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All Textbook Solutions for Survey of Accounting (Accounting I)
17CDQ18CDQEffect of financing on earnings per share BSF Co.. which produces and sells skiing equipment. is financed as follows: Income lax is estimated at 40% of income. Determine the earnings per share of common stock, assuming that the income before bond interest and income tax is (a) $1,000,000. (b) $3,000,000. and (c) $4,500,000.Evaluate alternative financing plans Obj. 1 Based on the data in Exercise E8-1. discuss factors other than earnings per share that should be considered in evaluating such financing plans.Current liabilities Zahn Inc. -told 16.000annual magazine subscriptions for $15 during December 20Y4.The.se new subscribers will receive monthly issues, beginning in January 20Y5. Zahn Inc. issued a $48,000. 180-day. 5% note payable on December 1. 20Y4. On March 31. 20Y5. Zahn Inc. had accounts payable of $21,500 and accrued wages payable of $6,100. Prepare the Current Liabilities section of the balance sheet for Zahn Inc. on March 31. 20Y5.Notes payable Obj. A business issued a 90-day. 7% note lor $30.000 to .1 creditor on account. Illustrate the effects on ihe accounts and financial statements of recording (a) the issuance of the noie and (b) the payment of the note at mtaturity, including interest.Compute payroll An employee earns $28 per hour and 1.5 limes that rate for all hours in excess of 40 hours per week. Avsume that I he employee worked 46 hours during the week. Assume that the FICA tax rate is 7.5% and that federal income tax of $200 was withheld. a.Determine the gross pay for the week. b. Determine The net pay for the week.8.6E8.7E8.8EBond price CVS Caremark Corp. (CVS) 5-3% bonds due in 2043, sold for 113.04. Were the bonds selling at a premium or at a discount? Explain.Issuing bonds Cyber Tech Inc. produces and distributes fiber optic cable for use by telecommunications companies. Cyber Tech Inc. Issued $50,000,000 of 20-year, 6% bonds on March 1 at their face amount, with interest payable on March 1 and September 1. The fiscal year of the company is the calendar year. Illustrate the effects on the accounts and financial statements of recording the following selected transactions for the current year: Mar. 1. Issued the bonds for cash at their face amount. Sept. 1. Paid the interest on the bonds. Dec. 31. Recorded accrued interest for four months.Accrued product warranty Back in Time Inc. warrants its products for one year. The estimated product warrant)' is 2% of sales. Assume that sales were $1,250,000 for March. In April, a customer received warranty repairs requiring $750 of parts. a. Determine the warranty liability at Manh 31, the end of the first month of the current fiscal year. b. What accounts are decreased for the warranty work provided in April?Accrued product warranty Ford Motor Company (F) disclosed the following estimated product warranty payable for two recent years. Ford's sales in its automotive sector were $135,782 million in Year 2 and $139,369 million in Year 1. Assume that the total paid on warranty claims during Year 2 was $2,850 million. a.Illustrate the effects on the accounts and luumi.il statements for the Year 2 product warranty expense. b. Explain the $859 ($4,786 - $3,927) million increase in tl»e total warranty liability from Year 1 to Year 2.8.13E8.14EIssuing par stock On January 29. Quality Marble Inc.. a marble contractor, issued 75.000 shares of $10 par common stock for cash at $23 per share, and on May 31. it issued 100.000 shares of $-i par preferred stuck for cash at $6 per sliare. a. Illustrate the effects on the accounts and financial statements of the January 29 and May 31 transations. b. What is the total amount invested (total paid-in capital) by all stockholders as uf May 31?Issuing stock for assets other than cash Obj.5 On August 7. Easy Up Corporation, a wholesaler of hydraulic lifts, acquired land in exchange for 20.000 shares of $10 par common stock with a current market price of $14. Illustrate (he effect on the accounts and financial statements of the purchase of the land.Treasury stock transactions Obj.5 Blue Moon Water Supply Inc. botles and distributes spring water. On July 17 of the current year. Blue Moon Water Supply reacquired 55,000 shares of its common stock at $60 per share. a.What is the balance of Treasury Stock on December 31 of the current year? b.Where will the balance of Treasury Stock be reporled on the balance sheets? c.For what reasons might Blue Moon Water Supply have purchased the treasury stock?8.18ETreasury stock transactions Banff Water Inc. bottles and distributes spring water. On April 2 of the current year. Banff Water Inc. reacquired 30,000 shares of its common stock at $33 per share. a.What is the balance of Treasury Stock on December 31 of the current year? b. Where will the balance of Treasury Stock be reported on the balance sheet? c.For what reasons might Banff Water Inc. have purchased the treasury Stock? d. Assume that on January 25 of the following year, Banff Water Inc. sold 20,000 shares of its treasury stock for $40 per share. Illustrate the effects on the accounts and financial statements of the sale of the treasury stock.Cash dividends The date of declaration, date of record, and date of payment in connection will a cash dividend of $1,200,000 on a corporation's common stock are June 1, July 15, and August 14, respectively. Illustrate the effects on the accounts and financial statements for each date.8.21EEffect of stock split Audrey's Restaurant Corporalion wholesales ovens and ranges to restaurants throughout the Northwest. Audrey's Restaurant Corporation, which had 50,000 shares of common stock outstanding, declared a 6-for-l stock split, a. What will be the number of shares outstanding after the split? b. If the common stock had a market price of $540 per share before the stock split, what would be an approximate market price per share after the split? int 2018 Cenaaoe Loam Inc. All Riahts Reserved. Mav not be cooled, scanned, of duoMcated. In whole o' in oart WCN 02-200-20!8.23E8.24E8.1.1P8.1.2P8.1.3PRecording payroll and payroll taxes The following information about the payroll for the week ended October 4 was obtained from the records of Simkins Mining Co.: Instructions For the October 4 payroll, determine the employee FICA tax payable.Recording payroll and payroll taxes The following information about the payroll for the week ended October 4 was obtained from the records of Simkins Mining Co.: Instructions Illustrate the effect on the accounts and financial statements of recording the October 4 payroll.Recording payroll and payroll taxes The following information about the payroll for the week ended October 4 was obtained from the records of Simkins Mining Co.: Instructions Determine the following amounts for the employer payroll taxes related to the October 4 payroll: (a) FICA tax payable, (b) state unemployment tax payable, and (c) federal unemployment tax payable.Recording payroll and payroll taxes The following information about the payroll for the week ended October 4 was obtained from the records of Simkins Mining Co.: Instructions Illustrate the effect un (he accounts and financial statements of recording the liability for the October 4 employer payroll taxes.Bond premium; bonds payable transactions Beaufort Vaults Corporation produces and sells burial vaults. On July 1. 20Y3. Beaufort Vaults Corporation issued $25000000 of 10-year. 8% bonds at par. Inkiest on the bonds is payable semiannually on December 31 and June 30. The fiscal year of the company is the calendar year. Instructions Illustrate the effects of the issuance 01 the bonds on July I, 20Y3, on the accounts and financial statements.8.3.2PBond premium; bonds payable transactions Beaufort Vaults Corporation produces and sells burial vaults. On July 1. 20Y3. Beaufort Vaults Corporation issued $25000000 of 10-year. 8% bonds at par. Inkiest on the bonds is payable semiannually on December 31 and June 30. The fiscal year of the company is the calendar year. Instructions Illustrate the effects of the payment of face value of bonds at maturity on the accounts and financial statements.8.3.4PStock transactions for corporate expansion Vaga Optics produces medical lasers for use in hospitals. The following accounts and their balances appear in the ledger of Vaca Optics on December 31 of the current year: At the annual stockholders' meeting on January 31, the board of directors presenled a plan for modernizing and expanding plant operatioas at a cost of approximately $9,500,000. The plan provided (a) that the corporation borrow $4,500,000, (b) that 20,000 shares of the unissued preferred stock be issued through an underwriter, and (c) thai a building, valued at $1,200,000, and the land on which it is located, valued at $900,000, be acquired in accordance with preliminary negotiations by the issuance of 27,400 shares of common stock. The plan was approved by the stockholders and accomplished by the following transactions: Mar. 8.Borrowed $4,500,000 from Conrad National Bank, giving a 6% mortgage note. 13- Issued 20,000 shares of preferred stock, receiving $130 per share in cash. 26.Issued 27,400 shares of common stock in exchange for land and a building, according to the plan. No other expansion-related transactions occurred during March. Instructions Illustrate the effects on the accounts and financial statements of each of the preceding transactions.Dividends on preferred and common stock Yukon Bike Corp. manufactures mountain bikes and distributes them through retail outlets in Canada, Montana, Idaho, Oregon, and Washington. Yukon Bike Corp. declared the following annual dividends over a six-year period ending December 31 of each year: Year 1, $28,000; Year 2, $44,000; Year 3, $48,000; Year 4, $60,000; Year 5, $76,000; and Year 6, $140,000. During the entire period, the outstanding stock of the company was composed of 40,000 shares of 2% preferred stock, $65 par, and 50,000 shares of common stock, $1 par. Instructions Determine the total dividends and the per-share dividends declared on each class of stock for each of the six years. Assume that preferred dividends are paid before any common dividends. Summarize the data in tabular form, using the following column headings:Dividends on preferred and common stock Yukon Bike Corp. manufactures mountain bikes and distributes them through retail outlets in Canada, Montana, Idaho, Oregon, and Washington. Yukon Bike Corp. declared the following annual dividends over a six-year period ending December 31 of each year: Year 1, $28,000; Year 2, $44,000; Year 3, $48,000; Year 4, $60,000; Year 5, $76,000; and Year 6, $140,000. During the entire period, the outstanding stock of the company was composed of 40,000 shares of 2% preferred stock, $65 par, and 50,000 shares of common stock, $1 par. Instructions Calculate the average annual dividend per share for each class of stock for the six-year period.8.5.3P8.1.1MBA8.1.2MBA8.2.1MBA8.2.2MBA8.2.3MBA8.3.1MBA8.3.2MBA8.3.3MBA8.4MBA8.5.1MBA8.5.2MBA8.6.1MBA8.6.2MBA8.6.3MBAStock split Using the data from E8-22. indicate the effects on ne assets and EPS of the stock spilt.8.8.1MBA8.8.2MBA8.8.3MBA8.8.4MBA8.8.5MBA8.8.6MBA8.8.7MBA8.8.8MBA8.9.1MBA8.9.2MBA8.9.3MBA8.9.4MBA8.9.5MBA8.9.6MBADebt and price-earnings ratios Lowe's Companies Inc. (LOW) operates over 1,800 home improvement retail stores and is a competitor of The Home Depot (HD). The following data (in millions) were adapted from a recent financial statement of Lowe's: Compare the price-earninys ratios of Lowe's and The flotne Depot (MBA 8-8). Comment on any differences.8.10.1MBA8.10.2MBA8.10.3MBA8.10.4MBA8.10.5MBADebt and price-earnings ratios Alphabet (formerly known as Google) (GOOG) is a technology company that offers users Internet search and e-mail services. Google also developed the Android operating system for use with cell phones and other mobile devices. The following data (in millions) were adapted from a recent financial statement of Alphabet. With a market price of $526.40. compute the price-earnings ratio for Year 2.8.10.7MBA8.10.8MBA8.11MBA8.1.1C8.1.2C8.2.1C8.2.2C8.3.1CIssuing stock Sahara Unlimited Inc. began operations on January 2,20Y4. with the issuance of 250.000 shares of $8 par common stock. The sole stockholders of Sahara Unlimited Inc. are Karina Takemoto and Dr. Noah Grove, who organized Sahara Unlimited Inc. with the objective of developing a new flu vaccine. Dr. Grove claims that the flu vaccine, which is nearing the final development stage, will protect individuals against 80% of the flu types mat have been medically identified. To complete me project, Sahara Unlimited Inc. needs $25,000,000 of additional funds. The banks have been unwilling to loan the funds because of the lack of sufficient collateral and the riskiness of the business. The following is a conversation between Karina Takemoto, the chief executive officer of Sahara Unlimited Inc., and Dr. Noah Grove, the leading researcher: Karina: What are we going to do? The hanks won't loan us any more money, and we've got to have $25 million to complete the project. We are so close! It would be a disaster to quit now. The only thing I can think of is to issue additional stock. Do you have any suggestions? Noah: I guess you're right. But if the banks won't loan us any more money, how do you think we can find any investors to buy stock? Karina: I've been thinking about that. What if we promise the investors that we will pay them 2% of sales until they have received an amount equal to what they paid for the stock? Noah: What happens when we pay back the $25 million? Do the investors get to keep the Stock? If they do, it'll dilute our ownership. Karina: How about, if after we pay back the $25 million, we make them turn in their stock for what they paid for it? Plus, we could pay them an additional $50 per share. Thai's a $50 profit per share for the investors. Noab: It could work. We gel our money, but don't have to pay any interest or dividends until we start generating sales. At the same time, the investors could get their money back plus $50 per share. Karina: We'll need current financial statements for the new investors. I'll get our accountant working on them and contact our attorney to draw up a legally binding contract for the new investors. Yes, this could work. In late 20Y4, the attorney and the various regulatory authorities approved the new stock offering, and shares of common stock were privately sold to new investors for $25,000,000. In preparing financial statements for 20Y4, Karina Takemoto and Glenn Bergum, the controller for Sahara Unlimited Inc., have the following conversation: Glenn: Karina, I've got a problem. Karina: What's that, Glenn? Glenn: Issuing common stock to raise that additional $25 million was a great idea. But ... Karina: But what? Glenn: I've got to prepare the 20Y4 annual financial statements, and I am not sure how to classify the common stock. Karina: What do you mean? It's common stock. Glenn: I'm not so sure. I called the auditor and explained how we are contractually obligated to pay the new stockholders 2% of sales until they receive what they paid for the stock. Then. we may be obligated to pay them $50 per share. Karina: So ... Glenn: So the auditor thinks that we should classify the additional issuance of $25 million as debt, not stock! And, if we put the $25 million on the balance sheet as debt, we will violate our other loan agreements with the banks. And, if these agreements are violated- the banks may call in all our debt immediately. If they do that, we are in deep trouble. We'll probably have to file for bankruptcy. We just don't have the cash to pay off the banks. What do you ihink might be a practical solution to this classification problem?8.4C8.5.1CFinancing business expansion You hold a 30% common stock interest in the family-owned business, a vending machine company. Your sister, who is the manager, has proposed an expansion of plant facilities al an expected cost of $6,000,000. Two alternative plans have been suggested as methods of financing the expansion. Each plan is briefly described as follows: Plan 1, Issue $6,000,000 of 15-year. 8% notes at face amount. Plan 2. Issue an additional 100.000 shares of $20 par common stock at $25 per share, and $3,500,000 of 15-year. 8% notes at face amount. The balance sheet as of the end of the previous fiscal year is as follows: Net income has remained relatively constant over the past several years. The expansion program is expected to increase yearly income before bond interest and income tax from $900,000 in the previous year to $1,200,000 for this year. Your sister has asked you. as the company treasurer, to prepare an analysis of each financing plan. a. Discuss the factors that should be considered in evaluating the two plans. b. Which plan offers the greater benefit to the present stockholders? Give reasons for your opinion.What type of analysis is indicated by the following?Which of the following measures indicates the ability of a firm to pay its current liabilities A. Working capital B. Current ratio C.Quick ratio D. All of the above3SEQ4SEQ5SEQThat is the difference between horizontal and vertical analysis of financial statements?2CDQ3CDQ4CDQHow would the current and quick ratios of a service business compare?For Belzcr Corporation, the working capital at the end of the current year is $24,000 more than the working capital at the end of the preceding year, reported as follows:7CDQ8CDQa. Why is it advantageous to have a high inventory turnover? b. Is it possible for the inventory turnover to be too high? Discuss. c.Is it possible to have a high inventor)' turnover and a high days' sales in inventory? Discuss.10CDQ11CDQ12CDQ13CDQ14CDQ15CDQFavorable business conditions may bring about certain seemingly unfavorable ratios, and unfavorable business operations may result in apparently favorable ratios. For example. Shaddox Company intreased its sales and net income substantially for the current year, yet the current ratio at the end of the are is lower than at the beginning of the year. Discuss some possible causes of the apparent weakening of the current position, while sales and net income have increased substantially.17CDQ9.1EVertical analysis of income statement The following comparative income statement (in thousands of dollars) for two recent years was adapted from the annual report of Speedway Motorsports. Inc. (TRK), owner and operator of several major motor speedways, such as the Atlanta, Bristol, Charlotte, Texas, and Las Vegas Motor Speedways. a. Prepare a comparative income statement for Years 1 and 2 in vertical form, staling each item as a percent of revenues. Round to one decimal place. b. Comment on the significant changes.Common-sized income statement Revenue and expense data for the current calendar year for Lyons Electronics Company and for the electronics industry are as follows. Lyons Electronics Company data are ex-pressed in dollars. The electronics industry averaees are expressed in percentages. a. Prepare a common-sized income statement comparing the results of operations for Lyom Electronics Company with the industry average. b. Comment on significant relationships revealed by the comparisons.9.4E9.5E9.6E9.7ECurrent position analysis The bond indenture for the 10-year. 8% debenture bonds dated January 2, 20Y8, required working capital of $200,000. a current ratio of 2.0, and a quick ratio of 1.0 at the end of each calendar year until the bonds mature. At December 31. 20Y9. the three measures were computed as follows: a. List the errors in the determination of the three measures of current position analysis. b. Is the company satisfying the terms of the bond indenture?Accounts receivable analysis The following data are taken from the financial statements of Outdoor Patio Inc. Terms of all sales are 2/10. n/60. a. For Years 2 and 3. determine (1) the accounts receivable turnover and (2) the days' sales in receivables. Round to nearest dollar and one decimal place. b. What conclusions can be drawn from these data concerning accounts receivable and credit polit ies?9.10EInventory analysis The following data were extracted from the income statement of Brecca Systems Inc.: a.Determine for each year (1) the inventory turnover and (2) the days' sales in inventory. Round to nearest dollar and one decimal place. b. What conclusions can l>e drawn from these data concerning the inventories?Inventory analysis Costco Wholesale Corporation (COST) and Wal-Mart Stores Inc. (WMT) compete against each other in general merchandise retailing, gas stations, pharmacies, and optical centers. Below is selected financial information for both companies from a recent year's financial statements (in millions): a. Determine for bom companies (1) the inventory turnover and (2) the days' sales in inventory. Round to one decimal place. b. Compare and interpret the inventory metrics computed in (a).Ratio of liabilities to stockholders' equity and times interest earned The following data were taken from the financial statements of Starr Construction Inc. for December 31, 20Y6 and 20Y5: The income before income tax was $2,816,000 and $2,640,000 for the years 20Y6 and 20Y5, respectively. a.Determine the ratio of liabilities to stockholders' equity at the end of each year. b. Determine the times (bond) interest earned during the year for both years. c. What conclusions can be drawn from these data as to the company's ability to meet its currently maturing debts?9.14EDebt ratio, ratio of liabilities to stockholders' equity, and ratio of fixed assets to long-term liabilities Recent balance sheet information lor two companies in the snack food industry. The Hershey Company (HSY) and Mondelez International. Inc. (MDLZ). is as follows (in millions of dollars): a. Determine the debt ratio for both companies. Round to one decimal place. b.Determine the ratio of liabilities to stockholders' equity for both companies. Round to one decimal place. c.Determine the ratio of fixed assets to long-term liabilities for both companies. Round to two decimal places. d. Interpret the ratio differences between the two companies.9.16EProfitability metrics The following selected data were taken from the financial statements of The O'Malley Group Inc. for December 31, 20Y5. 20Y4. and 20Y3: No dividends on common stock were declared between 20Y3 and 20Y5. a.Determine the return on total assets, the return on stockholders' equity, and the return on common stockholders' equity Tor the years 20Y4 and 20Y5. Round to one decimal place. b. What conclusions can be drawn from these data as to the company's profitability?Profitability metrics Macy's, Inc. (M). sells merchandise through company-owned retail stores and Internet website. Recent financial information for Macy's is provided below (all numbers in millions). Assume the apparel industry's average return on total assets is 8.2%, and the average return on stockholders' equity is 10.0% for Year 3. a.Determine the return on total assets for Macy's for Years 2 and 3. Round to one decimal place. b. Determine the return on stockholders' equity for Macy's for Years 2 and 3. Round to one decimal place. c. Evaluate the changes in the profitability ratios determined in (a) and (b).Seven metrics The following data were taken from the financial statements of Woodwork Enterprises Inc. for the current fiscal year. Assuming that there are no intangible assets, determine the following: (a) debt ratio, (b) ratio of fixed assets to long-term liabilities, (c) ratio of liabilities to stockholders' equity, (d) asset turnover, (e) return on total assets, (f) return on stockholders' equity, and (g) return on common stockholders' equity. Round to two decimal places.9.20E9.21E9.22EUnusual income statement items Assume that the amount of each of the following items is material to the financial statements. Classify each item as either normally recurring (NR) or unusual (U) items. If unusual item, then specify if it is a discontinued operations item (DO). a. Interest revenue on notes receivable. b. Gain on sale of segment of the company's operations that manufactures bottling equipment. c.Loss on sale of investments in stocks and bonds. d. Uncollectible accounts expense. e. Uninsured flood loss. (Hood insurance is unavailable because of periodic Hooding in the area.)Horizontal analysis for income statement For 20Y3. Greyhound Technology Company reported its most significant decline in net income in years. At the end of the year, Duane Vogel, the president, is presented with the following condensed comparative income statement: Instructions Prepare a comparative income statement with horizontal analysis for the two-year period. using 20Y2 as the hase year. Round to one decimal place.Horizontal analysis for income statement For 20Y3. Greyhound Technology Company reported its most significant decline in net income in years. At the end of the year, Duane Vogel, the president, is presented with the following condensed comparative income statement: Instructions Comment on the significant relationships revealed by ihe horizontal analysis prepared in (1).9.2.1P9.2.2PEffect of transactions on current position analysis Data pertaining to the current position of Newlan Company are as follows: Instructions Compute (a) the working capital, (h) the current ratio, and (c) the quick ratio.Effect of transactions on current position analysis Data pertaining to the current position of Newlan Company are as follows: Instructions List the following captions on a sheet of paper: . Compute the working capital, the current ratio, and the quick ratio after each of the following transactions, and record the results in the appropriate columns. Consider each transaction separately and assume that only that transaction affects the data given above. Round to one decimal place. a.Sold temporary investments for cash at no gain or loss, $50,000. b. Paid accounts payable, $40,000. c.Purchased goods on account, $75,000. d. Paid notes payable, $30,000. e. Declared a cash dividend, $15,000. f.Declared a stock dividend on common stock, $24,000. g. Borrowed cash from bank on a long-term note, $150,000. h. Received cash on account, $72,000. i.Issued additional shares of stock for cash, $300,000. j.Paid cash for prepaid expenses. $10,000.Twenty metrics of liquidity, solvency, and profitability The comparative financial statements of Automotive Solutions Inc. are as follows. The market price of Automotive Solutions Inc. common stock was $119.70 on December 31, 20Y8 Instructions WorkingTwenty metrics of liquidity, solvency, and profitability The comparative financial statements of Automotive Solutions Inc. are as follows. The market price of Automotive Solutions Inc. common stock was $119.70 on December 31, 20Y8 Instructions Current ratioTwenty metrics of liquidity, solvency, and profitability The comparative financial statements of Automotive Solutions Inc. are as follows. The market price of Automotive Solutions Inc. common stock was $119.70 on December 31, 20Y8 Instructions Quick ratioTwenty metrics of liquidity, solvency, and profitability The comparative financial statements of Automotive Solutions Inc. are as follows. The market price of Automotive Solutions Inc. common stock was $119.70 on December 31, 20Y8 Instructions Accounts receivable turnoverTwenty metrics of liquidity, solvency, and profitability The comparative financial statements of Automotive Solutions Inc. are as follows. The market price of Automotive Solutions Inc. common stock was $119.70 on December 31, 20Y8 Instructions Days’ sale in receivableTwenty metrics of liquidity, solvency, and profitability The comparative financial statements of Automotive Solutions Inc. are as follows. The market price of Automotive Solutions Inc. common stock was $119.70 on December 31, 20Y8 Instructions Inventory turnover9.4.7PTwenty metrics of liquidity, solvency, and profitability The comparative financial statements of Automotive Solutions Inc. are as follows. The market price of Automotive Solutions Inc. common stock was $119.70 on December 31, 20Y8 Instructions Debt ratioTwenty metrics of liquidity, solvency, and profitability The comparative financial statements of Automotive Solutions Inc. are as follows. The market price of Automotive Solutions Inc. common stock was $119.70 on December 31, 20Y8 Instructions Ratio of liabilities to stockholder.' equityTwenty metrics of liquidity, solvency, and profitability The comparative financial statements of Automotive Solutions Inc. are as follows. The market price of Automotive Solutions Inc. common stock was $119.70 on December 31, 20Y8 Instructions Ratio of fixed assets to long-term liabilitiesTwenty metrics of liquidity, solvency, and profitability The comparative financial statements of Automotive Solutions Inc. are as follows. The market price of Automotive Solutions Inc. common stock was $119.70 on December 31, 20Y8 Instuctions Tunes earnedTwenty metrics of liquidity, solvency, and profitability The comparative financial statements of Automotive Solutions Inc. are as follows. The market price of Automotive Solutions Inc. common stock was $119.70 on December 31, 20Y8 Instuctins Times preferred earnedTwenty metrics of liquidity, solvency, and profitability The comparative financial statements of Automotive Solutions Inc. are as follows. The market price of Automotive Solutions Inc. common stock was $119.70 on December 31, 20Y8 Instructions Asset turnoverTwenty metrics of liquidity, solvency, and profitability The comparative financial statements of Automotive Solutions Inc. are as follows. The market price of Automotive Solutions Inc. common stock was $119.70 on December 31, 20Y8 Instructions Return on total assetsTwenty metrics of liquidity, solvency, and profitability The comparative financial statements of Automotive Solutions Inc. are as follows. The market price of Automotive Solutions Inc. common stock was $119.70 on December 31, 20Y8 Instructions Return on stockholders’ equityTwenty metrics of liquidity, solvency, and profitability The comparative financial statements of Automotive Solutions Inc. are as follows. The market price of Automotive Solutions Inc. common stock was $119.70 on December 31, 20Y8 Instructions Return on common stockholders’ equityTwenty metrics of liquidity, solvency, and profitability The comparative financial statements of Automotive Solutions Inc. are as follows. The market price of Automotive Solutions Inc. common stock was $119.70 on December 31, 20Y8 Instructions Earnings per share on common stockTwenty metrics of liquidity, solvency, and profitability The comparative financial statements of Automotive Solutions Inc. are as follows. The market price of Automotive Solutions Inc. common stock was $119.70 on December 31, 20Y8 Instructions Price-earnings rationTwenty metrics of liquidity, solvency, and profitability The comparative financial statements of Automotive Solutions Inc. are as follows. The market price of Automotive Solutions Inc. common stock was $119.70 on December 31, 20Y8 Instructions Dividends per share of common stock9.4.20PTrend analysis Critelli Company has provided the following comparative information: You have been asked to evaluate the historical performance of the company over the last five years. Selected industry ratios have remained relatively steady at the following levels for the last five years: Instructions I.Prepare three line graphs, with the ratio on the vertical axis and the years on die horizontal axis for the following three ratios (rounded to one decimal place): A.Return on total assets b.Return on stockholders' equity c.Times interest earned Display both the company ratio and the industry- benchmark on each graph. That is. each graph should have two lines.Trend analysis Critelli Company has provided the following comparative information: You have been asked to evaluate the historical performance of the company over the last five years. Selected industry ratios have remained relatively steady at the following levels for the last five years: Instructions Prepare an analysis of the graphs in (1).9.1C9.2C9.3C9.4.1C9.4.2C9.4.3CComprehensive profitability and solvency analysis Starwood Hotels & Resorts Worldwide Inc. (HOT) and Wyndham Worldwide Corporation (WYN) are two major owners and managers of lodging and resort properties in the United States. Financial data (in millions) for a recent year for the two companies are as follows: The average liabilities, stockholders' equity, and total assets were as follows: I. Determine the following ratios for both companies (round to one decimal place after the whole percent): A.Return on total assets b.Return on total stockholders' equity c.Times interest earned d.Debt ratio for the most recent year. e.Ratio of liabilities to stockholders' equity for the most recent year.Comprehensive profitability and solvency analysis Starwood Hotels & Resorts Worldwide Inc. (HOT) and Wyndham Worldwide Corporation (WYN) are two major owners and managers of lodging and resort properties in the United States. Financial data (in millions) for a recent year for the two companies are as follows: The average liabilities, stockholders' equity, and total assets were as follows: Analyze and compare the two companies, using the information in (1).Which 01 the following is not considered a cost of manufacturing a product A. Direct materials cost B. Factory overhead cost C. Sales salaries D. Direct labor costWhich of the following costs would be included as part of the factory overhead costs of a computer manufacturer? A.The cost of memory chips B.Depreciation of testing equipment C.Wages of computer assemblers D. The cost of disk drivesA company estimated $420,000 of factory overhead com and 16,000 direct labor hours for the period. During the period, a job was completed with $4,500 of direct materials and $3,000 of di-red labor. The direct labor rate was 515 per hour. What is the factory overhead applied to this job? A.$2,100 B.$5,250 C.$78,750 D.$420,000If the factory overhead account has a negative balance, factory overhead is said to be: a.Underapplied B.Over-applied C.Undcrabsorbed D. In errorWhen using job order costing for a professional service business, the primary product (service) costs are: A.Direct Materials and Overhead B.Direct Materials and Direct Labor C.Direct Materials. Direct Labor, and Overhead D. Direct Labor and OverheadList three differences in how managerial accounting differs from financial accounting.For a company that produces desktop computers, would memory chips be considered a direct or an indirect materials cost of each computer produced?How is product cost information used by managers?a.Name two principal types of cost accounting systems. b.Which system provides for a separate record of each particular quantity of product that passes through the factor)? c. Which system accumulates the costs for each department or process within the factor)?What kind of firm would use a job order cost system?6CDQ7CDQDescribe the Source 01 the data for increasing Work in Process for (a) direct materials, (b) direct labor, and (c) factory overhead9CDQa.How is a predetermined factory overhead rate calculated? b.Name three common bases used in calculating the rate.a.What is (1) overapplied factory overhead and (2) underapplied factory overhead? b. If the factory overhead account has a positive balance, was factory overhead underapplied or overapplied?At the end of the fiscal year, there s a relatively minor balance in the factory overhead account. What procedure can be used for disposing of the balance in the accountWhat is the difference between a product cost and a period cost?14CDQ15CDQHow can activity based costing be used in service companies?Classifying costs as materials, labor, or factory overhead Indicate whether each of the following costs of an airplane manufacturer would be classified as direct materials cost, direct labor cost, or factory overhead cost: a.Aircraft engines b.Controls for flight deck c. Depreciation of equipment d.Landing gear e.Machine lubricants f. Salary of plant superintendent g.Tires h.Wages of assembly line workerClassifying costs as materials, labor, or factory overhead Indicate whether the following costs of Colgate-Palmolive Company would he classified as direct materials cost, direct labor cost, or factory overhead cost: a. Bottles in which mouthwashes are sold b.Depreciation on production machinery c. Depreciation on the soap plant d.Maintenance supplies e.Packaging department employees wages I Plant manager salary, toothpaste plant g.Resins for soap and shampoo products h.Salary of process engineers i. Scents and fragrances j. Wages of production line employeesClassifying costs as factory overhead Which of the following items are properly classified as part of factory overhead for Caterpillar? a. Amortization of patents on new assembly process b.Consultant fees for a study of production line employee productivity C. Depreciation on Peoria. Illinois, headquarters building d.Factory supplies used in the Morganton. North Carolina, engine parts plant e.Interest expense on debt f. Plant manager's salary at Aurora, Illinois, manufacturing plant g.Properly taxes on the Danville, Kentucky, tractor tread plant h.Sales incentive fees to dealers i. Steel plate j. Vice president of finance's salaryClassifying costs as product or period costs For apparel manufacturer Ann Taylor, Inc., classify each of the following costs as either a product cost or a period cost: a. Advertising expenses b.Corporate controller's salary c. Depreciation on office equipment d.Depreciation on sewing machines e.Fabric used during production f. Factory janitorial supplies g.Factory supervisors' salaries h.Property taxes on factory building and equipment i. Oil used to lubricate sewing machines j. Repairs and maintenance costs for sewing machines k.Research and development costs l. Salaries of distribution center personnel m. Salary of production quality control supervisor n.Sales commissions o. Utility costs for office building p. Travel costs of salespersons q.Wages of sewing machine operators10.5ETransactions in a job order cost system Five selected transactions for the current month are indicated by letters in tile following accounts in a job order cost accounting system: Describe each of the five transactions.Cost flow relationships The following information is available for the first month of operations of Lane Inc., a manufacturer of art and craft items: Using the above information, determine the following: a.Cost of goods sold b.Direct materials cost c. Direct labor costCost of materials issuances An incomplete subsidiary ledger of wire cable for July is as follows a. Complete the materials issuances and balances for the wire cable subsidiary ledger. Assume a first-in, first-out cost flow. b.Determine the balance of wire cable at the end of July. c Determine the total amount of materials transferred to Work in Process for July. d.Explain how the materials ledger might be used as an aid in maintaining inventory quantities on hand.Recording issuing of materials Materials issued for the current month are as follows a. Determine the amount of materials transferred lo Work in Process and Factory Overhead for the current month. b.Illustrate (he effect on the accounts and financial statements of the materials transferred in (a).:Amounts for materials Big Timber Furniture Company manufactures furniture. Big Timber Furniture uses a job order cost system. Balances on June 1 from the materials ledger are as follows: The materials purchased during June are summarized from the receiving reports as follows: Materials were requisitioned to individual jobs as follows: The glue is not a significant cost, so it is treated as indirect materials (factory overhead). a.Determine the total purchase of materials in June. b.Determine the amounts of materials transferred to Work in Process and Factory Overhead during June. c.Determine the June 30 balances that would be shown in the materials ledger accounts.10.11ERecording factory labor costs The weekly time tickets indicate the following distribution of labor hours for three direct labor employees: The direct labor rate earned by the three employees is as follows: The process improvement category includes training, quality improvement, housekeeping, and other indirect tasks. a.Determine the amounts of factory labor costs transferred to Work in Process and Factory Overhead for the week. b.Assume that Jobs 560A and 560B were completed but not sold during the week and that Job 560C remained incomplete at the end of the week. How would the direct labor costs for all three jolts be reflected on the financial statements at the end of the week?Recording direct labor and factory overhead Chamlee Industries Inc. manufactures recreational vehicles. Chamlee Industries uses a job order cost system. The time tickets from May jobs are summarized below. Factory overhead is applied to jobs on the basis of a predetermined overhead rate of $30 per direct labor hour. The direct labor rate is $25 per hour. a.Determine the total factory labor costs transferred to Work in Process and Factor)' Overhead for May. b.Determine the amount of factory overhead applied to production for May. c. Illustrate the effects of the factory overhead applied in (b) on the accounts and financial statements.Factory overhead rates and account balances Prostheses Industries operates two factories. The manufacturing operations of Factory 1 are machine intensive, while the manufacturing operations of Factory 2 are labor intensive. The company applies factory overhead to jobs on the basis of machine hours in Factory I and on the basis of direct labor hours in Factory 2. Estimated factory overhead costs, direct labor hours, and machine hours are as follows: a. Determine the factory overhead rate for Factory 1. b.Determine the factory overhead rate for Factory 2. c. Determine the factory overhead applied to production in each factory for January. d.Determine the balances of the factory accounts for each factory as of January 31, and indicate whether the amounts represent overapplied or underapplied factory overiiead. e.Explain why Factory 1 uses machine hours to allocate factory overhead while Factory 2 uses direct labor hours.Predetermined factory overhead rate Novus Engine Shop uses a job order cost system to determine the cost of performing engine repair work. Estimated costs and expenses for the coming period are as follows: The average shop direct labor rate is $25 per hour. Determine the predetermined shop overhead rate per direct labor hour.Predetermined factory overhead rate Mt Ellis Medical Center has a single operating room that is used by local physicians to perform surgical procedures. The cost of using the operating room is accumulated by each patient procedure and includes the direct materials costs (drugs and medical devices), physician surgical time, and operating room overhead. On March 1 of the current year, the annual operating room overhead is estimated to be: The overhead costs will be assigned to procedures based on the number of surgical room hours. Mt Ellis Medical Center expects to use the operating room an average of 12 hours per day, seven days per week. In addition, the operating room will be shut down two weeks per year for general and maintenance repairs. a. Determine the predetermined operating room overhead rate for the year. b.Shirlee Greer had a 3.4-hour procedure on March 18. How much operating room overhead would be charged to her procedure, using the rate determined in part (a)? c. During March, the operating room was used 330 hours. The actual overhead costs incurred for March were $101,750. Determine the overhead under- or overapplied for the period.Recording jobs completed The following account appears in the ledger after all postings have been completed except for the entries to transfer the costs of the jobs completed in October. Jobs finished during October are summarized as follows: a.Determine the cost of jobs completed. b.Determine the cost of the unfinished jolts at October 31.Determining manufacturing costs Wagner Printing Inc. began printing operations on July I. Jobs 7-01 and 7-02 were completed during the month, and all costs applicable to them were recorded on the related cost sheets. Jobs 7-03 and 7-04 are still in process at the end of the month, and all applicable costs except factory overhead have been recorded on the related cost sheets. In addition to the materials and labor charged directly to the jobs, $2,000 of indirect materials and $1,650 of indirect labor were used during the month. The cost sheets, in summary form, for the four jobs during the month are as follows: Determine each of the following for July: a. Direct and indirect materials used. b.Direct and indirect labor used. c. Factory overhead applied (a single overhead rate is used based on direct labor cost). d.Cost of completed Jobs 7-01 and 7-02. e.Assume that in addition to indirect materials and indirect labor, factory overhead of $1,500 was incurred during July. Determine the overapplied or underapplied overhead for March.Financial statements of a manufacturing firm The following events look place for Bridger Bikes Inc. during July 20Y6, the first month of operations, as a producer of road bikes: Purchased $340,000 of materials. Used $329,000 of direct materials in production. Incurred $160,000 of direct labor wages. Applied factory overhead at a rate of 80% of direct labor cost. Transferred $590,000 of work in process to finished goods. Sold goods with a cost of $550,000. Sold goods for $918,000. Incurred $132,500 of selling expenses. Incurred $80,000 of administrative expenses. a.Prepare the July income statement for Bridger Bikes Inc. Assume that Bridger Bikes uses the perpetual inventory method. b.Determine the inventory balances at the end of the first month of operations.Job order cost accounting entries for a service business Media Conned Inc. provides advertising services for clients across the nation. Media Connect is presently working on four projects, each for a different client. Media Connect accumulates costs for each account (client) on the basis of both direct costs and allocated indirect costs. The direct costs include the charged time of professional personnel and media purchases (air time and ad space). Overhead is allocated to each project as a percentage of media purchases. The predetermined overhead rate is 40% of media purchases. On April 1, the four advertising projects had the following accumulated costs: During April, Media Connect incurred the following direct labor and media purchase costs related to preparing advertising for each of the four accounts: At the end of April, both the First Bank and Reliable Airlines campaigns were completed. The costs of completed campaigns are added to the cost of services account. Determine each of the following for the month: a.Direct labor or costs. b.Media purchases. c. Overhead applied. d.Cost of completed First Bank and Reliable Airlines campaigns.10.21E10.22EJust-in-time principles Jupiter Shirt Company manufactures various styles of men's casual wear. Shirts are cut and assembled by a workforce that is paid by piece rate. This means that workers are paid according to the amount of work completed during a period of time. To illustrate, if the piece rate is $0.18 per sleeve assembled, and the worker assembles 1,000 sleeves during the day, then the worker would be paid $180 (1,000 X $0.18) for the day's work. The company is considering adopting a just-in-time manufacturing philosophy by organizing work cells around various types of products and employing pull manufacturing. However, no change is expected in the compensation policy. On this point, the manufacturing manager stated the following: Piecework compensation provides an incentive to work fast. Without it, the workers will just goof off and expect a full day's pay. We can't pay straight hourly wages—at least not in this industry. How would you respond to the manufacturing manager's comments?Activity-based costing for a hospital Deer Lodge Regional Hospital plaits to use activity-based costing to assign hospital indirect costs to the care of patients. The hospital has identified the following activities and activity rates for the hospital indirect costs: The records of two representative patients were analyzed, using the activity rates. The activity information associated with the two patients is as follows: a. Determine the activity cost associated with each patient, b.Why is the total activity cost different for the two patients?Activity-based costing in an insurance company Umbrella Insurance Company carries three major lines of insurance: auto, workers' compensation, and homeowners. The company has prepared the following report for 20Y2: Management is concerned that the administrative expenses may make some of the insurance lines unprofitable. However, the administrative expenses have not been allocated to the insurance lines. The controller has suggested that the administrative expenses could be assigned to the insurance lines using activity-based costing. The administrative expenses are comprised of five activities. The activities and their rates are as follows: Activity-base usage data for each line of insurance were retrieved from the corporate records and are shown below. a.Complete the product profitability report through the administrative activities. b.Determine the underwriting income as a percent of premium revenue. C.Determine the Operating income as a percent of premium revenue, rounded to one decimal place. d.Interpret the report.Classifying costs The following is a list of costs that were incurred in the production and sale of all-terrain vehicles (ATVs). a.Attorney fees for drafting a new lease for headquarters offices. b.Cash paid to outside firm for janitorial services for factory. c. Commissions paid to sales representatives, based on the number of ATVs sold. d.Cost of advertising in a national magazine. e.Cost of boxes used in packaging ATVs. f. Electricity used to run the robotic machinery. g.Engine oil used in engines prior to shipment. h. Factory cafeteria cashier's wages. i. Filler for spray gun used to paint the ATVs. j. Gasoline engines used for ATVs. k.Hourly wages of operators of robotic machinery used in production. I. License fees for use of patent for transmission assembly, based on the number of ATVs produced. m. Maintenance costs for new robotic factory equipment, based on hours of usage. n. Paint used to coat the ATVs. o.Payroll taxes on hourly assembly line employees. p.Plastic for outside housing of ATVs. q.Premiums on insurance policy for factory buildings. r. Properly taxes on the factory building and equipment. s.Salary of factory supervisor. t. Salary of quality control supervisor who inspects each ATV before it is shipped. u.Salary of vice president of marketing. v. Steering wheels for ATVs. w. Straight-line depreciation on the robotic machinery used to manufacture the ATVs. x.Steel used in producing the ATVs. y.Telephone charges for company controller's office. z.Tires for ATVs. Instructions Classify each cost as either a product cost or a period cost. Indicate whether each product cost is a direct materials cost, a direct labor cost, or a factory overhead cost. Indicate whether each period cost is a selling expense or an administrative expense. Use the following tabular headings for your answer, placing an "X" in the appropriate column.Schedules for unfinished jobs and completed jobs Waddell Equipment Company uses a job order cost system. The following data summarize the operations related to production for April 20V t. the first month of operations: a.Materials purchased on account, $36,000. b.Materials requisitioned and factory labor used: c. Factory overhead costs incurred on account, $6,000. d.Depreciation of machinery and equipment, $1,550. e.The factory overhead rate is $40 per machine hour. Machine hours used: f. Jobs completed: 401, 402, 403, and 405. g.Jobs were shipped and customers were billed as follows: Job 401 $22,750, Job 402 $16,600, Job 403 $8,400. Instructions Prepare a schedule summarizing manufacturing costs by job for April. Use the following form:Schedules for unfinished jobs and completed jobs Waddell Equipment Company uses a job order cost system. The following data summarize the operations related to production for April 20V t. the first month of operations: a.Materials purchased on account, $36,000. b.Materials requisitioned and factory labor used: c. Factory overhead costs incurred on account, $6,000. d.Depreciation of machinery and equipment, $1,550. e.The factory overhead rate is $40 per machine hour. Machine hours used: f. Jobs completed: 401, 402, 403, and 405. g.Jobs were shipped and customers were billed as follows: Job 401 $22,750, Job 402 $16,600, Job 403 $8,400. Instructions Prepare a schedule of jobs finished in April.Schedules for unfinished jobs and completed jobs Waddell Equipment Company uses a job order cost system. The following data summarize the operations related to production for April 20V t. the first month of operations: a.Materials purchased on account, $36,000. b.Materials requisitioned and factory labor used: c. Factory overhead costs incurred on account, $6,000. d.Depreciation of machinery and equipment, $1,550. e.The factory overhead rate is $40 per machine hour. Machine hours used: f. Jobs completed: 401, 402, 403, and 405. g.Jobs were shipped and customers were billed as follows: Job 401 $22,750, Job 402 $16,600, Job 403 $8,400. Instructions Prepare a schedule of jobs sold in April. What account does this schedule support for the month of April?Schedules for unfinished jobs and completed jobs Waddell Equipment Company uses a job order cost system. The following data summarize the operations related to production for April 20V t. the first month of operations: a.Materials purchased on account, $36,000. b.Materials requisitioned and factory labor used: c. Factory overhead costs incurred on account, $6,000. d.Depreciation of machinery and equipment, $1,550. e.The factory overhead rate is $40 per machine hour. Machine hours used: f. Jobs completed: 401, 402, 403, and 405. g.Jobs were shipped and customers were billed as follows: Job 401 $22,750, Job 402 $16,600, Job 403 $8,400. Instructions Prepare a schedule of completed jobs on hand as of April 30, 20Y4. What account does this schedule support?Schedules for unfinished jobs and completed jobs Waddell Equipment Company uses a job order cost system. The following data summarize the operations related to production for April 20V t. the first month of operations: a.Materials purchased on account, $36,000. b.Materials requisitioned and factory labor used: c. Factory overhead costs incurred on account, $6,000. d.Depreciation of machinery and equipment, $1,550. e.The factory overhead rate is $40 per machine hour. Machine hours used: f. Jobs completed: 401, 402, 403, and 405. g.Jobs were shipped and customers were billed as follows: Job 401 $22,750, Job 402 $16,600, Job 403 $8,400. Instructions Prepare a schedule of unfinished jobs as of April 30, 20Y4. What account docs this schedule support?Schedules for unfinished jobs and completed jobs Waddell Equipment Company uses a job order cost system. The following data summarize the operations related to production for April 20V t. the first month of operations: a.Materials purchased on account, $36,000. b.Materials requisitioned and factory labor used: c. Factory overhead costs incurred on account, $6,000. d.Depreciation of machinery and equipment, $1,550. e.The factory overhead rate is $40 per machine hour. Machine hours used: f. Jobs completed: 401, 402, 403, and 405. g.Jobs were shipped and customers were billed as follows: Job 401 $22,750, Job 402 $16,600, Job 403 $8,400. Instructions Determine the gross profit for April based upon the jobs sold. Ignore the difference between actual and applied factory overhead.Job cost sheet Hallmark Furniture Company refinishes and reupholsters furniture. Hallmark Furniture uses a job order cost system. When a prospective customer asks for a price quote on a job. the estimated cost data are inserted on an unnumbered job cost sheet. If the offer is accepted, a number is assigned to the job, and the costs incurred are recorded in the usual manner on the job cost sheet. After the job is completed, reasons for the variances between the estimated and actual costs are noted on the sheet. The data are then available to management in evaluating the efficiency of operations and in preparing quotes on future jobs. On February 14, 20YI, an estimate of $897.60 for reupholstering a chair and couch was given to Millard Schmidt. The estimate was based on the following data: On February 17, the chair and couch were picked up from the residence of Millard Schmidt, 315 White Oak Drive, Columbus, Georgia, with a commitment to return them on March 15. The job was completed on March 9. The related materials requisitions and time tickets are summarized as follows: Instructions Prepare a job cost sheet showing the estimate given to the customer. Use the format shown on the next page.Job cost sheet Hallmark Furniture Company refinishes and reupholsters furniture. Hallmark Furniture uses a job order cost system. When a prospective customer asks for a price quote on a job. the estimated cost data are inserted on an unnumbered job cost sheet. If the offer is accepted, a number is assigned to the job, and the costs incurred are recorded in the usual manner on the job cost sheet. After the job is completed, reasons for the variances between the estimated and actual costs are noted on the sheet. The data are then available to management in evaluating the efficiency of operations and in preparing quotes on future jobs. On February 14, 20YI, an estimate of $897.60 for reupholstering a chair and couch was given to Millard Schmidt. The estimate was based on the following data: On February 17, the chair and couch were picked up from the residence of Millard Schmidt, 315 White Oak Drive, Columbus, Georgia, with a commitment to return them on March 15. The job was completed on March 9. The related materials requisitions and time tickets are summarized as follows: Instructions Assign number 02-019 to the job, record the costs incurred, and complete the job cost sheet.Analyzing manufacturing cost accounts Summer Boards Company manufactures surf boards in a wide variety of sizes and styles. The following incomplete ledger accounts refer to transactions that are summarized for May: In addition, the following information is available: Materials and direct labor were applied to six jobs in May: b.Factory overhead is applied to each job at a rate of 120% of direct labor cost. c.The May 1 Work in Process balance consisted of two jobs, as follows: d. Customer jobs completed and units sold in May were as follows: Instructions Determine the missing amounts associated with each letter. Provide supporting calculations by completing a table with the following headings:Analyzing manufacturing cost accounts Summer Boards Company manufactures surf boards in a wide variety of sizes and styles. The following incomplete ledger accounts refer to transactions that are summarized for May: In addition, the following information is available: Materials and direct labor were applied to six jobs in May: b.Factory overhead is applied to each job at a rate of 120% of direct labor cost. c.The May 1 Work in Process balance consisted of two jobs, as follows: d. Customer jobs completed and units sold in May were as follows: Instructions Determine the May 31 balances for each of the inventory accounts and factory overhead.Flow of costs and income statement R-Tunes Inc. is in the business of developing, promoting, and selling musical talent online and with compact discs (CDs). The company signed a new group, called Cyclone Panic, on January 1, 20Y8. For the first six months of 20Y8, the company spent $1,000,000 on a media campaign for Cyclone Panic and $175,000 in legal costs. The CD production began on April 1, 20Y8. R-Tunes uses a job order cost system to accumulate costs associated with a CD title. The unit direct materials cost for the CD is: The production process is straightforward. First, the blank CDs are brought to a production area where the digital soundtrack is copied onto the CD. The copying machine can copy 3,600 CDs per hour. After the CDs are copied, they are brought to an assembly area where an employee packs the CD with a case and song lyric insert. The direct labor cost is $0.37 per CD. The CDs are sold to record stores. Each record store is given promotional materials, such as posters and aisle displays. Promotional materials cost $30 per record store. In addition, shipping costs average $0.28 per CD. Total completed production was 500,000 CDs during the year. Other information is as follows: Factory overhead cost is applied to jobs at the rate of $1,800 per copy machine hour. There were an additional 18,000 copied CDs, packages, and inserts waiting to be assembled on December 31, 20Y8. Instructions Prepare an annual income statement for the Cyclone Panic CD, including supporting calculations, from the information above.Flow of costs and income statement R-Tunes Inc. is in the business of developing, promoting, and selling musical talent online and with compact discs (CDs). The company signed a new group, called Cyclone Panic, on January 1, 20Y8. For the first six months of 20Y8, the company spent $1,000,000 on a media campaign for Cyclone Panic and $175,000 in legal costs. The CD production began on April 1, 20Y8. R-Tunes uses a job order cost system to accumulate costs associated with a CD title. The unit direct materials cost for the CD is: The production process is straightforward. First, the blank CDs are brought to a production area where the digital soundtrack is copied onto the CD. The copying machine can copy 3,600 CDs per hour. After the CDs are copied, they are brought to an assembly area where an employee packs the CD with a case and song lyric insert. The direct labor cost is $0.37 per CD. The CDs are sold to record stores. Each record store is given promotional materials, such as posters and aisle displays. Promotional materials cost $30 per record store. In addition, shipping costs average $0.28 per CD. Total completed production was 500,000 CDs during the year. Other information is as follows: Factory overhead cost is applied to jobs at the rate of $1,800 per copy machine hour. There were an additional 18,000 copied CDs, packages, and inserts waiting to be assembled on December 31, 20Y8. Instructions Determine the balances in the work-in-process and finished goods inventories for the Cyclone Panic CD on December 31, 20Y8.Unit cost analysis The management of Colfax Manufacturing Inc. uses cost information from job sheets to assess its performance, Information on the total, product type, and quantity of items produced is as follows: a. Develop a graph for each product (three graphs), with Job No. (in date order) on the horizontal axis and unit cost on the vertical axis. Use this information to determine Colfax Manufacturing's cost performance over time for the three products. b. What additional information would you require to investigate Colfax Manufacturing's cost performance more precisely?10.2MBA10.3MBA10.4MBA10.1C10.2C10.3.1CClassifying costs Reboot Inc. provides computer repair services for the community. Ashley DaCosta's computer was not working, and she called Reboot for a home repair visit. The Reboot Inc. technician arrived at 2:00 p.m. to begin work. By 4:00 p.m.. the problem was diagnosed as a failed circuit board. Unfortunately, the technician did not have a new circuit board in the truck, since the technician's previous customer had the same problem, and a board was used on that visit. Replacement boards were available back at Reboots shop. Therefore, the technician drove back to the shop to retrieve a replacement board. From 4:00 to 5:00 p.M., Reboot's technician drove the round trip to retrieve the replacement board from the shop. At 5:00 p.m., the technician was back on the job at Ashley's home. The replacement procedure is somewhat complex, since a variety of tests must be performed once the board is installed. The job was completed at 6:00 p.m. Ashley's repair bill showed the following: Ashley was surprised at the si2e of the bill and asked for some greater detail supporting the calculations. Reboot responded with the following explanations: The labor charge per hour is detailed as follows: Use the headings below to construct a table. Fill in the table by first listing the costs identified in the activity in the left-hand column. For each cost, place a check mark in the appropriate column identifying the correct cost classification. Assume that each service call is a job.10.4.1CFactory overhead rate Fabricator Inc., a specialized equipment manufacturer, uses a job order cost system. The overhead is allocated to jobs on the basis of direct labor hours. The overhead rate is now $3,000 per direct labor hour. The design engineer thinks that this is illogical. The design engineer has stated the following: Our accounting system doesn't make any sense to me. It tells me that every labor hour carries an additional burden of $3,000. This means that while direct labor makes up only 5% of our total product cost, it drives all our costs. In addition, these rates give my design engineers incentives to "design out" direct labor by using machine technology. Yet, over the past years as we have had less and less direct labor, the overhead rate keeps going up and up. I won't be surprised if next year the rate is $4,000 per direct labor hour. I'm also concerned because small errors in our estimates of the direct labor content can have a large impact on our estimated costs. Just a 30~minute error in our estimate of assembly time is worth $ 1,500. Small mistakes in our direct labor time estimates really swing our bids around. I think this puts us at a disadvantage when we are going after business. What did the engineer mean about the large overhead rate being a disadvantage when plating bids and seeking new business?Factory overhead rate Fabricator Inc., a specialized equipment manufacturer, uses a job order cost system. The overhead is allocated to jobs on the basis of direct labor hours. The overhead rate is now $3,000 per direct labor hour. The design engineer thinks that this is illogical. The design engineer has stated the following: Our accounting system doesn't make any sense to me. It tells me that every labor hour carries an additional burden of $3,000. This means that while direct labor makes up only 5% of our total product cost, it drives all our costs. In addition, these rates give my design engineers incentives to "design out" direct labor by using machine technology. Yet, over the past years as we have had less and less direct labor, the overhead rate keeps going up and up. I won't be surprised if next year the rate is $4,000 per direct labor hour. I'm also concerned because small errors in our estimates of the direct labor content can have a large impact on our estimated costs. Just a 30~minute error in our estimate of assembly time is worth $ 1,500. Small mistakes in our direct labor time estimates really swing our bids around. I think this puts us at a disadvantage when we are going after business. What do you think is a possible solution?10.5CJust-in-time principles Warm Space Inc. manufactures electric space heaters. While the CEO, Gwen Willis, is visiting the production facility, the following conversation takes place with the plant manager, Tyra Chastain: Gwen: As I walk around the facility, I can't help noticing all the materials inventories. What's going on? Tyra: I have found our suppliers to be very unreliable in meeting their delivery commitments. Thus, I keep a lot of materials on hand so as to not risk running out and shutting down production. Gwen: Not only do I see a lot of materials inventory, but there also seems to be a lot of finished goods inventory' on hand. Why is this? Tyra: As you know, I am evaluated on maintaining a low cost per unit. The one way that I am able to reduce my unit costs is by producing as many space heaters as possible. This allows me to spread my fixed costs over a larger base. When orders are down, the excess production builds up as inventory, as we are seeing now. But don't worry—I'm really keeping our unit costs down this way. Gwen: I'm not so sure. It seems that this inventory must cost us something. Tyra: Not really. I'll eventually use the materials, and we'll eventually sell the finished goods. By keeping the plant busy, I'm using our plant assets wisely. This is reflected in the low unit costs that I'm able to maintain. If you were Gwen Willis, how would you respond to Tyra Chastain? What recommendations would you provide to Tyra Chastain?Which of the following statements describes variable costs? A. Costs that vary on a per-unit basis as the level of activity changes B. Costs that vary in total in direct proportion to changes in the level of activity C. Costs that remain the same in total dollar amount as the level of activity changes D. Costs that vary on a per-unit basis, but remain the same in total as the level of activity changesIf sales are $500,000, variable costs are $200,000, and fixed costs are $240,000, what is the contribution margin ratio? A. 40% B. 48% C. 52% D. 60%If the unit selling price is $16. the unit variable com is $12, and fixed costs are $160,000, what are the break-even sales (units)? A. 5,714 units B. 10,000 units C. 13.333 units D. 40,000 unitsBased on the data presented in Question 3, how many units of sales would he required lo realize operating income of $20,000? A. 11,250 units B. 35,000 units C. 40,000 units D. 45.000 units5SEQDescribe how total variable costs and unit variable costs behave with changes in the level of activity.How would each of the following costs be classified if units produced is the activity base? a. Direct materials costs b. Direct labor costs c. Electricity costs of $0.09 per kilowatt-hourDescribe the behavior of (a) total fixed costs and (b) unit fixed costs as the level of activity increases.How would each of the following costs be classified if units produced is the activity base? a. Salary of factory supervisor ($120,000 per year) b. Straight-line depreciation of plant and equipment c. Property rent of $11,500 per month on plant and equipmentIn cost analyses, how arc mixed costs treated?Which of the following graphs illustrates how total fixed costs be have with changes in total units producedWhich of the following graphs illustrates how unit variable costs behave with changes in total units produced?Which of the following graphs best illustrates fixed costs per unit as the activity base changes?In applying the high-low method of Cost estimation, how is the total fixed cost estimated?10CDQ11CDQ12CDQIf insurance rates are increased, what effect will this change in fixed costs have on the break-even point?14CDQThe reliability of cost-volume-profit (CVP) analysis depends on several key assumptions. What are those primary assumptions?How does the sales mix affect the calculation of the break-even point?17CDQClassify costs Following is a list of various costs incurred in producing and selling college textbooks. With respect to the production and sale of textbooks, classify each cost as either variable, fixed, or mixed. 1. Art commission of $36,000 paid for use of art on textbook cover. 2. Sales commissions paid sales representatives based upon number of textbooks sold. 3. Electricity costs, $0.04 per kilowatt-hour. 4. Hourly wages of operators of printing presses. 5. Janitorial costs, $5,000 per month. 6. Packaging for customized texts and texts shipped with software codes. 7. Paper used in priming the textbooks. 8. Property insurance premiums, $1,800 per month plus $0.05 for each dollar of property over $2,000,000 9. Property taxes, $615,000 per year on factory building and equipment. 10. Rent on warehouse, $12,800 per month plus $2.50 per square foot of storage used. 11. Royalty paid authors for each textbook sold. 12. Salary of plant manager. 13. Sales commission paid lo Amazon.com of $ 100,000 plus $0.50 for each textbook sold online. 14. Straight-line depreciation on the production equipment. 15. Technology development costs of $1,200,000.Identify cost graphs The following cost graphs illustrate various types of cost behavior: For each of the following costs, identify the cost graph that best illustrates its cost behavior as the number of units produced increases. a. Direct material cost per unit. b. Fees for using a patent of $500,000 plus $0.25 for each unit produced. c. Salary of quality control supervisor. d. Straight-line depreciation per unit on factory equipment. e. Total direct materials cost.11.3EIdentify activity bases From the following list of activity bases for an automobile dealership, select the base that would be most appropriate for each of these costs: (1) preparation costs (cleaning, oil, and gasoline costs) for each car received, (2) salespersons' commission of 6% of the sales price for each car sold, and (3) administrative costs for ordering cars. a. Dollar amount of cars on hand b.Dollar amount of cars ordered c. Dollar amount of cars received d.Dollar amount of cars sold e.Number of cars on hand f. Number of cars ordered g. Number of cars received h.Number of cars soldIdentify fixed and variable costs Intuit Inc. (INTU) develops and sells software products for the personal finance market, including popular titles such as Quicken" and TurboTax". Classify each of the following costs and expenses for this company as either variable or fixed to the number of units produced and sold: a.Advertising b.CDs C.Commissions for online sales personnel d.Cos! of registering each unit sold e. Hourly wages of help desk employees f. Packaging costs g.Salaries of human resources personnel h.Salaries of software developers i. Salary of Chief Financial Officer j. Shipping expenses k.Straight-line depreciation on equipment I. Writing of user's guidesRelevant range and fixed and variable costs Third World Gamer Inc. manufactures components for computer games within a relevant range of 500.000 to 1,000.000 disks per year. Within this range, the following partially completed manufacturing cost schedule has been prepared: Complete the cost schedule, identifying each cost by the appropriate letter (a) through (o).High-low method Liberty Inc. has decided to use the high-low method to estimate costs. The data for various levels of production are as follows: a. Determine the variable cost per unit and the fixed cost. b.Based on part (a), estimate the total cost for 260.000 units of production.High-low method for service company Miss River Railroad decided to use the high-low method and operating data from the past six months to estimate the fixed and variable components of transportation costs. The activity base used by Miss River Railroad is a measure of railroad operating activity, termed "gross-ton miles," which is the total number of tons multiplied by the miles moved. Determine the variable cost per gross-ton mile and the fixed costs.Contribution margin ratio a. Matzinger Company budgets sales of $10,400,000, fixed costs of $1,100,000, and variable-costs of $6,656,000. What is the contribution margin ratio for Matzinger Company? b.If the contribution margin ratio for Raynor Company is 41%, sales are $6,200,000, and fixed costs are $1,350,000, what is the operating income?Contribution margin and contribution margin ratio For a recent year. McDonald's (MCD) company-owned restaurants had the following sales and expenses (in millions): Assume that the variable costs consist of food and packaging, payroll, and 45% of the general, selling, and administrative expenses. a. What is McDonald's contribution margin? Round to the nearest million. b.What is McDonald's contribution margin ratio? Round to one decimal place. c. How much would operating income increase if same-store sales increased by $500 million for the coming year, with no change in the contribution margin ratio or fixed costs? d.What would have been the operating income or loss for the recent year if sales had been $500 million more? e.To achieve break even for the recent year, by how much would sales need to increase?Break-even sales and sales to realize operating income For the current year ending December 31, McAdams Industries expects fixed costs of $1,860,000, a unit variable cost of $105, and a unit selling price of $125. a.Compute the anticipated break-even sales (units). b.Compute the sales (units) required to realize operating income of $500,000.11.12E11.13EBreak-even analysis The Garden Club of Palm Springs, California, collected recipes from members and published a cookbook entitled Desert Dishes. The book will sell for $40 per copy. The chairperson of the cookbook development committee estimated that the club needed to sell 8.000 hooks to break even on its $40,000 investment. What is the variable cost per unit assumed in the Garden Club's analysis?Break-even analysis Media outlets such as ESPN and Fox Sports often have Web sites that provide in-depth coverage of news and events. Portions of these Web sites are restricted to members who pay a monthly subscription to gain access to exclusive news and commentary'. These Web sites typically offer a free trial period to introduce viewers to the Web site. Assume that during a recent fiscal year. ESPN.com spent $20,900,000 on a promotional campaign for its Web site, offering two free months of service for new subscribers. In addition, assume the following information: Determine the number of new customer accounts needed to break even on the cost of the promotional campaign. In forming your answer. (1) treat the cost of the promotional campaign as a fixed cost, and (2) treat the revenue less variable cost per account for the subscription period as the unit contribution margin.11.16E11.17E11.18E11.19E11.20EBreak-even sales and sales mix for a service company Yellow Dove Airways provides air transportation services between Portland and Minneapolis. A single Portland to Minneapolis round-trip flight has the following operating statistics: It is assumed that the fuel and landing fees, crew salaries, and airplane depreciation are fixed, regardless of the number of seats sold for the round-trip flight. a.Compute the break-even number of seats sold on a single round-trip flight for the overall product. Assume that the overall product is 10% business class and 90% economy class tickets. b.How many business class and economy class seats would as sold at the break-even point?Operating leverage SunRise Inc. and SunSet Inc. have the following operating data: a. Compute the operating leverage for Sun Rise Inc. and SunSet Inc. b.How much would operating income increase for each company if the sales of each increased by 25%? c. Why is there a difference in the increase in operating income for the two companies? Explain.Classify costs Peak Apparel Co. manufactures a variety of clothing types for distribution to several major retail chains. The following costs are incurred in the production and sale of blue jeans: a. Shipping boxes used to ship orders b. Consulting fee of $200,000 paid to industry specialist for marketing advice C. Straight-line depreciation on sewing machines d. Salesperson's salary, $10,000 plus 2% of the total sales e. Fabric f. Dye g. Thread h. Salary of designers i. Brass buttons j. Legal fees paid to attorneys in defense of the company in a patent infringement suit, $50,000 plus $87 per hour k. Insurance premiums on property, plant, and equipment. $70,000 per year plus $5 per $50,000 of insured value over $8,000,000 I. Rental costs of warehouse, $5,000 per month plus $4 per square foot of storage used m. Supplies n. Leather for patches identifying the brand on individual pieces of apparel o. Rent on plant equipment, $50,000 per year p. Salary of production vice president q. Janitorial services. $2,200 per month r. Wages of machine operators s. Electricity costs of $0.10 per kilowatt-hour t. Property taxes on property, plant, and equipment Instructions Classify the preceding costs as either fixed, variable, or mixed. Use the following tabular headings and place an "X" in the appropriate column. Identify each cost by letter in the cost column.Break-even sales under present and proposed conditions Kearney Company, operating at full capacity, sold 400,000 units at a price of $246.60 per unit during 20Y5. Its income statement for 20Y5 is as follows: The division of costs between fixed and variable is as follows: Management is considering a plant expansion program that will permit an increase of $8,631,000 (35.000 units at $246.60) in yearly sales. The expansion will increase fixed costs by $3,600,000 but will not affect the relationship between sales and variable costs. Instructions Determine for 20Y5 the total fixed costs and the total variable costs.11.2.2P11.2.3P11.2.4P11.2.5PBreak-even sales under present and proposed conditions Kearney Company, operating at full capacity, sold 400,000 units at a price of $246.60 per unit during 20Y5. Its income statement for 20Y5 is as follows: The division of costs between fixed and variable is as follows: Management is considering a plant expansion program that will permit an increase of $8,631,000 (35.000 units at $246.60) in yearly sales. The expansion will increase fixed costs by $3,600,000 but will not affect the relationship between sales and variable costs. Instructions Determine the maximum operating income possible with the expanded plant.11.2.7P11.2.8PBreak-even sales and cost-volume-profit graph For the coming year, Bernardino Company anticipates a unit selling price of $85, a unit variable cost of $15. and fixed costs of $420,000. Instructions Compute the anticipated break-even sales (units).11.3.2PBreak-even sales and cost-volume-profit graph For the coming year, Bernardino Company anticipates a unit selling price of $85, a unit variable cost of $15. and fixed costs of $420,000. Instructions Consiract a cost-volume-profit graph, assuming maximum sales of 10,000 units within the relevant range.11.3.4P11.4.1P