PRODUCT COSTING FOR MANAGEMENT AND PRICING (2-5) 1. Service Company Allocation of Overhead Blue Computer Repair treats each repair order as a job. Overhead is allocated based on the cost of technician time. At the start of the year, annual technician wages were estimated to be $800,000, and company overhead was estimated to be $500,000. Required a.   Discuss why use of a predetermined overhead rate would be preferred to assigning actual overhead to repair jobs. b.   Suppose a job required parts costing $200 and technician time costing $100. What would be the total cost of the job? 2. Cost of Jobs     Red Company is a steel fabricator, and job 325 consists of producing 500 steel supports for Green Construction Company. Overhead is applied on the basis of direct labor hours, using a predetermined overhead rate of $25 per hour. Direct costs associated with Job 325 are: direct materials, $10,000; direct labor, 250 hours at $16 per hour. Required Calculate the cost of Job 325. 3. Service Company Use of Predetermined Overhead Rate Yellow and Purple Legal Services employs five full-time attorneys and nine paraprofessionals. Budgeted salaries are $100,000 for each attorney and $50,000 for each paraprofessional. Budgeted indirect costs (e.g., rent, secretarial support, copying, etc.) are $210,000. The company traces the cost of attorney and paraprofessional time to each client and uses the total to assign indirect costs. Required What amount of indirect costs would be assigned if services to a client required $25,000 of attorney cost and $20,000 of paraprofessional cost? 4. Job Costing (Service) Orange & Associates is an accounting firm that provides audit, tax, and accounting services to medium-size retail companies. It employs 50 professionals (10 partners and 40 associates) who work directly with clients. The average expected total compensation per professional for the year is $120,000. The services of Orange are in high demand, and each professional works for clients to their maximum of 1,600 billable hours. All professional salaries are traced to individual client service summaries. All costs other than professional salaries are included in a single indirect cost pool (professional support). The indirect costs are assigned to service summaries using professional hours as the allocation base. The expected amount of indirect costs for the year is $5,200,000. Required a.   Compute the budgeted indirect cost rate per hour of professional service. b.   Orange & Associates is bidding on tax and audit services for a potential client that are expected to require 100 hours of professional service time. Calculate the estimated cost of the work using average professional wage rates and basing indirect costs on estimated service time.

Heart Construction is analyzing its capital expenditure proposals for equipment in the coming year. The capital budget is limited to $15,000,000 for the year. Laura, staff analyst at Heart Construction, is preparing an analysis of the three projects under consideration by Mr. Heart, the company’s owner.

Because the company’s cash is limited, Mr. Heart thinks the payback method should be used to choose between the capital budgeting projects.

Requirement

1. What are the benefits of the payback methods?
2. What are the limitations of the payback methods?
3. Calculate the payback period for each of the three projects. Ignore income taxes. Round your answer to 2 decimal places.
4. Based on the payback period, which project should Mr. Heart choose?
5. Calculate the simple rate of return for each project. Ignore income taxes.
6. Based on the simple rate of return, which project should Mr. Heart choose?

2. Plattsburgh Construction Company (PCC) renovates old homes in Plattsburgh. Over time, the company has found that its dollar volume of renovation work is dependent on the Plattsburgh area payroll. The figures for Plattsburgh Construction Company’s sales and the amount of money earned by wage earners in Plattsburg for the past six years are presented in the following table.

Conducts a regression analysis and fill in blanks.

1. State the prediction equation or the regression model.

2. What percent of the variations in PCC’s sales is explained by the model? Is the model powerful in prediction sales? Explain.

3. What do F-ratio and P-value tell about the above regression model?
4. Based on the regression model, what are PCC’s predicted sales if the local payroll is predicted to be $7 million next year?

Singapore Budget 2015: Parliament Passes Record $79.9 Billion Budget

New schemes announced by the budget statement include ten new hawker centers by 2027, a third desalination plant, SkillsFuture initiative to support lifelong learning for adults, and a second edition of Construction Productivity Roadmap to boost the industry’s capabilities.

Source: The Straits Times, March 13, 2015

.     Explain the supply-side effects of building ten new hawker centers and a third desalination plant. ?

. .    Explain the potential supply-side and demand-side effects of Skills Future initiative.?

Explain the potential supply-side and demand-side effects of adopting new technologies to boost productivity in the construction industry.?

Draw a graph to illustrate the combined demand-side and supply-side effect of the fiscal policy measures in part (a).?

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The economy is growing slowly, the inflationary gap is large, and there is a budget deficit.

1-.    Do we know whether the budget deficit is structural or cyclical? Explain your answer.?

2-.   Do we know whether automatic stabilizers are increasing or decreasing aggregate demand? Explain your answer.?

3- If a discretionary decrease in government expenditure occurs, what happens to the structural budget balance? Explain your answer.?

2. Plattsburgh Construction Company (PCC) renovates old homes in Plattsburgh. Over time, the company has found that its dollar volume of renovation work is dependent on the Plattsburgh area payroll. The figures for Plattsburgh Construction Company’s sales and the amount of money earned by wage earners in Plattsburg for the past six years are presented in the following table.

Conducts a regression analysis and fill in blanks.

1. State the prediction equation or the regression model.

2. What percent of the variations in PCC’s sales is explained by the model? Is the model powerful in prediction sales? Explain.

3. What do F-ratio and P-value tell about the above regression model?
4. Based on the regression model, what are PCC’s predicted sales if the local payroll is predicted to be $7 million next year?

On December 31, 2019, Novak Inc. borrowed $4,440,000 at 13% payable annually to finance the construction of a new building. In 2020, the company made the following expenditures related to this building: March 1, $532,800; June 1, $888,000; July 1, $2,220,000; December 1, $2,220,000. The building was completed in February 2021. Additional information is provided as follows.

Determine the amount of interest to be capitalized in 2020 in relation to the construction of the building.

List of Accounts

Prepare the journal entry to record the capitalization of interest and the recognition of interest expense, if any, at December 31, 2020. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Interest During Construction

Alta Company is constructing a production complex that qualifies for interest capitalization. The following information is available:

• Capitalization period: January 1, 2019, to June 30, 2020
• Expenditures on project:

  2019:
  	January 1	$ 516,000
  	May 1	477,000
  	October 1	648,000
  2020:
  	March 1	1,404,000
  	June 30	684,000

• Amounts borrowed and outstanding:
     $1.7 million borrowed at 10%, specifically for the project
     $8 million borrowed on July 1, 2018, at 12%
     $13 million borrowed on January 1, 2017, at 6%

Required:

Note: Round all final numeric answers to two decimal places.

1. Compute the amount of interest costs capitalized each year.

   Capitalized interest, 2019	$ fill in the blank 1
   Capitalized interest, 2020	$ fill in the blank 2

2. If it is assumed that the production complex has an estimated life of 20 years and a residual value of $0, compute the straight-line depreciation in 2020.

   $ fill in the blank 3

3. Since GAAP requires accrual accounting, if a company capitalizes interest during the construction period it will report   income than if it had not capitalized interest. In future periods, the same company will report   income than if it had not capitalized interest.

Sara Chung knew the construction contractors in her area well. She was the purchasing manager at the power plant, a business that was the major employer in the region. Whenever a repair or maintenance job came up, Sara’s friends would inflate the invoice by 10%. The invoice would then be passed through the accounts payable department, where the clerk was supposed to review and verify the charges before processing the payment. The accounts payable clerk, Valerie Judson, was happy to have a job and didn’t want anything to jeopardize it. She knew the deal but kept her mouth shut. Sara’s contractor friends would always “kick back” the 10% extra to Sara under the table. One day, Valerie had a heart attack and went into the hospital. The company hired a new accounts payable clerk, Spencer Finn. He had worked construction in his college days and suspected something was fishy, but he couldn’t prove it. He did, however, wish to protect himself in case the fraud came to light.

1. How could an auditor detect fraud of this sort?
2. What can a business do to prevent this kind of fraudulent activity?
3. What should the new accounts payable clerk do to protect himself?

How could an auditor detect fraud of this sort?

What can a business do to prevent this kind of fraudulent activity?

What should the new accounts payable clerk do to protect himself?

The corporation performs adjusting entries monthly. Closing entries are performed annually on December 31. During December, the corporation entered into the following transactions.

Data for Adjusting Entries

The advance payment of rent on December 1 covered a period of three months.

The annual interest rate on the note payable to Rent-It is 6 percent.

The rental equipment is being depreciated by the straight-line method over a period of eight years.

Office supplies on hand at December 31 are estimated at $620.

During December, the company earned $4,600 of the rental fees paid in advance by McNamer Construction Company on December 8.

As of December 31, six days’ rent on the backhoe rented to Mission Landscaping on December 26 has been earned.

Salaries earned by employees since the last payroll date (December 26) amounted to $1,900 at month-end.

It is estimated that the company is subject to a combined federal and state income tax rate of 40 percent of income before income taxes (total revenue minus all expenses other than income taxes). These taxes will be payable in Year 2.

Prepare a balance sheet (in report form) as of December 31.

(Amounts to be deducted should be indicated by a minus sign. Round your final answers to the nearest whole dollar.)