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# Developing an Expense Report

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Adams Brothers Outdoor Adventures currently owns a 12-passenger van that is used to transport clients to and from its outdoor adventure sites. The van was purchased 4 years ago at a cost of \$20,000. At that time, its useful life was estimated to be 5 years with a salvage value of \$5,000 at the end of its useful life. The van is in need of some major repairs at this time. It needs a new engine and transmission, new tires, and other minor miscellaneous repairs. The engine and transmission are estimated to cost \$4,000 and will extend the useful life of the van by 5 years. The estimated salvage value at the end of the 5 years is \$7,000. The new tires and other repairs are estimated to cost \$1,200. Sam and George are trying to decide if they should repair the existing van or trade it in for a new van. A local dealer has offered a trade in of \$6,000 on a new van costing \$30,000. If the new van is purchased, Sam and George plan to depreciate it using the units of production method. The units would be based on the number of miles driven. The new van is expected to have a salvage value of \$10,000 after its useful life of 100,000 miles.

Develop a report for Sam and George recommending a course of action regarding the van. In this report, show the calculations for depreciation expense for the existing van (how depreciation is currently being expensed), the repaired van (depreciation expense if the existing van is repaired), and the new van (explain how depreciation would be calculated if the new van is purchased). Additionally, explain how you record each of the decision options (a) repair the existing van or (b) trade in the van for a new van. Show the journal entries you would record if (a) the existing van is repaired or (b) a new van is purchased. Explain how you would account for the repairs on the existing van (are they expenses or assets? Or both? Provide the journal entries that would record either decision.

#### Solution Summary

This solution answers questions regarding the development of an expense report.

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## Break-even analysis, relevant vs. non-relevant costs, allocated costs and activity-based costing

PART 1
Select an organization with one of the following critera:
- A non-profit organization with available financial statements
Select your organization, give a short description of that organization.

PART 2
Identify any activity in your organization where you can apply breakeven analysis. You must be able to define:
- A unit of measurement for the activity
- Revenue per unit for the activity
- Variable costs for the activity
- Fixed costs for the period in the activity
If you cannot identify specific actual amounts, make a reasonable estimate and apply the tool as if the data were factual.
- The name and nature of the organization
- The activity and time period you used
- The inputs you used
- Any implications from your results

Part 3
Identify a decision that has recently been made or will be made in the near future in your organization. Identify two relevant and two non-relevant costs in this decision. Support your answers using CM calculations.
If you cannot identify specific actual amounts, make a reasonable estimate and apply the tool as if the data were factual.
- The name and nature of the organization
- The activity and time period you used
- The inputs you used
- Any implications from your results

Part 4
Review your organization and its treatment of allocated costs.
Retrieve any report in the organization that allocates common costs to a division, product, or service. Recast that report with unallocated costs and comment on the usefulness of that revised report.
If you cannot identify specific actual amounts, make a reasonable estimate and apply the tool as if the data were factual.
If you are unable to identify any report with allocated costs, create a report that you think may apply to your organization and treat the data as if it were factual.
- The name and nature of the organization
- The activity and time period you used
- The inputs you used
- Any implications from your results

Part 5

Review your organization and its applicability for Activity Based Costing (ABC).
Identify a product or service in your organization that could use ABC. Then identify at least two activities for ABC and the appropriate cost drivers for those activities. Estimate the application rates for each cost driver.
If you cannot identify specific actual amounts, make a reasonable estimate and apply the tool as if the data were factual.