Able Control Company, which manufactures electrical switches, uses a standard cost system and carries all inventory at standard cost. The standard factory overhead cost per switch is based on direct labor hours:

 

Variable overhead 5 hours at $8.00 /hour $40.00

Fixed overhead* 5 hours at $12.00 /hour $60.00

Total standard overhead cost per unit produced $100.00

Based on a practical capacity of 300,000 direct labor hours per month.

 

The following information is for the month of October:

 

The company produced 56,000 switches although, 60,000 switches were scheduled to be produced

The company worked 275,000 direct labor hours at a total cost of $2,550,000

Variable overhead costs were $2,340,000

Fixed overhead costs were $3,750,000

 

The production manager argued during the last performance review that the company should use a more up-to-date base for charging factory overhead costs to production. She commented that her factory had been highly automated in the last two years and, as a result, now has hardly any labor. The factory hires only highly skilled workers to set up production runs and to do periodic adjustments of machinery whenever the need arises.

 

1. Compute the following for Able Control Company:

  a)  The fixed overhead spending variance for October

  b)  The production volume variance for October

  c)  The variable overhead spending variance for October

  d)  The variable over head efficiency variance for October

 

2. Comment on the implications of the variances and suggest any action that the company should take to improve its operations.

 

 

 

Write the conclusion, Section V, as well as Section IV, Parts D and E of your final project. Combine these with your revised work from all previous milestones and submit your comprehensive case study analysis.

Your final submission should be a comprehensive, refined artifact containing all of the critical elements of the final project.

This assignment should adhere to APA guidelines and use appropriate level headings, page numbers, margins, and a complete reference page. An abstract is

analyze and synthesize the financial reports of an organization of their choice and present their findings in a PowerPoint presentation (with completed Notes section providing details of analysis and synthesis of information to presented points. You must also provide a separate document of exhibits of financial reports analyzed for the Presentation).

Projects will include:

• Organization overview
• Financial statements analysis
• Analysis of cash flow
• Stock performance analysis
• Cost of capital or required return on investment
• Value of the organization: book value, common stock value
• Discussion of appropriate organizational development options with the inclusion of general risk and return scenarios from a management perspective

Notes:

• Word-process your solutions within this template. Copy and paste tables from Excel as needed.

• Show all steps used in arriving at the final answers. Incomplete solutions will receive partial credit.

 

Problem 1

Shown below is summarized data for a company for the year end December 31.

 

Sales of merchandise for cash	$58,250
Sales of merchandise on credit	10,000
Cost of goods sold	36,500
Selling expense	11,800
Administrative expenses	5,000
Sales returns and allowances	2,000
Items not included in the above amounts:
Estimated bad debt loss, 2% of credit sales
Average income tax rate, 20%
Number of shares of common stock outstanding, 2,000

 

Based on the data, prepare an income statement that shows both gross profit and income from operations. Include the earnings per share. Calculate and interpret the meaning of the gross profit percentage ratio.
Problem 2

In one year, a company had $30,000 Sales Revenue on credit. At the start of the year, the Accounts Receivable showed a $6,000 debit balance and the Allowance for Doubtful Accounts showed a $400 credit balance. Collections of accounts receivable during the year amounted to $22,000. The following gives additional items during the year.

 

(a)    On December 31, an Account Receivable of $450 from a prior year was determined to be uncollectable; therefore, it was written off immediately as a bad debt.

(b)   On December 31, on the basis of experience, a decision was made to continue the accounting policy of basing estimated bad debt losses on 3 percent of credit sales for the year.

 

Give the journal entries for the items (a) and (b) at the end of the accounting period. Show how the amounts related to Accounts Receivable and Bad Debt Expense would be reported on the income statement and balance sheet for the year. Disregard income tax considerations.

Problem 3

A company sold $18,000 of goods on credit on May 1. At the time of the sale, the company recorded a debit to Accounts Receivable and a credit to Sales Revenue for $18,000. Terms were 2/10, n/30.
Complete the journal entries the company would record for each of the following independent situations: 

(a)    The balance due was paid, less the discount, on May 10.

(b)   The balance due was paid on May 30.

(c)    Half of the goods were returned for credit on May 4. The balance due was paid, less the discount, on May 10.

Problem 4

The following data were selected from the records of a company for the year ended December 31.

 

In the following order, except for cash sales, the company sold merchandise and made collections on credit terms 2/10, n/30, assuming a unit sales price of $500 in all transactions and use the gross method to record sales revenue.

 

(a)    Sold merchandise for cash, $220,000.

(b)   Sold merchandise to Company A, invoice price, $10,000

(c)    Sold merchandise to Company B , invoice price, $25,000

(d)   Company A paid the invoice in (b) within the discount period

(e)   Sold merchandise to Company C, invoice price, $30,000

(f)     Two days after paying the account in full, Company A returned one defective unit and received a cash refund

(g)    Collected $78,400 cash from customer sales on credit in prior year, all within the discount periods

(h)   Three days after purchased date, Company B returned three of the units purchased in (c) and received account credit

(i)      Company B paid its account in full within the discount period

(j)     Sold merchandise to Company D, invoice price $12,000

(k)    Company C paid its account in full after the discount period

(l)      Wrote off an account from a previous years account of $2,000 after deciding that the amount would never be collected

(m) The estimated bad debt rate used by the company was 3 percent of credit sales net of returns

 

Using the categories shown below, indicate the effect of each listed transaction, including the write-off of the uncollectible account and the adjusting entry for estimated bad debts, ignoring the cost of goods sold. Indicate the sign and amount of the effect or the use of “NE” to indicate “no effect.” Use the following table as a guide.

 

Sales Revenue	Sales Discounts (taken)	Sales Returns and Allowances	Bad Debt Expense