Lavage Rapide is a Canadian company that owns and operates a large automatic car wash facility near Montreal. The following table provides data concerning the company’s costs:

For example, electricity costs are $1,300 per month plus $0.07 per car washed. The company expects to wash 8,500 cars in August and to collect an average of $6.40 per car washed.

The actual operating results for August appear below.

Required:

Prepare a flexible budget performance report that shows the company’s revenue and spending variances and activity variances for August. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)

Milano Pizza is a small neighborhood pizzeria that has a small area for in-store dining as well as offering take-out and free home delivery services. The pizzeria’s owner has determined that the shop has two major cost drivers—the number of pizzas sold and the number of deliveries made.

Data concerning the pizzeria’s costs appear below:

In November, the pizzeria budgeted for 2,190 pizzas at an average selling price of $20 per pizza and for 190 deliveries.

Data concerning the pizzeria’s operations in November appear below:

Required:

1. Complete the flexible budget performance report that shows both revenue and spending variances and activity variances for the pizzeria for November. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)

Your firm designs training materials for computer training classes, and you have just received a request to bid on a contract to produce a complete set of training manuals for an 8-session class. From previous experience, you know that your firm follows an 80% learning rate. For this contract, it appears that the effort will be substantial, running 300 hours for the first session. Your firm has an average cost of labor of $80/hour and the overhead is expected to run a fixed $1200 per session. The customer will pay you a flat fixed rate per session (Per Session Price.) If your profit markup is 10%, what will be the Total Price, the Per Session Price, and at what session will you break even?

Answer the following four questions:

1. What is the Total Price? This is what you would charge the customer so that you can have your profit markup of 10% over all of your costs. To calculate this, first figure out your cost per each session, add them up, and then add your profit.
2. What is the Per Session Price? This is the revenue that the customer pays you each time you complete a session. It is calculated by dividing the Total Price by the number of sessions.
3. What is the Break Even Point? At the beginning, your cost per session is more than your revenue per session. As each session is completed, however, your costs for the session declines so that eventually your cumulative revenue exceeds the cumulative cost. The break-even point is the session at which, for the first time, your revenue exceeds your cost.
4. Assume you win the contract and your customer likes the training so much, she orders a ninth course at the same price as the first eight. What will your profit be on the 9^th course?

Problem 5-49 Customer Profitability Analysis [LO 5-1, 5-6]

Ellie Mosk, CEO of X-Space Industries, decided to expand the company’s product offering beyond the core model rocket business. After investigation, she decided to set up a separate division to design and manufacture products for the drone market. Several companies were interested in having X-Space develop these drones, and financial results, to date, have been encouraging. Revenue was $4 million, gross margins have been running about 40%, and the customer sales and support costs were $1 million. However, there is a growing concern that some customers require a disproportionate share of the sales and support resources, and the true profitability of the customers is unknown. Data were collected to support an analysis of customer profitability:

Required:

1. Management felt the easiest way to allocate the sales and support costs was based on the total revenue. Using total revenue as the allocation base, determine the profitability of each of the five customers.

2. Management felt that because the data revealed some customers require a disproportionate share of sales and support resources, activity-based costing should be used to determine customer profitability. Use ABC to prepare a customer profitability analysis.

Problem 5-49 Customer Profitability Analysis [LO 5-1, 5-6]

Ellie Mosk, CEO of X-Space Industries, decided to expand the company’s product offering beyond the core model rocket business. After investigation, she decided to set up a separate division to design and manufacture products for the drone market. Several companies were interested in having X-Space develop these drones, and financial results, to date, have been encouraging. Revenue was $4 million, gross margins have been running about 40%, and the customer sales and support costs were $1 million. However, there is a growing concern that some customers require a disproportionate share of the sales and support resources, and the true profitability of the customers is unknown. Data were collected to support an analysis of customer profitability:

Required:

1. Management felt the easiest way to allocate the sales and support costs was based on the total revenue. Using total revenue as the allocation base, determine the profitability of each of the five customers.

2. Management felt that because the data revealed some customers require a disproportionate share of sales and support resources, activity-based costing should be used to determine customer profitability. Use ABC to prepare a customer profitability analysis.

Problem 5-49 Customer Profitability Analysis [LO 5-1, 5-6]

Ellie Mosk, CEO of X-Space Industries, decided to expand the company’s product offering beyond the core model rocket business. After investigation, she decided to set up a separate division to design and manufacture products for the drone market. Several companies were interested in having X-Space develop these drones, and financial results, to date, have been encouraging. Revenue was $4 million, gross margins have been running about 40%, and the customer sales and support costs were $1 million. However, there is a growing concern that some customers require a disproportionate share of the sales and support resources, and the true profitability of the customers is unknown. Data were collected to support an analysis of customer profitability:

Required:

1. Management felt the easiest way to allocate the sales and support costs was based on the total revenue. Using total revenue as the allocation base, determine the profitability of each of the five customers.

2. Management felt that because the data revealed some customers require a disproportionate share of sales and support resources, activity-based costing should be used to determine customer profitability. Use ABC to prepare a customer profitability analysis.

Business Description

After taking business classes, Jake, an avid dog-lover, decided to start selling unique pet supplies at trade shows. He has two products:  

Product 1:   "Launch-it"-   a tennis ball thrower that will sell for $10.

Product 2: "Treat-time"- an automatic treat dispenser that releases a treat when the dog places his paw on the pedal.   The treat dispenser will sell for $30.

Costs:    Jake has hired an employee to work the trade show booths.   The work contract is $1,000 per month plus a commission equal to 10% of revenue.    Jake will also spend $500 per month on trade-show entry fees. Jake is purchasing the products from a supplier in Mexico.    Launch-its cost $1 each;   Treat-times cost $7 each.     Shipping and handling on the Launch-its will cost $2 each; Shipping and handling on the Treat-times, which are heavier, will cost $8 each. The shipping and handling costs will be paid by Jake, not the customer.

Assume Jake expects to sell 200 Launch-its and 100 Treat-times during his first month of operations (June).

Jake's financial goal is to earn an operating income of $8,000 per month.    He believes volume may grow at a rate of 5% a month.

Directions

You have been hired by Jake to build a CVP model that will help him understand the impact of business conditions on his operating income. (See "Starting File" worksheet.) In your model, all of the original assumptions will be listed in one area of the spreadsheet (blue box).   All other calculations in the model will reference the assumptions (blue box) such that if any assumption changes, the effect will ripple through the entire model.    To accomplish this goal, you will use FORMULAs, rather than numbers, in every other cell in the worksheet. In other words, the only place you will type numbers is the blue assumptions box.

FORMATTING conventions to use throughout project:

- Round all UNITS to the nearest whole unit.   Use the "decrease decimals" button on your tool bar rather than the Rounding function.

- Show all MONETARY amounts as dollars and cents. Round to the nearest cent. ($x.xx). Use the "decrease decimals" button rather than the rounding function.

- Show all percentages as %, not as decimals.   (x%, not .xx)

- Right justify all cells   (numbers should be to the right side of the cell, not in the middle or left)

1) Complete the assumptions (blue box) based on the data about Jake's business. Identify and list all variable costs separately and all fixed costs separately before finding the total for each type of cost.

2) Complete the Product Analysis (yellow boxes) assuming Jake only sells either Product #1 (Launch-its) OR Product #2 (Treat -times).

Check figures:    B/E Product #1 = 250 units;   B/E Product #2= 125 units

3) Complete the pro forma CM Income Statement for the month of June (green box). HINT:   On product line income statements such as this, the fixed costs are only listed in the total column.   Make sure you also show the totals for all other line items. Finally, calculate the overall weight average contribution margin (WACM) % for the company.

Check figure: Operating income = $900   WACM% = 48%

4) Calculate the WACM per unit (in orange box).

Check figure:   WACM/unit = $8.00

5) Use the WACM/unit to calculate the TOTAL number of units needed to breakeven (TOTAL column in the first gray box).   THEN, calculate the number of EACH type of product needed to breakeven.   Finally, calculate the sales revenue associated with this volume for EACH product, and then the sales revenue to breakeven in total.

Check figures:    B/E Product #1 = 125;   B/E Product #2= 63

6) Use the WACM/unit to calculate the total number of units needed to achieve Jake's target profit (TOTAL column in the second gray box).   THEN, calculate the number of EACH type of product needed to achieve the target profit.   Finally, calculate sales revenue associated with this volume for EACH product, and then the sales revenue in total.

Check figures:    B/E Product #1 =792;   B/E Product #2= 396

7) Calculate the margin of safety (MOS) using June sales as the expected sales (purple box). Calculate the MOS in terms of sales revenue and as a percentage.   Also calculate the current operating leverage factor (round to the nearest 2 decimal places) and use it to determine the expected percentage change in operating income stemming from an expected change in sales volume.    

Check figures:    MOS%= 38%;   Operating leverage factor= 2.67

The following is a list of accounts, in alphabetical order, for Sandhill, Inc. at July 31, 2018:

Additional information:
All accounts have a normal balance. During the year, the company issued common shares for $ 11,000.

(a)

Prepare a trial balance.

List of Accounts

Accounts Payable

Accounts Receivable

Accumulated Depreciation - Buildings

Accumulated Depreciation - Equipment

Accumulated Depreciation - Vehicles

Advertising Expense

Bank Loan Payable

Buildings

Cash

Common Shares

Concession Revenue

Cost of Goods Sold

Current Portion of Mortgage Payable

Depreciation Expense

Dividends Declared

Equipment

Fees Earned

Held for Trading Investments

Income Tax Expense

Income Tax Payable

Income Tax Receivable

Insurance Expense

Insurance Revenue

Interest Expense

Interest Revenue

Inventory

Land

Long-Term Investments

Mortgage Payable

No Entry

Office Expense

Prepaid Insurance

Prepaid Rent

Property Tax Expense

Rent Expense

Rent Revenue

Repairs and Maintenance Expense

Retained Earnings

Salaries Expense

Salaries Payable

Sales

Service Revenue

Supplies

Supplies Expense

Unearned Revenue

Utilities Expense

Vehicles

ANSWER THE FOLLOWING QUESTIONS 1a - i......

1.) If a monopolist is producing at a level of output where marginal revenue is greater than marginal cost, the monopolist will:

a) raise the price of its product. b) decrease output. c) increase output. d) shutdown the business.

1.a). A monopolist maximizes profit at a point where:

a) the price elasticity of demand is inelastic. b) the price elasticity of demand is elastic. c) the price elasticity of demand is unit elastic. d) the marginal revenue is negative.

1b.) In the range where a monopolist’s demand curve is inelastic:

a) marginal revenue is zero. b) marginal revenue is negative. c) total revenue is rising. d) average revenue is rising.

1c.) The deadweight loss of monopoly is due to the fact that:

a) monopolists do not maximize profits. b) monopolists produce at the point where marginal cost intersects the demand curve. c) monopolists restrict output in order to raise price. d) monopolists do not produce at the minimum point of the marginal cost curve.

1d.). Which of the following is an essential condition for a firm to be a natural monopoly? a) The control of a key input b) A downward sloping long-run average cost curve c) The government granting the firm a monopoly d) Firms having different cost functions

1e.). When a monopolist engages in perfect price discrimination:

a) there is a higher deadweight loss compared to a single-price monopoly. b) there is a deadweight loss because the firm charges a price below marginal cost. c) there is a deadweight loss equal to the lost consumer surplus. d) there is no deadweight loss as the monopolist successfully captures the entire consumer surplus.

1f.). Which of the following is not a necessary condition for price discrimination? 1

a) The firm having some degree of monopoly power b) The monopolist producing where price is equal to marginal cost c) The ability to roughly approximate each buyer’s maximum willingness to pay for each unit of a product d) The ability to prevent arbitrage among different segments of customers

1g.). Under which of the following situations will a monopolist, practicing third-degree price discrimination, be unable to discriminate prices among its different market segments?

a) When the price elasticity of demand in all markets are the same b) When the marginal cost of production remains stable c) When the average cost of production is lower than the marginal cost of production d) When the marginal revenue from the different markets varies

1H. A firm practicing third-degree price discrimination maximizes its profits by:

a) setting the price in each market segment equal to the marginal cost of servicing that market segment. b) charging a higher price to the market segment with the majority of customers and a lower price to the market segment with relatively less number of customers. c) charging a higher price to the customers with a relatively high elasticity of demand and a lower price to those with a relatively low elasticity of demand. d) charging a higher price to the customers with a relatively low price elasticity of demand and a lower price to those with a relatively high price elasticity of demand.

1I.). Which of the following is true of block pricing?

a) The price per unit charged by the monopolist declines as more units of the quantity are purchased by a consumer. b) There is no deadweight loss under this form of price discrimination. c) It decreases the monopolist’s profit by transferring the additional producer surplus on the initial units consumed to the consumers. d) This form of price discrimination allows a monopolist to sell each unit of output for the maximum price a consumer will pay.

You will need the Village Officer's Handbook--Appendix A-1 as well as the financial statements for the year ended June 30, 2016 for the City of Detroit. Financial Statements can be found at www.detroitmi.gov    Type "CAFR" into the search box.

QUESTION 1

Using the government-wide financial statement, determine which statement is correct regarding the Recreation and Culture activity. What you expect should be based on the type of activity it is.

QUESTION 2

Using the government-wide financial statement, select the correct statement regarding the Sewer activity. What you expect should be based on the type of activity it is.

QUESTION 3

The City of Detroit reports the budgetary comparison statement as:

QUESTION 4

Using the original budget for the General Fund, what journal entry would have been made in the General Journal? (Ignore subsidiary accounts). Form your answer as follows (DR = Debit and CR = Credit):

DR-Account Title $000
CR-Account Title $000

Please group your debit accounts and your credit accounts

QUESTION 5

Examine the revenue variances for the General fund and select the correct statement.

QUESTION 6

Examine the expenditure variances for the General Fund and select the correct statement.

QUESTION 7

The "available appropriation" in the subsidiary ledger at the end of the year is the same amount as the variance in the budgetary comparison statement.

True

False

QUESTION 8

Suppose Detroit decides to add an occupancy tax to be collected by all local hotels. These revenues will be restricted by state law for the promotion of tourism. These tax revenues will be reported in the government-wide statement of activities as:

QUESTION 9

Which of the following inflows to a governmental fund would be classified as an Other Financing Source?

QUESTION 10

Use Appendix A-1 of the Village Officer's Handbook (found in Module 2) to answer the following question.
Which of the following account numbers would most likely be used to report the receipt of swimming pool fees if a special revenue fund is used.

Details of Notes Receivable and Related Entries

Gen-X Ads Co. produces advertising videos. During the current year ending December 31, Gen-X Ads received the following notes:

Required:

Assume 360 days in a year.

1. Determine for each note (a) the due date and (b) the amount of interest due at maturity, identifying each note by number.

Feedback

Count the number of days in each month until the total number of days is reached for the term of the note and this will be the due date. Interest is not charged on the first day of the note.

Typically, the maker of a dishonored note fails to pay the note on the due date. A company that holds a dishonored note transfers the face amount of the note plus any interest due back to an accounts receivable account. Interest revenue is not dependent on receiving the interest at this point.

Cash received will include the maturity value of the note.

Learning Objective 6.

2. Journalize the entry to record the dishonor of Note (3) on its due date. If an amount box does not require an entry, leave it blank or enter "0".

Feedback

Count the number of days in each month until the total number of days is reached for the term of the note and this will be the due date. Interest is not charged on the first day of the note.

Typically, the maker of a dishonored note fails to pay the note on the due date. A company that holds a dishonored note transfers the face amount of the note plus any interest due back to an accounts receivable account. Interest revenue is not dependent on receiving the interest at this point.

Cash received will include the maturity value of the note.

Learning Objective 6.

3. Journalize the adjusting entry to record the accrued interest on Notes (5) and (6) on December 31.

4. Journalize the entries to record the receipt of the amounts due on Notes (5) and (6) in January. If an amount box does not require an entry, leave it blank or enter "0".

Feedback

Count the number of days in each month until the total number of days is reached for the term of the note and this will be the due date. Interest is not charged on the first day of the note.

Typically, the maker of a dishonored note fails to pay the note on the due date. A company that holds a dishonored note transfers the face amount of the note plus any interest due back to an accounts receivable account. Interest revenue is not dependent on receiving the interest at this point.

Cash received will include the maturity value of the note.

Learning Objective 6.