Accounting Problems Set part A, Part B, Part C-The globalization of business activity has resulted in which...
Question;Part A MULTIPLE CHOICE and TRUE/FALSE (1 mark each x 15 questions = 15 marks).Choose the one alternative that best completes the statement or answers thequestion.1. The globalization of business activity has resulted in which of the following?a. Increased corruption and unethical behavior.b. The FASB and IASB working jointly on a project to converge accounting standards.c. The requirement that major Canadian companies use International FinancialReporting Standards.d. All of the above.e. b and c.2. The manipulation of the allowance for doubtful accounts by management would be bestindicated by when a company:a. tightens its credit standards and the allowance account decreases.b. lowers its credit standards and the allowance account decreases.c. tightens its credit standards and the allowance account increases.d. lowers its credit standards and the allowance account increases.3. The best measure for determining how well a firm operates within its industry isa. Gross Profitb. Operating Profitc. Earnings before Taxesd. Net profit4. A change in retained earnings from one year end to the next can result from cash flowsrelated to both operating and financing activities. (True/false)5. Consider the following statementsI. The cash conversion cycle of a firm can be improved by decreasing the days inventoryheld and days payable outstanding, while decreasing the average collection period.II. The DuPont System helps the analyst see how a firms decisions and activities over anaccounting period interact to produce return on equity.a.b.c.d.Only Statement I is true.Only Statement II is true.Both Statements I and II are true.Both Statements I and II are false.6. How should a company report total comprehensive income?a. On the face of its income statement.b. In a separate statement of comprehensive income.c. In its statement of stockholders' equity.d. All of the above ways are acceptable.7. Currently, management accounting information within government and nonprofitorganizations is in greater demand because:a. public and private donors are demanding accountabilityb. citizens are requesting responsive and efficient performance from their governingunitsc. more nonprofit organizations are competing for limited fundsd. All of the above are correct.8. The measurement of the objectives for the Balanced Scorecarda. creates focus for the future.b. communicates an important message to all employees.c. focuses the entire organization on strategic implementation of companys outcomes.d. All of the above are correct.9. The strategy MOST LIKELY to reduce the break-even point would be to:a. increase both the capacity-related (fixed) costs and the contribution margin per unit.b. decrease both the capacity-related (fixed) costs and the contribution margin per unit.c. decrease the capacity-related (fixed) costs and increase the contribution margin perunit.d. increase the capacity-related (fixed) costs and decrease the contribution margin perunit.10. The major reason for using practical capacity as the denominator for activity drivercalculations is to:a. avoid distortions created by the assignment of unused capacity costs to the productsproduced or customers served.b. simplify the calculations of the activity cost drivers.c. reduce the cost of unused capacity.d. place less emphasis on the cost of unused capacity.11. An activity-based costing system is most useful when:a. Operations throughout the plant are fairly similar.b. There are small amounts of overhead costs.c. Products produced in the company all show large profits.d. Products make diverse demands on resources because of differences in volume,process steps, batch size, or complexity.12. Which of the following is NOT an option to transform breakeven or loss customers intoprofitable ones?a. Use more discipline in granting discounts and allowances.b. Improve the process used to produce, sell, deliver and service the customer.c. Use less menu-based pricing that allows customers to select features and services itwishes to pay for.d. Improve margins by lowering costs.13. A performance measurement system should accomplish all of the following except:a. communicate the companys strategy.b. motivate employees to achieve strategic objectives.c. identify financial measures to evaluate an organizations intangible assets.d. help managers allocate resources to the most productive alternatives.14. Committed costs are those that the organization agrees must be set aside to cover productcosts through the three major stages of the life cycle. (True/False)15. Budgeting provides all of the following EXCEPT:a. a means to communicate the organization's short-term goals to its membersb. support for the management functions of planning and coordinationc. a means to anticipate problemsd. an ethical framework for decision makingPart B - Short Answer (10 questions, 50 marks). Please highlight your answers and showyour work to receive partial credit for incorrect answers.1. (2 marks) Assume that Zebra Company has no opening inventory. The following purchasesof inventory occurred during the year:DatePurchases (units)Jan 22Feb. 153March 304July 296October 305Purchase Price per Unit$3$5$7$6$4Assume Zebra sells 10 items on October 31 and uses the LIFO method of inventoryvaluation.Required: What amount would appear as cost of goods sold on the income statement?2. (5 marks) The following calculations have been made for Rogers Company:Growth Rate2012 to 201310.5%21.3%2.6%Net salesTotal accounts receivableAllowance for doubtful accounts2013Allowance for doubtful accounts as apercentage of total accounts receivable20123.8%5.4%Required: Analyze the accounts receivable and allowance for doubtful accounts changesand provide plausible explanations for the results.3. (5 marks) Analyze the common size income statements below:Net salesCOGSGross marginResearch and developmentSelling, general and administrativeRestructuring, asset impairments and other chargesIncome from operationsInterest expenseIncome (loss) before income taxesProvision for income taxesNet income (loss)Sales revenue increase, 2012 to 2013Operating expense increase, 2012 to 20132013100%5446145126(1)25817 12100%633720980(2)(2)0(2)%80%31%4. (7 marks) Yak Corporation reported the following information:(1)Net income for the year was $52 million.(2)Purchases of equipment were $12 million.(3)Customer accounts receivable decreased by $6 million.(4)Dividends paid to common shareholders were $10 million.(5)Depreciation expense was $18 million.(6)Income tax payable decreased by $3 million.(7)Long-term debt decreased by $14 million.(8)Accounts payable increased by $8 million.(9)Inventories decreased by $5 million.(10) Opening cash balance was $4 million.Required: Based on the above information, calculate the ending cash balance.5. (4 marks) Able Manufacturing uses departmental cost driver rates to allocate manufacturingsupport costs to products. Manufacturing support costs are allocated on the basis ofmachine hours in Department A and on the basis of direct labor hours in Department B. Atthe beginning of 2013, the following estimates were provided for the coming year:Dept. ADirect labor cost$600,000Manufacturing overhead costs $400,000Direct labor-hours25,000Machine-hours10,000Dept. B$1,800,000$600,00060,00012,000The accounting records of the company show the following data for Job #123:Direct labor-hoursMachine-hoursDirect material costDept. A102$100Dept. B2015$200Required: Calculate the total manufacturing costs of Job #123.6. (6 marks) Petes Publishing, Inc. has excess capacity. Company management isapproached by a new customer to fill a large one-time order for 1,000 books, a productsimilar to one offered to regular customers. The following information applies to sales toregular customers:Sales (100,000 units)Direct materialsDirect laborVariable manufacturing supportFixed manufacturing supportTotal manufacturing costsProfit$12,000,000$5,000,0004,000,000500,000200,0009,700,000$2,300,000Required: What is the minimum acceptable price at which overall profit will not change?7. (3 marks) Bobs Boots Ltd. manufactures three different products boots, slippers, andrunners. Considerable market demand exists for all models. The following per unit dataapply:BootsSelling price$150Direct materials100Direct labor ($20 per hour)20Variable support costs ($4 per machine hour) 10Fixed costs8Gross profit12Slippers$2085241Runners$85401012203Required: If there is no excess capacity, what should the company do to maximize profits?8. (8 marks) Engineers at Jones & Smith Ltd. developed the following standard costs for directmaterial and direct labor for one of their major products:Direct materialsDirect laborStandard quantity10 kilograms0.5 hoursStandard price$5 per kilogram$30 per hourDuring 2013, the company produced and sold 100,000 units using 990,000 kilograms ofdirect materials at an average cost of $4.95 per kilogram,and total direct labour costs of$1,428,000 (51,000 DLHs incurred).Required: Calculate the 2013 price and quantity (efficiency) variances, and total variances,for direct material and direct labour.9. (5 marks) Mercury Manufacturing produces a single product that sells for $30. Variable(flexible) costs per unit equal $20. Management believes that a 5% reduction in the sellingprice will result in a 15% increase in unit sales, currently 10,000 units. The companyexpects the total capacity-related costs to rise from $10,000 to $15,000 to accommodatethe required increase in production if this proposed reduction in selling price isimplemented.Required: What will happen to profits?10. (5 marks) Marcels Manufacturing, Inc., is considering reorganizing its plant intomanufacturing cells. The following estimates have been prepared to evaluate the benefitsfrom the reorganization:Before the changeAfter the changeTotal annual sales$600,000$800,000Costs as a percentage of sales:Direct materials23 %Direct labor9%7%Manufacturing Support costs18%13%Work-in-process inventory$125,000$ 90,000Inventory carrying costs are estimated to be 10% per year.Required: Calculate the amount that total benefits are projected to increase annually as a resultof switching to a cellular manufacturing operation.Part C Problems (3 problems, 65 marks in total). Show your work to receive partialcredit for incorrect answers.Problem 1 (14 marks)Over the years, Donna Dow has been a very successful investor. She investigates a companythoroughly before purchasing its shares. Donna is interested in the common stock of IBUComputers Limited. The following data are available for the company:Current ratio*Acid-test ratioAccounts receivable turnoverInventory turnoverCurrent liabilitiesSalesGross Profit RatioDividends paid per share**Dividend yield ratioDividend payout ratioReturn on total assetsReturn on common stockholders equity20126.96.36.199X4X$1M$10M30%$45.5%40%10%8 122.01.03.5X5X$1M$10M30%$35.5%40%12%14.5 188.8.131.52X6X$1M$10M30%$2.505.5%40%8%9%* Current assets consist of cash, accounts receivable, and inventory.**There were no changes in common stock outstanding over the three-year period.Donna would like answers to a number of specific questions regarding this data. Respond in acomplete but concise manner to each of her questions.1. Is the market price of the companys stock going up or down?,2. Is the earnings per share increasing or decreasing?3. Is the company employing financial leverage to the advantage of the commonstockholders?4. Is it becoming easier for the company to pay its bills as they come due?5. Are customers paying their bills at least as fast now as they did in Year 1?6. Is the total of accounts receiving increasing, decreasing, or remaining constant?7. Is the level of inventory increasing, decreasing, or remaining constant?Problem 2 (16 marks)AudioFile Products Ltd. is a retailer that sells sound systems. The company is planning its cashneeds for the month of January, 2013. In the past, AudioFile has had to borrow money duringthe post-Christmas season to offset a significant decline in sales. The following information hasbeen assembled to assist in preparing a cash flow forecast for January.a. January 2013 forecasted income statement:Sales$200,000Cost of goods sold150,000Gross profit50,000Variable selling expenses $10,000Fixed administrative expenses20,00030,000Forecast net operating income$ 20,000b. Sales are 10% for cash and 90% on credit.c. Credit sales are collected over a three-month period with 40% collected in the month ofsale, 30% in the following month, and 20% in the second month following sale.November 2012 sales totaled $300,000 and December sales totaled $500,000.d. 40% of a months inventory purchases are paid for in the same month. The remaining60% are paid in the following month. Accounts payable relate solely to inventorypurchases. At December 31, these totaled $400,000.e. The company maintains its ending inventory levels at 60% of the cost of themerchandise to be sold in the following month. The merchandise inventory atDecember 31, 2012 was $90,000. February 2013 sales are budgeted at $150,000.Gross profit percentage is expected to remain unchanged.f. The company pays a $10,000 monthly cash dividend to shareholders.g. The cash balance at December 31, 2012 was $30,000, the company must maintain acash balance of at least this amount at the end of each month.h. The company can borrow on its operating loan in increments of $10,000 at thebeginning of each month, up to a total loan balance of $500,000. The interest rate onthis loan is 1% per month. There is no operating loan at December 31, 2012.Required: Prepare a Cash Flow Forecast for AudioFile for the month of January 2013.Include appropriate supporting schedules.Problem 3 (35 marks)In the past, the Big Dog Carworks Ltd. (BDCL) allocated indirect manufacturing costs based ondirect labour hours. Recently, management has decided to pilot a system of time-driven activitybased costing to allocate these costs. The division produces two small engine models: Basicand Heavy Duty. The following information has been obtained from the companys records overthe past year:Basic500,000$40$30200,0002.12,000.2530Units producedDirect material cost per engineDirect labour cost per hourDirect labour hours incurredInspections per engineInspection time per engine (hrs.)Engines packed and shipped perbatchIndividual engine packing time (hrs.)Additional preparation time per batch(hrs.)HeavyDuty50,000$60$3040,0004.3500.415BDCL employs 245 employees to perform indirect labour functions, rotating among machinesetups, engine inspections, and shipping. Each employee is paid $50,000 per year onaverage, including benefits. On average, each employee works 1,600 hours per year.200 automated production machines are leased for $14,000,000 in total each year. Eachmachine is available for 1,600 hours per year, including set up time. Once a machine is setup, no labour is necessary to oversee it. Machine-related information for the year is asfollows:Machining hours per engineSet up time per run (hrs.)Number of production runsBasic.4300100HeavyDuty.660050Requireda. (7 marks). Determine the amount of indirect manufacturing costs allocated to oneengine of each type (Basic, Heavy Duty) based on the existing cost allocation basis(direct labour hours).b. (5 marks) Determine the total cost (direct material, direct labour, indirect manufacturingoverhead) of producing one engine of each type using the existing cost allocation basis.c. (15 marks) Determine the indirect manufacturing support costs for one engine of eachtype using time-driven activity-based costing.d. (8 marks) Comment on the differences between results calculated in parts b and c.
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