Excel in Activity-Based Costing Assignments with Techniques

Published: 11 months ago

Excel in Activity-Based Costing Assignments with Techniques

1. FDP Company produces a variety of home security products. Gary Price, the company's president, is...

FDP Company produces a variety of home security products. Gary Price, the company's president, is concerned with the fourth quarter market demand for the company's products. Unless something is done in the last two months of the year, the company is likely to miss its earnings expectation of Wall Street analysts. Price still remembers when FDP's earnings were below analysts' expectation by two cents a share three years ago, and the company's share price fell 19% the day earnings were announced. In a recent meeting, Price told his top management that something must be done quickly. One proposal by the marketing vice president was to give a deep discount to the company's major customers to increase the company's sales in the fourth quarter. The company controller pointed out that while the discount could increase sales, it may not help the bottom line; to the contrary, it could lower income. The controller said, “Since we have enough storage capacity, we might simply increase our production in the fourth quarter to increase our reported profit.”

Required

Gary Price is not sure how the increase in production without a corresponding increase in sales could help boost the company's income. Explain to Price how reported income varies with respect to production level.

Is there an ethical concern in this situation? If so, which parties are affected? Explain.

2. Which columns of the accounting worksheet show unadjusted amounts? Adjustments c. Income Statement

Which columns of the accounting worksheet show unadjusted amounts?

1. 
   
   
   
   1. Adjustments c. Income Statement
   
   
   2. Trial Balance d. Balance Sheet
   
   
   
   

3. The TD1 form is used by employees to claim federal personal tax credits impacting their tax deductio

The TD1 form is used by employees to claim federal personal tax credits impacting their tax deductions. Choose three of the tax credit amounts available on the TD1 (except the basic personal amount) and explain who might claim these tax credits and why. Compare how claiming or not claiming a tax credit can impact an employee's tax situation.

4. Acc423-After reading an article about activity-based costing in a trade journal for the furniture...

After reading an article about activity-based costing in a trade journal for the furniture industry, Santana Rey wondered if it was time to critically analyze the overhead costs at Business Solutions. In a recent month, Rey found that setup costs, inspection costs, and utility costs made up most of its overhead. Additional information about overhead follows.

Overhead has been applied to output at a rate of 50% of direct labor costs. The following data pertain to Job 6.15.

Direct materials 2,500 Number of parts

Direct labor 3,500 Machine hours

Batches 2 batches

Required:

1. What is the total cost of Job 6.15 if Business Solutions applies overhead at 50% of direct labor cost? 2. What is the total cost of Job 6.15 if Business Solutions uses activity-based costing?

3. Which approach to assigning overhead gives a better representation of the costs incurred to produce Job 6.15? Explain.

5. McCullough Hospital uses a job-order costing system to assign costs to its patients. Its direct...

McCullough Hospital uses a job-order costing system to assign costs to its patients. Its direct materials include a variety of items such as pharmaceutical drugs, heart valves, artificial hips, and pacemakers. Its direct labor costs (e.g., surgeons, anesthesiologists, radiologists, and nurses) associated with specific surgical procedures and tests are traced to individual patients. All other costs, such as depreciation of medical equipment, insurance, utilities, incidental medical supplies, and the labor costs associated with around-the-clock monitoring of patients are treated as overhead costs. Historically, McCullough has used one predetermined overhead rate based on the number of patient-days (each night that a patient spends in the hospital counts as one patient-day) to allocate overhead costs to patients. Recently a member of the hospital s accounting staff has suggested using two predetermined overhead rates (allocated based on the number of patient-days) to improve the accuracy of the costs allocated to patients. The first overhead rate would include all overhead costs within the Intensive Care Unit (ICU) and the second overhead rate would include all Other overhead costs. Information pertaining to the hospital s estimated number of patient-days, its estimated overhead costs, and two of its patients-Patient A and Patient B-is provided below: Required: 1. Assuming McCullough uses only one predetermined overhead rate, calculate: a. The predetermined overhead rate

6. Great Valley Income TaxAdvice GV is a small accounting firm supporting wealthy individuals in their.

Great Valley Income TaxAdvice

GV is a small accounting firm supporting wealthy individuals in their preparation of annual income tax statements. Every December, GV sends out a short survey to their customers,asking for the information required for preparing the tax statements. Based on 50 years ofexperience, GV categorizes their cases into the followinggroups:

• Group 1 (new customers, easy): 15 percent ofcases

• Group 2 (new customers, complex): 5 percent of cases

• Group 3 (repeat customers, easy): 50 percent ofcases

• Group 4 (repeat customers, complex): 30 percent ofcases

Here, “easy” versus “complex” refers to the complexity of the customer’s earning situation.

In order to prepare the income tax statement, GV needs to complete the followingset

of activities. Processing times (and even which activities need to be carried out) depend on which group a tax statement falls into. All of the following processing times areexpressed in minutes per income tax statement.

The activities are carried out by the following threepeople:

• Administrative support person: filing and writing.

• Senior accountant (who is also the owner): initial meeting, review by senior accountant.

• Junior accountant: preparation.

Assume that all three people work eight hours per day and 20 days a month. Forthe following questions, assume the product mix as described above. Assume that there are 50

income tax statements arriving each month.

GV1.Which of the three persons is the bottleneck?

a. Administrator

b. Senior accountant

c. Junior accountant

GV2.What is the (implied) utilization of the senioraccountant? GV3.What is the (implied) utilization of the junioraccountant?

GV4.What is the (implied) utilization of the administrative supportperson?

ANSWER:

GV1Junior accountant

GV2Senior accountant 14%

GV3Junior accountant 69%

GV4Administrator 37%

7. Presented below is information related to equipment owned by Puj

Presented below is information related to equipment owned by Pujols Company at December 31, 2012.

Cost (residual value $0) …………………..$9,000,000

Accumulated depreciation to date …………1,000,000

Value-in-use ……………………………….5,500,000

Fair value less cost of disposal …………….4,400,000

Assume that Pujols will continue to use this asset in the future. As of December 31, 2012, the equipment has a remaining useful life of 8 years. Pujols uses straight-line depreciation.

Instructions

(a) Prepare the journal entry (if any) to record the impairment of the asset at

December 31, 2012.

(b) Prepare the journal entry to record depreciation expense for 2013.

(c) The recoverable amount of the equipment at December 31, 2013, is $6,050,000.

Prepare the journal entry (if any) necessary to record this increase.

 

8. Bruno Company has decided to expand its operations. The bookkeep

Bruno Company has decided to expand its operations. The bookkeeper recently completed the balance sheet presented on the next page in order to obtain additional funds for expansion.



Instructions

Prepare a revised balance sheet given the available information. Assume that the accumulated depreciation balance for the buildings is $160,000 and for the office equipment, $105,000. The allowance for doubtful accounts has a balance of $17,000. The pension obligation is considered a long-termliability.

9. Transactions made by Virmari & Co., a public accounting firm, for the month of August are shown...

Transactions made by Virmari & Co., a public accounting firm, for the month of August are shown below. Prepare a tabular analysis which shows the effects of these transactions on the expanded accounting equation, similar to that shown in Illustration 1-8.

10. Tolan Resources Company acquired a tract of land containing an extractable natural resource. Tola...

Tolan Resources Company acquired a tract of land containing an extractable natural resource. Tolan is required by its purchase contract to restore the land to a condition suitable for recreational use after it has extracted the natural resource. Geological surveys estimate that the recoverable reserves will be 2,000,000 tons, and that the land will have a value of $1, 200,000 after restoration. Relevant cost information follows: Land -$9,000,000 Estimated restoration costs-$1, 800,000 If Tolan maintains no inventories of extracted material, what should be the charge to depletion expense per ton of extracted material? $3.90 $4.50 $4.80 $5.40

11. Why is there a special need for ethical behavior by professionals? Why do the ethical requirements..

Why is there a special need for ethical behavior by professionals? Why do the ethical requirements of the CPA profession differ from those of other professions?

12. The following selected transactions are from Ohlm Company: (Do not round intermediate calculation...

Journal Entry Worksheet

·         Accepted a $13,000, 60-day, 8% note dated this day in granting Danny Todd a time extension on his past-due account receivable.

·         Made an adjusting entry to record the accrued interest on the Todd note.

Journal Entry Worksheet

·         Received Todd’s payment of principal and interest on the note dated December 16.

·         Accepted a $6,100, 8%, 90-day note dated this day in granting a time extension on the past-due account receivable from Midnight Co.

·         Accepted a $2,700, 30-day, 7% note dated this day in granting Ava Privet a time extension on her past-due account receivable.

·         Privet dishonored her note when presented for payment.

·         Midnight Co. refuses to pay the note that was due to Ohlm Co. on May 31. Prepare the journal entry to charge the dishonored note plus accrued interest to Midnight Co.’s accounts receivable.

·         Received payment from Midnight Co. for the maturity value of its dishonored note plus interest for 46 days beyond maturity at 8%.

·         Accepted a $7,500, 90-day, 12% note dated this day in granting a time extension on the past-due account receivable of Mulan Co.

·         Accepted a $2,060, 60-day, 11% note dated this day in granting Noah Carson a time extension on his past-due account receivable.

·         Received payment of principal plus interest from Carson for the September 3 note.

·         Received payment of principal plus interest from Mulan for the August 7 note.

·         Wrote off the Privet account against Allowance for Doubtful Accounts.

13. . The management of Austin Corporation is considering dropping product R97C. 

1. The management of Austin Corporation is considering dropping product R97C. Data from the company's accounting system appear below: Sales...$130,000 variable expenses...$56,000 Fixed manufacturing expenses...$49,000 Fixed selling and administrative expenses...$35,000 In the company's accounting system all fixed expenses of the company are fully allocated to products. Further investigation has revealed that $34,000 of the fixed manufacturing expenses and $20,000 of the fixed selling and administrative expenses are avoidable if product R97C is discontinued. What would be the effect on the company's overall net operating income if product R97C were dropped?

A. Overall net operating income would increase by $20,000.

B. Overall net operating income would increase by $10,000.

C. Overall net operating income would decrease by $20,000.

D. Overall net operating income would decrease by $10,000.

E. None of the above

2. Cybil Baunt just inherited a 1958 Chevy Impala from her late Aunt Joop. Aunt Joop purchased the car 25 years ago for $5,000. Cybil is either going to sell the car for $2,000 or have it restored and sell it for $16,000. The restoration will cost $10,000. Cybil would be better off by:

A. $4,000 to have the vehicle restored

B. $6,000 to have the vehicle restored

C. $9,000 to have the vehicle restored

D. $11,000 to have the vehicle restored

E. None of the above

3. Two products, TD and IB, emerge from a joint process. Product TD has been allocated $31,200 of the total joint costs of $48,000. A total of 5,000 units of product TD are produced from the joint process. Product TD can be sold at the split-off point for $24 per unit, or it can be processed further for an additional total cost of $15,000 and then sold for $26 per unit. If product TD is processed further and sold, what would be the effect on the overall profit of the company compared with sale in its unprocessed form directly after the split-off point?

A. $5,000 less profit

B. $115,000 more profit

C. $36,200 less profit

D. $26,200 more profit

E. None of the above

The Clemson Company reported the following results last year for the manufacture and sale of one of its products known as a Tam. Sales (6,500 Tams at $130 each)...$845,000 Variable costs of sales....390,000 Variable distribution costs...65,000 Fixed advertising expense....275,000 Salary of product line manager...25,000 Fixed manufacturing overhead...145,000 Net operating loss..... $(55,000) Clemson Company is trying to determine whether or not to discontinue the manufacture and sale of Tams. The operating results reported above for last year are expected to continue in the foreseeable future if the product is not dropped. The fixed manufacturing overhead represents the costs of production facilities and equipment that the Tam product shares with other products produced by Clemson. If the Tam product were dropped, there would be no change in the fixed manufacturing costs of the company.

4. Assume that discontinuing the manufacture and sale of Tams will have no effect on the sale of other product lines. If the company discontinues the Tam product line, the change in annual operating income (or loss) should be:

A. $55,000 decrease

B. $65,000 decrease

C. $90,000 decrease

D. $70,000 increase

E. None of the above

5. Assume that discontinuing the Tam product would result in a $120,000 increase in the contribution margin of other product lines. How many Tams would have to be sold next year for the company to be as well off as if it just dropped the line and enjoyed the increase in contribution margin from other products?

A. 5,000 units

B. 6,000 units

C. 6,500 units

D. 7,000 units E. None of the above