Cane company manufactures two products called Alpha and Beta that sell for $135 and $95, respectively. Each product uses only one type of raw material that costs $6 per pound. The company has the capacity to annually produce 105,000 units of each product. Its average cost per unit for each product at this level of activity are given below:
Direct materials 30, 18
Direct labor 23, 16
Variable manufacturing overhead 10, 8
Traceable fixed manufacturing overhead 19, 21
Variable selling expenses 15, 11
Common fixed expenses 18, 13
Total cost per unit 115, 87
The company considers its traceable fixed manufacturing overhead to be avoidable, whereas its common fixed expenses are unavoidable and have been allocated to products based on sales dollars.
1. Assume that Cane's customers would buy a maximum of 83,000 units of Alpha and 63,000 units of Beta. Also assume that the raw material available for production is limited to 200,000 pounds. How many units of each product should Cane produce to maximize its profits?
2. Assume that Cane's customers would buy a maximum of 83,000 units of Alpha and 63,000 units of Beta. Also assume that the raw material available for production is limited to 200,000 pounds. What total contribution margin will it earn?
3. Assume that Cane's customers would buy a maximum of 83,000 units of Alpha and 63,000 units of Beta. Also assume that the raw material available for production is limited to 200,000 pounds. If Cane uses its 200,000 pounds of raw materials, up to how much should it be willing to pay per pound for additional raw materials?

Problem 9-9

Consider the following table, which gives a security analyst’s expected return on two stocks in two particular scenarios for the rate of return on the market:

a. What are the betas of the two stocks? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

b. What is the expected rate of return on each stock if the two scenarios for the market return are equally likely to be 5% or 27%? (Do not round intermediate calculations. Round your answers to 1 decimal place.)

e. What hurdle rate should be used by the management of the aggressive firm for a project with the risk characteristics of the defensive firm’s stock if the two scenarios for the market return are equally likely? Also, assume a T-Bill rate of 3%.

1. ABC Company uses absorption costing in its GAAP financial statements and variable costing for its internal management reporting. .ABC Company has produced 20,000 cell phone covers in 2016, but only sold 18,000 cell phone covers. ABC Company had no beginning inventory and now has ending inventory of 2,000 cell phone covers. Which of the following are true?

A.    ABC Company will report higher income in its absorption income statement than in its variable income statement.

B.    ABC Company will report lower income in its absorption income statement than in its variable income statement.

C.    ABC Company will report the same income in its absorption and variable income statements.

D.    There is not enough information to know how absorption and variable costing income will compare.

2. Budgeted sales in Allen Company are given below:

Collections for sales on account follow a stable pattern as follows:

·   70% of a month's credit sales are collected in the month of sale and

·   30% are collected in the month following sale.

Given these data, the total of all collections for May should be:

A. $99,000

B. $107,000

C. $142,000

D. $178,000

3. XYZ Company sells goods to its customers on account and collects from customers evenly over 90 days. About 2% of the payments are written off as uncollectible each month. To forecast cash collections for its Cash Collections Budget for May, what information is needed?

A. The amount of sales expected in June

B. The amount of sales expected in March

C. The amount of production expected in June

D. The amount of production expected in March

4. ABC Company pays its suppliers for 60% of its purchases in the period of purchase and 40% in the following quarter.   Accounts payable at the beginning of the year was $30,000.

Based on the information above, what is the balance of accounts payable at the end of the year?

A. $40,000

B. $68,000

C. $58,000

D. $42,000

PART I

(a) Discuss in detail, with reference to the principles of IFRS 15 Revenue from Contracts with Customers, whether Lockdown Health Ltd should recognise the following elements of the revenue contract with Sanitize Ltd as separate performance obligations:

• the testing equipment; • the installation of testing equipment; and • the 12-month warranty.

(b) Assume for this section of the question that there are three separate performance obligations, namely the testing software, testing equipment and training services in the revenue contract with Sanitize Ltd.

Criticise the journal entry that was processed with regards to the allocation of the transaction price for revenue recognition to the separate performance obligations listed above, for the year ended 31 August 2020. Support your answer with calculations and amounts.

Communication skills: logical flow and conclusion

(c) Prepare the journal entries to be processed by Lockdown Health Ltd to account for the transaction with StayHome Ltd for the year ended 31 August 2020.

PART II

Prepare the journal entries in the financial statements of Telecon Ltd to account for all the journal entries arising from the contract with the South African National Defence Force for the year ended 31 August 2020.

Please note:

• Round off all amounts to the nearest Rand. • Journal narrations are not required. • Deferred tax journal entries are not required. • Ignore any Value Added Tax (VAT) implications. • Your answer must comply with International Financial Reporting Standards (IFRS).

On January 10, KH sold a mixer it purchased from MU for $80 cash and delivered it to a customer. KH has a 45-day return policy under which a customer can exchange a product for another product of the same type, quality, condition and price. The exchange policy requires that all returned products must be like new. Based on extensive historical experience, KH estimates that 2% of its products will be exchanged by customers for another product of the same price, condition, quality and type. KH estimates the cost of recovering any products will be insignificant. KH does not record any potential volume discounts until they are earned.

Requirements

? Record all initial accounting entries for KH for January 10 based on the current guidance on revenue recognition in ASC 605. Include references to the guidance to support your proposed accounting. Show any calculations you make to support your journal entries.

? Prepare a detailed explanation of each of the five steps of revenue recognition. Record all initial accounting entries for MU for January 10 based on the new guidance on revenue recognition in ASC 606. Include references to the guidance to support your proposed accounting. Show any calculations you make to support your journal entries.

? What, if anything, is the difference in revenue recognized for the month of January under ASC 605 and ASC 606?

On January 10, KH sold a mixer it purchased from MU for $80 cash and delivered it to a customer. KH has a 45-day return policy under which a customer can exchange a product for another product of the same type, quality, condition and price. The exchange policy requires that all returned products must be like new. Based on extensive historical experience, KH estimates that 2% of its products will be exchanged by customers for another product of the same price, condition, quality and type. KH estimates the cost of recovering any products will be insignificant. KH does not record any potential volume discounts until they are earned.

Requirements

? Record all initial accounting entries for KH for January 10 based on the current guidance on revenue recognition in ASC 605. Include references to the guidance to support your proposed accounting. Show any calculations you make to support your journal entries.

? Prepare a detailed explanation of each of the five steps of revenue recognition. Record all initial accounting entries for MU for January 10 based on the new guidance on revenue recognition in ASC 606. Include references to the guidance to support your proposed accounting. Show any calculations you make to support your journal entries.

? What, if anything, is the difference in revenue recognized for the month of January under ASC 605 and ASC 606?

1. Joe Windows manufactures and sells custom storm windows for three-season porches. Joe also provides installation service for the windows. The installation process does not involve changes in the windows, so this service can be performed by other vendors. Joe enters into the following non-cancellable contract on July 1, 2020, with a local homeowner. The customer purchases windows for a price of $2,400 and chooses Joe to do the installation. Joe charges the same price for the windows regardless of whether it does the installation or not. The price of the installation service is estimated to have a fair value of $600. The customer pays Joe $2,000 (which equals the fair value of the windows, which have a cost of $1,100) upon delivery and the remaining balance upon installation of the windows. The windows are delivered on September 1, 2020, Joe completes installation on October 15, 2020, and the customer pays the balance due. Using the five-step process for revenue recognition, determine when and how much revenue would be recognized by Joe. Round percentage allocations to two decimal places and final amounts to the nearest dollar. Assume Joe follows IFRS.

Required: Fill in the following chart.

Analysis:

Schedule 1

Assume the following data relating to the financials for the Candy Company (K).

Company Balance Sheet

Total Assets                             $9,800,000

Debt $2,700,000

Company Income Statement

Revenue $15,200,000

Profit Margin 6%

Required:

Based on the above data, calculate the ROE for Candy Co.

Exercise 6-9 Variable and Absorption Costing Unit Product Costs and Income Statements [LO6-1, LO6-2, LO6-3]

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 $58 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.

1. Which of the following statements is NOT true about the Revenue Management?
a. Revenue management is based on setting and updating prices.
b. Revenue management is originated in the airline industry.
c. Through revenue management, the firms can allocate their capacity to different fare classes over time in order to maximize revenue.
d. Revenue management focuses on shaping demand via controlling supply under the limited capacity.

2. According to the Littlewood’s Rule, which of the following does NOT generate pressure to increase the booking limit?
a. Increase in the full-fare price
b. Increase in the discount-fare price
c. Increase in the plane capacity
d. Decrease in the average full-fare demand

3. A hotel has 200 rooms and the historical show rate is 90%. What will be the (closest) optimal overbooking level given by the deterministic overbooking heuristic?
a. 222
b. 180
c. 200
d. None of the above
e. 220