Question: Branson Manufacturing, Inc., produces a single type
Branson Manufacturing, Inc., produces a single type of small motor. The bookkeeper who does not have an in-depth understanding of accounting principles prepared the following performance report with the help of the production manager. In a conversation with the sales manager, the production manager was overheard saying, ‘‘you sales guys really messed up our May performance, and it is only because production did such a great job controlling costs that we aren’t in even worse shape.’’ 
Required: 1. Do you agree with the production manager that the manufacturing area did a good job of controlling costs? 2. Prepare a flexible budget for Branson Manufacturing’s expenses at the following activity levels: 45,000 units, 50,000 units, and 55,000 units. 3. Prepare a revised performance report, using the most appropriate flexible budget from (2) above. 4. Now what is your response to the production manager’s claim? 5. Assume that you have just been hired as the new accountant. You observe that the production manager is about to receive a large bonus based on the favorable materials, labor, and factory overhead variances indicated in the flexible budget prepared by the bookkeeper. Using the IMA Statement of Ethical Professional Practice as your guide, what standards, if any, apply to your responsibilities in this matter?
Transcribed Image Text:
A B Branson Manufacturing, Inc. Performance Report May, 2011 Flexible Budget Actual Results Per Unit Master Budget (45,000 units) (50,000 units) $1,250,000 Varlance 7 Sales 8 Less variable expenses: 9 Direct materials 10 Direct labor 11 Variable factory overhead 12 Variable selling and administrative expense 13 Total variable expense 14 Contribution margin 15 Less fixed expenses: 16 Fixed factory overhead expense 17 Fixed selling and administrative expense 18 Total fixed expense 19 Income from operations $25.00 $1,125,000 $125,000U 4.50 $212,500 175,750 110,250 70,500 $569,000 $556,000 $225,000 187,500 112,500 75,000 $600,000 $650,000 $12,500 F 11,750 F 2,250 F 4,500 F $31,000 F $94,000U 3.75 2.25 1.50 $12.00 $13.00 $100,000 150,000 $250,000 $95,000 160,000 $255,000 $301,000 $100,000 150,000 $250,000 $400,000 $5,000 F 10,000U $5,000U $99,000U -234
> Colbert Company has 1,000 units in process in Forming at the beginning of the month with a transferred cost of $21,200 from Blanking. During the month, 5,000 units with a total cost of $100,000 are received from Blanking; 4,000 units are finished and tra
> The Nut House, Inc., sells three types of nuts: almonds, cashews, and walnuts. Ten thousand cans of nuts were sold in 2011, and the amount of walnuts sold were twice as much as the number of cans of cashews, whereas almond sales were one-half the amount
> Rancho Santa Fe Manufacturing, Inc., produces and sells a product with a price of $100 per unit. The following cost data have been prepared for its estimated upper and lower limits of activity: Required: 1. Classify each cost element as either variable,
> The following data appeared in the accounting records of Royale Manufacturing Company, which uses an average cost production system: Started in process . . . . . . . . . . . . . . . . . . . 12,000 units Finished and transferred . . . . . . . . . . . .
> How do the two cost accounting systems differ in accounting for each of the following items? a. Materials b. Labor c. Factory overhead
> Swedish Navy Company manufactures wristwatches on an assembly line. The work in process inventory as of March 1 consisted of 1,000 watches that were complete as to materials and 75% complete as to labor and overhead. The March 1 work in process costs wer
> Lexington Lumber Co. processes rough timber to obtain three grades of finished lumber, A, B, and C. The company allocates costs to the joint products on the basis of market value. During the month of May, Lexington incurred total production costs of $300
> What is the primary difference between the two cost accounting systems regarding the accumulation of costs and the calculation of unit costs?
> South-Central Publishing Company prepares income statements segmented by divisions, but the chief operating officer is not certain about how the company is actually performing. Financial data for the year follow: The Electronic Publishing Division appea
> Cooper Company’s joint cost of producing 1,000 units of Product A, 500 units of Product B, and 500 units of Product C is $200,000. The unit sales values of the three products at the split-off point are Product A—$20, Product B—$200, and Product C—$160. E
> What are the two basic systems of costaccounting, and under what conditions mayeach be used advantageously?
> Does the calculation of unit cost in a department subsequent to the first department take into consideration the costs transferred in from the previous departments?
> Go to the text Web site at www.cengage.com/accounting/vanderbeck and click on the link to ‘‘kaizen,’’ from Wikipedia, the free encyclopedia. After reading the entry, answer the following questions: 1. What is the meaning of kaizen? 2. What is the goal of
> The normal capacity of a factory is 8,000 units per month. Cost and production data follow: Standard application rate for fixed overhead . . . . . . . . . . . . . . . . $0.50 per unit Standard application rate for variable overhead . . . . . . . . . . .
> The normal capacity of a manufacturing plant is 5,000 units per month. Fixed overhead at this volume is $2,500, and variable overhead is $7,500. Additional data follow: Month 1 Month 2 Actual production (units) . . . . . . . . . . . . . . . . .
> How would you describe accounting for by-products for which no further processing is required?
> Solar Panels, Inc., has the following items and amounts as part of its master budget at the 10,000-unit level of sales and production: Sales revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $100,00
> How would you define each of the following? a. joint products b. by-products c. joint costs d. split-off point
> How is the cost of units normally lost in manufacturing absorbed by the unit cost for the period?
> Strand Manufacturing, Inc., has the following flexible budget formulas and amounts: Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 25 per unit Direct materials . . . . . . . . . . . . . . . .
> Using the following per-unit and total amounts, prepare a flexible budget at the 14,000-, 15,000-, and 16,000-unit levels of production and sales for Celestial Products, Inc.: Selling price per unit . . . . . . . . . . . . . . . . . . . . . . . . . . . .
> Why might the total number of units completed during a month plus the number of units in process at the end of a month be less than the total number of units in process at the beginning of the month plus the number of units placed in process during the m
> Gyro Company has the following totals from its operating budgets: Selling and administrative expenses budget . . . . . . . . . . . . . . . . . . . $ 244,500 Cost of goods sold budget . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
> Prepare a cost of goods sold budget for the Summit Manufacturing Company for the year ended December 31, 2011, from the following estimates. Inventories of production units: Direct materials purchased during the year, $854,000; beginning inventory of dir
> What advantage does the FIFO cost method have over the average cost method relative to providing information for cost control?
> Give three examples each of operating budgets and financial budgets.
> What is a continuous budget, and why is it useful?
> What are six principles of good budgeting?
> How is the standard cost per unit for factory overhead determined?
> Is it possible for a factory to operate at more than 100% of normal capacity?
> How would you define the following? a. Theoretical capacity b. Practical capacity c. Normal capacity
> In comparing actual sales revenue to flexible budget sales revenue, would it be possible to have a favorable variance and still not have met revenue expectations?
> Why is a flexible budget better than a master budget for comparing actual results to budgeted expectations?
> S. Prosser Manufacturing Company forecast October sales to be 45,000 units. Additional information follows: Finished goods inventory, October 1 . . . . . . . . . . . . . . . . . . . . . . . . 5,000 units Finished goods inventory desired, October 31 . .
> What are the advantages and disadvantages of each of the following for a company that has greatly fluctuating sales during the year? a. A stable production policy b. A stable inventory policy
> What is the difference between the average cost method and the first-in, first-out (FIFO) cost method?
> Why is it important to have front-line managers participate in the budgeting process?
> Which budget must be prepared before the others? Why?
> Budgeted selling and administrative expenses for Cruise Tire Company in P7-2 for the year ended December 31, 2011, were as follows: Advertising expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $942,000 Office rent
> Cruise Tire Company’s budgeted unit sales for the year 2011 were: Passenger car tires . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120,000 Truck tires . . . . . . . . . . . . . . . . .
> The sales department of Optimo Company has forecast sales for May 2011 to be 40,000 units. Additional information follows: Finished goods inventory, May 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000 units Finished goods inventory, M
> Mountaineer Manufacturing Company uses a job order cost system and standard costs. It manufactures one product, whose standard cost follows: Materials, 20 yards@$0.90 per yard . . . . . . . . . . . . . . . . . . . . . . . . . . $18 Direct labor, 4 hours
> Presented below are the monthly factory overhead cost budget (at normal capacity of 5,000 units or 20,000 direct labor hours) and the production and cost data for a month. The predetermined overhead rate is based on normal capacity. Required: 1. Assuming
> Use the information in Figure 7-12 of the chapter. Required: Prepare flexible budgets for the production and sale of 29,000 units and 31,000, respectively. Figure 7-12 Flexible Budget for Production and Sale of Tables A 28,000 units $4.200,000 30,00
> The sales department of P. Gillen Manufacturing Company has forecast sales in March to be 20,000 units. Additional information follows: Finished goods inventory, March 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,000 units Finished goods i
> What computations must be made if materials added in a department increase the number of units being processed in that department?
> How would you describe the method used to treat the cost of abnormal processing losses?
> The sales department of S. Miller Manufacturing Company has forecast sales for its single product to be 20,000 units for the month of June, with three-quarters of the sales expected in the East region and one-fourth in the West region. The budgeted selli
> A company’s year-end balance in accounts receivable is $2,000,000. The allowance for uncollectible accounts had a beginning-of-year credit balance of $30,000. An aging of accounts receivable at the end of the year indicates a required allowance of $38,00
> Refer to the situation described in BE 6–8. What amount did Canliss borrow assuming that the first $10,000 payment was due immediately? In BE 6–8 Canliss Mining Company borrowed money from a local bank. The note the company signed requires five annual i
> Refer to the situation described in BE 7–9. Answer the two questions assuming the company estimates that future bad debts will equal 10% of the year-end balance in accounts receivable. In BE 7–9 The following information relates to a company’s accounts
> The following information relates to a company’s accounts receivable: accounts receivable balance at the beginning of the year, $300,000; allowance for uncollectible accounts at the beginning of the year, $25,000 (credit balance); credit sales during the
> Refer to the situation described in BE 7–6. Prepare the year-end adjusting journal entries to account for anticipated sales returns under the assumption that all sales are made for cash (no accounts receivable are outstanding) In BE 7–6 During 2018, its
> During 2018, its first year of operations, Hollis Industries recorded sales of $10,600,000 and experienced returns of $720,000. Cost of goods sold totaled $6,360,000 (60% of sales). The company estimates that 8% of all sales will be returned. Prepare the
> Cutler Company has a cash account with a balance of $250,000 with Wright Bank and a cash account with an overdraft of $5,000 at Lowe Bank. What would the current assets section of Cutler’s balance sheet include for “cash” under IFRS? Under U.S. GAAP?
> Assume the same facts as in BE 7–22, but that Einhorn determines credit losses using the CECL model introduced in ASU 2016-13 and required in 2020. How much credit loss should Einhorn recognize? In BE 7–22 Einhorn Industries believes it is not probable
> Shan Enterprises received a bank statement listing its May 31, 2018, bank balance as $47,582. Shan determined that as of May 31 it had cash receipts of $2,500 that were not yet deposited and checks outstanding of $7,224. Calculate Shan’s correct May 31,
> Marin Company’s general ledger indicates a cash balance of $22,340 as of September 30, 2018. Early in October Marin received a bank statement indicating that during September Marin had an NSF check of $1,500 returned to a customer and incurred service ch
> Camden Hardware’s credit sales for the year were $320,000. Accounts receivable at the beginning and end of the year were $50,000 and $70,000, respectively. Calculate the accounts receivable turnover ratio and the average collection period for the year.
> On March 31, Dower Publishing discounted a $30,000 note at a local bank. The note was dated February 28 and required the payment of the principal amount and interest at 6% on May 31. The bank’s discount rate is 8%. How much cash will Dower receive from t
> Canliss Mining Company borrowed money from a local bank. The note the company signed requires five annual installment payments of $10,000 beginning one year from today. The interest rate on the note is 7%. What amount did Canliss borrow?
> Huling Associates plans to transfer $300,000 of accounts receivable to Mitchell Inc. in exchange for cash. Huling has structured the arrangement so that it retains substantially all the risks and rewards of ownership but shifts control over the receivabl
> Logitech Corporation transferred $100,000 of accounts receivable to a local bank. The transfer was made without recourse. The local bank remits 85% of the factored amount to Logitech and retains the remaining 15%. When the bank collects the receivables,
> On April 19, 2018, Millipede Machinery sold a tractor to Thomas Hartwood, accepting a note promising payment of $120,000 in five years. The applicable effective interest rate is 7%. What amount of sales revenue would Millipede recognize on April 19, 2018
> Refer to the situation described in BE 7–11. If credit sales for the year were $8,200,000 and $7,950,000 was collected from credit customers, what was the beginning-of-year balance in accounts receivable? In BE 7–11 A company’s year-end balance in accou
> Explain the typical way companies account for uncollectible accounts receivable (bad debts). When is it permissible to record bad debt expense only at the time when receivables actually prove uncollectible?
> Briefly explain the accounting treatment for sales returns.
> Distinguish between the gross and net methods of accounting for cash discounts.
> Explain the difference between a trade discount and a cash discount.
> Define a compensating balance. How are compensating balances reported in financial statements?
> What are the responsibilities of management described in Section 404 of the Sarbanes-Oxley Act? What are the responsibilities of the company’s auditor?
> Refer to the situation described in BE 6–6. How much will Leslie accumulate in three years by depositing $500 at the beginning of each of the next 12 quarters? In BE 6–6 Leslie McCormack is in the spring quarter of her freshman year of college. She and
> Marshall Companies, Inc., holds a note receivable from a former subsidiary. Due to financial difficulties, the former subsidiary has been unable to pay the previous year’s interest on the note. Marshall agreed to restructure the debt by both delaying and
> How is a petty cash fund established? How is the fund replenished?
> In a two-step bank reconciliation, identify the items that might be necessary to adjust the bank balance to the corrected cash balance. Identify the items that might be necessary to adjust the book balance to the corrected cash balance.
> Explain how the CECL model (introduced in ASU No. 2016-13 and required in 2020) differs from current GAAP in its calculation of bad debt expense.
> What is meant by the discounting of a note receivable? Describe the four-step process used to account for discounted notes.
> Do U.S. GAAP and IFRS differ in the criteria they use to determine whether a transfer of receivables is treated as a sale? Explain.
> Explain any possible differences between accounting for an account receivable factored with recourse compared with one factored without recourse.
> Briefly explain the difference between the income statement approach and the balance sheet approach to estimating bad debts.
> Air France–KLM (AF), a Franco-Dutch company, prepares its financial statements according to International Financial Reporting Standards. AF’s financial statements and disclosure notes for the year ended December 31, 2015, are available in Connect. This m
> Target Corporation prepares its financial statements according to U.S. GAAP. Target’s financial statements and disclosure notes for the year ended January 30, 2016, are available in Connect. This material is also available under the Investor Relations li
> Leslie McCormack is in the spring quarter of her freshman year of college. She and her friends already are planning a trip to Europe after graduation in a little over three years. Leslie would like to contribute to a savings account over the next three y
> Johnson & Johnson is one of the world’s largest manufacturers of health care products. The company’s December 31, 2015, financial statements included the following information in the long-term debt disclosure note: _______________________________________
> Hughes Corporation is considering replacing a machine used in the manufacturing process with a new, more efficient model. The purchase price of the new machine is $150,000 and the old machine can be sold for $100,000.Output for the two machines is identi
> On a rainy afternoon two years ago, John Smiley left work early to attend a family birthday party. Eleven minutes later, a careening truck slammed into his SUV on the freeway causing John to spend two months in a coma. Now he can’t hold a job or make eve
> Sally Hamilton has performed well as the chief financial officer of the Maxtech Computer Company and has earned a bonus. She has a choice among the following three bonus plans: 1. A $50,000 cash bonus paid now. 2. A $10,000 annual cash bonus to be paid e
> The Damon Investment Company manages a mutual fund composed mostly of speculative stocks. You recently saw an ad claiming that investments in the funds have been earning a rate of return of 21%. This rate seemed quite high so you called a friend who work
> Southwest Airlines provides scheduled air transportation services in the United States. Like many airlines, Southwest leases many of its planes from Boeing Company. In its long-term debt disclosure note included in the financial statements for the year e
> Benning Manufacturing Company is negotiating with a customer for the lease of a large machine manufactured by Benning. The machine has a cash price of $800,000. Benning wants to be reimbursed for financing the machine at a 12% annual interest rate over t
> Benning Manufacturing Company is negotiating with a customer for the lease of a large machine manufactured by Benning. The machine has a cash price of $800,000. Benning wants to be reimbursed for financing the machine at an 8% annual interest rate. Requ
> On January 1, 2018, The Barrett Company purchased merchandise from a supplier. Payment was a noninterest-bearing note requiring five annual payments of $20,000 on each December 31 beginning on December 31, 2018, and a lump-sum payment of $100,000 on Dece
> John Roberts is 55 years old and has been asked to accept early retirement from his company. The company has offered John three alternative compensation packages to induce John to retire. 1. $180,000 cash payment to be paid immediately 2. A 20-year annui
> Refer to the situation described in BE 6–4. Suppose the opportunity requires John to invest $13,200 today. What is the interest rate John would earn on this investment? In BE 6–4 John has an investment opportunity that promises to pay him $16,000 in fou
> On January 1, 2018, the Montgomery Company agreed to purchase a building by making six payments. The first three are to be $25,000 each, and will be paid on December 31, 2018, 2019, and 2020. The last three are to be $40,000 each and will be paid on Dece
> Lowlife Company defaulted on a $250,000 loan that was due on December 31, 2018. The bank has agreed to allow Lowlife to repay the $250,000 by making a series of equal annual payments beginning on December 31, 2019. Required: 1. Calculate the required an
> The following situations should be considered independently. 1. John Jamison wants to accumulate $60,000 for a down payment on a small business. He will invest $30,000 today in a bank account paying 8% interest compounded annually. Approximately how long
> John and Sally Claussen are considering the purchase of a hardware store from John Duggan. The Claussens anticipate that the store will generate cash flows of $70,000 per year for 20 years. At the end of 20 years, they intend to sell the store for an est
> John Wiggins is considering the purchase of a small restaurant. The purchase price listed by the seller is $800,000. John has used past financial information to estimate that the net cash flows (cash inflows less cash outflows) generated by the restauran
> Harding Company is in the process of purchasing several large pieces of equipment from Danning Machine Corporation. Several financing alternatives have been offered by Danning: 1. Pay $1,000,000 in cash immediately. 2. Pay $420,000 immediately and the re
