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1. Which characteristic of a corporation is a disadvantage?
A. Mutual agency
B. Double taxation
C. Limited liability
D. None are disadvantages.
ID: QC13-1 (book/static)
2. The two basic sources of stockholders' equity are
A. assets and equity.
B. preferred and common.
C. retained earnings and dividends.
D. paid-in capital and retained earnings.
ID: QC13-2 (book/static)
3. Suppose Value Home and Garden Imports issued 400,000 shares of $0.10 par common stock at $4 per share. Which
journal entry correctly records the issuance of this stock?
Review Only
Click the icon to see the Worked Solution.
Date
A.
Accounts and Explanation
Common Stock—$0.10 Par Value
Debit
1,600,000
Cash
40,000
Paid-In Capital in Excess of Par-Common
B.
Common Stock—$0.10 Par Value
1,560,000
1,600,000
Cash
C.
Cash
1,600,000
1,600,000
Common Stock—$0.10 Par Value
40,000
Paid-In Capital in Excess of Par-Common
D.
Cash
Common Stock—$0.10 Par Value
Credit
1,560,000
1,600,000
1,600,000
ID: QC13-3 (book/static)
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4. Suppose Yummy Treats Bakery issues common stock in exchange for a building. Yummy Treats Bakery should record the
building at
A. the par value of the stock given.
B. its book value.
C. its market value.
D. a value assigned by the board of directors.
ID: QC13-4 (book/static)
5. A company's own stock that it has issued and repurchased is called
A. outstanding stock.
B. dividend stock.
C. issued stock.
D. treasury stock.
ID: QC13-5 (book/static)
6. Assume that a company paid $6 per share to purchase 1,100 shares of its $3 par common stock as treasury stock. The
purchase of treasury stock
Review Only
Click the icon to see the Worked Solution.
A. increased total equity by $3,300.
B. decreased total equity by $3,300.
C. decreased total equity by $6,600.
D. increased total equity by $6,600.
ID: QC13-6 (book/static)
7. Winston Corporation has 9,000 shares of 4%, $10 par cumulative preferred stock and 47,000 shares of common stock
outstanding. Winston declared no dividends in 2015 and had no dividends in arrears prior to 2015. In
2016, Winston declares a total dividend of $54,000. How much of the dividends go to the common stockholders?
Review Only
Click the icon to see the Worked Solution.
A. $54,000
B. $50,400
C. $46,800
D. None; it all goes to preferred stockholders.
ID: QC13-7 (book/static)
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8. A small stock dividend
A. decreases common stock.
B. has no effect on total equity.
C. increases Retained Earnings.
D. Items a, b, and c are correct.
ID: QC13-8 (book/static)
9. Jackson Health Foods has 8,000 shares of $2 par common stock outstanding, which were issued at $15 per share.
Jackson also has a deficit balance in Retained Earnings of $86,000. How much is Jackson's total stockholders' equity?
Review Only
Click the icon to see the Worked Solution.
A. $16,000
B. $120,000
C. $206,000
D. $34,000
ID: QC13-9 (book/static)
10. Dale Corporation has the following data:
Net income
Preferred dividends
Average common stockholders' equity
$
24,000
12,000
100,000
Dale's rate of return on common stockholders' equity is
Review Only
Click the icon to see the Worked Solution.
A. 24%
B. 50%
C. 12%
D. 36%
ID: QC13-10 (book/static)
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11. Sarah Systems completed the following stock issuance transactions:
May 19 Issued 1,900 shares of $2 par value common stock for cash of $12.00 per share.
Jun. 3 Isssued 260 shares of $4, no-par preferred stock for $13,000 cash.
11 Received equipment with a market value of $75,000 in exchange for 9,000
shares of the $2 par value common stock.
Requirements
1. Journalize the transactions. Explanations are not required.
2. How much paid-in capital did these transactions generate for Sarah Systems?
Review Only
Click the icon to see the Worked Solution.
Requirement 1. Journalize the transactions. Explanations are not required. (Record debits first, then credits. Exclude
explanations from any journal entries.)
May 19: Issued 1,900 shares of $2 par value common stock for cash of $12.00 per share.
Date
May 19
Accounts
Debit
Credit
Debit
Credit
(1)
(2)
(3)
(4)
Jun. 3: Issued 260 shares of $4, no-par preferred stock for $13,000 cash.
Date
Jun. 3
Accounts
(5)
(6)
(7)
(8)
Jun. 11: Received equipment with a market value of $75,000 in exchange for 9,000 shares of the $2 par value common
stock.
Date
Jun. 11
Accounts
Debit
Credit
(9)
(10)
(11)
(12)
Requirement 2. How much paid-in capital did these transactions generate for Sarah Systems?
Total paid-in capital generated from these transactions amounts to $
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.
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12. Mates Corp. issued 7,000 shares of no-par common stock for $14 per share.
Requirements
1. Record issuance of the stock if the stock:
a. is true no-par stock.
b. has stated value of $1 per share.
2. Which type of stock results in more total paid-in capital?
Review Only
Click the icon to see the Worked Solution.
Requirement 1a. Record issuance of the stock if the stock is true no-par stock. (Record debits first, then credits. Select
the explanation on the last line of the journal entry table.)
Date
a.
Accounts and Explanation
Debit
Credit
(1)
(2)
(3)
(4)
(5)
Requirement 1b. Record issuance of the stock if the stock has stated value of $1 per share. (Record debits first, then
credits. Select the explanation on the last line of the journal entry table.)
Date
b.
Accounts and Explanation
Debit
Credit
(6)
(7)
(8)
(9)
(10)
Requirement 2. Which type of stock issuance results in more total paid-in capital?
(11)
(1)
Cash
Common Stock—No Par Value
Common Stock—$1 Stated Value
(2)
Cash
Common Stock—No Par Value
Common Stock—$1 Stated Value
(3)
Cash
Common Stock—No Par Value
Common Stock—$1 Stated Value
Paid-In Capital in Excess of Stated Value—Common
Retained Earnings
Treasury Stock—Common
Paid-In Capital in Excess of Stated Value—Common
Retained Earnings
Treasury Stock—Common
Paid-In Capital in Excess of Stated Value—Common
Retained Earnings
Treasury Stock—Common
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13. Southern Communications has the following stockholders' equity on December 31, 2016:
1(Click on the icon to view the stockholders' equity)
Requirements
1. Assuming the preferred stock is cumulative, compute the amount of dividends to preferred stockholders and to
common stockholders for 2016 and 2017 if total dividends are $14,560 in 2016 and $53,000 in 2017. Assume no
changes in preferred stock and common stock in 2017.
2. Record the journal entries for 2016, assuming that Southern Communications declared the dividend on December 1
for stockholders of record on December 10. Southern Communications paid the dividend on December 20.
Review Only
Click the icon to see the Worked Solution.
Requirement 1. Assuming the preferred stock is cumulative, compute the amount of dividends to preferred stockholders
and to common stockholders for 2016 and 2017 if total dividends are $14,560 in 2016 and $53,000 in 2017. Assume no
changes in preferred stock and common stock in 2017. (Assume all preferred dividends have been paid prior to
2016. Complete all input boxes. Enter a "0" for zero amounts. For the current year preferred dividend, be sure to enter the
calculated dividend on the "current year dividend" line and the paid out dividend on the "total dividend to preferred
stockholders" line.)
Southern's 2016 dividend would be divided between preferred and common stockholders in this manner:
Total Dividend—2016
Dividend to preferred stockholders:
Dividend in arrears
Current year dividend
Total dividend to preferred stockholders
Dividend to common stockholders
Southern's 2017 dividend would be divided between preferred and common stockholders in this manner:
Total Dividend—2017
Dividend to preferred stockholders:
Dividend in arrears
Current year dividend
Total dividend to preferred stockholders
Dividend to common stockholders
Requirement 2. Record the journal entries for 2016, assuming that Southern Communications declared the dividend on
December 1 for stockholders of record on December 10. Southern Communications paid the dividend on December 20.
(Record debits first, then credits. Select the explanation on the last line of the journal entry table. If no entry is required,
select "No entry required" on the first line of the Accounts and Explanation column and leave the remaining cells blank.)
Dec. 1, 2016: Declared dividend.
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Date
Dec. 1
Accounts and Explanation
Debit
Credit
Accounts and Explanation
Debit
Credit
Accounts and Explanation
Debit
Credit
(1)
(2)
(3)
(4)
(5)
Dec. 10, 2016: Date of record.
Date
Dec. 10
(6)
(7)
(8)
(9)
(10)
Dec. 20, 2016: Paid dividend.
Date
Dec. 20
(11)
(12)
(13)
(14)
(15)
1: Data Table
Stockholders' Equity
Paid-In Capital:
Preferred Stock—9%, $ 8 Par Value; 150,000 shares
authorized, 23,000 shares issued and outstanding
$
184,000
Common Stock—$1 Par Value; 575,000 shares
authorized, 360,000 shares issued and outstanding
360,000
Paid-In Capital in Excess of Par—Common
1,980,000
Total Paid-In Capital
2,524,000
210,000
Retained Earnings
Total Stockholders' Equity
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$
2,734,000
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14. B − Cell Wireless needed additional capital to expand, so the business incorporated. The charter from the state of Georgia
authorizes B − Cell to issue 120,000 shares of 7%, $100 par value cumulative preferred stock and 100,000 shares of
$3 par value common stock. During the first month, B − Cell completed the following transactions:
2
(Click the icon to view the transactions.)
Requirements
1. Record the transactions in the general journal.
2.
Prepare the stockholders' equity section of B − Cell's balance sheet at October 31, 2016. Assume B − Cell's net
income for the month was $94,000.
Review Only
Click the icon to see the Worked Solution.
Requirement 1. Record the transactions in the general journal. (Record debits first, then credits. Select the explanation on
the last line of the journal entry table.)
Oct. 2: Issued 23,000 shares of common stock for a building with a market value of $140,000.
Date
Oct. 2
Accounts and Explanation
Debit
Credit
Debit
Credit
Debit
Credit
(1)
(2)
(3)
(4)
(5)
Oct. 6: Issued 800 shares of preferred stock for $130 per share.
Date
Oct. 6
Accounts and Explanation
(6)
(7)
(8)
(9)
(10)
Oct. 9: Issued 14,000 shares of common stock for cash of $84,000.
Date
Oct. 9
Accounts and Explanation
(11)
(12)
(13)
(14)
(15)
Oct. 10: Declared a $18,000 cash dividend for stockholders of record on Oct. 20. Use a separate Dividends Payable
account for preferred and common stock.
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Date
Oct. 10
Ac ounts and Explanation
Debit
Cr dit
Ac ounts and Explanation
Debit
Cr dit
16)
17)
18)
19)
20)
Oct. 25: Paid the cash dividend.
Date
Oct. 25
21)
22)
23)
24)
25)
Requirement 2. Prepare the stockholders' equity section of B − ell's alance sheet at October 31, 2016. Assume
B − Cell's net income for the month was $94,000.
B-Cell Wireless
Balanc Sh
t (Partial)
October 31, 2016
Stoc
olders Equity
Paid-In apital:
26)
27)
28)
31)
32)
29)
30)
33)
Total Paid-In
apital
34)
Total Stockholders' Equity
2: More Info
Oct.
2
6
9
10
Issued 23,000 shares of common stock for a building with a market value of $140,000.
Issued 800 shares of preferred stock for $130 per share.
Issued 14,000 shares of common stock for cash of $84,000.
Declared a $18,000 cash dividend for stockholders of record on Oct. 20. Use a separate Dividends Payable
account for preferred and common stock.
25 Paid the cash dividend.
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15. Starborn Manufacturing Co. completed the following transactions during 2016:
3(Click the icon to view the transactions.)
Requirements
1. Record the transactions in Starborn's general journal.
2.
Prepare the Starborn's stockholders' equity section of the balance sheet as of December 31, 2016. Assume that
Starborn was authorized to issue 1,100 shares of preferred stock and 400,000 shares of common stock. Both
preferred stock and common stock were issued at par. The ending balance of retained earnings as of December 31,
2016, is $2,040,000.
Review Only
Clic th icon to se th Work d Solution.
Requirement 1. Record the transactions in Star orn's eneral journal. Record de its first, then credits. Select the
explanation on the last line of the journal entry table. If no entry is required, select "No entry required" on the first line of
the Accounts and Explanation column and leave the remaining cells lank.)
Jan. 16: Declared a cash dividend on the 6%, $105 par noncumulative preferred stock 1,000 shares outstanding).
Declared a $0.25 per share dividend on the 105,000 shares of $4 par value common stock outstanding. The date of
record is January 31, and the payment date is February 15.
Dat
Jan. 16
Ac ounts and Explanation
Debit
Credit
Ac ounts and Explanation
Debit
Credit
Debit
Credit
1)
2)
3)
4)
5)
Feb. 15: Paid the cash dividends.
Dat
Fe . 15
6)
7)
8)
9)
10)
Jun. 10: Split common stock 2-for-1.
Dat
Jun. 10
Ac ounts and Explanation
11)
12)
13)
14)
15)
Jul. 30: Declared a 40% stock dividend on the common stock. The market value of the common stock was $12 per share.
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Starborn Manufacturing, Co.
Balan
Sh
De
t (Partial)
mb r 31, 2016
Stoc
olders Equity
Paid-In apital:
41)
42)
43)
44)
45)
46)
Total Paid-In
47)
apital
48)
49)
50)
Total Stockholders' Equity
3: More Info
Jan.
Feb.
Jun.
Jul.
Aug.
Oct.
Nov.
16 Declared a cash dividend on the 6%, $105 par noncumulative preferred stock (1,000 shares outstanding).
Declared a $0.25 per share dividend on the 105,000 shares of $4 par value common stock outstanding. The
date of record is January 31, and the payment date is February 15.
15 Paid the cash dividends.
10 Split common stock 2-for-1.
30 Declared a 40% stock dividend on the common stock. The market value of the common stock was $12 per
share.
15 Distributed the stock dividend.
26 Purchased 5,400 shares of treasury stock at $11 per share.
8 Sold 2,700 shares of treasury stock for $13 per share.
30 Sold 1,600 shares of treasury stock for $7 per share.
1)
ommon Stock—$4 Par Value
No entry required
ommon Stock Dividend Distributa le
ash
Dividends Payable— ommon
ash Dividends
Dividends Payable—Preferred
Paid-In apital from Treasury Stock Transactions
Retained Earnin s
Paid-In apital in Excess of Par—Common
Stock Dividends
Paid-In apital in Excess of Par—Preferred
Treasury Stock—Common
Preferred Stock—$105 Par Value
2)
ommon Stock—$4 Par Value
No entry required
ommon Stock Dividend Distributa le
ash
Dividends Payable— ommon
ash Dividends
Dividends Payable—Preferred
Paid-In apital from Treasury Stock Transactions
Retained Earnin s
Paid-In apital in Excess of Par—Common
Stock Dividends
Paid-In apital in Excess of Par—Preferred
Treasury Stock—Common
Preferred Stock—$105 Par Value
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16. Medina Company reported these figures for 2016 and 2015:
4(Click the icon to view the figures.)
Read the requirements5.
Review Only
Clic th icon to se th Work d Solution.
Requirement 1. ompute Medina
preferred dividend during 2016.
ompany's earnings per share for 2016. Assume the company paid the minimum
Select the formula, then enter the amounts to calculate the company's earnings per share for 2016. Ab reviations used:
Ave. = average, OS = outstanding, SE = stockholders' equity, shrs = shares. Enter earnings per share to the nearest cent.)
1)
-
2)
Requirement 2. ompute Medina
share of common stock is $3.
)
/
)
/
3)
= Earnings per share
=
ompany's price/earnings ratio for 2016. Assume the company's market price per
Select the formula, then enter the amounts to calculate the company's price/earnings ratio for 2016. Ab reviations used:
Ave. = average, OS = outstanding, SE = stockholders' equity, shrs = shares.)
4)
/
5)
=
/
Price/earnings ratio
=
Requirement 3. ompute Medina ompany's rate of return on common stockholders' equity for 2016. Assume the
company paid the minimum preferred dividend during 2016.
Select the formula, then enter the amounts to calculate the company's rate of return on common stockholders' equity for
2016. Ab reviations used: Ave. = average, OS = outstanding, SE = stockholders' equity, shrs = shares. Round your
answer to the nearest whole percent.)
6)
-
7)
) /
) /
8)
= Rate of return on common SE
=
%
4: Data Ta le
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2016
2015
Income Statement—partial:
$
Net Income
8,800 $
16,000
Balance Sheet-partial:
Dec. 31, 2016
Total Assets
Dec. 31, 2015
$
240,000 $
270,000
$
70,000 $
70,000
50,000
50,000
12,000
12,000
52,500
50,000
184,500 $
182,000
Paid-In Capital:
Preferred Stock—9%, $5 Par Value; 50,000 shares
authorized, 14,000 shares issued and outstanding
Common Stock—$2 Par Value; 35,000 shares
authorized; 25,000 shares issued and outstanding
Paid-In Capital in Excess of Par—Common
Retained Earnings
$
Total Stockholders' Equity
5: Requirements
1. Compute Medina Company's earnings per share for 2016. Assume the company paid the minimum preferred
dividend during 2016.
2. Compute Medina Company's price/earnings ratio for 2016. Assume the company's market price per share of
common stock is $3.
3. Compute Medina Company's rate of return on common stockholders' equity for 2016. Assume the company paid the
minimum preferred dividend during 2016.
1)
Ave. common SE
Ave. # common shrs OS
Average total assets
2)
Ave. common SE
Ave. # common shrs OS
Average total assets
3)
Ave. common SE
Ave. # common shrs OS
Average total assets
4)
Ave. common SE
Ave. # common shrs OS
Average total assets
Net income
Preferred dividends
Net income
Preferred dividends
Net income
Preferred dividends
Earnin s per share
Market price per share
Net income
Preferred dividends
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(5)
Ave. common SE
Ave. # common shrs OS
Average total assets
(6)
Ave. common SE
Ave. # common shrs OS
Average total assets
(7)
Ave. common SE
Ave. # common shrs OS
Average total assets
(8)
Ave. common SE
Ave. # common shrs OS
Average total assets
Page 36 of 243
Earnin s per share
Market price per share
Net income
Preferred dividends
Market price per share
Net income
Preferred dividends
Market price per share
Net income
Preferred dividends
Market price per share
Net income
Preferred dividends
ID: P13-40A (similar to)
1.
The purposes of the statement of cash flows are to
A. evaluate management decisions.
B. determine ability to pay liabilities and dividends.
C. predict future cash flows.
D. All of the above
ID: QC14-1 (book/static)
2
The. main categories of cash flow activities are
A. direct and indirect.
B. current and long-term.
C. non-cash investing and financing.
D. operating, investing, and financing.
ID: QC14-2 (book/static)
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3.
Page 37 of 243
Operating activities are most closely related to
A. long-term assets.
B. current assets and current liabilities.
C. long-term liabilities and stockholders' equity.
D. dividends and treasury stock.
ID: QC14-3 (book/static)
4.
Which item does not appear on a statement of cash flows prepared by the indirect method?
A. Collections from customers
B. Depreciation expense
C. Net income
D. Gain on sale of land
ID: QC14-4 (book/static)
5.
Leather Shop earned net income of $57,000 after deducting depreciation of $5,000 and all other expenses. Current
assets decreased by $4,000, and current liabilities increased by $8,000. How much was Leather Shop's cash provided by
operating activities (indirect method)?
Review Only
Click the icon to see the Worked Solution.
A. $40,000
B. $66,000
C. $48,000
D. $74,000
ID: QC14-5 (book/static)
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6.
Page 38 of 243
The Plant Assets account and Accumulated Depreciation—Plant Assets account of Star Media show the following:
6
(Click the icon to view the data.)
Star Media sold plant assets at an $11,000 loss. Where on the statement of cash flows should Star Media report the sale
of plant assets? How much should the business report for the sale?
Review Only
Click the icon to see the Worked Solution.
A. Financing cash flows—cash receipt of $42,000
B. Investing cash flows—cash receipt of $53,000
C. Investing cash flows—cash receipt of $31,000
D. Investing cash flows—cash receipt of $42,000
6: Data Table
Plant Assets
Beg.
100,000
Acquisitions
428,000
End.
475,500
52,500 Disposals
Accumulated Depreciation—Plant Assets
20,000 12/31/2015
Disposals
10,500
34,000 Depr. Exp.
43,500 12/31/2016
ID: QC14-6 (book/static)
7.
Mountain Water Corp. issued common stock of $28,000 to pay off long-term notes payable of $28,000. In what section(s)
would these transactions be recorded?
A. Financing activities payment of note, $(28,000)
B. Financing activities cash receipt, $28,000
C. Non-cash investing and financing activities, $28,000
D. Both a and b are correct.
ID: QC14-7 (book/static)
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8.
Page 39 of 243
Holmes, Inc. expects net cash flow from operating activities to be $160,000, and the company plans purchases of
equipment of $83,000 and repurchases of stock of $24,000. What is Holmes's free cash flow?
Review Only
Click the icon to see the Worked Solution.
A. $53,000
B. $160,000
C. $77,000
D. $83,000
ID: QC14-8 (book/static)
9.
Maxwell Furniture Center had accounts receivable of $20,000 at the beginning of the year and $54,000 at year-end.
Revenue for the year totaled $116,000. How much cash did the business collect from customers?
Review Only
Click the icon to see the Worked Solution.
A. $150,000
B. $62,000
C. $116,000
D. $82,000
ID: QC14A-9 (book/static)
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10.
Page 40 of 243
Accountants for Carlson, Inc. have assembled the following data for the year ended December 31, 2016:
7(Click
the icon to view the current accounts.)
8(Click
the icon to view the transaction data.)
Prepare Carlson's statement of cash flows using the indirect method. Include an accompanying schedule of non-cash
investing and financing activities.
Review Only
Click the icon to see the Worked Solution.
omplete the statement one section at a time, eginning with the cash flows from operating activities. (Use parentheses or
a minus sign for num ers to e subtracted. If a ox is not used in the statement, leave the ox empty; do not select a label
or enter a zero.)
Carlson, Inc.
Statement of Cas Flows
Year End d De
mber 31, 2016
ash Flows from Operating Activities:
Net Income
Adjustments to Reconcile Net Income to Net
ash
Provided y (Used for) Operating Activities:
1)
2)
3)
4)
5)
6)
7)
Net
ash Provided y (Used for) Operatin Activities
ash Flows from Investing Activities:
8)
9)
10)
11)
Net
ash Provided y (Used for) Investing Activities
ash Flows from Financing Activities:
(12)
(13)
(14)
(15)
Net
ash Provided y (Used for) Financin Activities
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Net Increase Decrease) in ash
ash Balance, Decem er 31, 2015
ash Balance, Decem er 31, 2016
Non-cash Investing and Financing Activities:
16)
17)
Total Non-cash Investing and Financing Activities
7: Data Table
2016
2015
Current Assets:
Cash
$ 104,400 $
19,000
Accounts Receivable
64,300
69,700
Merchandise Inventory
87,000
84,000
57,800 $
55,900
14,600
16,900
Current Liabilities:
Accounts Payable
$
Income Tax Payable
8: More Info
Transaction Data for 2016:
Issuance of common stock for cash
$ 40,000 Payment of notes payable
$ 51,100
Depreciation expense
24,000 Payment of cash dividends
48,000
Purchase of equipment with cash
76,000 Issuance of notes payable to borrow cash
66,000
Acquisition of land by issuing long-term notes payable
Book value of building sold
120,000 Gain on sale of building
57,000 Net income
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6,000
71,500
1/16/2016
Pr nt Questions
11.
Page 47 of 243
American Reserve Rare Coins (ARRC) was formed on January 1, 2016. Additional data for the year follow:
9(Click the icon to view the transactions.)
Read the requirements10.
Review Only
Cli
th icon to se th Wor
d Solution.
Requirement 1. Prepare ARRC's income statement for the year ended December 31, 2016. Use the single-step format,
with all revenues listed together and all expenses listed together.
Ameri an Reserv Rar Coins
In ome Statement
Year Ended De
mber 31, 2016
Revenue:
1)
Expenses:
2)
3)
4)
5)
6)
Total Expenses
Net Income
Requirement 2. Prepare ARRC's alance sheet at December 31, 2016.
American Reserve Rare Coins
Balanc She t
De
mber 31, 2016
Liabiliti s
Ass ts
urrent Assets:
urrent Liabilities:
(7)
(8)
(9)
(10)
(11)
Total urrent Lia ilities
Total urrent Assets
Stoc
Plant Assets:
old rs' Equity
(12)
(13)
(14)
(15)
Total Stockholders' Equity
Total Assets
Total Liabilities and Stockholders' Equity
Requirement 3. Prepare ARRC's statement of cash flows for the year ended Decem er 31, 2016. Format cash flows from
operating activities y the direct method. (Use parentheses or a minus sign for numbers to e subtracted. If a ox is not
used in the statement, leave the ox empty; do not select a label or enter a zero. Enter "0" for a zero cash alance.)
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Page 49 of 243
a. On January 1, 2016, ARRC issued no par common stock for $575,000.
b. Early in January, ARRC made the following cash payments:
1.
For store fixtures, $45,000
2.
For merchandise inventory, $350,000
3.
For rent expense on a store building, $14,000
c. Later in the year, ARRC purchased merchandise inventory on account for $238,000. Before year-end, ARRC paid
$158,000 of this account payable.
d. During 2016, ARRC sold 3,000 units of merchandise inventory for $300 each. Before year-end, the company
collected 85% of this amount. Cost of goods sold for the year was $260,000, and ending merchandise inventory
totaled $328,000.
e. The store employs three people. The combined annual payroll is $97,000, of which ARRC still owes $7,000 at
year-end.
f.
At the end of the year, ARRC paid income tax of $24,000. There are no income taxes payable.
g. Late in 2016, ARRC paid cash dividends of $35,000.
h. For store fixtures, ARRC uses the straight-line depreciation method, over five years, with zero residual value.
10: Requirements
1.
Prepare ARRC's income statement for the year ended December 31, 2016. Use the single-step format, with all
revenues listed together and all expenses listed together.
2.
Prepare ARRC's balance sheet at December 31, 2016.
3.
Prepare ARRC's statement of cash flows for the year ended December 31, 2016. Format cash flows from
operating activities by the direct method.
1)
Accumulated Depreciation
ash
ommon Stock
ost of Goods Sold
Depreciation Expense
Income Tax Expense
Rent Expense
Retained Earnings
Salaries and Wa es Expense
Sales Revenue
Accumulated Depreciation
ash
ommon Stock
ost of Goods Sold
Depreciation Expense
Income Tax Expense
Rent Expense
Retained Earnings
Salaries and Wa es Expense
Sales Revenue
Accumulated Depreciation
ash
ommon Stock
ost of Goods Sold
Depreciation Expense
Income Tax Expense
Rent Expense
Retained Earnings
Salaries and Wa es Expense
Sales Revenue
Accumulated Depreciation
ash
ommon Stock
ost of Goods Sold
Depreciation Expense
Income Tax Expense
Rent Expense
Retained Earnings
Salaries and Wa es Expense
Sales Revenue
Accumulated Depreciation
ash
ommon Stock
ost of Goods Sold
Depreciation Expense
Income Tax Expense
Rent Expense
Retained Earnings
Salaries and Wa es Expense
Sales Revenue
2)
3)
4)
5)
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1.
Page 54 of 243
What part of the Liberty's annual report is written by the company and could present a biased view of financial conditions
and results?
A. Balance Sheet
B. Management's Discussion and Analysis of Financial Condition and Results of Operations
(MD&A)
C. Auditor's Report
D. Income Statement
ID: QC15-1 (book/static)
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Print Questions
2.
Page 55 of 243
Li erty Corporation reported the following financial statements:
11(Click the icon to view the financial statements.)
Horizontal analysis of Liberty's balance sheet for 2017 would report
Review Only
Click the icon to see the Worked Solution.
A. Cash as 9.50% of total assets.
B. a 17% increase in Cash and Cash Equivalents.
C. a current ratio of 1.01.
D. inventory turnover of 6 times.
11: Data Table
Liberty Corporation
Comparative Balance Sheet
December 31, 2017 and 2016
2017
2016
Assets
Current Assets:
Cash and Cash Equivalents
$
2,450 $
2,094
Accounts Receivable
1,813
1,611
Merchandise Inventory
1,324
1,060
Prepaid Expenses
1,709
2,120
Total Current Assets
7,296
6,885
18,500
15,737
$
25,796 $
22,622
$
7,230 $
8,467
4,798
3,792
12,028
12,259
Common Stock, no par
6,568
4,363
Retained Earnings
7,200
6,000
13,768
10,363
25,796 $
22,622
Other Assets
Total Assets
Liabilities
Current Liabilities
Long-term Liabilities
Total Liabilities
Stockholders' Equity
Total Stockholders' Equity
Total Liabilities and Stockholders' Equity
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$
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Page 56 of 243
Liberty Corporation
Income Statement
Year Ended December 31, 2017
Net Sales
$
20,941
7,055
Cost of Goods Sold
Gross Profit
13,886
Operating Expenses
7,065
Operating Income
6,821
210
Interest Expense
Income Before Income Taxes
6,611
Income Tax Expense
2,563
Net Income
$
4,048
ID: QC15-2 (book/static)
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3.
Page 57 of 243
Li erty Corporation reported the following financial statements:
12(Click the icon to view the financial statements.)
Vertical analysis of Liberty's balance sheet for 2017 would report
Review Only
Click the icon to see the Worked Solution.
A. Cash as 9.50% of total assets.
B. inventory turnover of 6 times.
C. a current ratio of 1.01.
D. a 17% increase in Cash.
12: Data Table
Liberty Corporation
Comparative Balance Sheet
December 31, 2017 and 2016
2017
2016
Assets
Current Assets:
Cash and Cash Equivalents
$
2,450 $
2,094
Accounts Receivable
1,813
1,611
Merchandise Inventory
1,324
1,060
Prepaid Expenses
1,709
2,120
Total Current Assets
7,296
6,885
18,500
15,737
$
25,796 $
22,622
$
7,230 $
8,467
4,798
3,792
12,028
12,259
Common Stock, no par
6,568
4,363
Retained Earnings
7,200
6,000
13,768
10,363
25,796 $
22,622
Other Assets
Total Assets
Liabilities
Current Liabilities
Long-term Liabilities
Total Liabilities
Stockholders' Equity
Total Stockholders' Equity
Total Liabilities and Stockholders' Equity
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$
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Print Questions
Page 58 of 243
Liberty Corporation
Income Statement
Year Ended December 31, 2017
Net Sales
$
20,941
7,055
Cost of Goods Sold
Gross Profit
13,886
Operating Expenses
7,065
Operating Income
6,821
210
Interest Expense
Income Before Income Taxes
6,611
Income Tax Expense
2,563
Net Income
$
4,048
ID: QC15-3 (book/static)
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4.
Page 59 of 243
Li erty Corporation reported the following financial statements:
13(Click the icon to view the financial statements.)
Which statement best describes Liberty's acid-test ratio for 2017?
Review Only
Click the icon to see the Worked Solution.
A. Greater than 1
B. Equal to 1
C. Less than 1
D. None of the above
13: Data Table
Liberty Corporation
Comparative Balance Sheet
December 31, 2017 and 2016
2017
2016
Assets
Current Assets:
Cash and Cash Equivalents
$
2,450 $
2,094
Accounts Receivable
1,813
1,611
Merchandise Inventory
1,324
1,060
Prepaid Expenses
1,709
2,120
Total Current Assets
7,296
6,885
18,500
15,737
$
25,796 $
22,622
$
7,230 $
8,467
4,798
3,792
12,028
12,259
Common Stock, no par
6,568
4,363
Retained Earnings
7,200
6,000
13,768
10,363
25,796 $
22,622
Other Assets
Total Assets
Liabilities
Current Liabilities
Long-term Liabilities
Total Liabilities
Stockholders' Equity
Total Stockholders' Equity
Total Liabilities and Stockholders' Equity
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$
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Page 60 of 243
Liberty Corporation
Income Statement
Year Ended December 31, 2017
Net Sales
$
20,941
7,055
Cost of Goods Sold
Gross Profit
13,886
Operating Expenses
7,065
Operating Income
6,821
210
Interest Expense
Income Before Income Taxes
6,611
Income Tax Expense
2,563
Net Income
$
4,048
ID: QC15-4 (book/static)
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5.
Page 61 of 243
Li erty Corporation reported the following financial statements:
14(Click the icon to view the financial statements.)
Liberty's inventory turnover during 2017 was (amounts rounded)
Review Only
Click the icon to see the Worked Solution.
A. 6 times.
B. 7 times.
C. 8 times.
D. not determinable from the data given.
14: Data Table
Liberty Corporation
Comparative Balance Sheet
December 31, 2017 and 2016
2017
2016
Assets
Current Assets:
Cash and Cash Equivalents
$
2,450 $
2,094
Accounts Receivable
1,813
1,611
Merchandise Inventory
1,324
1,060
Prepaid Expenses
1,709
2,120
Total Current Assets
7,296
6,885
18,500
15,737
$
25,796 $
22,622
$
7,230 $
8,467
4,798
3,792
12,028
12,259
Common Stock, no par
6,568
4,363
Retained Earnings
7,200
6,000
13,768
10,363
25,796 $
22,622
Other Assets
Total Assets
Liabilities
Current Liabilities
Long-term Liabilities
Total Liabilities
Stockholders' Equity
Total Stockholders' Equity
Total Liabilities and Stockholders' Equity
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$
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Print Questions
Page 62 of 243
Liberty Corporation
Income Statement
Year Ended December 31, 2017
Net Sales
$
20,941
7,055
Cost of Goods Sold
Gross Profit
13,886
Operating Expenses
7,065
Operating Income
6,821
210
Interest Expense
Income Before Income Taxes
6,611
Income Tax Expense
2,563
Net Income
$
4,048
ID: QC15-5 (book/static)
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6.
Page 63 of 243
Li erty Corporation reported the following financial statements:
15(Click the icon to view the financial statements.)
Assume all sales are on credit. During 2017, Liberty's days' sales in receivables ratio was (amounts rounded)
Review Only
Click the icon to see the Worked Solution.
(Use a 365-day year. Round interim calculations to three decimal places and round your final answer to the nearest whole
number.)
A. 34 days.
B. 30 days.
C. 32 days.
D. 28 days.
15: Data Table
Liberty Corporation
Comparative Balance Sheet
December 31, 2017 and 2016
2017
2016
Assets
Current Assets:
Cash and Cash Equivalents
$
2,450 $
2,094
Accounts Receivable
1,813
1,611
Merchandise Inventory
1,324
1,060
Prepaid Expenses
1,709
2,120
Total Current Assets
7,296
6,885
18,500
15,737
$
25,796 $
22,622
$
7,230 $
8,467
4,798
3,792
12,028
12,259
Common Stock, no par
6,568
4,363
Retained Earnings
7,200
6,000
13,768
10,363
25,796 $
22,622
Other Assets
Total Assets
Liabilities
Current Liabilities
Long-term Liabilities
Total Liabilities
Stockholders' Equity
Total Stockholders' Equity
Total Liabilities and Stockholders' Equity
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$
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Page 64 of 243
Liberty Corporation
Income Statement
Year Ended December 31, 2017
Net Sales
$
20,941
7,055
Cost of Goods Sold
Gross Profit
13,886
Operating Expenses
7,065
Operating Income
6,821
210
Interest Expense
Income Before Income Taxes
6,611
Income Tax Expense
2,563
Net Income
$
4,048
ID: QC15-6 (book/static)
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7.
Page 65 of 243
Li erty Corporation reported the following financial statements:
16(Click the icon to view the financial statements.)
Which measure expresses Liberty's times-interest-earned ratio? (amounts rounded)
Review Only
Click the icon to see the Worked Solution.
A. 54.7%
B. 19 times
C. 34.5%
D. 32 times
16: Data Table
Liberty Corporation
Comparative Balance Sheet
December 31, 2017 and 2016
2017
2016
Assets
Current Assets:
Cash and Cash Equivalents
$
2,450 $
2,094
Accounts Receivable
1,813
1,611
Merchandise Inventory
1,324
1,060
Prepaid Expenses
1,709
2,120
Total Current Assets
7,296
6,885
18,500
15,737
$
25,796 $
22,622
$
7,230 $
8,467
4,798
3,792
12,028
12,259
Common Stock, no par
6,568
4,363
Retained Earnings
7,200
6,000
13,768
10,363
25,796 $
22,622
Other Assets
Total Assets
Liabilities
Current Liabilities
Long-term Liabilities
Total Liabilities
Stockholders' Equity
Total Stockholders' Equity
Total Liabilities and Stockholders' Equity
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Page 66 of 243
Liberty Corporation
Income Statement
Year Ended December 31, 2017
Net Sales
$
20,941
7,055
Cost of Goods Sold
Gross Profit
13,886
Operating Expenses
7,065
Operating Income
6,821
210
Interest Expense
Income Before Income Taxes
6,611
Income Tax Expense
2,563
Net Income
$
4,048
ID: QC15-7 (book/static)
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8.
Page 67 of 243
Li erty Corporation reported the following financial statements:
the icon to view the financial statements.)
17(Click
Liberty's rate of return on common stockholders' equity can be described as
Review Only
Click the icon to see the Worked Solution.
(Assume a rate of return on common stockholders' equity of 15% - 20% year after year is considered good in most
industries.)
A. weak.
B. normal.
C. strong.
D. average.
17: Data Table
Liberty Corporation
Comparative Balance Sheet
December 31, 2017 and 2016
2017
2016
Assets
Current Assets:
Cash and Cash Equivalents
$
2,450 $
2,094
Accounts Receivable
1,813
1,611
Merchandise Inventory
1,324
1,060
Prepaid Expenses
1,709
2,120
Total Current Assets
7,296
6,885
18,500
15,737
$
25,796 $
22,622
$
7,230 $
8,467
4,798
3,792
12,028
12,259
Common Stock, no par
6,568
4,363
Retained Earnings
7,200
6,000
13,768
10,363
25,796 $
22,622
Other Assets
Total Assets
Liabilities
Current Liabilities
Long-term Liabilities
Total Liabilities
Stockholders' Equity
Total Stockholders' Equity
Total Liabilities and Stockholders' Equity
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Page 68 of 243
Liberty Corporation
Income Statement
Year Ended December 31, 2017
Net Sales
$
20,941
7,055
Cost of Goods Sold
Gross Profit
13,886
Operating Expenses
7,065
Operating Income
6,821
210
Interest Expense
Income Before Income Taxes
6,611
Income Tax Expense
2,563
Net Income
$
4,048
ID: QC15-8 (book/static)
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9.
Page 69 of 243
Li erty Corporation reported the followin financial statements:
18(Click the icon to view the financial statements.)
The company has $2,500 shares of common stock outstanding. What is Liberty's earnings per share? (Round the
earnings per share to two decimal places, X.XX.)
Review Only
Click the icon to see the Worked Solution.
A. $1.62
B. $1.75
C. $2.73
D. 2.63 times
18: Data Table
Liberty Corporation
Comparative Balance Sheet
December 31, 2017 and 2016
2017
2016
Assets
Current Assets:
Cash and Cash Equivalents
$
2,450 $
2,094
Accounts Receivable
1,813
1,611
Merchandise Inventory
1,324
1,060
Prepaid Expenses
1,709
2,120
Total Current Assets
7,296
6,885
18,500
15,737
$
25,796 $
22,622
$
7,230 $
8,467
4,798
3,792
12,028
12,259
Common Stock, no par
6,568
4,363
Retained Earnings
7,200
6,000
13,768
10,363
25,796 $
22,622
Other Assets
Total Assets
Liabilities
Current Liabilities
Long-term Liabilities
Total Liabilities
Stockholders' Equity
Total Stockholders' Equity
Total Liabilities and Stockholders' Equity
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Page 70 of 243
Liberty Corporation
Income Statement
Year Ended December 31, 2017
Net Sales
$
20,941
7,055
Cost of Goods Sold
Gross Profit
13,886
Operating Expenses
7,065
Operating Income
6,821
210
Interest Expense
Income Before Income Taxes
6,611
Income Tax Expense
2,563
Net Income
$
4,048
ID: QC15-9 (book/static)
10.
In order for an item to be reported in the extraordinary items section of the income statement, it must be
A. unusual.
B. infrequent.
C. unusual or infrequent.
D. unusual and infrequent.
ID: QC15A-10 (book/static)
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11.
Page 71 of 243
Data for Harlan Designs, Inc. follow:
the icon to view the data.)
19(Click
Requirements
1. Prepare a horizontal analysis of the comparative income statement of Harlan Designs, Inc. Round percentage
changes to one decimal place.
2.
Why did 2016 net income increase by a higher percentage than net sales revenue?
Review Only
Click the icon to see the Worked Solution.
Requirement 1. Prepare a horizontal analysis of the comparative income statement of Harlan Designs, Inc. Round
percentage changes to one decimal place. (Round the percentages to one decimal place, X.X%. Use a minus sign or
parentheses to indicate a decrease.)
Harlan Designs, Inc.
Comparative Income Statement
Years Ended December 31, 2016 and 2015
Increase (Decrease)
2016
2015
Amount
Percentage
428,950 $
374,650
%
202,650
185,000
%
98,000
94,000
%
Other Expenses
5,000
3,250
%
Total Expenses
305,650
282,250
%
92,400
%
Net Sales Revenue
$
Expenses:
Cost of Goods Sold
Selling and Administrative Expenses
$
Net Income
123,300 $
Requirement 2. Why did 2016 net income increase by a higher percentage than net sales revenue?
Net income increased by a higher percentage than total net sales revenue during 2016 because (1)
.
19: Data Table
Harlan Designs, Inc.
Comparative Income Statement
Years Ended December 31, 2016 and 2015
2016
Net Sales Revenue
$
2015
428,950 $
374,650
202,650
185,000
98,000
94,000
Other Expenses
5,000
3,250
Total Expenses
305,650
282,250
Expenses:
Cost of Goods Sold
Selling and Administrative Expenses
Net Income
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$
123,300 $
92,400
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12.
Page 73 of 243
Delta Designs, Inc. has the following data:
20(Click the icon to view the data.)
Perform a vertical analysis of Delta Designs's balance sheet for each year.
Begin by performing a vertical analysis of Delta Designs's balance sheet for 2016, then perform the analysis for 2015.
(Round the percent of total amounts to one decimal place, X.X%.)
Delta Designs, Inc.
Balance Sheet
December 31, 2016 and 2015
2016
Percent of Total
2015
Percent of Total
Assets
73,440
%
%
168,300
%
37,000
%
64,260
%
$
250,000
%
$
306,000
%
$
30,500
%
$
49,266
%
Long-term Debt
80,750
%
208,998
%
Total Liabilities
111,250
%
258,264
%
138,750
%
47,736
%
250,000
%
306,000
%
Total Current Assets
$
Property, Plant, and Equipment, Net
Other Assets
Total Assets
32,250
%
180,750
$
Liabilities
Total Current Liabilities
Stockholders' Equity
Total Stockholders' Equity
$
Total Liabilities and Stockholders' Equity
$
20: Data Table
Delta Designs, Inc.
Comparative Balance Sheet
December 31, 2016 and 2015
2016
2015
Assets
Total Current Assets
$
Property, Plant, and Equipment, Net
73,440
180,750
168,300
37,000
64,260
$
250,000 $
306,000
$
30,500 $
49,266
Other Assets
Total Assets
32,250 $
Liabilities
Total Current Liabilities
Long-term Debt
80,750
208,998
Total Liabilities
111,250
258,264
138,750
47,736
Stockholders' Equity
Total Stockholders' Equity
Total Liabilities and Stockholders' Equity
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$
250,000 $
306,000
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13.
Page 75 of 243
The financial statements of Vanna's Natural Foods include the following items:
the icon to view the financial statements.)
21(Click
Compute the following ratios for the current year:
a. Current ratio
e. Days' sales in inventory
b. Cash ratio
c.
f.
Acid-test ratio
Days' sales in receivables
g. Gross profit percentage
d. Inventory turnover
Review Only
Click the icon to see the Worked Solution.
a. Compute the current ratio for the current year. (Round your answer to two decimal places, X.XX.)
Current ratio = (1)
=
b. Compute the cash ratio for the current year. (Round your answer to two decimal places, X.XX.)
Cash ratio = (2)
=
c. Compute the acid-test ratio for the current year. (Round your answer to two decimal places, X.XX.)
Acid-test ratio = (3)
=
d. Compute the inventory turnover for the current year. (Round your answer to two decimal places, X.XX.)
Inventory turnover = (4)
=
times
e. Compute the days' sales in inventory for the current year. (Round interim calculations to two decimal places, X.XX and
round your final answer to nearest whole day.)
Days' sales in inventory = (5)
=
days
f. Compute the days' sales in receivables for the current year. (Round interim calculations to two decimal places, X.XX and
round your final answer to nearest whole day.)
Days' sales in receivables = (6)
=
days
g. Compute the gross profit percentage for the current year. (Round your answer to one tenth of a percent, X.X%.)
Gross profit percentage = (7)
=
%
21: Data Table
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Current Year
Preceding Year
Balance Sheet:
Cash
$
18,000 $
26,000
9,000
24,000
Net Accounts Receivables
54,000
84,000
Merchandise Inventory
64,000
76,000
Prepaid Expenses
18,000
7,000
Total Current Assets
163,000
217,000
Total Current Liabilities
137,000
86,000
Short-term Investments
Income Statement:
Net Credit Sales
$
Cost of Goods Sold
1)
465,000
313,000
365 days / Accounts receivable turnover ratio
365 days / Inventory turnover
365 days / Total current assets
ash +
ash equivalents) / Total current liabilities
ash + Prepaid expenses) / Total current liabilities
ash + Short-term investments + Net current receivables) / Total current liabilities
ost of oods sold / Average merchandise inventory
Gross profit / Net sales revenue
Net sales revenue / Gross profit
Total current assets / Total current liabilities
2)
365 days / Accounts receivable turnover ratio
365 days / Inventory turnover
365 days / Total current assets
ash +
ash equivalents) / Total current liabilities
ash + Prepaid expenses) / Total current liabilities
ash + Short-term investments + Net current receivables) / Total current liabilities
ost of oods sold / Average merchandise inventory
Gross profit / Net sales revenue
Net sales revenue / Gross profit
Total current assets / Total current liabilities
3)
365 days / Accounts receivable turnover ratio
365 days / Inventory turnover
365 days / Total current assets
ash +
ash equivalents) / Total current liabilities
ash + Prepaid expenses) / Total current liabilities
ash + Short-term investments + Net current receivables) / Total current liabilities
ost of oods sold / Average merchandise inventory
Gross profit / Net sales revenue
Net sales revenue / Gross profit
Total current assets / Total current liabilities
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14.
Page 78 of 243
Variline, Inc.'s comparative income statement follows. The 2015 data are iven as needed.
22(Click the icon to view the data.)
Read the requirements23.
Review Only
Clic th icon to se th Work d Solution.
Requirement 1. alculate the profit margin ratio for 2017 and 2016.
Begin y selectin the formula to calculate the profit margin ratio.
Profit margin ratio
= (1)
Now, calculate the profit margin ratio for 2017 and 2016. (Round your answers to one tenth of a percent, X.X%.)
2017:
%
2016:
%
Requirement 2. alculate the rate of return on total assets for 2017 and 2016.
Begin y selectin the formula to calculate the rate of return on total assets.
= (2)
Rate of return on total assets
Now, calculate the rate of return on total assets for 2017 and 2016. (Round your answers to one tenth of a percent,
X.X%.)
2017:
%
2016:
%
Requirement 3. alculate the asset turnover ratio for 2017 and 2016.
Begin y selectin the formula to calculate the asset turnover.
= (3)
Asset turnover ratio
Now, calculate the asset turnover ratio for 2017 and 2016. (Round your answers to two decimal places, X.XX.)
2017:
times
2016:
times
Requirement 4. alculate the rate of return on common stockholders' equity for 2017 and 2016.
Begin y selectin the formula to calculate the rate of return on common stockholders' equity.
Rate of return on common
stockholders' equity
= (4)
Now, calculate the rate of return on common stockholders' equity for 2017 and 2016. (Round your answers to one tenth of
a percent, X.X%.)
2017:
%
2016:
%
Requirement 5. alculate the earnings per share for 2017 and 2016.
Begin y selectin the formula to calculate the earnin s per share.
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Earnings per share
= (5)
Now, calculate the earnings per share for 2017 and 2016. (Round your answers to the nearest cent.)
2017: $
2016: $
Requirement 6. Calculate the 2017 dividend payout on common stock. Assume dividends per share for common stock
are equal to $0.25 per share.
Begin by selecting the formula to calculate the dividend payout on common stock.
Dividend payout
= (6)
Now, calculate the 2017 dividend payout on common stock. (Round interim calculations to the nearest cent and your final
answer to the nearest whole percent, X%.)
2017:
%
Requirement 7. Did the company's operating performance improve or deteriorate during 2017?
The company's operating performance (7)
during 2017.
22: Data Table
Variline, Inc.
Comparative Income Statement
Years Ended December 31, 2017 and 2016
2017
Dollars in thousands
Net Sales
2016
$ 183,000 $ 155,000
Cost of Goods Sold
93,500
86,500
Selling and Administrative Expenses
48,500
43,000
9,000
10,000
11,000
9,500
21,000 $
6,000
Interest Expense
Income Tax Expense
Net Income
2015
$
Additional data:
Total Assets
Common Stockholders' Equity
Preferred Dividends
Common Shares Outstanding During the Year
$ 210,000 $ 190,000 $ 173,000
94,500
84,500
81,000
3,500
3,500
0
30,000
30,000
15,000
23: Requirements
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1.
Calculate the profit margin ratio for 2017 and 2016.
2.
Calculate the rate of return on total assets for 2017 and 2016.
3.
Calculate the asset turnover ratio for 2017 and 2016.
4.
Calculate the rate of return on common stockholders' equity for 2017 and 2016.
5.
Calculate the earnings per share for 2017 and 2016.
6.
Calculate the 2017 dividend payout on common stock. Assume dividends per share for common stock are equal to
$0.25 per share.
7.
Did the company's operating performance improve or deteriorate during 2017?
(1)
Annual dividend per share / Earnings per share
(Net income + Income tax expense + Interest expense) / Interest expense
(Net income + Interest expense) / Average total assets
(Net income - Preferred dividends) / Average common stockholders' equity
(Net income + Preferred dividends) / Average common stockholders' equity
(Net income - Preferred dividends) / Weighted average number of common shares outstanding
Net income / Net sales
Net sales / Average total assets
Net sales / Net income
(2)
Annual dividend per share / Earnings per share
(Net income + Income tax expense + Interest expense) / Interest expense
(Net income + Interest expense) / Average total assets
(Net income - Preferred dividends) / Average common stockholders' equity
(Net income + Preferred dividends) / Average common stockholders' equity
Net income / Net sales
Net sales / Average total assets
Net sales / Net income
(3)
Annual dividend per share / Earnings per share
(Net income + Income tax expense + Interest expense) / Interest expense
(Net income + Interest expense) / Average total assets
(Net income - Preferred dividends) / Average common stockholders' equity
(Net income + Preferred dividends) / Average common stockholders' equity
(Net income - Preferred dividends) / Weighted average number of common shares outstanding
Net income / Net sales
Net sales / Average total assets
Net sales / Net income
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15.
Page 82 of 243
Net sales revenue, net income, and common stockholders' equity for Mirabel Mission Corporation, a manufacturer of
contact lenses, follow for a four-year period.
2017
$
Net Sales Revenue
Net Income
Ending Common Stockholders' Equity
2016
2015
2014
762,000 $ 704,000 $ 641,000 $ 657,000
58,000
37,000
33,000
45,000
360,000
344,000
326,000
304,000
Read the requirements24.
Review Only
Click the icon to see the Worked Solution.
Requirement 1. Compute trend analyses for each item for 2015—2017. Use 2014 as the base year, and round to the
nearest whole percent.
Begin by computing Mirabel Mission Corporation's trend analysis for net sales revenue, then compute Mirabel Mission
Corporation's trend analysis for net income and finally compute Mirabel Mission Corporation's trend analysis for common
stockholders' equity.
2017
Net Sales Revenue
$
2016
762,000
Trend Percentages
$
704,000
%
Net Income
$
58,000
Trend Percentages
$
$
360,000
Trend Percentages
$
2014
641,000
%
37,000
%
Ending Common Stockholders' Equity
2015
%
$
33,000
%
$
344,000
%
$
100 %
$
%
$
326,000
%
45,000
100 %
$
%
657,000
304,000
100 %
Requirement 2. Compute the rate of return on common stockholders' equity for 2015—2017, rounding to three decimal
places.
Begin by selecting the formula to calculate Mirabel Mission Corporation's rate of return on common stockholders. Then,
enter the amounts and calculate the rate of return on common stockholders' equity for 2015—2017. (Abreviation used:
Avg. common SE = average common stockholders' equity. Complete all input boxes. Enter a "0" for balances with a zero
value. Round your calculations to three decimal places and then enter your answers as a percentage to the nearest tenth
percent, X.X%.)
Rate of return on common
(
(1)
-
(2)
)/
(3)
=
stockholders' equity
2015
(
-
)/
=
%
2016
(
-
)/
=
%
2017
(
-
)/
=
%
24: Requirements
1.
Compute trend analyses for each item for 2015—2017. Use 2014 as the base year, and round to the nearest
whole percent.
2.
Compute the rate of return on common stockholders' equity for 2015—2017, rounding to three decimal places.
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(1)
Av . common SE
Interest expense
Net income
(3)
Av . common SE
Interest expense
Net income
Page 83 of 243
Net sales
Preferred dividends
(2)
Avg. common SE
Interest expense
Net income
Net sales
Preferred dividends
Net sales
Preferred dividends
ID: P15-27A (similar to)
1.
Which is not a characteristic of management accounting information?
A. Emphasizes the external financial statements
B. Provides detailed information about individual parts of the company
C. Emphasizes relevance
D. Focuses on the future
ID: QC16-1 (book/static)
2.
World-class businesses use which of these systems to integrate all of a company's worldwide functions, departments, and
data into a single system?
A. Cost standards
B. Enterprise resource planning
C. Just-in-time management
D. Items a, b, and c are correct.
ID: QC16-2 (book/static)
3.
Today's business environment is characterized by
A. global competition.
B. time-based competition.
C. a shift towards a service economy.
D. Items a, b, and c are correct.
ID: QC16-3 (book/static)
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4.
Page 84 of 243
A management accountant who avoids conflicts of interest meets the ethical standard of
A. confidentiality.
B. competence.
C. credibility.
D. integrity.
ID: QC16-4 (book/static)
5.
Which of the following accounts does a manufacturing company have that a service company does not have?
A. Advertising Expense
B. Salaries Payable
C. Cost of Goods Sold
D. Retained Earnings
ID: QC16-5 (book/static)
6.
Dunaway Company reports the following costs for the year:
Direct Materials Used
$
Direct Labor Incurred
Manufacturing Overhead Incurred
Selling and Administrative Expenses
120,000
150,000
75,000
175,000
How much are Dunaway's period costs?
A. $120,000
B. $270,000
C. $345,000
D. $175,000
ID: QC16-6 (book/static)
7.
Which of the following is a direct cost of manufacturing a sport boat?
A. Salary of an engineer who rearranges plant layout
B. Depreciation on plant and equipment
C. Cost of boat engine
D. Cost of customer service hotline
ID: QC16-7 (book/static)
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8.
Page 85 of 243
Which of the following is not part of manufacturing overhead for producing a computer?
A. Manufacturing plant property taxes
B. Manufacturing plant utilities
C. Depreciation on delivery trucks
D. Insurance on plant and equipment
ID: QC16-8 (book/static)
9.
Suppose a bakery reports this information:
Beginning Raw Materials Inventory
$
6,000
Ending Raw Materials Inventory
5,000
Beginning Work-in-Process Inventory
3,000
Ending Work-in-Process Inventory
2,000
Beginning Finished Goods Inventory
4,000
Ending Finished Goods Inventory
6,000
Direct Labor
Purchases of Raw Materials
Manufacturing Overhead
29,000
102,000
20,000
What is the cost of direct materials used?
Review Only
Click the icon to see the Worked Solution.
A. $101,000
B. $103,000
C. $114,000
D. $102,000
ID: QC16-9 (book/static)
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10.
Page 86 of 243
Suppose a bakery reports this information:
Beginning Raw Materials Inventory
$
6,000
Ending Raw Materials Inventory
5,000
Beginning Work-in-Process Inventory
3,000
Ending Work-in-Process Inventory
2,000
Beginning Finished Goods Inventory
4,000
Ending Finished Goods Inventory
Direct Labor
Purchases of Raw Materials
Manufacturing Overhead
6,000
29,000
102,000
20,000
What is the cost of goods manufactured?
Review Only
Click the icon to see the Worked Solution.
A. $151,000
B. $153,000
C. $150,000
D. $177,000
ID: QC16-10 (book/static)
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11.
Page 87 of 243
The Windshield People repair chips in car windshields. The company incurred the following operating costs for the month
of February 2016:
25(Click the icon to view the operating costs.)
The Windshield People earned $22,000 in revenues for the month of February by repairing 300 windshields. All costs
shown are considered to be directly related to the repair service.
Read the requirements26.
Review Only
Clic th icon to se th Work d Solution.
Requirement 1. Prepare an income statement for the month of Fe ruary.
Th Windshield People
Income Statement
Month End d February 28, 2016
Revenues:
1)
Expenses:
2)
3)
4)
5)
6)
7)
Total Expenses
Net Income (Loss)
Requirement 2. ompute the cost per unit of repairing one windshield. (Round your answer to the nearest cent.)
ost per windshield =
Requirement 3. The manager of Windshield People must keep unit operating cost elow $80 per windshield in order to
et his onus. Did he meet the oal?
Did the manager meet the oal? (8)
25: Data Table
Salaries and wa es
Windshield repair materials
Depreciation on truck
Depreciation on uildin and equipment
$
13,000
4,200
350
1,300
Supplies used
400
Utilities
330
26: Requirements
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1.
Prepare an income statement for the month of February.
2.
Compute the cost per unit of repairing one windshield.
3.
The manager of Windshield People must keep unit operating cost below $80 per windshield in order to get his
bonus. Did he meet the goal?
1)
Depreciation Expense—Building and Equipment
Depreciation Expense—Truck
Materials Expense
Salaries and Wages Expense
Sales Revenue
Supplies Expense
Utilities Expense
Depreciation Expense—Building and Equipment
Depreciation Expense—Truck
Materials Expense
Salaries and Wages Expense
Sales Revenue
Supplies Expense
Utilities Expense
Depreciation Expense—Building and Equipment
Depreciation Expense—Truck
Materials Expense
Salaries and Wages Expense
Sales Revenue
Supplies Expense
Utilities Expense
Depreciation Expense—Building and Equipment
Depreciation Expense—Truck
Materials Expense
Salaries and Wages Expense
Sales Revenue
Supplies Expense
Utilities Expense
Depreciation Expense—Building and Equipment
Depreciation Expense—Truck
Materials Expense
Salaries and Wages Expense
Sales Revenue
Supplies Expense
Utilities Expense
Depreciation Expense—Building and Equipment
Depreciation Expense—Truck
Materials Expense
Salaries and Wages Expense
Sales Revenue
Supplies Expense
Utilities Expense
Depreciation Expense—Building and Equipment
Depreciation Expense—Truck
Materials Expense
Salaries and Wages Expense
Sales Revenue
Supplies Expense
Utilities Expense
2)
3)
4)
5)
6)
7)
8)
No
Yes
ID: P16-29A similar to)
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12.
Page 89 of 243
Chet Roberts owns Chet's Pets, a small retail shop selling pet supplies. On December 31, 2016, the accounting records of
Chet's Pets showed the following:
27(Click the icon to view the accounting records.)
Requirements
1. Prepare an income statement for Chet's Pets for the year ended December 31, 2016.
2. Chet's Pets sold 3,500 units. Determine the unit cost of the merchandise sold, rounded to the nearest cent.
Review Only
Click the icon to see the Worked Solution.
Requirement 1. Prepare an income statement for Chet's Pets for the year ended December 31, 2016.
Chet's Pets
Income Statement
Year Ended December 31, 2016
Revenue:
(1)
Cost of Goods Sold:
(2)
(3)
(4)
(5)
Cost of Goods Sold
Gross Profit
Selling and Administrative Expenses:
(6)
(7)
(8)
Total Selling and Administrative Expenses
Operating Income (Loss)
Requirement 2. Chet's Pets sold 3,500 units. Determine the unit cost of the merchandise sold, rounded to the nearest
cent.
Cost per unit =
27: Data Table
Inventory on December 31, 2016
$
10,250
Inventory on January 1, 2016
15,300
Sales Revenue
53,000
Utilities Expense for the shop
3,800
Rent for the shop
4,500
Sales Commissions
2,350
Purchases of Merchandise Inventory
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13.
Page 91 of 243
Organic Bones manufactures its own brand of pet chew bones. At the end of December 2016, the accounting records
showed the following:
28(Click the icon to view the accounting records.)
Read the requirements29.
Review Only
Clic th icon to se th Work d Solution.
Requirement 1. Prepare a schedule of cost of oods manufactured for Organic Bones for the year ended
Decem er 31, 2016. (For accounts with a $0 alance, make sure to enter "0" in the appropriate column.)
Organic Bon s
Sch dule of Cost of Goods Manufactured
Year End d De
mber 31, 2016
(1)
Direct Materials Used:
(2)
(3)
(4)
(5)
Direct Materials Used
(6)
Manufacturin Overhead:
(7)
(8)
(9)
Total Manufacturing Overhead
Total Manufacturing osts Incurred during the Year
Total Manufacturing osts to Account For
(10)
ost of Goods Manufactured
Requirement 2. Prepare an income statement for Organic Bones for the year ended Decem er 31, 2016. (For accounts
with a $0 alance, make sure to enter "0" in the appropriate column.)
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Inventories:
Beginning
Raw Materials
$
13,800
Ending
$
7,500
Work-in-Process
0
1,100
Finished goods
0
6,000
Other information:
$
Raw materials purchases
36,000
900
Plant janitorial services
Sales salaries
5,100
Delivery costs
1,600
Sales revenue
108,000
2,000
Utilities for plant
11,000
Rent on plant
Customer service hotline costs
1,200
15,000
Direct labor
29: Requirements
1. Prepare a schedule of cost of goods manufactured for Organic Bones for the year ended December 31, 2016.
2. Prepare an income statement for Organic Bones for the year ended December 31, 2016.
3. How does the format of the income statement for Organic Bones differ from the income statement of a
merchandiser?
4. Organic Bones manufactured 17,400 units of its product in 2016. Compute the company's unit product cost for the
year, rounded to the nearest cent.
1)
Be inning Raw Materials Inventory
Be inning Work-in-Process Inventory
Depreciation Expense on Plant Equipment
Purchases of Raw Materials
Raw Materials Available for Use
Rent on Plant
Utilities for Plant
2)
Be inning Raw Materials Inventory
Be inning Work-in-Process Inventory
Depreciation Expense on Plant Equipment
Purchases of Raw Materials
Raw Materials Available for Use
Rent on Plant
Utilities for Plant
Direct La or
Ending Raw Materials Inventory
Ending Work-in-Process Inventory
Plant Janitorial Services
Direct La or
Ending Raw Materials Inventory
Ending Work-in-Process Inventory
Plant Janitorial Services
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(14)
Beginnin Finished Goods Inventory
ost of Goods Available for Sale
ost of Goods Manufactured
Sales Salaries Expense
(15)
Beginnin Finished Goods Inventory
ost of Goods Available for Sale
ost of Goods Manufactured
Sales Salaries Expense
(16)
Beginnin Finished Goods Inventory
ost of Goods Available for Sale
ost of Goods Manufactured
Sales Salaries Expense
(17)
Beginnin Finished Goods Inventory
ost of Goods Available for Sale
ost of Goods Manufactured
Sales Salaries Expense
(18)
Beginnin Finished Goods Inventory
ost of Goods Available for Sale
ost of Goods Manufactured
Sales Salaries Expense
(19)
Page 96 of 243
ustomer Service Hotline Expense
Delivery Expense
Endin Finished Goods Inventory
Sales Revenue
ustomer Service Hotline Expense
Delivery Expense
Endin Finished Goods Inventory
Sales Revenue
ustomer Service Hotline Expense
Delivery Expense
Endin Finished Goods Inventory
Sales Revenue
ustomer Service Hotline Expense
Delivery Expense
Endin Finished Goods Inventory
Sales Revenue
ustomer Service Hotline Expense
Delivery Expense
Endin Finished Goods Inventory
Sales Revenue
cost of oods manufactured.
20)
direct materials used.
ending inventory.
ross profit.
manufacturin costs incurred during the year.
merchandise purchases.
operatin income.
operating income.
ID: P16-31A (similar to)
1
Would an advertising agency use job or process costing? What about a cell phone manufacturer?
A. Advertising agency—process costing; Cell phone manufacturer—process costing
B. Advertising agency—job order costing; Cell phone manufacturer—job order costing
C. Advertising agency—process costing; Cell phone manufacturer—job order costing
D. Advertising agency—job order costing; Cell phone manufacturer—process costing
ID: QC17-1 (book/static)
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2.
Page 97 of 243
When a manufacturing company uses direct materials, it assigns the cost by debiting
A. Direct Materials.
B. Work-in-Process Inventory.
C. Manufacturing Overhead.
D. Raw Materials Inventory.
ID: QC17-2 (book/static)
3.
When a manufacturing company uses indirect materials, it accumulates the cost by debiting
A. Work-in-Process Inventory.
B. Indirect Materials.
C. Raw Materials Inventory.
D. Manufacturing Overhead.
ID: QC17-3 (book/static)
4.
When a manufacturing company uses direct labor, it assigns the cost by debiting
A. Work-in-Process Inventory.
B. Manufacturing Overhead.
C. Direct Labor.
D. Wages Payable.
ID: QC17-4 (book/static)
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5.
Page 98 of 243
Gell Corporation manufactures computers. Assume that Gell:
• allocates manufacturing overhead based on machine hours
• estimated 12,000 machine hours and $93,000 of manufacturing overhead costs
• actually used 16,000 machine hours and incurred the following actual costs:
30(Click
the icon to view the actual costs.)
What is Gell's predetermined overhead allocation rate?
Review Only
Click the icon to see the Worked Solution.
A. $5.81/machine hour
B. $6.92/machine hour
C. $7.75/machine hour
D. $5.19/machine hour
30: Data Table
Indirect labor
$
11,000
Depreciation on plant
48,000
Machinery repair
11,000
Direct labor
75,000
Plant supplies
6,000
Plant utilities
7,000
Advertising
35,000
Sales commissions
27,000
ID: QC17-5 (book/static)
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6.
Page 99 of 243
Gell Corporation manufactures computers. Assume that Gell:
• allocates manufacturing overhead based on machine hours
• estimated 12,000 machine hours and $93,000 of manufacturing overhead costs
• actually used 16,000 machine hours and incurred the following actual costs:
31
(Click the icon to view the costs.)
What is Gell's actual manufacturing overhead cost?
Review Only
Click the icon to see the Worked Solution.
A. $220,000
B. $158,000
C. $145,000
D. $83,000
31: Data Table
Indirect labor
$
11,000
Depreciation on plant
48,000
Machinery repair
11,000
Direct labor
75,000
Plant supplies
6,000
Plant utilities
7,000
Advertising
35,000
Sales commissions
27,000
ID: QC17-6 (book/static)
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7.
Page 100 of 243
Gell Corporation manufactures computers. Assume that Gell:
• allocates manufacturing overhead based on machine hours.
• estimated 12,000 machine hours and $93,000 of manufacturing overhead costs. The predetermined overhead rate is
$7.75 per machine hour.
• actually used 16,000 machine hours and incurred the following actual costs:
32
(Click the icon to view the costs.)
How much manufacturing overhead would Gell allocate?
Review Only
Click the icon to see the Worked Solution.
A. $93,000
B. $124,000
C. $220,000
D. $83,000
32: Data Table
Indirect labor
$
11,000
Depreciation on plant
48,000
Machinery repair
11,000
Direct labor
75,000
Plant supplies
6,000
Plant utilities
7,000
Advertising
35,000
Sales commissions
27,000
ID: QC17-7 (book/static)
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8.
Page 101 of 243
Gell Corporation manufactures computers. Assume that Gell:
• allocates manufacturing overhead based on machine hours
• estimated 12,000 machine hours and $93,000 of manufacturing overhead costs
• actually used 16,000 machine hours and incurred the following actual costs:
33(Click
the icon to view the actual costs.)
The company allocated manufacturing overhead of $124,000 using a predetermined overhead rate of $7.75 per machine
hour. The total actual manufacturing overhead costs are $83,000.
What entry would Gell make to adjust the manufacturing overhead account for overallocated or underallocated overhead?
Review Only
Click the icon to see the Worked Solution.
Date
A.
Accounts and Explanation
Cost of Goods Sold
Debit
Credit
41,000
Manufacturing Overhead
B.
Manufacturing Overhead
41,000
10,000
Cost of Goods Sold
C.
Manufacturing Overhead
10,000
41,000
Cost of Goods Sold
D.
Cost of Goods Sold
41,000
10,000
Manufacturing Overhead
10,000
33: Data Table
Indirect labor
$
11,000
Depreciation on plant
48,000
Machinery repair
11,000
Direct labor
75,000
Plant supplies
6,000
Plant utilities
7,000
Advertising
35,000
Sales commissions
27,000
ID: QC17-8 (book/static)
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9.
Page 102 of 243
A manufacturing company completed work on a job. The cost of the job is transferred into ________ with a ________.
A. Work-in-Process Inventory; debit
B. Finished Goods Inventory; credit
C. Finished Goods Inventory; debit
D. Cost of Goods Sold; credit
ID: QC17-9 (book/static)
10.
For which of the following reasons would David Laugherty, owner of the Laugherty Associates law firm, want to know the
total costs of a job (serving a particular client)?
A. For inventory valuation
B. To determine the fees to charge clients
C. For external reporting
D. a, b, and c are correct
ID: QC17-10 (book/static)
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11.
Page 103 of 243
Selected cost data for European Poster, Co. are as follows:
the icon to view the cost data.)
34(Click
Requirements
1. Compute the predetermined overhead allocation rate per direct labor dollar.
2.
Prepare the journal entry to allocate overhead cost for the year.
3.
Use a T-account to determine the amount of underallocated or overallocated maunfacturing overhead.
4.
Prepare the journal entry to adjust for the underallocated or overallocated manufacturing overhead.
Review Only
Clic th icon to se th Work d Solution.
Requirement 1. ompute the predetermined overhead allocation rate per direct labor dollar.
Predetermined overhead
(1)
/
(2)
=
/
allocation rate
=
%
Requirement 2 . Prepare the journal entry to allocate overhead cost for the year. (Record debits first, then credits. Exclude
explanations from journal entries.)
Date
Dec. 31
Ac ounts
Debit
Credit
(3)
(4)
(5)
(6)
Requirement 3. Use a T-account to determine the amount of underallocated or overallocated manufacturing overhead.
Start y postin the actual and allocated manufacturing overhead to the T-account. (Use the first availa le cell to post each
amount. Do not input the alance in the T-account.)
Manufacturing Overh ad
Manufacturing overhead is (7)
y$
.
Requirement 4 . Prepare the journal entry to adjust for the underallocated or overallocated manufacturin overhead.
(Record de its first, then credits. Exclude explanations from journal entries.)
Date
Dec. 31
Ac ounts
Debit
Credit
(8)
(9)
(10)
(11)
34: Data Table
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Estimated manufacturing overhead cost for the year
Estimated direct labor cost for the year
87,500
Actual manufacturing overhead cost for the year
Actual direct labor cost for the year
1)
$ 140,000
116,000
72,000
Estimated overhead cost
Actual direct la or cost
Actual overhead cost
Estimated direct la or cost
(2)
Estimated overhead cost
Actual direct la or cost
Actual overhead cost
Estimated direct la or cost
(3)
Work-in-Process Inventory
Accounts Payable
Accounts Receivable
ash
ost of Goods Sold
Finished Goods Inventory
Manufacturin Overhead
Raw Materials Inventory
Work-in-Process Inventory
Accounts Payable
Accounts Receivable
ash
ost of Goods Sold
Finished Goods Inventory
Manufacturin Overhead
Raw Materials Inventory
ost of Goods Sold
Finished Goods Inventory
Manufacturin Overhead
Raw Materials Inventory
Work-in-Process Inventory
Accounts Payable
Accounts Receivable
ash
Work-in-Process Inventory
Accounts Payable
Accounts Receivable
ash
ost of Goods Sold
Finished Goods Inventory
Manufacturin Overhead
Raw Materials Inventory
Work-in-Process Inventory
Accounts Payable
Accounts Receivable
ash
ost of Goods Sold
Finished Goods Inventory
Manufacturin Overhead
Raw Materials Inventory
Work-in-Process Inventory
Accounts Payable
Accounts Receivable
ash
ost of Goods Sold
Finished Goods Inventory
Manufacturin Overhead
Raw Materials Inventory
(4)
(5)
(6)
(7)
overallocated
underallocated
(8)
(9)
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12. Sturdy Construction, Inc. is a home builder in Arizona. Sturdy uses a job order costing system in which each house is a
job. Because it constructs houses, the company uses an account titled Construction Overhead. The company applies
overhead based on estimated direct labor costs. For the year, it estimated construction overhead of $1,300,000 and total
direct labor cost of $3,250,000. The following events occurred during August:
35(Click the icon to view the events.)
Read the requirements36.
Review Only
Clic th icon to se th Work d Solution.
Requirement 1. alculate Sturdy's predetermined overhead allocation rate for the year.
Predetermined overhead
(1)
/
(2)
/
=
allocation rate
=
%
Requirement 2. Prepare journal entries to record the events in the eneral journal. (Record debits first, then credits.
Exclude explanations from any journal entries.)
a. Purchased materials on account, $500,000.
Date
a.
Ac ounts
Debit
Credit
(3)
(4)
(5)
(6)
b. Requisitioned direct materials and used direct labor in construction. Record the materials requisitioned.
Date
b.
Ac ounts
Debit
Credit
(7)
(8)
(9)
(10)
. The company incurred total wa es of $200,000. Use the data from Item
have not een paid.)
Date
.
Ac ounts
to assign the wages. Assume the wa es
Debit
Credit
(11)
(12)
(13)
(14)
d. Depreciation of construction equipment, $6,900
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The ross profit must cover these types of costs:
61)
62)
63)
64)
65)
66)
67)
35: More Info
a.
Purchased materials on account, $500,000
b.
Requisitioned direct materials and used direct labor in construction. Recorded the materials requisitioned.
Direct Materials
57,000 $
43,000
House 403
69,000
38,000
House 404
61,000
58,000
House 405
80,000
57,000
House 402
c.
$
Direct Labor
The company incurred total wages of $200,000. Use the data from Item b to assign the wages. Wages are not
yet paid.
d.
Depreciation of construction equipment, $6,900
e.
Other overhead costs incurred: Equipment rentals paid in cash, $32,000; Worker liability insurance expired,
$7,000.
f.
Allocated overhead to jobs.
g.
Houses completed: 402, 404
h.
House sold on account: 404 for $260,000
36: Requirements
1.
Calculate Sturdy's predetermined overhead allocation rate for the year.
2.
Prepare journal entries to record the events in the general journal.
3.
T-accounts for Work-in-Process Inventory and Finished Goods Inventory have been opened for you. Post the
appropriate entries to these accounts, identifying each entry by letter. Determine the ending account balances,
assuming that the beginning balances were zero.
4.
Add the costs of the unfinished houses, and show that this total amount equals the ending balance in the
Work-in-Process Inventory account.
5.
Add the cost of the completed house that has not yet been sold, and show that this equals the ending balance in
Finished Goods Inventory.
6.
Compute gross profit on the house that was sold. What costs must gross profit cover for Sturdy Construction?
37: Reference
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Date
a.
Accounts
Raw Materials Inventory
Debit
500,000
Accounts Payable
Date
b.
500,000
Accounts
Work-in-Process Inventory
Debit
c.
Accounts
Work-in-Process Inventory
267,000
Debit
4,000
Wages Payable
d.
200,000
Accounts
Construction Overhead
Debit
e.
Accounts
Construction Overhead
6,900
Debit
32,000
Prepaid Insurance
f.
7,000
Accounts
Work-in-Process Inventory
Debit
g.
78,400
Accounts
Finished Goods Inventory
Debit
h.
Credit
259,400
Work-in-Process Inventory
Date
Credit
78,400
Construction Overhead
Date
Credit
39,000
Cash
Date
Credit
6,900
Accumulated Depreciation–Equipment
Date
Credit
196,000
Construction Overhead
Date
Credit
267,000
Raw Materials Inventory
Date
Credit
Accounts
Accounts Receivable
Sales Revenue
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259,400
Debit
Credit
260,000
260,000
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Date
h.
Accounts
Cost of Goods Sold
Credit
142,200
Finished Goods Inventory
1)
Debit
142,200
Estimated overhead cost
Actual direct la or cost
Actual overhead cost
Estimated direct la or cost
2)
Estimated overhead cost
Actual direct la or cost
Actual overhead cost
Estimated direct la or cost
3)
Accounts Payable
Accounts Receivable
Accumulated Depreciation–Equipment
Work-in-Process Inventory
4)
Accounts Payable
Accounts Receivable
Accumulated Depreciation–Equipment
Work-in-Process Inventory
5)
Accounts Payable
Accounts Receivable
Accumulated Depreciation–Equipment
Work-in-Process Inventory
6)
Accounts Payable
Accounts Receivable
Accumulated Depreciation–Equipment
Work-in-Process Inventory
7)
Accounts Payable
Accounts Receivable
Accumulated Depreciation–Equipment
Work-in-Process Inventory
ash
onstruction Overhead
ost of Goods Sold
Finished Goods Inventory
Prepaid Insurance
Raw Materials Inventory
Sales Revenue
Wa es Paya le
ash
onstruction Overhead
ost of Goods Sold
Finished Goods Inventory
Prepaid Insurance
Raw Materials Inventory
Sales Revenue
Wa es Paya le
ash
onstruction Overhead
ost of Goods Sold
Finished Goods Inventory
Prepaid Insurance
Raw Materials Inventory
Sales Revenue
Wa es Paya le
ash
onstruction Overhead
ost of Goods Sold
Finished Goods Inventory
Prepaid Insurance
Raw Materials Inventory
Sales Revenue
Wa es Paya le
ash
onstruction Overhead
ost of Goods Sold
Finished Goods Inventory
Prepaid Insurance
Raw Materials Inventory
Sales Revenue
Wa es Paya le
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13. Surplus Woods manufactures jewelry boxes. The primary materials (wood, brass, and glass) and direct labor are assigned
directly to the products. Manufacturing overhead costs are allocated based on machine hours. Data for 2016 follow:
38(Click the icon to view the cost data.)
Requirements
1. Compute the predetermined overhead allocation rate.
2. Post actual and allocated manufacturing overhead to the Manufacturing Overhead T-account.
3. Prepare the journal entry to adjust for underallocated or overallocated overhead.
4. The predetermined overhead allocation rate usually turns out to be inaccurate. Why don't accountants just use the
actual manufacturing overhead rate?
Review Only
Clic th icon to se th Work d Solution.
Requirement 1. ompute the predetermined overhead allocation rate. (Enter the rate to the nearest cent.)
Predetermined overhead
(1)
/
(2)
/
=
allocation rate
=
per machine hour
Requirement 2. Post actual and allocated manufacturing overhead to the Manufacturin Overhead T-account. (Use the
first availa le cell to post each amount. Enter amounts in the order they appear in the cost data. Enter the endin alance
on the last line.)
Manufacturing Overh ad
Requirement 3. Prepare the journal entry to adjust for underallocated or overallocated overhead. (Record de its first, then
credits. Exclude explanations from any journal entries.)
Date
Dec. 31
Ac ounts
Debit
Credit
(3)
(4)
(5)
(6)
Requirement 4. The predetermined overhead allocation rate usually turns out to e inaccurate. Why don't accountants
just use the actual manufacturin overhead rate?
The actual manufacturing overhead rate is (7)
(8)
. Mana ers need to make decisions
. Accountants use predetermined overhead allocation rates to ive managers product cost information
when they need it— (9)
.
38: Data Table
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Estimated
Machine hours
Actual
25,000 hours
Maintenance labor (repairs to equipment)
16,000
$ 28,500
Plant supervisor's salary
47,000
50,000
Screws, nails, and glue
27,000
40,000
Plant utilities
45,000
94,850
Freight out
34,000
45,500
Depreciation on plant and equipment
89,000
83,000
Advertising expense
41,000
60,000
1)
$
32,700 hours
Estimated overhead cost
Actual machine hours
Actual overhead cost
Estimated machine hours
(2)
Estimated overhead cost
Actual machine hours
Actual overhead cost
Estimated machine hours
(3)
Work-in-Process Inventory
Advertisin Expense
ost of Goods Sold
Finished Goods Inventory
Manufacturin Overhead
Manufacturin Wa es
Plant Utilities
Raw Materials Inventory
Work-in-Process Inventory
Advertisin Expense
ost of Goods Sold
Finished Goods Inventory
Manufacturin Overhead
Manufacturin Wa es
Plant Utilities
Raw Materials Inventory
Work-in-Process Inventory
Advertisin Expense
ost of Goods Sold
Finished Goods Inventory
Manufacturin Overhead
Manufacturin Wa es
Plant Utilities
Raw Materials Inventory
Manufacturin Overhead
Manufacturin Wa es
Plant Utilities
Raw Materials Inventory
Work-in-Process Inventory
Advertisin Expense
ost of Goods Sold
Finished Goods Inventory
(4)
(5)
(6)
(7)
(9)
known at the start of the accounting period
(8)
at the end of the period
never really known
the following year
not known until the end of the period
throughout the period
at the end of the period
today
ID: P17-31A (similar to)
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Skylark Design, Inc. is a Web site design and consulting
firm. The firm uses a job order costing system in which
each client is a different job. Skylark Design assigns direct
labor, licensing costs, and travel costs directly to each job.
It allocates indirect costs to jobs based on a predetermined
overhead allocation rate, computed as a percentage of
direct labor costs.
At the beginning of 2016, managing partner
Linda Bickers prepared the following budget estimates:
39(Click the icon to view the prepared budget.)
In November 2016, Skylark Design served several clients.
Records for two clients appear here:
40(Click the icon to view the records for two clients.)
Read the requirements41.
Review Only
Clic th icon to se th Work d Solution.
Requirement 1. ompute Skylark Design's direct labor rate and its predetermined overhead cost allocation rate for 2016.
Ab reviation used: OH = overhead.)
Begin with the direct labor rate.
(1)
/
(2)
/
=
Direct labor rate
=
per hour
ompute Skylark Design's predetermined overhead cost allocation rate for 2016.
(3)
/
(4)
=
/
=
Predetermined OH cost allocation rate
%
Requirement 2. ompute the total cost of each job.
First, enter the direct costs for each job. Then enter in the indirect costs and compute the total cost for each job. (Enter a
"0" for any zero alances.)
Skylar Design, Inc.
Estimated Cost of Tasty Coop and Root Chocolates Jobs
Root
Tasty
Direct
oop
hocolates
osts:
5)
hrs. x
hrs. x
6)
7)
Total Direct osts
Allocated Indirect
osts:
%x
%x
Total Costs
Requirement 3. If Bickers wants to earn profits equal to 50% of service revenue, what fee should she charge each of
these two clients?
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Tasty
Root
Page 122 of 243
oop:
$
hocolates:
$
Requirement 4. Why does Skylark Design assi n costs to jo s?
Skylark Design assi ns costs to jo s to help the company 8)
Assigning costs to 9)
that cover all costs and contribute to profit.
also can help Skylark Design control costs.
39: Data Table
Direct labor hours (professionals)
Direct labor costs (professionals)
8,000 hours
$
2,000,000
Support staff salaries
273,000
Computer leases
41,000
Office supplies
25,000
Office rent
61,000
40: Data Table
Tasty Coop
Direct labor hours
Root Chocolates
900 hours
Software licensing costs
$
Travel costs
4,500
10,000
400 hours
$
500
0
41: Requirements
1.
Compute Skylark Design's direct labor rate and its predetermined overhead allocation cost allocation rate for 2016.
2.
Compute the total cost of each job.
3.
If Bickers wants to earn profits equal to 50% of service revenue, what fee should she charge each of these two
clients?
4.
Why does Skylark Design assign costs to jobs?
1)
Actual direct la or costs
Actual direct la or hours
Actual OH costs
2)
Actual direct la or costs
Actual direct la or hours
Actual OH costs
3)
Actual direct la or costs
Actual direct la or hours
Actual OH costs
Estimated direct la or costs
Estimated direct la or hours
Estimated OH costs
Estimated direct la or costs
Estimated direct la or hours
Estimated OH costs
Estimated direct la or costs
Estimated direct la or hours
Estimated OH costs
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Page 123 of 243
4)
Actual direct la or costs
Actual direct la or hours
Actual OH costs
5)
Travel costs
omputer leases
Direct la or
Office rent
Office supplies
Software licensing costs
Support staff salaries
Total overhead costs
Travel costs
omputer leases
Direct la or
Office rent
Office supplies
Software licensing costs
Support staff salaries
Total overhead costs
Office supplies
Software licensing costs
Support staff salaries
Total overhead costs
Travel costs
omputer leases
Direct la or
Office rent
6)
7)
9)
Estimated direct la or costs
Estimated direct la or hours
Estimated OH costs
8)
increase labor hours
lower employee wages
set fees
a rouping of clients
individual clients
ID: P17-33A similar to)
1.
Which company is least likely to use a process costing system?
A. Paper manufacturer
B. Soft drink bottler
C. Accounting firm
D. Petroleum processor
ID: QC18-1 (book/static)
2.
Which characteristic is the same in both job order costing systems and process costing systems?
A. Types of product costs
B. Flow of costs through the accounts
C. Number of Work-in-Process Inventory accounts
D. Method of record keeping
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3.
Page 124 of 243
Conversion costs are
A. direct materials plus direct labor.
B. direct labor plus manufacturing overhead.
C. direct materials plus manufacturing overhead.
D. indirect materials plus indirect labor.
ID: QC18-3 (book/static)
4.
Burton Company uses the weighted-average method in its process costing system. The Packaging Department started
the month with 200 units in process that were 70% complete, received 1,500 units from the Finishing Department, and
had 150 units in process at the end of the period. All materials are added at the beginning of the process, and conversion
costs are incurred uniformly. The units in process at the end of the month are 20% complete with respect to conversion
costs. The department incurred the following costs:
42(Click on the icon to view the costs.)
How many units were completed and transferred out?
Review Only
Click the icon to see the Worked Solution.
A. 150 units
B. 1,500 units
C. 1,350 units
D. 1,550 units
42: Data Table
Beginning WIP
Transferred In
$
700 $
Added this month
Total
12,900 $
13,600
Direct Materials
200
3,200
3,400
Conversion Costs
500
5,820
6,320
1,400 $
21,920 $
23,320
Total
$
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5.
Page 125 of 243
Burton Company uses the weighted-average method in its process costing system. The Packaging Department started
the month with 200 units in process that were 70% complete, received 1,500 units from the Finishing Department, and
had 150 units in process at the end of the period. All materials are added at the beginning of the process, and conversion
costs are incurred uniformly. The units in process at the end of the month are 20% complete with respect to conversion
costs. During the month 1,550 units were completed and transferred out. The department incurred the following costs:
43
(Click on the icon to view the costs.)
For conversion costs, the equivalent units of production are
Review Only
Click the icon to see the Worked Solution.
A. 1,700 units
B. 1,580 units
C. 1,500 units
D. 1,550 units
43: Data Table
Beginning WIP
Transferred In
$
700 $
Added this month
Total
12,900 $
13,600
Direct Materials
200
3,200
3,400
Conversion Costs
500
5,820
6,320
1,400 $
21,920 $
23,320
Total
$
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6.
Page 126 of 243
Burton Company uses the weighted-average method in its process costing system. The Packaging Department started
the month with 200 units in process that were 70% complete, received 1,500 units from the Finishing Department, and
had 150 units in process at the end of the period. All materials are added at the beginning of the process, and conversion
costs are incurred uniformly. The units in process at the end of the month are 20% complete with respect to conversion
costs. During the month 1,550 units were completed and transferred out. The department incurred the following costs:
44
(Click on the icon to view the costs.)
The cost per equivalent unit for direct materials is (Round your answer to two decimal places.)
Review Only
Click the icon to see the Worked Solution.
A. $2.00
B. $4.00
C. $8.00
D. $14.00
44: Data Table
Beginning WIP
Transferred In
$
700 $
Added this month
Total
12,900 $
13,600
Direct Materials
200
3,200
3,400
Conversion Costs
500
5,820
6,320
1,400 $
21,920 $
23,320
Total
$
ID: QC18-6 (book/static)
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7.
Page 127 of 243
Burton Company uses the weighted-average method in its process costing system. The Packaging Department started
the month with 200 units in process that were 70% complete, received 1,500 units from the Finishing Department, and
had 150 units in process at the end of the period. All materials are added at the beginning of the process, and conversion
costs are incurred uniformly. The units in process at the end of the month are 20% complete with respect to conversion
costs. During the month 1,550 units were completed and transferred out. The cost per equivalent unit for direct materials
is $2.00. The department incurred the following costs:
45(Click on the icon to view the costs.)
Of the $3,400 total costs for direct materials, what amount will be transferred out? (Round your answer to the nearest
dollar.)
Review Only
Click the icon to see the Worked Solution.
A. $3,400
B. $300
C. $1,200
D. $3,100
45: Data Table
Beginning WIP
Transferred In
$
700 $
Added this month
Total
12,900 $
13,600
Direct Materials
200
3,200
3,400
Conversion Costs
500
5,820
6,320
1,400 $
21,920 $
23,320
Total
$
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8.
Page 128 of 243
The Mixing Department incurred the following costs during the month:
the icon to view the costs incurred.)
46(Click
What is the journal entry to record the costs incurred during the month?
Review Only
Click the icon to see the Worked Solution.
Date
A.
B.
Accounts and Explanation
Debit
Work-in-Process Inventory - Mixing
Credit
1,030
Raw Materials Inventory
275
Wages Payable
175
Manufacturing Overhead
580
Work-in-Process Inventory - Mixing
2,280
Transfer Costs
C.
D.
1,250
Raw Materials Inventory
275
Wages Payable
175
Manufacturing Overhead
580
Work-in-Process Inventory - Mixing
875
Raw Materials Inventory
225
Wages Payable
150
Manufacturing Overhead
500
Work-in-Process Inventory - Mixing
875
Raw Materials Inventory
225
Conversion Costs
650
46: Costs Incurred
Manufacturing
Transferred In
Direct Materials
Direct Labor
Overhead
Allocated
Beginning WIP
$
$
1,000
Added this month
Total
250
$
1,250
50
$
225
$
275
25
$
150
$
175
80
500
$
580
ID: QC18-8 (book/static)
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9.
Page 129 of 243
Department 1 completed work on 500 units and transferred them to Department 2. The cost of the units was $750. What is
the journal entry to record the transfer?
Date
A.
Accounts and Explanation
Debit
Work-in-Process Inventory-Dept. 1
Credit
750
Work-in-Process Inventory-Dept. 2
B.
Work-in-Process Inventory-Dept. 2
750
750
Work-in-Process Inventory-Dept. 1
C.
Work-in-Process Inventory-Dept. 2
750
750
Cost of Goods Sold
D.
Cost of Goods Sold
750
750
Work-in-Process Inventory-Dept. 1
750
ID: QC18-9 (book/static)
10.
The manager of Gilbert Company used the production cost report to compare budgeted costs to actual costs and then
based bonuses on the results. This is an example of using the reports to
A. prepare financial statements.
B. control costs.
C. evaluate performance.
D. identify profitable products.
ID: QC18-10 (book/static)
11.
Which statement is accurate concerning the FIFO method for assigning costs in a process costing system?
A. FIFO method assumes the first costs incurred are transferred out.
B. FIFO method merges costs from prior periods with costs from current periods.
C. FIFO method assumes the first costs incurred are still in process.
D. FIFO method treats units in process at the beginning of the period in the same manner as units
in process at the end of the period.
ID: QC18A-11 (book/static)
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12.
Page 130 of 243
Complete the missing amounts and labels in the T-accounts.
the icon to view the T-accounts.)
47(Click
Review Only
Cli
th icon to se th Wor
d Solution.
Be in with the Work-in-Process—Cutting T-account, then complete each of the remaining T-accounts. Ab reviations
used: OGS = ost of Goods Sold, FG = Finished Goods, WIP = Work-in-Process)
Work-in-Proc ss Inventory—Cutting
Balance, May 1
0
Direct Materials
49,000
Direct Labor
Transfer out to
1)
6,000
Manufacturing Overhead
Balance, May 31
29,000
1,000
Work-in-Proc ss Inventory—Finishing
Balance, May 1
Transfer in from
10,000
80,000 Transfer out to
2)
3)
Direct Materials
21,000
Direct Labor
Manufacturing Overhead
15,000
Balance, May 31
61,000
Work-in-Proc ss Inventory—Pa
Balance, May 1
Transfer in from
9,000
aging
Transfer out to
4)
Transfer out to
6)
5)
Direct Materials
10,000
Direct Labor
6,000
Manufacturing Overhead
Balance, May 31
10,000
5,000
Finish d Goods Inventory
Balance, May 1
Transfer in from
0
7)
Balance, May 31
6,000
Cost of Goods Sold
Balance, May 1
Transfer in from
0
8)
Balance, May 31
47: More Info
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Work-in-Process Inventory—Cutting
Balance, May 1
Direct Materials
Direct Labor
Manufacturing Overhead
Balance, May 31
0 (a)
Transfer out to
49,000
6,000
29,000
1,000
Work-in-Process Inventory—Finishing
Balance, May 1
10,000 80,000
Transfer in from
(b)
Direct Materials
21,000
Direct Labor
Transfer out to
(c)
Manufacturing Overhead
15,000
Balance, May 31
61,000
Work-in-Process Inventory—Packaging
Balance, May 1
9,000 (d)
Transfer in from
(e)
Direct Materials
10,000
Direct Labor
Manufacturing Overhead
Balance, May 31
Transfer out to
6,000
10,000
5,000
Finished Goods Inventory
Balance, May 1
Transfer in from
Balance, May 31
0 (f)
Transfer out to
(g)
6,000
Cost of Goods Sold
Balance, May 1
0
Transfer in from
(h)
Balance, May 31
(i)
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13.
Page 133 of 243
Williams Company has the following data for the Assembly Department for August:
48(Click the icon to view the data.)
Conversion costs are added evenly throughout the process. Compute the equivalent units of production for direct materials
and conversion costs for each independent scenario:
49(Click the icon to view the scenarios.)
Review Only
Click the icon to see the Worked Solution.
Sc nario 1. Units in process at the eginning of Au ust are 30% complete; units in process at the end of Au ust are 10%
complete; materials are added at the eginning of the process.
Williams Company
Produ tion Cost Report - Ass mbly Department (Partial)
Month Ended August 31
Equivalent Units
UNITS
Whol
Transf rred
Units
In
Dir
t
Mat rials
Conversion
Costs
Units accounted for:
ompleted and transferred out
n/a
n/a
Ending work-in-process
n/a
Total units accounted for
Sc nario 2. Units in process at the eginning of Au ust are 70% complete; units in process at the end of Au ust are 90%
complete; materials are added at the eginning of the process.
Williams Company
Produ tion Cost Report - Ass mbly Department (Partial)
Month Ended August 31
Equivalent Units
UNITS
Whol
Transf rred
Units
In
Dir
t
Mat rials
Conversion
Costs
Units accounted for:
ompleted and transferred out
Ending work-in-process
Total units accounted for
n/a
n/a
n/a
Sc nario 3. Units in process at the eginning of Au ust are 30% complete; units in process at the end of Au ust are 10%
complete; materials are added at the end of the process. omplete all answer oxes. Enter "0" for zero alances.)
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Page 134 of 243
Williams Company
Produ tion Cost Report - Ass mbly Department (Partial)
Month Ended August 31
Equivalent Units
UNITS
Whol
Transf rred
Units
In
Dir
t
Conv rsion
Mat rials
Costs
Units accounted for:
ompleted and transferred out
n/a
n/a
Ending work-in-process
n/a
Total units accounted for
Sc nario 4. Units in process at the eginning of Au ust are 70% complete; units in process at the end of Au ust are 90%
complete; materials are added at the halfway point.
Williams Company
Produ tion Cost Report - Ass mbly Department (Partial)
Month Ended August 31
Equivalent Units
UNITS
Whol
Transf rred
Units
In
Dir
t
Conv rsion
Mat rials
Costs
Units accounted for:
ompleted and transferred out
n/a
n/a
Ending work-in-process
n/a
Total units accounted for
48: Data Table
Units in process at the beginning of August
1,100
Units started in August
2,100
Units completed and transferred
2,400
Units in process at end of August
800
49: More Info
1. Units in process at the beginning of August are 30% complete; units in process at the end of August are 10%
complete; materials are added at the beginning of the process.
2. Units in process at the beginning of August are 70% complete; units in process at the end of August are 90%
complete; materials are added at the beginning of the process.
3. Units in process at the beginning of August are 30% complete; units in process at the end of August are 10%
complete; materials are added at the end of the process.
4. Units in process at the beginning of August are 70% complete; units in process at the end of August are 90%
complete; materials are added at the halfway point.
ID: E18-18 (similar to)
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14.
Page 135 of 243
Newley Company had the following transactions in October:
50(Click the icon to view the transactions.)
Prepare the journal entries for Newley Company. (Record debits first, then credits. Exclude explanations from any journal
entries.)
Review Only
Cli
th icon to se th Wor
d Solution.
Purchased raw materials on account, $50,000
Date
Ac ounts
Debit
Credit
1)
2)
3)
4)
Used materials in production: $21,000 in the Mixing Department; $12,000 in the Packaging Department; $900 in indirect
materials Prepare a single compound journal entry.)
Date
Ac ounts
Debit
Credit
5)
6)
7)
8)
Incurred labor costs: $12,000 in the Mixing Department; $3,500 in the Packa ing Department; $2,200 in indirect labor
Prepare a single compound journal entry.)
Date
Ac ounts
Debit
Credit
9)
10)
11)
12)
Incurred manufacturing overhead costs: $5,500 in machinery depreciation; paid $2,300 for rent and $1,290 for utilities
Prepare a single compound journal entry.)
Date
Ac ounts
Debit
Credit
13)
14)
15)
16)
50: More Info
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Page 136 of 243
• Purchased raw materials on account, $50,000
• Used materials in production: $21,000 in the Mixing Department; $12,000 in the Packaging Department; $900 in
indirect materials
• Incurred labor costs: $12,000 in the Mixing Department; $3,500 in the Packaging Department; $2,200 in indirect
labor
• Incurred manufacturing overhead costs: $5,500 in machinery depreciation; paid $2,300 for rent and $1,290 for
utilities
1)
Manufacturin Overhead
ash
Raw Materials Inventory
Accounts Payable
Wages Paya le
Accumulated Depreciation
Work-in-Process Inventory—Mixin
Work-in-Process Inventory—Packagin
2)
Manufacturin Overhead
ash
Raw Materials Inventory
Accounts Payable
Wages Paya le
Accumulated Depreciation
Work-in-Process Inventory—Mixin
Work-in-Process Inventory—Packagin
3)
Manufacturin Overhead
ash
Raw Materials Inventory
Accounts Payable
Wages Paya le
Accumulated Depreciation
Work-in-Process Inventory—Mixin
Work-in-Process Inventory—Packagin
4)
Manufacturin Overhead
ash
Raw Materials Inventory
Accounts Payable
Wages Paya le
Accumulated Depreciation
Work-in-Process Inventory—Mixin
Work-in-Process Inventory—Packagin
5)
Manufacturin Overhead
ash
Raw Materials Inventory
Accounts Payable
Wages Paya le
Accumulated Depreciation
Work-in-Process Inventory—Mixin
Work-in-Process Inventory—Packagin
6)
Manufacturin Overhead
ash
Raw Materials Inventory
Accounts Payable
Wages Paya le
Accumulated Depreciation
Work-in-Process Inventory—Mixin
Work-in-Process Inventory—Packagin
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15.
Page 139 of 243
Mayfield Company has a production process that involves three processes. Units move through the processes in this
order: cutting, stamping, and then polishing. The company had the following transactions in November:
51(Click the icon to view the transactions.)
Prepare the journal entries for Mayfield Company. (Record debits first, then credits. Exclude explanations from journal
entries.)
Review Only
Cli
th icon to se th Wor
ost of units completed in the
utting Department, $18,000
Date
Nov. 30
d Solution.
Ac ounts
Debit
Credit
Debit
Credit
Debit
Credit
1)
2)
3)
4)
ost of units completed in the Stamping Department, $21,000
Date
Nov. 30
Ac ounts
5)
6)
7)
8)
ost of units completed in the Polishing Department, $38,000
Date
Nov. 30
Ac ounts
9)
10)
11)
12)
Sales, $100,000 Do not record costs as this will e recorded in the next step.)
Date
Nov. 30
Ac ounts
Debit
Credit
Ac ounts
Debit
Credit
13)
14)
15)
16)
ost of oods sold is 30% of sales
Date
Nov. 30
17)
18)
19)
20)
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51: More Info
•
•
•
•
•
Cost of units completed in the Cutting Department, $18,000
Cost of units completed in the Stamping Department, $21,000
Cost of units completed in the Polishing Department, $38,000
Sales on account, $100,000
Cost of goods sold is 30% of sales
1)
Manufacturin Overhead
Accounts Receivable
Raw Materials Inventory
ost of Goods Sold
Sales
Finished Goods Inventory
Work-in-Process Inventory—Cuttin
Work-in-Process Inventory—Polishing
Work-in-Process Inventory—Stampin
2)
Manufacturin Overhead
Accounts Receivable
Raw Materials Inventory
ost of Goods Sold
Sales
Finished Goods Inventory
Work-in-Process Inventory—Cuttin
Work-in-Process Inventory—Polishing
Work-in-Process Inventory—Stampin
3)
Manufacturin Overhead
Accounts Receivable
Raw Materials Inventory
ost of Goods Sold
Sales
Finished Goods Inventory
Work-in-Process Inventory—Cuttin
Work-in-Process Inventory—Polishing
Work-in-Process Inventory—Stampin
4)
Manufacturin Overhead
Accounts Receivable
Raw Materials Inventory
ost of Goods Sold
Sales
Finished Goods Inventory
Work-in-Process Inventory—Cuttin
Work-in-Process Inventory—Polishing
Work-in-Process Inventory—Stampin
5)
Manufacturin Overhead
Accounts Receivable
Raw Materials Inventory
ost of Goods Sold
Sales
Finished Goods Inventory
Work-in-Process Inventory—Cuttin
Work-in-Process Inventory—Polishing
Work-in-Process Inventory—Stampin
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16.
Page 144 of 243
Roger's Frozen Pizzas uses FIFO process costing. Selected production and cost data follow for April 2016.
52(Click the icon to view the production and cost data.)
Read the requirements53.
Review Only
Cli
th icon to se th Wor
d Solution.
Requirement 1a.
On March 31, the Mixing Department eginning Work-in-Process Inventory was 40% complete for materials and
65% complete for conversion costs. This means that for the eginning inventory
% of the materials and
% of the conversion costs were added during April.
Requirement 1b.
On April 30, the Mixing Department ending Work-in-Process Inventory was 60% complete for materials and 85% complete
for conversion costs. This means that for the ending inventory
% of the materials and
% of
the conversion costs were added during April.
Requirement 1c.
On March 31, the ooking Department eginning Work-in-Process Inventory was 40% complete for materials and
85% complete for conversion costs. This means that for the eginning inventory
% of the materials and
% of the conversion costs were added during April.
Requirement 1d.
On April 30, the ooking Department ending Work-in-Process Inventory was 20% complete for materials and
65% complete for conversion costs. This means that for the ending inventory
% of the materials and
% of the conversion costs were added during April.
Requirement 2. Use the information in the table and the information in Requirement 1 to compute the equivalent units of
production for transferred in costs, direct materials, and conversion costs for oth the Mixing and the
ooking Departments.
Be in y computing the equivalent units of production for transferred in costs, direct materials, and conversion costs for
the Mixing Department. omplete all answer oxes. Enter a "0" for any zero alances.)
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Roger's Frozen Pizzas
Production Cost Report - Mixing Department (Partial)
Month Ended April 30
Equivalent Units
UNITS
Whole
Transferred
Direct
Conversion
Units
In
Materials
Costs
Units to account for:
(1)
(2)
Total units to account for
Units accounted for:
(3)
(4)
Transferred to Cooking Department
(5)
Total units accounted for
Now compute the equivalent units of production for transferred in costs, direct materials, and conversion costs for the
ooking Department. (Complete all answer boxes. Enter a "0" for any zero balances.)
Roger's Frozen Pizzas
Production Cost Report - Cooking Department (Partial)
Month Ended April 30
Equivalent Units
UNITS
Whole
Transferred
Direct
Conversion
Units
In
Materials
Costs
Units to account for:
(6)
(7)
Total units to account for
Units accounted for:
(8)
(9)
Transferred to Finished Goods
(10)
Total units accounted for
52: Data Table
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Mixing
Cooking
Department
Department
Units to account for:
Beginning work-in-process, March 31
23,000
Started in April
85,000
Transferred in during April
7,000
73,000
108,000
80,000
From beginning work-in-process inventory
23,000
7,000
Started and completed during April
50,000
55,000
35,000
18,000
108,000
80,000
Total units to account for
Units accounted for:
Completed and transferred out during April
Ending work-in-process, April 30
Total units accounted for
17: Requirements
1.
Calculate the following:
a. On March 31, the Mixing Department beginning Work-in-Process Inventory was 40% complete for materials and
65% complete for conversion costs. This means that for the beginning inventory _____% of the materials and
_____% of the conversion costs were added during April.
b. On April 30, the Mixing Department ending Work-in-Process Inventory was 60% complete for materials and
85% complete for conversion costs. This means that for the ending inventory _____% of the materials and
_____% of the conversion costs were added during April.
c. On March 31, the Cooking Department beginning Work-in-Process Inventory was 40% complete for materials
and 85% complete for conversion costs. This means that for the beginning inventory _____% of the materials
and _____% of the conversion costs were added during April.
d. On April 30, the Cooking Department ending Work-in-Process Inventory was 20% complete for materials and
65% complete for conversion costs. This means that for the ending inventory _____% of the materials and
_____% of the conversion costs were added during April.
2.
Use the information in the table and the information in Requirement 1 to compute the equivalent units of production
for transferred in costs, direct materials, and conversion costs for both the Mixing and the Cooking Departments.
1)
Be inning work-in-process
ompleted and transferred out
Endin work-in-process
2)
Be inning work-in-process
ompleted and transferred out
Endin work-in-process
3)
Be inning work-in-process
ompleted and transferred out
Endin work-in-process
Started and completed
Started in production
Started and completed
Started in production
Started and completed
Started in production
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4)
Be inning work-in-process
ompleted and transferred out
Endin work-in-process
5)
Be inning work-in-process
ompleted and transferred out
Endin work-in-process
6)
Be inning work-in-process
ompleted and transferred out
Endin work-in-process
7)
Be inning work-in-process
ompleted and transferred out
Endin work-in-process
8)
Be inning work-in-process
ompleted and transferred out
Endin work-in-process
9)
Be inning work-in-process
ompleted and transferred out
Endin work-in-process
Page 147 of 243
Started and completed
Started in production
Started and completed
Started in production
Started and completed
Transferred in
Started and completed
Transferred in
Started and completed
Transferred in
Started and completed
Transferred in
10)
Be innin work-in-process
ompleted and transferred out
Ending work-in-process
Started and completed
Transferred in
ID: E18A-28 similar to)
1.
Which statement is false?
A. Using a single plantwide allocation rate is the simplest method of allocating overhead costs.
B. An allocation system that uses departmental allocation rates is more refined than one that uses a
plantwide allocation rate.
C. Allocation focuses on indirect costs.
D. The predetermined overhead allocation rate is based on actual costs.
ID: QC19-1 (book/static)
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Page 148 of 243
2.Compute It
uses activity-based costing. Two of Compute It's production activities are kitting (assembling the raw materials
needed for each computer in one kit) and boxing the completed products for shipment to customers. Assume that
Compute It spends $12,000,000 per month on kitting and $22,000,000 per month on boxing. Compute It allocates the
following:
• Kitting costs based on the number of parts used in the computer
• Boxing costs based on the cubic feet of space the computer requires
Suppose Compute It estimates it will use 400,000,000 parts per month and ship products with a total volume of
20,000,000 cubic feet per month. Assume that each desktop computer requires 125 parts and has a volume of 10 cubic
feet.
What are the predetermined overhead allocation rates? (Round all calculations to the nearest cent.)
Review Only
Click the icon to see the Worked Solution.
Kitting
Boxing
A.
$0.03 per part
$0.05 per cubic foot
B.
$0.60 per part
$0.06 per cubic foot
C.
$0.03 per part
$1.10 per cubic foot
D.
$33.33 per part
$0.91 per cubic foot
ID: QC19-2 (book/static)
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3.Compute It
uses activity-based costing. Two of Compute It's production activities are kitting (assembling the raw materials
needed for each computer in one kit) and boxing the completed products for shipment to customers. Assume that
Compute It spends $12,000,000 per month on kitting and $22,000,000 per month on boxing. Compute It allocates the
following:
•
•
Kitting costs based on the number of parts used in the computer
Boxing costs based on the cubic feet of space the computer requires
Suppose Compute It estimates it will use 400,000,000 parts per month and ship products with a total volume of
20,000,000 cubic feet per month. Assume that each desktop computer requires 125 parts and has a volume of 10 cubic
feet. The predetermined overhead allocation rate for kitting is $0.03 per part and the predetermined overhead allocation
rate for boxing is $1.10 per cubic foot.
What are the kitting and boxing costs assigned to one desktop computer? (Round all calculations to the nearest cent.)
Review Only
Click the icon to see the Worked Solution.
Kitting
Boxing
A.
$
3.75 $
11.00
B.
$
0.30 $
137.50
C.
$
11.00 $
3.75
D.
$
4.05 $
148.50
ID: QC19-3 (book/static)
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4.Compute It
uses activity-based costing. Two of Compute It's production activities are kitting (assembling the raw materials
needed for each computer in one kit) and boxing the completed products for shipment to customers. Assume that
Compute It spends $12,000,000 per month on kitting and $22,000,000 per month on boxing. Compute It allocates the
following:
•
•
Kitting costs based on the number of parts used in the computer
Boxing costs based on the cubic feet of space the computer requires
Suppose Compute It estimates it will use 400,000,000 parts per month and ship products with a total volume of
20,000,000 cubic feet per month. Assume that each desktop computer requires 125 parts and has a volume of 10 cubic
feet. The predetermined overhead allocation rate for kitting is $0.03 per part and the predetermined overhead allocation
rate for boxing is $1.10 per cubic foot. The kitting and boxing costs assigned to one computer are $3.75 and
$11.00, respectively.
Compute It contracts with its suppliers to pre-kit certain component parts before delivering them to Compute It. Assume
this saves $2,000,000 of the kitting cost and reduces the total number of parts by 200,000,000 (because
Compute It considers each pre-kit as one part). If a desktop now uses 90 parts, what is the new kitting cost assigned to
one desktop? (Round all calculations to the nearest cent.)
Review Only
Click the icon to see the Worked Solution.
A.
$4.50
B.
$1.00
C.
$2.70
D.
$3.75
ID: QC19-4 (book/static)
5.
Compute It can use ABC information for what decisions?
A. Cost cutting
B. Pricing
C. Product mix
D. Items a, b, and c are all correct.
ID: QC19-5 (book/static)
6.
Which of the following would be true for a service company?
A. ABC helps the company make more informed decisions about services.
B. Service companies use only a few activities, so a plantwide overhead allocation is always
appropriate.
C. Most of the company's costs are for direct materials and direct labor. Indirect costs are a small
proportion of total costs.
D. All of the above are true.
ID: QC19-6 (book/static)
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7.
Page 151 of 243
Companies enjoy many benefits from using JIT. Which is not a benefit of adopting JIT?
A. Ability to respond quickly to changes in customer demand
B. Lower inventory carrying costs
C. Ability to continue production despite disruptions in deliveries of raw materials
D. More space available for production
ID: QC19-7 (book/static)
8.
Which account is not used in JIT costing?
A. Finished Goods Inventory
B. Raw and In-Process Inventory
C. Work-in-Process Inventory
D. Conversion Costs
ID: QC19-8 (book/static)
9.
The cost of lost future sales after a customer finds a defect in a product is which type of quality cost?
A. Prevention cost
B. Appraisal cost
C. Internal failure cost
D. External failure cost
ID: QC19-9 (book/static)
10.
Spending on testing a product before shipment to customers is which type of quality cost?
A. External failure cost
B. Prevention cost
C. Appraisal cost
D. None of the above
ID: QC19-10 (book/static)
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11.
Page 152 of 243
Zapata makes handheld calculators in two models: basic and professional. Zapata estimated $624,000 of manufacturing
overhead and 520,000 machine hours for the year. The basic model actually consumed 270,000 machine hours and the
professional model consumed 250,000 machine hours.
Requirements
1. Compute the predetermined overhead allocation rate using machine hours (MHr) as the allocation base.
2. How much overhead is allocated to the basic model? To the professional model?
Requirement 1. ompute the predetermined overhead allocation rate using machine hours as the allocation ase.
Select the formula, and then enter the amounts to compute the predetermined overhead OH) allocation rate. Enter your
answer to the nearest cent.)
1)
/
2)
= Predetermined OH allocation rate
/
=
Requirement 2. How much overhead is allocated to the asic model? To the professional model?
Select the formula, and then enter the amounts to compute the overhead OH) allocated to the asic model and the
professional model.
3)
x
4)
= Allocated OH costs
Basic model
x
=
Professional model
x
=
1)
Estimated qty of the allocation ase
Actual overhead costs
Actual qty of the allocation ase used
Estimated overhead costs
2)
Estimated qty of the allocation ase
Actual overhead costs
Actual qty of the allocation ase used
Estimated overhead costs
3)
Actual overhead costs
Actual qty of the allocation ase used
Estimated overhead costs
4)
Actual overhead costs
Actual qty of the allocation ase used
Estimated overhead costs
Estimated qty of the allocation ase
Predetermined OH allocation rate
Estimated qty of the allocation ase
Predetermined OH allocation rate
ID: E19-15 similar to)
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12.
Page 153 of 243
Tackett makes handheld calculators in two models—basic and professional. Tackett estimated $624,000 of
manufacturing overhead and 520,000 machine hours for the year. The basic model actually consumed 270,000 machine
hours and the professional model consumed 250,000 machine hours. Tackett wants to refine its costing system by
allocating overhead using departmental rates. The estimated $624,000 of manufacturing overhead has been divided into
two cost pools—Assembly Department and Packaging Department. The following data have been compiled:
54(Click the icon to view the data.)
Read the requirements55.
Review Only
Click the icon to see the Worked Solution.
Requirement 1. Compute the predetermined overhead allocation rates using machine hours as the allocation base for the
Assembly Department and direct labor hours for the Packaging Department.
Begin by selecting the formula to calculate the predetermined overhead (OH) allocation rate. Then enter the amounts to
compute the allocation rate for each department. (Enter the allocation rates to the nearest cent..)
Predetermined OH
(1)
/
(2)
=
Assembly
/
=
Packaging
/
=
allocation rate
Requirement 2. How much overhead is allocated to the basic model? To the professional model?
Begin by selecting the formula to allocate overhead (OH) costs.
(3)
x
(4)
=
Allocated mfg. overhead costs
Compute the total overhead allocated to the basic model, and then compute the total overhead allocated to the
professional model.
Basic Model
Professional Model
Manufacturing overhead—Assembly
Manufacturing overhead—Packaging
Total manufacturing overhead cost
54: Data Table
Overhead costs
$
Assembly
Packaging
Department
Department
460,000
$
164,000
Total
$
624,000
Machine hours:
Basic Model
155,500 MHr
114,500 MHr
270,000 MHr
Professional Model
132,000 MHr
118,000 MHr
250,000 MHr
Direct labor hours:
Basic Model
32,000 DLHr
80,000 DLHr
112,000 DLHr
Professional Model
10,000 DLHr
330,000 DLHr
340,000 DLHr
55: Requirements
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1. Compute the predetermined overhead allocation rates using machine hours as the allocation base for the Assembly
Department and direct labor hours for the Packaging Department.
2. How much overhead is allocated to the basic model? To the professional model?
1)
Estimated qty of the allocation ase
Actual overhead costs
Actual qty of the allocation ase used
Estimated overhead costs
2)
Estimated qty of the allocation ase
Actual overhead costs
Actual qty of the allocation ase used
Estimated overhead costs
3)
Actual overhead costs
Actual qty of the allocation ase used
Estimated overhead costs
4)
Actual overhead costs
Actual qty of the allocation ase used
Estimated overhead costs
Estimated qty of the allocation ase
Predetermined OH allocation rate
Estimated qty of the allocation ase
Predetermined OH allocation rate
ID: E19-16 similar to)
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13.
Page 155 of 243
Fortunado, Inc. uses activity-based costing to account for its chrome bumper manufacturing process. Company managers
have identified four manufacturing activities: materials handling, machine setup, insertion of parts, and finishing. The
budgeted activity costs for 2016 and their allocation bases are as follows:
56
(Click the icon to view the ud eted costs and activity ases.)
Fortunado expects to produce 500 chrome bumpers during the year. The bumpers are expected to use 4,000 parts,
require 10 setups, and consume 1,000 hours of finishing time.
Requirements
1. Compute the predetermined overhead allocation rate for each activity.
2. Compute the expected indirect manufacturing cost of each bumper.
Review Only
Clic th icon to se th Work d Solution.
Requirement 1. ompute the predetermined overhead allocation rate for each activity.
Be in y selecting the formula to calculate the predetermined overhead OH) allocation rate. Then enter the amounts to
compute the allocation rate for each activity. Round your answers to the nearest cent.)
Predetermined OH
1)
/
2)
=
Materials handling
/
=
Machine setup
/
=
Insertion of parts
/
=
Finishing
/
=
allocation rate
Requirement 2. ompute the expected indirect manufacturing cost of each umper.
Be in y selecting the formula to allocate overhead OH) costs.
3)
x
4)
=
Allocated mfg. overhead costs
Now compute the expected indirect manufacturing cost of each umper. Round the cost per umper to the nearest cent.)
Allocated Mfg. OH
ost
Materials handling
Machine setup
Insertion of parts
Finishing
Total mfg. OH costs
Number of umpers
Mf . OH cost per umper
56: Data Table
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Activity
Materials handling
Total Budgeted Cost
$
Machine setup
Allocation Base
3,000
Number of parts
3,600
Number of setups
Insertion of parts
60,000
Number of parts
Finishing
90,000
Finishing direct labor hours
Total
$
1)
156,600
Estimated qty of the allocation ase
Actual overhead costs
Actual qty of the allocation ase used
Estimated overhead costs
2)
Estimated qty of the allocation ase
Actual overhead costs
Actual qty of the allocation ase used
Estimated overhead costs
3)
Predetermined OH allocation rate
Actual overhead costs
Estimated overhead costs
Expected qty of the allocation ase used
4)
Predetermined OH allocation rate
Actual overhead costs
Estimated overhead costs
Expected qty of the allocation ase used
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14.
Page 157 of 243
The Adam Manufacturing Company in Rochester,
Minnesota, assembles and tests electronic components
used in handheld video phones. Consider the following
data regarding component T24 (amounts are per unit):
Direct materials cost
$
The activities required to build the component follow:
57(Click the icon to view the activity data.)
Read the requirements58.
80.00
Direct labor cost
25.00
Activity-based costs allocated
?
Total manufacturing product cost
?
Review Only
Cli
th icon to se th Wor
d Solution.
Requirement 1. omplete the missing items for the two ta les.
Be in y completing the table for the total indirect activity costs.
Activity
Allocation Bas
Start station
Num er of raw component chasiss
Dip insertion
Num er of dip insertions
Manual insertion
Costs Allo at d to Ea
1 x $
Unit
1.30 = $
1.30
x
0.30 =
8.40
Num er of manual insertions
8 x
0.40 =
Wave solder
Num er of components soldered
1 x
1.60 =
1.60
Backload
Num er of ackload insertions
3 x
=
1.50
Test
Num er of testing hours
0.39 x
90.00 =
Defect analysis
Num er of defect analysis hours
0.14 x
=
8.40
Total activity- ased costs
Now, complete the ta le for the total manufacturing product cost.
Direct materials cost
Direct labor cost
$
80.00
25.00
Activity-based costs allocated
Total manufacturing product cost
Requirement 2. Why mi ht managers favor this AB system instead of Adam's older system, which allocated all
manufacturing overhead costs on the asis of direct labor hours?
Managers favor this multiple-rate, activity-based costing system ecause it etter pinpoints 1)
planning and control and it provides more accurate data for 2)
for
.
57: Data Table
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Costs Allocated
Activity
Allocation Base
to Each Unit
Start station
Number of raw component chasiss
1 x $
1.30 = $
1.30
Dip insertion
Number of dip insertions
? x
0.30 =
8.40
Manual insertion
Number of manual insertions
8 x
0.40 =
?
Wave solder
Number of components soldered
1 x
1.60 =
1.60
Backload
Number of backload insertions
3 x
? =
1.50
Test
Number of testing hours
0.39 x
90.00 =
?
Defect analysis
Number of defect analysis hours
0.14 x
? =
8.40
$?
Total activity-based costs
58: Requirements
1.
Complete the missing items for the two tables.
2.
Why might managers favor this ABC system instead of Adam's older system, which allocated all manufacturing
overhead costs on the basis of direct labor hours?
1)
activities
2)
factory payroll
direct labor costs
inventory planning
direct labor hours
product costing
revenues
product scheduling
ID: P19-33A similar to)
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15.
Page 159 of 243
Lake Street Plant Service completed a special landscaping job for Brendan Company. Lake Street uses ABC and has
the following predetermined overhead allocation rates:
59(Click the icon to view the predetermined overhead allocation rates.)
The Brendan job included $2,500 in plants; $1,500 in direct labor; one design; and 50 plants.
Requirements
1. What is the total cost of the Brendan job?
2. If Brendan paid $6,190 for the job, what is the operating income or loss?
3. If Lake Street desires an operating income of 50% of cost, how much should the company charge for the Brendan job?
Review Only
Click the icon to see the Worked Solution.
Requirement 1. What is the total cost of the Brendan job?
(1)
(2)
Overhead:
(3)
(4)
Total overhead allocated
Total cost of Brendan job
Requirement 2. If Brendan paid $6,190 for the job, what is the operating income or loss? (Enter a loss with a minus sign
or parentheses.)
If Brendan paid $6,190, Lake Street's operating income (loss) on the job is $
.
Requirement 3. If Lake Street desires an operating income of 50% of cost, how much should the company charge for
the Brendan job?
If Lake Street desires an operating income of 50% of cost, it should charge $
for the Brendan job.
59: Data Table
Predetermined
Overhead
Activity
Allocation Base
Allocation Rate
Designing
Number of designs
$
290 per design
Planting
Number of plants
$
20 per plant
(1)
Designing
Direct labor
Direct materials (plants)
(2)
Designing
Direct labor
Direct materials (plants)
Number of designs
Number of plants
Planting
Number of designs
Number of plants
Planting
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3)
Desi ning
Direct la or
Direct materials plants)
4)
Desi ning
Direct la or
Direct materials plants)
Page 160 of 243
Num er of desi ns
Num er of plants
Planting
Num er of desi ns
Num er of plants
Planting
ID: P19-35A similar to)
1.
For Frank's Funky Sounds, straight-line depreciation on the trucks is a
A. variable cost.
B. fixed cost.
C. mixed cost.
D. high-low cost.
ID: QC20-1 (book/static)
2.
Assume Intervale Railway is considering hiring a reservations agency to handle passenger reservations. The agency
would charge a flat fee of $13,000 per month, plus $3 per passenger reservation. What is the total reservation cost if
200,000 passengers take the trip next month?
Review Only
Click the icon to see the Worked Solution.
A. $613,000
B. $3.07
C. $600,000
D. $13,000
ID: QC20-2 (book/static)
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3.
Page 161 of 243
If Intervale Railway's fixed costs total $90,000 per month, the variable cost per passenger is $45, and tickets sell for
$75, what is the contribution margin per unit and contribution margin ratio?
Review Only
Click the icon to see the Worked Solution.
A. $45 per passenger; 60%
B. $30 per passenger; 60%
C. $30 per passenger; 40%
D. $45 per passenger; 40%
ID: QC20-3 (book/static)
4.
If Intervale Railway's fixed costs total $90,000 per month, the variable cost per passenger is $45, and tickets sell for
$75, how much revenue must the Railway generate to earn $120,000 in operating income per month?
Review Only
Click the icon to see the Worked Solution.
A. $350,000
B. $210,000
C. $7,000
D. $525,000
ID: QC20-4 (book/static)
5.
If Intervale Railway's fixed costs total $90,000 per month, the variable cost per passenger is $45, and tickets sell for
$75, what is the breakeven point in units?
Review Only
Click the icon to see the Worked Solution.
A. 1,200 passengers
B. 2,000 passengers
C. 225,000 passengers
D. 3,000 passengers
ID: QC20-5 (book/static)
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6.
Page 162 of 243
If a company increases its sales price per unit for Product A, the new breakeven point will
A. increase.
B. decrease.
C. remain the same.
D. More information is needed.
ID: QC20-7 (book/static)
7.
If a company increases its fixed costs for Product B, then the contribution margin per unit will
A. increase.
B. decrease.
C. remain the same.
D. More information is needed.
ID: QC20-8 (book/static)
8.
The Best Appliances had the following revenue over the past five years:
2011
$
600,000
2012
700,000
2013
900,000
2014
800,000
2015
1,000,000
To predict revenues for 2016, The Best Appliances uses the average for the past five years. The company's breakeven
revenue is $800,000 per year. What is The Best Appliances's predicted margin of safety for 2016?
Review Only
Click the icon to see the Worked Solution.
A. $800,000
B. $0
C. $200,000
D. $100,000
ID: QC20-9 (book/static)
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9.
Page 163 of 243
Rocky Mountain Waterpark sells half of its tickets for the regular price of $75. The other half go to senior citizens and
children for the discounted price of $35. Variable cost per passenger is $15 for both groups, and fixed costs total
$60,000 per month. What is Rocky Mountain's breakeven point in total guests? Regular guests? Discount guests?
Review Only
Click the icon to see the Worked Solution.
A. 2,000; 1,000; 1,000
B. 800; 400; 400
C. 750; 375; 375
D. 1,500; 750; 750
ID: QC20-10 (book/static)
10.
For each variable cost per unit listed below, determine the total variable cost when units produced and sold are
40, 80, and 160 units.
Direct materials
$
40
Direct labor
65
Variable overhead
7
Sales commission
9
Review Only
Click the icon to see the Worked Solution.
Begin by calculating the total variable cost for each variable cost per unit listed, and the total variable cost when sales
are 40 units. Then calculate the total variable cost when sales are 80 and 160 units, respectively.
Variable cost per unit
Direct materials
Direct labor
$
Variable Cost
Variable Cost
Variable Cost
at 40 Units
at 80 Units
at 160 Units
40
65
Variable overhead
7
Sales commission
9
Total variable cost
ID: E20-20 (similar to)
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11.
Page 164 of 243
The budgets of four companies yield the following information:
the icon to view the ud et information for the four companies.)
60(Click
Requirements
1. Fill in the blanks for each missing value. (Round the contribution margin per unit to the nearest cent.)
2. Which company has the lowest breakeven point in sales dollars?
3. What causes the low breakeven point?
Review Only
Clic th icon to se th Work d Solution.
Requir ment 1. Fill in the lanks for each missing value. Round the contribution margin per unit to the nearest cent. Use
a minus si n or parentheses to enter an operating loss.)
Beac
Sales Revenue
$
Lak
924,000
$
Variable osts
Fixed
osts
Operating Income Loss)
$
Units Sold
$
Valley
625,000
76,125
437,500
168,000
156,000
211,200
12,000
140,000
ontribution Margin per Unit
Mountain
44,600
$
11.00
10,500
3.30
ontribution Margin Ratio
$
$
%
75.00
%
80 %
20 %
Requir ments 2. and 3. Which company has the lowest reakeven point in sales dollars? What causes the low
reakeven point?
Begin y showing the formula and then entering the amounts to calculate the reakeven point in sales dollars for each
company. omplete all answer oxes. Round the reakeven point—the required sales in dollars—up to the nearest
whole dollar. For example, $10.25 would e rounded to $11. Ab reviation used: M = contribution margin.)
1)
+
2)
)/
3)
= Required sales in dollars
Beach
+
)/
%
=
Lake
+
)/
%
=
Mountain
+
)/
%
=
Valley
+
)/
%
=
Which company has the lowest reakeven point in sales dollars? What causes the low reakeven point?
4)
has the lowest reakeven point, primarily due to 5)
.
60: Data Ta le
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Company
Beach
Sales Revenue
$
Lake
924,000
Mountain
$ (d) $
Valley
625,000
$ (j)
Variable Costs
(a)
76,125
437,500
211,200
Fixed Costs
(b)
168,000
156,000
(k)
12,000
$ (e)
140,000
10,500
Operating Income (Loss)
$
Units Sold
Contribution Margin per Unit
$
Contribution Margin Ratio
1)
Varia le costs
(c)
(l)
75.00 $
80%
(i)
44,600
11.00
20%
Tar et profit
M per unit
M ratio
Sales price
Varia le costs
M per unit
M ratio
Fixed costs
(h)
$ (f) $
2)
M per unit
M ratio
Fixed costs
3)
3.30
$ (g) $
4)
ompany Beach
5)
its hi h fixed costs
ompany Lake
its hi h sales price
ompany Mountain
its low fixed costs
ompany Valley
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12.
Page 166 of 243
City Productions performs London shows. The average show sells 900 tickets at $65 per ticket. There are 170 shows per
year. No additional shows can be held as the theater is also used by other production companies. The average show
has a cast of 55, each earning a net average of $330 per show. The cast is paid after each show. The other variable cost
is program-printing cost of $9 per guest. Annual fixed costs total $580,500.
Requirements
1. Compute revenue and variable costs for each show.
2. Use the equation approach to compute the number of shows City Productions must perform each year to break
even.
3. Use the contribution margin ratio approach to compute the number of shows needed each year to earn a profit of
$4,128,000. Is this profit goal realistic? Give your reasoning.
4. Prepare City Productions's contribution margin income statement for 170 shows performed in 2016. Report only two
categories of costs: variable and fixed.
Review Only
Clic th icon to se th Work d Solution.
Requir ment 1.
ompute revenue and variable costs for each show.
Select the formula and enter the amounts to compute sales revenue for each show.
1)
x
2)
= Sales revenue per show
x
=
Select the formula and enter the amounts to compute variable costs for each show.
for each cost separately, and then compute the total variable costs per show.
3)
x
4)
ompute the variable costs per show
= Variable costs per show
ost of programs
x
=
ost of performers
x
=
Total variable costs
Requir ment 2. Use the equation approach to compute the number of shows
to reak even.
ity Productions must perform each year
First, select the formula to compute the required sales in units to reak even.
5)
-
6)
-
7)
=
Target profit
Rearran e the formula you determined above and compute the required number of shows to reak even.
The number of shows needed annually to reak even is
.
Requir ment 3. Use the contribution mar in ratio approach to compute the number of shows needed each year to earn a
profit of $4,128,000. Is this profit oal realistic? Give your reasoning.
Begin y showing the formula and then entering the amounts to calculate the required sales dollars to earn a profit of
$4,128,000. Round the required sales in dollars to the nearest whole dollar. Round amounts in the formula to two
decimal places, XX.XX. Ab reviation used: M = contribution mar in.)
8)
+
+
9)
)/
)/
10)
= Required sales in dollars
%
=
Now use the information iven and the required sales in dollars computed in the previous step to determine the required
num er of shows needed each year to earn a profit of $4,128,000. Round your answer up to the nearest whole number.)
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7)
ontribution margin per unit
Fixed costs
Net sales revenue
8)
Varia le costs
Net sales revenue per unit
Varia le costs
9)
M per unit
M ratio
Fixed costs
10)
Tar et profit
M per unit
M ratio
Sales price
Varia le costs
11)
M per unit
M ratio
Fixed costs
12)
ontribution Mar in
ost of Goods Sold
Fixed osts
14)
ontribution Mar in
ost of Goods Sold
Fixed osts
realistic
unrealistic
Gross Profit
Sales Revenue
Varia le osts
13)
Gross Profit
Sales Revenue
Varia le osts
15)
ontribution Margin
ost of Goods Sold
Fixed osts
ontribution Margin
ost of Goods Sold
Fixed osts
Gross Profit
Sales Revenue
Variable osts
Gross Profit
Sales Revenue
Variable osts
ID: P20-34A similar to)
1.
The primary difference between variable costing and absorption costing is
A. in variable costing, fixed manufacturing overhead is a product cost.
B. in absorption costing, fixed manufacturing overhead is a product cost.
C. in variable costing, variable selling and administrative costs are product costs.
D. in absorption costing, fixed selling and administrative costs are product costs.
ID: QC21-1 (book/static)
2.
Winters, Inc. is preparing financial statements to be distributed to investors and creditors. The company should prepare
the income statement using
A. variable costing because it is better for planning purposes.
B. variable costing because it follows GAAP.
C. absorption costing because it is better for controlling purposes.
D. absorption costing because it follows GAAP.
ID: QC21-2 (book/static)
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3.
Page 169 of 243
Donovan Company incurred the following costs while producing 500 units: direct materials, $10 per unit; direct labor,
$25 per unit; variable manufacturing overhead, $15 per unit; total fixed manufacturing overhead costs, $10,000; variable
selling and administrative costs, $5 per unit; total fixed selling and administrative costs, $7,500. There are no beginning
inventories.
What is the unit product cost using variable costing?
Review Only
Click the icon to see the Worked Solution.
A. $50 per unit
B. $55 per unit
C. $70 per unit
D. $90 per unit
ID: QC21-3 (book/static)
4.
Donovan Company incurred the following costs while producing 500 units: direct materials, $10 per unit; direct labor,
$25 per unit; variable manufacturing overhead, $15 per unit; total fixed manufacturing overhead costs, $10,000; variable
selling and administrative costs, $5 per unit; total fixed selling and administrative costs, $7,500. There are no beginning
inventories.
What is the unit product cost using absorption costing?
Review Only
Click the icon to see the Worked Solution.
A. $50 per unit
B. $55 per unit
C. $70 per unit
D. $90 per unit
ID: QC21-4 (book/static)
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5.
Page 170 of 243
Donovan Company incurred the following costs while producing 500 units: direct materials, $10 per unit; direct labor,
$25 per unit; variable manufacturing overhead, $15 per unit; total fixed manufacturing overhead costs, $10,000; variable
selling and administrative costs, $5 per unit; total fixed selling and administrative costs, $7,500. There are no beginning
inventories.
What is the operating income using absorption costing if 500 units are sold for $100 each?
Review Only
Click the icon to see the Worked Solution.
A. $500
B. $2,500
C. $2,750
D. $5,000
ID: QC21-5 (book/static)
6.
Donovan Company incurred the following costs while producing 500 units: direct materials, $10 per unit; direct labor,
$25 per unit; variable manufacturing overhead, $15 per unit; total fixed manufacturing overhead costs, $10,000; variable
selling and administrative costs, $5 per unit; total fixed selling and administrative costs, $7,500. There are no beginning
inventories.
What is the operating income using variable costing if 450 units are sold for $100 each?
Review Only
Click the icon to see the Worked Solution.
A. $2,750
B. $5,000
C. $500
D. $2,500
ID: QC21-6 (book/static)
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7.
Page 171 of 243
Donovan Company incurred the following costs while producing 500 units: direct materials, $10 per unit; direct labor,
$25 per unit; variable manufacturing overhead, $15 per unit; total fixed manufacturing overhead costs, $10,000; variable
selling and administrative costs, $5 per unit; total fixed selling and administrative costs, $7,500. There are no beginning
inventories.
What is the ending balance in Finished Goods Inventory using variable costing if 450 units are sold?
Review Only
Click the icon to see the Worked Solution.
A. $2,000
B. $2,500
C. $2,750
D. $3,500
ID: QC21-7 (book/static)
8.
Sammie's Pizza sells an average of 150 pizzas per week, of which 20% are single-topping pizzas and 80% are supreme
pizzas with multiple toppings. Singles sell for $8 each and incur variable costs of $2. Supremes sell for $12 each and
incur variable costs of $6.
The contribution margin per unit and total contribution margin for Singles and Supremes are
Review Only
Click the icon to see the Worked Solution.
Singles
Supremes
Contribution
Total
Contribution
Total
Margin per Unit
Contribution Margin
Margin per Unit
Contribution Margin
A.
$
6
$
720
$
6
$
180
B.
$
6
$
180
$
6
$
720
C.
$
6
$
240
$
6
$
360
D.
$
6
$
180
$
6
$
180
ID: QC21-8 (book/static)
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9. Sammie's
Pizza sells an average of 150 pizzas per week, of which 20% are single-topping pizzas and 80% are supreme
pizzas with multiple toppings. Singles sell for $8 each and incur variable costs of $2. Supremes sell for $12 each and
incur variable costs of $6.
Which pizza should Sammie's Pizza promote to maximize profits?
A. Singles because they contribute the highest total contribution margin.
B. Supremes because they have the highest contribution margin ratio.
C. Singles because they have the highest contribution margin ratio.
D. Both should be promoted equally because they have the same contribution margin per unit.
ID: QC21-9 (book/static)
10.
During a recent month, Cleveland Company planned to provide cleaning services to 30 customers for $25 per hour.
Each job was expected to take 3 hours. The company actually served 10 more customers than expected, but the
average time spent on each job was only 2.5 hours each. Cleveland's revenues for the month were
Review Only
Click the icon to see the Worked Solution.
A. $250 more than expected.
B. $250 less than expected.
C. $750 more than expected.
D. Cannot be determined from data given
ID: QC21-10 (book/static)
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11.
Page 173 of 243
Meyer Company reports the following information for March:
61(Click the icon to view the data.)
Requirements
1. Calculate the gross profit and operating income for March using absorption costing.
2. Calculate the contribution margin and operating income for March using variable costing.
Requirement 1. Calculate the gross profit and operating income for March using absorption costing.
Meyer Company
Income Statement (Absorption Costing)
Month Ended March 31
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
Operating Income
Requirement 2. Calculate the contribution margin and operating income for March using variable costing.
Meyer Company
Income Statement (Variable Costing)
Month Ended March 31
(9)
(10)
(11)
(12)
(13)
(14)
(15)
(16)
Operating Income
61: Data Table
Sales Revenue
$
77,980
Variable Cost of Goods Sold
18,200
Fixed Cost of Goods Sold
13,500
Variable Selling and Administrative Costs
15,500
Fixed Selling and Administrative Costs
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4,600
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12.
Page 178 of 243
The Rainbow Candy Company manufactures candy that is sold to food distributors. The company produces at full
capacity for six months each year to meet peak demand during the "candy season" from Halloween through Valentine's
Day. During the other six months of the year, the manufacturing facility operates at 75% of capacity. The
Rainbow Candy Company provides the following data for the year:
62(Click the icon to view the data.)
The Rainbow Candy Company receives an offer to produce 11000 cases of candy for a special event. This is a one-time
opportunity during a period when the company has excess capacity. What is the minimum selling price The
Rainbow Candy Company should accept for the order? Explain why.
Review Only
Click the icon to see the Worked Solution.
The minimum selling price that Rainbow Candy Company should accept for the special order is the
(1)
$
. In this situation, the (2)
incurred whether the order is accepted or not. (3)
are not relevant because they will be
is appropriate in this situation.
62: Data Table
1,600,000 cases
Cases of candy produced and sold
$
Sales price
Variable manufacturing costs
14.00 per case
6,300,000 per year
Fixed manufacturing costs
Variable selling and administrative costs
Fixed selling and administrative costs
1)
31.00 per case
2.00 per case
3,600,000 per year
fixed manufacturing costs per case of
fixed product cost per case of
variable manufacturing costs per case of
variable product cost
oth manufacturing and selling and administrative) per case of
selling price per case of
2)
fixed costs
variable manufacturing costs
fixed manufacturing costs
variable selling and administrative costs
fixed selling and administrative costs
variable costs
3)
Absorption costing
Variable costing
ID: E21-20 similar to)
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13.
Page 179 of 243
Claudia's Foods produces frozen meals that it sells for $15 each. The company computes a new monthly fixed
manufacturing overhead allocation rate based on the planned number of meals to be produced that month. Assumed all
costs and production levels are exactly as planned. The following data are from Claudia's Foods's first month in business:
63
(Click the icon to view the data.)
Read the requirements64.
Review Only
Clic th icon to se th Work d Solution.
Requir ment 1. ompute the product cost per meal produced under absorption costing and under variable costing.
Round your answers to the nearest cent.)
January 2016
Absorption
Variable
costing
costing
Total product cost per meal
Requir ment 2a. Prepare
laudia's Foods's January income statement using absorption costing.
Claudia s Foods
Income Stat ment (Absorption Costing)
Month Ended January 31, 2016
1)
2)
3)
4)
Operating Income
Requir ment 2b. Prepare
laudia's Foods's January income statement using variable costing.
Claudia's Foods
In ome Stat ment (Variable Costing)
Month Ended January 31, 2016
5)
6)
7)
8)
Operating Income
Requir ment 3. Is operating income higher under absorption costing or variable costing in January?
In January, absorption costing operating income 9)
variable costing operating income.
63: Data Ta le
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January 2016
Units produced and sold:
Sales
800 meals
Production
1,000 meals
$
Variable manufacturing cost per meal
6
3
Sales commission cost per meal
Total fixed manufacturing overhead
650
Total fixed selling and administrative costs
700
64: Requirements
1. Compute the product cost per meal produced under absorption costing and under variable costing.
2. Prepare income statements for January 2016 using
a. absorption costing.
b. variable costing.
3. Is operating income higher under absorption costing or variable costing in January?
1)
ontribution Margin
ost of Goods Sold
Fixed osts
Gross Profit
Sales Revenue
Selling and Administrative
Variable osts
ontribution Margin
ost of Goods Sold
Fixed osts
Gross Profit
Sales Revenue
Selling and Administrative
Variable osts
ontribution Margin
ost of Goods Sold
Fixed osts
Gross Profit
Sales Revenue
Selling and Administrative
Variable osts
ontribution Margin
ost of Goods Sold
Fixed osts
Gross Profit
Sales Revenue
Selling and Administrative
Variable osts
ontribution Margin
ost of Goods Sold
Fixed osts
Gross Profit
Sales Revenue
Selling and Administrative
Variable osts
ontribution Margin
ost of Goods Sold
Fixed osts
Gross Profit
Sales Revenue
Selling and Administrative
Variable osts
2)
3)
4)
5)
6)
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osts
osts
osts
osts
osts
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14.
Page 182 of 243
The 2016 data that follow pertain to Mike's Magnificant Eyewear, a manufacturer of swimming goggles.
(Mike's Magnificant Eyewear had no beginning Finished Goods Inventory in January 2016.)
65(Click the icon to view the data.)
Read the requirements66.
Review Only
Clic th icon to se th Work d Solution.
Requir ment 1. Prepare oth conventional absorption costing) and contribution mar in variable costing) income
statements for Mike's Ma nificant Eyewear for the year ended Decem er 31, 2016. Round interim calculations to the
nearest cent.)
Begin y preparing Mike's Magnificant Eyewear's conventional absorption costing) income statement for the year ended
Decem er 31, 2016.
Mi
s Magnificant Ey wear
Income Stat ment (Absorption Costing)
Year End d De
mber 31, 2016
1)
2)
3)
4)
Operating Income
Prepare Mike's Magnificant Eyewear's contribution mar in variable costing) income statement for the year ended
Decem er 31, 2016.
Mi
s Magnificant Ey wear
Incom Stat ment (Variabl Costing)
Year Ended De
mber 31, 2016
5)
6)
7)
8)
Operating Income
Requir ment 2. Which statement shows the hi her operating income? Why?
The 9)
10)
income statement shows the hi her operating income. The operating income under
costing is hi her ecause the units sold 11)
etween the two income statements is attributable to the 12)
The difference in operating income
attached to the units 13)
Requir ment 3. Mike's Magnificant Eyewear's marketing vice president elieves a new sales promotion that costs
$250,000 would increase sales to 205,000 og les. Should the company o ahead with the promotion? Give your
reasoning.
The company 14)
additional cost of the promotion.
o ahead with the promotion ecause the additional 15)
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65: Data Table
Number of goggles produced
220,000
Number of goggles sold
180,000
Sales price per unit
$
Variable manufacturing cost per unit
33
12
Sales commission cost per unit
6
Fixed manufacturing overhead
1,980,000
Fixed selling and administrative costs
180,000
66: Requirements
1. Prepare both conventional (absorption costing) and contribution margin (variable costing) income statements for
Mike's Magnificant Eyewear for the year ended December 31, 2016.
2. Which statement shows the higher operating income? Why?
3. Mike's Magnificant Eyewear's marketing vice president believes a new sales promotion that costs $250,000 would
increase sales to 205,000 goggles. Should the company go ahead with the promotion? Give your reasoning.
1)
ontribution Margin
ost of Goods Sold
Fixed osts
Gross Profit
Sales Revenue
Selling and Administrative
Variable osts
ontribution Margin
ost of Goods Sold
Fixed osts
Gross Profit
Sales Revenue
Selling and Administrative
Variable osts
ontribution Margin
ost of Goods Sold
Fixed osts
Gross Profit
Sales Revenue
Selling and Administrative
Variable osts
ontribution Margin
ost of Goods Sold
Fixed osts
Gross Profit
Sales Revenue
Selling and Administrative
Variable osts
ontribution Margin
ost of Goods Sold
Fixed osts
Gross Profit
Sales Revenue
Selling and Administrative
Variable osts
ontribution Margin
ost of Goods Sold
Fixed osts
Gross Profit
Sales Revenue
Selling and Administrative
Variable osts
2)
3)
4)
5)
6)
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osts
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osts
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15.
Page 185 of 243
Paradise Pool Cleaning Service provides pool cleaning services to residential customers. The company has three
employees, each assigned to specific customers. The company considers each employee's territory as a business
segment. The company incurs variable costs that include the employees' wages, pool chemicals, and gas for the service
vans. Fixed costs include depreciation on the service vans. Following is the income statement for the month of July:
67(Click the icon to view the income statement.)
Read the requirements68.
Review Only
Clic th icon to se th Work d Solution.
Requir ment 1.
alculate the contribution mar in ratio for each usiness segment.
1)
/
2)
=
ontribution mar in ratio
Benton
/
=
%
Mitz
/
=
%
Filip
/
=
%
Requir ment 2. The usiness se ments had the following numbers of customers: Benton, 90; Mitz, 100; and
Filip, 110. ompute the service revenue per customer, variable cost per customer, and contribution mar in per customer
for each usiness se ment.
Servic revenue
Variable osts
Contribution margin
per ustomer
per ustom r
per ustom r
Benton
Mitz
Filip
Requir ment 3. Which usiness segment was most profitable? List some possible reasons why this se ment was most
profita le. How might the various reasons affect the company in the lon term?
The 3)
usiness se ment was the most profitable ecause the 4)
Possible reasons for the profita ility of this usiness segment include the following: Select all that apply.)
A. Employees in the most profita le usiness se ment cutting corners when performing service
calls
B. Lower employee wages in the most profita le usiness se ment
C. Reducing the amount of pool chemicals used in service calls for the most profita le usiness
segment
D. Higher employee wages in the most profita le usiness se ment
E. Lower revenue per customer in the most profitable usiness segment
F. Len thy routes with lon er drive times allowing fewer customers to e served in the most
profita le usiness segment
G. Better routes with shorter drive times allowing more customers to e served in the most
profita le usiness segment
H. Higher revenue per customer in the most profitable usiness segment
How mi ht the various reasons affect the company in the lon term?
The possible side effects of the items identified in the preceding step could e Select all that apply.)
A. increased service costs ecause of reduced pool chemical usage causing poor water quality
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Page 186 of 243
additional
service calls.
B. and
dissatisfied
customers
because of inadequate service.
C. highly compensated employees resulting in an increase in contribution margin.
D. increased employee turnover ecause of low wages.
E. less fuel and maintenance costs ecause of efficient routes.
F. less fuel and maintenance costs ecause of len thier routes.
G. increased customer ase due to competitive service prices.
67: Data Table
Paradise Pool Cleaning Service
Income Statement
For the Month Ended July 31, 2016
Benton
Filip
Total
7,200 $
8,000 $
8,800 $
24,000
Variable Costs
2,880
5,600
5,280
13,760
Contribution Margin
4,320
2,400
3,520
10,240
Service Revenue
$
Mitz
4,500
Fixed Costs
$
Operating Income
5,740
68: Requirements
1. Calculate the contribution margin ratio for each business segment.
2. The business segments had the following numbers of customers: Benton, 90; Mitz, 100; and Filip, 110. Compute
the service revenue per customer, variable cost per customer, and contribution margin per customer for each
business segment.
3. Which business segment was most profitable? List some possible reasons why this segment was most profitable.
How might the various reasons affect the company in the long term?
1)
ontribution margin
Fixed costs
Number of customers
Number of segments
Operatin income
Service revenue
Variable costs
ontribution margin
Fixed costs
Number of customers
Number of segments
Operatin income
Service revenue
Variable costs
2)
4)
contribution margin per customer was the lowest.
3)
Benton
Filip
Mitz
variable cost per customer was the lowest.
revenue per customer was the hi hest.
revenue per customer was the lowest.
variable cost per customer was the hi hest.
ID: P21-30A similar to)
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1.
Page 187 of 243
A company can expect to receive which of the following benefits when it uses a budgeting process?
A. The budget provides managers with a benchmark against which to compare actual results for
performance evaluation.
B. The planning required to develop the budget helps managers foresee and avoid potential
problems before they occur.
C. The budget helps motivate employees to achieve sales growth and cost-reduction goals.
D. All of the above
ID: QC22-1 (book/static)
2.
A company prepares a five-year budget. This budget would be considered a(n)
A. strategic budget
B. operational budget
C. master budget
D. flexible budget
ID: QC22-2 (book/static)
3.
Which of the following is the cornerstone of the master budget?
A. The selling and administrative expense budget
B. The budgeted balance sheet
C. The sales budget
D. The production budget
ID: QC22-3 (book/static)
4.
Suppose Iron City manufactures cast iron skillets. One model is a 10-inch skillet that sells for $20. Iron City projects
sales of 500 10-inch skillets per month. The production costs are $9 per skillet for direct materials, $1 per skillet for direct
labor, and $2 per skillet for manufacturing overhead. Iron City has 50 10-inch skillets in inventory at the beginning of
July but wants to have an ending inventory equal to 20% of the next month's sales. Selling and administrative expenses
for this product line are $1,500 per month.
How many 10-inch skillets should Iron City produce in July?
Review Only
Click the icon to see the Worked Solution.
A. 500 skillets
B. 550 skillets
C. 600 skillets
D. 650 skillets
ID: QC22-4 (book/static)
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5.
Page 188 of 243
Suppose Iron City manufactures cast iron skillets. One model is a 10-inch skillet that sells for $20. Iron City projects
sales of 500 10-inch skillets per month. The production costs are $9 per skillet for direct materials, $1 per skillet for direct
labor, and $2 per skillet for manufacturing overhead. Iron City has 50 10-inch skillets in inventory at the beginning of
July but wants to have an ending inventory equal to 20% of the next month's sales. Selling and administrative expenses
for this product line are $1,500 per month. Iron City is budgeted to produce 550 skillets in July.
Compute the total amount budgeted for product costs for July.
Review Only
Click the icon to see the Worked Solution.
A. $6,000
B. $6,500
C. $6,600
D. $7,200
ID: QC22-5 (book/static)
6.
Suppose Iron City manufactures cast iron skillets. One model is a 10-inch skillet that sells for $20. Iron City projects
sales of 500 10-inch skillets per month. The production costs are $9 per skillet for direct materials, $1 per skillet for direct
labor, and $2 per skillet for manufacturing overhead. Iron City has 50 10-inch skillets in inventory at the beginning of
July but wants to have an ending inventory equal to 20% of the next month's sales. Selling and administrative expenses
for this product line are $1,500 per month. Iron City is budgeted to produce 550 skillets in July with a $12 production cost
per skillet.
Compute the budgeted cost of goods sold for July.
Review Only
Click the icon to see the Worked Solution.
A. $6,000
B. $6,500
C. $6,600
D. $7,200
ID: QC22-6 (book/static)
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7.
Page 189 of 243
Suppose Iron City manufactures cast iron skillets. One model is a 10-inch skillet that sells for $20. Iron City projects
sales of 500 10-inch skillets per month. The production costs are $9 per skillet for direct materials, $1 per skillet for direct
labor, and $2 per skillet for manufacturing overhead. Iron City has 50 10-inch skillets in inventory at the beginning of
July but wants to have an ending inventory equal to 20% of the next month's sales. Selling and administrative expenses
for this product line are $1,500 per month. Iron City has budgeted cost of goods sold of $6,000 for July.
Compute the budgeted gross profit for July.
Review Only
Click the icon to see the Worked Solution.
A. $6,000
B. $5,000
C. $4,000
D. $3,000
ID: QC22-7 (book/static)
8.
The budgeted statement of cash flows is part of which element of the master budget?
A. The financial budget
B. The operating budget
C. The capital expenditures budget
D. None of the above
ID: QC22-8 (book/static)
9.
Which of the following expenses would not appear in the cash budget?
A. Depreciation expense
B. Marketing expense
C. Interest expense
D. Wages expense
ID: QC22-9 (book/static)
10.
Information technology has made it easier for managers to perform all of the following tasks except
A. preparing performance reports that identify variances between actual and budgeted revenues
and costs.
B. combining individual units' budgets into the companywide budget.
C. sensitivity analyses.
D. removing budgetary slack from the budget.
ID: QC22-10 (book/static)
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11.
Page 190 of 243
Class Printing Supply of Baltimore has applied for a loan. Its bank has requested a budgeted balance sheet at
April 30, 2016, and a budgeted statement of cash flows for April. The March 31, 2016 balance sheet follows:
69(Click the icon to view the balance sheet.)
As Class Printing Supply's controller, you have assembled the following additional information:
70(Click the icon to view the information.)
Read the requirements71.
Review Only
Clic th icon to se th Work d Solution.
Requir ment 1. Prepare the sales udget for April.
Class Printing Supply
Sales Budget
For th Month Ended April 30, 2016
Total udgeted sales
Requir ment 2. Prepare the inventory, purchases, and cost of oods sold ud et for April.
Class Printing Supply
Inventory, Purc as s, and Cost of Goods Sold Budg t
For th Mont Ended April 30, 2016
1)
Plus:
2)
Total merchandise inventory required
Less:
3)
Budgeted Purchases
Requir ment 3. Prepare the selling and administrative expense ud et for April.
Class Printing Supply
Selling and Administrative Expense Budg t
For th Mont End d April 30, 2016
Variabl
xp ns s:
4)
Fix d xp nses:
5)
6)
Total fixed expenses
Total selling and administrative expenses
Requir ment 4. Prepare the ud eted cash receipts from customers for April.
Class Printing Supply
Budgeted Cas Re
ipts from Customers
For th Mont End d April 30, 2016
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Review the cash ud et you prepared above.
Class Printing Supply
Budg ted Stat ment of Cas Flows
For th Mont End d April 30, 2016
Op rating Activities:
27)
28)
29)
Net cash provided y used y) operating activities
Inv sting Activities:
30)
31)
Net cash provided y used y) investing activities
Finan ing Activities:
32)
33)
Net cash provided y used y) financing activities
Net increase decrease) in cash
ash alance, April 1, 2016
ash alance, April 30, 2016
69: Data Table
Class Printing Supply
Balance Sheet
March 31, 2016
Assets
Current Assets:
Cash
$
50,900
Accounts Receivable
13,200
Merchandise Inventory
11,600
Total Current Assets
$
75,700
Property, Plant, and Equipment:
Equipment and Fixtures
Less: Accumulated Depreciation
Total Assets
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80,500
(12,500)
68,000
$
143,700
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Liabilities
Current Liabilities:
Accounts Payable
$
8,700
Stockholders' Equity
Common Stock, no par
$
Retained Earnings
36,000
99,000
135,000
Total Stockholders' Equity
Total Liabilities and Stockholders' Equity
$
143,700
70: More Info
a.
April dividends of $3,500 were declared and paid.
b.
April capital expenditures of $16,800 budgeted for cash purchase of equipment.
c.
April depreciation expense, $300.
d.
Cost of goods sold, 45% of sales.
e.
Desired ending inventory for April is $29,500.
f.
April selling and administrative expenses include salaries of $34,000, 25% of which will be paid in cash and the
remainder paid next month.
g.
Additional April selling and administrative expenses also include miscellaneous expenses of 10% of sales, all paid
in April.
h.
April budgeted sales, $88,000, 80% collected in April and 20% in May.
i.
April cash payments of March 31 liabilities incurred for March purchases of inventory, $8,700.
j.
April purchases of inventory, $20,200 for cash and $37,300 on account. Half the credit purchases will be paid in
April and half in May.
71: Requirements
1.
Prepare the sales budget for April.
2.
Prepare the inventory, purchases, and cost of goods sold budget for April.
3.
Prepare the selling and administrative expense budget for April.
4.
Prepare the schedule of cash receipts from customers for April.
5.
Prepare the schedule of cash payments for selling and administrative expenses for April.
6.
Prepare the cash budget for April. Assume the company does not use short-term financing to maintain a minimum
cash balance.
7.
Prepare the budgeted income statement for April.
8.
Prepare the budgeted balance sheet at April 30, 2016.
9.
Prepare the budgeted statement of cash flows for April.
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Systems is a start-up company that makes connectors for high-speed Internet connections. The company has
1. MajorNet
budgeted variable costs of $145 for each connector and fixed costs of $7,500 per month. MajorNet's static budget
predicted production and sales of 100 connectors in August, but the company actually produced and sold only
84 connectors at a total cost of $21,000.
MajorNet's total flexible budget cost for 84 connectors per month is
Review Only
Click the icon to see the Worked Solution.
A. $14,500.
B. $12,180.
C. $19,680.
D. $21,000.
ID: QC23-1 (book/static)
2.
MajorNet Systems is a start-up company that makes connectors for high-speed Internet connections. The company has
budgeted variable costs of $145 for each connector and fixed costs of $7,500 per month. MajorNet's static budget
predicted production and sales of 100 connectors in August, but the company actually produced and sold only
84 connectors at a total cost of $21,000.
MajorNet's sales volume variance for total costs is
Review Only
Click the icon to see the Worked Solution.
A. $1,320 U.
B. $1,320 F.
C. $2,320 U.
D. $2,320 F.
ID: QC23-2 (book/static)
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Systems is a start-up company that makes connectors for high-speed Internet connections. The company has
3. MajorNet
budgeted variable costs of $145 for each connector and fixed costs of $7,500 per month. MajorNet's static budget
predicted production and sales of 100 connectors in August, but the company actually produced and sold only
84 connectors at a total cost of $21,000.
MajorNet's flexible budget variance for total costs is
Review Only
Click the icon to see the Worked Solution.
A. $1,320 U.
B. $1,320 F.
C. $2,320 U.
D. $2,320 F.
ID: QC23-3 (book/static)
4.
MajorNet Systems is a start-up company that makes connectors for high-speed Internet connections. The company has
budgeted variable costs of $145 for each connector and fixed costs of $7,500 per month. MajorNet's static budget
predicted production and sales of 100 connectors in August, but the company actually produced and sold only 84
connectors at a total cost of $21,000.
MajorNet Systems's managers could set direct labor standards based on
A. time-and-motion studies.
B. continuous improvement.
C. benchmarking.
D. All of the above.
ID: QC23-4 (book/static)
5.
MajorNet Systems is a start-up company that makes connectors for high-speed Internet connections. MajorNet Systems
has budgeted three hours of direct labor per connector, at a standard cost of $17 per hour. During August, technicians
actually worked 189 hours completing 84 connectors. All 84 connectors actually produced were sold. MajorNet paid the
technicians $17.80 per hour.
What is MajorNet's direct labor cost variance for August?
Review Only
Click the icon to see the Worked Solution.
A. $67.20 U
B. $151.20 U
C. $201.60 U
D. $919.80 U
ID: QC23-5 (book/static)
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6.
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MajorNet Systems is a start-up company that makes connectors for high-speed Internet connections. MajorNet has
budgeted three hours of direct labor per connector, at a standard cost of $17 per hour. During August, technicians
actually worked 189 hours completing 84 connectors. All 84 connectors actually produced were sold. MajorNet paid the
technicians $17.80 per hour.
What is MajorNet's direct labor efficiency variance for Au ust?
Review Only
Click the icon to see the Worked Solution.
A. $919.80 F
B. $1,071.00 F
C. $1,121.40 F
D. $3,364.20 F
ID: QC23-6 (book/static)
7.
FrontGrade Systems allocates manufacturing overhead based on machine hours. Each connector should require
11 machine hours. According to the static budget, FrontGrade expected to incur the following:
1,100 machine hours per month (100 connectors x 11 machine hours per connector)
$5,500 in variable manufacturing overhead costs
$8,250 in fixed manufacturing overhead costs
During August, FrontGrade actually used 1,000 machine hours to make 110 connectors and spent $5,600 in variable
manufacturing costs and $8,300 in fixed manufacturing overhead costs. FrontGrade's standard variable manufacturing
overhead allocation rate is
Review Only
Click the icon to see the Worked Out Solution.
A. $5.00 per machine hour.
B. $5.50 per machine hour.
C. $7.50 per machine hour.
D. $12.50 per machine hour.
ID: QC23-7 (book/static)
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8.
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FrontGrade Systems allocates manufacturing overhead based on machine hours. Each connector should require
11 machine hours. According to the static budget, FrontGrade expected to incur the following:
1,100 machine hours per month (100 connectors x 11 machine hours per connector)
$5,500 in variable manufacturing overhead costs
$8,250 in fixed manufacturing overhead costs
During August, FrontGrade actually used 1,000 machine hours to make 110 connectors and spent $5,600 in variable
manufacturing costs and $8,300 in fixed manufacturing overhead costs. Calculate the variable overhead cost variance
for FrontGrade.
Review Only
Click the icon to see the Worked Solution.
A. $450 F
B. $600 U
C. $1,050 F
D. $1,650 F
ID: QC23-8 (book/static)
9.
FrontGrade Systems allocates manufacturing overhead based on machine hours. Each connector should require
11 machine hours. According to the static budget, FrontGrade expected to incur the following:
1,100 machine hours per month (100 connectors x 11 machine hours per connector)
$5,500 in variable manufacturing overhead costs
$8,250 in fixed manufacturing overhead costs
During August, FrontGrade actually used 1,000 machine hours to make 110 connectors and spent $5,600 in variable
manufacturing costs and $8,300 in fixed manufacturing overhead costs. Calculate the variable overhead efficiency
variance for FrontGrade.
Review Only
Click the icon to see the Worked Solution.
A. $450 F
B. $600 U
C. $1,050 F
D. $1,650 F
ID: QC23-9 (book/static)
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10.
Page 204 of 243
The person probably most responsible for the direct labor efficiency variance is
A. the marketing manager.
B. the production manager.
C. the human resources manager.
D. the purchasing manager.
ID: QC23-10 (book/static)
11.
MajorNet Systems's static budget predicted production of and sales of 100 connectors in August, but the company
actually produced and sold only 84 connectors. Direct materials were budgeted at $95 per connector. The company
purchased and used direct materials that cost $8,148. What is the journal entry for the direct materials used?
Review Only
Click the icon to see the Worked Solution.
Date
A.
Accounts and Explanation
Debit
Raw Materials Inventory
Direct Materials Cost Variance
Credit
7,980
168
Accounts Payable
B.
Raw Materials Inventory
Direct Materials Efficiency Variance
8,148
7,980
168
Accounts Payable
C.
Work-in-Process Inventory
Direct Materials Cost Variance
8,148
7,980
168
Raw Materials Inventory
D.
Work-in-Process Inventory
Direct Materials Efficiency Variance
Raw Materials Inventory
8,148
7,980
168
8,148
ID: QC23-11 (book/static)
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12.
Page 205 of 243
ErgoPlus sells its main product, ergonomic mouse pads, for $12 each. Its variable cost is $5.70 per pad. Fixed costs are
$225,000 per month for volumes up to 65,000 pads. Above 65,000 pads, monthly fixed costs are $255,000. Prepare a
monthly flexible budget for the product, showing sales revenue, variable costs, fixed costs, and operating income for
volume levels of 45,000, 55,000, and 80,000 pads.
Review Only
Click the icon to see the Worked Solution.
ErgoPlus
Flexible Budg t
Budget
Amounts
Per Unit
Units
45,000
55,000
80,000
1)
2)
3)
4)
5)
1)
ontribution Margin
Fixed osts
Operatin Income
3)
ontribution Margin
Fixed osts
Operatin Income
5)
ontribution Margin
Fixed osts
Operatin Income
Sales Revenue
Varia le osts
2)
Sales Revenue
Varia le osts
4)
ontribution Mar in
Fixed osts
Operating Income
ontribution Mar in
Fixed osts
Operating Income
Sales Revenue
Variable osts
Sales Revenue
Variable osts
Sales Revenue
Varia le osts
ID: E23-15 similar to)
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1.
B. Double taxation
2.
D. paid-in capital and retained earnings.
3.
C.
Cash
1,600,000
Common Stock—$0.10 Par Value
Paid-In Capital in Excess of Par-Common
4.
C. its market value.
5.
D. treasury stock.
6.
C. decreased total equity by $6,600.
7.
C. $46,800
8.
B. has no effect on total equity.
9.
D. $34,000
10.
C. 12%
11.
Date
May 19
Accounts
Cash
40,000
1,560,000
Debit
22,800
Common Stock—$2 Par Value
3,800
Paid-In Capital in Excess of Par—Common
Date
Jun. 3
Accounts
Cash
19,000
Debit
Jun. 11
Credit
13,000
Preferred Stock—No Par Value
Date
Credit
Accounts
Equipment
13,000
Debit
Credit
75,000
Common Stock—$2 Par Value
18,000
Paid-In Capital in Excess of Par—Common
57,000
110,800
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12.
Page 207 of 243
Date
a.
Accounts and Explanation
Debit
Cash
Credit
98,000
Common Stock—No Par Value
98,000
Issued no-par stock.
Date
b.
Accounts and Explanation
Debit
Cash
Credit
98,000
Common Stock—$1 Stated Value
7,000
Paid-In Capital in Excess of Stated Value—Common
91,000
Issued $1 stated value common stock.
(11) Both result in the same amount of paid-in capital.
13.
Total Dividend—2016
$
14,560
Dividend to preferred stockholders:
Dividend in arrears
$
0
16,560
Current year dividend
(14,560)
Total dividend to preferred stockholders
Dividend to common stockholders
$
0
Total Dividend—2017
$
53,000
Dividend to preferred stockholders:
Dividend in arrears
$
2,000
16,560
Current year dividend
(18,560)
Total dividend to preferred stockholders
$
Dividend to common stockholders
Date
Dec. 1
Accounts and Explanation
Cash Dividends
34,440
Debit
Credit
14,560
Dividends Payable—Preferred
14,560
Declared a cash dividend.
Date
Dec. 10
Accounts and Explanation
Debit
Credit
No entry required
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Date
Dec. 20
Accounts and Explanation
Dividends Payable—Preferred
Debit
Credit
14,560
Cash
14,560
Payment of cash dividend.
14.
Date
Oct. 2
Accounts and Explanation
Building
Debit
Credit
140,000
Common Stock—$3 Par Value
69,000
Paid-In Capital in Excess of Par—Common
71,000
Issued common stock for building.
Date
Oct. 6
Accounts and Explanation
Cash
Debit
Credit
104,000
Preferred Stock—$100 Par Value
80,000
Paid-In Capital in Excess of Par—Preferred
24,000
Issued preferred stock for cash.
Date
Oct. 9
Accounts and Explanation
Cash
Debit
Credit
84,000
Common Stock—$3 Par Value
42,000
Paid-In Capital in Excess of Par—Common
42,000
Issued common stock for cash.
Date
Oct. 10
Accounts and Explanation
Cash Dividends
Debit
Credit
18,000
Dividends Payable—Preferred
5,600
Dividends Payable—Common
12,400
Declared cash dividend.
Date
Oct. 25
Accounts and Explanation
Debit
Dividends Payable—Preferred
5,600
Dividends Payable—Common
12,400
Cash
Credit
18,000
Paid cash dividend.
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Stockholders' Equity
Paid-In Capital:
Preferred Stock—7%, $100 Par Value;
120,000 shares authorized,
800 shares issued and outstanding
$
Paid-In Capital in Excess of Par—Preferred
80,000
24,000
Common Stock—$3 Par Value;
100,000 shares authorized,
37,000 shares issued and outstanding
111,000
Paid-In Capital in Excess of Par—Common
113,000
Total Paid-In Capital
328,000
76,000
Retained Earnings
$
Total Stockholders' Equity
15.
Date
Jan. 16
Accounts and Explanation
Cash Dividends
Debit
404,000
Credit
32,550
Dividends Payable—Preferred
6,300
Dividends Payable—Common
26,250
Declared a cash dividend.
Date
Feb. 15
Accounts and Explanation
Debit
Dividends Payable—Preferred
6,300
Dividends Payable—Common
26,250
Cash
Credit
32,550
Paid cash dividend.
Date
Jun. 10
Debit
Credit
Accounts and Explanation
Debit
Credit
No entry required
Date
Jul. 30
Accounts and Explanation
Stock Dividends
Common Stock Dividend Distributable
168,000
168,000
Declared a 40% stock dividend.
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Date
Aug. 15
Accounts and Explanation
Common Stock Dividend Distributable
Debit
Credit
168,000
Common Stock—$2 Par Value
168,000
Issued 40% stock dividend.
Date
Oct. 26
Accounts and Explanation
Treasury Stock—Common
Debit
Credit
59,400
Cash
59,400
Purchased treasury stock.
Date
Nov. 8
Accounts and Explanation
Cash
Debit
Credit
35,100
Treasury Stock—Common
29,700
Paid-In Capital from Treasury Stock Transactions
5,400
Sold treasury stock above cost.
Date
Nov. 30
Accounts and Explanation
Cash
Debit
Credit
11,200
Paid-In Capital from Treasury Stock Transactions
5,400
Retained Earnings
1,000
Treasury Stock—Common
17,600
Sold treasury stock below cost.
Starborn Manufacturing, Co.
Balance Sheet (Partial)
December 31, 2016
Stockholders' Equity
Paid-In Capital:
Preferred Stock—6%, $105 Par Value;
1,100 shares authorized,
1,000 shares issued and outstanding
Common Stock—$2 Par Value;
294,000 shares issued
$
400,000 shares authorized,
588,000
292,900 shares outstanding
Total Paid-In Capital
693,000
Retained Earnings
Treasury Stock—Common;
105,000
2,040,000
(12,100)
1,100 shares at cost
Total Stockholders' Equity
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$
2,720,900
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16.
(
Net income
( $
-
8,800
Preferred dividends
-
$
Market price per share
$
(
( $
3
Net income
8,800
6,300
/
/
-
/
Ave. # common shrs OS
)
/
25,000
Earnings per share
$
0.10
Preferred dividends
- $
)
6,300
) /
) / $
17.
D. All of the above
18.
D. operating, investing, and financing.
19.
B. current assets and current liabilities.
20.
A. Collections from customers
21.
D. $74,000
22.
C. Investing cash flows—cash receipt of $31,000
23.
C. Non-cash investing and financing activities, $28,000
24.
C. $77,000
25.
D. $82,000
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= $
=
Price/earnings ratio
=
30.00
Ave. common SE
113,250
= Earnings per share
0.10
= Rate of return on common SE
=
2
%
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26.
Carlson, Inc.
Statement of Cash Flows
Year Ended December 31, 2016
Cash Flows from Operating Activities:
Net Income
$
71,500
Adjustments to Reconcile Net Income to Net Cash
Provided by (Used for) Operating Activities:
Depreciation Expense
Gain on Sale of Building
Decrease in Accounts Receivable
Increase in Merchandise Inventory
Increase in Accounts Payable
Decrease in Income Tax Payable
$
24,000
(6,000)
5,400
(3,000)
1,900
(2,300)
20,000
Net Cash Provided by (Used for) Operating Activities
91,500
Cash Flows from Investing Activities:
Cash Payment for Acquisition of Equipment
Cash Receipt from Sale of Building
(76,000)
63,000
Net Cash Provided by (Used for) Investing Activities
(13,000)
Cash Flows from Financing Activities:
Cash Receipt from Issuance of Common Stock
40,000
Cash Receipt from Issuance of Notes Payable
66,000
Cash Payment of Dividends
(48,000)
Cash Payment of Notes Payable
(51,100)
6,900
Net Cash Provided by (Used for) Financing Activities
Net Increase (Decrease) in Cash
85,400
Cash Balance, December 31, 2015
19,000
Cash Balance, December 31, 2016
$
104,400
$
120,000
$
120,000
Non-cash Investing and Financing Activities:
Acquisition of Land by Issuing Long-term Notes Payable
Total Non-cash Investing and Financing Activities
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27.
American Reserve Rare Coins
Income Statement
Year Ended December 31, 2016
Revenue:
Sales Revenue
$
900,000
Expenses:
Cost of Goods Sold
$
Salaries and Wages Expense
260,000
97,000
Depreciation Expense
9,000
Rent Expense
14,000
Income Tax Expense
24,000
404,000
Total Expenses
$
Net Income
496,000
American Reserve Rare Coins
Balance Sheet
December 31, 2016
Liabilities
Assets
Current Assets:
Current Liabilities:
Cash
$
624,000
Accounts Payable
Accounts Receivable
135,000
Salaries Payable
Merchandise Inventory
328,000
Total Current Liabilities
Total Current Assets
$
80,000
7,000
87,000
1,087,000
Stockholders' Equity
Plant Assets:
Store Fixtures
Less: Accumulated Depreciation
Total Assets
$
45,000
(9,000)
36,000
$
Common Stock, no par
575,000
Retained Earnings
461,000
1,123,000 Total Liabilities and Stockholders' Equity
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1,036,000
Total Stockholders' Equity
$
1,123,000
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American Reserve Rare Coins
Statement of Cash Flows
Year Ended December 31, 2016
Cash Flows from Operating Activities:
Receipts:
Collections from Customers
$
765,000
Total Cash Receipts
$
765,000
Payments:
To Suppliers
(522,000)
To Employees
(90,000)
For Income Tax
(24,000)
(636,000)
Total Cash Payments
Net Cash Provided by (Used for) Operating Activities
129,000
Cash Flows from Investing Activities:
Cash Payment for Acquisition of Store Fixtures
(45,000)
Net Cash Provided by (Used for) Investing Activities
(45,000)
Cash Flows from Financing Activities:
Cash Receipt from Issuance of Common Stock
575,000
Cash Payment of Dividends
(35,000)
Net Cash Provided by (Used for) Financing Activities
540,000
Net Increase (Decrease) in Cash
624,000
0
Cash Balance, December 31, 2015
Cash Balance, December 31, 2016
$
624,000
28.
B. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)
29.
B. a 17% increase in Cash and Cash Equivalents.
30.
A. Cash as 9.50% of total assets.
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31.
C. Less than 1
32.
A. 6 times.
33.
B. 30 days.
34.
D. 32 times
35.
C. strong.
36.
A. $1.62
37.
D. unusual and infrequent.
Page 215 of 243
38.
Harlan Designs, Inc.
Comparative Income Statement
Years Ended December 31, 2016 and 2015
Increase (Decrease)
2016
Net Sales Revenue
$
2015
Amount
Percentage
428,950 $
374,650 $
54,300
14.5 %
202,650
185,000
17,650
9.5 %
98,000
94,000
4,000
4.3 %
Other Expenses
5,000
3,250
1,750
53.8 %
Total Expenses
305,650
282,250
23,400
8.3 %
30,900
33.4 %
Expenses:
Cost of Goods Sold
Selling and Administrative Expenses
Net Income
$
123,300 $
92,400 $
(1) revenues increased at a higher rate than total expenses
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39.
2016
Percent of Total
Assets
Total Current Assets
$
32,250
12.9 %
180,750
72.3 %
37,000
14.8 %
$
250,000
100.0 %
$
30,500
12.2 %
Long-term Debt
80,750
32.3 %
Total Liabilities
111,250
44.5 %
138,750
55.5 %
250,000
100.0 %
Property, Plant, and Equipment, Net
Other Assets
Total Assets
Liabilities
Total Current Liabilities
Stockholders' Equity
Total Stockholders' Equity
Total Liabilities and Stockholders' Equity
2015
$
40.
Percent of Total
73,440
24.0 %
168,300
55.0 %
64,260
21.0 %
$
306,000
100.0 %
$
49,266
16.1 %
208,998
68.3 %
258,264
84.4 %
47,736
15.6 %
306,000
100.0 %
$
$
(1) Total current assets / Total current liabilities
1.19
(2) (Cash + Cash equivalents) / Total current liabilities
0.13
(3) (Cash + Short-term investments + Net current receivables) / Total current liabilities
0.59
(4) Cost of goods sold / Average merchandise inventory
4.47
(5) 365 days / Inventory turnover
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82
(6) 365 days / Accounts receivable turnover ratio
54
(7) Gross profit / Net sales revenue
32.7
41.
Profit margin ratio
= Net income / Net sales
11.5
3.9
Rate of return on total assets
= (Net income + Interest expense) / Average total assets
15
8.8
Asset turnover ratio
= Net sales / Average total assets
0.92
0.85
Rate of return on common
stockholders' equity
= (Net income - Preferred dividends) / Average common stockholders' equity
19.6
3
Earnings per share
= (Net income - Preferred dividends) / Weighted average number of common shares outstanding
0.58
0.13
Dividend payout
= Annual dividend per share / Earnings per share
43
(7) improved
42.
2017
Net Sales Revenue
Trend Percentages
$
2016
762,000
$
116 %
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2015
704,000
107 %
$
2014
641,000
98 %
$
657,000
100 %
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Net Income
$
Trend Percentages
58,000
$
37,000
129 %
Ending Common Stockholders' Equity
$
Trend Percentages
360,000
$
33,000
82 %
$
73 %
344,000
118 %
$
$
326,000
113 %
100 %
$
107 %
45,000
304,000
100 %
Rate of return on common
(
Net income
-
Preferred dividends
)/
Avg. common SE
=
stockholders' equity
2015
(
$
33,000
-
$
0
)/ $
315,000
=
10.5 %
2016
(
$
37,000
-
$
0
)/ $
335,000
=
11 %
2017
(
$
58,000
-
$
0
)/ $
352,000
=
16.5 %
43.
A. Emphasizes the external financial statements
44.
B. Enterprise resource planning
45.
D. Items a, b, and c are correct.
46.
D. integrity.
47.
C. Cost of Goods Sold
48.
D. $175,000
49.
C. Cost of boat engine
50.
C. Depreciation on delivery trucks
51.
B. $103,000
52.
B. $153,000
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53.
The Windshield People
Income Statement
Month Ended February 28, 2016
Revenues:
Sales Revenue
$
22,000
Expenses:
Salaries and Wages Expense
$
Materials Expense
13,000
4,200
Utilities Expense
330
Depreciation Expense—Building and Equipment
1,300
Supplies Expense
400
Depreciation Expense—Truck
350
19,580
Total Expenses
$
Net Income (Loss)
Cost per windshield =
$
2,420
65.27
(8) Yes
54.
Chet's Pets
Income Statement
Year Ended December 31, 2016
Revenue:
Sales Revenue
$
53,000
Cost of Goods Sold:
Beginning Merchandise Inventory
$
15,300
Purchases of Merchandise Inventory
23,000
Cost of Goods Available for Sale
38,300
Ending Merchandise Inventory
(10,250)
Cost of Goods Sold
28,050
Gross Profit
24,950
Selling and Administrative Expenses:
Utilities Expense
3,800
Rent Expense
4,500
Sales Commissions Expense
2,350
10,650
Total Selling and Administrative Expenses
$
Operating Income (Loss)
Cost per unit =
$
14,300
8.01
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55.
Organic Bones
Schedule of Cost of Goods Manufactured
Year Ended December 31, 2016
Beginning Work-in-Process Inventory
$
0
Direct Materials Used:
Beginning Raw Materials Inventory
$
13,800
Purchases of Raw Materials
36,000
Raw Materials Available for Use
49,800
Ending Raw Materials Inventory
(7,500)
Direct Materials Used
$
Direct Labor
42,300
15,000
Manufacturing Overhead:
Rent on Plant
11,000
Utilities for Plant
2,000
900
Plant Janitorial Services
13,900
Total Manufacturing Overhead
Total Manufacturing Costs Incurred during the Year
71,200
Total Manufacturing Costs to Account For
71,200
Ending Work-in-Process Inventory
(1,100)
$
Cost of Goods Manufactured
70,100
Organic Bones
Income Statement
Year Ended December 31, 2016
Revenue:
Sales Revenue
$
108,000
Cost of Goods Sold:
Beginning Finished Goods Inventory
$
0
Cost of Goods Manufactured
70,100
Cost of Goods Available for Sale
70,100
Ending Finished Goods Inventory
(6,000)
Cost of Goods Sold
64,100
Gross Profit
43,900
Selling and Administrative Expenses:
Customer Service Hotline Expense
1,200
Delivery Expense
1,600
Sales Salaries Expense
5,100
7,900
Total Selling and Administrative Expenses
Operating Income
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$
36,000
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(19) cost of goods manufactured.
(20) merchandise purchases.
Cost per unit =
$
4.03
56.
D. Advertising agency—job order costing; Cell phone manufacturer—process costing
57.
B. Work-in-Process Inventory.
58.
D. Manufacturing Overhead.
59.
A. Work-in-Process Inventory.
60.
C. $7.75/machine hour
61.
D. $83,000
62.
B. $124,000
63.
C.
Manufacturing Overhead
41,000
Cost of Goods Sold
41,000
64.
C. Finished Goods Inventory; debit
65.
B. To determine the fees to charge clients
66.
Predetermined overhead
Estimated overhead cost
$
140,000
/
/
Estimated direct labor cost
$
Date
Dec. 31
87,500
Accounts
Work-in-Process Inventory
Manufacturing Overhead
=
allocation rate
=
160
Debit
%
Credit
115,200
115,200
Manufacturing Overhead
116,000
115,200
(7) underallocated
800
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Date
Dec. 31
Accounts
Debit
Cost of Goods Sold
Credit
800
Manufacturing Overhead
800
67.
Predetermined overhead
Estimated overhead cost
$
1,300,000
/
/
Estimated direct labor cost
$
Date
a.
3,250,000
Accounts
Raw Materials Inventory
=
allocation rate
=
40
Debit
b.
500,000
Accounts
Work-in-Process Inventory
Debit
c.
Accounts
Work-in-Process Inventory
267,000
Debit
4,000
Wages Payable
d.
200,000
Accounts
Construction Overhead
Debit
e.
Accounts
Construction Overhead
6,900
Debit
32,000
Prepaid Insurance
f.
Credit
39,000
Cash
Date
Credit
6,900
Accumulated Depreciation–Equipment
Date
Credit
196,000
Construction Overhead
Date
Credit
267,000
Raw Materials Inventory
Date
Credit
500,000
Accounts Payable
Date
%
7,000
Accounts
Work-in-Process Inventory
Construction Overhead
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Debit
Credit
78,400
78,400
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Date
g.
Accounts
Debit
Finished Goods Inventory
259,400
Work-in-Process Inventory
Date
h.
259,400
Accounts
Debit
Accounts Receivable
260,000
Date
Accounts
Debit
Cost of Goods Sold
142,200
Work-in-Process Inventory
267,000
(c)
196,000
(f)
78,400
Bal.
282,000
259,400
Credit
142,200
Finished Goods Inventory
(b)
Credit
260,000
Sales Revenue
h.
Credit
Finished Goods Inventory
(g)
(g)
259,400
Bal.
117,200
142,200
(h)
Sturdy Construction, Inc.
Reconciliation of Work-in-Process Inventory Subsidiary
and Control Accounts
House # 403
House # 405
Total WIP Balance
Unfinished houses:
Direct Materials
$
69,000 $
80,000
Direct Labor
38,000
57,000
Construction Overhead
15,200
22,800
122,200 $
159,800 $
Total cost equals Ending WIP Inventory
$
282,000
Sturdy Construction, Inc.
Reconciliation of Finished Goods Inventory Subsidiary
and Control Accounts
House #402
Completed, unsold house:
Direct Materials
$
57,000
Direct Labor
43,000
Construction Overhead
17,200
Total cost equals Ending Finished Goods Inventory
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$
117,200
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Sturdy Construction, Inc.
Gross profit on Homes Sold In August
House #404
Sales Revenue
$
260,000
142,200
Cost of Goods Sold
$
Gross profit
117,800
Administration
Customer service
Design
Distribution
Income taxes
Marketing
Research and development
68.
Predetermined overhead
Estimated overhead cost
$
224,000
/
Estimated machine hours
=
/
25,000
=
allocation rate
$
8.96
per machine hour
Debit
Credit
Manufacturing Overhead
28,500
292,992
50,000
40,000
94,850
83,000
3,358
Date
Dec. 31
Accounts
Cost of Goods Sold
3,358
Manufacturing Overhead
3,358
(7) not known until the end of the period
(8) throughout the period
(9) today
69.
Estimated direct labor costs
$
2,000,000
Estimated OH costs
$
400,000
/
/ $
/
Estimated direct labor hours
=
/
8,000
=
Estimated direct labor costs
2,000,000
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=
=
Direct labor rate
$ 250
per hour
Predetermined OH cost allocation rate
20
%
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Skylark Design, Inc.
Estimated Cost of Tasty Coop and Root Chocolates Jobs
Root
Tasty Coop
Chocolates
Direct Costs:
Direct labor
900 hrs. x
$
250 $
400 hrs. x
$
250
225,000
$
Software licensing costs
100,000
4,500
500
Travel costs
10,000
0
Total Direct Costs
239,500
100,500
Allocated Indirect Costs:
20 % x
$
225,000
20 % x
$
100,000
Total Costs
45,000
20,000
$
284,500 $
120,500
569,000
241,000
(8) set fees
(9) individual clients
70.
C. Accounting firm
71.
A. Types of product costs
72.
B. direct labor plus manufacturing overhead.
73.
D. 1,550 units
74.
B. 1,580 units
75.
A. $2.00
76.
D. $3,100
77.
C.
Work-in-Process Inventory - Mixing
875
Raw Materials Inventory
225
Wages Payable
150
Manufacturing Overhead
500
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78.
B.
Page 226 of 243
Work-in-Process Inventory-Dept. 2
750
Work-in-Process Inventory-Dept. 1
750
79.
C. evaluate performance.
80.
A. FIFO method assumes the first costs incurred are transferred out.
81.
Work-in-Process Inventory—Cutting
Balance, May 1
0
Direct Materials
49,000
Direct Labor
83,000 Transfer out to
WIP—Finishing
6,000
Manufacturing Overhead
29,000
Balance, May 31
1,000
Work-in-Process Inventory—Finishing
Balance, May 1
Transfer in from
10,000
WIP—Cutting
80,000 Transfer out to
WIP—Packaging
83,000
Direct Materials
21,000
Direct Labor
12,000
Manufacturing Overhead
15,000
Balance, May 31
61,000
Work-in-Process Inventory—Packaging
9,000
Balance, May 1
Transfer in from
WIP—Finishing
110,000 Transfer out to
FG Inventory
80,000
10,000
Direct Materials
Direct Labor
6,000
Manufacturing Overhead
Balance, May 31
10,000
5,000
Finished Goods Inventory
Balance, May 1
Transfer in from
0
WIP—Packaging
Balance, May 31
104,000 Transfer out to
COGS
110,000
6,000
Cost of Goods Sold
Balance, May 1
Transfer in from
Balance, May 31
0
FG Inventory
104,000
104,000
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82.
Williams Company
Production Cost Report - Assembly Department (Partial)
Month Ended August 31
Equivalent Units
UNITS
Whole
Transferred
Direct
Conversion
Units
In
Materials
Costs
Units accounted for:
Completed and transferred out
2,400
n/a
2,400
2,400
800
n/a
800
80
3,200
n/a
3,200
2,480
Ending work-in-process
Total units accounted for
Williams Company
Production Cost Report - Assembly Department (Partial)
Month Ended August 31
Equivalent Units
UNITS
Whole
Transferred
Direct
Conversion
Units
In
Materials
Costs
Units accounted for:
Completed and transferred out
2,400
n/a
2,400
2,400
800
n/a
800
720
3,200
n/a
3,200
3,120
Ending work-in-process
Total units accounted for
Williams Company
Production Cost Report - Assembly Department (Partial)
Month Ended August 31
Equivalent Units
UNITS
Whole
Transferred
Direct
Conversion
Units
In
Materials
Costs
Units accounted for:
Completed and transferred out
2,400
n/a
2,400
2,400
800
n/a
0
80
3,200
n/a
2,400
2,480
Ending work-in-process
Total units accounted for
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Williams Company
Production Cost Report - Assembly Department (Partial)
Month Ended August 31
Equivalent Units
UNITS
Whole
Transferred
Direct
Conversion
Units
In
Materials
Costs
Units accounted for:
Completed and transferred out
2,400
n/a
2,400
2,400
800
n/a
800
720
3,200
n/a
3,200
3,120
Ending work-in-process
Total units accounted for
83.
Date
Accounts
Raw Materials Inventory
Debit
Credit
50,000
Accounts Payable
Date
Accounts
50,000
Debit
Credit
Work-in-Process Inventory—Mixing
21,000
Work-in-Process Inventory—Packaging
12,000
Manufacturing Overhead
900
Raw Materials Inventory
Date
Accounts
Work-in-Process Inventory—Mixing
33,900
Debit
12,000
Work-in-Process Inventory—Packaging
3,500
Manufacturing Overhead
2,200
Wages Payable
Date
Accounts
Manufacturing Overhead
84.
Date
Nov. 30
Credit
17,700
Debit
Credit
9,090
Accumulated Depreciation
5,500
Cash
3,590
Accounts
Work-in-Process Inventory—Stamping
Work-in-Process Inventory—Cutting
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Debit
Credit
18,000
18,000
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Date
Nov. 30
Accounts
Work-in-Process Inventory—Polishing
Debit
21,000
Work-in-Process Inventory—Stamping
Date
Nov. 30
Accounts
Finished Goods Inventory
21,000
Debit
Nov. 30
Accounts
Accounts Receivable
38,000
Debit
Nov. 30
100,000
Accounts
Cost of Goods Sold
Finished Goods Inventory
85.
Credit
100,000
Sales
Date
Credit
38,000
Work-in-Process Inventory—Polishing
Date
Credit
Debit
Credit
30,000
30,000
60
35
60
85
60
15
20
65
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Roger's Frozen Pizzas
Production Cost Report - Mixing Department (Partial)
Month Ended April 30
Equivalent Units
UNITS
Whole
Transferred
Direct
Conversion
Units
In
Materials
Costs
Units to account for:
Beginning work-in-process
23,000
Started in production
85,000
Total units to account for
108,000
Units accounted for:
Beginning work-in-process
23,000
0
13,800
8,050
Started and completed
50,000
0
50,000
50,000
73,000
0
63,800
58,050
35,000
0
21,000
29,750
108,000
0
84,800
87,800
Transferred to Cooking Department
Ending work-in-process
Total units accounted for
Roger's Frozen Pizzas
Production Cost Report - Cooking Department (Partial)
Month Ended April 30
Equivalent Units
UNITS
Whole
Transferred
Direct
Conversion
Units
In
Materials
Costs
Units to account for:
Beginning work-in-process
7,000
73,000
Transferred in
80,000
Total units to account for
Units accounted for:
Beginning work-in-process
7,000
0
4,200
1,050
Started and completed
55,000
55,000
55,000
55,000
Transferred to Finished Goods
62,000
55,000
59,200
56,050
Ending work-in-process
18,000
18,000
3,600
11,700
80,000
73,000
62,800
67,750
Total units accounted for
86.
D. The predetermined overhead allocation rate is based on actual costs.
87.
C.
$0.03 per part
$1.10 per cubic foot
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$
3.75 $
11.00
88.
A.
89.
A. $4.50
90.
D. Items a, b, and c are all correct.
91.
A. ABC helps the company make more informed decisions about services.
92.
C. Ability to continue production despite disruptions in deliveries of raw materials
93.
C. Work-in-Process Inventory
94.
D. External failure cost
95.
C. Appraisal cost
96.
Estimated overhead costs
$
624,000
/
Estimated qty of the allocation base
/
520,000
Predetermined OH allocation rate
= Predetermined OH allocation rate
= $
1.20
x Actual qty of the allocation base used = Allocated OH costs
Basic model
1.2
x
270,000
= $
324,000
Professional model
1.2
x
250,000
= $
300,000
97.
Predetermined OH
Estimated overhead costs
/
Estimated qty of the allocation base
=
allocation rate
Assembly
$
460,000
/
287,500
= $
1.60
Packaging
$
164,000
/
410,000
= $
0.40
Predetermined OH allocation rate
x
Actual qty of the allocation base used =
Allocated mfg. overhead costs
Basic Model
Manufacturing overhead—Assembly
$
248,800
32,000
Manufacturing overhead—Packaging
Total manufacturing overhead cost
$
280,800
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Professional Model
$
211,200
132,000
$
343,200
98.
Predetermined OH
Estimated overhead costs
/
Estimated qty of the allocation base
=
allocation rate
Materials handling $
3,000
/
4,000
= $
0.75
Machine setup
$
3,600
/
10
= $
360.00
Insertion of parts
$
60,000
/
4,000
= $
15.00
Finishing
$
90,000
/
1,000
= $
90.00
Predetermined OH allocation rate
x Expected qty of the allocation base used =
Allocated mfg. overhead costs
Allocated Mfg. OH Cost
Materials handling
$
3,000
Machine setup
3,600
Insertion of parts
60,000
Finishing
90,000
Total mfg. OH costs
$
156,600
500
Number of bumpers
Mfg. OH cost per bumper
99.
Activity
$
313.20
Allocation Base
Start station
Number of raw component chasiss
Dip insertion
Number of dip insertions
Manual insertion
Costs Allocated to Each Unit
1.30 = $
1.30
28 x
0.30 =
8.40
Number of manual insertions
8 x
0.40 =
3.20
Wave solder
Number of components soldered
1 x
1.60 =
1.60
Backload
Number of backload insertions
3 x
0.50 =
1.50
Test
Number of testing hours
0.39 x
90.00 =
35.10
Defect analysis
Number of defect analysis hours
0.14 x
60.00 =
8.40
Total activity-based costs
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1 x $
$
59.50
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Direct materials cost
$
80.00
Direct labor cost
25.00
Activity-based costs allocated
59.50
$
Total manufacturing product cost
164.50
(1) activities
(2) product costing
100.
Direct materials (plants)
$
Direct labor
Overhead:
2,500
1,500
Designing
Planting
$
290
1,000
1,290
Total overhead allocated
Total cost of Brendan job
$
5,290
900
7,935
101.
B. fixed cost.
102.
A. $613,000
103.
C. $30 per passenger; 40%
104.
D. $525,000
105.
D. 3,000 passengers
106.
B. decrease.
107.
C. remain the same.
108.
B. $0
109.
D. 1,500; 750; 750
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110.
Variable Cost
Variable cost per unit
Direct materials
at 40 Units
$
40 $
1,600
65
2,600
Variable overhead
7
280
Sales commission
9
360
Direct labor
Total variable cost
$
4,840
Variable Cost
at 80 Units
$
3,200
5,200
560
720
$
9,680
Variable Cost
at 160 Units
$
6,400
10,400
1,120
1,440
$
19,360
111.
Beach
Sales Revenue
$
924,000
Variable Costs
462,000
Fixed Costs
450,000
Operating Income (Loss)
$
Units Sold
12,000
140,000
Contribution Margin per Unit
Contribution Margin Ratio
$
3.30
50 %
Lake
$
380,625
76,125
168,000
$
136,500
10,500
$
29.00
80 %
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Mountain
$
625,000
437,500
156,000
$
31,500
2,500
$
75.00
30 %
Valley
$
264,000
211,200
8,200
$
44,600
4,800
$
11.00
20 %
(
Fixed costs
+
Target profit
)/
CM ratio
= Required sales in dollars
Beach
( $
450,000
+ $
0
)/
50
%
= $
900,000
Lake
( $
168,000
+ $
0
)/
80
%
= $
210,000
Mountain
( $
156,000
+ $
0
)/
30
%
= $
520,000
Valley
( $
8,200
+ $
0
)/
20
%
= $
41,000
(4) Company Valley
(5) its low fixed costs
112.
Net sales revenue per unit
$
65
x
Number of units sold
x
900
Variable costs per unit
= Sales revenue per show
= $
x
Number of units
58,500
= Variable costs per show
Cost of programs
$
9
x
900
= $
8,100
Cost of performers
$
330
x
55
= $
18,150
$
26,250
Total variable costs
Net sales revenue
-
Variable costs
-
Fixed costs
=
Target profit
18
(
( $
Fixed costs
580,500
+
Target profit
)/
+ $ 4,128,000
)/
CM ratio
55.13
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= Required sales in dollars
%
= $
8,540,722
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146
(11) realistic
City Productions
Contribution Margin Income Statement
Year Ended December 31, 2016
Sales Revenue
$
9,945,000
Variable Costs
4,462,500
Contribution Margin
5,482,500
580,500
Fixed Costs
$
Operating Income (Loss)
4,902,000
113.
B. in absorption costing, fixed manufacturing overhead is a product cost.
114.
D. absorption costing because it follows GAAP.
115.
A. $50 per unit
116.
C. $70 per unit
117.
D. $5,000
118.
A. $2,750
119.
B. $2,500
120.
B.
121.
D. Both should be promoted equally because they have the same contribution margin per unit.
122.
A. $250 more than expected.
$
6
$
180
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$
6
$
720
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123.
Meyer Company
Income Statement (Absorption Costing)
Month Ended March 31
Sales Revenue
$
77,980
Cost of Goods Sold:
Variable Cost of Goods Sold
$
18,200
13,500
Fixed Cost of Goods Sold
31,700
Gross Profit
46,280
Selling and Administrative Costs:
Variable Selling and Administrative Costs
15,500
4,600
Fixed Selling and Administrative Costs
Operating Income
20,100
$
26,180
$
77,980
Meyer Company
Income Statement (Variable Costing)
Month Ended March 31
Sales Revenue
Variable Costs:
Variable Cost of Goods Sold
$
18,200
15,500
Variable Selling and Administrative Costs
33,700
Contribution Margin
44,280
Fixed Costs:
Fixed Cost of Goods Sold
13,500
4,600
Fixed Selling and Administrative Costs
$
Operating Income
124.
18,100
26,180
(1) variable product cost (both manufacturing and selling and administrative) per case of
16.00
(2) fixed costs
(3) Variable costing
125.
January 2016
Total product cost per meal
Absorption
Variable
costing
costing
$
6.65 $
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Claudia's Foods
Income Statement (Absorption Costing)
Month Ended January 31, 2016
Sales Revenue
$
12,000
Cost of Goods Sold
5,320
Gross Profit
6,680
Selling and Administrative Costs
3,100
$
Operating Income
3,580
Claudia's Foods
Income Statement (Variable Costing)
Month Ended January 31, 2016
Sales Revenue
$
12,000
Variable Costs
7,200
Contribution Margin
4,800
Fixed Costs
1,350
Operating Income
$
3,450
(9) exceeds
126.
Mike's Magnificant Eyewear
Income Statement (Absorption Costing)
Year Ended December 31, 2016
Sales Revenue
$ 5,940,000
Cost of Goods Sold
3,780,000
Gross Profit
2,160,000
Selling and Administrative Costs
1,260,000
$
Operating Income
900,000
Mike's Magnificant Eyewear
Income Statement (Variable Costing)
Year Ended December 31, 2016
Sales Revenue
$
5,940,000
Variable Costs
3,240,000
Contribution Margin
2,700,000
Fixed Costs
2,160,000
Operating Income
$
540,000
(9) conventional
(10) absorption
(11) was less than the units produced.
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(12) fixed costs per unit
(13) in ending inventory.
(14) should
(15) contribution margin generated from the promotion exceeds
127.
Contribution margin
/
Service revenue
=
Contribution margin ratio
Benton
$
4,320 /
$
7,200 =
60 %
Mitz
$
2,400 /
$
8,000 =
30 %
Filip
$
3,520 /
$
8,800 =
40 %
Service revenue
Variable costs
Contribution margin
per customer
per customer
per customer
Benton
$
80 $
32
48
Mitz
$
80 $
56
24
Filip
$
80 $
48
32
(3) Benton
(4) variable cost per customer was the lowest.
A. Employees in the most profitable business segment cutting corners when performing service calls, B.
Lower employee wages in the most profitable business segment, C.
Reducing the amount of pool chemicals used in service calls for the most profitable business segment, G.
Better routes with shorter drive times allowing more customers to be served in the most profitable business segment
A.
increased service costs because of reduced pool chemical usage causing poor water quality and additional service calls., B.
dissatisfied customers because of inadequate service., D. increased employee turnover because of low wages., E.
less fuel and maintenance costs because of efficient routes.
128.
D. All of the above
129.
A. strategic budget
130.
C. The sales budget
131.
B. 550 skillets
132.
C. $6,600
133.
A. $6,000
134.
C. $4,000
135.
A. The financial budget
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136.
A. Depreciation expense
137.
D. removing budgetary slack from the budget.
138.
Class Printing Supply
Sales Budget
For the Month Ended April 30, 2016
$
Total budgeted sales
88,000
Class Printing Supply
Inventory, Purchases, and Cost of Goods Sold Budget
For the Month Ended April 30, 2016
Cost of goods sold
Plus:
$
39,600
29,500
Desired ending merchandise inventory
Total merchandise inventory required
69,100
Less:
11,600
Beginning merchandise inventory
$
Budgeted Purchases
57,500
Class Printing Supply
Selling and Administrative Expense Budget
For the Month Ended April 30, 2016
Variable expenses:
$
Miscellaneous expense
8,800
Fixed expenses:
Salaries expense
34,000
300
Depreciation expense
34,300
Total fixed expenses
$
Total selling and administrative expenses
Current month sales, 80%
$
70,400
13,200
Prior month sales, 20%
Total cash receipts
43,100
$
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83,600
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Class Printing Supply
Budgeted Cash Payments for Selling and Administrative Expenses
For the Month Ended April 30, 2016
Variable expenses:
$
Miscellaneous expenses
8,800
Fixed expenses:
8,500
25% of current month's salaries expense
$
Total payments for selling and administrative expenses
Beginning cash balance
$
17,300
50,900
83,600
Cash receipts from customers
Cash available
134,500
Cash payments:
Purchases of merchandise inventory
47,550
Selling and administrative expenses
17,300
Capital expenditures
16,800
3,500
Payments for dividend
85,150
Total cash payments
$
Ending cash balance
49,350
Class Printing Supply
Budgeted Income Statement
For the Month Ended April 30, 2016
Sales Revenue
$
88,000
Cost of Goods Sold
39,600
Gross Profit
48,400
Selling and Administrative Expenses:
Miscellaneous Expense
$
Salaries Expense
Depreciation Expense
8,800
34,000
300
43,100
Total Selling and Administrative Expenses
Net income (loss)
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$
5,300
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
Class Printing Supply
Budgeted Balance Sheet
April 30, 2016
Assets
Current Assets:
Cash
$
49,350
Accounts Receivable
17,600
Merchandise Inventory
29,500
Total Current Assets
$
96,450
Property, Plant, and Equipment
Equipment and Fixtures
97,300
(12,800)
Less: Accumulated Depreciation
84,500
$
Total Assets
180,950
Liabilities
Current Liabilities:
Accounts Payable
$
18,650
25,500
Salaries Payable
Total Liabilities
$
44,150
Stockholders' Equity
Common Stock
36,000
100,800
Retained Earnings
136,800
Total Stockholders' Equity
Total Liabilities and Stockholders' Equity
$
180,950
Class Printing Supply
Budgeted Statement of Cash Flows
For the Month Ended April 30, 2016
Operating Activities:
Cash receipts from customers
$
83,600
Cash payments for purchases
(47,550)
Cash payments for selling and administrative expenses
(17,300)
Net cash provided by (used by) operating activities
$
18,750
Investing Activities:
Cash payments for equipment purchases
(16,800)
Net cash provided by (used by) investing activities
(16,800)
Financing Activities:
Cash payment of dividends

Net cash provided by (used by) financing activities
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(3,500)
(3,500)
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Net increase (decrease) in cash
(1,550)
Cash balance, April 1, 2016
50,900
$
Cash balance, April 30, 2016
139.
C. $19,680.
140.
D. $2,320 F.
141.
A. $1,320 U.
142.
D. All of the above.
143.
B. $151.20 U
144.
B. $1,071.00 F
145.
A. $5.00 per machine hour.
146.
B. $600 U
147.
C. $1,050 F
148.
B. the production manager.
149.
D.
Work-in-Process Inventory
49,350
7,980
Direct Materials Efficiency Variance
168
Raw Materials Inventory
8,148
150.
ErgoPlus
Flexible Budget
Budget
Amounts
Per Unit
Units
45,000
55,000
80,000
540,000 $
660,000 $
960,000
256,500
313,500
456,000
Contribution Margin
283,500
346,500
504,000
Fixed Costs
225,000
225,000
255,000
121,500 $
249,000
Sales Revenue
Variable Costs
$
12.00 $
5.70
Operating Income
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$
58,500 $
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1. Office Plus sells its main product, ergonomic mouse pads, for $12 each. Its variable cost is $5.60 per pad. Fixed costs are
$205,000 per month for volumes up to 65,000 pads. Above 65,000 pads, monthly fixed costs are $265,000. Prepare a
monthly flexible budget for the product, showing sales revenue, variable costs, fixed costs, and operating income for
volume levels of 35,000, 45,000, and 70,000 pads.
Review Only
Click the icon to see the Worked Solution.
Office Plus
Flexible Budget
Budget
Amounts
Per Unit
Units
35,000
45,000
70,000
(1)
(2)
(3)
(4)
(5)
(1)
Contribution Margin
Fixed Costs
Operating Income
(3)
Contribution Margin
Fixed Costs
Operating Income
(5)
Contribution Margin
Fixed Costs
Operating Income
Sales Revenue
Variable Costs
(2)
Sales Revenue
Variable Costs
(4)
Contribution Margin
Fixed Costs
Operating Income
Contribution Margin
Fixed Costs
Operating Income
Sales Revenue
Variable Costs
Sales Revenue
Variable Costs
Sales Revenue
Variable Costs
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2. Superior Fender, which uses a standard cost system, manufactured 20,000 boat fenders during 2016, using
143,000 square feet of extruded vinyl purchased at $1.35 per square foot. Production required 430 direct labor hours that
cost $16.00 per hour. The direct materials standard was seven square feet of vinyl per fender, at a standard cost of
$1.40 per square foot. The labor standard was 0.028 direct labor hour per fender, at a standard cost of $15.00 per hour.
Compute the cost and efficiency variances for direct materials and direct labor. Does the pattern of variances suggest
Superior Fender's managers have been making trade-offs? Explain.
Review Only
Click the icon to see the Worked Solution.
Begin with the cost variances. Select the required formulas, compute the cost variances for direct materials and direct
labor, and identify whether each variance is favorable (F) or unfavorable (U). (Abbreviations used: AC = actual cost; AQ =
actual quantity; FOH = fixed overhead; SC = standard cost; SQ = standard quantity.)
Formula
Variance
Direct materials cost variance
=
(1)
=
(2)
Direct labor cost variance
=
(3)
=
(4)
Select the required formulas, compute the efficiency variances for direct materials and direct labor, and identify whether
each variance is favorable (F) or unfavorable (U). (Abbreviations used: AC = actual cost; AQ = actual quantity; FOH = fixed
overhead; SC = standard cost; SQ = standard quantity.)
Formula
Variance
Direct materials efficiency variance
=
(5)
=
(6)
Direct labor efficiency variance
=
(7)
=
(8)
Does the pattern of variances suggest Superior Fender's managers have been making trade-offs? Explain.
The (9)
direct materials cost variance combined with the (10)
variance suggests that managers may have used (11)
materials variance is (12)
The (13)
direct materials. The net effect on the total direct
.
direct labor cost variance combined with the (14)
variance suggests that managers may have used (15)
effect on the total direct labor variance is (16)
(1)
.
(2)
(AC - SC) x AQ
(AC - SC) x SQ
(AQ - SQ) x AC
(4)
(AC - SC) x AQ
(AC - SC) x SQ
(AQ - SQ) x AC
(AQ - SQ) x SC
Actual FOH - Allocated FOH
Actual FOH - Budgeted FOH
Bugeted FOH - Allocated FOH
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direct labor efficiency
workers who performed more efficiently. The net
(AQ - SQ) x SC
Actual FOH - Allocated FOH
Actual FOH - Budgeted FOH
Bugeted FOH - Allocated FOH
(3)
direct materials efficiency
F
U
F
U
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3. Premium Fender is a competitor of Bargain Fender. Premium Fender also uses a standard cost system and provide the
following information:
1(Click the icon to view the information.)
Premium Fender allocates manufacturing overhead to production based on standard direct labor hours. Premium Fender
reported the following actual results for 2016: actual number of fenders produced, 20,000; actual variable overhead,
$4,850; actual fixed overhead, $27,000; actual direct labor hours, 460.
Read the requirements2.
Review Only
Click the icon to see the Worked Solution.
Requirement 1. Compute the overhead variances for the year: variable overhead cost variance, variable overhead
efficiency variance, fixed overhead cost variance, and fixed overhead volume variance.
Begin with the variable overhead cost and efficiency variances. Select the required formulas, compute the variable
overhead cost and efficiency variances, and identify whether each variance is favorable (F) or unfavorable (U).
(Abbreviations used: AC = actual cost; AQ = actual quantity; FOH = fixed overhead; SC = standard cost; SQ = standard
quantity; VOH = variable overhead.)
Formula
Variance
VOH cost variance
=
(1)
=
(2)
VOH efficiency variance
=
(3)
=
(4)
Now compute the fixed overhead cost and volume variances. Select the required formulas, compute the fixed overhead cost
and volume variances, and identify whether each variance is favorable (F) or unfavorable (U). (Abbreviations used: AC =
actual cost; AQ = actual quantity; FOH = fixed overhead; SC = standard cost; SQ = standard quantity.)
Formula
Variance
FOH cost variance
=
(5)
=
(6)
FOH volume variance
=
(7)
=
(8)
Requirement 2. Explain why the variances are favorable or unfavorable.
The variable overhead cost variance is (9)
budgeted for the actual production.
because management spent (10)
The variable overhead efficiency variance is (11)
because management used (12)
labor hours than standard and variable overhead is applied (incurred) based on direct labor.
The fixed overhead cost variance is (13)
amount budgeted for fixed overhead.
because management spent (14)
The fixed overhead volume variance is (15)
overhead to jobs than was budgeted.
because management allocated (16)
than
direct
than the
fixed
1: Data Table
Static budget variable overhead
$
Static budget fixed overhead
$ 21,000
Static budget direct labor hours
Static budget number of units
Standard direct labor hours
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5,250
525 hours
24,000 units
0.025 hours per fender
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2: Requirements
1. Compute the overhead variances for the year: variable overhead cost variance, variable overhead efficiency variance,
fixed overhead cost variance, and fixed overhead volume variance.
2. Explain why the variances are favorable or unfavorable.
(1)
(2)
Actual VOH - (AC x SQ)
Actual VOH - (SC x AQ)
(4)
(5)
F
U
(AC - SC) x AQ
(AC - SC) x SQ
(AQ - SQ) x AC
(7)
(AC - SC) x AQ
(AC - SC) x SQ
(AQ - SQ) x AC
(10)
more
(11)
less
(15)
unfavorable
favorable
(3)
F
U
(AC - SC) x AQ
(AC - SC) x SQ
(AQ - SQ) x AC
(AQ - SQ) x SC
Actual FOH - Allocated FOH
Actual FOH - Budgeted FOH
Bugeted FOH - Allocated FOH
(AQ - SQ) x SC
Actual FOH - Allocated FOH
Actual FOH - Budgeted FOH
Bugeted FOH - Allocated FOH
favorable
unfavorable
(16)
(12)
fewer
more
(8)
(AQ - SQ) x SC
Actual FOH - Allocated FOH
Actual FOH - Budgeted FOH
Bugeted FOH - Allocated FOH
(6)
F
U
(9)
F
U
(13)
unfavorable
favorable
unfavorable
favorable
(14)
more
less
less
more
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1.
Office Plus
Flexible Budget
Budget
Amounts
Per Unit
Units
35,000
45,000
70,000
420,000 $
540,000 $
840,000
196,000
252,000
392,000
Contribution Margin
224,000
288,000
448,000
Fixed Costs
205,000
205,000
265,000
Sales Revenue
$
Variable Costs
12.00 $
5.60
$
Operating Income
2.
19,000 $
83,000 $
Formula
183,000
Variance
Direct materials cost variance
=
(AC - SC) x AQ
= $
7,150 F
Direct labor cost variance
=
(AC - SC) x AQ
= $
430 U
Formula
Variance
Direct materials efficiency variance
=
(AQ - SQ) x SC
= $
4,200 U
Direct labor efficiency variance
=
(AQ - SQ) x SC
= $
1,950
F
(9) favorable
(10) unfavorable
(11) lower-quality
(12) favorable
(13) unfavorable
(14) favorable
(15) more skilled (higher-paid)
(16) favorable
3.
Formula

Variance
VOH cost variance
=
Actual VOH - (SC x AQ)
= $
250 U
VOH efficiency variance
=
(AQ - SQ) x SC
= $
400
Formula
F
Variance
FOH cost variance
=
Actual FOH - Budgeted FOH
=
$
6,000 U
FOH volume variance
=
Bugeted FOH - Allocated FOH
=
$
1,000 U
(9) unfavorable
(10) more
(11) favorable
(12) fewer

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(14) more
(15) unfavorable
(16) less
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