Gitano Products operates a job-order costing system and applies overhead cost to jobs on the basis of direct materials used in production (not on the basis of raw materials purchased). Its predetermined overhead rate was based on a cost formula that estimated $111,600 of manufacturing overhead for an estimated allocation base of $93,000 direct material dollars to be used in production. The company has provided the following data for the just completed year:

Required:

1. Compute the predetermined overhead rate for the year.

2. Compute the amount of underapplied or overapplied overhead for the year.

3. Prepare a schedule of cost of goods manufactured for the year. Assume all raw materials are used in production as direct materials.

4. Compute the unadjusted cost of goods sold for the year. Do not include any underapplied or overapplied overhead in your answer.

5. Assume that the $39,000 ending balance in Work in Process includes $8,800 of direct materials. Given this assumption, supply the information missing below:

Smith Corporation is reviewing the following transactions for its year-ended December 31, 2015.

For each item listed, indicate the:

A. Name of the account to use.

B. Whether it is current or long-term, asset or liability.

C. The amount.

1. On December 15, 2015 the company declared a $2.00 per share dividend on 40,000 shares of

     common stock outstanding, to be paid on January 5, 2013

   2. Credit sales for year amounted to $10,000,000. Smith estimates its Allowance for Doubtful

        Accounts as 3% of credit sales.

   3. At December 31, bonds payable of $100,000,000 are outstanding. The bonds pay 12% interest

        every September 30 and mature in installments of $25,000,000 every September 30.

   4. Bonuses to key employees based on net income for 2015 are estimated to be $150,000.

   5. Included in long-term investments are 10-year U.S. Treasury bonds that mature March 31, 2016.

       The bonds were purchased November 20, 2015.

   6. The accounts receivable account includes $20,000 due in three years from employees.

   7. The property, plant, and equipment account is stated at cost, except that it includes a parcel of

       land purchased for investment purposes at a cost of $40,000. Because of rising land prices, the

       value of the land has been written up to $60,000. The company has an independent appraisal

        that attests to this amount.

   8. Current liabilities include $50,000 for long-term debt that is due in three months. The company

        has received a firm commitment to refinance the debt for five years and intends to do so.

9. Investments in marketable securities include $20,000 in short-term, high-grade commercial

       paper, which matures in 60 days.

Direct Method

Eilers Company has two producing departments and two support departments. The following budgeted data pertain to these four departments:

The company has decided to simplify its method of allocating support service costs by switching to the direct method.

Required:

1. Allocate the costs of the support departments to the producing departments using the direct method. Round allocation ratios to four significant digits. Round allocated costs to the nearest dollar. Use the rounded values for subsequent calculations.

Allocation ratios:

2. Using direct labor hours, compute departmental overhead rates. (Round to the nearest cent.)

Sales Forecast and Flexible Budget

Olympus, Inc., manufactures three models of mattresses: the Sleepeze, the Plushette, and the Ultima. Forecast sales for next year are 15,130 for the Sleepeze, 11,920 for the Plushette, and 5,500 for the Ultima. Gene Dixon, vice president of sales, has provided the following information:

1. Salaries for his office (including himself at $64,200, a marketing research assistant at $39,950, and an administrative assistant at $23,900) are budgeted for $128,050 next year.
2. Depreciation on the offices and equipment is $18,150 per year.
3. Office supplies and other expenses total $22,500 per year.
4. Advertising has been steady at $21,650 per year. However, the Ultima is a new product and will require extensive advertising to educate consumers on the unique features of this high-end mattress. Gene believes the company should spend 10 percent of first-year Ultima sales for a print and television campaign.
5. Commissions on the Sleepeze and Plushette lines are 3 percent of sales. These commissions are paid to independent jobbers who sell the mattresses to retail stores.
6. Last year, shipping for the Sleepeze and Plushette lines averaged $45 per unit sold. Gene expects the Ultima line to ship for $80 per unit sold since this model features a larger mattress.

Required:

1. Suppose that Gene is considering three sales scenarios as follows:

Prepare a revenue budget for the Sales Division for the coming year for each scenario.

2. Prepare a flexible expense budget for the Sales Division for the three scenarios above. If required, round answers to the nearest dollar.

Genuine Spice Inc. began operations on January 1 of the current year. The company produces eight- ounce bottles of hand and body lotion called Eternal Beauty. The lotion is sold wholesale in 12-bottle cases for $100 per case. There is a selling commission of $20 per case. The January direct materials, direct labor, and factory overhead costs are as follows: DIRECT MATERIALS Cost Behavior Units per Case Cost per Unit Cost per Case Cream base Variable 100 oz. $0.02 $ 2.00 Natural oils Variable 30 oz. 0.30 9.00 Bottle (8-oz.) Variable 12 bottles 0.50 6.00 $17.00 DIRECT LABOR Department Cost Behavior Time per Case Labor Rate per Hour Cost per Case Mixing Variable 20 min. $18.00 $6.00 Filling Variable 5 14.40 1.20 25 min. $7.20 FACTORY OVERHEAD Cost Behavior Total Cost Utilities Mixed $600 Facility lease Fixed 14,000 Equipment depreciation Fixed 4,300 Supplies Fixed 660 $19,560 Part A—Break-Even Analysis The management of Genuine Spice Inc. wants to determine the number of cases required to break even per month. The utilities cost, which is part of factory overhead, is a mixed cost. The following information was gathered from the first six months of operation regarding this cost: Case Production Utility Total Cost January 500 $600 February 800 660 March 1,200 740 April 1,100 720 May 950 690 June 1,025 705 Required-Part A: 1. Determine the fixed and variable portion of the utility cost using the high-low method. 2. Determine the contribution margin per case. 3. Determine the fixed costs per month, including the utility fixed cost from part (1). 4. Determine the break-even number of cases per month. Part B—August Budgets During July of the current year, the management of Genuine Spice Inc. asked the controller to prepare August manufacturing and income statement budgets. Demand was expected to be 1,500 cases at $100 per case for August. Inventory planning information is provided as follows: Finished Goods Inventory: Cases Cost Estimated finished goods inventory, August 1 300 $12,000 Desired finished goods inventory, August 31 175 7,000 Materials Inventory: Cream Base Oils Bottles (oz.) (oz.) (bottles) Estimated materials inventory, August 1 250 290 600 Desired materials inventory, August 31 1,000 360 240 There was negligible work in process inventory assumed for either the beginning or end of the month; thus, none was assumed. In addition, there was no change in the cost per unit or estimated units per case operating data from January. Required-Part B: 5. Prepare the August production budget.* 6. Prepare the August direct materials purchases budget.* 7. Prepare the August direct labor cost budget. Round the hours required for production to the nearest hour.* 8. Prepare the August factory overhead cost budget. If an amount box does not require an entry, leave it blank. (Entries of zero (0) will be cleared automatically by CNOW.)* 9. Prepare the August budgeted income statement, including selling expenses. NOTE: Because you are not required to prepare a cost of goods sold budget, the cost of goods sold calculations will be part of the budgeted income statement.* *Enter all amounts as positive numbers. Part C—August Variance Analysis During September of the current year, the controller was asked to perform variance analyses for August. The January operating data provided the standard prices, rates, times, and quantities per case. There were 1,500 actual cases produced during August, which was 250 more cases than planned at the beginning of the month. Actual data for August were as follows: Actual Direct Materials Price per Unit Quantity per Case Cream base $0.016 per oz. 102 oz. Natural oils $0.32 per oz. 31 oz. Bottle (8-oz.) $0.42 per bottle 12.5 bottles Actual Direct Actual Direct Labor Labor Rate Time per Case Mixing $18.20 19.50 min. Filling 14.00 5.60 min. Actual variable overhead $305.00 Normal volume 1,600 cases The prices of the materials were different from standard due to fluctuations in market prices. The standard quantity of materials used per case was an ideal standard. The Mixing Department used a higher grade labor classification during the month, thus causing the actual labor rate to exceed standard. The Filling Department used a lower grade labor classification during the month, thus causing the actual labor rate to be less than standard Required-Part C: 10. Determine and interpret the direct materials price and quantity variances for the three materials. 11. Determine and interpret the direct labor rate and time variances for the two departments. Round hours to the nearest tenth of an hour. 12. Determine and interpret the factory overhead controllable variance. 13. Determine and interpret the factory overhead volume variance. 14. Why are the standard direct labor and direct materials costs in the calculations for parts (10) and (11) based on the actual 1,500-case production volume rather than the planned 1,375 cases of production used in the budgets for parts (6) and (7)?

Physical Units Method

Alomar Company manufactures four products from a joint production process: barlon, selene, plicene, and corsol. The joint costs for one batch are as follows:

At the split-off point, a batch yields 1,041 barlon, 2,290 selene, 2,394 plicene, and 4,683 corsol. All products are sold at the split-off point: barlon sells for $15 per unit, selene sells for $20 per unit, plicene sells for $24 per unit, and corsol sells for $36 per unit.

Required:

1. Allocate the joint costs using the physical units method. If required, round your percentage allocation to four decimal places and round allocated costs to the nearest dollar. Note: The total of the allocated cost does not equal to the one provided in the question data due to rounding error.

2. Suppose that the products are weighted as shown below:

Allocate the joint costs using the weighted average method. If required, round your percentage allocation to four decimal places and round allocated costs to the nearest dollar.

The recent collapse in the banking sector caused many banks to close and many others to merge with other banks, in some cases from very different parts of the country. How would these changes have affected the historical connections that many borrowers and lenders had? And how would those changes have affected the capital structure of most firms?

Net Present Value Method, Present Value Index, and Analysis

United Bankshores, Inc. wishes to evaluate three capital investment proposals by using the net present value method. Relevant data related to the proposals are summarized as follows:

Required:

1. Assuming that the desired rate of return is 15%, prepare a net present value analysis for each proposal. Use the present value of $1 table above. If required, use the minus sign to indicate a negative net present value. If required, round to the nearest dollar.

2. Determine a present value index for each proposal. If required, round your answers to two decimal places.

3. Which proposal offers the largest amount of present value per dollar of investment?

Sail Away takes special orders to manufacture sail boats for high end customers. Complete the job cost sheets for Sail Away for September based on the following information. Prepare journal entries to record the transactions as well as post to the job cost sheets.

a. Purchased raw materials on credit, $145,000.
b. Materials requisitions: Job 240, $48,000; Job 241, $36,000; Job 242, $42,000; indirect materials were $12,000.
c. Paid $130,000 for factory wages.
d. Time tickets used to charge labor to jobs: Job 240, $40,000; Job 241, $30,000; Job 242, $35,000, indirect labor is $25,000.
e. The company incurred the following additional overhead costs: depreciation of factory building, $70,000; depreciation of factory equipment, $60,000; expired factory insurance, $10,000; utilities and maintenance cost of $20,000 were paid in cash. (Hint: Be careful – Cash is not your only credit).
f. Applied overhead to all three jobs. The predetermined overhead rate is 190% of direct labor cost.
g. Transferred jobs 240 and 242 to Finished Goods Inventory.
h. Sold job 240 for $300,000 for cash.
i. Closed the under- or over-applied overhead account balance.

• What do you really think about the accounting profession?
• What might you find most challenging or interesting about taking an accounting course?
• Need some inspiration from what others have said or found challenging about accounting?

As stated in the Executive Summary of the Journal of Accountancy article, three of the most common complaints made against small to midsize CPA firms involve failure to return client records on a timely basis, failure to exercise due professional care and conflicts of interest. Select one of these issues and discuss why you feel it is the most important.

On January 1, 2016, you deposited $5,300 in a savings account. The account will earn 9 percent annual compound interest, which will be added to the fund balance at the end of each year. Required: 1. What will be the balance in the savings account at the end of 7 years? (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1.) (Use appropriate factor(s) from the tables provided. Round your final answers to 2 decimal places.) 2. What is the total interest for the 7 years? (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1.) (Use appropriate factor(s) from the tables provided. Round your final answers to 2 decimal places.) 3. How much interest revenue did the fund earn in 2016 and in 2017? (Round your final answers to 2 decimal places.)

Viejol Corporation has collected the following information after its first year of sales. Sales were $1,600,000 on 100,000 units, selling expenses $200,000 (40% variable and 60% fixed), direct materials $508,000, direct labor $290,400, administrative expenses $278,000 (20% variable and 80% fixed), and manufacturing overhead $380,000 (70% variable and 30% fixed). Top management has asked you to do a CVP analysis so that it can make plans for the coming year. It has projected that unit sales will increase by 10% next year.

If the company meets its target net income number, by what percentage could its sales fall before it is operating at a loss? That is, what is its margin of safety ratio?