Chapter 7 in Horngren's cost accounting 16th edition textbook In summarizing its painstaking analysis of revenue and direct cost variances, the textbook refers to three levels of analysis. What specifics are revealed with regard to the difference between a master budget and actual results at each level?

Please use the textbook only.

How creating alertness of business’ products & services, might provide rise to improve sales revenue. Explain on 2 paragraph with 1 reference.

Biotech, Inc., recently began providing cafeteria services to its employees. Because revenue from the sale of food at the cafeteria does not fully cover cafeteria expenses, Biotech must pay for the shortfall. These costs are allocated to production departments based on employee usage. That is, the company tracks which employees use the cafeteria and allocates costs to production departments accordingly.

Sarah Kolster, manager of the quality testing department, is not happy with receiving cafeteria cost allocations. She is evaluated based on meeting a cost budget established at the beginning of the fiscal year, which does not include the cafeteria allocation, and she clearly has an incentive to minimize costs.

When Sarah met with the company’s accountant, Dan, regarding this issue, she said, “Dan, I like the idea of providing cafeteria service to our employees, but the costs allocated to my department are killing my budget. Last month alone, I was allocated $3,000 in costs related to the new cafeteria. I have no choice but to require my employees to go elsewhere for food.”

Dan responded, “I understand your concern, Sarah. Management’s intent was to provide a service to our employees that would improve productivity and reward employees for their hard work. If you tell your employees to stop using the cafeteria, more costs will be allocated to other departments, and the other departments might also stop using the cafeteria. My belief is that the cafeteria will be self-sufficient within a year if more employees are encouraged to use it. This translates into no more cost allocations to departments within a year. I’ll discuss your concerns with top management later this week.”

Required:

1. Why does Biotech, Inc., allocate cafeteria costs to departments?
2. What recommendations would you make to top management regarding the way cafeteria costs are allocated to department?

1. Explain the following terms:

1. economies of scale

2. point of inflection

3. sunk costs

4. marginal revenue

Please explain your thought process, as if you are explaining it to someone who knows nothing about economics.

1. Operating data for Martinez Corp. are presented as follows.

Prepare a schedule showing a vertical analysis for 2022 and 2021. (Round percentages to 1 decimal place, e.g. 12.1%.)

2. Here is financial information for Splish Brothers Inc.

Prepare a schedule showing a horizontal analysis for 2022, using 2021 as the base year. (If amount and percentage are a decrease show the numbers as negative, e.g. -55,000, -20% or (55,000), (20%). Round percentages to 1 decimal place, e.g. 12.1%.)

The company A generates revenue primarily through the following means:

Software license fees: typically licenses its software for periods of up to 60 months. Licensees are normally given the following payment options:

Under the first payment option, the company collects the entire license fee at inception. This is categorized as a Paid-Up-Front (PUF) contract. Under a PUF arrangement, company A typically charges a one-time, paid-up- front fee for perpetual usage and the customer does not have the ability to cancel the contract.

Under the second payment option, the licensee pays a portion of the total software license fees at the beginning of the term (initial license fee [ILF]), and the remainder over the license term (ongoing monthly license fee [MLF] for month-to-month usage). In certain arrangements, the customer is contractually committed to making MLF payments for a minimum number of months even when the customer prematurely cancels the contract.

Under either payment option, the company is not obligated to refund any payments received from the customer.

Maintenance fees: These contracts oblige the company to provide post- contract customer support (PCS) to the client over a specified time period. PCS includes a right to periodic upgrades and technical support. The term for PCS is generally shorter than the term of the licensing agreement and is renewable for the duration of the license period.

Services: Other professional services provided by company A include training, installation, and consulting.

Assume that company A entered into a contract with client TDS Inc. for €230,000 on January 1, Year 1, to transfer a software license and an additional €15,000 for installation of the software. The license entitles TDS Inc. to use the software in its current form over an unlimited period and does not include updates. Two years of customer support come free with the license. In recent stand-alone contracts with other customers for the same software, company A has charged €200,000 for the software license, €60,000 for two-year customer support, and €40,000 for installation. The software is usable without customer support from company A and it can be installed by other vendors. The installation is expected to take 250 hours of which 150 hours will be required in Year 1 and the remainder in Year 2. The entire fee of €245,000 is collected on the contract date Based on the five-step revenue recognition process described by the recent revenue recognition rules (IFRS 15 / US GAAP ASC 606),

a. Determine the number of performance obligations, and the contract price to be allocated to each, in the following situations:

i. The installation service does not modify the software.

ii. Installation involves customizing the software to work seamlessly with other software used by the customer. As before, the installation can be performed by other firms as well.

b. Explain if (and if so, why) your responses in i) and ii) above differ, referring to IFRS 15 or to the equivalent US GAAP ASC 606.

c. How much revenue will be booked in Years 1 and 2 from the contract in each case? Assume that all conditions for revenue recognition other than those specified have been met in the situations above.

How much revenue, if any, should the Company recognize through December 31, 20X1?

Customized Software, a software company (the “Company”), is contracted by a bank (the “Bank”) to provide a customized online platform for the Bank’s mortgage loan applications (the “Loan Platform”). Bank customers use the Loan Platform to complete online mortgage applications, which involves inputting relevant information (e.g., name, address, employment, income, assets) and uploading supporting documents (e.g., tax returns, bank statements). The Loan Platform enables both the Bank and the applicants to retrieve necessary information and documents as well as track the status of the lending process in real time. To develop the Loan Platform, the Company significantly modifies and customizes its proprietary loan application software to work with the existing systems used by the Bank’s credit, customer service, and accounting departments.

To create a Loan Platform that meets the Bank’s specifications, the Company is contractually required to perform the following specific software development activities (the “Software Services”):

• Conduct interviews with Bank personnel to understand system requirements and determine how to establish interfaces needed for the Bank to integrate the Loan Platform with its existing systems.

• Test the Loan Platform in a test environment using dummy transactions.

• Perform application program interface additions and modifications to the Loan Platform that are needed to support the Bank’s integration and data export requirements.

• Add custom functionalities to the Loan Platform (e.g., Bank-specific underwriting and reporting features, integration with the Bank’s customer service).

• Customize the design of the Loan Platform (e.g., Bank’s logo, branding, color scheme, preferred button placement).

Because the Loan Platform is highly customized, loan applicants perceive that they are accessing the Bank’s Web site and may be unaware of the Company’s involvement. The Bank does not have the ability to direct the use of the Loan Platform during the Software Services period and is not allowed to run the Loan Platform on Bank hardware at any time. Instead, after the Software Services are completed, the Company hosts the Loan Platform on its own servers, which allows the Bank and its loan applicants to access the software online (the “Processing Services”). The Company has no obligation to perform further work on the Loan Platform (e.g., customization, upgrades) after the Software Services are completed. Because the Loan Platform runs on the Company’s proprietary technology, no other vendor has the ability to perform the Software Services or Processing Services. The Loan Platform is delivered to the Bank as a service in the form of the Processing Services. That is, no software license is transferred to the Bank.

The Software Services commence on July 1, 20X1, and continue through December 31, 20X1. The Processing Services commence on January 1, 20X2, and continue for a term of five years. The contract requires the Bank to pay the Company nonrefundable fees of $3 million at the commencement of the Software Services (i.e., on July 1, 20X1) and $3 million over the period in which the Company will provide the Processing Services (i.e., equal monthly installments between January 1, 20X2, and December 31, 20X7). Neither party has a unilateral option to extend the contract, but the parties are free to negotiate an extension if desired.

The Company concludes the following:

• The provisions of FASB Accounting Standards Update (ASU) No. 2014-09, Revenue From Contracts With Customers (Topic 606), and related amendments are effective for the Company.

• The Company’s customer, as defined in FASB Accounting Standards Codification (ASC) Subtopic 606-10, Revenue From Contracts With Customers — Overall, is the Bank (as opposed to the mortgage loan applicants).

• The arrangement is within the scope of ASC 606-10 and meets the criteria in ASC 606- 10-25-1 to be considered a contract with a customer.

• Any explicit or implicit promises other than the Software Services and the Processing Services are immaterial in the context of the contract and need not be considered.

• The total transaction price, as described in ASC 606-10-32-3, is the sum of the contractually stated fees (i.e., $6 million).

• The Software Services are required to be performed to create the customized Loan Platform that the Company will use to provide the Processing Services to the Bank. In other words, the Software Services are integral to the Bank’s ability to derive its intended benefit from the Processing Services.

• The Bank does not derive value from the Software Services; rather, it derives value from the Processing Services. However, the Processing Services cannot begin until the Software Services are complete (i.e., until a Loan Platform that meets the Bank’s specifications has been developed).

Required:

How much revenue, if any, should the Company recognize through December 31, 20X1?

Controls and Processes" discusses the revenue and cash collection process and controls. Exhibit 8-16 shows some cash receipts controls and risks. What are some of these controls? How can a company help protect itself in the cash collection process from a potential fraud?  

1. Journalize the adjusting entries using the following additional accounts: Salaries and Wages Payable, Rent Revenue, Insurance Expense, Depreciation Expense—Building, Depreciation Expense—Equipment and Supplies Expense. Refer to the chart of accounts for the exact wording of the account titles. CNOW journals do not use lines for journal explanations. Every line on a journal page is used for debit or credit entries. CNOW journals will automatically indent a credit entry when a credit amount is entered.

CHART OF ACCOUNTSEmerson CompanyGeneral Ledger

2. Determine the balances of the accounts affected by the adjusting entries and prepare an adjusted trial balance.

Emerson Company

ADJUSTED TRIAL BALANCE

October 31, 20Y6

Emerson Company is a small editorial services company owned and operated by Suzanne Emerson. On October 31, 20Y6, Emerson Company’s accounting clerk prepared the following unadjusted trial balance:

Emerson Company

UNADJUSTED TRIAL BALANCE

October 31, 20Y6

How would an increase in $10 in deferred revenue affect all 3 financial statements?

How would a decrease in $10 affect the 3 financial statements?