Understanding Cost Behavior: Tips for Student Assignments

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Understanding Cost Behavior: Tips for Student Assignments

10. When an independent valuation expert advises an entity that the salvage value of its plant and...

When an independent valuation expert advises an entity that the salvage value of its plant and machinery had drastically changed and thus the change is material, the entity should

(a) Retrospectively change the depreciation charge based on the revised salvage value.

(b) Change the depreciation charge and treat it as a correction of an error.

(c) Change the annual depreciation for the current year and future years.

(d) Ignore the effect of the change on annual depreciation, because changes in salvage values would normally affect the future only since these are expected to be recovered in future.

11. Sean Matthews is a waiter at the Duluxe Lounge. In his first weekly pay in March, he earned $300....

Sean Matthews is a waiter at the Duluxe Lounge. In his first weekly pay in March, he earned $300.00 for the 40 hours he worked. In addition, he reports his tips for February to his employer ($500.00), and the employer withholds the appropriate taxes for the tips from this first pay in March.

Calculate his net take-home pay assuming the employer withheld federal income tax (wage-bracket, single, 4 allowances), social security taxes, and state income tax (0.02).

Enter deductions beginning with a minus sign (-).

Click here to access the Wage-Bracket Method Tables.http://cxp-cdn.cengage.info/protected/prod/assets/a0/5/a05b4a06-0542-41b3-a3bd-d76763910dcf.pdf?__gda__=st=1487720190~exp=1488324990~acl=%2fprotected%2fprod%2fassets%2fa0%2f5%2fa05b4a06-0542-41b3-a3bd-d76763910dcf.pdf*~hmac=9f3ef6515e9596df49a3319fb2cd79fa6c84346b9020c049e65320db5ee70e96

12. The Regal Cycle Company manufactures three types of bicycles—a dirt bike, a mountain bike, and ...

The Regal Cycle Company manufactures three types of bicycles—a dirt bike, a mountain bike, and a racing bike. Data on sales and expenses for the past quarter follow:

*Allocated on the basis of sales dollars.

Management is concerned about the continued losses shown by the racing bikes and wants a recommendation as to whether or not the line should be discontinued. The special equipment used to produce racing bikes has no resale value and does not wear out.

Required:

1. What is the financial advantage (disadvantage) per quarter of discontinuing the Racing Bikes?

2. Should the production and sale of racing bikes be discontinued?

3. Prepare a properly formatted segmented income statement that would be more useful to management in assessing the long-run profitability of the various product lines.

13. 1. Case: The London Oil Storage Co. Ltd. vs Seear, Hasluck & Co. (1904) Fact of the case: This...

1. Case: The London Oil Storage Co. Ltd. vs Seear, Hasluck & Co. (1904)

Fact of the case: This was another case where the auditors had concerned themselves only with the entries in the books, and not with verification procedure. The balance sheet showed cash balances of almost £ 800, which agreed with the books, but the actual balance was only £ 30, the difference having been misappropriated. The auditor was held to have been negligent in not verifying the balance. However, damages of only five guineas were awarded against the auditor because the court held that the director responsible for supervising the fraudulent employee was the person primarily responsible for the loss.

Legal view: There are two important aspects to this case. The first is that the court again held that auditors have a duty to verify assets and not merely to check bookkeeping entries. The second, and very important, or aspect is that auditors are responsible for the loss resulting directly from their negligence and thus are not responsible where the loss has resulted from other causes.

14. 11) Adding a complementary product to what is currently being produced is a demand management strate

11)

Adding a complementary product to what is currently being produced is a demand

management strategy used when

A)

demand exceeds capacity

B)

capacity exceeds demand for a product which has stable demand

C)

the existing product has seasonal or cyclical demand

D)

price increases have failed to bring about demand management

E)

efficiency exceeds 100 percent

12)

An organization whose capacity is on that portion of the average unit cost

curve that falls as output rises

A)

has a facility that is below optimum operating level and should build a larger

facility

B)

has a facility that is above optimum operating level and should build a smaller

facility

C)

is suffering from diseconomies of scale

D)

has utilization higher than efficiency

E)

has efficiency higher than utilization

13)

Of the three approaches to capacity expansion, the approach that

“straddles” demand

A)

uses incremental expansion

B)

uses one-step expansion

C)

at some times leads demand, and at other times lags

D)

works best when demand is not growing but is stable

E)

Choices A and C are both correct.

14)

Consider a production line with five stations. Station 1 can produce a unit in

9 minutes. Station 2 can produce a unit in 10 minutes. Station three has two

identical machines, each of which can process a unit in 12 minutes (each unit

only needs to be processed on one of the two machines). Station 4 can produce a

unit in 5 minutes. Station 5 can produce a unit in 8 minutes. Which station is

the bottleneck station?

A)

station 1

B)

station 2

C)

station 3

D)

station 4

E)

station 5

15)

Which of the following is false regarding capacity expansion?

A)

“Average” capacity sometimes leads demand, sometimes lags it.

B)

If “lagging” capacity is chosen, excess demand can be met with

overtime or subcontracting.

C)

Total cost comparisons are a rather direct method of comparing capacity

alternatives.

D)

Capacity may only be added in large chunks.

E)

All of the above are true.

16)

A tortilla chip workstation produces 1,000 chips in 20 seconds. Its process time is

A)

.02 seconds per chip

B)

50 chips per second

C)

20 seconds

D)

6000 chips per minute

E)

none of the above

17)

A work system has five stations that have process times of 5, 9, 4, 9, and

8. What is the process cycle time of the

system?

A)

4

B)

9

C)

18

D)

35

E)

none of the above

18)

A work system has five stations that have process times of 5, 9, 4, 9, and 8.

What is the process time of the system?

A)

4

B)

9

C)

18

D)

35

E)

none of the above

19)

The process time of a system is equivalent to the

A)

process time of the bottleneck

B)

sum of all workstation times

C)

shortest workstation time

D)

mean workstation time

E)

median workstation time

20)

An assembly line has 10 stations with process times of 1, 2, 3, 4, …, 10

respectively. The process time of the

system is

A)

18.18% of the process cycle time

B)

100% of the process cycle time

C)

550% of the process cycle time

D)

50% of the process cycle time

E)

none of the above

15. Direct materials and manufacturing labor variances, solving unkn

Direct materials and manufacturing labor variances, solving unknowns (CPA, adapted) On May 1, 2009, Bovar Company began the manufacture of a new paging machine known as Dandy. The company installed a standard costing system to account for manufacturing costs. The standard costs for a unit of Dandy follow:





The following data were obtained from Bovar’s records for the month of May:





Actual production in May was 4,000 units of Dandy, and actual sales in May were 2,500 units.

The amount shown for direct materials price variance applies to materials purchased during May.

There was no beginning inventory of materials on May 1, 2009.

Compute each of the following items for Bovar for the month of May. Show your computations.

1. Standard direct manufacturing labor-hours allowed for actual output produced

2. Actual direct manufacturing labor-hours worked

3. Actual direct manufacturing labor wage rate

4. Standard quantity of direct materials allowed (in pounds)

5. Actual quantity of direct materials used (in pounds)

6. Actual quantity of direct materials purchased (in pounds)

7. Actual direct materials price per pound

16. This problem is based on the transactions for the FastForward Company in your text. Prepare journ...

Show transcribed image text This problem is based on the transactions for the FastForward Company in your text. Prepare journal entries for each transaction and identify the financial statement impact of each entry. The financial statements are automatically generated based on the journal entries recorded. On December 1, Chas Taylor forms a consulting business, named FastForward. FastForward receives $30,000 cash from Chas Taylor in exchange for common stock. Dec. 1 FastForward pays $2,500 cash for supplies. The company's policy is to record all prepaid expenses in asset accounts. Dec. 2 FastForward pays $26,000 cash for equipment. Dec. 3 Dec. 4 FastForward purchases $7,100 of supplies on credit from a supplier, CalTech Supply, FastForward provides consulting services and immediately collects $4,200 cash Dec. 5 FastForward pays $1,000 cash for December rent. Dec. 6 FastForward pays $700 cash for employee salary Dec. 7 FastForward provides consulting services of $1,600 and rents its test facilities for $300. The customer is billed $1,900 for these services. Dec. 8 FastForward receives $1,900 cash from the client billed on December 8 Dec. 9 Dec. 10 astForward pays CalTech supply $900 cash as partial payment for its December 4 $7,100 purchase of supplies. Dec. 11 astForward pays $200 cash for dividends. Dec. 12 FastForward receives $3,000 cash in advance of providing consulting services to a customer. The company's policy is to record fees collected in advance in a balance sheet account. Dec. 13 FastForward pays $2,400 cash (insurance premium) for a 24-month insurance policy. Coverage begins on December 1. The company's policy is to record all prepaid expenses in a balance sheet account. Dec. 14 astForward pays $120 cash for supplies. Dec. 15 FastForward pays $305 cash for December utilities expense. Dec. 16 astForward pays $700 cash for employee salary.

17. P r oject E v aluation. Ilana Industries, Inc., needs a new lathe. It can buy a new high-speed lathe

P r oject E v aluation. Ilana Industries, Inc., needs a new lathe. It can buy a new high-speed lathe for $1 million. The lathe will cost $35,000 to run, will save the firm $125,000 in labor costs, and will be useful for 10 years. Suppose that for tax purposes, the lathe will be de- preciated on a straight-line basis over its 10-year life to a salvage value of $100,000. The ac- tual market value of the lathe at that time also will be $100,000. The discount rate is 10 per-

cent and the corporate tax rate is 35 percent. What is the NPV of buying the new lathe?

18. When Crossett Corporation was organized in January 2018, it immediately issued 4,000 shares of $50..

When Crossett Corporation was organized in January 2018, it immediately issued 4,000 shares of $50 par, 6 percent, cumulative preferred stock and 50,000 shares of $20 par common stock. Its earnings history is as follows: 2018, net loss of $35,000; 2019, net income of $125,000; 2020, net income of $215,000. The corporation did not pay a dividend in 2018. Required a. How much is the dividend arrearage as of January 1, 2019? b. Assume that the board of directors declares a $40,000 cash dividend at the end of 2019 (remember that the 2018 and 2019 preferred dividends are due). How will the dividend be divided between the preferred and common stockholders?

19. Property taxes on a company"s factory building would be classified as a(n)

Property taxes on a company"s factory building would be classified as a(n):

A) product cost.

B) opportunity cost.

C) period cost.

D) variable cost.

20. Hulme Company operates a small manufacturing facility as a supplement to its regular service acti...

Hulme Company operates a small manufacturing facility as a supplement to its regular service activities. At the beginning of 2017, an asset account for the company showed the following balances:

During 2017, the following expenditures were incurred for the equipment:

The equipment is being depreciated on a straight-line basis over an estimated life of 15 years with a $12,000 estimated residual value. The annual accounting period ends on December 31.

2. Starting at the beginning of 2017, what is the remaining estimated life?

3. Prepare the journal entries to record the two expenditures during 2017. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

-Record the expenditure for routine maintenance and repairs on the equipment.

-Record the expenditure for the major overhaul of the equipment.

21. 43) Failure to record accrued interest on a note payable causes a company to: A) overstate interest.

43) Failure to record accrued interest on a note payable causes a company to:

A) overstate interest income.

B) understate interest expense.

C) understate retained earnings.

D) overstate interest expense and understate retained earnings.

44) Short-term notes payable:

A) are an unusual form of financing.

B) are generally due within one year.

C) are classified on the balance sheet as non-current.

D) are shown on the balance sheet as a reduction to notes receivable.

45) The entry to accrue interest on a note payable would include a:

A) debit to Note Payable.

B) credit to Interest Receivable.

C) credit to Interest Revenue.

D) debit to Interest Expense.

Table 11-3

Bentley Enterprises purchased $8,000 of inventory by issuing a six-month, 7.5% note payable on November 1, 2013. Bentley has a December 31 year end.

46) Referring to Table 11-3, the amount of accrued interest on December 31, 2013, would be:

A) $200.00

B) $100.00

C) $50.00

D) $300.00

47) Refer to Table 11-3. The entry on May 1, 2014, to pay the note payable and interest would include a:

A) debit to Interest Expense of $300.00.

B) debit to Interest Payable of $100.00.

C) credit to Interest Payable of $200.00.

D) credit to Cash of $8,000.00.

48) Refer to Table 11-3. The amount of interest expense recognized in 2013 would be:

A) $200.00

B) $50.00

C) $100.00

D) $300.00

49) The portion of a long-term debt payable within the year is classified as a current liability. The interest payable on the debt is:

A) added to the face value of the debt.

B) classified separately from the  principal amount of the debt.

C) not recorded until maturity of the debt.

D) accrued on the anniversary date of the debt.

Table 11-4

Lumas Company gives a $50,000, 180-day note payable to its bank at 9% on September 15, 2013 for a cash loan. Lumas has a December 31 year end.

50) Refer to Table 11-4 The entry to record the loan with the note on September 15, 2013, would include a:

A) debit to Cash of $50,000.

B) debit to Interest Expense of $2,219.18.

C) credit to Note Payable, Short Term of $52,219.18.

D) debit to Note Payable for $50,000.

51) Refer to Table 11-4. The adjusting entry necessary at December 31, 2013, would be:

A)

B)

C)

D) no adjusting entry is necessary

52) Refer to Table 11-4. The entry on the maturity date to record the payment of the note payable plus accrued interest would include a:

A) credit to Note Payable of $50,000.00.

B) debit to Interest Payable of $900.00.

C) credit to Cash of $52,219.18.

D) debit to Interest Expense of $1,319.18