Completing Cost-Volume-Profit Analysis Assignments
11. The Playa Company uses a periodic inventory system
Exercise 8-5 (E8-5) The Playa Company uses a periodic inventory system. The following information is taken from Playa's records. Certain data have been intentionally omitted. ($ in thousands)
2009 2010 2011
Beginning inventory ? ? 225
Cost of Goods sold 627 621 ?
Ending inventory ? 225 221
Cost of goods available for sale 876 ? 800
Purchases (gross) 630 ? 585
Purchase discounts 18 15 ?
Purchase return 24 30 14
Freight- in 13 32 16
Required
Determine the missing numbers. Show computations where appropriate.
12. Ricky Fowler borrowed $70,000 on March 1, 2015. This amount plus accrued interest at 6% compounde...
Ricky Fowler borrowed $70,000 on March 1, 2015. This amount plus accrued interest at 6% compounded semiannually is to be repaid March 1, 2025. To retire this debt, Ricky plans to contribute to a debt retirement fund five equal amounts starting on March 1, 2020, and for the next 4 years. The fund is expected to earn 5% per annum.
How much must be contributed each year by Ricky Fowler to provide a fund sufficient to retire the debt on March 1, 2025?
13. Multiple-Choice questions: a. A company’s current ratio is 2.2 t
Multiple-Choice questions:
a. A company’s current ratio is 2.2 to 1 and quick (acid-test) ratio is 1.0 to 1 at the beginning of the year. At the end of the year, the company has a current ratio of 2.5 to 1 and a quick ratio of 0.8 to 1. Which of the following could help explain the divergence in the ratios from the beginning to the end of the year?
1. An increase in inventory levels during the current year
2. An increase in credit sales in relationship to cash sales
3. An increase in the use of trade payables during the current year
4. An increase in the collection rate of accounts receivable
5. The sale of marketable securities at a price below cost
b. If, just prior to a period of rising prices, a company changed its inventory measurement method from FIFO to LIFO, the effect in the next period would be to
1. Increase both the current ratio and inventory turnover.
2. Decrease both the current ratio and inventory turnover.
3. Increase the current ratio and decrease inventory turnover.
4. Decrease the current ratio and increase inventory turnover.
5. Leave the current ratio and inventory turnover unchanged.
c. Selected year-end data for Bayer Company are as follows:
Current liabilities ……………………..$600,000
Acid-test ratio ………………………… 2.5
Current ratio …………………………... 3.0
Cost of sales ……………………………$500,000
Bayer Company’s inventory turnover based on these year-end data is
1. 1.20.
2. 2.40.
3. 1.67.
4. Some amount other than those given.
5. Not determinable from the data given.
d. If a firm has a high current ratio but a low acid-test ratio, one can conclude that
1. The firm has a large outstanding accounts receivable balance.
2. The firm has a large investment in inventory.
3. The firm has a large amount of current liabilities.
4. The cash ratio is extremely high.
5. The two ratios must be recalculated because both conditions cannot occur simultaneously.
e. Investment instruments used to invest temporarily idle cash balances should have which of the following characteristics?
1. High expected return, low marketability, and a short term to maturity
2. High expected return, readily marketable, and no maturity date
3. Low default risk, low marketability, and a short term to maturity
4. Low default risk, readily marketable, and a long term to maturity
5. Low default risk, readily marketable, and a short term to maturity
f. The primary objective in the management of accounts receivable is
1. To achieve a combination of sales volume, bad-debt experience, and receivables turnover that maximizes the profits of the corporation.
2. To realize no bad debts because of the opportunity cost involved.
3. To provide the treasurer of the corporation with sufficient cash to pay the company’s bills on time.
4. To coordinate the activities of manufacturing, marketing, and financing so that the corporation can maximize its profits.
5. To allow the most liberal credit acceptance policy because increased sales mean increased profits.
g. A firm requires short-term funds to cover payroll expenses. These funds can come from
1. Trade credit.
2. Collections of receivables.
3. Bank loans.
4. Delayed payments of accounts payable.
5. All of the above.
(CMA Adapted)
14. Which of the following is not an asset management ratio? A current ratio A fixed asset turnover...
Which of the following is not an asset management ratio? A current ratio A fixed asset turnover ratio The average collection period A days sales outstanding ratio Industrialization Automation Company (IAC) has a quick ratio of 2.00; $38,250 in cash; $21,250 in receivables; some inventory; total current assets of $85,000; and total current liabilities of $29,750. In its most recent annual report, IAC reported annual sales of $700,000 and a cost of goods sold equal to 65% of annual sales. How many times is Industrialization Automation Company (IAC) selling and replacing its inventory? 17.84x 19.62x 0.35x 27.45x The inventory turnover ratio across companies in IAC's industry is 20.07. Based on this information which of the following statements is true for Industrialization Automation Company (IAC)? Industrialization Automation Company (IAC) is holding more inventory per dollar of COGS compared to the industry average Industrialization Automation Company (IAC) is holding less inventory per dollar of COGS compared to the industry average You are analyzing two companies that manufacture electronic toys-InteliGames Inc. and BrainGames Inc. IntelliGames was launched eight years ago, whereas BrainGames is a relatively new company that has only been in operation for the past two years. However, both companies have an equal market share with sales of $700,000 each. You've gathered up company data to compare InteliGames and BrainGames. For the same period, the average sales for industry competitors was $1,785,000. As an analyst, you want to make comments on the expected performance of these two companies in the coming year. You've collected data from the companies financial statements, and the information follows: Using the preceding information, complete the following statements. 1, A ___ days sales outstanding, or average collection period, represent an efficient credit and collection policy. Between the two companies, ________ is collecting cash from its customers faster than __________; but both companies are collecting their receivables less quickly than the industry average. BrainGames Inc's fixed asset turnover ratio is _____ than that of IntelliGames Inc. This could be because Braingames is a relatively new company, such that the acquisition costs and book values of its fixed assets is ____ than the acquisition costs and book values of InteliGames's net fixed assets. IntelGames' total asset turnover ratio is _______, which is _______ than the industry's average total asset turnover ratio. In general, a higher total asset turnover ratio indicates greater efficiency.
15. Kruger Designs hired a consulting firm 3 months ago to redesign the information system that the...
Kruger Designs hired a consulting firm 3 months ago to redesign the information system that the architects use. The architects will be able to use state-of-the-art computer- aided design (CAD) programs to help in designing the products. Further, they will be able to store these designs on a network server where they and other architects may be able to call them back up for future designs with similar components. The consulting firm has been instructed to develop the system without disrupting the architects. In fact, top management believes that the best route is to develop the system and then to introduce it to the architects during a training session. Management does not want the architects to spend precious billable hours guessing about the new system or putting work off until the new system is working. Thus, the consultants are operating in a back room under a shroud of secrecy.
Required
a. Do you think that management is taking the best course of action for the announcement of the new system? Why?
b. Do you approve of the development process? Why?
Raintree Cosmetic Company sells its products to customers on a credit basis. An adjusting entry for bad debt expense is recorded only at December 31, the company's fiscal year-end. The 2012 balance sheet disclosed the following: Current assets: Receivables, net of allowance for uncollectible accounts of $34,000 $ 452,000 During 2013, credit sales were $1,770,000, cash collections from customers $1,850,000, and $39,000 in accounts receivable were written off. In addition, $3,400 was collected from a customer whose account was written off in 2012. An aging of accounts receivable at December 31, 2013, reveals the following: Percentage of Year-End Percent Age Group Receivables in Group Uncollectible 0'60 days 60 % 3 % 61'90 days 10 5 91'120 days 20 25 Over 120 days 10 45 Required: 1. Prepare summary journal entries to account for the 2013 write-offs and the collection of the receivable previously written off. (If no entry is required for a particular event, select "No journal entry required" in the first account field.) -Record accounts receivable written off during the year 2013. -Record entry to reinstate an account receivable previously written off. -Record collection of an account receivable previously written off. 2. Prepare the year-end adjusting entry for bad debts according to each of the following situations: a. Bad debt expense is estimated to be 2% of credit sales for the year. b. Bad debt expense is estimated by computing net realizable value of the receivables. The allowance for uncollectible accounts is estimated to be 10% of the year-end balance in accounts receivable. c. Bad debt expense is estimated by computing net realizable value of the receivables. The allowance for uncollectible accounts is determined by an aging of accounts receivable. (If no entry is required for a particular transaction, select "No journal entry required" in the first account field.) 3. For the above transactions, what would be the net amount of accounts receivable reported in the 2013 balance sheet? a. Bad debt expense is estimated to be 2% of credit sales for the year. b. Bad debt expense is estimated by computing net realizable value of the receivables. The allowance for uncollectible accounts is estimated to be 10% of the year-end balance in accounts receivable. c. Bad debt expense is estimated by computing net realizable value of the receivables. The allowance for uncollectible accounts is determined by an aging of accounts receivable.
17. Hi-Test Company uses the weighted-average method of process costing to assign production costs to...
Hi-Test Company uses the weighted-average method of process costing to assign production costs to its products. Information for September follows. Assume that all materials are added at the beginning of its production process, and that conversion costs are added uniformly throughout the process. I have tried several different ways of coming up with the right answer and can not seem to get it. Any help would be much appreciated. Please see all images attached below. It is part 4&5, 6 and 7. Hi-Test Company uses the weighted-average method of process costing to assign production costs to its products. Information for September follows. Assume that all materials are added at the beginning of its production process, and that conversion costs are added uniformly throughoutthe process. Work in process inventory September 1 (3,000 units, 100% complete with respect to direct materials, 80% complete with respect to direct labor and overhead includes 175680 $83,000 of direct material cost, $43.000 in directlabor cost $49.080 overhead cost) Units started in April 34.000 Units completed and transferred to finished goods inventory 29.000 Work in process inventory. September 30 units, 100% complete with respect to direct materials, 40% complete with respect to direct labor and overhead) Costs incurred in September Direct materials 435,000 Conversion 371,000 Required: Compute each of the following, assuming HiTest uses the weighted-average method of process costing. (Round Cost per EUP to2 decimal places.) 1. The number of physical units thatwere transferred outand the number thatare in ending work in process inventory Unit Reconciliation Beginning work in 3,000 process Units started this period 34.000 Total unitsto account for 3000 Total units aooounted for Completed and transferred out 29.000 8.000 Ending work in process Total units aooounted for 3000 2&3. The number of equivalent units for materials and conversion for the month. Equivalent Units of Production (EUP) Units Materials EUP-Materials Conversion 100 20.000 100: 20.000 Units completed and transferred out 29.000 8.000 100 8.000 405, 3200 Units ofending workin process 32200 Equivalent units of production
18. Kando Company incurs a $9 per unit cost for Product A, which it currently manufactures and sells ...
Kando Company incurs a $9 per unit cost for Product A, which it currently manufactures and sells for $13.50 per unit. Instead of manufacturing and selling this product, the company can purchase Product B for $5 per unit and sell it for $12 per unit. If it does so, unit would remain unchanged and $5 of the $9 per unit costs assigned to Product A would be eliminated. Should the company continue to manufacture Product A or purchase Product B for resale?
19. (Objective 16-2) List five analytical procedures for the sales and collection cycle. For each...
(Objective 16-2) List five analytical procedures for the sales and collection cycle. For each test, describe a misstatement that could be identified.
(Objective 16-2)
Design and Perform Analytical Procedures (Phase III)
As discussed in Chapter 8, analytical procedures are often done during three phases of the audit: during planning, when performing detailed tests, and as a part of completing the audit. This chapter covers planning analytical procedures and substantive analytical procedures done when performing detailed tests for accounts in the sales and collection cycle. Most analytical procedures performed during the detailed testing phase are done after the balance sheet date but before tests of details of balances. It makes little sense to perform extensive analytical procedures before the client has recorded all transactions for the year and finalized the financial statements. Auditors perform analytical procedures for the entire sales and collection cycle, not just accounts receivable. This is necessary because of the close relationship between income statement and balance sheet accounts. If the auditor identifies a possible misstatement in sales or sales returns and allowances using analytical procedures, accounts receivable will likely be the offsetting misstatement. Table 16-1 (p. 524) presents examples of ratios and comparisons for the sales and collection cycle and potential misstatements that analytical procedures may uncover. When analytical procedures in the sales and collection cycle uncover unusual fluctuations, however, the auditor should make additional inquiries of management. Management’s responses should be critically evaluated to determine whether they adequately explain the unusual fluctuations and whether they are supported by corroborating evidence. The appropriate tests of details of balances depend on the factors listed in the evidence planning worksheet in Figure 16-7. Planned detection risk for each accounts receivable balance-related audit objective is shown in the second row from the bottom. It is a subjective decision made by auditors after they have combined the conclusions reached about each of the factors listed above that row. The task of combining the factors that determine planned detection risk is complex because the measurement for each factor is imprecise and the appropriate weight given to each factor is highly subjective. Conversely, the relationship between each factor and planned detection risk is well established. For example, auditors know that a high inherent risk or control risk decreases planned detection risk and increases planned substantive tests, whereas good results of substantive tests of transactions increase planned detection risk and decrease other planned substantive tests. The bottom row in Figure 16-7 (p. 539) shows the planned audit evidence for tests of details of balances for accounts receivable by objective. As we’ve discussed, planned audit evidence is the inverse of planned detection risk. After deciding whether planned audit evidence for a given objective is high, medium, or low, the auditor must then decide on the appropriate audit procedures, sample size, items to select, and timing. For the remainder of this chapter, we will discuss how auditors decide on the specific audit procedures and their timing for auditing accounts receivable. In Chapter 17, we’ll address sample size and selecting items from the population for testing.
20. 11) Newton Building Supplies hopes to generate an extra $4 million in sales next year. A salesperson
11) Newton Building Supplies hopes to generate an extra $4 million in sales next year. A salesperson traditionally generates $800,000 in sales each year. Using ratio analysis, how many new salespeople should Newton hire?
A) 2
B) 5
C) 10
D) 20
12) When using either a trend analysis or a ratio analysis, it is assumed that ________ will remain the same.
A) staffing levels
B) currency rates
C) productivity levels
D) recruitment plans
13) A ________ is a graphical method used to help identify the relationship between two variables.
A) trend analysis
B) ratio analysis
C) scatter plot
D) productivity chart