2nd EditionDavid Anderson, Margaret Ray1,042 explanations
8th EditionN. Gregory Mankiw814 explanations
7th EditionZvi Bodie400 explanations
3rd EditionPaul Krugman, Robin Wells312 explanations
ACCOUNTINGThe accounts of Mountain Lodge Service, Inc., at March 31, 2012, are listed in alphabetical order.
$$
\begin{matrix}
\text{Accounts payable................... } & \text{\$14,100} & \text{Interest expense...................} & \text{\$ 300 }\\
\text{Accounts receivable................ } & \text{16,600
} & \text{Note payable, long term...} & \text{5,700}\\
\text{Accumulated depreciation— equipment.......................... } & \text{6,700 } & \text{Other assets......................} & \text{13,700}\\
\text{Advertising expense................ } & \text{11,000} & \text{Prepaid expenses.............. } & \text{5,000}\\
\text{Cash.......................................} & \text{7,500 } & \text{Retained earnings, March 31, 2011........... } & \text{19,500 }\\
\text{Common stock......................} & \text{10,000} & \text{Salary expense..................} & \text{17,900 }\\
\text{Current portion of note payable............................... } & \text{400} & \text{Salary payable.................. } & \text{2,500 }\\
\text{Depreciation expense............. } & \text{1,000 } & \text{Service revenue.................} & \text{94,100 }\\
\text{Dividends............................... } & \text{32,500 } & \text{Supplies............................ } & \text{3,700 }\\
\text{Equipment..............................} & \text{42,500} & \text{Supplies expense............... } & \text{5,000}\\
& \text{Unearned service revenue...} & \text{3,700}\\
\end{matrix}
$$
All adjustments have been journalized and posted, but the closing entries have not yet been made. Journalize Mountain Lodge’s closing entries at March 31, 2012. Set up a T-account for Retained Earnings and post to that account. Then compute Mountain Lodge’s net income for the year ended March 31, 2012. What is the ending balance of Retained Earnings? Did Retained Earnings increase or decrease during the year? What caused the increase or the decrease? ACCOUNTINGSiegel Company manufactures a product that is available in both a deluxe model and a regular model. The company has manufactured the regular model for years. The deluxe model was introduced several years ago to tap a new segment of the market. Since introduction of the deluxe model, the company's profits have steadily declined and management has become increasingly concerned about the accuracy of its costing system. Sales of the deluxe model have been increasing rapidly. Manufacturing overhead is assigned to products on the basis of direct labor-hours. For the company year, the company has estimated that it will incur $900,000 in manufacturing overhead cost and produce 5,000 mi.its of the deluxe model and 40,000 units of the regular model. The deluxe model requires two hours of direct labor time per unit, and the regular model requires one hour. Material and labor costs per unit are as follows:$
$$
\begin{matrix}
\text{ } & \text{Model}\\
\text{ } & \text{Deluxe} & \text{Regular}\\
\text{Direct materials} & \text{\$ 40} & \text{\$ 25}\\
\text{Direct labor} & \text{\$ 14} & \text{\$ 7}\\
\end{matrix}
$$
$$
1. Using direct labor-hours as the base for assigning overhead cost to products, compute the predetermined overhead rate. Using this rate and other data from the problem, determine the unit product cost of each model. 2. Management is considering using activity-based absorption costing to apply manufacturing overhead cost to products. The activity-based system would have the following four activity cost pools:
$$
$$
\begin{matrix}
\text{Activity Cost Pool} & \text{Activity Measure} & \text{Estimated Overhead Cost}\\
\text{Purchasing} & \text{Purchase orders issued} & \text{\$ 204.000}\\
\text{Processing} & \text{Machine-hours} & \text{182.000}\\
\text{Scrap/rework} & \text{Scrap/rework orders issued} & \text{379.000}\\
\text{Shipping} & \text{Number of shipments} & \text{135.000}\\
\text{ } & \text{ } & \text{\$ 900.000}\\
\end{matrix}
$$
$$
\begin{matrix}
\text{ } & \text{Expected Activity}\\
\text{Activity Measure} & \text{Deluxe} & \text{Regular} & \text{Total}\\
\text{Purchase orders issued} & \text{200} & \text{400} & \text{600}\\
\text{Machine-hours} & \text{20.000} & \text{15.000} & \text{35.000}\\
\text{Scrap/rework orders issued} & \text{1.000} & \text{1.000} & \text{2.000}\\
\text{Number of shipments} & \text{250} & \text{650} & \text{900}\\
\end{matrix}
$$
$ Determine the predetermined overhead rate for each of the four activity cost pools. 3. Using the predetermined overhead rates you computed in requirement 2, do the following: a. Compute the total amount of manufacturing overhead cost that would be applied to each model using the activity-based absorption costing system. After these totals have been computed, determine the amount of manufacturing overhead cost per unit of each model. b. Compute the unit product cost of each model ( direct materials, direct labor, and manufacturing overhead). 4. From the data you have developed in parts requirements 1 through 3, identify factors that may account for the company's declining profits.
