Challenge Exercise 7-1 (Part Level Submission)

Conklan Company manufactures outdoor fireplaces. For the first 9 months of 2020, the company reported the following operating results while operating at 80% of plant capacity:

Cost of goods sold was 80% variable and 20% fixed; operating expenses were 70% variable and 30% fixed.

In October, Conklan Company receives a special order for 3,800 fireplaces at $62 each from Langston’s Landscape Company. Acceptance of the order would result in an additional $6,400 of shipping costs but no increase in fixed operating expenses.

(c)

Before Conklan could give Langston’s Landscape Company an answer, they received a special order from Benson Building & Supply for 14,300 fireplaces. Benson is willing to pay $65 per fireplace but they want a special design imbedded into the fireplace that increases cost of goods sold by $67,210. The special design also requires the purchase of a part that costs $4,800 and will have no future use for Conklan Company. Benson Building & Supply will pick up the fireplaces so no shipping costs are involved. Due to capacity limitations, Conklan cannot accept both special orders. Which order should be accepted? Document your decision by preparing an incremental analysis for Benson’s order. (Enter loss using either a negative sign preceding the number e.g. -2,945 or parentheses e.g. (2,945).)

You have a business manufacturing snarky masks for hipster wannabes. You produce these masks in batches of 100. Each mask has the following manufacturing standards (i.e., budgets):

There is no beginning or ending inventory for WIP and Finished Goods. You have sufficient beginning direct material inventory of material that you do not need to purchase any during the month.

During October 2020 you made 11 batches of masks (100 masks in each batch) and spent/used/incurred the following:

REQUIRED:

1. Prepare an analysis of actual direct production costs for March compared to Budget-adjusted-for-output (Flex Budget). Identify the usage/efficiency and price/rate variances.
2. Record journal entries to record the use of direct materials and direct labor, (Post costs to WIP first, then transfer all of WIP to Finished Goods. Transfer all of Finished Goods to COGS – (pretend there are no indirect manufacturing costs) remember there is no beginning or ending inventory for WIP or Finished Goods.)
3. Prepare the adjusting journal entry to close all of the variances to COGS.
4. Ferd is responsible for buying your direct materials. Did he do a “good” job in March? Why?
5. Franny is in charge of the use of the direct materials. Did she do a “good” job in March with regards to material usage? Why?
6. Franny is also in charge of the use of direct labor. Did she do a “good” job in March with regards to labor usage/efficiency? Why?
7. Futz sets hourly wage rates for the direct labor. Did he do a “good” job in March? Why?

Income statements under absorption costing and variable costing

Fresno Industries Inc. manufactures and sells high-quality camping tents. The company began operations on January 1 and operated at 100% of capacity (181,000 units) during the first month, creating an ending inventory of 17,000 units. During February, the company produced 164,000 units during the month but sold 181,000 units at $600 per unit. The February manufacturing costs and selling and administrative expenses were as follows:

a. Prepare an income statement according to the absorption costing concept for February. Enter all amounts as positive numbers.

b. Prepare an income statement according to the variable costing concept for February. Enter all amounts as positive numbers.

Problem 4-23

“Of all the times this hard drive could crash, it had to be now, ” Marcy cried. “How can I finish the June financial reports without all the information? I knew I should have backed up the disk last night before I left work.” News of the disaster traveled quickly through the office, and people began to stop by her cubicle to offer their help.

     John was the first to the rescue. “It might not be as bad as you think, Marcy. I have the financial reports from May right here. According to the balance sheet, we had a total inventory of $99,000 at the end of May. And I remember that the Finished Goods Inventory was one-third of that amount.”

     “I just finished the inventory counts last night,” Peter chimed in from across the hall. “According to my tally sheets, we finished June with $80,000 in Direct Materials Inventory, $52,000 in Work in Process Inventory, and $25,000 in Finished Goods Inventory. This was a 100% increase from the balances in Direct Materials Inventory and Work in Process Inventory at the end of May. I bet with a little more investigative work, we can get all the numbers you need to complete the reports.”

     Sally called from Payroll to tell Marcy that the company had paid a total of $36,000 for direct labor during June. Juan, the billing supervisor, e-mailed Marcy that the company had sent out invoices to customers totaling $291,000.

     Marcy knew that the overhead rate was 200% of direct labor costs. She also knew that the company priced its product using a 50% markup on the cost of goods sold. Armed with all this information, she sat down to reconstruct the inventory accounts for June.

T-accounts for

Direct materials

Work in process

finished goods

CC6-1 Accounting for Merchandising Operations [LO 6-4, LO 6-5]

The Polaris Company uses a job-order costing system. The following data relate to October, the first month of the company’s fiscal year. a. Raw materials purchased on account, $210,000. b. Raw materials issued to production, $191,000 ($152,800 direct materials and $38,200 indirect materials). c. Direct labor cost incurred, $49,000; indirect labor cost incurred, $20,000. d. Depreciation recorded on factory equipment, $105,000. e. Other manufacturing overhead costs incurred during October, $130,000 (credit Accounts Payable). f. The company applies manufacturing overhead cost to production on the basis of $8 per machine-hour. A total of 76,300 machine-hours were recorded for October. g. Production orders costing $511,000 according to their job cost sheets were completed during October and transferred to Finished Goods. h. Production orders that had cost $453,000 to complete according to their job cost sheets were shipped to customers during the month. These goods were sold on account at 26% above cost.

Required: 1. Prepare journal entries to record the information given above

(1.a) Record the journal entry for purchase of raw material as given below:

(1.b) Journal entry for the issuance of material for production as given below:

(1.c) Journal entry for direct and indirect labor cost incurred as given below:

(1.d) Journal entry for recording depreciation as given below:

(1.e) Journal entry for manufacturing overheads incurred as given below:

1.f) Journalize the transaction of overheads absorbed as given below:

(1.g) Journal entry for finished goods as given below:

(1.h)Journal entry for finished goods available for sale as given below:

6.1 A statute gives the Department of the Interior the power to allow or to curtail mining within the national forests “as the best interests of all users of the national forest shall dictate.” Is this a valid delegation of legislative power to the agency, or is it too broad a delegation of power? 8.1 Before deciding which remedies are available under Article 2 of the UCC, one must first determine whether the transaction involved the sale of goods. Consider the following fact patterns. A. Tanzer entered into a contract with Audio Visual Artistry to install a “smart home” system in Tanzer’s house, which was under construction. The contract included expert installation services for a custom home theatre, lighting, music, and phone system. Was the contract for a sale of goods or services? [Audio Visual Artistry v. Tanzer, 403 S.W.3d 789 (Tenn. Ct. App. 2012).] B. Wachter, a construction company, entered into a contract to purchase an accounting and project management software package from DCI, a company that develops, markets, and supports software for construction companies. The package included “installation of the software, a full year of maintenance, and a training and consulting package.” Was the contract for a sale of goods or services? [Wachter Management Co. v. Dexter & Chaney, Inc., 144 P.3d 747 (Kan. 2006).] C. A customer sued a New York restaurant for breach of warranty after a glass of water allegedly exploded in his hand during the course of a meal. Does the claim involve the sale of goods? [Gunning ex rel. Gunning v. Small Feast Caterers, Inc., 777 N.Y.S.2d 268 (N.Y. Sup. 2004).] D . Brenda Brandt underwent an operation at the Sarah Bush Lincoln Health Center to implant a ProtoGen Sling to resolve her urinary incontinence. Instead of solving the problem, the sling resulted in serious complications and was subsequently removed. After the device was recalled by its manufacturer, Brandt sued the Health Center for breach of warranty. Does the claim involve the sale of goods or services? [Brandt v. Boston Scientific Corp., 792 N.E.2d 296 (Ill. 2003).

Income Statements under Absorption and Variable Costing

Patagucci Inc. manufactures and sells athletic equipment. The company began operations on August 1, 2016, and operated at 100% of capacity (75,900 units) during the first month, creating an ending inventory of 6,900 units. During September, the company produced 69,000 garments but sold 75,900 units at $85 per unit. The September manufacturing costs and selling and administrative expenses were as follows:

a. Prepare an income statement according to the absorption costing concept for September.

b. Prepare an income statement according to the variable costing concept for September.

c. What is the reason for the difference in the amount of income from operations reported in (a) and (b)?

Under the absorption costing method, the fixed manufacturing cost included in the cost of goods sold is matched with the revenues. Under variable costing , all of the fixed manufacturing cost is deducted in the period in which it is incurred, regardless of the amount of inventory change. Thus, when inventory decreases, the absorption costing income statement will have a lower income from operations.

Backcountry Adventures is a​ Colorado-based outdoor travel agent that operates a series of backcountry huts.​ Currently, the value of the firm is

$3.8

million. But profits will depend on the amount of​ snowfall: If it is a good​ year, the firm will be worth

$5.4

​million, and if it is a bad year it will be worth

$2.4

million. Suppose managers always keep the debt to equity ratio of the firm at

30%​,

and the debt is riskless.     

a. What is the initial amount of​ debt?

b. Calculate the percentage change in the value of the​ firm, its equity and its debt once the level of snowfall is​ revealed, but before the firm adjusts the debt level to achieve its target debt to equity ratio.

c. Calculate the percentage change in the value of outstanding debt once the firm adjusts to its target​ debt-equity ratio.

d. What does this imply about the riskiness of the​ firm's tax shields. Explain.