The following questions and cases deal with the subject of cost-benefit analysis of internal control. Some important concepts in cost-benefit analysis are as follows:
1. Measurable benefit. Benefits or cost savings may be measured directly or may be based on estimates of expected value. An expected loss is an estimate of the amount of a probable loss multiplied by the frequency or probability of the loss-causing event.
A measurable benefit can arise from the reduction of an expected loss.
2. Qualitative benefit. Some gains or cost savings may not be measurable, such as company public image, reputation for regulatory compliance, customer satisfaction, and employee morale.
3. Measurable costs. Controls may have direct costs such as wages and equipment expenses.
4. Qualitative cost factors. Some costs may be indirect, such as lower employee morale created by over-controlled work restrictions.
5. Marginal analysis. Each successive control feature may have marginal cost and benefit effects on the control problem.
Case A
Porterhouse Company has numerous bank accounts. Why might management hesitate to spend $20,000 (half of a clerical salary) to assign someone the responsibility of reconciling each account every month for the purpose of catching the banks’ accounting errors? Do other good reasons exist to justify spending $20,000 each year to reconcile bank accounts monthly?
Case B
Harper Hoe Company keeps a large inventory of hardware products in a warehouse. Last year, $500,000 was lost to thieves who broke in through windows and doors. Josh Harper figures that installing steel doors with special locks and burglar bars on the windows at a cost of $25,000 would eliminate 90% of the loss. Hiring armed guards to patrol the building 16 hours a day at a current annual cost of $75,000 would eliminate all the loss, according to officials of the Holmes Security Agency. Should Josh arrange for one, both, or neither of the control measures?
Case C
The Merry Mound Cafeteria formerly collected from each customer as he or she reached the end of the food line. A cashier, seated at a cash register, rang up the amount (displayed on a digital screen) and collected money. Management changed the system, and now a clerk at the end of the line operates a calculator/printer machine and gives each customer a paper tape. The machine accumulates a running total internally. The customer presents the tape at the cash register on the way out and pays.
The cafeteria manager justified the direct cost of $30,000 annually for the additional salary and $500 for the new machine by pointing out that he could serve four more people each weekday (Monday through Friday) and 10 more people on Saturday and Sunday. The food line now moves faster and customers are more satisfied. (The average meal tab is $12, and total costs of food and service are considered fixed.) “Besides,” he said, “my internal control is better.” Evaluate the manager’s assertions.
Case D
Assume, in the Merry Mound situation cited above, that the better control of separating cash custody from the end-of-food-line recording function was not cost beneficial, even after taking all measurable benefits into consideration. As an auditor, you believe the cash collection system deficiency is a significant deficiency in internal control, and you have written it as such in your letter concerning reportable conditions, which you delivered to Merry Mound’s central administration. The local manager insists on inserting his own opinion on the cost-benefit analysis in the preface to the document that contains your report. Should you, in your report, express any opinion or evaluation on the manager’s statement?
In: Accounting
E5-2 Determining Cost Behavior and Calculating Expected Cost [LO 5-1]
Morning Dove Company manufactures one model of birdbath, which
is very popular. Morning Dove sells all units it produces each
month. The relevant range is 0–1,700 units, and monthly production
costs for the production of 1,200 units follow. Morning Dove’s
utilities and maintenance costs are mixed with the fixed components
shown in parentheses.
| Production Costs | Total Cost | |
| Direct materials | $ | 1,900 |
| Direct labor | 7,300 | |
| Utilities ($130 fixed) | 550 | |
| Supervisor’s salary | 2,900 | |
| Maintenance ($320 fixed) | 530 | |
| Depreciation | 800 | |
Required:
1. Identify each cost as variable, fixed, or mixed, and
express each cost as a rate per month or per unit (or combination
thereof). (Round your per unit value to 2 decimal
places.)
2. Determine the total fixed cost per month and
the variable cost per unit for Morning Dove. (Round your
variable cost per unit to 2 decimal places.)
3. State Morning Dove’s linear cost equation for a
production level of 0–1,700 units. Enter answer as an equation in
the form of y = a + bx. (Round your variable cost per unit
to 2 decimal places.)
4. Calculate Morning Dove’s expected total cost if
production increased to 1,400 units per month. Enter answer as an
equation in the form of y = a + bx. (Round Variable cost
per unit to 2 decimal places.)
In: Accounting
Problem 20-4A Weighted average: Process cost summary, equivalent units, cost estimates LO C2, C3, P4
Tamar Co. manufactures a single product in one department. All
direct materials are added at the beginning of the manufacturing
process. Conversion costs are added evenly throughout the process.
During May, the company completed and transferred 29,200 units of
product to finished goods inventory. Its 4,400 units of beginning
work in process consisted of $21,200 of direct materials and
$284,940 of conversion costs. It has 3,100 units (100% complete
with respect to direct materials and 80% complete with respect to
conversion) in process at month-end. During the month, $592,500 of
direct material costs and $2,788,020 of conversion costs were
charged to production.
Problem 20-4A Part 2
2. Prepare the journal entry dated May 31 to transfer the cost of completed units to finished goods inventory. (Do not round intermediate calculations. Round your final answers to the nearest whole dollar.)
In: Accounting
In: Economics
[The following information applies to the questions displayed
below.]
Tamar Co. manufactures a single product in one department. All
direct materials are added at the beginning of the manufacturing
process. Conversion costs are added evenly throughout the process.
During May, the company completed and transferred 24,700 units of
product to finished goods inventory. Its 3,500 units of beginning
work in process consisted of $89,120 of direct materials and
$806,926 of conversion costs. It has 2,650 units (100% complete
with respect to direct materials and 80% complete with respect to
conversion) in process at month-end. During the month, $570,015 of
direct material costs and $2,331,014 of conversion costs were
charged to production.
Assume that Tamar uses the FIFO method to account for its process
costing system.
In: Accounting
month of 05/2020 = 140 units sold.
| 05/01 | Inventory | Units | Unit cost | Total cost |
| 05/15 | Purchases | 6 5 | $13 | $ 845 |
| 05/24 | Purchases | 5 4 | 16 | 864 |
| Totals | 7 5 | 17 | 1275 | |
| 1 9 4 | 2984 |
Ending invent.@ 05/31 and cost of goods sold using FIFO/LIFO
| FIFO | LIFO | |
| End Inventory 05/31 | ? | ? |
| Cost o f goods sold | ? | ? |
Needing some help with homework Thanks!
In: Accounting
Pump A
Initial Cost: 7000
Salvage Value:1200
Useful Life:12
Pump B
Initial Cost: 5000
Salvage Value: 1000
Useful Life: 6
Two pumps are being considered for purchase. If interest is 9%, which pump should be bought?
In: Economics
A firm has sold 55,555 bicycles in 2020 that has variable cost of $199.55 for $299.99 each. The company's fixed cost for the year was $3,000,000. Show your work here below. To find Profit, compute the following first.
1. Total Variable Cost (TVC) ______
2. Total Cost (TC) _____
3. Total Revenue (TR) ______
4. Profit = ____
In: Accounting
QUESTION ONE: COST–VOLUME–PROFIT (CVP) ANALYSIS
(a) Identify the SIX underlying assumptions of cost–volume–profit (CVP) analysis.
(b) Select ANY THREE assumptions given in (a) and discuss the difficulties that could arise in CVP analysis if these assumptions do not hold.
QUESTION TWO: PUTTING ACCOUNTING DECISIONS IN CONTEXT
(a) Describe TWO financial and TWO non-financial performance indicators which may be useful for users of the reports of a public benefit entity (e.g. a museum).
(b) If you were a member of the governing body of a public entity body, which ONE of the performance indicators described in (a) would you regard as the most useful to evaluating the entity’s success? State the reasons for your choice.
QUESTION THREE: FINANCIAL REPORTING AND PROFESSIONAL JUDGEMENT
Explain why the figures in financial statements are sometimes disputed even though reporting entities comply with accounting standards in the preparation of financial statements.
In: Accounting
Compute cost of goods sold, assuming Kingbird uses:
| 1.Perpetual system, FIFO cost flow |
2.Perpetual system, LIFO cost flow
3.
| Perpetual system, moving-average cost flow |
Kingbird Company is a multi product firm. Presented below is
information concerning one of its products, the Hawkeye.
|
Date |
Transaction |
Quantity |
Price/Cost |
|||
| 1/1 | Beginning inventory | 3,500 | $19 | |||
| 2/4 | Purchase | 4,500 | 28 | |||
| 2/20 | Sale | 5,000 | 47 | |||
| 4/2 | Purchase | 5,500 | 36 | |||
| 11/4 | Sale | 4,700 |
52 |
In: Accounting