Accounting Three Problems

$8.00

Description

QUESTION 1

1. Vision Tester, Inc., a manufacturer of optical glass, began operations on February 1 of the current year. During this time, the company produced 900,000 units and sold 800,000 units at a sales price of $12 per unit. Cost information for this year is shown below.

Given this information, which of the following is true?

a.

Net income under variable costing will exceed net income under absorption costing by $50,000.

b.

Net income under absorption costing will exceed net income under variable costing by $50,000.

c.

Net income will be the same under both absorption and variable costing.

d.

Net income under variable costing will exceed net income under absorption costing by $60,000.

e.

Net income under absorption costing will exceed net income under variable costing by $60,000.

QUESTION 2

1. Which of the following best describes costs assigned to the product under the absorption costing method?
Direct labor (DL)
Direct materials (DM)
Variable selling and administrative
Variable manufacturing overhead
Fixed selling and administrative
Fixed manufacturing overhead

a.

DL, DM, variable selling and administrative costs and variable manufacturing overhead.

b.

DL, DM, and variable manufacturing overhead.

c.

DL, DM, variable manufacturing overhead, and fixed manufacturing overhead.

d.

DL and DM.

e.

DL, DM, fixed selling and administrative, and fixed manufacturing overhead.

QUESTION 3. A company is currently operating at 80% capacity producing 5,000 units. Current cost information relating to this production is shown in the table below.

The company has been approached by a customer with a request for a 100 unit special order. What is the minimum per unit sales price that management would accept for this order if the company wishes to increase current profits?

a.

Any amount over $34 per unit.

b.

Any amount over $20 per unit.

c.

Any amount over $14 per unit.

d.

Any amount over $9 per unit.

e.

Any amount over $5 per unit.

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Accounting Three Problems

$8.00

Description

QUESTION 1

1. Vision Tester, Inc., a manufacturer of optical glass, began operations on February 1 of the current year. During this time, the company produced 900,000 units and sold 800,000 units at a sales price of $12 per unit. Cost information for this year is shown below.

Given this information, which of the following is true?

a.

Net income under variable costing will exceed net income under absorption costing by $50,000.

b.

Net income under absorption costing will exceed net income under variable costing by $50,000.

c.

Net income will be the same under both absorption and variable costing.

d.

Net income under variable costing will exceed net income under absorption costing by $60,000.

e.

Net income under absorption costing will exceed net income under variable costing by $60,000.

QUESTION 2

1. Which of the following best describes costs assigned to the product under the absorption costing method?
Direct labor (DL)
Direct materials (DM)
Variable selling and administrative
Variable manufacturing overhead
Fixed selling and administrative
Fixed manufacturing overhead

a.

DL, DM, variable selling and administrative costs and variable manufacturing overhead.

b.

DL, DM, and variable manufacturing overhead.

c.

DL, DM, variable manufacturing overhead, and fixed manufacturing overhead.

d.

DL and DM.

e.

DL, DM, fixed selling and administrative, and fixed manufacturing overhead.

QUESTION 3. A company is currently operating at 80% capacity producing 5,000 units. Current cost information relating to this production is shown in the table below.

The company has been approached by a customer with a request for a 100 unit special order. What is the minimum per unit sales price that management would accept for this order if the company wishes to increase current profits?

a.

Any amount over $34 per unit.

b.

Any amount over $20 per unit.

c.

Any amount over $14 per unit.

d.

Any amount over $9 per unit.

e.

Any amount over $5 per unit.

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Accounting Three Problems

$16.00

Description

1. Best Client Company has sales of 1,300 units at $60 a unit. Variable expenses are 45% of the selling price and total fixed expenses are $37,180. If Cartel Company expects next year’s total sales could increase 14%, they want to know how this change affects their profit. Calculate DOL and then, using DOL, calculate next year’s net income in dollar.

2. Notterdam Corporation manufactures laser printers. Rowell currently manufactures the 32,000 imaging drums that it uses in its printers. The annual costs to manufacture these 32,000 drums are as follows:

Cost of drum Total cost
Variable manufacturing cost …………… $23 $736,000
Fixed manufacturing cost ……………….. $65 $2,080,000
Total cost $88 $2,816,000

Hardware Solutions Inc. has offered to provide Rowell with all of its imaging drum needs for $72 per drum. If Rowell accepts this offer, 70% of the fixed manufacturing cost above could be totally eliminated. Also, Rowell will be able to use the freed up space to generate $240,000 of income each year in the production of alternative products.

Based on the information presented, would Rowell be better off to make the drums or buy the drums and by how much?

3. Houseman Corporation bases its budget on machine-hours. The company’s static planning budget for November appears below:
Budgeted number of machine-hours ————————- 9,550
Budgeted variable costs:
Supplies (@$3.70 per machine-hour) ———- $35,335
Power (@$2.40 per machine-hour) —————-22,920
Budgeted fixed costs:
Salaries ———————————————– 46,850
Equipment depreciation —————————- 31,250
Total cost —————————————————– $136,355

Required: Prepare a flexible budget and total overhead cost at an activity level of 9,850 machine-hours per month.

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Accounting Three Problems

$16.00

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1. Dexter’s Fine Jewelry uses the LIFO cost flow assumption and has a beginning inventorywhich includes four LIFO layers as follows:
Beginning inventory
Year 1 layer
Year 2 layer
Year 3 layer
Year 4 layer

# of units
150
100
50
200

Unit cost
$50.00
60.00
65.00
75.00

During Year 5, Dexter purchased 4,000 units and sold 4,250. Dexter has to decidewhether to purchase 250 additional units now at a price of $140 per unit or wait untilFebruary and pay $120 per unit due to an off-season discount promotion by thesupplier.
What is the cash cost to Dexter’s Fine Jewelry under each alternative? Assume that thetax rate is a flat 30%. (10 points) Alternative A = Buy now; Alternative B = Buy inFebruary.
2. Using accounts receivable to achieve off-balance-sheet financing. Ares Appliance Store has$100,000 of accounts receivable on its books on January 2, 2009. These receivables are dueon December 31, 2009. The firm wants to use these accounts receivables to obtain financing.(10 points)

a.Prepare journal entries during 2009 for the transactions in parts (i) and (ii) below:
(1) The firm borrows $100,000 from its bank, using the accounts receivable ascollateral. The loan is repayable on December 31, 2009, with interest at 8%.
(2) The firm sells the accounts receivable to the bank for $92,593. It collects amountsdue from customers on these accounts and remits the cash to the bank.
b.Compare and contrast the income statement and balance sheet effects of these twotransactions.
c.How should Ares Appliance Store structure this transaction to ensure that itqualifies as a sale instead of a collateralized loan?

3. Washington Corporation purchases a new machine for $50,000 on January 1, 2008. The machine has a four-year estimated service life and an estimated salvage value of zero. Afterpaying the cost of running and maintaining the machine, the firm enjoys a $25,000-per-yearexcess of revenues over expenses (except depreciation and taxes). In addition to the $25,000from the machine, other pretax income each year is $35,000. Washington uses straight-linedepreciation for financial reporting and depreciates the machine for tax reporting using thefollowing percentages: 33% in the first year, 44% in the second, 15% in the third, and 8% inthe fourth. Depreciation is Woodward’s only temporary difference. Washington payscombined federal and local income taxes at a rate of 40% of taxable income. (10 points)

a.Compute the amount of income taxes currently payable for each of the four years.
b.Compute the carrying value of the machine for financial reporting and the taxbasis of the machine for tax reporting at the end of each of the four years. The tax basis is theamortized cost for income tax purposes.
c.Compute the amount of income tax expense for each of the four years.
d.Give the journal entries to record income tax expense and income tax payable for2008 through 2011.

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Accounting Three Problems

$14.00

Description

Q1) Foto Company manufactures and sells a product called JYMP. Results from last year from the sale of JYMP appear below:
Sales revenue (8,000 JYMPs @ $120 each) ………….. $960,000
Variable costs ………………………………… 640,000
Contribution margin ……………………………. 320,000
Fixed costs:
Salaries of line supervisors ……………………. 100,000
Advertising expense ……………………………. 160,000
Allocated general overhead ……………………… 132,000
Net loss ……………………………………… <72,000>
Foto Company is considering eliminating the JYMP product line. The company has determined that if the JYMP product line is discontinued, the contribution margin of its other products will increase by $120,000.
Calculate the increase in company profits if the JYMP product line is discontinued.

Q2) Orr Company makes and sells a single product called a Bik. It takes three yards of Material A to
make one Bik. Budgeted production of Biks for the next three months is as follows:
Budgted Biks to be Produced
February 15,000 units
March 18,500 units
April 12,700 units
The company wants to maintain monthly ending inventories of Material A equal to 25% of the next month’s production needs. The cost of material A is $1.20 per yard. The company is in the process of preparing a direct materials purchases budget.
Calculate the total cost of material A budgeted to be purchased in March.

Q3) Apnea Video Rental Store is considering the purchase of an almost new minivan to deliver and pick up video tapes from customers. The minivan will cost $95,000 and is expected to last 10 years. However, the minivan’s engine will need to be overhauled at a cost of $5,000 at the end of year 3. In addition, purchasing this minivan would require an immediate investment of $15,000 in working capital which would be released for investment elsewhere at the end of the 10 years. The minivan is expected to have a $10,000 salvage value at the end of 10 years. This delivery service is expected to generate net cash inflows of $20,000 per year in each of the 10 years. Apnea’s cost of capital is 9%.

Calculate the net present value (NPV) of this investment opportunity. Do not use decimals in
your answer.

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