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.

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 64 students enrolled in those two courses. Data concerning the company’s cost formulas appear below:

For example, administrative expenses should be $3,900 per month plus $44 per course plus $5 per student. The company’s sales should average $870 per student.

The company planned to run four courses with a total of 64 students; however, it actually ran four courses with a total of only 56 students. The actual operating results for September appear below:

Required:

Prepare a flexible budget performance report that shows both revenue and spending variances and activity variances for September.

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 65 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 $41 per course plus $5 per student. The company’s sales should average $870 per student.

The company planned to run four courses with a total of 65 students; however, it actually ran four courses with a total of only 55 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.

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 64 students enrolled in those two courses. Data concerning the company’s cost formulas appear below:

For example, administrative expenses should be $3,600 per month plus $44 per course plus $6 per student. The company’s sales should average $900 per student.

The company planned to run four courses with a total of 64 students; however, it actually ran four courses with a total of only 54 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.

2. Variance Analysis

Nail_It company is a manufacturer of a custom engraved hammers. For the year 2021, the weekly budget was as follows.

• Sales revenue $64,000: 2,000 hammers × price $32
• Variable costs:
  • Direct materials $10,000: 2,000 hammers × 1 lbs per hammer × price $5/lb
  • Direct labour $50,000: 2,000 hammers × 5 hour per hammer × rate $5/hour
  • no variable overhead
• Fixed costs: $3,000
• Profit: $1,000

The actual performance of the week was as follows.

• Sales revenue $70,400: 2,200 hammers × price $32
• Variable costs:
  • Direct materials $13,200: 2,200 hammers × 1 lbs per hammer × price $6/lb
  • Direct labour $46,200: 2,200 hammers × 3 hour per hammer × rate $7/hour
  • no variable overhead
• Fixed costs: $8,000
• Profit: $8,000

Required:

1) Compute the following variances

a) Spending and Volume Variances of Materials

b) Spending and Volume Variances of Labour

c) Spending and Volume Variances of Fixed Overhead

d) Materials Quantity Variance

e) Materials Price Variance

f) Labour Efficiency Variance

g) Labour Rate Variance

2) Nail_It company hired an experienced engineer and asked her to re-organize the production process. How could hiring an experienced engineer and their new production process explain the variances? Please comment on individual components of variances, their relations to other variances, and overall impact on profitability.

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 65 students enrolled in those two courses. Data concerning the company’s cost formulas appear below:

For example, administrative expenses should be $3,500 per month plus $45 per course plus $3 per student. The company’s sales should average $870 per student.

The company planned to run four courses with a total of 65 students; however, it actually ran four courses with a total of only 55 students. The actual operating results for September appear below:

Required:

Prepare a flexible budget performance report that shows both revenue and spending variances and activity variances for September.

Requirements: Provide a short answer to each independent scenario.

Jiminy Corp. enters into a sales contract. The contract specifies only one performance obligation. Jiminy completes the performance obligation by delivering the promised goods. As specified in the sale contract, Jiminy will receive $50,000 for satisfaction of the performance obligation, which will be paid in monthly installments over the three-year period upon delivery. Assume that Jiminy expects to receive the full contract price from the customer. Will Jiminy have recognized more than, less than, or exactly $50,000 of sales revenue related to the contract? Why?

Monstro Corp. accepts $1,000 of goods on consignment from Donkey Corp. Donkey sells them for $1,500, charging a commission of 10% of sale price. Monstro has not received the cash yet. Provide the journal entries, if necessary, of the transfer and sale for both corporations.

On August 1^st, Blue Fairy Inc. enters into a contract with Gideon Video to add their programs to Blue Fairy's network. Gideon will pay Blue Fairy an upfront fee of $250,000 fixed fee for 12 months of access, and will also pay a $100,000 bonus if Agee's users access Gideon Video for at least 10,000 hours during the 12 month period. Blue Fairy estimates that it has a 70% chance of earning the $100,000 bonus. Using the expected value approach, how much revenue will Blue Fairy recognize assuming fiscal year end of December 31^st.

Question 5 (Total of 24 marks)

Hit-and-Miss Airlines are considering providing a new daily service between two cities. The aircraft has a maximum capacity of 200 passengers and each flight incurs a fixed cost of $27,000 regardless of the number of passangers. In addition, a cost is also incurred of $75 per passanger to cover such things as catering, booking, baggage handling.

The company is thinking of charging $225 per ticket. How many passengers will the airline need on each flight to break even? Find the break-even point algebraically and illustrate it using an EXCEL graph. Attach the printout or copy your EXCEL graph into your assignment submission. Based on your analysis, will Hit-and-Miss realize a profit or a loss if 160 seats are sold for a particular flight? Explain briefly.

EXCEL Instructions: Create a column called Number of Passengers and in that column enter values from 0 to 200 in increments of 20. Then create two more columns, one for Total Cost and another for Total Revenue. Enter appropriate formulae in EXCEL to obtain the total cost and total revenue corresponding to each value in the Number of Passengers column. Highlight the resulting three sets of numbers and go to the Chart Wizard to obtain the graph. Make sure that your graph has been labelled appropriately (i.e. title, axis labels, legend). Please refer to Topic 3 in the EXCEL Booklet for further instructions on entering formulae and graphing in EXCEL.

On January 1, 2021, Ithaca Corp. purchases Cortland Inc. bonds that have a face value of $240,000. The Cortland bonds have a stated interest rate of 7%. Interest is paid semiannually on June 30 and December 31, and the bonds mature in 10 years. For bonds of similar risk and maturity, the market yield on particular dates is as follows: (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.):

Required:
1. Calculate the price Ithaca would have paid for the Cortland bonds on January 1, 2021 (ignoring brokerage fees), and prepare a journal entry to record the purchase.
2. Prepare all appropriate journal entries related to the bond investment during 2021, assuming Ithaca accounts for the bonds as a held-to-maturity investment. Ithaca calculates interest revenue at the effective interest rate as of the date it purchased the bonds.
3. Prepare all appropriate journal entries related to the bond investment during 2021, assuming that Ithaca chose the fair value option when the bonds were purchased, and that Ithaca determines fair value of the bonds semiannually. Ithaca calculates interest revenue at the effective interest rate as of the date it purchased the bonds.