Evelyn Campbell started Campbell Manufacturing Company to make a universal television remote control device that she had invented. The company’s labor force consisted of part-time employees. The following accounting events affected Campbell Manufacturing Company during its first year of operation. (Assume that all transactions are cash transactions unless otherwise stated.)

Transactions for January 2018, First Month of Operation

1 Issued common stock for $9,500.

2 Purchased $410 of direct raw materials and $60 of production supplies.

3 Used $371 of direct raw materials.

4 Used 70 direct labor hours; production workers were paid $9.50 per hour.

5 Expected total overhead costs for the year to be $3,400, and direct labor hours used during the year to be 1,000. Calculate an overhead rate and apply the appropriate amount of overhead costs to Work in Process Inventory.

6 Paid $144 for salaries to administrative and sales staff.

7 Paid $24 for indirect manufacturing labor.

8 Paid $215 for rent and utilities on the manufacturing facilities.

9 Started and completed 100 remote controls during the month; all costs were transferred from the Work in Process Inventory account to the Finished Goods Inventory account.

10 Sold 75 remote controls at a price of $21.2 each.

Transactions for Remainder of 2018

11 Acquired an additional $18,000 by issuing common stock.

12 Purchased $3,940 of direct raw materials and $895 of production supplies.

13 Used $3,010 of direct raw materials.

14 Paid production workers $9.50 per hour for 900 hours of work.

15 Applied the appropriate overhead cost to Work in Process Inventory.

16 Paid $1,558 for salaries of administrative and sales staff.

17 Paid $237 of indirect manufacturing labor cost.

18 Paid $2,390 for rental and utility costs on the manufacturing facilities.

19 Transferred 950 additional remote controls that cost $12.74 each from the Work in Process Inventory account to the Finished Goods Inventory account.

20 Determined that $166 of production supplies was on hand at the end of the accounting period.

21 Sold 850 remote controls for $21.20 each.

22 Determine whether the overhead is over- or underapplied. Close the Manufacturing Overhead account to the Cost of Goods Sold account.

23 Close the revenue and expense accounts.

Required

For each of the above transactions, post the effects to the appropriate T-accounts.

Prepare a schedule of cost of goods manufactured and sold, an income statement, and a balance sheet for 2018.

Make sure to include ending balance

Make sure to label each adjustment with its corresponding transaction. 1-23

[The following information applies to the questions displayed below.]

Lehighton Chalk Company manufactures sidewalk chalk, which it sells online by the box at $22 per unit. Lehighton uses an actual costing system, which means that the actual costs of direct material, direct labor, and manufacturing overhead are entered into work-in-process inventory. The actual application rate for manufacturing overhead is computed each year; actual manufacturing overhead is divided by actual production (in units) to compute the application rate. Information for Lehighton’s first two years of operation is as follows:

Selected information from Lehighton’s year-end balance sheets for its first two years of operation is as follows:

Required:

Reconcile Lehighton’s operating income reported under absorption and variable costing, during each year, by comparing the following two amounts on each income statement:

Cost of goods sold

Fixed cost (expensed as a period expense)

+

What was Lehighton’s total operating income across both years under absorption costing and under variable costing?

What was the total sales revenue across both years under absorption costing and under variable costing?

What was the total of all costs expensed on the operating income statements across both years under absorption costing and under variable costing?

Subtract the total costs expensed across both years [requirement (4)] from the total sales revenue across both years [requirement (3)]: (a) under absorption costing and (b) under variable costing.

Considering the results obtained in requirements 1-5 above, select which of the following statements (is) are true by selecting an "X".

I. Master Budget

Pedro’s Pizza makes frozen pizza dough. The company just finished its first year of operation (12 months, Jan-Dec). The following is its traditional income statement and Balance Sheet

Sales (15,000 units) $ 300,000

CGS 180,000

Gross Profit $ 120,000

Sales Commissions $ 30,000

Salaries 30,000

Depreciation expense 6,000

Net Income $ 54,000

                  Cash $5,000 AP $3,000

                  AR 5,000 Credit Line 7,000

                  Inventory – Raw Mat 9,000

      Inventory – Finished Goods 3,000 Common Stock 12,000

      Equipment 60,000 Retained Earn 54,000

                  Acc Depreciation ( 6,000)        

                       Total Assets $76,000        Total L & Eq $76,000

VCP wants to prepare a cash budget for the first 3 months of the next year.

Use the following estimates:

- The quantity sold is projected to increase 4% for the year. Price will increase 5%. Sales are spread evenly throughout the year. CGS should be calculated on a FIFO basis.

- 25% of sales is collected in the month of sale; the remainder is collected the next month.

- Inventory:

o Last year’s Finished Goods and Cost of Goods Sold had a constant cost per unit.

o All raw materials is purchased on credit ($1.50 per lb) and is the same price as last year. Each product requires 2.5 lbs).

o Ending inventory for both should be 40% of next month’s activity (activity is constant).

o Beginning and ending WIP is zero

- 20% of purchases are paid in the month of purchase, 80% in the following. All other expenses are paid with cash.

- Direct Labor is 0.2 hours per product at $30 per hour. Variable Overhead is $2.25 per product. Fixed Overhead is zero.

- The credit line is used for cash shortfalls. Excess cash will pay down this line. Interest is 1% per month of last month’s balance.

- Projections are to buy $6000 of new equipment at the end of January. Equipment is depreciated straight-line to zero salvage over 5 years. All of this is used in administration.

- Sales commission rate will remain the same. Salaries will increase by 4%.

- VCP wants to maintain a minimum cash balance of at least $5,000. Excess to repay credit line.

e. Cost of Goods Manufactured (10 points)

Lehighton Chalk Company manufactures sidewalk chalk, which it sells online by the box at $28 per unit. Lehighton uses an actual costing system, which means that the actual costs of direct material, direct labor, and manufacturing overhead are entered into work-in-process inventory. The actual application rate for manufacturing overhead is computed each year; actual manufacturing overhead is divided by actual production (in units) to compute the application rate. Information for Lehighton’s first two years of operation is as follows:

Selected information from Lehighton’s year-end balance sheets for its first two years of operation is as follows:

Required:

Lehighton Chalk Company had no beginning or ending work-in-process inventories for either year.

1. Prepare operating income statements for both years based on absorption costing.

2. Prepare operating income statements for both years based on variable costing.

3. Prepare a numerical reconciliation of the difference in income reported under the two costing methods used in requirements (1) and (2).

Complete this question by entering your answers in the tabs below.

• Required 1
• Required 2
• Required 3

Prepare operating income statements for both years based on absorption costing.

Prepare operating income statements for both years based on variable costing.

Prepare a numerical reconciliation of the difference in income reported under the two costing methods used in requirements (1) and (2).

Evelyn Benson started Benson Manufacturing Company to make a universal television remote control device that she had invented. The company’s labor force consisted of part-time employees. The following accounting events affected Benson Manufacturing Company during its first year of operation. (Assume that all transactions are cash transactions unless otherwise stated.)

Transactions for January 2018, First Month of Operation

1. Issued common stock for $10,000.

2. Purchased $430 of direct raw materials and $55 of production supplies.

3. Used $378 of direct raw materials.

4. Used 70 direct labor hours; production workers were paid $9.60 per hour.

5. Expected total overhead costs for the year to be $3,200, and direct labor hours used during the year to be 1,000. Calculate an overhead rate and apply the appropriate amount of overhead costs to Work in Process Inventory.

6. Paid $142 for salaries to administrative and sales staff.

7. Paid $25 for indirect manufacturing labor.

8. Paid $210 for rent and utilities on the manufacturing facilities.

9. Started and completed 100 remote controls during the month; all costs were transferred from the Work in Process Inventory account to the Finished Goods Inventory account.

10. Sold 75 remote controls at a price of $21.8 each.

Transactions for Remainder of 2018

11. Acquired an additional $18,500 by issuing common stock.

12. Purchased $3,880 of direct raw materials and $920 of production supplies.

13. Used $3,000 of direct raw materials.

14. Paid production workers $9.60 per hour for 910 hours of work.

15. Applied the appropriate overhead cost to Work in Process Inventory.

16. Paid $1,557 for salaries of administrative and sales staff.

17. Paid $243 of indirect manufacturing labor cost.

18. Paid $2,390 for rental and utility costs on the manufacturing facilities.

19. Transferred 900 additional remote controls that cost $12.74 each from the Work in Process Inventory account to the Finished Goods Inventory account.

20. Determined that $165 of production supplies was on hand at the end of the accounting period.

21. Sold 840 remote controls for $21.80 each.

22. Determine whether the overhead is over- or underapplied. Close the Manufacturing Overhead account to the Cost of Goods Sold account.

23. Close the revenue and expense accounts.

Required

a. For each of the above transactions, post the effects to the appropriate T-accounts.

b. Prepare a schedule of cost of goods manufactured and sold, an income statement, and a balance sheet for 2018.

Lehighton Chalk Company manufactures sidewalk chalk, which it sells online by the box at $25 per unit. Lehighton uses an actual costing system, which means that the actual costs of direct material, direct labor, and manufacturing overhead are entered into work-in-process inventory. The actual application rate for manufacturing overhead is computed each year; actual manufacturing overhead is divided by actual production (in units) to compute the application rate. Information for Lehighton’s first two years of operation is as follows:

Selected information from Lehighton’s year-end balance sheets for its first two years of operation is as follows:

Required:

Lehighton Chalk Company had no beginning or ending work-in-process inventories for either year.

Prepare operating income statements for both years based on absorption costing.

Prepare operating income statements for both years based on variable costing.

Prepare a numerical reconciliation of the difference in income reported under the two costing methods used in requirements (1) and (2).

Prepare operating income statements for both years based on absorption costing.

Prepare operating income statements for both years based on variable costing.

Prepare a numerical reconciliation of the difference in income reported under the two costing methods used in requirements (1) and (2).

Evelyn Franklin started Franklin Manufacturing Company to make a universal television remote control device that she had invented. The company’s labor force consisted of part-time employees. The following accounting events affected Franklin Manufacturing Company during its first year of operation. (Assume that all transactions are cash transactions unless otherwise stated.)

Transactions for January 2018, First Month of Operation

1) Issued common stock for $11,000.

2) Purchased $420 of direct raw materials and $60 of production supplies.

3) Used $242 of direct raw materials.

4) Used 80 direct labor hours; production workers were paid $9.50 per hour.

5) Expected total overhead costs for the year to be $3,400, and direct labor hours used during the year to be 1,000. Calculate an overhead rate and apply the appropriate amount of overhead costs to Work in Process Inventory.

6) Paid $142 for salaries to administrative and sales staff.

7) Paid $25 for indirect manufacturing labor.

8) Paid $205 for rent and utilities on the manufacturing facilities.

9) Started and completed 100 remote controls during the month; all costs were transferred from the Work in Process Inventory account to the Finished Goods Inventory account.

10) Sold 75 remote controls at a price of $21.6 each.

Transactions for Remainder of 2018

11) Acquired an additional $18,500 by issuing common stock.

12) Purchased $3,920 of direct raw materials and $920 of production supplies.

13) Used $3,010 of direct raw materials.

14) Paid production workers $9.50 per hour for 900 hours of work.

15) Applied the appropriate overhead cost to Work in Process Inventory.

16) Paid $1,552 for salaries of administrative and sales staff.

17) Paid $238 of indirect manufacturing labor cost.

18) Paid $2,410 for rental and utility costs on the manufacturing facilities.

19) Transferred 850 additional remote controls that cost $12.74 each from the Work in Process Inventory account to the Finished Goods Inventory account.

20) Determined that $169 of production supplies was on hand at the end of the accounting period.

21) Sold 840 remote controls for $21.60 each.

22) Determine whether the overhead is over- or underapplied. Close the Manufacturing Overhead account to the Cost of Goods Sold account.

23) Close the revenue and expense accounts.

Required

a) For each of the above transactions, post the effects to the appropriate T-accounts.

b) Prepare a schedule of cost of goods manufactured and sold, an income statement, and a balance sheet for 2018.

Question 1 [40 pts] – Free Rider Problem –Game Theoretic Modeling

Consider two individuals who are deciding to pay for a public good or not. The value of the public good is 10 for each individual and the cost of the public good is 12 TL.

• If they both vote yes and agree to pay, they will share the cost equally and the public good is provided.
• If only one vote yes and agrees to pay, full cost will be borne by this individual and the public good will be provided.
• If they both opt out from paying by voting no, no funds will be collected and the public good will not be provided.

Given the valuation for the public good, cost and the cost sharing mechanism above and our knowledge about public goods this decision process is depicted as a simultaneous form game below.  [Note on notation: the first payoff in each cell corresponds to the payoff of the row player, Individual 1. The second payoff in each cell corresponds to the payoff of the column player, Individual 2.]

Modeling: – Using Game Theory

1. (5 pts) Public goods are non-rival and non-excludable. Check the payoffs (net benefit; benefit after costs) from each outcome and note that while writing the payoffs of the game these two characteristics of pure public goods is used. Refer to these characteristics first and explain how these characteristics are incorporated into the game.

2. (4 pts) Explain why this problem about the provision of a public good can be represented using game theory; say as opposed to the problem of an individual deciding to buy a t-shirt for himself or not.

One-Shot Game: Impossibility of reaching the cooperative outcome.

3. (2 pts) What is Individual 1’s best response to other player choosing to pay for the public good? Briefly explain.
4. (2 pts) Explain what a dominant action is and then indicate if there is a dominant action here for any player.

5. (2 pts) Solve for the Nash equilibrium of the game. Explain your work.

6. (5 pts) Evaluate the Nash equilibrium of the game. Is this equilibrium socially efficient? Explain by referring to the market failure we encounter with the public goods.

7. (5 pts) Can the two individuals just promise each other to vote yes and then sustain the promised cooperative outcome in this game that is played once? Show that each individual has an incentive to cheat and vote no instead when the other is sticking to its promise.

The following equations describe an economy. (Think of C, I, G, etc., as being measured in billions and I as a percentage; a 5 percent interest rate implies I=5).

C = 0.8 (1 – t) Y

                              t = 0.30

                              I = 1000 – 50 i

G= 500

                              L = 0.25Y – 65 i

M/P = 700

1. Derive the IS equation.

AD = C + I + G + NX

AD = 0.8 (1 – t) Y + 1000 – 50i + 500

AD = 0.8 (1 – 0.3) Y + 1500 – 50i

             At equilibrium AD = Y so

                        Y= 0.8 (1 – 0.3) Y + 1500-50i

                        Y- [0.8 (1 - .3) Y]=1500 – 50i

                        Y[1 – (0.8(1 - .3))] = 1500 – 50i

                        Y= [1/ (1- (0.8 (1- 0.3))] x (1500- 50i)

                        Y= 2.27(1500 – 50i)

                        Y= 3405 – 113.5i

2. Derive the LM equation.

M-bar/P-bar = L

700= .25Y – 65i

0.25Y = 700 +65i

Y= 4(700 + 65i)

Y= 2800 + 260i

3. What are the equilibrium levels of income and interest rate?

3405 – 113.5i = 2800 + 260i

3405 – 2800 = 113.5i + 260i

605= 373.5i

i= 1.62

Y= 2800 + 260(1.62)

Y= 3221.2

4. What is the value of a_G which corresponds to simple multiplier with taxes?
   1. AG= 2.27 (First question)
5. What would be the new equilibrium levels of income and interest rate if the congress passed a tax-cut and the new tax rate was 25%, and concurrently, people became less frugal and consequently marginal propensity to consume increases to 0.90.
6. If the increased spending overshoots and the economy starts to experience inflation, calculate the new levels of equilibrium income and interest rate if the new Federal Reserve decided to curb spending and by lowering the real money supply to 550?
7. For each step, graph the IS and LM curves and clearly show their movements for the problems above. Although the graph needs not to be precise, you must clearly show if IS or LM curves shifted or tilted and in which direction.