The Mardova Clinic purchased a new surgical laser for $72,000 on January 1, 2020. The estimated salvage value is $8,000. The laser has a useful life of four years and the clinic expects to use it 8,000 hours. It was used 2,600 hours in year 1; 2,400 hours in year 2; 2,200 hours in year 3; and 2,000 hours in year 4.

Compute the annual depreciation expense, accumulated depreciation, and book value for each of the four years under each of the following four methods and answer the questions in the response template below:

A) Straight-line  

B) Units of Activity  

C) 150% Declining Balance

D) Sum of the Years Digits

A) Straight-line  

1) Year 1 - Depreciation expense $

2) Year 2 - Accumulated depreciation $

3) Year 3 - Book value $

4) Year 4 - Depreciation expense $

B) Units of Activity  

5) Year 1 - Depreciation expense $

6) Year 2 - Accumulated depreciation $

7) Year 3 - Book value $

8) Year 4 - Depreciation expense $

C) 150% Declining Balance

9) Year 1 - Depreciation expense $

10) Year 2 - Accumulated depreciation $

11) Year 3 - Book value $

12) Year 4 - Depreciation expense $

D) Sum of the Years Digits

13) Year 1 - Depreciation expense $

14) Year 2 - Accumulated depreciation $

15) Year 3 - Book value $

16) Year 4 - Depreciation expense $

O’Brien Company manufactures and sells one product. The following information pertains to each of the company’s first three years of operations:

During its first year of operations, O’Brien produced 97,000 units and sold 80,000 units. During its second year of operations, it produced 84,000 units and sold 96,000 units. In its third year, O’Brien produced 82,000 units and sold 77,000 units. The selling price of the company’s product is $75 per unit.

2. Assume the company uses variable costing and a LIFO inventory flow assumption (LIFO means last-in first-out. In other words, it assumes that the newest units in inventory are sold first):

a. Compute the unit product cost for Year 1, Year 2, and Year 3

b. Prepare an income statement for Year 1, Year 2, and Year 3.

c. Assume the company uses absorption costing and a FIFO inventory flow assumption (FIFO means first-in first-out. In other words, it assumes that the oldest units in inventory are sold first):

d Compute the unit product cost for Year 1, Year 2, and Year 3. (Round your intermediate calculations and final answers to 2 decimal places.)

e Prepare an income statement for Year 1, Year 2, and Year 3. (Round your intermediate calculations to 2 decimal places.)

                                THE BUSINESS SITUATION

                When Shelley Jones became president-elect of the Circular Club of Auburn, Kansas,

she was asked to suggest a new fundraising activity for the club. After a considerable

amount of research, Shelley proposed that the Circular Club sponsor a professional

rodeo. In her presentation to the club, Shelley said that she wanted a

fundraiser that would (1) continue to get better each year, (2) give back to the community,

and (3) provide the club a presence in the community. Shelley’s goal was to

have an activity that would become an “annual community event” and that would

break even the first year and raise $5,000 the following year. In addition, based on

the experience of other communities, Shelley believed that a rodeo could grow in

popularity so that the club would eventually earn an average of $20,000 annually.

                A rodeo committee was formed. Shelley contacted the world’s oldest and

largest rodeo-sanctioning agency to apply to sponsor a professional rodeo. The

sanctioning agency requires a rodeo to consist of the following five events:

Bareback Riding, Bronco Riding, Steer Wrestling, Bull Riding, and Calf Roping.

Because there were a number of team ropers in the area and because they

wanted to include females in the competition, members of the rodeo committee

added Team Roping and Women’s Barrels. Prize money of $3,000 would be paid

to winners in each of the seven events.

                Members of the rodeo committee contracted with RJ Cattle Company, a livestock

contractor on the rodeo circuit, to provide bucking stock, fencing, and

chutes. Realizing that costs associated with the rodeo were tremendous and that

ticket sales would probably not be sufficient to cover the costs, the rodeo committee

sent letters to local businesses soliciting contributions in exchange for

various sponsorships. Exhibiting Sponsors would contribute $1,000 to exhibit

their products or services, while Major Sponsors would contribute $600. Chute

Sponsors would contribute $500 to have the name of their business on one of the

six bucking chutes. For a contribution of $100, individuals would be included in

a Friends of Rodeo list found in the rodeo programs. At each performance the

rodeo announcer would repeatedly mention the names of the businesses and individuals

at each level of sponsorship. In addition, large signs and banners with

the names of the businesses of the Exhibiting Sponsors, Major Sponsors, and

Chute Sponsors were to be displayed prominently in the arena.

CaseA local youth group was contacted to provide concessions to the public and

divide the profits with the Circular Club. The Auburn Circular Club Pro Rodeo

Roundup would be held on June 1, 2, and 3. The cost of an adult ticket was set

at $8 in advance or $10 at the gate; the cost of a ticket for a child 12 or younger

was set at $6 in advance or $8 at the gate. Tickets were not date-specific. Rather,

one ticket would admit an individual to one performance of his or her choice—

Friday, Saturday, or Sunday. The rodeo committee was able to secure a location

through the county supervisors board at a nominal cost to the Circular Club. The

arrangement allowed the use of the county fair grounds and arena for a one week

period. Several months prior to the rodeo, members of the rodeo committee

had been assured that bleachers at the arena would hold 2,500 patrons. On

Saturday night, paid attendance was 1,663, but all seats were filled due to poor

gate controls. Attendance was 898 Friday and 769 on Sunday.

                The following revenue and expense figures relate to the first year of the rodeo.

Receipts

Contributions from sponsors $22,000

Receipts from ticket sales 28,971

Share of concession profits 1,513

Sale of programs 600

Total receipts $53,084

Expenses

Livestock contractor 26,000

Prize money 21,000

Contestant hospitality 3,341*

Sponsor signs for arena 1,900

Insurance 1,800

Ticket printing 1,050

Sanctioning fees 925

Entertainment 859

Judging fees 750

Port-a-patties 716

Rent 600

Hay for horses 538

Programs 500

Western hats to first 500 children 450

Hotel rooms for stock contractor 325

Utilities 300

Sand for arena 251

Miscellaneous fixed costs 105

Total expenses 61,410

Net loss $(8,326)

*The club contracted with a local caterer to provide a tent and food for the contestants. The

cost of the food was contingent on the number of contestants each evening. Information concerning

the number of contestants and the costs incurred are as follows:

Contestants Total Cost

Friday 68 $ 998

Saturday 96 1,243

Sunday 83 1,100

$3,341

On Wednesday after the rodeo, members of the rodeo committee met to

Discuss and critique the rodeo. Jonathan Edmunds, CPA and President of the

Circular Club, commented that the club did not lose money. Rather, Jonathan

said, “The club made an investment in the rodeo.”

                Answer each of the below question.

12. Rather than hire the local catering company to cater the contestant hospitality tent, members of the club are considering asking Shady’s Bar-B-Q to cater the event in exchange for a $600 Major sponsor spot. Several member of the club are opposed to this consideration arguing that the 2 major sponsor spots will take away from the money to be earned through other sponsors. Adrian Stein has explained to the members that the major sponsor signs for the arena cost only $48 each. In addition there is more than enough room to display 2 additional sponsors signs. What would you encourage the clue to do concerning the constant hospitability tent? Would your answer be different if the arena were limited in the number of addition signs that could be displayed? What kind of cost would we consider in this situation that would not be found on a financial statement?

Walsh Company manufactures and sells one product. The following information pertains to each of the company’s first two years of operations:

During its first year of operations, Walsh produced 50,000 units and sold 40,000 units. During its second year of operations, it produced 40,000 units and sold 50,000 units. The selling price of the company’s product is $54 per unit.

Required:

1. Assume the company uses variable costing:

a. Compute the unit product cost for Year 1 and Year 2.

b. Prepare an income statement for Year 1 and Year 2.

2. Assume the company uses absorption costing:

a. Compute the unit product cost for Year 1 and Year 2.

b. Prepare an income statement for Year 1 and Year 2.

3. Reconcile the difference between variable costing and absorption costing net operating income in Year 1.

Require 1a.

Assume the company uses variable costing. Compute the unit product cost for year 1 and year 2.

Required 1b.

Assume the company uses variable costing. Prepare an income statement for Year 1 and Year 2.

Required 2a.

Assume the company uses absorption costing. Compute the unit product cost for Year 1 and Year 2. (Round your answer to 2 decimal places.)

Required 2b.

Assume the company uses absorption costing. Prepare an income statement for Year 1 and Year 2. (Round your intermediate calculations to 2 decimal places.)

Require 3.

Reconcile the difference between variable costing and absorption costing net operating income in Year 1. (Enter any losses or deductions as a negative value.)

A new American graduate is contemplating buying a Japanese, German, or an American car. No matter the type of car, he plans to buy a new one at the end of 8 years. Japanese car will cost $30,000 and have a fuel usage of 23 Miles Per gallon (mpg) for the first 2 years, and will decrease by 3% per year thereafter. Repair cost will start at $700 per year, and increase by 3% per year. At the end of year 8, the car can be sold for $5000. Insurance cost will be $700 for the first year, increasing by 2% per year thereafter.

A German car will cost $45,000 and have fuel usage of 21mpg for the first 5 years, and decrease by 1% thereafter to year 8. Repair cost will start at $1000 in year 1 and increase by 4% per year. It will have a salvage value of $7000 at the end of year 8. Insurance cost will be $850 the first year, increasing by 2% per year thereafter.
The American car will cost $35,000 and have fuel usage of 20mpg for the first 3 years, and will decrease by 3% per year thereafter. Repair cost will be $800 in year 1, increasing by 4% per year thereafter. Being an American, the graduate will price the pride of owning an American car at $0.4 for every 20 miles driven, increasing by 2% per year. Insurance cost will be $800 per year increasing by 2.2% per year. The car can be sold for $5500 at the end of year 8.
If the graduate anticipates driving 150000 miles by the end of year 8 and the average interest rate is expected to remain at 5% per year, which car is economically affordable based on present worth analysis? Assume fuel cost will be $3 per gallon in year 1 and increase by an average of 2% per year. Show all your workings.

Walsh Company manufactures and sells one product. The following information pertains to each of the company’s first two years of operations:

During its first year of operations, Walsh produced 50,000 units and sold 40,000 units. During its second year of operations, it produced 40,000 units and sold 50,000 units. The selling price of the company’s product is $54 per unit.

Required:

1. Assume the company uses variable costing:

a. Compute the unit product cost for year 1 and year 2.

Year 1 __________

Year 2 __________

2. Assume the company uses absorption costing:

a. Compute the unit product cost for year 1 and year 2. (Round your answers to 2 decimal places.)

Year 1_____________

Year 2 _____________

b. Prepare an income statement for year 1 and year 2. (Round your intermediate calculations to 2 decimal places)

3. Reconcile the difference between variable costing and absorption costing net operating income in year 1 and year 2.

Walsh Company manufactures and sells one product. The following information pertains to each of the company’s first two years of operations:

During its first year of operations, Walsh produced 50,000 units and sold 40,000 units. During its second year of operations, it produced 40,000 units and sold 50,000 units. The selling price of the company’s product is $54 per unit.

Required:

1. Assume the company uses variable costing:

a. Compute the unit product cost for year 1 and year 2.

Year 1 __________

Year 2 __________

2. Assume the company uses absorption costing:

a. Compute the unit product cost for year 1 and year 2. (Round your answers to 2 decimal places.)

Year 1_____________

Year 2 _____________

b. Prepare an income statement for year 1 and year 2. (Round your intermediate calculations to 2 decimal places)

3. Reconcile the difference between variable costing and absorption costing net operating income in year 1 and year 2.