ACCT 301 Lecture Notes - Bank Reconciliation, Financial Statement
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Problem 12-18 Parts 1, 3, 4) Relevant Cost Analysis in a Variety of Situations [LO12-2, LO12-3, LO12-4]
Andretti Company has a single product called a Dak. The company normally produces and sells 90,000 Daks each year at a selling price of $56 per unit. The companyâs unit costs at this level of activity are given below:
| Direct materials | $ | 9.50 | |
| Direct labor | 10.00 | ||
| Variable manufacturing overhead | 2.10 | ||
| Fixed manufacturing overhead | 5.00 | ($450,000 total) | |
| Variable selling expenses | 2.70 | ||
| Fixed selling expenses | 4.00 | ($360,000 total) | |
| Total cost per unit | $ | 33.30 | |
A number of questions relating to the production and sale of Daks follow. Each question is independent.
Required:
1-a. Assume that Andretti Company has sufficient capacity to produce 121,500 Daks each year without any increase in fixed manufacturing overhead costs. The company could increase its unit sales by 35% above the present 90,000 units each year if it were willing to increase the fixed selling expenses by $100,000. What is the financial advantage (disadvantage) of investing an additional $100,000 in fixed selling expenses?
1-b. Would the additional investment be justified?
3. The company has 900 Daks on hand that have some irregularities and are therefore considered to be "seconds." Due to the irregularities, it will be impossible to sell these units at the normal price through regular distribution channels. What is the unit cost figure that is relevant for setting a minimum selling price?
4. Due to a strike in its supplierâs plant, Andretti Company is unable to purchase more material for the production of Daks. The strike is expected to last for two months. Andretti Company has enough material on hand to operate at 25% of normal levels for the two-month period. As an alternative, Andretti could close its plant down entirely for the two months. If the plant were closed, fixed manufacturing overhead costs would continue at 35% of their normal level during the two-month period and the fixed selling expenses would be reduced by 20% during the two-month period.
a. How much total contribution margin will Andretti forgo if it closes the plant for two months?
b. How much total fixed cost will the company avoid if it closes the plant for two months?
c. What is the financial advantage (disadvantage) of closing the plant for the two-month period?
d. Should Andretti close the plant for two months?
Problem 12-18 Relevant Cost Analysis in a Variety of Situations[LO12-2, LO12-3, LO12-4]
Andretti Company has a single product called a Dak. The companynormally produces and sells 82,000 Daks each year at a sellingprice of $62 per unit. The companyâs unit costs at this level ofactivity are given below:
| Direct materials | $ | 9.50 | |
| Direct labor | 9.00 | ||
| Variable manufacturingoverhead | 2.00 | ||
| Fixed manufacturingoverhead | 9.00 | ($738,000 total) | |
| Variable selling expenses | 4.70 | ||
| Fixed selling expenses | 3.00 | ($246,000 total) | |
| Total cost per unit | $ | 37.20 | |
A number of questions relating to the production and sale ofDaks follow. Each question is independent.
Required:
1-a. Assume that Andretti Company has sufficient capacity toproduce 102,500 Daks each year without any increase in fixedmanufacturing overhead costs. The company could increase its unitsales by 25% above the present 82,000 units each year if it werewilling to increase the fixed selling expenses by $100,000. What isthe financial advantage (disadvantage) of investing an additional$100,000 in fixed selling expenses?
1-b. Would the additional investment be justified?
2. Assume again that Andretti Company has sufficient capacity toproduce 102,500 Daks each year. A customer in a foreign marketwants to purchase 20,500 Daks. If Andretti accepts this order itwould have to pay import duties on the Daks of $2.70 per unit andan additional $14,350 for permits and licenses. The only sellingcosts that would be associated with the order would be $1.70 perunit shipping cost. What is the break-even price per unit on thisorder?
3. The company has 800 Daks on hand that have someirregularities and are therefore considered to be "seconds." Due tothe irregularities, it will be impossible to sell these units atthe normal price through regular distribution channels. What is theunit cost figure that is relevant for setting a minimum sellingprice?
4. Due to a strike in its supplierâs plant, Andretti Company isunable to purchase more material for the production of Daks. Thestrike is expected to last for two months. Andretti Company hasenough material on hand to operate at 25% of normal levels for thetwo-month period. As an alternative, Andretti could close its plantdown entirely for the two months. If the plant were closed, fixedmanufacturing overhead costs would continue at 30% of their normallevel during the two-month period and the fixed selling expenseswould be reduced by 20% during the two-month period.
a. How much total contribution margin will Andretti forgo if itcloses the plant for two months?
b. How much total fixed cost will the company avoid if it closesthe plant for two months?
c. What is the financial advantage (disadvantage) of closing theplant for the two-month period?
d. Should Andretti close the plant for two months?
5. An outside manufacturer has offered to produce 82,000 Daksand ship them directly to Andrettiâs customers. If Andretti Companyaccepts this offer, the facilities that it uses to produce Dakswould be idle; however, fixed manufacturing overhead costs would bereduced by 30%. Because the outside manufacturer would pay for allshipping costs, the variable selling expenses would be onlytwo-thirds of their present amount. What is Andrettiâs avoidablecost per unit that it should compare to the price quoted by theoutside manufacturer?
Due to a strike in its supplierâs plant, Andretti Company isunable to purchase more material for the production of Daks. Thestrike is expected to last for two months. Andretti Company hasenough material on hand to operate at 25% of normal levels for thetwo-month period. As an alternative, Andretti could close its plantdown entirely for the two months. If the plant were closed, fixedmanufacturing overhead costs would continue at 30% of their normallevel during the two-month period and the fixed selling expenseswould be reduced by 20% during the two-month period. (Round numberof units produced to the nearest whole number. Round yourintermediate calculations and final answers to 2 decimal places.Any losses/reductions should be indicated by a minus sign.)
a. How much total contribution margin will Andretti forgo if itcloses the plant for two months?
b. How much total fixed cost will the company avoid if it closesthe plant for two months?
c. What is the financial advantage (disadvantage) of closing theplant for the two-month period?
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An outside manufacturer has offered to produce 82,000 Daks andship them directly to Andrettiâs customers. If Andretti Companyaccepts this offer, the facilities that it uses to produce Dakswould be idle; however, fixed manufacturing overhead costs would bereduced by 30%. Because the outside manufacturer would pay for allshipping costs, the variable selling expenses would be onlytwo-thirds of their present amount. What is Andrettiâs avoidablecost per unit that it should compare to the price quoted by theoutside manufacturer? (Do not round intermediate calculations.Round your answers to 2 decimal places.)
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I just need to know the forgone contribution margin, totalavoidable costs and the financial advantage (disadvantage)?
& I need to know the avoidable cost per unit
Need help with 8-11
Create financial statements by properly employing prescribedmethods in accordance with generally accepted accountingprinciples: A. Step Eight: Prepare the financial statements. Notethat you must use your adjusted trial balance to prepare the incomestatement, statement of ownerâs equity, and balance sheet. You mustcomplete these statements in this order, as there areinterdependencies among them. B. Step Nine: Complete the âClosingEntriesâ tab in your workbook by closing all temporary incomestatement amounts to create closing entries. C. Step Ten: Preparethe âPost Closing Trial Balanceâ tab for the next accountingperiod. [ACC-201-03] D. Step Eleven: Prepare the reversing entriesin the âReversing Entriesâ tab of your workbook.
Here is all of the info to go along with it:
July 1: You take $10,000 from your personal savings account andbuy common stock in Peyton Approved. July 1: Purchase $6,500 inbaking supplies from vendor, on account. July 3: Your parents lendthe company $10,000 cash in exchange for a two-year, 6% notepayable. Interest and the principal are repayable at maturity. July7: Enter into a lease agreement for bakery space. The agreement isfor 1 year. The rent is $1,500 per month, and the last monthâs rentpayment of $1,500 is required at time of lease agreement. Thepayment was made in cash. Lease period is effective July 1, 2018,through June 30, 2019. July 10: Pay $375 to the county for abusiness license. July 11: Purchase a cash register for $250(deemed to be not material enough to qualify as depreciableequipmentâuse misc. exp.). July 13: You have baking equipment,including an oven and mixer, which you have been using for yourhome-based business and will now start using in the bakery. Youestimate that the equipment is currently worth $6,000, and youtransfer the equipment into the business in exchange for additionalcommon stock. The equipment has a 5-year useful life. July 13: Pay$200 for business cards/flyers/posters/ads to use for advertising.July 14: Pay $300 for office supplies. July 15: Hire part-timehelper to be paid $12 per hour. Pay periods are the 1st through the15th and 16th through the end of the month, with paydays being the20th for the first pay period and the 5th of the following monthfor the second pay period. (No entry is required on this date; itis here for informational purposes only.) July 30: Receivedtelephone bill for July in amount of $75. Payment is due on August10. 6 July 31: Pay $2,400 for a 12-month insurance policy. Policyeffective dates are August 1, 2018, through July 31, 2019. July 31:Accrue wages earned for employee for period of 16th through 31st ofJuly (Wage calculations table provided below). July 31: Total Julybakery sales were $15,000. $5,000 of these sales are on accountsreceivable. Step Two Data (Click on the link to return to theprompt.) The following events occur in August, 2018: August 5: Paidemployee for period ending 7/31. August 8: Receive payments fromcustomers towards accounts receivable in amount of $3,800. August10: Paid July telephone bill. August 15: Purchase additional bakingsupplies in amount of $5,000 from vendor, on account. August 15:Accrue wages earned for employee from period of 1st through 15th ofAugust (Wage calculations table provided below). August 15: Payrent on bakery space. August 18: Receive payments from customerstowards accounts receivable in amount of $3,000. August 20: Paid$8,500 toward baking supplies vendor payable. August 20: Payemployee for period ending 8/15. August 22: $300 in office suppliespurchased. August 31: Received telephone bill for August in amountof $75. Payment is due on September 10. 7 August 31: Accrue wagesearned for employee for period of August 16th through August 31st(Wage calculations table provided below). August 31: August bakerysales total $20,000. $7,500 of this total is on accountsreceivable. Step Three (Click on the link to return to the prompt.)Updated Scenario: Many customers have been asking for morehypoallergenic products, so in September you start carrying a lineof hypoallergenic shampoos on a trial basis. The followinginformation relates to the purchase and sales of the shampoo: ï· Youuse the perpetual inventory method. Although you could use thefollowing valuation methodsâFIFO, LIFO, or weighted average, youchoose to use the FIFO method. Data: The following events occur inSeptember, 2018: September 1: Paid dividends to self in amount of$10,000. September 5: Pay employee for period ending 8/31.September 7: Purchase merchandise for resale. See âInventoryValuationâ tab for details. September 8: Receive payments fromcustomers toward accounts receivable in amount of $4,000. September10: Pay August telephone bill. September 11: Purchase bakingsupplies in amount of $7,000 from vendor on account. September 13:Paid on supplies vendor account in amount of $5,000. September 15:Accrue employee wages for period of September 1 through September15. September 15: Pay rent on bakery space: $1,500. 8 September 15:Record merchandise sales transaction. See âInventory Valuationâ tabfor details. September 15: Record impact of sales transaction onCOGS and the inventory asset. See âInventory Valuationâ tab fordetails. September 20: Pay employee for period ending 9/15.September 20: Purchase merchandise inventory for resale tocustomers. See âInventory Valuationâ tab for details. September 24:Record sales of merchandise to customers. See âInventory Valuationâtab for details. September 24: Record impact of sales transactionon COGS and the inventory asset. See âInventory Valuationâ tab fordetails. September 30: Purchase merchandise inventory for resale tocustomers. See âInventory Valuationâ tab for details. September 30:Accrue employee wages for period of September 16th throughSeptember 30th September 30: Total September bakery sales are$20,000. $6,000 of these sales are on accounts receivable. Step SixData (Click on the link to return to the prompt.) On September 30,the following adjustments must be made: ï· [Note: This is a sample.]Depreciation of baking equipment transferred to company on 7/13.Assume a half month of depreciation in July using the straight-linemethod. ï· Accrue interest for note payable. Assume a full month ofinterest for July. (6% annual interest on $10,000 loan fromparents.) ï· Record insurance used for the year. ï· Actual bakingsupplies on-hand as of September 30 are $1,100. ï· Office supplieson-hand as of September 30 are $50. Wage calculation data: 9 MonthHours Rate Pay 31 Jul. 10 12 120 15 Aug. 40 12 480 31 Aug. 35 12420 15 Sep. 38 12 456 30 Sep. 40 12 480
PEYTON APPROVED | |||
General Journal for the period from July, 1 to September, 30 | |||
Date | Account Title | Debit | Credit |
July, 1 | Cash | $10,000 | |
Common Stock | $10,000 | ||
July, 1 | Baking Supplies | $6,500 | |
Accounts Payable | $6,500 | ||
July, 3 | Cash | $10,000 | |
6% Note Payable | $10,000 | ||
July, 7 | Prepaid Rent | $1,500 | |
Cash | $1,500 | ||
July, 10 | Licensing fee | $375 | |
Cash | $375 | ||
July, 11 | Miscellaneous Expense | $250 | |
Cash | $250 | ||
July, 13 | Baking Equipment | $6,000 | |
Common Stock | $6,000 | ||
July, 13 | Advertising expense | $200 | |
Cash | $200 | ||
July, 14 | Office Supplies | $300 | |
Cash | $300 | ||
July, 30 | Telephone expense | $75 | |
Accounts Payable | $75 | ||
July, 31 | Prepaid Insurance | $2,400 | |
Cash | $2,400 | ||
July, 31 | Salaries expense | $120 | |
Salaries payable | $120 | ||
July, 31 | Cash | $10,000 | |
Accounts Receivable | $5,000 | ||
Sales | $15,000 | ||
Aug, 5 | Salaries payable | $120 | |
Cash | $120 | ||
Aug, 8 | Cash | $3,800 | |
Accounts Receivable | $3,800 | ||
Aug,10 | Accounts Payable | $75 | |
Cash | $75 | ||
Aug,15 | Baking Supplies | $5,000 | |
Accounts Payable | $5,000 | ||
Aug,15 | Salaries expense | $480 | |
Salaries payable | $480 | ||
Aug,15 | Rent Expense | $1,500 | |
Cash | $1,500 | ||
Aug,18 | Cash | $3,000 | |
Accounts Receivable | $3,000 | ||
Aug,20 | Accounts Payable | $8,500 | |
Cash | $8,500 | ||
Aug,20 | Salaries payable | $480 | |
Cash | $480 | ||
Aug,22 | Office Supplies | $300 | |
Cash | $300 | ||
Aug,31 | Telephone expense | $75 | |
Accounts Payable | $75 | ||
Aug,31 | Salaries expense | $420 | |
Salaries payable | $420 | ||
Aug,31 | Cash | $12,500 | |
Accounts Receivable | $7,500 | ||
Sales | $20,000 | ||
Sept, 1 | Dividend | $10,000 | |
Cash | $10,000 | ||
Sept, 5 | Salaries payable | $420 | |
Cash | $420 | ||
Sept, 8 | Cash | $4,000 | |
Accounts Receivable | $4,000 | ||
Sept,10 | Accounts Payable | $75 | |
Cash | $75 | ||
Sept,11 | Baking Supplies | $7,000 | |
Accounts Payable | $7,000 | ||
Sept,13 | Accounts Payable | $5,000 | |
Cash | $5,000 | ||
Sept,15 | Salaries expense | $456 | |
Salaries payable | $456 | ||
Sept,15 | Rent Expense | $1,500 | |
Cash | $1,500 | ||
Sept,20 | Salaries payable | $456 | |
Cash | $456 | ||
Sept,30 | Salaries expense | $480 | |
Salaries payable | $480 | ||
Sept,30 | Cash | $14,000 | |
Accounts Receivable | $6,000 | ||
Sales | $20,000 | ||
Unadjusted Trial Balance | Adjusting Entries | Adjusted Trial Balance | ||||
Account | Debit | Credit | Debit | Credit | Debit | Credit |
Cash | 25,356.75 | 25,356.75 | ||||
Baking Supplies | 18,500.00 | 17,400.00 | 1,100.00 | |||
Merchandise Inventory | 175.45 | 175.45 | ||||
Prepaid Rent | 1,500.00 | 1,500.00 | ||||
Prepaid Insurance | 2,400.00 | 400.00 | 2,000.00 | |||
Baking Equipment | 6,000.00 | 6,000.00 | ||||
Misc. Supplies | 600.00 | 550.00 | 50.00 | |||
Accounts Receivable | 7,700.00 | 7,700.00 | ||||
Notes Payable | 10,000.00 | 10,000.00 | ||||
Accounts Payable | 2,000.00 | 2,000.00 | ||||
Wages Payable | 480.00 | 480.00 | ||||
Common Stock | 16,000.00 | 16,000.00 | ||||
Dividends | 10,000.00 | 10,000.00 | ||||
Bakery Sales | 55,000.00 | 55,000.00 | ||||
Merchandise sales | 221.00 | 221.00 | ||||
Baking Supplies Expense | 17,400.00 | 17,400.00 | ||||
Rent Expense | 4,500.00 | 4,500.00 | ||||
Insurance Expense | 400.00 | 400.00 | ||||
Misc. Expense | 250.00 | 250.00 | ||||
Business License Expense | 375.00 | 375.00 | ||||
Advertising Expense | 200.00 | 200.00 | ||||
Wages Expense | 1,836.00 | 1,836.00 | ||||
Telephone Expense | 150.00 | 150.00 | ||||
COGS | 157.80 | 157.80 | ||||
Depreciation Expense | 250.00 | 250.00 | ||||
Accumulated Depreciation | 250.00 | 250.00 | ||||
Interest Expense | 150.00 | 150.00 | ||||
Interest Payable | 150.00 | 150.00 | ||||
Misc. Supplies Expense | 550.00 | 550.00 | ||||
Total | 81,701.00 | 81,701.00 | 18,750.00 | 18,750.00 | 82,101.00 | 82,101.00 |
