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23. Exercise 18-51 ACTIVITY RATES AND ACTIVITY-BASED PRODUCT COSTING Hammer Company produces a...Exercise 18-51 ACTIVITY RATES AND ACTIVITY-BASED PRODUCT COSTING
Hammer Company produces a variety of electronic equipment. One of its plants pro- duces two laser printers: the deluxe and the regular. At the beginning of the year, the fol- lowing data were prepared for this plant:
Deluxe Regular
Quantity 100,000 800,000
Selling price $900 $750
Unit prime cost $529 $483
In addition, the following information was provided so that overhead costs could be assigned to each product:
Activity Name Activity Driver Activity Cost ($) Deluxe Regular
Setups Number of setups 2,000,000 300 200
Machining Machine hours 80,000,000 100,000 300,000
Engineering Engineering hours 6,000,000 50,000 100,000
Packing Packing orders 1,000,000 100,000 400,000
Required:
1. Calculate the overhead rates for each activity.
2. Calculate the per-unit product cost for each product.
24. Preparing a Bank Reconciliation Milton Company has just received the following monthly bank...
Preparing a Bank Reconciliation
Milton Company has just received the following monthly bank statement for June 2009.
Data from the cash account of Milton Company for June are as follows:
At the end of May, Milton had three checks outstanding for a total of $4,560. All three checks were processed by the bank during June. There were no deposits outstanding at the end of May. It was discovered during the reconciliation process that a check for $8,050, written on June 4 for supplies, was improperly recorded on the books as $8,500.
Required:
1. Determine the amount of deposits in transit at the end of June.
2. Determine the amount of outstanding checks at the end of June.
3. Prepare a June bank reconciliation.
4. Prepare the journal entries to correct the cash account.
5. Interpretive Question: Why is it important that the cash account be reconciled on a timely basis?
25. On December 31, 2012, the American Bank enters into a
On December 31, 2012, the American Bank enters into a debt restructuring agreement with Barkley Company, which is now experiencing financial trouble. The bank agrees to restructure a 12%, issued at par, $3,000,000 note receivable by the following modifications:
1. Reducing the principal obligation from $3,000,000 to $2,400,000.
2. Extending the maturity date from December 31, 2012, to January 1, 2016.
3. Reducing the interest rate from 12% to 10%.
Barkley pays interest at the end of each year. On January 1, 2016, Barkley Company pays $2,400,000 in cash to Firstar Bank.
Instructions
(a) Will the gain recorded by Barkley be equal to the loss recorded by American Bank under the debt restructuring?
(b) Can Barkley Company record a gain under the term modification mentioned above? Explain.
(c) Assuming that the interest rate Barkley should use to compute interest expense in future periods is 1.4276%, prepare the interest payment schedule of the note for Barkley Company after the debt restructuring.
(d) Prepare the interest payment entry for Barkley Company on December 31, 2014.
(e) What entry should Barkley make on January 1, 2016?
26. Wisconsin Products Company manufactures several different products. One of the firm's principal...
1. Wisconsin Products Company manufactures several different products. One of the firm's principal products sells for $20 per unit. The sales manager of Wisconsin Products has stated
repeatedly that he could sell more units of this product if they were available. In an attempt to substantiate his claim, the sales manager conducted a market research study last year at a cost of $44,000 to determine potential demand for this product. The study indicated that Wisconsin Products could sell 18,000 units of this product annually for the next five years.
The equipment currently in use has the capacity to produce 11,000 units annually. The variable production costs are $9 per unit. The equipment has a book value of $60,000 and a
remaining useful life of five years. The salvage value of the equipment is negligible now and will be zero in five years. A maximum of 20,000 units could be produced annually on the new machinery which can be purchased. The new equipment costs $300,000 and has an estimated useful life of five years with no salvage value at the end of five years. Wisconsin Products' production manager has estimated that the new equipment would provide increased production efficiencies that would reduce the variable production costs to $7 per unit. Wisconsin Products Company uses straight-line depreciation on all of its equipment for tax purposes. The firm is subject to a 40 percent tax rate, and its after-tax cost of capital is 15 percent. The sales manager felt so strongly about the need for additional capacity that he attempted to prepare an economic justification for the equipment, although this was not one of his responsibilities. His analysis, presented below, disappointed him because it did not justify acquiring the equipment.
Required Investment
Purchase price of new equipment $300,000
Disposal of existing equipment:
Loss of disposal $60,000
Less: Tax benefit (40%) 24,000 36,000
Cost of market research study 44,000
Total investment $380,000
Annual Returns
Contribution margin from product:
Using the new equipment [18,000 X ($20 -$7)] $234,000
Using the existing equipment [11,000 X ($20 -$9)] 121,000
Increase in contribution margin $1 13,000
Less: Depreciation 60,000
Increase in before-tax income $ 53,000
Income tax (40%) 21,200
Increase in income $ 31,800
Less: 15% cost of capital on the additional
investment required (0.15 X $380,000) 57,000
Net annual return of proposed investment in new equipment $ (25,200)
1. The controller of Wisconsin Products Company plans to prepare a discounted cash flow analysis for this investment proposal. The controller has asked you to prepare corrected calculations of
(a) The required investment in the new equipment
(b) The recurring annual cash flows
Explain the treatment of each item of your corrected calculations that is treated differently from the original analysis prepared by the sales manager.
2. Calculate the net present value of the proposed investment in the new equipment.
27. Jokan contributes a non-depreciable asset to the Mahali LLC in exchange for a one-fourth (25%) in...
Jokan contributes a non-depreciable asset to the Mahali LLC in exchange for a one-fourth (25%) interest in the capital, profits and losses of the LLC. The asset has an adjusted tax basis to Jokan and the LLC of $60,000 and a fair market value and §704(b) book basis on the contribution date of $150,000. The asset is encumbered by a nonrecourse note of $80,000 that has not been guaranteed by any of the LLC members.
a. Under §704(c) principles, how much of the nonrecourse debt is allocated to Jokan and what is the amount of Jokan’s basis in the LLC interest following the contribution?
28. Uhura Company has decided to expand its operations. The bookkeeper recently completed the balance...
Need help please fill in blank.
Uhura Company has decided to expand its operations. The bookkeeper recently completed the balance sheet presented below in order to obtain additional funds for xpansion UHURA COMPANY BALANCE SHEET FOR THE YEAR ENDED 2017 Current assets Cash Accounts receivable (net) Inventory (lower-of-average-cost-or-market) Equity investments (marketable)-at cost (fair value $120,000) $230,000 340,000 401,000 140,000 Property, plant, and equipment Buildings (net) Equipment (net) Land held for future use 570,000 160,000 175,000 Intangible assets Goodwill Cash surrender value of life insurance Prepaid expenses 80,000 90,000 12,000 Current liabilities Accounts payable Notes payable (due next year) Pension obligation Rent payable Premium on bonds payable 135,000 125,000 82,000 49,000 53,000
29. 69.The total standard cost to produce one unit of product is shown a.at the bottom of the income...
69.The total standard cost to produce one unit of product is shown
a.at the bottom of the income statement.
b.at the bottom of the balance sheet.
c.on the standard cost card.
d.in the Work in Process Inventory account.
70.An unfavorable materials quantity variance would occur if
a.more materials were purchased than were used.
b.actual pounds of materials used were less than the standard pounds allowed.
c.actual labor hours used were greater than the standard labor hours allowed.
d.actual pounds of materials used were greater than the standard pounds allowed.
Use the following information for questions 71–74.
Oxnard Industries produces a product that requires 2.6 pounds of materials per unit. The allowance for waste and spoilage per unit is .3 pounds and .1 pounds, respectively. The purchase price is $3 per pound, but a 2% discount is usually taken. Freight costs are $.15 per pound, and receiving and handling costs are $.10 per pound. The hourly wage rate is $10.00 per hour, but a raise which will average $.25 will go into effect soon. Payroll taxes are $1.00 per hour, and fringe benefits average $2.00 per hour. Standard production time is 1 hour per unit, and the allowance for rest periods and setup is .2 hours and .1 hours, respectively.
71.The standard direct materials price per pound is
a.$2.94.
b.$3.00.
c.$3.19
d.$3.25
72.The standard direct materials quantity per unit is
a.2.6 pounds.
b.2.7 pounds.
c.2.9 pounds.
d.3.0 pounds.
73.The standard direct labor rate per hour is
a.$ 10.00.
b.$ 10.25.
c.$13.00.
d.$13.25.
74.The standard direct labor hours per unit is
a.1 hour.
b.1.1 hours.
c.1.2 hours.
d.1.3 hours.
75.The standard direct materials quantity does not include allowances for
a.unavoidable waste.
b.normal spoilage.
c.unexpected spoilage.
d.all of the above are included.
76.Allowances should not be made in the direct labor quantity standard for
a.wasted time.
b.rest periods.
c.cleanup.
d.machine downtime.
77.The standard predetermined overhead rate used in setting the standard overhead cost is determined by dividing
a.budgeted overhead costs by an expected standard activity index.
b.actual overhead costs by an expected standard activity index.
c.budgeted overhead costs by actual activity.
d.actual overhead costs by actual activity.
78.Hofburg’s standard quantities for 1 unit of product include 2 pounds of materials and 1.5 labor hours. The standard rates are $4 per pound and $14 per hour. The standard overhead rate is $16 per direct labor hour. The total standard cost of Hofburg’s product is
a.$29.
b.$34.
c.$45.
d.$53.
30. A company manufactures and retails clothing You are required to A company manufactures and retails..
A company manufactures and retails clothing You are required to
A company manufactures and retails clothing. You are required to group the costs which are listed below and numbered (1)-(20) into the following classifications (each cost is intended to belong to only one classification):
(i) Direct materials;
(ii) Direct labour;
(iii) Direct expenses;
(iv) Indirect production overhead;
(v) Research and development costs;
(vi) Selling and distribution costs;
(vii) Administration costs;
(viii) Finance costs.
1 lubricant for sewing machines;
2 Floppy disks for general office computer;
3 Maintenance contract for general office photocopying machine;
4 Telephone rental plus metered calls;
5 Interest on bank overdraft;
6 Performing Rights Society charge for music broadcast throughout the factory;
7 Market research undertaken prior to a new product launch;
8 Wages of security guards for factory;
9 Carriage on purchase of basic raw material;
10 Royalty payable on number of units of product XY produced;
11 Road fund licenses for delivery vehicles;
12 Parcels sent to customers;
13 Cost of advertising products on television;
14 Audit fees;
15 Chief accountant’s salary;
16 Wages of operatives in the cutting department;
17 Cost of painting advertising slogans on delivery vans;
18 Wages of storekeepers in materials store;
19 Wages of fork lift truck drivers who handle raw materials;
20 Developing a new product in the laboratory;
A company manufactures and retails clothing You are required to
31. Your client is in the planning phase for a major
Your client is in the planning phase for a major plant expansion, which will involve the construction of a new warehouse. The assistant controller does not believe that interest cost can be included in the cost of the warehouse, because it is a financing expense. Others on the planning team believe that some interest cost can be included in the cost of the warehouse, but no one could identify the specific authoritative guidance for this issue. Your supervisor asks you to research this issue.
Instructions
If your school has a subscription to the FASB Codification, go to http://aaahq.org/asclogin.cfm to log in and prepare responses to the following. Provide Codification references for your responses.
(a) Is it permissible to capitalize interest into the cost of assets? Provide authoritative support for your answer.
(b) What are the objectives for capitalizing interest?
(c) Discuss which assets qualify for interest capitalization.
(d) Is there a limit to the amount of interest that may be capitalized in a period?
(e) If interest capitalization is allowed, what disclosures are required?
32. Powder Company spent $240,000 to acquire all of Sawmill Corporation's stock on January 1, 20X2. T...
Powder Company spent $240,000 to acquire all of Sawmill Corporation's stock on January 1, 20X2. The balance sheets of the two companies on December 31, 20X3, showed the following amounts:
Sawmill reported retained earnings of $100,000 at the date of acquisition. The difference between the acquisition price and underlying book value is assigned to buildings and equipment with a remaining economic life of 10 years from the date of acquisition. Assume Sawmill's accumulated depreciation on the acquisition date was $25,000.
Required:
a. Prepare the appropriate consolidation entry or entries needed to prepare a consolidated balance sheet as of December 31, 20X3.
b. Prepare a consolidated balance sheet worksheet as of December 31, 20X3.
Powder Company Corporation Sawmill $ 30,000 Cash Accounts Receivable Land Buildings & Equipment Less: Accumulated Depreciation Investment in Sawmill Corporatiorn 100,000 60,000 500,000 (230,000) 252,000 20,000 40,000 50,000 350,000 (75,000) $ 712,000 $385,000 Accounts Payable Taxes Payable Notes Payable Common Stock Retained Earnings $ 80,000 10,000 70,000 85,000 100,000 120,000 $ 712,000 $385,000 40,000 100,000 200,000 292,000
33. Parsa Real Estate Parsa Real Estate is a company that buys and rents real estate. The company is...
Parsa Real Estate
Parsa Real Estate is a company that buys and rents real estate. The company is looking into buying an office building for $1M. The building has 10,000 square feet of rentable office space. 2 The company analysts predict that they can rent the office space for $6 per square foot per month, but demand is a function of price in the following way: % Occupied = 2 L 0.2*Rent (Rent is in dollars per square foot per month. Also, at $6.00, Oscar thinks he can fill about 80% of the office space.) The building needs to be maintained (security, insurance, maintenance, etc.), which costs $10,000 per month regardless of occupancy. Also, there is a variable cost of $2 per month for each square foot occupied. Define the return on invested capital as the ratio of the profits (PER YEAR) and the invested capital. You can draw an ROIC tree in the same way that we drew a KPI tree in class. Simply have the ROIC as “the root” of the tree instead of profits. Then answer the following questions.
PR1. What is the ROIC?
PR2. What would be the new ROIC be if Parsa Real Estate decides to charge rent of $8.00 per square foot per month?
34. ROI, RI, EVA. Hamilton Corp. is a reinsurance and financial services company. Hamilton strongly...
ROI, RI, EVA. Hamilton Corp. is a reinsurance and financial services company. Hamilton strongly believes in evaluating the performance of its stand-alone divisions using financial metrics such as ROI and residual income. For the year ended December 31, 2017, Hamilton’s CFO received the following information about the performance of the property/casualty division:
For the purposes of divisional performance evaluation, Hamilton defines investment as total assets and income as operating income (that is, income before interest and taxes). The firm pays a flat rate of 25% in taxes on its income.
1. What was the net income after taxes of the property/casualty division?
2. What was the division’s ROI for the year?
3. Based on Hamilton’s required rate of return of 8%, what was the property/casualty division’s residual income for 2017?
4. Hamilton’s CFO has heard about EVA and is curious about whether it might be a better measure to use for evaluating division managers. Hamilton’s four divisions have similar risk characteristics. Hamilton’s debt trades at book value while its equity has a market value approximately 150% that of its book value. The company’s cost of equity capital is 10%. Calculate each of the following components of EVA for the property/casualty division, as well as the final EVA figure:
a. Net operating profit after taxes
b. Weighted-average cost of capital
c. Investment, as measured for EVA calculations
35. Required: 1&2. Prepare flexible overhead budgets for October showing the amounts of each v...
Required:
1&2. Prepare flexible overhead budgets for October showing the amounts of each variable and fixed cost at the 65%, 75%, and 85% capacity levels and classify all items listed in the fixed budget as variable or fixed.
Problem 23-5A Part 3
3. Compute the direct materials cost variance, including its price and quantity variances. (Round actual price to 2 decimal places.)
Problem 23-5A Part 4
4. Compute the direct labor cost variance, including its rate and efficiency variances.(Round actual rate to 2 decimal places.)
Antuan Company set the following standard costs for one unit of its product.
Direct materials ((3.0 Ibs. @ $5.0 per Ib.) $ 15.00
Direct labor (1.7 hrs. @ $14.0 per hr.) 23.80
Overhead (1.7 hrs. @ $18.50 per hr.) 31.45
Total standard cost $ 70.25
The predetermined overhead rate ($18.50 per direct labor hour) is based on an expected volume of 75% of the factory’s capacity of 20,000 units per month. Following are the company’s budgeted overhead costs per month at the 75% level.
Overhead Budget (75% Capacity)
Variable overhead costs
Indirect materials $ 15,000
Indirect labor 75,000
Power 15,000
Repairs and maintenance 30,000
Total variable overhead costs $ 135,000
Fixed overhead costs
Depreciation—building 24,000
Depreciation—machinery 70,000
Taxes and insurance 16,000
Supervision 226,750
Total fixed overhead costs 336,750
Total overhead costs $ 471,750
The company incurred the following actual costs when it operated at 75% of capacity in October.
Direct materials (46,500 Ibs. @ $5.20 per lb.) $ 241,800
Direct labor (30,000 hrs. @ $14.30 per hr.) 429,000
Overhead costs
Indirect materials $ 43,250
Indirect labor 176,500
Power 17,250
Repairs and maintenance 34,500
Depreciation—building 24,000
Depreciation—machinery 94,500
Taxes and insurance 14,400
Supervision 226,750 631,150
Total costs $ 1,301,950
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