Assignment
Guidelines
The objective of the final assignment is to communicate your answer in a simple, clear way.
• Show all of your work in a Word document.
• Fit your work onto 8 ½ x 11 inch pieces of paper.
• Single space.
• Use Arial 12 font.
• Put your name on each page.
• Do not retype the problem.
• Do not include a table of contents.
• Clearly structure your response to correspond to the structure of the assignment (e.g., "Part B, Q. 1").
• For parts B and C, show your calculations.
• The multiple choice questions require only a letter answer. You do not need to type the answer that corresponds with the letter that you have chosen. For example:
1. c
2. b
An answer template is provided in the appendix for your multiple choice responses.
Part A -MULTIPLE CHOICE and TRUE/FALSE Choose the one alternative that best completes the statement or answers the question.
1. Consider the following statements:
I. US GAAP and IFRS are not converging.
II. The Securities and Exchange Commission has congressional authority to set accounting policies in the United States.
a. Only Statement I is true.
b. Only Statement II is true.
c. Both Statements I and II are true.
d. Both Statements I and II are false.
2. The manipulation of the allowance for doubtful accounts by management would be best indicated when a company:
a. tightens its credit standards and decreases the allowance account.
b. lowers its credit standards and the decreases the allowance account.
c. tightens its credit standards and increases the allowance account.
d. lowers its credit standards and increases the allowance account.
3. Which of the following items would be most likely to not be discussed in the management discussion and analysis section of an annual report?
a. Commitments for capital expenditures.
b. A breakdown of sales increases into price and volume components.
c. The internal and external sources of liquidity.
d. The market value of all assets.
4. Declaring a dividend results in a cash outflow from financing activities. (True/false)
5. Consider the following statements
I. The DuPont System helps analysts understand how a firm's decisions and activities over an accounting period interact to produce return on equity.
II. The cash conversion cycle of a firm can be improved by decreasing each of days inventory held, days payable outstanding, and the average accounts receivable collection period.
a. Only Statement I is true.
b. Only Statement II is true.
c. Both Statements I and II are true.
d. Both Statements I and II are false.
6. Which of the following statements is FALSE?
a. The balance sheet is prepared on a particular date.
b. Interim statements are generally prepared quarterly.
c. Annual reports must include three-year audited balance sheets and two-year audited income statements.
d. When a parent company owns more than 50% of the voting stock of a subsidiary, the financial statements of both entities are consolidated.
7. Currently, management accounting information within government and nonprofit organizations is in greater demand because:
a. public and private donors are demanding accountability.
b. taxpayers are requesting more responsive and efficient performance from their governing units.
c. more nonprofit organizations are competing for limited funds.
d. All of the above are correct.
8. An example of a chain of cause-and-effect relationships that appropriately link the four balanced scorecard perspectives is:
a. skilled production workers help to produce process quality that results in customer loyalty that helps to increase return on investment.
b. a high return on investment causes customer loyalty that results in skilled production workers that improve process quality.
c. customer loyalty results in a high return on investment that results in the ability to attract skilled production workers that improve process quality.
d. improved process quality results in a high return on investment that causes customer loyalty that results in the ability to attract skilled production workers.
9. The strategy MOST LIKELY to reduce a company's break-even point would be to:
a. increase the capacity-related (fixed) costs and decrease the contribution margin per unit.
b. increase both the capacity-related (fixed) costs and the contribution margin per unit.
c. decrease the capacity-related (fixed) costs and increase the contribution margin per unit.
d. decrease both the capacity-related (fixed) costs and the contribution margin per unit.
e. b and c.
10. The break-even point in units decreases if the:
a. total capacity-related (fixed) costs decrease.
b. flexible (variable) cost per unit increases.
c. contribution margin per unit decreases.
d. selling price per unit decreases.
e. b and d.
11. A time-driven activity-based costing system is most useful when:
a. operations throughout the plant are fairly similar.
b. products make diverse demands on resources because of differences in volume, process steps, batch size, or complexity.
c. there are small amounts of overhead costs.
d. products produced in the company all show large profits.
e. b and d.
12. Which of the following are options to transform breakeven or loss customers into profitable ones?
a. use more menu-based pricing that allows customers to select features and services for which they are willing to pay.
b. use stricter criteria when granting discounts and allowances.
c. improve the process used to produce, sell, deliver and service the customer.
d. All of the above.
e. b and c.
13. A performance measurement system should accomplish all of the following EXCEPT:
a. motivate employees to achieve strategic objectives.
b. communicate the company's strategy.
c. help managers allocate resources to the most productive alternatives.
d. identify financial measures to evaluate an organization's intangible assets.
e. a and b.
14. External failure costs consist of all the following EXCEPT
a. downtime due to defects.
b. product liability lawsuits.
c. waste.
d. returned products.
e. a and c
15. Budgeting provides:
a. a means to motivate middle managers.
b. a means to communicate the organization's short-term goals to its members.
c. support for the management functions of planning and coordination.
d. All of the above.
e. b and c.
Part B - Short Answer
Supporting calculations must be provided.
1. Assume that Acme Company has no opening inventory. The following purchases of inventory occurred during the year:
Date Purchases (units) Purchase price per unit
Jan. 2 2 $3
Feb. 15 3 $4
March 30 4 $5
July 29 6 $6
Oct. 30 5 $7
Required: Assume Acme sells 8 items on October 31 and uses the FIFO method of inventory valuation. Calculate the amount that would appear as cost of goods sold on the income statement.
2. Paul Pigeon is a day trader. He is interested in the common stock of Captain Computers Limited. The following data are available for the company:
|
|
2014
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2015
|
2016
|
|
Dividends paid per share*
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$4
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$3
|
$2.50
|
|
Dividend yield ratio
|
5.5%
|
5.5%
|
5.5%
|
|
Dividend payout ratio
|
40%
|
40%
|
40%
|
|
Return on total assets
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10%
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12%
|
8%
|
|
Return on common stockholders' equity
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8%
|
14.5%
|
9%
|
*There were no changes in common stock outstanding over the three-year period.
Required: Paul would like answers to the following questions:
a. Is the market price of the company's stock going up or down?
b. Is the company employing financial leverage to the advantage of the common stockholders?
3. Sal Gordon, owner of several dance studios, is wondering why her bookkeeper keeps complaining that it is difficult to pay the bills on time. Sal has looked at her income statement and can't figure out the problem. The following ratios for the company have been calculated.
Required: Write an explanation that will help Sal understand the challenges her firm is facing.
4. Review the following data:
|
|
2014
|
2015
|
2016
|
|
Gross profit margin
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45%
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41%
|
38%
|
|
Operating profit margin
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12%
|
14%
|
15%
|
|
Net profit margin
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5%
|
20%
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8%
|
Required: Explain the possible causes of the trends.
5. Salmo Corporation reported the following information:
a. Net income for the yearwas $60 million.
b. Equipment purchases were $3 million.
c. Customer accounts receivable increased by $6 million.
d. Dividends paid to common shareholders were $7 million.
e. Depreciation expense was $16 million.
f. Income tax payable increased by $2 million.
g. Long-term debt increased by $14 million.
h. Accounts payable increased by $3 million.
i. Inventories increased by $4 million.
j. Ending cash balance was $80 million.
Required: Based on the above information, calculate cash flows from operating, investing, and financing activities, and the opening cash balance.
6. Apple Valley Corporation produces widgets. It uses a job order cost system and has two production departments, A and B. Budgeted manufacturing information for the year is:
Department A Department B
Direct materials $700,000 $100,000
Direct labour $200,000 $800,000
Manufacturing support $600,000 $400,000
Direct labour hours 5,000 20,000
Machine hours 10,000 50,000
Job #432 Required 5,000 machine hours to produce 500 widgets. The actual material and labour costs charged to Job #432 were as follows:
Direct materials $25,000
Direct labour
Department A $ 8,000
Department B $12,000 $20,000
Apple Valley applies manufacturing support costs to jobs on the basis of direct labour costs for Department A and machine hours for Department B, using departmental rates determined at the beginning of the year.
Required: Calculated the cost of one widget manufactured for Job #432.
7. Pete's Premium Pistols Ltd. manufactures three different products -handguns, rifles, and shotguns. Considerable market demand exists for all models, but output is constrained because production machinery is running at maximum capacity. The following per unit data apply:
Handguns Rifles Shotguns
Selling price $150 $20 $85
Direct materials 100 8 40
Direct labour ($20 per hour) 20 5 10
Variable support costs ($4 per machine hour) 10 2 12
Fixed costs 8 4 20
Total expenses 138 19 82
Net income $ 12 $ 1 $ 3
Required: What should the company do to maximize profits?
8. Rochester Rockets Ltd. plans to introduce a new model of hobby rocket. After extensive discussions with engineering, manufacturing, and marketing staff, the following information has been developed:
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Quarter
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1
|
2
|
3
|
4
|
5
|
6
|
7
|
8
|
|
Market research ($)
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(10,000)
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(20,000)
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|
|
|
|
|
|
|
Product development ($)
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|
(10,000)
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(50,000)
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(100,000)
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(50,000)
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|
|
|
|
Selling price/unit ($)
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|
|
|
|
25
|
25
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20
|
20
|
|
Variable costs/unit ($)
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|
|
|
|
11
|
11
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10
|
10
|
|
Sales quantity (units)
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|
|
|
|
7,000
|
7,000
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8,000
|
8,000
|
|
Other fixed costs ($)
|
|
|
|
|
(10,000)
|
(10,000)
|
(10,000)
|
(10,000)
|
Required: Calculate break-even time for the new product.
9. Dudley Industries developed the following standard costs for direct materials and direct labour or gadgets:
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Standard quantity
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Standard price
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|
Direct materials
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0.60 pounds
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$25 per pound
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|
Direct labour
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0.20 hours
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$18 per hour
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During October, Dudley produced and sold 8,000 gadgets using 5,000 pounds of direct materials at an average cost per pound of $22.50, and 1,560 direct labour hours at an average wage of $18.20 per hour.
Required: Calculate the direct material quantity variance for October and propose a plausible cause of this variance.
10. TawatinawTarps Ltd. has assembled the following information about its customer base:
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Customer
#
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Revenue
$
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Var. Cost
$
|
|
1
|
125,897
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98,448
|
|
2
|
488,958
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498,881
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|
3
|
589,478
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478,884
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|
4
|
45,650
|
47,882
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|
5
|
78,985
|
68,995
|
|
6
|
898,878
|
788,952
|
Required: Rank the relative profitability of the company's customers and make recommendations for change.
Part C - Problems (2 problems, 35 marks in total). Supporting calculations must be provided to receive full marks.
Problem 1
Lulu's Lemons Ltd. sells vehicles. The company is planning its cash needs for the month of January, 2015. In the past, Lulu's has had to borrow money during the post-Christmas season to offset a significant decline in sales. The following information has been assembled to assist in preparing a cash flow forecast for January.
a. January 2015 income statement:
Sales $500,000
Cost of goods sold 350,000
Gross profit 150,000
Variable selling expenses $25,000
Fixed administrative expenses 30,000 55,000
Forecast net operating income $95,000
b. Sales are 100% on credit.
c. Credit sales are collected over a three-month period: 30% is collected in the following month, 20% in the second month following sale, and 40% in the third month following sale. 10% of sales revenue is never collected. October 2014 sales totaled $600,000. November sales totaled $600,000 and December sales totaled $700,000.
d. 100% of a month's inventory purchases are paid in the following month. Accounts payable relate solely to inventory purchases. At December 31, accounts payable totaled $422,500.
e. The company maintains its ending inventory levels at 150% of the cost of the merchandise to be sold in the following month. The merchandise inventory at December 31, 2014 was $525,000. February 2015 sales are budgeted at $400,000. Gross profit is expected to decline from the usual 30% to 25%.
f. The company pays $10,000 cash dividends to shareholders each month.
g. The cash balance at December 31 was $30,000; the company must maintain a cash balance of at least this amount at the end of each month.
h. The company can borrow and repay its operating loan in increments of $10,000 at the end of each month, up to a total loan balance of $500,000. The interest rate on this loan is 1/2% per month. The operating loan balance at December 31 is $50,000.
Required: Prepare a cash flow forecast for Lulu's for January 2015, formatted as in chapter 10 of the managerial accounting text. Include appropriate supporting schedules.
Problem 2
In the past, the Larry's Lawnmowers Ltd. (LLL) allocated indirect manufacturing costs based on direct labour hours. Recently, management has decided to pilot a system of time-driven activity-based costing to allocate these costs. The division produces two lawnmower models: Lo-cost and Deluxe. The following information has been obtained from the company's records over the past year:
|
|
Lo-cost
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Deluxe
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|
Units produced
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500,000
|
50,000
|
|
Direct labour hours incurred
|
200,000
|
40,000
|
|
Inspections per lawnmower
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2
|
4
|
|
Time for each inspection (hrs.)
|
.1
|
.3
|
|
Lawnmowers packed and shipped per batch
|
2,000
|
500
|
|
Individual lawnmower packing time (hrs.)
|
.25
|
.4
|
|
Additional preparation time per batch (hrs.)
|
30
|
15
|
LLL employs 245 employees to perform indirect labour functions, rotating among machine setups, final inspections and shipping. Each employee is paid $50,000 per year on average, 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. Each machine is available for 1,600 hours per year, including set up time. Once a machine is set up, no labour is necessary to oversee it. Machine-related information for the year is as follows:
|
|
Lo-cost
|
Deluxe
|
|
Machine hours per lawnmower
|
.4
|
.6
|
|
Set up time per run (hrs.)
|
300
|
600
|
|
Number of production runs
|
100
|
50
|
Required:
a. Determine the amount of indirect manufacturing costs allocated to one lawnmower of each type (Lo-cost, Deluxe) based on the existing cost allocation basis (direct labour hours).
b. Determine the indirect manufacturing support costs for one lawnmower of each type using time-driven activity-based costing. Use the following format. Show supporting calculations separately.
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Lo-cost
|
|
Deluxe
|
|
1. Indirect labour
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|
|
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a. Machine set up
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|
|
|
|
b. Inspection
|
|
|
|
|
c. Shipping
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|
|
|
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Total indirect labour
|
|
|
|
|
2. Machines
|
|
|
|
|
a. Machine set up
|
|
|
|
|
b. Machine production
|
|
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|
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Total machine costs
|
|
|
|
|
Total indirect mfg. costs
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|
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