Par Corporation acquired 70 percent of the outstanding common stock of Set Corporation on January 1, 2011, for $350,000 cash

Par Corporation acquired 70 percent of the outstanding common stock of Set Corporation on January 1, 2011, for $350,000 cash. Immediately after this acquisition the balance sheet information for the two companies was as follows (in thousands):

                                                                                                                                Set

Par Book Value                                                 Book Value                         Fair Value

Assets

Cash                                                      70                                                           40                                           40

Receivables-net                                               160                                                         60                                           60          

Inventories                                         140                                                         60                                           100

Land                                                      200                                                         100                                         120

Buildings-net                                     220                                                         140                                         180

Equipment-net                                 160                                                         80                                           60

Investment in Set                            350                        

Total assets                                        1300                                                       480                                         560

Liabilitie s and Stockholders\' Equity

Accounts payable                            180                                                         160                                         160

Other liabilities                                  20                                                           100                                         80

Capital stock, $20 par                      1000                                                       200

Retained earnings                           100                                                         20

Total equities                                     1300                                                       480

REQUIRED

1- Prepare a schedule to allocate the difference between the fair value of the investment in Set and the book value of the interest to identifiable and unidentifiable net assets.

2 Prepare a consolidated balance sheet for Par Corporation and Subsidiary at January 1, 2011

Click here: Par Corporation acquired 70 percent of the outstanding common stock of Set Corporation on January 1, 2011, for $350,000 cash

Pop Corporation acquired a 70 percent interest in Stu Corporation

Pop Corporation acquired a 70 percent interest in Stu Corporation on January 1,201I\' for $1,400,000, when Stu\'s stockholders\' equity consisted of $1,000,000 capital stock and $600,000 retained earnings. On this date, the book value of Stu\'s assets and liabilities was equal to the fair value, except for inventories that were undervalued by $40,000 and sold in 2011, and plant assets that were undervalued by $160,000 and had a remaining useful life of eight years from January 1. Stu\'s net income and dividends for 2011 were $140,000 and $20,000, respectively.

Separate-company balance sheet information for Pop and Stu Corporations at December 31, 2011, follows (in thousands):

Pop                                        Stu

Cash                                                                                      $ 120                                      $40

Accounts receivable-customers                                                880                                         400

Accounts receivable from PoP                                   -                                              20

Dividends receivable                                                      14                                           -

Inventories                                                                         1,000                                     640

Land                                                                                      200                                         300

Plant assets-net                                                               1,400                                     700

Investment in Stu                                                            1,442                                     -

$5,060                                   $2,100

Accounts payable-suppliers                                        $ 600                                      160

Accounts payable to Stu                                               20                                           -

Dividends payable                                                           80                                           20

Long-term debt                                                                1,200                                     200

Capital stock                                                                       2,000                                     1,000

Retained earnings                                                           1,156                                     720

$5,060                                   $2,100

Required:

Prepare consolidated balance sheet work papers for Pop Corporation and Subsidiary at December 31, 2011.

Click here: Pop Corporation acquired a 70 percent interest in Stu Corporation

FireOut, Inc. manufactures steel cylinders and nozzles for two models of fire extinguishers

FireOut, Inc. manufactures steel cylinders and nozzles for two models of fire extinguishers: (1) a home fire extinguisher and (2) a commercial fire extinguisher. The home 1 model is a high-volume (54,000 units), half-gallon cylinder that holds 2½ pounds of multipurpose dry chemical at 480 PSI. The commercial model is a low-volume (10,200 units), two-gallon cylinder that holds 10 pounds of multi-purpose dry chemical at 390 PSI. Both products require 1.5 hours of direct labor for completion. Therefore, total annual direct labor hours are 96,300 or [1.5 hrs × (54,000 + 10,200)]. Expected annual manufacturing overhead is $1,502,280. Thus, the predetermined overhead rate is $15.60 or ($1,502,280 ÷ 96,300) per direct labor hour. The direct materials cost per unit is $18.50 for the home model and $26.50 for the commercial model. The direct labor cost is $19 per unit for both the home and the commercial models.

     The company\'s managers identified six activity cost pools and related cost drivers and accumulated overhead by cost pool as follows.

Activity Cost    Cost Driver         Estimated                  Expected Useof                        Expected Use

                                Pool             Overhead                      Cost Drivers                           of  Drivers by Product

                                                                                                                                                Home                    Commercial       

Receiving        Pounds                     $70,350        335,000                         215,000 120,000                              

Forming       Machine                     150,500                        35,000                            27,000                  8,000                   

                       hours

Assembling  Number                  390,600                        217,000                            165,000 52,000                          of parts

Testing       Number                         51,000                      25,500                              15,500                  10,000                 

                      of tests

Painting      Gallons                           52,580                     5,258                               3,680                      1,578                   

Packing       Pounds                           787,250    335,000                             215,000 120,000        and shipping              

                                                                $1,502,280                                                                                                                         

Requirement:  

1.  Under traditional product costing, compute the total unit cost of both products.
2. Under ABC, complete the schedule showing the computations of the activity-based overhead rates (per cost driver).                  
3. Complete the schedule assigning each activity\'s overhead cost pool to each product based on the use of cost drivers.                  
4. Compute the total cost per unit for each product under ABC        

Classify each of the activities as a value-added activity or a non-value-added activity.

Click here: FireOut, Inc. manufactures steel cylinders and nozzles for two models of fire extinguishers

Overton Electronics manufactures two large-screen television models

Overton Electronics manufactures two large-screen television models: the Royale which sells for $1,600, and a new model, the Majestic, which sells for $1,300. The production cost computed per unit under traditional costing for each model in 2011 was as follows.

                Traditional Costing                                           Royale                  Majestic

                Direct materials                                                                $700                      $420      

                Direct labor ($20 per hour)                           120                        100        

                Manufacturing overhead ($38 per DLH) 228                        190        

                      Total per unit cost                                      $1,048                  $710      

       In 2011, Overton manufactured 25,000 units of the Royale and 10,000 units of the Majestic. The overhead rate of $38 per direct labor hour was determined by dividing total expected manufacturing overhead of $7,600,000 by the total direct labor hours (200,000) for the two models. 

       Under traditional costing, the gross profit on the models was: Royale $552 or ($1,600 - $1,048), and Majestic $590 or ($1,300 - $710). Because of this difference, management is considering phasing out the Royale model and increasing the production of the Majestic model. 

       Before finalizing its decision, management asks Overton\'s controller to prepare an analysis using activity-based costing (ABC). The controller accumulates the following information about overhead for the year ended December 31, 2011.

Activity Cost Driver          Estimated Overhead      Expected Use             Activity-Based Overhead Rate

of Cost Drivers 

Purchasing                         Number of orders           $1,200,000                          40,000                  $30/order

Machine setups                               Number of setups           900,000                18,000                  50/setup

Machining                          Machine hours                  4,800,000                            120,000 40/hour

Quality control                 Number of inspections  700,000                               28,000                  25/inspection

  The cost drivers used for each product were:

                Cost Driver                                          Royale                  Majestic               Total

                Purchase orders                               15,000                  25,000                  40,000  

                Machine setups                                                5,000                    13,000                  18,000  

                Machine hours                                  75,000                  45,000                  120,000

                Inspections                                         9,000                    19,000                  28,000  

Requirement:  

1. Assign the total 2011 manufacturing overhead costs to the two products using activity-based costing (ABC).
2. What was the cost per unit and gross profit of each model using ABC costing?

Click here: Overton Electronics manufactures two large-screen television models

Skaros Stairs Co. of Moore designs and builds factory-made premium wooden stairs for homes

Skaros Stairs Co. of Moore designs and builds factory-made premium wooden stairs for homes. The manufactured stair components (spindles, risers, hangers, hand rails) permit installation of stairs of varying lengths and widths. All are of white oak wood. Budgeted manufacturing overhead costs for the year 2011 are as follows.

                Overhead Cost Pools                                                                      Amount

                Purchasing                                                                                          $ 57,000               

                Handling materials                                                                           82,000  

                Production (cutting, milling, finishing)                                     210,000

                Setting up machines                                                                       85,000  

                Inspecting                                                                                           90,000  

                Inventory control (raw materials and finished goods)      126,000

                Utilities                                                                                                 180,000

                Total budget overhead costs                                                      $830,000             

For the last 4 years, Skaros Stairs Co. has been charging overhead to products on the basis of machine hours. For the year 2011, 100,000 machine hours are budgeted.

     Anthony Morse, owner-manager of Skaros Stairs Co., recently directed his accountant, Neal Seagren, to implement the activity-based costing system that he has repeatedly proposed. At Anthony Morse\'s request, Neal and the production foreman identify the following cost drivers and their usage for the previously budgeted overhead cost pools.

Activity Cost Pools                                           Cost Drivers                                                        Expected

Use of

Cost Drivers

Purchasing                                                         Number of orders                                           600        

Handling materials                                          Number of moves                                           8,000    

Production (cutting, milling, finishing)     Direct labor hours                                           100,000

Setting up machines                                      Number of setups                                           1,250    

Inspecting                                                           Number of inspections                                  6,000    

Inventory control                                            Number of components                                               168,000

(raw materials and finished goods)

Utilities                                                                 Square feet occupied                                     90,000  

David Hannon, sales manager, has received an order for 280 stairs from Community Builders, Inc., a large housing development contractor. At David\'s request, Neal prepares cost estimates for producing components for 280 stairs so David can submit a contract price per stair to Community Builders. He accumulates the following data for the production of 280 stairways.

                Direct materials                                                                $103,600

                Direct labor                                                         $112,000

                Machine hours                                                  14,500

                Direct labor hours                                            5,000

                Number of purchase orders                        60

                Number of material moves                         800

                Number of machine setups                         100

                Number of inspections                                  450

                Number of components               1                              6,000

                Number of square feet occupied              8,000

Requirement:

1. Compute the predetermined overhead rate using traditional costing with machine hours as the basis.
2. What is the manufacturing cost per stairway under traditional costing?  

What is the manufacturing cost per stairway under the proposed activity-based costing?

Click here: Skaros Stairs Co. of Moore designs and builds factory-made premium wooden stairs for homes

Polzin Corporation produces two grades of wine from grapes that it buys from California growers

Polzin Corporation produces two grades of wine from grapes that it buys from California growers. It produces and sells roughly 3,000,000 liters per year of a low-cost, high-volume product called CoolDay. It sells this in 600,000 5-liter jugs. Polzin also produces and sells roughly 300,000 liters per year of a low-volume, high-cost product called LiteMist. LiteMist is sold in 1-liter bottles. Based on recent data, the CoolDay product has not been as profitable as LiteMist. Management is considering dropping the inexpensive CoolDay line so it can focus more attention on the LiteMist product. The LiteMist product already demands considerably more attention than the CoolDay line. 

      Greg Kagen, president and founder of Polzin, is skeptical about this idea. He points out that for many decades the company produced only the CoolDay line, and that it was always quite profitable. It wasn\'t until the company started producing the more complicated LiteMist wine that the profitability of CoolDay declined. Prior to the introduction of LiteMist, the company had simple equipment, simple growing and production procedures, and virtually no need for quality control. Because LiteMist is bottled in 1-liter bottles, it requires considerably more time and effort, both to bottle and to label and box than does CoolDay. The company must bottle and handle 5 times as many bottles of LiteMist to sell the same quantity as CoolDay. CoolDay requires 1 month of aging; LiteMist requires 1 year. CoolDay requires cleaning and inspection of equipment every 10,000 liters; LiteMist requires such maintenance every 600 liters. 

     Greg has asked the Accounting department to prepare an analysis of the cost per liter using the traditional costing approach and using activity-based costing. The following information was collected.

                                                                                                CoolDay               LiteMist

                Direct materials per liter                               $0.40                    $1.20    

                Direct labor cost per liter                              $0.25                    $0.50    

                Direct labor hours per liter                           0.05                       0.09       

                Total direct labor hours                                 150,000 27,000 

Activity Cost Pool             Cost Driver          Estimated            Expected            Expected Use of

                                                                          Overhead            Use of        Cost         Drivers per Product

Cost Drivers        CoolDay               LiteMis

Grape processing       Cart of grapes         $145,860              6,600                   6,000                    600        

Aging                             Total months             396,000 6,600,000            3,000,000            3,600,000           

Bottling and corking Number of bottles 270,000 900,000                600,000                300,000               

Labeling and boxing  Number of bottles                189,000 900,000                600,000                300,000               

Maintain and           Number of inspections240,800            800                       350                         450

inspect equipment                                                          

Total estimated overhead                           $1,241,660                                                                                                           

Requirement:

1. Under traditional product costing using direct labor hours, compute the total manufacturing cost per liter of both products.              
2. Under ABC, prepare a schedule showing the computation of the activity-based overhead rates (per cost driver).
3. Prepare a schedule assigning each activity\'s overhead cost pool to each product, based on the use of cost drivers. What is the overhead cost per liter?
4. Compute the total manufacturing cost per liter for both products under ABC. 

Click here: Polzin Corporation produces two grades of wine from grapes that it buys from California growers

Outdoor Expo provides guided fishing tours

Outdoor Expo provides guided fishing tours. The company charges $200 per person but offers a 10% discount to parties of four or more. Consider the following transactions during the month of May.

May       2              Charlene books a fishing tour with Outdoor Expo for herself and four friends at the group discount price ($900 = $180 × 5). The tour is scheduled for May 7.

May       7              The fishing tour occurs. Outdoor Expo asks that payment be made within 30 days of the     tour and offers a 4% discount for payment within 15 days.

May       9              Charlene is upset that no one caught a single fish and asks management for a discount. Outdoor Expo has a strict policy of no discounts related to number of fish caught.

May       15           Upon deeper investigation, management of Outdoor Expo discovers that Charlene\'s tour was led by a new guide who did not take the group to some of the better fishing spots. In concession, management offers a sales allowance of 40% of the amount due.

May       20           Charlene pays for the tour after deducting the sales allowance.

Required:

1.            Record the necessary transaction(s) for Outdoor Expo on each date. (Leave no cells blank. If no entry is required, select \"No journal entry required\" in the account field and zero (0) in the amount field. Round your answers to the nearest dollar amount. Omit the \"$\" sign in your response.)

  2.          Calculate net sales.

3.            Show how Outdoor Expo would present net sales in its income statement

Click here: Outdoor Expo provides guided fishing tours