ACCT 210 1st Edition Exam 3 Study Guide Lectures 15 22 Lecture 15 I Transfer pricing a Transfer pricing specifically refers to sales occurring within different divisions of the same company b Structure i Ceiling maximum price the market price ii Floor minimum price variable cost c Always do what s best for the overall company not the division d Minimum transfer price i Minimum variable cost to produce contribution margin forgone from the transfer ii If there is adequate excess capacity CM forgone 0 iii Will always assume adequate excess capacity thus minimum transfer price variable cost II Exercise 10 18 a Minimum transfer price 6 unit b Between 6 and 12 III Exercise 10 19 a Cost based transfer price 29 b Market based transfer price 50 IV Exercise 10 20 a Division B 12 000 x 241 2 892 000 12 000 x 157 44 2 412 000 480 000 Corporate income A B 4 796 000 CM Division A 12 000 x 157 1 884 000 12 000 x 117 1 404 000 480 000 Sales Division A 0 Corporate income A B 2 892 000 Variable costs 0 CM 0 Division B 12 000 x 241 2 892 000 12 000 x 166 44 2 520 000 372 000 Printing division 2600 1600 1000 Accounting div 0 2600 2600 Corporate total 2600 4200 1600 Sales Variable costs 3 816 000 960 000 b 2 520 000 372 000 V Exercise 10 21 a Sales Variable costs CM b Sales Variable costs CM Printing division 0 0 0 Accounting div 0 1780 1780 Corporate total 0 1780 1780 c Internal option paying for 2600 Lecture 16 I Exercise F4 1 a Raw Materials Inventory Direct Materials Price Variance Accounts payable cash 4 300 1 40 6020 6450 6020 430 6450 b II Work in Process Inventory Direct Materials Quantity Variance Raw materials inventory Exercise F4 2 a Raw Materials Inventory 15 840 1 40 5544 5600 5544 56 4 000 1 40 5600 505 800 22 111 276 Direct Materials Price Variance Accounts Payable 116 334 111 276 5058 505 800 23 116 334 b III IV Work In Process Inventory 69 000 8 4 22 127 512 Direct Materials Quantity Variance 127 512 127 358 154 Raw Materials Inventory 578 900 22 127 358 Exercise F4 4 a Work In Process Inventory Direct Labor Rate Variance Direct Labor Efficiency Variance Wages Payable Exercise F4 6 a Manufacturing overhead Accounts payable b 24 700 9 6 55 223 535 243 840 25 400 9 05 13 970 25 400 9 05 223 535 6 335 24 700 700 9 6 243 840 325 094 325 094 Work In Process Inventory Manufacturing Overhead 99 000 0 6 6 20 368 280 368 280 Manufacturing Overhead O H Spending Variance O H Efficiency Variance 368 280 325 094 43 186 52 470 6 20 325 094 220 368 280 52 470 6 20 42 966 c V Exercise F4 11 a i To record the purchase of material Raw Materials Inventory DM Price Variance Accounts payable 494 000 6 2 964 000 2 964 000 2 667 600 296 400 2 667 600 ii To record the use of material Work In Process Inventory Direct Materials Quantity Variance Raw Materials Inventory 21 200 15 6 1 908 000 2 226 000 1 908 000 318 000 371 000 6 2 226 000 Lecture 17 I Chapter 5 a In preparing budget begin with revenue sales then determine costs b Budgets are done in 2 ways i Bottoms up 1 People at lower levels and each department prepares own budget 2 Head CEO reviews them ii Top down 1 CEO starts budget process 2 Bottom layers departments prepare budgets based upon that 3 More aggressive method c Zero based budgeting vs incremental budgeting i Zero based assume zero as baseline build cost base from scratch More common difficult time consuming method ii Incremental used by federal government Based upon last year s budget II E9 1 a Feb sales 230 000 20 Feb 70 March 10 April March sales 260 000 20 March 70 April 10 May April sales 300 000 20 April 70 May April 23 000 May 182 000 26 000 60 000 210 000 June Total 23 000 208 000 30 000 300 000 10 June May sales 500 000 20 May 70 June 10 July June sales 200 000 20 June 70 July 10 August Total cash collections 100 000 265 000 336 000 350 000 450 000 40 000 40 000 420 000 1 021 000 b i Accounts receivable 10 of May paid in July 70 of June paid in July 10 of June paid in August ii A R 10 500000 70 200000 10 200000 iii A R 50000 140000 20000 iv A R 210 000 Lecture 18 I Exercise 5 14 a b II Exercise 5 15 a b III Problem 5 20 a b c IV Problem 5 23 a b Lecture 19 I Chapter 5 a Selling and administrative expense budget i Shows expenses to be incurred to support the budgeted level of sales b Production budget i Shows when and how many units to produce in order to meet budgeted sales volume ii Budget sales Budgeting ending inventory Budgeted beginning inventory Budgeted production II Exercise 5 8 III Exercise 5 10 Lecture 20 I Exercise 5 12 a b II Exercise 5 13 a b III Exercise 5 16 a b IV Exercise 5 17 a i b i V Exercise 5 18 a b VI Practice question 14 a VII b Practice question 19 a b Lecture 21 I Capital budgeting a A systematic approach for evaluating long range investment proposals for the purpose of allocating limited resources b Capital assets have a useful life of over one accounting period Also called depreciable assets c For expected future returns i Return of investment When do I get my investment back ii Return on investment When do I get my investment back plus how much am I going to make d Example if you buy four shares of stock for 26 and sell it one month later for 32 50 i Return of investment 26 ii Return on investment 6 50 II Screening vs preference decisions a Screening which projects meet hurdle rate i Hurdle rate minimum rate of return ii Which of the projects are acceptable for the organization in light of its goals b Preference of the acceptable projects which ones should be implemented III Identifying project cash flows a Cash receipts i Additional sales revenue ii Salvage value of equipment iii Cost savings b Cash disbursements i Purchase price ii Additional operating costs 1 Direct materials 2 Direct labor 3 Manufacturing overhead 4 Sales general admin iii Do not include interest from financing or acquisition of the asset IV Exercise 9 1 a b Cash Flow Purchase of new equipment Salvage of old equipment Sales revenue Valuable costs Additional fixed costs Salvage of new equipment Timing Year 0 Year 0 Years 1 4 Years 1 4 Years 1 4 Year 4 Amount 1 247 000 …