QUESTION 1 Short answer (14 marks)

Fully answer the following questions and show all calculations where necessary.

1. Liverpool Industries (Liverpool) manufactures backyard swimming pools in two divisions; the Vancouver Division and the Toronto Division. Liverpools management team rewards the vice presidents of their divisions with a 5% bonus based on the net income for the division.
   1. State which inventory costing method should be used when calculating net income to ensure the vice president of the division is effectively managing inventory. (1 mark) -> Inventory costing method should be used is return in investment (ROI)
   2. Explain why you chose this method. (2 marks) -> Because this method blends all ingregrents (revenues, costs, and investment) of profitability into a single number.

In addition, it is easy to understand and compare with other divisions.

2. Juicy-Bits Orange Co. (Juicy-Bits) produces orange juice products using a job cost system. The peel of the orange is considered to be scrap that is related to all of Juicy-Bits jobs. Juicy-Bits has a sales contract with a local soap company that picks up the scrap peel at the end of every day. The soap company uses the oil from the peel to make soap. At the end of day on June 20, Juicy-Bits production manager recorded Work in process costs to two jobs (Job 214 and Job 215). Juice-Bits warehouse manager loaded the daily amount of scrap orange peels onto the soap companys delivery trailer and wrote up an invoice for $475. Juicy-Bits accountant considers the sales amount to be significant.

Required: Prepare the journal entry to record the sale of scrap on June 20. (3 marks)

(continued on next page.)

3. Identify two performance measures that could be used together to reward managers in such a way that the company remains profitable in both the short term and in the long term. Explain how each measure would achieve its objective. (4 marks)
4. We R Cool Ltd (WRC) manufactures inflatable pool loungers in its 25,000 square foot plant in Aldergrove. The production manager provides you with the following information as it relates to the various ways capacity levels of the production plant can be measured. To satisfy annual demand for 2022 the vice-president of production plans to produce 18,000 loungers. However, the marketing manager has identified that the demand between 2019 and 2021 has averaged 20,000 loungers per year. WRCs manufacturing plant has the capacity to produce 30,000 loungers annually assuming the plant is operating 365 days of the year. However, taking into consideration usual closures for such situations as weekends, holidays, and sick time, it is more likely the plant could produce 24,000 loungers annually.
   1. Which of the capacity levels described in the previous paragraph would be used to determine the cost of idle capacity? What is this level of capacity called? (2 marks)
   2. Which of the capacity levels described in the previous paragraph would be used for external reporting purposes? What is this level of capacity called? (2 marks)