Aussie Yarn is a U.S. producer of woolen yarn made from wool imported from Australia. Raw wool is processed, spun, and finished before being shipped out to knitting and weaving companies. Material is added in the beginning of processing, and conversion costs are added evenly throughout processing. Aussie began the month of August with 7,000 units in process that were 100 percent complete as to materials and 70 percent complete as to labor and overhead. It started 34,000 units into production during the month of August of which 8,000 remained in ending Work in Process inventory and were 50 percent complete as to conversion costs. The cost data are as follows: Beginning work in process: Direct materials……………………………$ 6,000 Direct labor…………………………………….2,000 Manufacturing overhead………………..2,500 $10,500 Costs added during august: Direct material………………………….$26,390 Direct labor…………………………………12,430 Manufacturing overhead…………….14,520 $53,340 Required: Prepare a production cost report for the month of August.
> Lancer Audio produces a high-end DVD player that sells for $1,300. Total operating expenses for the past 12 months are as follows: Required: a. Use the high-low method to estimate fixed and variable costs. b. Based on these estimates, calculate the br
> Wilmington Chemicals produces a chemical, PX44, which is used to retard fading in exterior house paint. In the past year, the company produced 200,000 gallons at a total cost of $1,200,000 ($6 per gallon). The company is currently considering an order fo
> Lancer Audio produces a high-end DVD player that sells for $1,300. Total operating expenses for July were as follows: Units produced and sold………………150 Component costs………………..$ 71,000 Supplies…………………………………..2,500 Assembly labor………………………25,000 Rent……………………
> The Hotel Majestic is interested in estimating fixed and variable costs so that the company can make more accurate projections of costs and profit. The hotel is in a resort area that is particularly busy from November through February. In July and August
> Cindy Havana is a vice president of finance for Captain Wesley’s Restaurant, a chain of 12 restaurants on the East Coast, including five restaurants in Florida. The company is considering a plan whereby customers will be mailed coupons
> Fleet Valley Shoes produces two models: the Nx100 (a shoe aimed at competitive runners) and the Mx100 (a shoe aimed at fitness buffs). Sales and costs for the most recent year are indicated: Required: a. Suppose the company has 200,000 assembly hours a
> For the past 3 years, Rhetorix, Inc., has produced the model X100 stereo speaker. The model is in high demand, and the company can sell as many pairs as it can produce. The selling price per pair is $900. Variable costs of production are $300, and fixed
> Equillion, Inc., and Storis, Inc., are two companies in the pharmaceutical industry. Equillion has relatively high fixed costs related to research and development. Storis, however, does little research and development. Instead, the company pays for the r
> National Tennis Racquet Co. produces and sells three models: Required: (Round all percentages to two decimal places and monetary calculations to the nearest dollar.) a. What is the weighted average contribution margin per unit? b. Calculate the break-
> Fidelity Multimedia sells audio and video equipment and car stereo products. After performing a study of fixed and variable costs in the prior year, the company prepared a product-line profit statement as follows: Required: a. Calculate the contributio
> Edison Entrepreneur Services, Inc., is a legal services firm that files the paperwork to incorporate a business. Edison charges $1,200 for the incorporation application package and plans to file 1,600 applications next year. The company’s projected incom
> FirstTown Mortgage specializes in providing mortgage refinance loans. Each loan customer is charged a $500 loan processing fee by FirstTown when the loan is processed. FirstTown’s costs over the past year associated with processing the
> Zachary made plans to visit a friend in New York during the Memorial Day weekend. However, before the trip, his employer asked him if he would work overtime for 16 hours at $35 per hour during the weekend. What will be the opportunity cost if Zachary dec
> Gaming Solutions is a small company that assembles PCs to gamer customer specifications. The company buys all of its component parts from Northern Oregon Computer Warehouse. In the past year, the company had the following before-tax profit: The company,
> Last year, Emily Sanford had a booth at the three-day Indianapolis Craft Expo, where she sold a variety of silver jewelry handcrafted in India. Her before-tax profit was as follows: Sales………&ac
> Information for three costs incurred at Boole Manufacturing in the first quarter follows: Required: Plot each cost, making the vertical axis cost and the horizontal axis units produced. Classify each cost (depreciation, direct labor, and telecommunicat
> Rhetorix, Inc., produces stereo speakers. The selling price per pair of speakers is $1,000. The variable cost of production is $300 and the fixed cost per month is $49,000. Required: Calculate the expected profit for November, assuming that the company
> Campus Copy & Printing wants to predict copy machine repair expense at different levels of copying activity (number of copies made). The following data have been gathered: Required: Determine the fixed and variable components of repair expense usin
> Watson’s Fish Company buys whole salmon from various fishermen at $4 per pound and sells the fish to restaurants for $6 per pound. Its fixed costs are $20,000 per month. Required: How many pounds must be sold to break even, and how many pounds must be
> Consider two companies, Oakland Hill Golf Course and Brooks Men’s Clothing. Required: Which company is more likely to focus on the contribution margin per unit, and which is more likely to focus on the contribution margin ratio in cost-volume-profit an
> John Diaz is the president of Pacific Refrigeration. The company has 2,000 employees and manufactures and sells a variety of refrigeration units for commercial use. Recently, the company experienced large losses due to a downturn in the economy and a sub
> Dvorak Music produces two durable music stands: Stand A requires 2 labor hours and stand B requires 1 labor hour. The company has only 350 available labor hours per week. Further, the company can sell all it can produce of either product. Required: a.
> Refer to the data in Exercise 4-16. (Round all decimal answers to four places and all dollar answers to the nearest dollar.) Required: a. Calculate profit as a percent of sales in the prior year. b. Suppose sales in the current year increase by 15 per
> Parrish Plumbing provides plumbing services to residential customers from Monday through Friday. Ken Parrish, the owner, believes that it is important for his employees to have Saturday and Sunday off to spend with their families. However, he also recogn
> Wilde Home & Garden is organized into three departments. The following sales and cost data are available for the prior year: Required: a. What is the weighted average contribution margin ratio? b. What level of sales is needed to earn a profit of $
> Rhetorix, Inc. produces stereo speakers. The selling price per pair of speakers is $1,000. The variable cost of production is $300 and the fixed cost per month is $49,000. For November, the company expects to sell 125 pairs of speakers. Required: a. Ca
> Rhetorix, Inc., produces stereo speakers. The selling price per pair of speakers is $1,000. The variable cost of production is $300 and the fixed cost per month is $49,000. Required: a. Calculate the contribution margin associated with a pair of speake
> Gabby’s Wedding Cakes creates elaborate wedding cakes. Each cake sells for $600. The variable cost of making the cakes is $250, and the fixed cost per month is $8,750. Required: a. Calculate the break-even point for a month in units. b. How many cakes
> Lopez Mfg. is interested in estimating fixed and variable manufacturing costs using data from October. Based on judgment, the plant manager classified each manufacturing cost as fixed, variable, or part fixed and part variable: Required: a. Use account
> Madrigal Theater Company is interested in estimating fixed and variable costs. The following data are available for the month of December: Required: a. Use account analysis to estimate fixed cost per month and variable cost per tickets sold [i.e., esti
> Reef Office Supplies is interested in estimating the cost involved in hiring new employees. The following information is available regarding the costs of operating the Human Resource department at Reef Office Supplies in May, when there were 60 new hires
> Madrigal Theater Company is interested in estimating fixed and variable costs. The following data are available: Required: a. Use the high-low method to estimate fixed cost per month and variable costs per ticket sold [i.e., estimate a and b in the equ
> Marie Stefano is the group director of customer training for Mayfield Software. In this capacity, she runs a center in Kirkland, Washington, that provides training to employees of companies that use Mayfield’s inventory control, custome
> In 1928, Francis P. Rothmueller, a Northwest railroad magnate, established an endowment to fund the Rothmueller Museum in Minneapolis. The museum currently has a $30 million endowment, but it also has substantial operating costs and continues to add to i
> Peter Takesha, the manager of testing services at a medical diagnostics firm, purchased a new lab testing machine last year for $30,000. This year a new machine, which is faster and more reliable than Peter’s current model, is on the market. In deciding
> John Krog is president, chairman of the board, production supervisor, and majority shareholder of Krog’s Metalfab, Inc. He formed the company in 1991 to manufacture custom-built aluminum storm windows for sale to contractors in the grea
> Why are units often in a different stage of completion with respect to raw materials and conversion costs?
> What is meant by the term transferred-in cost?
> What is meant by the term conversion costs?
> Explain the concept of an “equivalent unit,” including how it is calculated.
> Do transferred-in costs occur in all departments of a manufacturer using a process costing system? Explain.
> What is accomplished by preparing a reconciliation of the physical units as a part of the production cost report?
> What items of production cost make up the “costs to account for” in a production cost report?
> Explain the major differences between job-order and process costing systems.
> What are the four steps involved in the preparation of a production cost report?
> Explain how a cost can be controllable at one administrative level and noncontrollable at another administrative level.
> Identify three types of manufacturing companies for which process costing would be an appropriate product costing system. What characteristic(s) do the products of these companies have that would make process costing a good choice?
> The Wilmont Box Company produces a single box used by AirSpeed, an express shipping company. Wilmont uses a just-in-time system and has almost no inventories of material, work in process, or finished goods. Indeed, the balances are so small that the comp
> Lakeland Solvent produces a single product in two departments. The following costs relate to April: Required: Prepare journal entries to record: a. The issuance of direct material. b. The cost of direct labor (credit wages payable). c. The applicati
> Kao Tiles is a specialized producer of ceramic tiles. Its production process involves highly skilled workers and top-quality ceramic crafters. Work in Process is relatively large because each tile is in process for up to 3 weeks because of art, mold work
> Marquita Filters produces an air filter for use in jet aircraft. Parts are added at several points in the production process. In August, production began with 600 filters in Work in Process, 80 percent complete as to materials and 70 percent complete as
> The Plastic Glow Company makes glow sticks. It uses a process costing system and has had a just-in-time inventory policy. The plant has a capacity to produce 500,000,000 units a year but currently operates at 300,000,000 units per year. Direct material a
> Douglas Basket produces a specialty basket used by a gift basket company, Yours Truly Gifts. Douglas uses a just-in-time system and has very little inventories of material, work in process, or finished goods. Since the balances are so small, the company
> The Newberry Company accumulates costs for its product using a process costing system. Direct materials are added at the beginning of the production process, and conversion occurs evenly throughout the production process. Below is information related to
> Lindy Manufacturing uses a process costing system to track the production of the single product it makes in one department. At the start of November, there were 8,000 units in process that were 100 percent complete for direct material and 70 percent comp
> Indicate whether each of the following costs is most likely a fixed cost or a variable cost by writing “fixed” or “variable” in the space provided. a. Assembly labor. b. The cost of material used in production. c. Rent. d. Depreciation. e. Fuel cos
> Sassy Cotton produces fine cotton fabrics. The cotton is processed and finished before being shipped out to clothing companies. Material is added in the beginning of processing, and conversion costs are added evenly throughout processing. At the beginnin
> Hartwell Drug Company produces a supplement to improve bone density. Conversion costs are added evenly throughout the production process. The following information is available for March: Required: a. Compute the number of units completed in March. b.
> The Kioda Corporation assembles various components used in the electronics industry. The company’s major product, a computer chip, is the result of assembling three parts: X1, Y2, and Z3. The following information relates to production in January: • Beg
> Tropical Sun makes suntan lotion in two stages. The lotion is first blended in the Blending Department and then bottled and packed in the Bottling Department. The following information relates to the operations of the Blending Department for May. Requir
> The Carnival Caramel Company makes a high-quality caramel candy. The manufacturing process involves mixing ingredients (Mixing Department) and shaping the processed mixture into 1-pound balls (Shaping Department), which are sold to retail outlets. No add
> Simply Shine Shampoo is manufactured in two departments: Mixing and Packing. Once the shampoo mixture is completed in the Mixing Department, it is sent to Packaging, where a machine fills and seals individual bottles, which are then passed to a machine t
> Marion Chemicals produces a chemical used as a base in paints. In the manufacturing process, all materials are added at the start of the process, whereas labor and overhead are added evenly throughout production. Required: Fill in the missing informatio
> The balance in beginning Work in Process at Bing Rubber Company for direct labor was $140,000. During the month of March, an additional $800,000 of direct labor was incurred, and 35,000 pounds of rubber were produced. At the end of March, 10,000 pounds o
> During August, Wilson Lubricant completed 31,000 gallons of product. At the start of August there were 4,500 gallons in Work in Process, and at the end of August, there were 7,000 gallons in Work in Process. Required: How many gallons of product were s
> What are the four cost items that may enter a processing department?
> Identify each of the following statements with fixed costs or variable costs by writing “fixed” or “variable” in the space provided. a. A cost that varies in total with changes in the activity level. b. A cost that varies on a per-unit basis with chang
> Local 635 represents kitchen workers at hotels in several southern cities. Part of their labor agreement states that workers “shall receive one free meal per shift up to a cost of $12, with any cost over $12 being deducted from wages paid to said employe
> The IRS audited the tax returns of Darryl Strawberry, a former major league outfielder. It contended that, between 1986 and 1990, Strawberry earned $422,250 for autograph signings, appearances, and product endorsements, but he reported only $59,685 of in
> Your client, Hank Goedert, earned $100,000 of salary and received $40,000 of dividends in the current year. His itemized deductions total $37,000. In addition, Hank received $47,000 from a relative who was his former employer. You have researched whether
> You are preparing the tax return of Bold Corporation, which had sales of $60 million. Bold made a $1 million expenditure for which the appropriate tax treatment—deductible or capitalizable—is a gray area. Bold’s director of federal taxes and chief financ
> On his individual return, Al reports salary and exemptions for himself and seven dependents. His itemized deductions consist of mortgage interest, real estate taxes, and a large loss from breeding dogs. On his individual return, Ben reports self-employme
> Name some of the IRS administrative pronouncements.
> Describe how the IRS verifies tax returns at its service centers.
> According to Treasury Department Circular 230, what standard should a CPA meet to properly take a position on a tax return?
> Is the tax return preparer limited to the person who signs the return? Explain.
> Distinguish between the burdens of proof the government must meet to prove civil and criminal fraud.
> The IRS audited Tony’s return, and Tony agreed to pay additional taxes plus the negligence penalty. Is this penalty necessarily imposed on the total additional taxes that Tony owes? Explain.
> A trust owns an asset on which depreciation is claimed. The trust distributes all of its income to its sole income beneficiary. Whose taxable income is reduced by the depreciation?
> In April of the current year, Stan does not have sufficient assets to pay his tax liability for the previous year. However, he expects to pay the tax by August of the current year. He wonders if he should request an extension for filing his return instea
> Provide the following information relating to both individual and corporate taxpayers having a calendar year: a. Due date for an income tax return assuming the taxpayer requests no extension. b. Due date for the return assuming the taxpayer files an au
> The IRS notifies Tom that it will audit his current year return for an interest deduction. The IRS audited Tom’s return two years ago for a charitable contribution deduction. The IRS, however, did not assess a deficiency for the prior year return. Is any
> Your client wants to know whether she must file any documents for an automatic extension to file her tax return. What do you tell her?
> Tracy wants to take advantage of a “terrific business opportunity” by engaging in a transaction with Homer. Homer, domineering and impatient, wants Tracy to conclude the transaction within two weeks and under the terms proposed by Homer. Otherwise, Homer
> On which of the following issues will the IRS likely issue a private letter ruling and why? In your answer, assume that no other IRS pronouncement addresses the issue and that pertinent Treasury Regulations are not forthcoming. a. Whether the taxpayer c
> In what circumstances will the IRS rule on estate tax issues?
> What conditions must the taxpayer meet to shift the burden of proof to the IRS?
> What information should be included in a request for a private letter ruling?
> In what situations is a protest letter necessary?
> Refer to Question C:14-7. Which taxpayer (the trust, Irene, or Beth) pays the tax on the gain? From Question 7: A trust instrument provides that, for life, Irene is entitled to receive distributions of income only and Beth is to receive the remainder in
> Why do taxpayers frequently litigate in the Tax Court?
> List the courts in which a taxpayer can begin tax related litigation.
> What course(s) of action is (are) available to a taxpayer upon receipt of the following notices: a. The 30-day letter? b. The 90-day letter? c. IRS rejection of a claim for a refund?
> The IRS informs Brad that it will audit his current year employee business expenses. Brad just met with a revenue agent who contends that Brad owes $775 of additional taxes. Discuss briefly the procedural alternatives available to Brad.
> a. Through what programs has the IRS gathered data to develop its DIF statistical models? b. How do these programs differ? c. How has the IRS used these programs to select returns for audit?
> Under the AICPA’s Statements on Standards for Tax Services, what is the tax practitioner’s professional duty in each of the following situations? a. Client erroneously deducts $5,000 (instead of $500) on a previous year’s tax return. b. Client refuses
> List five IRC penalties that can be imposed on tax return preparers. Does the IRC require a CPA to verify the information a client furnishes?
> What is the principal purpose of the innocent spouse provisions?
> In general, when does the limitations period for tax returns expire? List four exceptions to the general rule.
> Explain why the government might bring criminal fraud charges against a taxpayer under Sec. 7206 instead of Sec. 7201. Compare the maximum penalties imposed under Secs. 7201, 7203, and 7206.
