ACCOUNTINGDylan worked for a propane gas distributor as an accounting clerk in a small Midwestern town. Last winter, his brother Mike lost his job at the machine plant. By January, temperatures were sub-zero, and Mike had run out of money. Dylan saw that Mike’s account was overdue, and he knew Mike needed another delivery to heat his home. He decided to credit Mike’s account and debit the balance to the parts inventory, because he knew the parts manager, the owner’s son, was incompetent and would never notice the extra entry. Months went by, and Dylan repeated the process until an auditor ran across the charges by chance. When the owner fired Dylan, he said “if you had only come to me and told me about Mike’s situation, we could have worked something out.” What effect would Dylan’s actions have on the balance sheet? The income statement? ACCOUNTINGMervin Company produces circuit boards that sell for $8 per unit. It currently has capacity to produce 600,000 circuit boards per year, but is selling 550,000 boards per year. Annual costs for the 550,000 circuit boards follow.$
$$
\begin{matrix}
\text{Direct materials } \ldots\ldots\ldots& \text{\$ 825,000}\\
\text{Direct labor}\ldots\ldots\ldots & \text{1,100,000}\\
\text{Overhead}\ldots\ldots\ldots & \text{1,375,000}\\
\text{Selling expenses}\ldots\ldots\ldots & \text{275,000}\\
\text{Administrative expenses}\ldots\ldots\ldots & \text{550,000}\\
\text{Total costs and expenses} \ldots\ldots\ldots& \text{\$4,125,000}\\
\end{matrix}
$$
$An overseas customer has offered to buy 50,000 circuit boards for$6 per unit. The customer is in a different market from Mervin’s regular customers and would not affect regular sales. A study of its costs in anticipation of this additional business reveals the following: Direct materials and direct labor are 100% variable. Twenty percent of overhead is fixed at any production level from 550,000 units to 600,000 units; the remaining 80% of annual overhead costs are variable with respect to volume. Selling expenses are 40% variable with respect to number of units sold, and the other 60% of selling expenses are fixed. There will be an additional $0.20 per unit selling expense for this order. Administrative expenses would increase by a$700 fixed amount. 1. Prepare a three-column comparative income statement that reports the following: a. Annual income without the special order. b. Annual income from the special order. c. Combined annual income from normal business and the new business. 2. Should management accept the order? What nonfinancial factors should Mervin consider? Explain. 3. Assume that the new customer wants to buy 100,000 units instead of 50,000 units—it will only buy 100,000 units or none and will not take a partial order. Without any computations, how does this change your answer in part 2? 10th EditionEugene F. Brigham, Joel Houston777 solutions

14th EditionDonald E. Kieso, Jerry J. Weygandt, Terry D. Warfield1,471 solutions

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