CASE 4–20 Ethics and the Manager, Understanding the Impact of Percentage Completion on Profit—Weighted-Average Method [Course Objective B] Gary Stevens and Mary James are production managers in the Consumer Electronics Division of General Electronics Company, which has several dozen plants scattered in locations throughout the world. Mary manages the plant located in Des Moines, Iowa, while Gary manages the plant in El Segundo, California. Production managers are paid a salary and get an additional bonus equal to 5% of their base salary if the entire division meets or exceeds its target profits for the year. The bonus is determined in March after the company’s annual report has been prepared and issued to stockholders.
Shortly after the beginning of the New Year, Mary received a phone call from Gary that went like this:
Gary: How’s it going, Mary?
Mary: Fine, Gary. How’s it going with you?
Gary: Great! I just got the preliminary profit figures for the division for last year and we are within $200,000 of making the year’s target profits. All we have to do is pull a few strings, and we’ll be over the top!
Mary: What do you mean? Gary: Well, one thing that would be easy to change is your estimate of the percentage completion of your ending work in process inventories. Mary: I don’t know if I can do that, Gary. Those percentage completion figures are supplied by Tom
Winthrop, my lead supervisor, who I have always trusted to provide us with good estimates.
Besides, I have already sent the percentage completion figures to corporate headquarters. Gary: You can always tell them there was a mistake. Think about it, Mary. All of us managers are doing as much as we can to pull this bonus out of the hat. You may not want the bonus check, but the rest of us sure could use it.
The final processing department in Mary’s production facility began the year with no work in process inventories. During the year, 210,000 units were transferred in from the prior processing department and 200,000 units were completed and sold. Costs transferred in from the prior department totaled $39,375,000. No materials are added in the final processing department. A total of $20,807,500 of conversion cost was incurred in the final processing department during the year.
Required:
1. Tom Winthrop estimated that the units in ending inventory in the final processing department were 30% complete with respect to the conversion costs of the final processing department. If this estimate of the percentage completion is used, what would be the Cost of Goods Sold for the year? (Note: Since all units completed were sold, the cost of goods transferred out = Cost of Goods Sold.)
2. Gary is recommending that the completion percentage by adjusted by 15 percentage points in order to assist the team in making their bonus.
a. Calculate the cost of goods sold if the ending inventory is 15% complete in regard to conversion costs. Would net income increase or decrease if this option was chosen over the 30% completion percentage? How much is the increase?
b. Calculate the cost of goods sold if the ending inventory is 45% complete in regard to conversion costs. Would net income increase or decrease if this option was chosen over the 30% completion percentage? How much is the increase?
c. Based on your calculations, which percentage is Gary suggesting that Mary use for her ending inventory calculations.
In: Accounting
Germany experiences an increase in foreign direct investment (capital outflow) when a German hotel chain opens a new hotel in France.
Select one:
True
False
Net capital outflow refers to the purchase of foreign assets by domestic residents minus the purchase of domestic assets by foreign residents, and, as a result, the U.S. experiences an increase in foreign portfolio investment (capital outflow) when a U.S. resident buys stock in companies located in Japan.
Select one:
True
False
The increase in international trade in the United States is partly due to increased trade of goods with a high value per pound.
Select one:
True
False
A country has $200 million of net exports and $750 million of saving. Therefore, net capital outflow is $200 million and domestic investment is $950 million
Select one:
True
False
Suppose that a pound of copper costs $3 in the United States and costs 40 pesos in Mexico. If 10 Mexican pesos trade for one U.S dollar. then the real exchange rate is 3/4 pounds of Mexican copper per pound of U.S. copper.
Select one:
True
False
In: Economics
Advise when a contractor will not be in breach of a construction contract as defined under the Housing Grants Construction and Regeneration Act 1996, if he wants to stop work on a project due to non-payment.
In: Civil Engineering
winter and rainy seasons may well slow the construction down. Please write an essay to summarize the methods which can ensure the construction be finished in time.(minimum 3 pages)
In: Civil Engineering
Job Order Costing
The ABC Company builds residential housing. The company started operations on June 1st, 2018. Below are transactions that occurred in the first month of operations (June 2018)
Journal Entries:
June 1) ABC Company sold common stock for $1,500,000 in cash. The company issued 15,000 shares of $100 Par stock.
June 2) ABC Company purchased $300,000 of building materials. Paying $100,000 cash and the rest on account due in 45 days. No credit terms were given.
June 3) ABC Company purchased construction equipment for $240,000 cash. The company uses the straight line method of depreciation. The equipment has a useful life of 9 years and a residual value of $24,000.
June 4) ABC Company started construction on 3 homes (Job 100, 101, 102) by requisitioning the following materials: The materials were delivered to the job sites.
|
Job Number |
Direct Materials |
Indirect Materials |
|
100 |
$50,000 |
$2,000 |
|
101 |
$30,000 |
$1,000 |
|
102 |
$25,000 |
$1,500 |
June 14) The following direct labor was used and paid for during the period ($30/hour):
|
Job Number |
Amount |
Hours |
|
100 |
$33,000 |
1100 |
|
101 |
$27,000 |
900 |
|
102 |
$22,500 |
750 |
Predetermined overhead rate calculated May 8, 2018
(Estimated Total Overhead Costs) / (Estimated Direct Labor Hours)
($24,000) / (3000 hours) = $7 per direct labor used
June 21) Job 100 is completed and ready for sale.
The following actual costs were incurred and paid (Except for depreciation transactions listed below) during the month of June:
June 2) Insurance on houses under construction $2,000 (covers up to any number of homes.
June 3) Insurance on anticipated completed homes $500 no matter the number.
June 8) Construction supervisor salary $6,000 (Paid Monthly)
June 8) Company president salary $8,000 (Paid Monthly)
June 8) Administrative staff salaries $3,000 (Paid Monthly)
June 12) Building Permits $3,000
June 15) Purchased land for $50,000 and a building for $112,000 to use as corporate HQ
June 20) Insurance on HQ is $1,000 per month
June 23) Declared a $5,000 cash dividend to be paid on July 23, 2018.
June 24) Job 100 is sold for $250,000; Cash $150,000 & $100,000 note receivable to be received on September 19, 2018. The amount received will be $109,000 principal and interest. The note is a 360 day (One year is 360 days) 9% simple interest note. An adjusting entry must be made for interest revenue earned for the month of June.
June 30) Depreciation for June on HQ Building $2,500
June 30) Depreciation on the construction equipment was _______________
June 30) Apply (Appropriate) overhead to incomplete jobs
June 30) Account for ending balance in Overhead account
Note: All June 30 entries are Adjusting Entries
------------------------------------------------------------------------
JOURNAL ENTRIES
| ABC Company | |||
| General journal for the month of june 2018 | |||
| Date | Account Title | Debit | Credit |
| June.1 | Cash | $ 1,500,000.00 | ? |
| ? | Common Stock | ? | $ 1,500,000.00 |
| ? | (Issue of 15,000 shares of $100 par stock) | ? | ? |
| June.2 | Building material | $ 300,000.00 | ? |
| ? | Cash | ? | $ 100,000.00 |
| ? | Account Payable | ? | $ 200,000.00 |
| ? | (purchase of building material for cash and on account) | ? | ? |
| June.2 | Works Overhead | $ 2,000.00 | ? |
| ? | Cash | ? | $ 2,000.00 |
| ? | (insurance premium paid) | ? | ? |
| June.3 | Construction Equipment | $ 240,000.00 | ? |
| ? | Cash | ? | $ 240,000.00 |
| ? | (Purchase of construction equipment for cash) | ? | ? |
| June.3 | Works Overhead | $ 500.00 | ? |
| ? | Cash | ? | $ 500.00 |
| ? | (insurance premium paid) | ? | ? |
| June.4 | Work-in-process - Job#100 | $ 50,000.00 | ? |
| ? | Work-in-process - Job#101 | $ 30,000.00 | ? |
| ? | Work-in-process - Job#102 | $ 25,000.00 | ? |
| ? | Works overhead | $ 4,500.00 | ? |
| ? | Building material | ? | $ 109,500.00 |
| ? | (Building material issued for construction) | ? | ? |
| June.8 | Works Overhead | $ 6,000.00 | ? |
| ? | Cash | ? | $ 6,000.00 |
| ? | (Construction supervisor salary) | ? | ? |
| June.8 | Saalries Expense | $ 11,000.00 | ? |
| ? | Cash | ? | $ 11,000.00 |
| ? | (President's and admn.staff salaries) | ? | ? |
| June.12 | Works Overhead | $ 3,000.00 | ? |
| ? | Cash | ? | $ 3,000.00 |
| ? | (Building permit ) | ? | ? |
| June.14 | Work-in-process - Job#100 | $ 33,000.00 | ? |
| ? | Work-in-process - Job#101 | $ 27,000.00 | ? |
| ? | Work-in-process - Job#102 | $ 22,500.00 | ? |
| ? | Cash | ? | $ 82,500.00 |
| ? | (Wages paid for direct labor) | ? | ? |
| June.15 | Land | $ 50,000.00 | ? |
| ? | Building | $ 112,000.00 | ? |
| ? | Cash | ? | $ 162,000.00 |
| ? | (Purchase of land and building for office) | ? | ? |
| June.20 | Insurance Expense | $ 1,000.00 | ? |
| ? | Cash | ? | $ 1,000.00 |
| ? | (Insurance premium on headquarter) | ? | ? |
| June.21 | Work-in-process - Job#100 | $ 7,700.00 | ? |
| ? | Works Overhead | ? | $ 7,700.00 |
| ? | (Overhead applied at $7 per direct labor hour to Job#100) | ? | ? |
| June.21 | Completed Jobs | $ 90,700.00 | ? |
| ? | Work-in-process - Job#100 | ? | $ 90,700.00 |
| ? | (Cost of job#100 transferred to completed jobs account) | ? | ? |
| June.23 | Dividend | $ 5,000.00 | ? |
| ? | Dividend Payable | ? | $ 5,000.00 |
| ? | (Declaration of dividend ) | ? | ? |
| June.24 | Cash | $ 150,000.00 | ? |
| ? | Note Receivable | $ 100,000.00 | ? |
| ? | Sales | ? | $ 250,000.00 |
| ? | (Sale of Job#100 building) | ? | ? |
| ? | Cost of jobs sold | $ 90,700.00 | ? |
| ? | Completed Jobs | ? | $ 90,700.00 |
| ? | (Cost of job#100 sold transferred to cost of jobs sold) | ? | ? |
| June.30 | Depreciation Expense | $ 2,500.00 | ? |
| ? | Accumulated Depreciation - HQ building | ? | $ 2,500.00 |
| ? | (Depreciation expense on HQ building recorded) | ? | ? |
| June.30 | Depreciation Expense | $ 24,000.00 | ? |
| ? | Accumulated Depreciation - Construction Equipment | ? | $ 24,000.00 |
| ? | (Depreciation expense on construction equipment) | ? | ? |
| June.30 | Work-in-process - Job#101 | $ 6,300.00 | ? |
| ? | Work-in-process - Job#102 | $ 5,250.00 | ? |
| ? | Works Overhead | ? | $ 11,550.00 |
| ? | (Overhead applied at $7 per direct labor hour for Jobs #101 and 102) | ? | ? |
| June.30 | Works Overhead | $ 3,250.00 | ? |
| ? | Cost of jobs completed | ? | $ 3,250.00 |
| ? | (Overapplied overhead adjusted) | ? | ? |
| June.30 | Interest Receivable | $ 750.00 | ? |
| ? | Interest Revenue | ? | $ 750.00 |
| ? | (Interest on note receivable at 9% for June recorded) | ? | ? |
Based on the Journal Entries above,
1) Prepare 'Trial Balance'
2) Prepare 'Adjusted Balance'
3) Prepare 'Financial Statement and Worksheets' (Three Trial Balances)
In: Accounting
a) Based on historical data, 9% of all logs arriving at a lumber mill are of suitable quality for use in timber frame construction. Also based on historical data, the average number of logs arriving at the mil per day is 33. Calculate, to the nearest %, the probability that 4 or more logs suitable for timber frame construction arrive at the mill on any given day. b) If 10 logs arriving at the mill are randomly selected, what is the probability, to the nearest %, that 4 or more of them will be suitable for timber frame construction? c) If a project requires 8 logs that are suitable for timber frame construction, what is the probability, to the nearest %, that enough of these logs arrive at the mill over the next 4 days?
In: Statistics and Probability
The cost of external equity capital raised by issuing new common stock (re) is defined as follows, in words: "The cost of external equity equals the cost of equity capital from retaining earnings (rs), divided by one minus the percentage flotation cost required to sell the new stock, (1 - F)."
Group of answer choices
True
False
In: Finance
1) Colorado Mattress Company is considering the purchase of land and the construction of a new plant. The land, which would be bought immediately (at t = 0), has a cost of $200,000 and the building, which would be erected at the end of the first year (t = 1), would cost $800,000. It is estimated that the firm's after-tax cash flow will be increased by $150,000 starting at the end of the second year, and that this incremental flow would increase at a 10 percent rate annually over the next 10 years. What is the approximate payback period? Please use xx.xx format for your answer.
In: Finance
TRNSMF Mine purchased a platinum deposit for $3,500,000. It estimated it would extract 17,000 ounces of platinum from the deposit. TRNSMF mined the platinum and sold it reporting gross receipts of $500,000 and $8 million for years 1 and 2, respectively. During years 1 and 2, TRNSMF reported net income (loss) from the platinum deposit activity in the amount of ($100,000) and $3,800,000, respectively. In years 1 and 2, TRNSMF actually extracted 2,000 and 8,000 ounces of platinum. What is TRNSMF's depletion expense for years 1 and 2 if the applicable percentage depletion for platinum is 22 percent?
|
Cost Depletion expense year 1 |
|
|
Cost Depletion expense year 2. |
|
|
Percentage Depletion expense year 1 |
|
|
Percentage Depletion expense year 2. |
|
Depletion expense claimed year 1 |
|
|
Depletion expense claimed year 2. |
In: Accounting
The restaurant at the Hotel Galaxy offers two choices for breakfast: an all-you-can-eat buffet and an a la carte option, where diners can order from the menu. The buffet option has a budgeted meal price of $44. The a la carte option has a budgeted average price of $33 for a meal. The restaurant manager expects that 40 percent of its diners will order the buffet option. The buffet option has a budgeted variable cost of $24 and the a la carte option averages $19 per meal in budgeted variable cost. The manager estimates that 2,600 people will order a meal in any month.
For July, the restaurant served a total of 2,400 meals, including 940 buffet options. Total revenues were $42,300 for buffet meals and $52,560 for the a la carte meals.
Required:
a. Compute the activity variance for the restaurant for July.
b. Compute the mix and quantity variances for July.
In: Accounting