Evergreen Corporation is preparing the master budget for the third quarter ending March 31, 2009.  It sells a single product for $20 a unit.  Sales are 25% cash and 75% credit.  The credit sales are collected 30% in the month of the sale and the remaining 70% is collected in the next month.  No credit sales occurred in December 2008. The December 31 inventory of finished goods is 15,000 units and projected sales are 20,000, 55000, 65,000, 75,000, and 85,000 units for the first  months of the year.  The desired ending inventory for each month is 35% of the next month's sales. The inventory of Finished Goods expected to be on hand on April 30 is 10,500 units.  Each Finished Unit requires 2 kilograms of materials at a cost of $1.00 per kilo and it takes 15 minutes to complete one unit.  Evergreen anticipates having 20,000 kilos of materials on hand at December 31, 2008.  The company requires 15% of the next month production materials needs to be available before the start of the month.  Labour is paid at the rate of $9.00 per hour and is paid when incurred.  Production overhead is incurred based on units of production and costs $1.50 per unit. Sixty percent of the purchases are paid in the month of purchase and 40% are paid in the following month.  Purchases in December 2008 were $232,500.

Operating expenses are paid in the month incurred and consist of sales commissions (8% of sales), shipping cost (4% of sales), office salaries of $15,000 a month, advertising of $2,800 per month,  and amortization of $3,200 per month, and other miscellaneous expenses of $4,500 per month.  The cash balance must not be negative. The beginning cash balance is $48,000.  Loans are obtained at the end of the month in which a cash shortage occurs and are made in even multiples of $1,000.  Interest is 1% per month based on the beginning-of-month loan balance and must be paid at the end of each month when the loan is repaid.   Evergreen paid $4,000 in cash dividends in January and purchased land for $150,000 in March paying cash.

A company must meet (on time) the following demands quarter 1|30 units; quarter 2|20 units; quarter 3|40 units. Each quarter, up to 27 units can be produced with regular-time labor, at a cost of $40 per unit. During each quarter, an unlimited number of units can be produced with overtime labor, at a cost of $60 per unit. Of all units produced, 25% are unsuitable and cannot be used to meet demand. Also, at the end of each quarter, 10% of all units on hand spoil and cannot be used to meet any future demands. After each quarter's demand is satisfied and spoilage is accounted for, a cost of $15 per unit is assessed against the quarter's ending inventory. Formulate an LP that can be used to minimize the total cost of meeting the next three quarters' demands. Assume that 20 usable units are available at the beginning of quarter 1. (Hint: Define inventory variables to keep track of the number of usable units.)

The production department of Zan Corporation has submitted the following forecast of units to be produced by quarter for the upcoming fiscal year:

In addition, 6,000 grams of raw materials inventory is on hand at the start of the 1st Quarter and the beginning accounts payable for the 1st Quarter is $2,880.

Each unit requires 8 grams of raw material that costs $1.20 per gram. Management desires to end each quarter with an inventory of raw materials equal to 25% of the following quarter’s production needs. The desired ending inventory for the 4th Quarter is 8,000 grams. Management plans to pay for 60% of raw material purchases in the quarter acquired and 40% in the following quarter. Each unit requires 0.20 direct labor-hours and direct laborers are paid $11.50 per hour.

Calculate the estimated grams of raw material that need to be purchased and the cost of raw material purchases for each quarter and for the year as a whole.

Calculate the expected cash disbursements for purchases of materials for each quarter and for the year as a whole.

Calculate the estimated direct labor cost for each quarter and for the year as a whole.

Copier Choice Corporation (CCC) is a calendar year, accrual method, C corporation engaged in the business of selling, leasing, and servicing copiers primarily to service businesses such as accounting and law firms. During the fourth quarter of 2017, CCC received the following two payments:

-Service payment: CCC received a $375,000 fee for a 15-month service contract on 375 copiers sold be CCC in Oct of 2017 to a national law firm. Under the terms of the contract, CCC will provide all routine maintenance and service work on the copiers sold to the national law firm from Nov 1, 2017 through Jan 31, 2019.

-Rent payment: CCC received a $150,000 of advance rental payment from a national accounting firm in Dec 2017 on copiers it rents to the national accounting firm. The advance rent payment is for the first quarter of 2018. Under the terms of the contract, CCC requires the national accounting firm to prepay one quarter (3 months) of rent.

1) What amount of service income should CCC report in 2017, 2018, and 2019 on its financial income statements form the fourth quarter payment? Please show your work and explain your calculations.

2) What amount of service income should CCC report in 2017, 2018, and 2019 on its federal tax return from the fourth quarter payment? Please show your work and explain your calculations.

3) What amount of rent should CCC report in 2017 and 2018 on its financial income statements from the fourth quarter payment? Please show your work and explain your calculations.

4) What amount of rent income should CCC report in 2017 and 2018 on its federal tax return from the fourth quarter payment? Please show your work and explain your calculations.

Process costing serves two related purposes. First, it measures the cost of goods manufactured on both a total and per-unit basis. This information is used in valuing inventories and in recording the cost of goods sold. But process costing also provides management with information about the per-unit cost of performing each step in the production process. This information is useful in evaluating the efficiency of production departments and often draws attention to potential cost savings. Milton Manufacturing uses a process costing system. Products are processed successively by Department × and Department Y and are then transferred to the finished goods warehouse. Shown below is cost information for Department Y during the month of May: The assignment for this unit will consist of two parts, in a word document of 1-2 pages, address the following questions. 1. Briefly explain the operation of process costing, including the way the unit costs of finished goods are determined. 2. Discuss how managers will use the information obtained from process costing.

Suppose a simple economy produces only two goods, pillows and rugs. In the first year, 50 pillows are produced, and sold at $5 each; 11 rugs are produced, and sold at $50 each. In the second year, 54 pillows are produced, and sold for $6 each; 12 rugs are produced, and sold at $52 each. In the third year, 60 pillows are produced and sell for $7.00 dollars each; 14 rugs are produced and sold for 64 dollars each. Calculate real GDP for each year and the growth rate of real GDP from year 1 to year 2 and from year 2 to year 3. Next, construct a constant weight price index for the three years. Use the first year as the base year for both calculations.

Sudi spends his income on two goods. His income elasticity of demand for the first good is ~1 = 0.2, while his income elasticity of demand for the second good is ~ 1 = 2. Illustrate in one diagram how a 10% increase in his income would affect the quantity he demands of the two goods that shows an incomeconsumption curve, and create another diagram for each of the two goods that shows an Engel curve. How do the slopes of the Engel curves compare?

we discussed revenue recognition and it's complexities.   In this weeks forum, lets continue the concept of revenue recognition.

So many frauds over time have been surrounding revenue that was either not properly earned or shifted from one period to another.

A common trick for shifting in revenue from the following year into the current year is something called stuffing the channel.   When this is done the selling company convinces the buyer to take more merchandise in the current year than they would normally want and offers them an incentive to do so.   Typically that incentive is in the form of a discount and or extended payment terms for the account receivable.  

So lets say the customer would have normally ordered 1 M units in the fourth quarter of the year.   The seller says, look, buy an extra 1 M units that you would have needed in the first quarter anyway, but buy them now and for that, we will give you a 20% discount and extent the accounts receivable terms to 90 day.   (lets assume that 90 days AR terms was not totally outside of industry standard, so while questionable ethically, not an out right fraud)

Question is, is this activity a fraudulent one, ie stuffing the channel to pull in sales.    You all know the answer. It depends, there is nothing necessarily pulling in a sale, if there is a good business reason, and offering sales prices to do so is acceptable.   But, if it is material and will create unnatural deficit in sales in the next quarter, as the customer will obviously not need more goods, it would be a problem if not disclosed.

So it may nor may not be a problem from an accounting point of view.   From a business point of view, how do you view this. As a shareholder, would you be very happy with the actions of management.   Could they have done this to get a bonus they did not deserve.   Potentially cause a fraud. What about the loss of profit on the sale.   Believe it or not, this behavior is not that uncommon. What do you think of the business practice.

1. Perpetual Inventory Using FIFO

   Beginning inventory, purchases, and sales data for DVD players are as follows:

   November 1		Inventory	120 units at $39
   10		Sale	90 units
   15		Purchase	140 units at $40
   20		Sale	110 units
   24		Sale	45 units
   30		Purchase	160 units at $43

   The business maintains a perpetual inventory system, costing by the first-in, first-out method.

   a. Determine the cost of goods sold for each sale and the inventory balance after each sale, presenting the data in the form illustrated in Exhibit 3. Under FIFO, if units are in inventory at two different costs, enter the units with the LOWER unit cost first in the Cost of Goods Sold Unit Cost column and in the Inventory Unit Cost column.

   Cost of Goods Sold Schedule
   First-in, First-out Method
   DVD Players
   Date	Quantity Purchased	Purchases Unit Cost	Purchases Total Cost	Quantity Sold	Cost of Goods Sold Unit Cost	Cost of Goods Sold Total Cost	Inventory Quantity	Inventory Unit Cost	Inventory Total Cost
   Nov. 1
   Nov. 10
   Nov. 15
   Nov. 20
   Nov. 24
   Nov. 30
   Nov. 30	Balances

   b. Based upon the preceding data, would you expect the inventory to be higher or lower using the last-in, first-out method?
   

1. Perpetual Inventory Using FIFO

   Beginning inventory, purchases, and sales data for DVD players are as follows:

   November 1		Inventory	56 units at $97
   10		Sale	44 units
   15		Purchase	27 units at $101
   20		Sale	17 units
   24		Sale	14 units
   30		Purchase	21 units at $106

   The business maintains a perpetual inventory system, costing by the first-in, first-out method.

   a. Determine the cost of the goods sold for each sale and the inventory balance after each sale, presenting the data in the form illustrated in Exhibit 3. Under FIFO, if units are in inventory at two different costs, enter the units with the LOWER unit cost first in the Cost of Goods Sold Unit Cost column and in the Inventory Unit Cost column.

   Cost of the Goods Sold Schedule
   First-in, First-out Method
   DVD Players
   Date	Quantity Purchased	Purchases Unit Cost	Purchases Total Cost	Quantity Sold	Cost of Goods Sold Unit Cost	Cost of Goods Sold Total Cost	Inventory Quantity	Inventory Unit Cost	Inventory Total Cost
   Nov. 1								$	$
   Nov. 10					$	$
   Nov. 15		$	$
   Nov. 20
   Nov. 24
   Nov. 30
   Nov. 30	Balances					$			$

   b. Based upon the preceding data, would you expect the inventory to be higher or lower using the last-in, first-out method?
   

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