Milberg Co. uses absorption costing and standard costing to improve cost control.

In 2016, the total budgeted overhead rate was $1.55 per direct labour hour. When preparing the budget, Milberg expected a monthly activity level of 10,000 direct labour hours. The monthly variable overhead cost budgeted for this level of activity was $9,500.

The following data on actual results are provided for the month of November 2016.

Instructions

Identify and calculate as many different variances as you can for 2016.

(adapted from CGA-Canada, now CPA Canada)

LPV=$ 1500 F

Schedule of Cash Collections of Accounts Receivable

Office World Inc. has "cash and carry" customers and credit customers. Office World estimates that 25% of monthly sales are to cash customers, while the remaining sales are to credit customers. Of the credit customers, 25% pay their accounts in the month of sale, while the remaining 75% pay their accounts in the month following the month of sale. Projected sales for the next three months of 2016 are as follows:

The Accounts Receivable balance on July 31, 2016, was $76,000.

Prepare a schedule of cash collections from sales for August, September, and October. Round all calculations to the nearest whole dollar.

Supplies, unearned revenue, and the financial statements model
Hart, Attorney at Law, experienced the following transactions in 2016, the first year of operations:
1. Accepted $36,000 on April 1, 2016, as a retainer for services to be performed evenly over the next 12 months.
2. Performed legal services for cash of $54,000.
3. Purchased $2,800 of office supplies on account.
4. Paid $2,400 of the amount due on accounts payable.
5. Paid cash dividend to the stockholders of $5,000.
6. Paid cash for operating expenses of $31,000.
7. Determined that at the end of the accounting period $200 of office supplies remained on hand.
8. On December 31, 2016, recognized the revenue that had been earned for services performed in accordance with Transaction 1.
Required
Show the effects of the events on the financial statements using a horizontal statements model like the following one. In the Cash Flows column, use the initials OA to designate operating activity, IA for investing activity, FA for financing activity, and NC for net change in cash. Use NA to indicate accounts not affected by the event.

Suppose Mats Sundin decided to make another comeback with the Toronto Maple Leafs in 2016. The Leafs offer him a two-year contract in January 2016 with the following provisions:  

Assume that Mats achieved his bonus requirements both years and he signed the contract right away on January 1, 2016. Assume that cash flows are discounted at 11.6 percent. Ignore any taxes. Mats’ signing bonus was paid on the day the contract was signed. His salary and bonuses, other than the signing bonus, are paid at the end of the year. What was the PV of this contract in January when Mats signed it? (Do not round intermediate calculations. Round the answer to 2 decimal places. Omit $ sign in your response.)

    5. On the date of the balance sheet, Armani Co. had $10,000 of inventory in transit to Saks Company via a public carrier. A) Should Armani include the inventory if the terms were FOB Shipping Point? B) If the terms were FOB Destination should Armani include the inventory?

6. The following information was taken from Taylor Enterprises. The following two errors were made in the physical inventory counts:
   1. 2015 ending inventory was understated by $7000
   2. 2016 ending inventory was overstated by $3000
   3. Compute the correct Cost of goods sold for both 2015 and 2016

                                                                           2016               2015

     Beginning Inventory                                                  $60,000          $50,000

     Cost of good purchased                                             420,000          400,000

     Ending Inventory                                                          55,000            60,000

     Cost of goods sold                                                     $425,000         $390,000

Nucor Corporation produces steel and steel products at its eight mills and is a major recycler of scrap metal. The following data relate to Nucor for four years. In 2017, Nucor’s net income was higher by $175.2 million because of a one-time effect of the Tax Cuts and Jobs Act.

Required:

In the following analyses, eliminate the one-time net income effect of the Tax Cuts and Jobs Act on 2017’s results.

1. Calculate Nucor’s ROA for 2016, 2017, and 2018.
2. Decompose ROA into operating profit margin and asset turnover components.
3. Has Nucor’s profitability changed over the three years?
4. Calculate the rate of return on common stockholders’ equity for 2016, 2017, and 2018.

Problem 3

Below, you are provided with two years of data on the quantities of two goods that the average, urban family offour consumes and the market price of each. You will use these data to calculate the Consumer Price Index (CPI) and inflation rate.

Cheese and Chocolate are two goods that are consumed in Holland. Many other final goods and services areconsumed in Holland, but for simplicity, we will assume that Cheese and Chocolate are the only two final goodsconsumed in the country. The table below provides the quantity of Cheese and Chocolate that are consumed bythe average, urban family of four in Holland in two different years. The table also provides the price of a Cheeseand the price of chocolate in each year.

Suppose that 2016 is the base year.

1. Calculate the CPI in 2016 and 2017. Round your answer to the nearest one-hundredth.
2. Calculate the 2017 inflation rate. Round your answer to the nearest one-tenth of one percent.

During 2016 (its first year of operations) and 2017, Segura LLC used the FIFO inventory costing method. At the beginning of 2018, Segura changed to the average cost method.

                Components of income before tax for 2018, 2017, and 2016 were as follows ($ in millions):

                                                                                2018                       2017                       2016

                Revenues                                            $420                       $390                       $380

                Cost of goods sold (FIFO)              (46)                         (40)                        (38)

                Cost of goods sold (average)       (62)                         (56)                        (52)

                Operating expenses                       (254)                      (250)                     (240)

Dividends of $20 million were paid each year. Segura’s fiscal year ends December 31. Ignore income taxes.

Required:

1. Determine the balance in retained earnings at December 31, 2017 (before the change to average cost).

2. Prepare the journal entry at the beginning of 2018 to record the change in inventory accounting method.

3. Prepare the 2018 comparative income statements (including 2017 amounts).

4. What was the effect of the change in inventory method on the company’s 2018 net income?

5. Determine the balance in retained earnings at December 31, 2018.

XYZ's stock price and dividend history are as follows:

An investor buys three shares of XYZ at the beginning of 2016, buys another two shares at the beginning of 2017, sells one share at the beginning of 2018, and sells all four remaining shares at the beginning of 2019.

a. What are the arithmetic and geometric average time-weighted rates of return for the investor? (Round your year-by-year rates of return and final answer to 2 decimal places. Do not round other calculations.)

b. What is the dollar-weighted rate of return? (Hint: Carefully prepare a chart of cash flows for the four dates corresponding to the turns of the year for January 1, 2016, to January 1, 2019. If your calculator cannot calculate internal rate of return, you will have to use trial and error.) (Round your answers to 4 decimal places. Negative amount should be indicated by a minus sign.)

Additional Funds Needed

The Booth Company's sales are forecasted to double from $1,000 in 2016 to $2,000 in 2017. Here is the December 31, 2016, balance sheet:

Booth's fixed assets were used to only 50% of capacity during 2016, but its current assets were at their proper levels in relation to sales. All assets except fixed assets must increase at the same rate as sales, and fixed assets would also have to increase at the same rate if the current excess capacity did not exist. Booth's after-tax profit margin is forecasted to be 6% and its payout ratio to be 40%. What is Booth's additional funds needed (AFN) for the coming year? Round your answer to the nearest dollar.

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