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Managerial Accounting

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1) After its facilities were automated, Flame Metal Works was able to reduce labor hours for Product A by 3,000 hours. Before automation, Product A consumed 8,000 labor hours. Product B was not affected by the automation and continued to consume 7,000 labor hours. Automation increased total overhead from $30,000 $36,000.

Which of the following choices would be true about the amount of overhead allocation if labor hours were used as the company-wide allocation base?

Product Before Automation After Automation
________________________________________
a. A $24,000 $15,000
b. B $14,000 $14,000
c. B $21,000 $14,000
d. A $16,000 $15,000

a. Insert Table

b. insert table

c. insert table

d. Insert table

2) Which are the following statements is true concerning the amount of overhead allocation if the company continues to use direct labor hours as cost driver?

a. After automation, Product A is under costed.

b. After automation, Product A is over costed.

c. After automation, Product B is over costed.

d. Both a and c.

3) ABC Company budgeted the following transactions from May 2003:
Sales (60% collected in month of sale) $180,000
Cash Operating Expenses $105,000
Cash Purchases of Capital Investments $50,000
Cash Repayment on Note Payable $40,000
Depreciation on Equipment $25,000

There was a $35,000 beginning cash balance. Sales for April were $75,000 and 40% expected to be collected in the month following the sales. The company desires to have a $20,000 and the cash balance. Determine the amount of cash overage or shortage.

a. $42,000 shortage.

b. $23,000 overage.

c. $22,000 shortage.

d. $43,000 overage.

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Solution Preview

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1) After its facilities were automated, Flame Metal Works was able to reduce labor hours for Product A by 3,000 hours. Before automation, Product A consumed 8,000 labor hours. Product B was not affected by the automation and continued to consume 7,000 labor hours. Automation increased total overhead from $30,000 $36,000.

Which of the following choices would be true about the amount of overhead allocation if labor hours were used as the company-wide allocation base?

Product Before Automation After Automation
________________________________________
a. A $24,000 $15,000
b. B $14,000 $14,000
c. B $21,000 $14,000
d. A $16,000 $15,000 ...

Solution Summary

The solution has questions in managerial accounting relating to overhead allocation and budgeting.

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Merchandising Operations (Accounting)

See attached file for full problem description.

E1: The decisions that follow were made by the management of Shanahan Shoe Company. Indicate whether each decision pertains primarily to (a) cash flow management, (b) profitability management, (c) choice of inventory system, or (d) control of merchandise operations.

1. Decided to mark each item of inventory with a magnetic tag that set off an alarm if the tag is removed from the store before being deactivated

2. Decided to reduce the credit terms offered to customers from 30 days to 20 days to speed up collection of accounts

3. Decided that the benefits of keeping track of each item of inventory as it is bought and sold would exceed the costs of such a system

4. Decided to raise the price of each item of inventory to achieve a higher gross margin to offset an increase in rent expense

5. Decided to purchase a new type of cash register that can be operated only by a person who knows a predetermined code

6. Decided to switch to a new cleaning service that will provide the same service at a lower cost

E2: The operating budget and actual performance for the six months ended June 30, 20x3 for Pacific Hardware Company appears below.

1. Prepare an operating report that shows budget, actual, and difference.
2. Discuss the results, identifying which differences most likely should be investigated by management.

Budget Actual
Selling expenses
Sales salaries expense $90,000 $102,030
Rent expense, selling space 2,000 1,642
Utilities expense, selling space 18,000 18,000
Advertising expense 12,000 11,256
Depreciation expense, selling fixtures 15,000 21,986
Total selling expenses $143,500 $161,692
General and administrative expenses
Office salaries expense $50,000 $47,912
Office supplies expense 1,000 782
Rent expense, office space 4,000 4,000
Depreciation expense, office equipment 3,000 3.251
Utilities expense, office space 3,000 3.114
Postage expense 500 626
Insurance expense 2,000 2,700
Miscellaneous expense 500 481
Total general and administrative expenses 64,000 62,866
Total operating expenses 207,500 224,558

Budget Actual Difference

E3: Compute the dollar amount of each item indicated by a letter in the following table. Treat each horizontal row of numbers as a separate problem.

Sales Cost of Goods Sold Gross
Margin Operating
Expenses Net
Income
$250,000 $ a $80,000 $ b $24,000
c 216,000 120,000 80,000 40,000
460,000 d 100,000 e (2,000)
780,000 f g 240,000 80,000

E4: A household appliance dealer buys refrigerators from a manufacturer and resells them to its customers.
What is the net cost of the refrigerator to the dealer, assuming it is paid for within ten days of purchase?

a. The manufacturer sets a list or catalogue price of $1,000 for a refrigerator. The manufacturer offers its dealers a 30 percent trade discount.
b. The manufacturer sells the machine under terms of FOB destination. The cost of shipping is $100.
c. The manufacturer offers a sales discount of 2/10, n/30. Sales discounts do not apply to shipping costs.

E5: Using the selected account balances at December 31, 20xx, for City Rental that follow, prepare an income statement for the year ended December 31, 20xx. Show the detail of net sales. The company uses the perpetual inventory system, and Freight In has not been included in Cost of Goods Sold.

Account Name Debit Credit

Sales $237,500
Sales Returns and Allowances $11,750
Cost of Goods Sold 140,000
Freight In 6,750
Selling Expenses 21,500
General and Administrative Expenses 43,500

E6: Give the entries to record each of the following transactions under the perpetual inventory system:

a. Purchased merchandise on credit, terms n/30, FOB shipping point, $2,500.
b. Paid freight on the shipment in transaction a, $135
c. Purchased merchandise on credit, terms n/30, FOB destination, $1,400.
d. Purchased merchandise on credit, terms n/30, FOB shipping point, $2,600, which includes freight paid by the supplier of $200.
e. Returned part of the merchandise purchased in transaction c, $500.
f. Paid the amount owed on the purchase in transaction a.
g. Paid the amount owed on the purchase in transaction d.
h. Paid the amount owed on the purchase in transaction c less the return in e.

E7: On June 15, Tunnale Company sold merchandise for $1,300 on terms of n/30 to Whist Company. On June 20, Whist Company returned some of the merchandise for a credit of $300, and on June 25, Whist paid the balance owed. Give Tunnale's entries to record the sale, return, and receipt of payment under the perpetual inventory system. The cost of the merchandise sold on June 15 was $750, and the cost of the merchandise returned to inventory on June 20 was $175.

June 15

E8: Using the selected year-end account balances at December 31, 20x4, for the Atlanta General Store shown below, prepare a 20x4 income statement. Show the detail of net sales. The company uses the periodic inventory system. Beginning merchandise inventory was $52,000; ending merchandise inventory is $44,000.

Dec 31

E9: Determine the missing data for each letter in the following three income statements for Leominister Wholesale Paper Company (in thousands):

20x4 20x3 20x2
Gross sales $ o $ h $286
Sales returns and allowances 24 19 a
Net sales p 317 b
Merchandise inventory, beginning q i 38
Purchases 192 169 c
Purchases returns and allowances 31 j 17
Freight in r 29 22
Net cost of purchases 189 k d
Goods available for sale 222 212 182
Merchandise inventory, ending 39 l 42
Cost of goods sold s 179 e
Gross margin 142 m 126
Selling expenses t 78 f
General and administrative expenses 39 n 33
Total operating expenses 130 128 g
Net income u 10 27

E10: Using the data in E6- give the entries to record each of the transactions under the periodic inventory system.

E11: Using the relevant data in E7, give the entries to record each of the transactions under the periodic inventory system.

E12: Below are selected account balances of Linley Company for the year ended December 31, 20xx.
Prepare closing entries, assuming that the owner of Linley Company, Sandra Linley, withdrew $40,000 for personal expenses during the year.

Account Name Debit Credit

Sales $297,000
Sales Returns and Allowances $15,200
Cost of Goods Sold 113,000
Freight In 5,600
Selling Expenses 48,500
General and Administrative Expenses 37,200

E13: Selected account balances of the Lakeside Grocery Store for the year ended December 31, 20xx, follow

Account Name Debit Credit

Sales $297,000
Sales Returns and Allowances $11,000
Sales Discounts 4,200
Purchases 114,800
Purchases Returns and Allowances 1,800
Purchases Discounts 2,200
Freight In 5,600
Selling Expenses 48,500
General and Administrative Expenses 37,200

Beginning merchandise inventory was $26,000, and ending merchandise inventory is $22,000. Prepare closing entries, assuming that the owner of Lakeside Grocery, John Grover, withdrew $34,000 for personal expenses during the year.

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