To more efficiently manage its inventory, Treynor Corporation maintains its internal inventory records using first-in, first-out (FIFO) under a perpetual inventory system. The following information relates to its merchandise inventory during the year:

Required:
1. Determine the amount Treynor would calculate internally for ending inventory and cost of goods sold using first-in, first-out (FIFO) under a perpetual inventory system.
2. Determine the amount Treynor would report externally for ending inventory and cost of goods sold using last-in, first-out (LIFO) under a periodic inventory system. (Assume beginning inventory under LIFO was 20,000 units with a cost of $11.70).
3. Determine the amount Treynor would report for its LIFO reserve at the end of the year.
4. Record the year-end adjusting entry for the LIFO reserve, assuming the balance at the beginning of the year was $10,000.

To more efficiently manage its inventory, Treynor Corporation maintains its internal inventory records using first-in, first-out (FIFO) under a perpetual inventory system. The following information relates to its merchandise inventory during the year:

Required:
1. Determine the amount Treynor would calculate internally for ending inventory and cost of goods sold using first-in, first-out (FIFO) under a perpetual inventory system.
2. Determine the amount Treynor would report externally for ending inventory and cost of goods sold using last-in, first-out (LIFO) under a periodic inventory system. (Assume beginning inventory under LIFO was 20,000 units with a cost of $12.60).
3. Determine the amount Treynor would report for its LIFO reserve at the end of the year.
4. Record the year-end adjusting entry for the LIFO reserve, assuming the balance at the beginning of the year was $10,000.

Consider a student who purchases education (x) and other goods (y). The student has preferences over these goods given by u(x, y) = ln(x) + 3ln(y). The prices of education and other goods are, respectively, px = 10 and py = 5, and the student’s income is I = 20.

1. Using the first-order conditions you derived, find the student’s optimal consumption of education x ∗ and other goods y ∗ and derive an algebraic expression for the student’s income expansion path.

2. Graph the budget constraint, IEP, optimal bundle (x ∗ , y∗ ), and the indifference curve passing through the optimal consumption bundle. Label all curves, axes, slopes, and intercepts. Put education on the x-axis.

3. Suppose now that the student receives a voucher for 1 free unit of education from the government. In other words, the price of her first unit of education is zero, and the price of any additional units is the original price px = 10. The student cannot sell the voucher. Both I and py are unchanged. Draw the new budget constraint under the voucher program. Be sure to label any important point(s) on the constraint and label the slope(s) of the constraint. Put education on the x-axis. And find the optimal consumption of x and y for the student when she receives the voucher.

Mojo Industries tracks the number of units purchased and sold throughout each accounting period but applies its inventory costing method at the end of each period, as if it uses a periodic inventory system. Assume its accounting records provided the following information at the end of the accounting period, January 31. The inventory’s selling price is $12 per unit. Transactions Unit Cost Units Total Cost Inventory, January 1 $ 4.00 190 $ 760 Sale, January 10 (170 ) Purchase, January 12 4.50 240 1,080 Sale, January 17 (110 ) Purchase, January 26 5.50 70 385 Assuming that for Specific identification method (item 1d) the January 10 sale was from the beginning inventory and the January 17 sale was from the January 12 purchase.

Mando Paints (MAPS)       Mando Paints (MAPS)) manufactures a paint additive that has been very successful in the metallic paint line of automotive paints. The company prides itself in making the paints that car owners buy better. MAPS is in the process of preparing its 2019 fiscal year master budget and has presented you with the following information. The company has a December 31st fiscal year-end.

1. The budgeted December 31, 2018 balance sheet for the company is shown below.

MAPS Limited Budgeted Balance Sheet December 31, 2018

Assets        Liabilities & Stockholders' Equity

Cash      $ 5,080 Accounts payable                $ 2,148 Accounts receivable (net)      26,500 Dividends payable     30,000 Raw materials inventory         800 Notes payable (Due Feb. 28, 2017)   35,000 Finished goods inventory          2,104 Prepaid insurance        1,200    Total liabilities    $ 67,148 Factory Building & Equipment   $300,000    Common stock $100,000 Accumulated       Retained earnings    148,536 248,536       depreciation    (20,000) 280,000           Total Liabilities & Total assets     $315,684    Stockholders' Equity             $315,684

2. The Accounts Receivable balance at 12/31/18 represents the remaining balances of November and December credit sales, net of any allowance for doubtful accounts. Sales were (would be) $70,000 and $65,000, respectively, in those two months.

3. Estimated sales in units for January through May 2019 are shown below.    January 10,000    February 12,000    March 13,000    April 11,000    May 10,000

     Currently, each unit sells for $12. The company expects the selling price to increase to $13 per unit from March 1, 2019.







MAPS ... continued

MAPS continued     4. The collection pattern for accounts receivable is as follows: 68% in the month of sale; 20% in the first month after the month of sale; 10% in the second month after the month of sale. The remaining 2% of credit sales are never collected. The company expects to achieve a 70-20-8 collection pattern starting with the March 2019 sales.

5. Each unit of additive has the following standard quantities and costs for direct materials and direct labor:   1.2 pounds of direct materials at $.80 per pound      15 minutes of direct labour at $12 per hour  

Direct material costs and direct labor costs are expected to increase by 15% as from March 1, 2019. Variable overhead is applied to the product on a machine hour basis. It takes 12 minutes of machine time to process one unit of finished additive. The variable overhead rate is $1.5 per machine hour. The rate will increase to $2.25 per machine hour from March 1, 2019. Total annual fixed overhead is budgeted at $120,000; it is applied to the production of the month at $1.00 per unit based on an expected annual production of 120,000 units. Budgeted fixed overhead per year is made up of the following costs:   Salaries     $ 72,000   Utilities        20,400   Insurance - factory        2,400   Depreciation- factory building & equipment    25,200    Total     $120,000             Actual fixed overhead is incurred evenly throughout the year and payments for fixed overhead are also made evenly throughout the year, if necessary. For periodic financial statements, any under-applied overhead is added to expenses and any over-applied overhead is deducted from expenses.

6. There is no beginning inventory of Work in Process. All work in process is completed in the period in which it is started. Direct materials inventory at the beginning of 2019 will consist of 1,000 pounds at a standard cost of $.80 per pound. There will be 400 units of additive in finished goods inventory at the beginning of 2019 carried at a standard cost of $5.26 per unit: Direct Materials, $.96; Direct Labor, $3.00; Variable Overhead, $.30; and Fixed Overhead, $1.00.

7. Accounts Payable relates solely to direct materials purchases. All direct material purchases are initially on account. Accounts payable are paid 60% in the month of purchase and 40% in the month after purchase. No discounts are received for prompt payment. Starting with its March 2019 purchases, the company will be making payments on accounts payable at 50% in the month of purchase and 50% in the month after purchase.

8. Any outstanding dividends payable will be paid at the end of January 2019.

9. A new piece of equipment costing $50,000 will be purchased on March 31, 2019. Payment for 80% of the cost will be made in March and 20% in May. The equipment will have a ten-year useful life and no residual value.

10. The note payable has an 8% interest rate; interest is paid at the end of each month.




MAPS ... continued

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MAPS continued

11. MAPS's management has set a minimum cash balance at $6,000. Borrowing (repayments) can be made in even $1000 amounts from (to) the Cedi Bank at an interest rate of 6% per year. Borrowing (if necessary in the month) will be at the beginning of the month while repayment (when the company is in a position to do so) will be at the end of the month. Interest on any borrowing must be paid monthly at the end of the month.

12. The ending inventory of finished goods should be 10% of the next month's sales requirements. The ending inventory of raw materials should be 10% of the raw materials required for the next month's production. These requirements may not be met on January 1, 2019, but must be met during the budgeting period.

13. Fixed selling and administrative expenses per month are as follows: salaries, $15,000; rent, $9,000; and utilities and office expenses, $1,500. These costs are paid in cash in the month in which they are incurred.


Required: Prepare an appropriate report to MAPS’s management detailing the company’s budgeted activities for the first quarter of 2019. Budgeted information should be provided for each month, and the quarter as a whole, in columnar form. The following component budgets must be included (and submitted): a. Sales budget b. Production budget c. Direct materials purchases budget d. Direct labor budget e. Manufacturing Overhead budget f. Cost of Goods manufactured budget g. Finished goods budget h. Cost of goods sold budget i. Selling and administrative expenses budget j. Budgeted Income Statement k.   Cash budget

Also to be provided is a Budgeted Balance Sheet. Unlike the other requirements above, the Budgeted Balance Sheet submitted should be ONLY the one at the end of the first quarter of the 2019 fiscal year.

All hand-in materials must be computer generated (spreadsheets for your budgets and word processors for other write-ups).

In a note presenting your work to management, please draw management’s attention to any significant parts of your report (this note to management should not be more than one page).  

The working assumption in the company is that customers spend on average $300 on the company's services. Recently, you started to suspect that things maybe not going to well and that your customers are not spending as much as they did. Set the null and alternative hypotheses that would reflect your concern and then test them at the 5% level of significance using the data in the After_Class_Assignment_Data Excel file.

Problem 9-20 Activity and Spending Variances [LO9-1, LO9-2, LO9-3]

You have just been hired by FAB Corporation, the manufacturer of a revolutionary new garage door opening device. The president has asked that you review the company’s costing system and “do what you can to help us get better control of our manufacturing overhead costs.” You find that the company has never used a flexible budget, and you suggest that preparing such a budget would be an excellent first step in overhead planning and control. After much effort and analysis, you determined the following cost formulas and gathered the following actual cost data for March:

Cost Formula Actual Cost in March Utilities $16,100 + $0.16 per machine-hour $ 21,580 Maintenance $38,200 + $1.30 per machine-hour $ 61,900 Supplies $0.30 per machine-hour $ 6,700 Indirect labor $94,400 + $1.60 per machine-hour $ 132,100 Depreciation $67,800 $ 69,500 During March, the company worked 21,000 machine-hours and produced 15,000 units. The company had originally planned to work 23,000 machine-hours during March.

Required:

1. Calculate the activity variances for March.

2. Calculate the spending variances for March.

Problem 9-20 Activity and Spending Variances [LO9-1, LO9-2, LO9-3]

You have just been hired by FAB Corporation, the manufacturer of a revolutionary new garage door opening device. The president has asked that you review the company’s costing system and “do what you can to help us get better control of our manufacturing overhead costs.” You find that the company has never used a flexible budget, and you suggest that preparing such a budget would be an excellent first step in overhead planning and control.

After much effort and analysis, you determined the following cost formulas and gathered the following actual cost data for March:

During March, the company worked 14,000 machine-hours and produced 8,000 units. The company had originally planned to work 16,000 machine-hours during March.

Required:

1. Calculate the activity variances for March.

2. Calculate the spending variances for March.

The 2020 inventory data for Garden Corporation’s patio furniture Bermuda set is presented below. Assume that Garden uses periodic inventory tracking.

When Garden examines the actual units in ending inventory, they see that 15 of the units are from 2020 beginning inventory, 20 units are from the 1/20/20 purchase, and 60 units are from the 6/15/20 purchase.  

1. What is Inventory on the 12/31/20 Balance Sheet if Garden uses Specific Identification?
   1. $223,500
   2. $221,600
   3. $29,400
   4. $27,500

2. What is Gross Profit on the 2020 Income Statement if Garden uses Weighted Average Cost?
   1. $251,000.00
   2. $221,193.75  
   3. $201,806.25   
   4. $29,806.25

3. In a period of falling prices, which of the following statements is true?
   1. FIFO produces a lower amount of net income than LIFO
   2. LIFO produces a lower cost for ending inventory than FIFO
   3. Average cost produces a higher net income than FIFO or LIFO
   4. LIFO produces a higher cost of goods sold than FIFO

4. Heavenly Rest, Inc. uses a periodic inventory system. When a warehouse supervisor counts the inventory on December 31, 2019, he accidentally counts one pile of blankets twice, resulting in 2019 ending inventory being overstated by $100,000. The warehouse supervisor counts the December 31, 2020 inventory correctly. Which of the following statements is true related to Heavenly Rest's 2019 and 2020 financial statements?
   1. 2019 Cost of Goods Sold will be understated by $100,000.
   2. 2020 Beginning Inventory will be understated by $100,000.
   3. 2020 Cost of Goods Sold will be overstated by $100,000.
   4. All of the above are true.
   5. Both a and c are true.

Beech Corporation is a merchandising company that is preparing a master budget for the third quarter of the calendar year. The company’s balance sheet as of June 30th is shown below:

Beech’s managers have made the following additional assumptions and estimates:

1. Estimated sales for July, August, September, and October will be $210,000, $230,000, $220,000, and $240,000, respectively.

2. All sales are on credit and all credit sales are collected. Each month’s credit sales are collected 35% in the month of sale and 65% in the month following the sale. All of the accounts receivable at June 30 will be collected in July.

3. Each month’s ending inventory must equal 30% of the cost of next month’s sales. The cost of goods sold is 60% of sales. The company pays for 40% of its merchandise purchases in the month of the purchase and the remaining 60% in the month following the purchase. All of the accounts payable at June 30 will be paid in July.

4. Monthly selling and administrative expenses are always $60,000. Each month $5,000 of this total amount is depreciation expense and the remaining $55,000 relates to expenses that are paid in the month they are incurred.

5. The company does not plan to borrow money or pay or declare dividends during the quarter ended September 30. The company does not plan to issue any common stock or repurchase its own stock during the quarter ended September 30.

4. Prepare a balance sheet as of September 30.