Company's management are currently reviewing the performance of its range of ‘super-premium’ wines. The management team have asked you to perform an analysis on one of the wine products and to address some questions. You have gathered the following budgeted information for the 2020/21 year:

• The wine sells for $40 per bottle
• Direct materials are $9 per bottle
• Direct labour is $10 per bottle
• Variable overhead is $3 per bottle
• Budgeted sales volume is 50,000 bottles
• Fixed overheads are $765,000

1. Calculate the following:
   1. the contribution margin per bottle and the number of bottles that must be sold to break-even;
   2. the margin of safety in the number of bottles, revenue and as a percentage;
   3. the contribution margin ratio and the break-even point in revenues
2. Suppose the margin of safety was 5,000 bottles in 2019/20. Are operations more or less risky in 2020 as compared to 2019? Explain.
3. Suppose next year’s revenue estimate is $200,000 higher than originally predicted. What would be the estimated pre-tax profit?
4. Assume a tax rate of 30 per cent. How many bottles must be sold to earn an after-tax profit of $180,000?
5. One of the members of the management team has recently joined the company. His previous experience has been with small, owner-run businesses. he made a comment to one of his new colleagues that in his previous roles he had never heard of, or used, CVP analysis. Briefly explain why CVP analysis might be even more useful to small business owners than to managers of large entities.

Dantooine Company is a brand new company that started operations on August 1, 2019. Dantooine manufactures cold weather clothing. At the end of August , 2019, the accountant for Dantooine compiled the following information.

Do not enter dollar signs or commas in the input boxes.
Do not use the negative sign.

a) Prepare a schedule of cost of goods manufactured for August.

b) Prepare an income statement for August.

1.

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

For example, administrative expenses should be $3,700 per month plus $42 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 61 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. (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.)

Sales and Production Budgets

Sonic Inc. manufactures two models of speakers, Rumble and Thunder. Based on the following production and sales data for June, prepare (a) a sales budget and (b) a production budget:

a. Prepare a sales budget.

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Once sales quantities are estimated, the expected sales revenue can be determined.

Learning Objective 4.

b. Prepare a production budget. For those boxes in which you must enter subtracted or negative numbers use a minus sign.

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Remember to take into account expected units to be sold plus desired units in ending inventory less estimated units in beginning inventory when calculating total units to be produced.

Learning Objective 4.

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Revised Problem 5-65

Fresno Fiber Optics, Inc. manufactures fiber optic cables for the computer and telecommunications industries. At the request of the company VP of marketing, the cost management staff has recently completed a customer profitability study. The following activity-based costing information was the basis for the analysis.

The following additional information has been completed for Fresno Fiber Optics for two of its customers, Trace Telecom and Caltrex Computer, for the most recent year.

10-30 (Objectives 10-2, 10-5, 10-8) This problem requires you to access PCAOB Auditing Standards (pcaobus.org) to answer each of the following questions. You can access those standards by viewing content found under the link “Standards.” For each answer, document the paragraph(s) in the relevant standard supporting your answer. Review PCAOB auditing standards related to the auditor’s consideration of fraud in a financial statement audit, to answer questions in parts a. through d. Review PCAOB Auditing Standard No. 12, Identifying and Assessing Risks of Material Misstatement, to answer parts e. and f.

a. You have determined that there is a fraud risk related to the existence and accuracy of inventory. Review the guidance in PCAOB auditing standards to provide examples of auditor responses involving changes to the nature, timing, and extent of audit procedures related to this assessed fraud risk for inventory.

b. What do PCAOB auditing standards say about how the auditor should assess risk related to revenue recognition?

c. What examples of auditor responses to fraud risk related to revenue recognition are provided in PCAOB auditing standards?

d. What kind of documentation is required for the auditor’s consideration of fraud?

e. What kinds of inquiries about fraud risks are required by PCAOB Standard No. 12?

f. How does PCAOB Standard No. 12 define “fraud risk factors”? Do all conditions have to be present for fraud risk to exist?

Kingston Company starts the business in Year 1. Kingston uses FIFO as their inventory costing method. They purchase inventory as follows:

8/5/Year1: 1000 units at $30 each
11/6/Year1: 3000 units at $36 each

Assume Kingston signs a sales contract for 3,800 units for $380,000 ($100 each) on 11/1/Year1. This is the only sale for the year. The customer is within a 30-mile delivery radius (Goods are delivered by a van.)

1. Assume the items are delivered on 11/15/Year1. The customer pays in full on 11/15. What will Kingston report as the cost of goods sold for Year1? _______

2. Assume the facts in part 1. The estimated selling price of the units is $102 each as of 12/31/Year1. At what dollar amount will Kingston report the inventory on the 12/31/Year1 balance sheet? _______

3. Assume the items are delivered on 11/15/Year1. The customer paid Kingston $380,000 as follow:
---20,000 advance payment on 11/10/Year1
---180,000 payment on 12/20/Year1
---180,000 payment on 1/5/Year2
How much sales revenue (not gross margin) does Kingston report in Year1? _________

4. Assume the items are delivered on 1/5/Year2. The customer paid Kingston $380,000 as follow:
---20,000 advance payment on 11/10/Year1
---180,000 payment on 12/20/Year1
---180,000 payment on 1/5/Year2
How much sales revenue (not gross margin) does Kingston report in Year1? _____________

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 $3,700 per month plus $42 per course plus $7 per student. The company’s sales should average $890 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. (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.)

In this problem, assume that the distribution of differences is approximately normal. Note: For degrees of freedom d.f. not in the Student's t table, use the closest d.f. that is smaller. In some situations, this choice of d.f. may increase the P-value by a small amount and therefore produce a slightly more "conservative" answer.

Are America's top chief executive officers (CEOs) really worth all that money? One way to answer this question is to look at row B, the annual company percentage increase in revenue, versus row A, the CEO's annual percentage salary increase in that same company. Suppose a random sample of companies yielded the following data:

Do these data indicate that the population mean percentage increase in corporate revenue (row B) is different from the population mean percentage increase in CEO salary? Use a 5% level of significance. (Let d = B − A.)

(a) What is the level of significance?
State the null and alternate hypotheses.

(b) What sampling distribution will you use? What assumptions are you making?

What is the value of the sample test statistic? (Round your answer to three decimal places.)

(c) Find the P-value. (Round your answer to four decimal places.)

(d) Based on your answers in parts (a) to (c), will you reject or fail to reject the null hypothesis? Are the data statistically significant at level α?

(e) Interpret your conclusion in the context of the application.