Question & Answer

Allocating support costs to units A local hospital is required to account for the total cost of patient care, including support costs. Patients are assigned all direct costs. Support costs are $240 000 per month plus $90 per patient day. This 120-bed hospital averages 80 per cent occupancy.   Required (a)   Calculate the average daily charge per patient for support costs, assuming 30 days in a month. (b)   Briefly comment on potential problems in using only one indirect cost pool for support costs given that individual patients receive a range of different treatments while an inpatient.

Lorenzo is considering starting a trucking company either in Texas or Oklahoma.  He will relocate his family, which includes his wife, children, and parents, to reside in the same state as his business.  What types of taxes may influence his decision of where to locate his business?

Ethical Decision making — promoting inappropriate uses of ABC When activity-based costing was first developed, consultants sometimes promoted it for inappropriate uses. Many consulting services focused on using ABC information for short-term decisions such as pricing and product emphasis. Yet in the early stages of ABC and activity-based management development, both flexible and committed costs were included in ABC cost pools and were not tracked separately. As a result, ABC unit costs included both fixed and variable costs, even when the fixed costs were irrelevant for decision making. ABC promoters suggested that all costs were variable in the long run, and they ignored criticism of their methods.   If the ABC cost rates include fixed costs, their unquestioned use in setting prices is detrimental to operations. If demand falls, then production volumes might fall too, causing costs per unit to increase followed by increases in prices. This type of pricing policy can lead to a death spiral, in which prices increase inappropriately as volumes decline.   After ABC was developed, it was quickly added to cost accounting curriculums at many different universities. However, a few academics were highly critical of ABC and eventually provided evidence that overhead costs included a large portion of fixed costs, even in the long run.80 As research evidence accumulated, ABC consultants advised entities not to allocate facility-level costs and to categorise costs within each activity cost pool as flexible and committed. Then total costs could be used to analyse processes and improve operations, but flexible cost information could be retrieved for decision making.   Currently, ‘incremental ABC cost analysis’ services are being promoted. These services are sometimes called predictive accounting. Because consulting services can be expensive and judging the outcome of new ideas difficult, managers need to incorporate healthy scepticism when considering the potential costs and benefits of products and services promoted by consultants.81   Required What ethical problems might arise for managers when considering the use of consultants to develop ABC techniques for sustainability opportunities? Your answers should relate to the promotion of ABC for pricing, other short-term decision, incremental ABC or predictive accounting relating to sustainability opportunities? Answers should also consider the potential for consultant bias and whether the technique will benefit their client particularly when the consulting service might have uncertain outcomes.             (LO2 and 4)

Explain why many savings institutions experience financial problems at the same time. (LO3)

What are likely reasons for weak bank performance? (LO3)

Under what conditions is an employer required to accrue a liability for sick pay? Under what conditions is an employer permitted but not required to accrue a liability for sick pay?

A 200.00 mm sine bar is used to inspect an angle on a part. The angle has a dimension of 35.0 ± 1.8°. The sine bar rolls have a diameter of 30.0 mm. A set of gage blocks is available that can form any height from 10.0000 to 199.9975 mm in increments of 0.0025 mm. Determine (a) the height of the gage block stack to inspect the minimum angle, (b) height of the gage block stack to inspect the maximum angle, and (c) smallest increment of angle that can be setup at the nominal angle size. All inspection is performed on a surface plate.

Anne Cleves Company reported the following amounts in the stockholders’ equity section of its December 31, 2013, balance sheet. Preferred stock, 10%, $100 par (10,000 shares authorized, 2,000 shares issued) $200,000 Common stock, $5 par (100,000 shares authorized, 20,000 shares issued) 100,000 Additional paid-in capital 125,000 Retained earnings 450,000 Total $875,000 During 2014, Cleves took part in the following transactions concerning stockholders’ equity. 1. Paid the annual 2013 $10 per share dividend on preferred stock and a $2 per share dividend on common stock. These dividends had been declared on December 31, 2013. 2. Purchased 1,700 shares of its own outstanding common stock for $40 per share. Cleves uses the cost method. 3. Reissued 700 treasury shares for land valued at $30,000. 4. Issued 500 shares of preferred stock at $105 per share. 5. Declared a 10% stock dividend on the outstanding common stock when the stock is selling for $45 per share. 6. Issued the stock dividend. 7. Declared the annual 2014 $10 per share dividend on preferred stock and the $2 per share dividend on common stock. These dividends are payable in 2015. Instructions (a) Prepare journal entries to record the transactions described above. (b) Prepare the December 31, 2014, stockholders’ equity section. Assume 2014 net income was $330,000.

What are the main components of an integrated manufacturing system?

Andy McDowell Co. establishes a $100 million liability at the end of 2014 for the estimated site-cleanup costs at two of its manufacturing facilities. All related closing costs will be paid and deducted on the tax return in 2015. Also, at the end of 2014, the company has $50 million of temporary differences due to excess depreciation for tax purposes, $7 million of which will reverse in 2015. The enacted tax rate for all years is 40%, and the company pays taxes of $64 million on $160 million of taxable income in 2014. McDowell expects to have taxable income in 2015. Instructions (a) Determine the deferred taxes to be reported at the end of 2015. (b) Indicate how the deferred taxes computed in (a) are to be reported on the balance sheet. (c) Assuming that the only deferred tax account at the beginning of 2014 was a deferred tax liability of $10,000,000, draft the income tax expense portion of the income statement for 2014, beginning with the line “Income before income taxes.” (Hint: You must first compute (1) the amount of temporary difference underlying the beginning $10,000,000 deferred tax liability, then (2) the amount of temporary differences originating or reversing during the year, and then (3) the amount of pretax financial income.)

Recall the various strategies that rival oligopolists can adopt. What parallels there are in union and management strategies?

This year, Major Healy paid $40,000 of interest on a mortgage on his home (he borrowed $800,000 to buy the residence in 2015; $900,000 original purchase price and value at purchase), $6,000 of interest on a $120,000 home-equity loan on his home (loan proceeds were used to buy antique cars), and $10,000 of interest on a mortgage on his vacation home (borrowed $200,000 to purchase the home in 2010). Major Healy’s AGI is $220,000. How much interest expense can Major Healy deduct as an itemized deduction?

Amirante Inc. manufactures an X-ray machine with an estimated life of 12 years and leases it to Chambers Medical Center for a period of 10 years. The normal selling price of the machine is $411,324, and its guaranteed residual value at the end of the noncancelable lease term is estimated to be $15,000. The hospital will pay rents of $60,000 at the beginning of each year and all maintenance, insurance, and taxes. Amirante Inc. incurred costs of $250,000 in manufacturing the machine and $14,000 in negotiating and closing the lease. Amirante Inc. has determined that the collectibility of the lease payments is reasonably predictable, that there will be no additional costs incurred, and that the implicit interest rate is 10%. Instructions (a) Discuss the nature of this lease in relation to the lessor and compute the amount of each of the following items. (1) Lease receivable at inception of the lease. (2) Sales price. (3) Cost of sales. (b) Prepare a 10-year lease amortization schedule. (c) Prepare all of the lessor’s journal entries for the first year.

1.       Give five examples of business processes at Tesla.  How do they create business value for Tesla and its shareholders?

Explain why an employee should be concerned about whether his employer reimburses business expenses using an “accountable” plan?

A recent financial magazine indicated that the airline industry has poor financial flexibility. What is meant by financial flexibility, and why is it important?

A specimen with 6.0 in starting gage length is subjected to a tensile test in which the grips holding the end of the test specimen are moved with a relative velocity = 1.0 in/sec. Construct a plot of the strain rate as a function of length as the specimen is pulled to a length = 8.0 in

Uddin Publishing Co. publishes college textbooks that are sold to bookstores on the following terms. Each title has a fixed wholesale price, terms f.o.b. shipping point, and payment is due 60 days after shipment. The retailer may return a maximum of 30% of an order at the retailer’s expense. Sales are made only to retailers who have good credit ratings. Past experience indicates that the normal return rate is 12%, and the average collection period is 72 days. Instructions (a) Identify alternative revenue recognition criteria that Uddin could employ concerning textbook sales. (b) Briefly discuss the reasoning for your answers in (a) above. (c) In late July, Uddin shipped books invoiced at $15,000,000. Prepare the journal entry to record this event that best conforms to GAAP and your answer to part (b). (d) In October, $2 million of the invoiced July sales were returned according to the return policy, and the remaining $13 million was paid. Prepare the entries for the return and payment.

A sine bar is used to determine the angle of a part feature. The length of the sine bar is 6.000 in. The rolls have a diameter of 1.000 in. All inspection is performed on a surface plate. In order for the sine bar to match the angle of the part, the following gage blocks must be stacked: 2.0000, 0.5000, 0.3550. Determine the angle of the part feature.

Widjaja Company is accounting for a longterm construction contract using the percentage-of-completion method. It is a 4-year contract that is currently in its second year. The latest estimates of total contract costs indicate that the contract will be completed at a profit to Widjaja Company. Instructions (a) What theoretical justification is there for Widjaja Company’s use of the percentage-of-completion method? (b) How would progress billings be accounted for? Include in your discussion the classification of progress billings in Widjaja Company financial statements. (c) How would the income recognized in the second year of the 4-year contract be determined using the cost-to-cost method of determining percentage of completion? (d) What would be the effect on earnings per share in the second year of the 4-year contract of using the percentage-of-completion method instead of the completed-contract method? Discuss.

: Explain how factors such as creating an open communication climate, the choice of communication channels, candor, questions, and nonverbal communications influence the quality of communication.

What is a best-efforts agreement? (LO1)

1.       : A report published by Hay Group found that some managers have personalities suited to horizontal relationships, such as project management, and achieve results with little formal authority. Other managers are more suited to operating roles with much formal authority in a vertical structure. In what type of structure—functional, matrix, team, or virtual network—do you believe your personality would best fit? Which structure would be the most challenging for you? Give your reasons.

A building that was purchased on December 31, 2000, for $2,500,000 was originally estimated to have a life of 50 years with no salvage value at the end of that time. Depreciation has been recorded through 2014. During 2015, an examination of the building by an engineering firm discloses that its estimated useful life is 15 years after 2014. What should be the amount of depreciation for 2015?

An automated transfer line has 20 stations and operates with an ideal cycle time of 1.50 min. Probability of a station failure = 0.008 and average downtime when a breakdown occurs is 10.0 minutes. Determine (a) the average production rate and (b) the line efficiency.