The Gourmand Cooking School runs short cooking courses at its small campus. Management has identified two cost drivers it uses in its budgeting and performance reports—the number of courses and the total number of students. For example, the school might run two courses in a month and have a total of 60 students enrolled in those two courses. Data concerning the company’s cost formulas appear below:

For example, administrative expenses should be $3,800 per month plus $42 per course plus $5 per student. The company’s sales should average $880 per student.

The company planned to run four courses with a total of 60 students; however, it actually ran four courses with a total of only 56 students. The actual operating results for September appear below:

Required:

1. Prepare the company’s planning budget for September.

2. Prepare the company’s flexible budget for September.

3. Calculate the revenue and spending variances for September.

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.

The pizzeria’s cost formulas appear below:

In November, the pizzeria budgeted for 1,650 pizzas at an average selling price of $18 per pizza and for 250 deliveries.

Data concerning the pizzeria’s actual results 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.)

Teresa Greene owns and manages a craft and material shop called All Sewn Up. Most of the revenue of All Sewn Up is from the sale of craft materials, although some revenue is made by giving craft lessons to groups of six customers at a time. As Teresa’s shop relies on many suppliers of small amounts of different craft materials, she has difficulty keeping track of all her accounts payable. Teresa is not very well organised and so struggles to send out accounts to her customers or collect money from them. Teresa is considering implementing a computerised accounting system as she has been doing a computer course at a local TAFE and feels that it could help her to be more organised.

Required:

1. Discuss what source documents would be required in a manual accounting system in order to record the sales to customers and receipt of cash, and to ensure correct payment of money to suppliers? You should also discuss where the transactions should be recorded and the best way to manage the credit sales.

Marks: 8

2. In her computer course Teresa learnt that the focus in accounting should not be on bookkeeping but on the use of the information ‘inside the computer’ to make better decisions and to better manage the business. In what ways could a computerised accounting package such as Xero help Teresa make better decisions and manage her business better?

Marks: 12

The following transactions apply to Jova Company for Year 1, the first year of operation:

Issued $19,000 of common stock for cash.

Recognized $219,000 of service revenue earned on account.

Collected $171,900 from accounts receivable.

Paid $134,000 cash for operating expenses.

Adjusted the accounts to recognize uncollectible accounts expense. Jova uses the allowance method of accounting for uncollectible accounts and estimates that uncollectible accounts expense will be 1 percent of sales on account.

The following transactions apply to Jova for Year 2:

Recognized $329,000 of service revenue on account.

Collected $344,000 from accounts receivable.

Determined that $2,600 of the accounts receivable were uncollectible and wrote them off.

Collected $1,700 of an account that had previously been written off.

Paid $214,000 cash for operating expenses.

Adjusted the accounts to recognize uncollectible accounts expense for Year 2. Jova estimates uncollectible accounts expense will be 0.5 percent of sales on account.

Complete the following requirements for Year 1 and Year 2. Complete all requirements for Year 1 prior to beginning the requirements for Year 2.

Effects of transaction on financial statement

General Journal

Income Statement

Statement of Changes in Stockholders' Equity

Balance Sheet

Statement of Cash Flows

Closing entries

Use the straight-line method to compute the depreciation expense for Year 1 and Year 2

John was a high school teacher earning $ 80,000 per year. He quit his job to start his own business in pizza catering. In order to learn how to run the pizza catering business, John enrolled in a TAFE to acquire catering skills. John’s course was for 3 months. John had to pay $2,000 as tuition for the 3 months.

After the training, John withdrew $110,000 from his savings account. He had been earning 5 percent interest per year for this account. He also borrowed $50,000.00 from his friend whom he pays 6 percent interest per year. Further, to start the business John used his own premises. He was receiving $12,000 from rent per year. Finally, to start the business John uses $50,000 he had been given by his father to go on holiday to USA.

John’s first year of business can be summarised as follows:

Based on your calculated accounting profit and economic profit, would you advise John to return to his teaching job? Show your work                       

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.

The pizzeria’s cost formulas appear below:

In November, the pizzeria budgeted for 1,560 pizzas at an average selling price of $15 per pizza and for 220 deliveries.

Data concerning the pizzeria’s actual results 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.)

The Rosa model of Mohave Corp. is currently manufactured as a very plain umbrella with no decoration. The company is considering changing this product to a much more decorative model by adding a silk-screened design and embellishments. A summary of the expected costs and revenues for Mohave’s two options follows:      

Required:
1. Determine the increase or decrease in profit if Mohave sells the Rosa Umbrella with the additional decorations.( Sales revenue, variable costs, contribution margin, additional development costs and differential profit for rose umbrella, decorated umbrella and incremental)

2. Should Mohave add decorations to the Rosa umbrella?

3-a. Suppose that the higher price of the decorated umbrella is expected to reduce estimated demand for this product to 9,000 units. Determine the increase or decrease in profit if Mohave sells the Rosa Umbrella with the additional decorations.( Sales revenue, variable costs, contribution margin, additional development costs and differential profit for rose umbrella, decorated umbrella and incremental)

3-b. Should Mohave add decorations to the Rosa umbrella?

You are a recently designated accountant. As a result of having your designation, you have been hired as the controller at a national manufacturing company. Due to a recent economic slowdown, the company has been struggling to meet earnings targets. These targets are the basis for senior management bonuses. You report directly to the CFO.

This is your second month with the company; however, it is your first year end (December 31). The auditor will be coming to audit the books in three weeks. You have fi nalized the fi nancial statements, and
you have reviewed them with the CFO and the CEO.

The week before the auditor is expected to arrive, the CFO comes to your office and explains that the financial results are very disappointing. He explains that: on December 31, a sales contract was signed for $500,000 of goods with delivery to take place January 3. He asks you to record the revenue for this contract on December 31, the date the contract is signed and before the work is performed. This will result in early revenue recognition, and doing so will eliminate the overall net loss for the year.

You are married with a stay-at-home spouse and two small children. To celebrate your success, you recently purchased a new home. It cost a little more than you planned to spend and the mortgage payments are pretty expensive.

What would you do? What are the ethical issues you would need to consider?

Imagine Chiquita owns a start up – Swanky Dog Inc. – a firm that sells high end winter coats for dogs. Dog coats sell for $80 each without deviation. She only has enough capacity in her facility to produce a maximum of 10 coats per week. The fixed costs of production are $100. The total variable costs are as follows:

Using the above information, start an Excel worksheet. Make categories and calculate the values for each of the following: price, quantity, fixed cost, variable cost, average variable cost, total costs, average total costs, marginal cost, total revenue, marginal revenue, and profit.

After finding all values in the worksheet, determine what the profit maximizing quantity is for Chiquita’s firm. How can you tell?

c)      Plot the data. In one plot, show ATC, AVC, MC, and MR for Q=[0, 10]. In a separate plot, show Profits as a function of quantity produced over Q=[0,10].

Cherry Wood Corporation sells blenders under a three-year warranty contract that requires it to replace defective parts and provide necessary repair and labour. During 2019, the corporation sold 1,000 blenders for cash at a unit price of $800 each. Similar three-year warranty agreements are available separately and are estimated to have a stand-alone value of $120. On the basis of past experience, the per-unit, three-year warranty costs are estimated to be $20 for parts and $30 for labour. For simplicity, assume that all sales occurred on December 31, 2019 rather than evenly throughout the year and any warranty revenue (if applicable) is earned evenly over the three-year period. In 2020, the actual warranty costs to Cherry Wood are $5,000 for parts and $10,000 for labour.

Instructions:

1 Assurance Method:

1. a) Assume the company uses the assurance method and record any necessary journal

   entries in 2019 and 2020 applying the expense approach.

2. b) What liability relative to these transactions would appear on the December 31, 2019

   statement of financial position and how would it be classified.

2. Service Type Method:

1. a) Assume the company uses the service-type method and record any necessary

   journal entries in 2019 and 2020 applying the revenue approach.

2. b) What liability relative to these transactions would appear on the December 31, 2019

   statement of financial position and how would it be classified.