company that is preparing a budget for the month of July. It has provided the following information:

Budgeting Assumptions:

1. All sales are on account. Thirty percent of the credit sales are collected in the month of sale and the remaining 70% are collected in the month subsequent to the sale. The accounts receivable at June 30 will be collected in July.
2. All merchandise purchases are on account. Twenty percent of merchandise inventory purchases are paid in the month of the purchase and the remaining 80% is paid in the month after the purchase. The accounts payable at June 30 will be paid in July.
3. The budgeted inventory balance at July 31 is $37,800.
4. Depreciation expense is $3,980 per month. All other selling and administrative expenses are paid in full in the month the expense is incurred.
5. The company’s cash budget for July shows expected cash collections of $98,700, expected cash disbursements for merchandise purchases of $48,000, and cash paid for selling and administrative expenses of $20,620.

Required:

1. For the month of July, calculate the following:

a. Budgeted sales

b. Budgeted merchandise purchases

c. Budgeted cost of goods sold

d. Budgeted net operating income

2. Prepare a budgeted balance sheet as of July 31.

The following information is available for Robstown Corporation for 20Y8: Inventories January 1 December 31 Materials $77,250 $93,600 Work in process 108,800 96,700 Finished goods 112,500 108,400 December 31 Advertising expense $ 67,800 Depreciation expense-office equipment 23,000 Depreciation expense-factory equipment 14,600 Direct labor 186,100 Heat, light, and power-factory 5,550 Indirect labor 23,800 Materials purchased 123,800 Office salaries expense 78,300 Property taxes-factory 4,145 Property taxes-office building 13,800 Rent expense-factory 6,550 Sales 861,500 Sales salaries expense 138,500 Supplies-factory 4,750 Miscellaneous costs-factory 4,420 Required: A. Prepare the 20Y8 statement of cost of goods manufactured.* B. Prepare the 20Y8 income statement.* *Refer to the Labels and Amount Descriptions list provided for the exact wording of the answer choices for text entries. “Less” or “Plus” will automatically appear if it is required. Enter all amounts as positive numbers. Be sure to complete the statement heading

Marvin’s Kitchen Supply delivers restaurant supplies throughout the city. The firm adds 10 percent to the cost of the supplies to cover the delivery cost. The delivery fee is meant to cover the cost of delivery. A consultant has analyzed the delivery service using activity-based costing methods and identified four activities. Data on these activities follow:

Cost Driver volume

Activity Cost Driver Cost Driver Volume

Processing order Number of orders $ 126,000 9,000 orders

Loading truck Number of items 340,000 200,000 items

Delivering merchandise Number of orders 153,000 9,000 orders

Processing invoice Number of invoices 136,000 8,000 invoices

Total overhead $ 755,000

Two of Marvin's customers are City Diner and Le Chien Chaud. Data for orders and deliveries to these two customers follow:

City Diner Le Chien Chaud

Order value $ 89,000 $ 99,000

Number of orders 69 310

Number of items 600 1,900

Number of invoices 13 210

a. What would the delivery charge for each customer be under the current policy of 10 percent of order value? (please show work)

    Delivery charge per customer

City dinner ______

Le Chien Chaud _____

b. Calculate the cost of each activity for both restaurants to determine the total activity-based costing estimate of the cost of delivering to each customer. (Do not round intermediate calculations.) ((Please show work))

  City Diner Lechin Chaud

Processing order    _____ _____

Loading truck _____   _____

Delivery Merchandise _____ ____

Processing invoice ____ ____

Total ____ ______

Anne and Bill plan to form a limited liability company to engage in the business of developing and marketing computer software. Only Anne and Bill will have authority to act on behalf of the LLC. Because of the limited powers that the investor-members will be granted, Anne and Bill think it best that the investors be permitted to sell or assign their membership interests if they so desire. Of course, Anne and Bill want the business of the LLC to be uninterrupted by the death, bankruptcy, etc., of an investor-member.

Question: Will the LLC be taxed as a corporation if organized in the manner contemplated by Anne and Bill?

(CO A) Review some of the Panel on Audit Effectiveness recommendations.

The trial balance before adjustment of Skysong, Inc. shows the following balances:

Give the entry for bad debt expense for the current year assuming the allowance should be 3% of gross accounts receivable. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Give the entry for bad debt expense for the current year assuming historical records show that, based on accounts receivable aging, the following percentages will not be collected: (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Give the entry for bad debt expense for the current year assuming allowance for doubtful accounts is $2,000 but it is a credit balance and the allowance should be 3% of gross accounts receivable. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

eTextbook and Media

List of Accounts

Give the entry for bad debt expense for the current year assuming allowance for doubtful accounts is $2,000 but it is a credit balance and historical records show that the following percentages will not be collected: (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

List of Accounts

• Accounts Payable
• Accounts Receivable
• Accrued Liabilities
• Accumulated Depreciation - Equipment
• Advances to Employees
• Advertising Expense
• Allowance for Doubtful Accounts
• Allowance for Sales Returns and Allowances
• Bad Debt Expense
• Bank Charges Expense
• Cash
• Cash Over and Short
• Due from Factor
• Entertainment Expense
• Equipment
• Finance Expense
• Finance Revenue
• Freight in
• Freight out
• Gain on Disposal of Equipment
• Gain on Disposal of Land
• Interest Expense
• Interest Income
• Interest Receivable
• Inventory
• Land
• Loss on Disposal of Equipment
• Loss on Disposal of Land
• Loss on Disposal of Receivables
• Loss on Impairment
• Miscellaneous Expense
• No Entry
• Notes Payable
• Notes Receivable
• Office Expense
• Petty Cash
• Postage Expense
• Prepaid Expenses
• Purchase Discounts
• Recourse Liability
• Refund Liability
• Rent Expense
• Sales Discounts
• Sales Discounts Forfeited
• Sales Returns and Allowances
• Sales Revenue
• Servicing Liability
• Service Revenue
• Supplies
• Supplies Expense
• Unearned Revenue

Minden Company introduced a new product last year for which it is trying to find an optimal selling price. Marketing studies suggest that the company can increase sales by 5,000 units for each $2 reduction in the selling price. The company’s present selling price is $90 per unit, and variable expenses are $60 per unit. Fixed expenses are $831,600 per year. The present annual sales volume (at the $90 selling price) is 25,600 units.

Required:

1. What is the present yearly net operating income or loss?

2. What is the present break-even point in unit sales and in dollar sales?

3. Assuming that the marketing studies are correct, what is the maximum annual profit that the company can earn? At how many units and at what selling price per unit would the company generate this profit?

4. What would be the break-even point in unit sales and in dollar sales using the selling price you determined in (3) above (e.g., the selling price at the level of maximum profits)?