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34. Transfer Pricing Divisional Autonomy System. A transfer pricing system should therefore reportTransfer pricing
a) The transfer pricing system operated by a divisional company has the potential to make a significant contribution towards the achievement of corporate financial objectives.
Required
Explain the potential benefits of operating a transfer pricing system within a divisionalised company.
b) A company operates two divisions, Able and Baker. Able manufactures two products, X and Y. Product X is sold to external customers for $42 per unit. The only outlet for product Y is Baker.
Baker supplies an external market and can obtain its semi-finished supplies (product Y) from either Able or an external source. Baker currently has the opportunity to purchase product Y from an external supplier for $38 per unit. The capacity of division Able is measured in units of output, irrespective of whether product X, Y or combination of both are being manufactured. The associated product costs are as follows.
X Y
Variable costs per unit 32 35
Fixed overheads per unit 5 5
Total unit costs 37 40
Required
Using the above information, provide advice on the determination of an appropriate transfer price for the sale of product Y from division Able to division Baker under the following conditions.
i) When division Able has spare capacity and limited external demand for product X
ii) When division Able is operating at full capacity with unsatisfied external demand for product X
c) The design of an information system to support transfer pricing decision making necessitates the inclusion of specific data.Identify the data that needs to be collected and how you would expect it to be used.
35. Craig Company uses a perpetual inventory system for its one product. Its beginning inventory,...
Craig Company uses a perpetual inventory system for its one product. Its beginning inventory, purchases, and sales during calendar year 2011 follow.
Date Activity Units Acquired at Cost Units Sold at Retail Unit Inventory
Jan. 1 Beg. Inventory 400 units @ $14 5 $ 5,600 400 units
Jan. 15 Sale 200 units @ $30 200 units
10-Mar Purchase 200 units @ $15 5 $ 3,000 400 units
1-Apr Sale 200 units @ $30 200 units
9-May Purchase 300 units @ $16 5 $ 4,800 500 units
Sept. 22 Purchase 250 units @ $20 5 $ 5,000 750 units
Nov. 1 Sale 300 units @ $35 450 units
Nov. 28 Purchase 100 units @ $21 5 $ 2,100 550 units
Totals 1,250 units $20,500 700 units
Additional tracking data for specific identification:
(1) January 15 sale — 200 units @ $14,
(2) April 1 sale — 200 units @ $15,
(3) November 1 sale — 200 units @ $14 and 100 units @ $20.
Required
1. Calculate the cost of goods available for sale.
2. Apply the four different methods of inventory costing (FIFO, LIFO, weighted average, and specific identification) to calculate ending inventory and cost of goods sold under each method.
3. Compute gross profit earned by the company for each of the four costing methods in part 2. Also, report the inventory amount reported on the balance sheet for each of the four methods.
4. In preparing financial statements for year 2011, the financial officer was instructed to use FIFO but failed to do so and instead computed cost of goods sold according to LIFO. Determine the impact on year 2011’s income from the error. Also determine the effect of this error on year 2012’s income. Assume no income taxes.
5. Management wants a report that shows how changing from FIFO to another method would change net income. Prepare a table showing (1) the cost of goods sold amount under each of the four methods, (2) the amount by which each cost of goods sold total is different from the FIFO cost of goods sold, and (3) the effect on net income if another method is used instead of FIFO.
36. On 1 September 2009 Susan Chao bought a motorcycle for £15,000
Balloon Payments On 1 September 2009 Susan Chao bought a motorcycle for £15,000. She paid £1,000 down, and financed the balance with a five-year loan at a stated annual interest rate of 9.6 per cent, compounded monthly. She started the monthly payments exactly one month after the purchase (i.e. 1 October 2009). Two years later, at the end of October 2011, Susan got a new job and decided to pay off the loan. If the bank charges her a 1 per cent prepayment penalty based on the loan balance, how much must she pay the bank on 1 November 2011?
37. Amdahl Corporation manufactures large-scale, high performance computer systems. In a recent...
Amdahl Corporation manufactures large-scale, high performance computer systems. In a recent annual report, the balance sheet included the following information (dollars in thousands):
Real World Financials
In addition, the income statement reported sales revenue of $2,158,755 ($ in thousands) for the current year. All sales are made on a credit basis. The statement of cash flows indicates that cash collected from customers during the current year was $2,230,065 ($ in thousands). There were no recoveries of accounts receivable previously written off.
Required:
1. Compute the following (dollar amounts in thousands):
a. The amount of uncollectibles written off by Amdahl during the current year.
b. The amount of bad debt expense that Amdahl would include in its income statement for the current year.
c. The approximate percentage that Amdahl used to estimate uncollectibles for the current year, assuming that it uses the income statement approach.
2. Suppose that Amdahl had used the direct write-off method to account for uncollectibles. Compute the following (dollars in thousands):
a. The accounts receivable information that would be included in the year-end balance sheet.
b. The amount of bad debt expense that Amdahl would include in its income statement for the current year.
38. This item is based on the following information pertaining to Arp Co.'s manufacturing operations:...
This item is based on the following information pertaining to Arp Co.'s manufacturing operations:
Inventories 3/1/89 3/31/89
Direct Materials $36,000 $30,000
Work-in-process 18,000 12,000
Finished Goods 54,000 72,000
Additional information for the month of March 1989:
Direct materials purchased $84,000
Direct labor payroll 60,000
Direct labor rate per hour 7.50
Factory overhead rate per direct labor hour 10.00
For the month of March 1989, prime cost was
Question 1 options:
A) $144,000
B) $120,000
C) $150,000
D) $ 90,000
39. On June 1, 2019, Kris Storey established an interior decorating business, Eco-Centric Designs....
On June 1, 2019, Kris Storey established an interior decorating business, Eco-Centric Designs. During the month, Kris completed the following transactions related to the business: June 1. Kris transferred cash from a personal bank account to an account to be used for the business, $35,000. 1. Paid rent for period of June 1 to end of month, $4,750. 6. Purchased office equipment on account, $14,100. 8. Purchased a van for $28,500 paying $4,500 cash and giving a note payable for the remainder. 10. Purchased supplies for cash, $2,380. 12. Received cash for job completed, $12,200. 15. Paid annual premiums on property and casualty insurance, $3,600. 23. Recorded jobs completed on account and sent invoices to customers, $11,900. 24. Received an invoice for van expenses, to be paid in June, $1,500.
40. 25. Ratios and Foreign Companies Prince Albert Canning PLC had a net loss of £45,831 on sales of...
25. Ratios and Foreign Companies Prince Albert Canning PLC had a net loss of £45,831 on sales of £198,352. What was the company’s profit margin? Does the fact that these figures are quoted in a foreign currency make any difference? Why? In dollars, sales were $314,883. What was the net loss in dollars?
SMOLIRA GOLF CORP.
2011 and 2012 Balance Sheets
Assets Liabilities and Owners’ Equity
2011 2012 2011 2012
Current assets Current liabilities
Cash Accounts
receivable
Inventory Total
Fixed assets Net plant and
equipment
Total assets $24,046 $ 24,255 Accounts payable
Notes payable Other
Total
Long-term debt Owners’ equity
Common stock and paid-in surplus
Accumulated retained earnings
Total
Total liabilities and owners’ equity $ 23,184 $ 27,420
12,448 15,235 12,000 10,800
25,392 27,155 11,571 15,553
$61,886 $ 66,645 $ 46,755 $ 53,773
$ 80,000 $ 95,000
$ 40,000
$ 40,000
219,826 243,606
324,695 365,734 $259,826 $283,606
$386,581 $432,379 $386,581 $432,379
Some recent financial statements for Smolira Golf Corp. follow. Use this infor- mation to work Problems 26 through 30.
Sales $366,996
Cost of goods sold 253,122
Depreciation 32,220
Earnings before interest and taxes $ 81,654
Interest paid 14,300
Taxable income $ 67,354
Taxes (35%) 23,574
Net income $ 43,780
Dividends $20,000
Retained earnings 23,780
41. In my opinion, we ought to stop making our own
In my opinion, we ought to stop making our own drums and accept that outside supplier’s offer:?? said Wim Niewindt, managing director of Antilles Refining, N.V., of Aruba. ?oAt a price of 18 florins per drum, we would be paying 5 forms less than it costs us to manufacture the drums in our own plant. (The currency in Aruba is the form, denoted below by fl.) Since we use 60,000 drums a year, that would be an annual cost savings of 300,000 florins.?? Antilles Refining’s present cost to manufacture one drum is given below (based on 60,000 drums per year):
A decision about whether to make or buy the drums is especially important at this time because the equipment being used to make the drums is completely worn out and must be replaced. The choices facing the company are:
Alternative 1:
Rent new equipment and continue to make the drums. The equipment would be rented for fl135,000 per year.
Alternative 2:
Purchase the drums from an outside supplier at fl18 per drum. The new equipment would be more efficient than the equipment that Antilles Refining has been using and, according to the manufacturer, would reduce direct labor and variable overhead costs by 30%. The old equipment has no resale value. Supervision cost (fl45,000 per year) and direct materials cost per drum would not be affected by the new equipment. The new equipment’s capacity would be 90,000 drums per year. The company’s total general company overhead would be unaffected by this decision.
Required:
1. To assist the managing director in making a decision, prepare an analysis showing the total cost and the cost per drum for each of the two alternatives given above. Assume that 60,000 drums are needed each year. Which course of action would you recommend to the managing director?
2. Would your recommendation in (1) above be the same if the company’s needs were: (a) 75,000 drums per year or (b) 90,000 drums per year? Show computations to support your answer, with costs presented on both a total and a per unit basis.
3. What other factors would you recommend that the company consider before making adecision?
42. Retail Inventory Method Presented below is information related t
Retail Inventory Method Presented below is information related to Waveland Inc. Assuming that Waveland Inc. uses the conventional retail inventory method; compute the cost of its ending inventory at December 31,2011.
43. Flaherty Accounting Services pays $2,000 per month for a tax
Flaherty Accounting Services pays $2,000 per month for a tax software license. In addition, variable charges incurred average $9 for every tax return the firm prepares.
a. Determine the total cost and the cost per unit if the firm expects to prepare the following number of tax returns in March 2010:
1. 200
2. 500
3. 800
b. Why does the cost per unit change in (1), (2), and (3) of part (a)?
c. The owner of Flaherty Accounting Services wants to earn a margin (excluding any other direct costs) on tax returns of $15,000 during March. If 200 returns are prepared, what tax return preparation fee should be charged? If that fee is charged and 800 returns are prepared, what is the margin in March?
44. After numerous campus interviews, Steve Baden, a senior at Great
After numerous campus interviews, Steve Baden, a senior at Great Northern College, received two office interview invitations from the Baltimore offices of two large firms. Both firms offered to cover his out-of-pocket expenses (travel, hotel, and meals). He scheduled the interviews for both firms on the same day, one in the morning and one in the afternoon. At the conclusion of each interview, he submitted to both firms his total out-of-pocket expenses for the trip to Baltimore: mileage $112 (280 miles at $0.40), hotel $130, meals $36, parking and tolls $18, for a total of $296. He believes this approach is appropriate. If he had made two trips, his cost would have been two times $296. He is also certain that neither firm knew he had visited the other on that same trip. Within ten days Steve received two checks in the mail, each in the amount of $296.
Instructions
(a) Who are the stakeholders (affected parties) in this situation?
(b) What are the ethical issues in this case?
(c) What would you do in this situation?
45. West Company declared a $0.50 per share cash dividend. The company has 190,000 shares issued, and...
West Company declared a $0.50 per share cash dividend. The company has 190,000 shares issued, and 10,000 shares in treasury stock. The journal entry to record the dividend declaration is:
Debit Retained Earnings $90,000; credit Common Dividends Payable $90,000.
Debit Common Dividends Payable $95,000; credit Cash $95,000.
Debit Retained Earnings $95,000; credit Common Dividends Payable $95,000.
Debit Common Dividends Payable $90,000; credit Cash $90,000.
Debit Retained Earnings $5,000; credit Common Dividends Payable $5,000.
46. Exercise 6-11 Suppose this information is available for PepsiCo, Inc. for 2015, 2016, and 2017. 2...
Exercise 6-11 Suppose this information is available for PepsiCo, Inc. for 2015, 2016, and 2017. 2015 2016 -20 (in millions) Beginning inventory $1,926 $2,290 $2,522 Ending inventory 2,290 2,522 2,618 Cost of goods sold 18,038 20,351 20,099 Sales revenue 39,474 43,251 43,232 Calculate the inventory turnover for PepsiCo, Inc. for 2015, 2016, and 2017. (Round inventory turnover to 1 decimal place, e.g. 5.1.) 2016 2015 2017 Inventory turnover times times times NK TO TEXT Calculate the days in inventory for PepsiCo, Inc. for 2015, 2016, and 2017. (Round days in inventory to 1 decimal place, e.g. 5.1.) 2016 2015 2017 Days in inventory days days days
47. 6. Goal of Financial Management What goal should always motivate the actions of a firm’s...
6. Goal of Financial Management What goal should always motivate the actions of a firm’s financial manager?
7. Agency Problems Who owns a corporation? Describe the process whereby the owners control the firm’s management. What is the main reason that an agency relationship exists in the corporate form of organization? In this context, what kinds of problems can arise?
48. A.Dinesh starts business with cash Rs 50,000 and furniture Rs 20,000. The details of his...
A.Dinesh starts business with cash Rs 50,000 and furniture Rs 20,000. The details of his transactions are given below:
(i) Purchased goods on credit from Eknath Rs 60,000 at 10% discount.
(ii) Goods costing Rs 20,000 are sold for Rs 35,000.
(iii) Goods costing Rs 10,000 are sold to Fakir & Co. for Rs 18,000.
(iv) Fakir returned 1/5th of the goods.
(v) Received commission Rs 6,000.
(vi) Paid Rs 14,000 to Eknath and accepted a Bills Payable of 3 months for the balance amount.
(vii) Paid salary Rs 3,000 to Gumasta.
(viii) Depreciate furniture by 10%.
You are required to prepare accounting equations for Dinesh.
B Gopinath started business with cash Rs 30,000 and goods Rs 10,000. His other transactions are given below. You are required to show the accounting equations.
(i) Purchased goods from Hanuman Bhai Rs 30,000.
(ii) Paid Rs 10,000 to Hanuman Bhai.
(iii) Sold goods costing Rs 12,000 for Rs 19,000 to Inderjeet & Co.
(iv) Goods costing Rs 3,000 are destroyed during cyclone and could be sold for Rs 1,000 only.
(v) Paid wages Rs 1,000.
(vi) Goods costing Rs 1,000 are distributed as relief during the cyclone.
(vii) Goods costing Rs 400 (market price Rs 500) are taken for household use.
(viii) Goods costing Rs 3,000 are used for construction of a room.
(ix) Goods costing Rs 5,000 are sold for Rs 20,000.
(x) Goods worth Rs 2,000 are destroyed in fire.
C. What do you mean by accounting cycle ?
D. What is a voucher ? What are the features of a voucher ? How a voucher is prepared ?
E. What do you mean by source document ? Give examples.
49. Cost of Materials Issuances Under the FIFO Method An incomplete subsidiary ledger of materials inven
Cost of Materials Issuances Under the FIFO Method An incomplete subsidiary ledger of materials inventory for May is as follows: a. Complete the materials issuances and balances for the materials subsidiary ledger under FIFO. a. Complete the materials issuances and balances for the materials subsidiary ledger under FIFO. Received Issued Balance Unit Receiving Report Number Quantity Unit Price Materials Requisition Number Quantity Amount Date Quantity Amount price May 1 250 $6 $1,500 22 180 $8 May 4 250 G 1,500 180 1,440 105 280 $ 29,400 x D 2,600 May 10 May 21 28 120 10 2,600 280 x 325 x 120 327 * 8 10 10 1,200 118 170 20,060 X May 27 3,270 x Feedback b. Determine the materials inventory balance at the end of May. Feedback Check My Work c. Journalize the summary entry to transfer materials to work in process. Feedback Check My Work d. Comparing as reported in the materials ledger with predetermined order points would enable management to order materials before a(n) causes idle time.
50. A. A credit balance of Rs 10,000 in the bank column of the cash book shows that A the amount...
A. A credit balance of Rs 10,000 in the bank column of the cash book shows that
A the amount received exceeds the amount paid out by Rs 10,000
B ~ 10,000 has been lost
C the accounts clerk has made mistakes
D the bank account has been overdrawn
B. If the bank account shows a credit balance of Rs 1,000, the accountholder deposits Rs 400 and draws a cheque for Rs 300, the balance in the bank account should be
A Rs 900 debit
B Rs 1,100 debit
C Rs 900 credit
D Rs 1,100 credit
C. A debit balance of Rs 5,000 in the cash column of the cash book shows that
A Rs 5,000 has been paid out
B Rs 5,000 is owing
C the amount received exceeds the amount paid by Rs 5,000
D Rs 5,000 has been credited into the bank account
