a.
The
a.
Answer to Problem 30P
Option 1
Calculation of income statement of Company CM is as follows:
Table (1)
Hence, the net income of Company CM is $20,000.
Calculation of balance sheet of Company CM is as follows:
Table (2)
Option 2
Calculation of income statement of Company CM is as follows:
Table (3)
Hence, the net income of Company CM is $32,000.
Calculation of balance sheet of Company CM is as follows:
Table (4)
Explanation of Solution
Income statement:
It is the financial statement of a company that shows all the incomes earned and expenditures incurred by the company for a particular period of time.
Balance sheet:
Balance sheet is one of the financial statements that summarizes the assets, the liabilities, and the shareholder’s equity of a company at a given date. It is also known as the statement of financial status of the business.
Working notes:
Calculate the sale revenue:
Hence, the sales revenue is $140,000.
(1)
Calculate the cost per unit:
Hence, the cost per unit is $15.
Calculate the cost of goods sold:
Hence, the cost of goods sold is $60,000.
(2)
Calculate the total cash:
Hence, the total cash is $85,000.
(3)
Calculate the total finished goods:
Hence, the finished goods is $15,000.
(4)
Calculate the cost per unit:
Hence, the cost per unit is $27.
Calculate the cost of goods sold:
Hence, the cost of goods sold is $108,000.
(5)
Calculate the total finished goods:
Hence, the finished goods is $27,000.
(6)
b.
The option in the financial statement that gives a favourable image to the creditors and investors.
b.
Answer to Problem 30P
Option 2 is the financial statement that gives a favorable impression to creditors and investors with a greater net income of $12,000 than option 1’s net income.
Explanation of Solution
Income statement:
Income statement is the financial statement of a company that shows all the incomes gained and expenditures incurred by the company for a time period.
Balance sheet:
Balance sheet is one of the financial statements that summarizes the assets, the liabilities, and the shareholder’s equity of a company at a given date. It is also known as the statement of financial status of the business.
The option that gives the favorable image to the creditors and investors is as follows:
Option 2 provides the financial statement that gives a favorable image to the creditors and investors because the net income in option 2 is greater than the net income in option 1.
c.
The amount of bonus under each option and recognize the option that provides a higher bonus.
c.
Answer to Problem 30P
Option 2 provides the president with a higher bonus of $6,400.
Explanation of Solution
Income statement:
Income statement is the financial statement of a company that shows all the revenues earned and expenses incurred by the company over a period of time.
Balance sheet:
Balance sheet is one of the financial statements that summarizes the assets, the liabilities, and the shareholder’s equity of a company at a given date. It is also known as the statement of financial status of the business.
Calculation of bonus under option 1 is as follows:
Hence, the bonus received by the president under option 1 is $4,000.
Calculation of bonus under option 2 is as follows:
Hence, the bonus received by the president under option 2 is $6,400.
d.
The amount of tax rate under each option and recognize which option pays less tax.
d.
Answer to Problem 30P
Option 1 minimizes the cost of income tax expenses for the company by $6,000.
Explanation of Solution
Calculation of income tax under option 1 is as follows:
Hence, the income tax expenses under option 1 is $6,000.
Calculation of income tax under option 2 is as follows:
Hence, the bonus received by the president under option 2 is $9,600
e.
Comment on the conflict among the company’s president as determined in requirement c and the owner-based requirement d, and define an incentive compensation plan that will neglect the conflict.
e.
Explanation of Solution
The conflicts between the owner and the president are as follows:
Option 2 provides the president with a higher bonus of $6,400. Option 1 minimizes the cost of income tax expenses for the company by $6,000. These are the two conflicts between the owner and the president.
The reasons to avoid these conflicts are as follows:
- The bonus plans of the company can be tied up with the company’s stock price, instead of net income.
Market efficiency increases; as a result, the performance of the company increases, which creates a value to the company’s stock price.
Want to see more full solutions like this?
Chapter 10 Solutions
Survey Of Accounting
- TB MC Qu. 15-93 Polson Pool Company is involved in... Polson Pool Company is involved in a number of competitive bidding situations. The following costs are anticipated for a project to be bid for Terrance Manufacturing: Direct material Direct labor Allocated variable overhead Allocated fixed cost Which of these costs would be treated differently If Polson had either excess capacity or no excess capacity? Multiple Choice Direct materials used, $790,000. Direct labor, $2,420,000. Allocated variable overhead, $403,000. $ 790,000 2,420,000 403,000 220,000 Allocated fixed cost, $220,000. None of these, as all four costs are considered in both situations.arrow_forwardCurrent Attempt in Progress Bramble Corporation incurred the following costs while manufacturing its product. Materials used in product Depreciation on plant Property taxes on store Labor costs of assembly-line workers Factory supplies used (a) Your answer is incorrect. Compute cost of goods manufactured. Cost of goods manufactured LA $100,800 $ 50,400 6,300 92,400 19,400 Advertising expense Property taxes on plant Delivery expense Sales commissions Salaries paid to sales clerks Work in process inventory was $10,100 at January 1 and $13,000 at December 31. Finished goods inventory w 1 and $38,300 at December 31. $37,800 11,800 17,600 29,400 42,000arrow_forwardQuestion Content Area Allen Company used $71,000 of direct materials and incurred $37,000 of direct labor costs during the current year. Indirect labor amounted to $2,700 while indirect materials used totaled $1,600. Other operating costs pertaining to the factory included utilities of $3,100, maintenance of $4,500, supplies of $1,800, depreciation of $7,900, and property taxes of $2,600. There was no beginning or ending finished goods inventory, but work in process inventory began the year with a $5,500 balance and ended the year with a $7,500 balance. Prepare a statement of cost of goods manufactured. Allen CompanyStatement of Cost of Goods ManufacturedFor the Year Ended December 31 $- Select - $- Select - - Select - Factory overhead: $- Select - - Select - - Select - - Select - - Select - - Select - - Select - - Select - Total manufacturing costs incurred fill in the…arrow_forward
- Problem: 1 X company intend to manufacture 100,000 units of product M. Each unit of product M requires one unit of the three types of raw materials namely A,B and C. 1. Material A is in regular use of the company and the stocks are replaced as and when exhausted. 11. 111 Material B is not in regular use of the company but as a result of overbuying in an earlier contract, the company at present holds a stock of 60,000 units. Material C is used only in product M and hence the company has to purchase the same as per the requirement of production of the product. The data relating to the three items +of raw materials are as under: Raw Current materials stock(units) APU А (RO) 2.500 3.000 nil nil 6.000 You are required to calculate the cost of materials used in manufacture of 100,000 units of product M B C Cost per unit of Raw material Current Replacement 100,000 60.000 Original cost(RO) X Current resale cost(RO) 1.750 1.000 5.000 2.000 3.500 Iarrow_forward. Problems Problem 1 ( Flow of an accounting for the manufacturing company ) The following events took place at the Barton Manufacturing Corporation for a . the current year : 1. Purchased P80,000 in direct materials . 2. Incurred labor costs as follows : Direct labor , P42,000 . b . Supervisory labor , P11,500 ( part of manufacturing overhead ) . 3. Purchased manufacturing equipment for P67,200 . 4. Other manufacturing overhead was P80,500 , excluding supervisory labor . 5. Transferred 70 percent of the materials purchased to work in process . 6. Completed work on 60 percent of the goods in process . Costs are equally across all work in process . 7. Sold 90 percent of the completed goods . assigned There were no beginning balances in the inventory accounts . All costs incurred were debited to the appropriate account and credited to accounts payable . Required : 1. Prepare journal entries to reflect these events . 2. Prepare T - accounts to show these events . 3. Prepare a cost of…arrow_forwardQuestion 1: Estimation of WC The management of ABC Company Limited has called for a statement showing the WC needed to finance a level of activity of 3,00,000 units of output per year. The cost statement of the company's product, for the above-mentioned activity level, is given below: Cost per unit TK 20 Direct material Direct labor Overhead Total cost Target profit Target selling price 5 TK 15 40 10 TK 50 1. Past records show that raw materials are held in stock, on an average, for two (2) months; 2. Work in process (WIP) will approximate to 15 days production; 3. Finished goods remain in warehouse on average for 1 month; 4. Suppliers for materials extend one month's credit; 5. Two months credit is normally allowed to customers (assume all sales are on credit) 6. A minimum cash balance of TK 5,00,000 is expected to be maintained; 7. The production pattern is assumed to be even during the year. Prepare a Statement of Working Capital Requirementsarrow_forward
- III Froblems Problem 1 (Flow of an accounting for the manufacturing company) The following events took place at the Barton Manufacturing Corporation for the current year: 1. Purchased P80,000 in direct materials. 2 Incurred labor costs as followS a Direct labor, P42,000. b. Supervisory labor, PI1,500 (part of manufacturing overhead). 3. Purchased manufacturing equipment for P67,200. 4. Other manufacturing overhead was P80,500, excluding supervisory labor. 5. Transferred 70 percent of the materials purchased to work in process. 6. Completed work on 60 percent of the goods in process. Costs are assigned equally across all work in process. 7. Sold 90 percent of the completed goods. There were no beginning balances in the inventory accounts. All costs incurred were debited to the appropriate account and credited to accounts payable. Required: 1. Prepare jourmal entries to reflect these events. 2. Prepare T-accounts to show these events. 3. Prepare a cost of goods sold statement from the…arrow_forwardCost & Management Accounting AC336 Question 3 (13 Marks) Krypton Inc. manufactures two products, Vintex and Bromal. The company estimated it would incur $160,690 in manufacturing overhead costs during the current period. Overhead currently is applied to the products on the basis of direct labour hours. Data concerning the current period's operations appear below: Estimated Volume Direct labour hours per unit Direct labour cost per unit Direct material cost per unit Activity cost pool Material acquisition costs Machine costs General factory costs Required: Activity cost pool Material acquisition costs Machine costs General factory costs Vintex 4,700 units 2.1 hours Estimated overhead costs $33.60 $4.80 The company is considering using an activity-based costing system to compute unit product costs instead of its traditional single plant-wide system based on direct labour hours. The activity- based costing system would use three activity cost pools and drivers: Driver Purchase orders…arrow_forwardQuestion 2 The Anthony Company, a sole proprietorship, reports the following information pertaining to its operating activities: During the year, the company purchased $40,000 of direct materials and incurred $21,000 of direct labor costs. Total manufacturing overhead costs for the year amounted to $18,000. Selling and administrative expenses amounted to $60,000, and the company’s annual sales amounted to $250,000. Prepare Anthony’s schedule of the cost of finished goods manufactured. Prepare Anthony’s income statement (ignore income taxes).arrow_forward
- Schedule of Activity Costs Quality Control Activities Process audits Training of machine operators Processing returned products Scrap processing (disposal) Rework Preventive maintenance Product design Warranty work Finished goods inspection Activity Cost $50,000 28,000 19,000 25,000 8,000 30,000 46,000 12,000 23,000 From the provided schedule of activity costs, determine the value-added costs. A.$177,000 B.$191,000 C.$156,000 D.$104,000arrow_forward7. The following cost relate to XYZ Corp for the year: Sales commission expenses P 185,000 Direct materials 215,000 Conversion cost 435,000 Factory overhead 190,000 (40% of which is fixed) What is the TOTAL LABOR COSTS? 8. The following cost relate to XYZ Corp for the year: Sales commission expenses P 185,000 Direct materials 215,000 Conversion cost 435,000 Factory overhead 190,000 (40% of which is fixed) What is the TOTAL PERIOD COSTS?arrow_forwardAssume a company is considering buying 10,000 units of a component part rather than making them. A supplier has agreed to sell the company 10,000 units for a price of $40 per unit. The company's accounting system reports the following costs of making the part Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead, traceable Fixed manufacturing overhead, allocated Total cost Per 10,000 Units Unit per Year $ 18 $ 180,000 12 120,000 2 20,000 8 80,000 4 $ 44 40,000 $ 440,000 One-half of the traceable fixed manufacturing overhead relates to supervisory salaries and the remainder relates to depreciation of equipment with no salvage value. If the company chooses to buy this component part from a supplier, then the supervisor who oversees its production would be discharged. If the company begins buying the part from a supplier, it can use freed up capacity to produce and sell 5,000 more units of another product that earns a contribution margin per unit of…arrow_forward
- Managerial AccountingAccountingISBN:9781337912020Author:Carl Warren, Ph.d. Cma William B. TaylerPublisher:South-Western College PubSurvey of Accounting (Accounting I)AccountingISBN:9781305961883Author:Carl WarrenPublisher:Cengage Learning
- Managerial Accounting: The Cornerstone of Busines...AccountingISBN:9781337115773Author:Maryanne M. Mowen, Don R. Hansen, Dan L. HeitgerPublisher:Cengage LearningIntermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning