Problem 19-2A Variable costing income statement and conversion to absorption costing income LO P2, P3

Trez Company began operations this year. During this first year, the company produced 100,000 units and sold 80,000 units. The absorption costing income statement for this year follows.

  
Additional Information

1. Selling and administrative expenses consist of $450,000 in annual fixed expenses and $2 per unit in variable selling and administrative expenses.
2. The company's product cost of $25 per unit is computed as follows.

Journal Entries, T-Accounts

Ehrling Brothers Company makes jobs to customer order. During the month of July, the following occurred:

1. Materials were purchased on account for $45,620.
2. Materials totaling $40,980 were requisitioned for use in producing various jobs.
3. Direct labor payroll for the month was $19,200 with an average wage of $12 per hour.
4. Actual overhead of $8,860 was incurred and paid in cash.
5. Manufacturing overhead is charged to production at the rate of $5.40 per direct labor hour.
6. Completed jobs costing $58,000 were transferred to Finished Goods.
7. Jobs costing $58,000 were sold on account for $ 73,750. Make the entry to record the revenue from the sale first, followed by the entry to record the cost of the jobs.

Beginning balances as of July 1 were:

Required:

1. Prepare the journal entries for the preceding events.

2. Calculate the ending balances of:

1. Ehrling Brothers Company makes jobs to customer order. During the month of July, the following occurred:

   1. Materials were purchased on account for $45,620.
   2. Materials totaling $40,880 were requisitioned for use in producing various jobs.
   3. Direct labor payroll for the month was $25,600 with an average wage of $16 per hour.
   4. Actual overhead of $8,850 was incurred and paid in cash.
   5. Manufacturing overhead is charged to production at the rate of $5.40 per direct labor hour.
   6. Completed jobs costing $60,000 were transferred to Finished Goods.
   7. Jobs costing $58,000 were sold on account for $ 73,750. Make the entry to record the revenue from the sale first, followed by the entry to record the cost of the jobs.

   Beginning balances as of July 1 were:

   Materials Inventory	$1,300
   Work-in-Process Inventory	3,400
   Finished Goods Inventory	2,620

   Required:

   1. Prepare the journal entries for the preceding events.

   a.
   b.
   c.
   d.
   e.
   f.
   g (1).
   g (2).

   2. Calculate the ending balances of:

   a. Materials Inventory	$
   b. Work-in-Process Inventory	$
   c. Overhead Control	$
   d. Finished Goods Inventory	$

The following transactions occurred in April at Steve’s Cabinets, a custom cabinet firm:

Purchased $21,500 of materials on account.

Issued $1,350 of supplies from the materials inventory.

Purchased $12,300 of materials on account.

Paid for the materials purchased in transaction (1) using cash.

Issued $14,700 in direct materials to the production department.

Incurred direct labor costs of $25,500, which were credited to Wages Payable.

Paid $22,300 cash for utilities, power, equipment maintenance, and other miscellaneous items for the manufacturing plant.

Applied overhead on the basis of 120 percent of $25,500 direct labor costs.

Recognized depreciation on manufacturing property, plant, and equipment of $11,100.

The following balances appeared in the accounts of Steve’s Cabinets for April:
  

Required:

a. Prepare journal entries to record the transactions. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

b. Prepare T-accounts to show the flow of costs during the period from Materials Inventory through Cost of Goods Sold.

Moonbeam Company manufactures toasters. For the first 8 months of 2017, the company reported the following operating results while operating at 75% of plant capacity:

Cost of goods sold was 77% variable and 23% fixed; operating expenses were 87% variable and 13% fixed.

In September, Moonbeam Company receives a special order for 24,400 toasters at $8.38 each from Luna Company of Ciudad Juarez. Acceptance of the order would result in an additional $3,100 of shipping costs but no increase in fixed costs.

(a)

Prepare an incremental analysis for the special order. (Round computations for per unit cost to 4 decimal places, e.g. 15.2500 and all other computations and final answers to the nearest whole dollar, e.g. 5,725. Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

Ehrling Brothers Company makes jobs to customer order. During the month of July, the following occurred:

1. Materials were purchased on account for $45,620.
2. Materials totaling $40,980 were requisitioned for use in producing various jobs.
3. Direct labor payroll for the month was $19,200 with an average wage of $12 per hour.
4. Actual overhead of $8,850 was incurred and paid in cash.
5. Manufacturing overhead is charged to production at the rate of $5.40 per direct labor hour.
6. Completed jobs costing $60,000 were transferred to Finished Goods.
7. Jobs costing $58,000 were sold on account for $ 73,750. Make the entry to record the revenue from the sale first, followed by the entry to record the cost of the jobs.

Beginning balances as of July 1 were:

Required:

1. Prepare the journal entries for the preceding events.

2. Calculate the ending balances of:

(1) a city levies property taxes to use for general operations of the city in the amount of $1,000,000 for calendar year 2017. it expects to collect $950,000 during the year, $30,000 during the first 60 days of 2018, and $15,000 during the remainder of 2018. it does not expect to collect the remaining $5,000. how much property tax revenue should it recognize for the year 2017?

a- $1,000,000

b- $980,000

c- $995,000

d-$990,000

(2) which of the following is not associated with government and not-for-profit organization?

a- the goal of accounting is to measure net income.

b- goods and/ or services provided maybe priced at / or below cost.

c- the organization purpose is to provide goods and / or services to its constituents .

d- resource providers often do not receive goods and / or services equal in value to the amount of resources they provide.

(3) the primary purpose of fund accounting is?

a- to keep track of long term assets and liabilities related to governmental activities.

b- to segregate an organization's resources according to the purpose(s) for which they are to be used.

c- to provide expenditure authority for a government or not-for-profit organization.

d- all of the above are major purposes of using funds.

Journal Entries, T-Accounts

Ehrling Brothers Company makes jobs to customer order. During the month of July, the following occurred:

1. Materials were purchased on account for $45,760.
2. Materials totaling $40,980 were requisitioned for use in producing various jobs.
3. Direct labor payroll for the month was $22,400 with an average wage of $14 per hour.
4. Actual overhead of $8,860 was incurred and paid in cash.
5. Manufacturing overhead is charged to production at the rate of $5.40 per direct labor hour.
6. Completed jobs costing $58,000 were transferred to Finished Goods.
7. Jobs costing $58,000 were sold on account for $ 73,750. Make the entry to record the revenue from the sale first, followed by the entry to record the cost of the jobs.

Beginning balances as of July 1 were:

Required:

1. Prepare the journal entries for the preceding events.

2. Calculate the ending balances of:

Consider a hypothetical economy characterized by the following equations (all variables as defined in class).
Consumption: C = 700 + 0.95Y Investment: I=500− 30i Government spending: G=50 Money demand: L(i,Y )=0.75Y − 30i Money supply: Ms/P=400

(a) What is the equation of the IS curve?

(b) What is the equation for the LM curve? (c)

Solve for the equilibrium values of income (Y) and interest rates (i).

(d) Assume that the government engages in expansionary fiscal policy by increasing expenditure to G = 100. Solve for the new equilibrium values of income (Y) and interest rates (i). Illustrate your answer in a graph.

(e) Assume that instead of the expansionary fiscal policy in part (d) above, that the Monetary Authority (The Central Bank) engages in expansionary monetary policy by increasing the money supply by 100 to Ms/P = 500. Solve for the new equilibrium values of income (Y) and interest rates (i) in this case. Illustrate your answer in a graph.

(f) Which of the policies from parts (d) and (e) above would be the most effective expansionary policy ? Explain.

(g) Say that the government engaged in both of the policies of parts (d) and (e) simultaneously. Would this policy mix be more or less expansionary than the individual policies?

(h) Suppose that money demand in this economy was observed to be income insensitive so that it was now represented by L(i, Y ) = L(i) = 600 − 30i. In this case, which of the policies from parts (d) and (e) above would be the most effective expansionary policy? Explain your answer in terms of the concept of “crowding out”.

(i) Lastly, returning to the original model as in part (a), suppose that investment was now determined to be interest insensitive such that it could be represented by I = 600. In this case, which of the policies from parts (d) and (e) above would be the most effective expansionary policy? Explain this answer in terms of “crowding out ”.

Gloucester Ltd. manufactures specialized valves. For the first six months of 2002 the company reported the following operating results.

Fixed costs included in cost of goods sold in the period were $800,000; fixed costs included in selling and administrative expenses were $60,000.

Gloucester recently received a special order from an overseas industrial customer, Brewery Supply Industries (BIS), for 9,000 brewery valves at a price of $36.50 each. Accepting the order would increase variable selling and administrative expenses by $0.75 per unit because of additional shipping costs, but it would not increase fixed costs or any other unit variable costs.

Assume that Gloucester currently has just sufficient excess capacity to fill this one-time order which will take 6 months to fill.

Ignore income taxes.

Required

1. Moira Keating, VP Sales, wants to know how profitable this special order would be. Prepare a financial analysis of this order for Ms Keating.

2. Ms Keating has some additional questions regarding the BIS order:

1. What is the break-even selling price per unit?
2. What selling price would be required to produce a contribution margin of $6.00 per unit?

C. Identify and briefly justify what you would consider to be the two most important factors that are not directly financial and that management should consider in making its decision?

D. Ms Keating, VP Sales, is still unsure about the wisdom of accepting the BIS order. She has asked you to prepare a full report dealing with all the relevant issues and make a recommendation to her as to whether Gloucester Ltd. Should accept this order. Justify your conclusion, citing all relevant factors, quantitative and qualitative, including those that have been raised in your answers above.