Question: In the fourth quarter of 2017, Casey

> K&J Web Designs creates websites for businesses. K&J has a basic website creation package that it offers for a flat fee of $750. This package includes everything that a business would need to have a simple but functional website built. K&J estimates that

> Sarah Aiken is the owner of Pretty Paws, a dog-grooming service. At standard, it takes 1 hour to groom each dog. During the month of October, it took Pretty Paws employees 350 hours to groom 300 dogs, at a total labor cost of $4,890. In November, employe

> T&C Tees is a manufacturer of T-shirts. The standard amount of 100% cotton jersey fabric used to make each T-shirt is 2.3 yards. The standard price per yard of the fabric is $2.75. During last month, T&C purchased 6,200 yards of the jersey fabric for $13

> Hank’s is a chain of 55 coffee shops. The standard amount of ground coffee per cup is .75 ounces. During the month of September, the company sold 325,000 cups of coffee (reported via electronic cash registers), and the 55 shops reported using 16,800 poun

> The following income statements and other information are available for the Schneider Company: Required: Calculate EVA for 2017. Assume that for purposes of calculating EVA, the company capitalizes research and development expenditures and amortizes the

> Consider two companies: Quantum Products and Aquafin Products. Senior managers at Quantum Products are evaluated in terms of increases in profit. In fiscal 2017, Quantum Products had a net operating profit after taxes of $4,600,000 and invested capital o

> Consider the following data, which relate to the two divisions of McIntyre Products: Required: Compare the two divisions in terms of return on investment and residual income. In the past year, which division has created the most wealth for McIntyre shar

> Refer to the summary of variances in Exercise 11-16. At Bell Computers, the ending balance in Finished Goods Inventory is $117,000; the ending balance in Work in Process Inventory is $54,000, and the balance in Cost of Goods Sold is $437,500. Required:

> Paramount Medical Services has two outpatient clinics and a pathology laboratory, which are organized as separate profit centers. When the pathology laboratory conducts tests ordered by the clinics, the clinics are charged the basic market price of the t

> The Schrödinger Science Store operates a retail store in a local shopping mall. The results of operations for the fourth quarter of 2017 are as follows: Sales………………………………………………………………………………. $350,000 Less cost of sales………………………………………………………………. 205,000 Gr

> The Linneas Company uses a standard costing system. During 2018, the company incurred actual overhead of $575,000. The standard rate for applying overhead is $4.25 per unit, and 130,000 units were produced in 2018. One-third of the total overhead varianc

> The Vanderwaal Company uses a standard costing system. In August, 5,450 actual labor hours were worked at a rate of $12.25 per hour. The standard number of hours is 5,270 and the standard wage rate is $13 per hour. Prepare a journal entry to record labor

> The Quality Cabinet Company uses a standard costing system and produced 2,000 cabinets during May. The standard cost of wood is $22 per linear foot, and the standard quantity for each cabinet is 27 linear feet. During May, the company purchased 57,000 li

> At the start of the year, Frigicor estimated that the company would produce 960 refrigeration units during the year (80 per month). Annual fixed overhead costs were estimated to be $1,200,000 ($100,000 per month), and estimated variable overhead costs we

> At the start of 2018, Textile Express Company determined its standard labor cost to be 2.25 hours per unit at $12.00 per hour. The budget for variable overhead was $9 per unit, and budgeted fixed overhead was $15,000 for the year. Expected annual product

> Lakeside Hospital is a division of Superior Healthcare that is organized as an investment center. In the past year, the hospital reported an after-tax income of $3,500,000. Total interest expense was $1,650,000, and the hospital’s tax rate was 35 percent

> Star Band Uniforms uses a standard costing system. The standard material and labor costs for producing a marching band hat are as follows: Materials (.90 yards × $12.00)…………………..$10.80 Direct labor (1.2 hours × $14.00) ………………. $16.80 During May, the com

> The standard labor cost in the production of a pair of Tukor Brand athletic shoes is .40 hours at $13.00 per hour. During the month of June, 25,000 pairs were produced. Actual labor costs were $111,700 for 8,200 hours. Compute the labor rate and labor ef

> WRX uses a standard costing system. For production of a fuel cell, standards call for 4 model RN-3 valves per cell costing $2,300 each. During 2018, the company purchased 250 valves for $587,500. The company used 248 valves in the production of 60 fuel c

> Samson Software operates a training facility that offers classes in the use of its software products. Historically, the classes have been offered at a modest charge that covers the cost of the instructor’s salary but not overhead related to the training

> Techlabs operates a computer training center. The following data relate to the preparation of a master budget for January 2018. 1. At the end of 2017, the company’s general ledger indicated the following balances: 2. Tuition revenue i

> The Stanton Supply Company produces cleaning equipment for professional cleaners. At the start of the year, Stanton estimated variable overhead costs to be $13 per unit and total fixed overhead costs at $301,000, based on a volume of 66,000 units. The de

> Write a paragraph explaining why, in the calculation of a company’s EVA, noninterest-bearing current liabilities are subtracted from total assets to determine investment.

> Explain why, in the calculation of EVA, the profit measure used (NOPAT) excludes interest expense.

> Write a paragraph explaining how, if workers improve a production process, they actually may generate an unfavorable labor efficiency variance.

> Five Star Tools is a small family-owned firm that manufactures diamond-coated cutting tools (chisels and saws) used by jewelers. Production involves three major processes. First, steel “blanks” (tools without the diamo

> For fiscal year 2018, Katherine’s Department Store had net income of $6,000,000. Interest expense was $2,250,000, and the company’s tax rate on income was 40 percent. Total assets were $80,000,000, and noninterest-bearing current liabilities were $6,700,

> Davenport Mills is a division of Iowa Woolen Products. For the most recent year, Davenport had net income of $20,000,000. Included in income was interest expense of $1,400,000. The operation’s tax rate is 40 percent. Total assets of Davenport Mills are $

> Major’s Fitness Club operates a 20,000-square-foot facility in Dallas. For the coming year, the company is considering development of a balanced scorecard. Required: Support the use of market prices or cost-based prices for charging clinics for tests pe

> Some advocates of the balanced scorecard have argued that managing a company with just financial performance measures is like driving a car and just looking in the rearview mirror. That’s why they recommend customer, internal processes, and learning and

> In 2016, five retired software developers opened an auto dealership in Redmond, Washington, which they named WinTechMotors. The company specializes in high-end sports and luxury autos and has one of the largest inventories of used Porsches on the West Co

> The results of operations for the Garret Bug Spray Manufacturing Company for the fourth quarter of 2017 were as follows (in thousands): Note: Garret uses the variable costing method. Thus, only variable costs are included in the cost of goods sold. Fixe

> Home Value Stores operates 264 membership warehouse stores in the United States, Europe, and Asia. The company offers low prices on a limited selection of household and grocery products. In the past year, sales increased by approximately 10.8 percent and

> Stan Holbert, the purchasing manager for Champion Industries, recently attended a meeting with a potential supplier, Wallace Materials. At the meeting, a Wallace manager demonstrated a material that was easier to handle and shape than the material curren

> Franz Manteca is the president of Max Storage Devices, a wholly owned subsidiary of Vanguard Industries. His annual salary is $600,000. In addition, he receives a $200,000 bonus if Max Storage’s profit exceeds 75 percent of budget. He also receives 1 per

> The Watch and Timepiece Division of Geraldo Jewelers had significant problems in 2018. Sales and production were down by almost 35 percent as compared with the budget. Manufacturing was plagued by quality problems and had frequent customer complaints. Ti

> The Customer Support Department at Silvan.com budgeted for the following costs in June, assuming 35 customer consultants responding to 11,200 customer calls: Salaries of customer consultants…………. $160,000 Salaries of supervisors……………………………. 30,000 Office

> Debra Green is the division manager of the Consumer Banking Division of Pennywise Bank. Each year Debra submits an annual budget to Barney Stringer, the bank’s chief financial officer. Debra’s bonus, salary increases, and promotion opportunities are base

> Javier Andreas is in the process of developing a spreadsheet to budget annual sales and purchases of inventory for his company, The Backyard Place, a retail store that sells lighting, furniture, and other amenities for the backyard. In 2017, sales were a

> The accountant at Supreme Audio resigned while he was in the midst of preparing the budget for 2018. His work papers indicated the following: Assumptions: Sales will increase by 25 percent over 2017. Cost of sales equals 75 percent of sales. For 2018

> Jackson Sound produces amplifiers and mixing boards in a modern production facility. The company is well known for its quality products. Each item is thoroughly tested before it leaves the plant. Workers are highly skilled. The company considers direct l

> What is the difference between residual income and EVA?

> Should managers investigate only unfavorable variances?

> Discuss goal congruence and how it impacts the decision to decentralize.

> “You get what you measure!” If so, what problem might be created by managers attempting to achieve favorable material price variances?

> What is the difference between an ideal standard and an attainable standard?

> List two disadvantages associated with decentralization of a firm’s operations.

> Provide two measures for each perspective of a balanced scorecard.

> What is empire building in a managerial context?

> The results of operations for the Preston Manufacturing Company for the fourth quarter of 2017 were as follows: Note: Preston Manufacturing uses the variable costing method. Thus, only variable production costs are included in inventory and cost of good

> What portion of consolidated retained earnings is assigned to the noncontrolling interest in the consolidated balance sheet?

> Select the correct answer for each of the following questions. Amber Corporation holds 80 percent of the stock of Movie Productions Inc. During 20X4, Amber purchased an inventory of snack bar items for $40,000 and resold $30,000 to Movie Productions for

> How is the amount assigned to the noncontrolling interest normally determined when a consolidated balance sheet is prepared immediately after a business combination?

> Why must inventory transfers to related companies be eliminated in preparing consolidated financial statements?

> Why must a noncontrolling interest be reported in the consolidated balance sheet?

> Where is the balance assigned to the noncontrolling interest reported in the consolidated balance sheet?

> Companies have many different practices for pricing transfers of goods and services from one affiliate to another. Regardless of the approaches used for internal decision making and performance evaluation or for tax purposes, all intercompany profits, un

> Diamond Manufacturing Company regularly purchases janitorial and maintenance services from its wholly owned subsidiary, Schwartz Maintenance Services Inc. Schwartz bills Diamond monthly at its regular rates for the services provided, with the services co

> Current reporting standards require the consolidated entity to include all the revenues, expenses, assets, and liabilities of the parent and its subsidiaries in the consolidated financial statements. When the parent does not own all of a subsidiary’s sha

> Dream Corporation owns 90 percent of Classic Company’s common stock and 70 percent of Plain Company’s stock. Dream provides legal services to each subsidiary and bills it for 150 percent of the cost of the services provided. During 20X3, Classic recorded

> Plug Corporation purchased 60 percent of Coy Company’s common stock approximately 10 years ago. On January 1, 20X2, Coy sold equipment to Plug for $850,000 and recorded a $150,000 loss on the sale. Coy had purchased the equipment for $1,200,000 on Januar

> Many companies transfer inventories from one affiliate to another. Often the companies have integrated operations in which one affiliate provides the raw materials, another manufactures finished products, another distributes the products, and perhaps ano

> Ready Building Products has six subsidiaries that sell building materials and supplies to the public and to the parent and other subsidiaries. Because of the invoicing system Ready uses, it is not possible to keep track of which items have been purchased

> Morrison Company owns 80 percent of Bloom Corporation’s stock, acquired when Bloom’s fair value as a whole was equal to its book value. The companies frequently engage in intercompany inventory transactions. Required: Name the conditions that woul

> Water Products Corporation has been supplying high-quality bathroom fixtures to its customers for several decades and uses a LIFO inventory system. Rapid increases in the cost of fixtures have resulted in inventory values substantially below current repl

> Shortcut Charlie usually manages to develop some simple rule to handle even the most complex situations. In providing for the elimination of the effects of inventory transfers between the parent company and a subsidiary or between subsidiaries, Shortcut

> Monsanto Company, a St. Louis–based company, is a leading provider of agricultural products for farmers. It sells seeds, biotechnology trait products, and herbicides worldwide. Required How did Monsanto Company report its income to noncontrolling (min

> A new employee has been given responsibility for preparing the consolidated financial statements of Sample Company. After attempting to work alone for some time, the employee seeks assistance in gaining a better overall understanding of the way in which

> Rose Corporation and Krome Company established a joint venture to manufacture components for both companies’ use on January 1, 20X1, and have operated it quite successfully for the past four years. Rose and Krome both contributed 50 percent of the equity

> Standard Company has a relatively high profit margin on its sales, and Jewel Company has a substantially lower profit margin. Standard holds 55 percent of Jewel’s common stock and includes Jewel in its consolidated statements. Standard and Jewel reported

> Frazer Corporation purchased 60 percent of Minnow Corporation’s voting common stock on January 1, 20X1. On January 1, 20X5, Frazer received $245,000 from Minnow for a truck Frazer had purchased on January 1, 20X2, for $300,000. The truck is expected to h

> Frazer Corporation purchased 60 percent of Minnow Corporation’s voting common stock on January 1, 20X1. On December 31, 20X5, Frazer received $210,000 from Minnow for a truck Frazer had purchased on January 1, 20X2, for $300,000. The truck is expected to

> Bowen Corporation owns 70 percent of Roan Corporation’s voting common stock. On March 12, 20X2, Roan sold land it had purchased for $140,000 to Bowen for $185,000. Bowen plans to build a new warehouse on the property in 20X3. Required: Give th

> Pam Corporation holds 70 percent ownership of Northern Enterprises. On December 31, 20X6, Northern paid Pam $40,000 for a truck that Pam had purchased for $45,000 on January 1, 20X2. The truck was considered to have a 15-year life from January 1, 20X2, a

> Power Corporation owns 75 percent of Swift Company’s stock. Swift provides health care services to its employees and those of Power. During 20X2, Power recorded $45,000 as health care expense for medical care given to its employees by Swift. Swift’s cost

> Huckster Corporation purchased land on January 1, 20X1, for $20,000. On June 10, 20X4, it sold the land to its subsidiary, Lowly Corporation, for $30,000. Huckster owns 60 percent of Lowly’s voting shares. Required: Give the worksheet consolidation

> Select the correct answer for each of the following questions. Upper Company holds 60 percent of Lower Company’s voting shares. During the preparation of consolidated financial statements for 20X5, the following consolidation entry wa

> Parent Company holds 90 percent of Sunway Company’s voting common shares. On December 31, 20X8, Parent recorded a loss of $16,000 on the sale of equipment to Sunway. At the time of the sale, the equipment’s estimated remaining economic life was eight yea

> Turner Company purchased 70 percent of Split Company’s stock approximately 20 years ago. On December 31, 20X8, Turner purchased a building from Split for $300,000. Split had purchased the building on January 1, 20X1, at a cost of $400,000 and used straig

> Newtime Products purchased 65 percent of TV Sales Company’s stock at underlying book value on January 1, 20X3. At that date, the fair value of the noncontrolling interest was equal to 35 percent of the book value of TV Sales. TV Sales reported shares out

> Grand Delivery Service acquired at book value 80 percent of the voting shares of Acme Real Estate Company. On that date, the fair value of the noncontrolling interest was equal to 20 percent of Acme’s book value. Acme Real Estate reported common stock of

> Norgaard Corporation purchased management consulting services from its 75 percent-owned subsidiary, Bline Inc. During 20X3, Norgaard paid Bline $123,200 for its services. For the year 20X4, Bline billed Norgaard $138,700 for such services and collected a

> Verry Corporation owns 75 percent of Spawn Corporation’s voting common stock. Verry reported income from its separate operations of $90,000 and $110,000 in 20X4 and 20X5, respectively. Spawn reported net income of $60,000 and $40,000 in 20X4 and 20X5, re

> Pastel Corporation acquired a controlling interest in Somber Corporation in 20X5 for an amount equal to its underlying book value. At the date of acquisition, the fair value of the noncontrolling interest was equal to its proportionate share of the book

> Kline Corporation holds 90 percent ownership of Andrews Company. On July 1, 20X3, Kline sold equipment that it had purchased for $30,000 on January 1, 20X1, to Andrews for $28,000. The equipment’s original six-year estimated total economic life remains u

> Stern Manufacturing purchased an ultrasound drilling machine with a remaining 10-year economic life from a 70 percent-owned subsidiary for $360,000 on January 1, 20X6. Both companies use straightline depreciation. The subsidiary recorded the following en

> Baywatch Industries has owned 80 percent of Tubberware Corporation for many years. On January 1, 20X6, Baywatch paid Tubberware $270,000 to acquire equipment that Tubberware had purchased on January 1, 20X3, for $300,000. The equipment is expected to hav

> Blank Corporation owns 60 percent of Grand Corporation’s voting common stock. On December 31, 20X4, Blank paid Grand $276,000 for dump trucks Grand had purchased on January 1, 20X2. Both companies use straight-line depreciation. The con

> On January 1, 20X7, Wainwrite Corporation sold to Lance Corporation equipment it had purchased for $150,000 and used for eight years. Wainwrite recorded a gain of $14,000 on the sale. The equipment has a total useful life of 15 years and is depreciated o

> Swanson Corporation purchased land from Clayton Corporation for $240,000 on December 20, 20X3. This purchase followed a series of transactions between Swanson-controlled subsidiaries. On February 7, 20X3, Sullivan Corporation purchased the land from a no

> Brown Corporation holds 70 percent of Transom Company’s voting common stock. On January 1, 20X2, Transom paid $300,000 to acquire a building with a 15-year expected economic life. Transom uses straight-line depreciation for all depreciable assets. On Dec

> Home Products Corporation, which sells a broad line of home detergent products, owns 75 percent of the stock of Level Brothers Soap Company. During 20X8, Level Brothers sold soap products to Home Products for $180,000, which it had produced for $120,000.

> Herb Corporation holds 60 percent ownership of Spice Company. Each year, Spice purchases large quantities of a gnarl root used in producing health drinks. Spice purchased $150,000 of roots in 20X7 and sold $40,000 of these purchases to Herb for $60,000.

> Klon Corporation owns 70 percent of Brant Company’s stock and 60 percent of Torkel Company’s stock. During 20X8, Klon sold inventory purchased in 20X7 for $100,000 to Brant for $150,000. Brant then sold the inventory at its cost of $150,000 to Torkel. Pr

> The December 31, 20X8, balance sheets for Doorst Corporation and its 70 percent-owned subsidiary Hingle Company contained the following summarized amounts: Boorst acquired the shares of Hingle Company on January 1, 20X7. On December 31, 20X8, assume Do

> Hollow Corporation acquired 70 percent of Surg Corporation’s voting stock on May 18, 20X1. The companies reported the following data with respect to intercompany sales in 20X4 and 20X5: Hollow reported operating income (excluding inco

> Prem Company acquired 60 percent ownership of Cooper Company’s voting shares on January 1, 20X2. During 20X5, Prem purchased inventory for $20,000 and sold the full amount to Cooper Company for $30,000. On December 31, 20X5, Cooper&aci

> Holiday Bakery owns 60 percent of Farmco Products Company’s stock. On January 1, 20X9, inventory reported by Holiday included 20,000 bags of flour purchased from Farmco at $9 per bag. By December 31, 20X9, all the beginning inventory purchased from Farmc

> Holiday Bakery owns 60 percent of Farmco Products Company’s stock. During 20X8, Farmco produced 100,000 bags of flour, which it sold to Holiday Bakery for $900,000. On December 31, 20X8, Holiday had 20,000 bags of flour purchased from Farmco Products on

> Karlow Corporation owns 60 percent of Draw Company’s voting shares. During 20X3, Karlow produced 25,000 computer desks at a cost of $82 each and sold 10,000 of them to Draw for $94 each. Draw sold 7,000 of the desks to unaffiliated companies for $130 eac