The following information is taken from the records of West End Distributors Inc. for the month ended May 31.

              

				Units		Unit cost
May 1   6   12   19   29		Purchase #1   Purchase #2   Purchase #3   Purchase #4   Purchase #5		100   200   125   350   150		$1   1   2   2   3

 

At May 31, 200 units remain unsold. For specific identification purposes, items on hand at May 31 were:

 

100 units of purchase #1

 

100 units of purchase #4

 

The other units were sold on May 31 for $2 each.

 

Required:

 

 

                                        

1.		Calculate the cost of ending inventory under each of the following costing methods:
	a.	FIFO
	b.	Specific identification
	c.	Weighted average
2.		Complete the following calculations:
			FIFO	Spec. Ident.	Weighted Average
Sales
Cost of goods sold
Gross Profit
3.		One of the companys strategies is to minimize income taxes and its accounting policies will reflect this. Which inventory cost method should they adopt and why?

 

 Problem 2 

 

Patents are a type of long-lived asset.

 

Required:

 

 

    

1.	Explain the accounting treatment you would suggest including amortization method, with reasons.
2.	Explain how an impairment in value would be recorded?

 

 

 

 Problem 3 (7 marks) 

 

Stahn Inc., an oil production company, purchased a machine on January 1, 2018. The following information applies:

            

Cost		Estimated useful life		Residual value
$40,000		3 years		$4,000

 

The year-end of the company is December 31.

 

Required:

 

 

    

1.

Calculate the depreciation expense and the carrying amount at year-end for the three-year period using the straight-line and double-declining balance methods.

2.

Assume depreciation has been recorded using the double-declining balance method. The machine is obsolete at the end of two years and must be sold, even though the president believes that it could have been used for one more year. He also thinks that too little depreciation expense has been charged against income during the two years and that the company has therefore issued inaccurate financial statements. Do you agree? Why or why not?

 

 

 

 Problem 4 (6 marks) 

 

Crystal Clear Electronics Inc. was incorporated on January 1, 2018 and was authorized under its charter to issue the following shares  20,000 non-cumulative, non-voting, preferred shares paying $.50 dividend per share each year, and an unlimited number of no par-value, voting common shares.

 

Required:

 

For each of the following events that took place in 2018, indicate the dollar value impact on each component of the accounting equation: an increase +, a decrease -, no effect x

 

 

                                   

		Assets	Liabilities	Shareholders Equity
1.	Preferred shares issued for cash
2.	Declared a cash dividend
3.	Preferred shares issued for land
4.	Calculated book value of common shares
5.	Paid cash dividend related to item 2 above
6.	2 for 1 split on common shares

 

 

 

 

 

Problem 5 (5 marks)

 

The comparative statements of financial position for Sors Limited at December 31 are as follows:

 

 

 

Sors Limited

 

Statement of Financial Position

 

At December 31, 2019

                                                   

	2019	2018
Assets
Cash	$ 6,000	$ 7,000
Accounts receivable	3,000	4,500
Merchandise inventory	12,000	11,000
Land	23,000	10,000
Equipment	40,000	30,000
Accumulated depreciation	(9,000)	(8,000)
	$75,000	$54,500
Liabilities and Shareholders Equity
Accounts payable	$ 6,000	$ 7,000
Non-current borrowings, due in one year	7,000	6,000
Non-current borrowings	9,000	16,000
Common shares	8,000	3,000
Retained earnings	45,000	22,500
	$75,000	$54,500

 

The following is additional information for 2019:

            

a.	Net income for the year was $27,500. There were no income taxes.
b.	No land was sold.
c.	Equipment was purchased for $20,000 in exchange for common shares value at $5,000 + $15,000 cash.
d.	Equipment costing $10,000 was sold for $12,000 cash. A $4,000 gain was reported in net income.
e.	Cash dividends of $5,000 were declared and paid.
f.	Depreciation expense of $3,000 was included in the net income figure.

 

Required:

 

Prepare the cash flow from operating activities section.

 

 

 

Problem 6 (10 marks)

 

A corporation began the month with $200,000 of current assets and the following ratios:

 

 

    

Current ratio	2.5 to 1
Acid-test ratio	1.25 to 1

 

Required:

 

Review the following transactions and indicate the effect they have on the current ratio by placing an X in the appropriate column. Treat each transaction independently. Do not recalculate the current ratio.

 

 

                                                       

		Increase	Decrease	No Effect
a.	Bought $20,000 of merchandise on account; the company uses a perpetual inventory system.
b.	Sold for $10,000 cash merchandise that cost $5,000.
c.	Collected $2,500 of accounts receivable.
d.	Paid $10,000 of accounts payable.
e.	Wrote off a $1,500 bad debt against the allowance for doubtful accounts.
f.	Declared a $1-per-share cash dividend on the 10,000 common shares that were outstanding.
g.	Paid the dividend declared in part f.
h.	Borrowed $10,000 from a bank assuming a 60-day, 10% loan.
i.	Borrowed $25,000 from a bank by taking out a 10-year mortgage on the plant.
j.	Used the $25,000 proceeds from the mortgage to buy additional machinery.

 

 

 

Problem 7 (16 marks)

 

 

 

In Group Project 1, you did a comparative financial analysis for two different companies. Select one of those companies and address the following three requirements:

 

 

      

1.	Describe the companys overall strategy. (4 marks)
2.	Prepare a Strategy Map for this company that flows from your response to part 1. The Strategy Map must show specific cause-and-effect relationships among the objectives. You should identify at least two objectives for each of the four perspectives. (6 marks)
3.	Prepare a Balanced Scorecard for this company which flows from your responses to parts 1 and 2. The Balanced Scorecard must contain the objectives from the strategy map, and provide two performance measures for each objective. (6 marks)

 

 

 

 

 

Problem 8 (5 marks)

 Brendas Brakes manufactures three different product lines, Models X, Y, and Z. The following per unit data apply: 

 

 

Model X Model Y Model Z

 

Selling price $50 $60 $70

 

Direct materials 6 6 6

 

Direct labour ($12 per hour) 12 18 24

 

Variable support costs ($4 per machine hour) 4 6 8

 

Fixed costs 10 10 10

 

 

 

Required:

 

 

 

If there are a limited number of direct labour hours available and demand exceeds the total direct labour hours available, in what order should the models be produced to maximize total contribution margin?

 

 

 

Problem 9 (5 marks)

 Beckstead Company makes a single product called a widget. The company normally produces and sells 80,000 widgets each year at a selling price of $40 per unit. The companys unit cost at this level of activity is given below: 

 

                     

Direct materials	$ 9.50
Direct labor	10.00
Variable manufacturing overhead	2.80
Fixed manufacturing overhead	5.00	($400,000 total)
Variable selling expenses	1.70
Fixed selling expenses	4.50	($360,000 total)
Total cost per unit	$33.50

 

 

 

Required:

 

Assume that Beckstead Company has sufficient capacity to produce 100,000 widgets each year without any increase in fixed manufacturing overhead costs. The company could increase sales by 25% above the present 80,000 units each year if it were willing to increase the fixed selling expenses by $150,000. Would the increased fixed selling expenses be justified?

 

 

 

 

 

Problem 10 (5 marks)

 

 DeMarcus Industries manufactures a part used in several models of its automatic dishwashers. Monthly production costs for 5,000 units are: 

 

 

          

Direct materials	$40,000
Direct labour	10,000
Variable support costs	25,000
Fixed support costs	20,000
Total costs	$95,000

 

 

 

It is estimated that 20% of the fixed support costs assigned to the part will no longer be incurred if the company purchases the part from the outside supplier for $15.50 per unit.

 

Required:

    

1.	Considering all relevant information, what should DeMarcus do?
2.	What other factors should DeMarcus take into consideration before making this decision?

 

 

 

 

 

Problem 11 (15 marks)

 

 AudioFile Products Ltd. is a retailer that sells sound systems. The company is planning its cash needs for the month of January, 2018. In the past, AudioFile has had to borrow money during the post-Christmas season to offset a significant decline in sales. The following information has been assembled to assist in preparing a cash flow forecast for January. 

 

 

 

January 2018 Forecasted Income Statement

 

 

                  

Sales		$200,000
Cost of goods sold		150,000
Gross profit		50,000
Variable selling expenses	$10,000
Fixed administrative expenses	20,000	30,000
Forecasted net operating income		$ 20,000

 

 

              

(1)	Sales are 10% for cash and 90% on credit.
(2)	Credit sales are collected over a three-month period with 40% collected in the month of sale, 30% in the following month, and 20% in the second month following sale. November 2017 sales totaled $300,000 and December 2017 sales totaled $500,000.
(3)	40% of a months inventory purchases are paid for in the same month. The remaining 60% are paid in the following month. Accounts payable relate solely to inventory purchases. At December 31, these totaled $400,000.
(4)	The company maintains its ending inventory levels at 60% of the cost of the merchandise to be sold in the following month. The merchandise inventory at December 31, 2017 was $90,000. February 2018 sales are budgeted at $150,000. Gross profit percentage is expected to remain unchanged.
(5)	The company pays a $10,000 monthly cash dividend to shareholders.
(6)	The cash balance at December 31, 2017 was $30,000; the company must maintain a cash balance of at least this amount at the end of each month.
(7)	The company can borrow on its operating loan in increments of $10,000 at the beginning of each month, up to a total loan balance of $500,000. The interest rate on this loan is 1% per month payable in the month following the loan. There is no operating loan at December 31, 2017.

 

 

 

Required:

 

Prepare a Cash Flow Forecast for AudioFile for the month of January 2018. Include appropriate supporting schedules. Refer to Problem 3-2 on page 127 of Selected Topics in Management Accounting keeping in mind that AudioFile has been in business for awhile and the operating budget worksheet is not required.

 

 

 

Problem 12 (15 marks)

 Magnum Company manufactures two different products, A and B. In the past, the company has allocated its plant wide manufacturing overhead costs based on direct labour hours. The new controller suggests that the company consider assigning overhead costs to the products using either traditional activity-based costing or time-determined activity-based costing. After studying the manufacturing activities and costs, the controller collected the following data for last year: 

 

                        

Item	Product A	Product B
Units produced and sold	3,000	5,000
Direct labour hours used	25,000	75,000
Direct labour cost	$500,000	$1,500,000
Number of times handled	6,000	15,000
Number of cuts	3,000	10,000
Number of design changes	50	25
Number of product setups	200	100

 

 

 

The manufacturing overhead costs incurred last year were $175,000. 7,000 hours of support time were used. Other information is as follows:

                        

Activity	Total Time %		Unit Time in Hours
Handling	50%		.1
Cutting	25%		.1
Design changes	15%		15
Setups	10%		3
Total	100%

 

 

 

The direct material cost for product A is $30 per unit, and $35 per unit for product B.

 

Required:

        

a.	Determine the unit cost of each product using traditional activity-based costing. Show your calculations.
b.	Determine the unit cost of each product using time-determined activity-based costing. Show your calculations.
c.	Explain why the unit costs differ between requirements a and b.
d.	Assume that Magnum Company produces 30 different products in a complex manufacturing environment involving many more than four activities. Which of the two costing methods would you recommend, and why?