Calculate the flexible-budget variance

Reference no: EM13785061

Part -1:

1. Arantxa Corporation made the following cash purchases of securities during 2008, which is the first year in which Arantxa invested in securities.

1. On January 15, purchased 10,000 shares of Sanchez Company's common stock at $33.50 per share plus commission $1,980.

2. On April 1, purchased 5,000 shares of Vicario Co.'s common stock at $52.00 per share plus commission $3,370.

3. On September 10, purchased 7,000 shares of WTA Co.'s preferred stock at $26.50 per share plus commission $4,910.

On May 20, 2008, Arantxa sold 4,000 shares of Sanchez Company's common stock at a market price of $35 per share less brokerage commissions, taxes, and fees of $3,850. The year-end fair values per share were: Sanchez $30, Vicario $55, and WTA $28. In addition, the chief accountant of Arantxa told you that Arantxa Corporation plans to hold these securities for the long term but may sell them in order to earn profits from appreciation in prices.

Instructions

(a) Prepare the journal entries to record the above three security purchases.

(b) Prepare the journal entry for the security sale on May 20.

(a) The purchase entries will be:

January 15, 2008

Account Title	Debit	Credit
Available-for-Sale Securities	336,980
Cash		336,980

April 1, 2008

Account Title	Debit	Credit
Available-for-Sale Securities	263,370
Cash		263,370

September 10, 2008

Account Title	Debit	Credit
Available-for-Sale Securities	190,410
Cash		190,410
Gross selling price of 4,000 shares at $35		140,000
Commissions, taxes, and fees	3,850
Net proceeds from sale 136,150-134,792		1,358

(b)

May 20, 2008

Account Title	Debit	Credit
Available-for-Sale Securities		134,792
Cash	134,792
Gain on sale of stock		1,358

(c)

December 31, 2008

Account Title	Debit	Credit
Unrealized Holding Gain or Loss-Equity		4,968

Part -2:

2. Jaycie Phelps Inc. acquired 20% of the outstanding common stock of Theresa Kulikowski Inc. on December 31, 2008. The purchase price was $1,200,000 for 50,000 shares. Kulikowski Inc. declared and paid an $0.85 per share cash dividend on June 30 and on December 31, 2009. Kulikowski reported net income of $730,000 for 2009. The fair value of Kulikowski's stock was $27 per share at December 31, 2009.

Instructions

(a) Prepare the journal entries for Jaycie Phelps Inc. for 2008 and 2009, assuming that Phelps cannot exercise significant influence over Kulikowski. The securities should be classified as available-for-sale.

(b) Prepare the journal entries for Jaycie Phelps Inc. for 2008 and 2009, assuming that Phelps can exercise significant influence over Kulikowski.

(c) At what amount is the investment in securities reported on the balance sheet under each of these methods at December 31, 2009? What is the total net income reported in 2009 under each of these methods?

(a) December 31, 2008

Account Title	Debit	Credit

June 30, 2009

Account Title	Debit	Credit

December 31, 2009

Account Title	Debit	Credit

(b) December 31, 2008

Account Title	Debit	Credit

June 30, 2009

Account Title	Debit	Credit

December 31, 2009

Account Title	Debit	Credit

(c)

	Fair Value Method	Equity Method
Investment amount (balance sheet)......
Dividend revenue (income statement)..
Revenue from investment (income statement)..............................

3. Amado Company has two classes of capital stock outstanding: 8%, $20 par preferred and $5 par common. At December 31, 2010, the following accounts were included in stockholders' equity.

Preferred Stock, 150,000 shares $ 3,000,000

Common Stock, 2,000,000 shares 10,000,000

Paid-in Capital in Excess of Par-Preferred 200,000

Paid-in Capital in Excess of Par-Common 27,000,000

Retained Earnings 4,500,000

The following transactions affected stockholders' equity during 2011.

Jan. 1 30,000 shares of preferred stock issued at $22 per share

Feb. 1 50,000 shares of common stock issued at $20 per share

June 1 2-for-1 stock split (par value reduced to $2.50)

July 1 30,000 shares of common treasury stock purchased at $10 per share Hatch uses the cost method

Sept. 15 10,000 shares of treasury stock reissued at $11 per share

Dec. 31 The preferred dividend is declared, and a common dividend of 50¢ per share is declared.

Dec. 31 Net income is $2,100,000.

Prepare the stockholders' equity section for Amado Company at December 31, 2010. Show all supporting computations.

AMADO COMPANY

Stockholders' Equity

December 31, 2008

4. The normal capacity of Austin Adhesives, Inc., is 40,000 direct labor hours and 20,000 units per month. A finished unit requires 6 pounds of materials at an estimated cost of $2 per pound. The estimated cost of labor is $10.00 per hour. The plant estimates that overhead for a month will be $40,000.

During the month of March, the plant totaled 34,800 direct labor hours at an average rate of $9.50 an hour. The plant produced 18,000 units, using 105,000 pounds of materials at a cost of $2.04 per pound.

1. Prepare a standard cost summary showing the standard unit cost.

2. Make journal entries to charge materials and labor to Work in Process.

5. Marblehead Manufacturing, Inc., has two departments, Mixing and Blending. When goods are completed in Mixing, they are transferred to Blending and then to the finished goods storeroom. There was no beginning or ending work in process in either department. Listed below is information to be used in preparing journal entries at the end of October:

Standard cost of direct materials for actual production-Mixing . . . . . . $ 185,000

Actual cost of direct materials used in production-Mixing . . . . . . . . . . . 177,000

Materials price variance-Mixing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000 F

Materials quantity variance-Mixing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000 U

Standard cost of direct materials for actual production-Blending . . . . . . 130,000

Actual cost of direct materials used in production-Blending . . . . . . . . . . 136,000

Materials price variance-Blending . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,000 U

Materials quantity variance-Blending . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000 U

Standard cost of direct labor for actual production-Mixing . . . . . . . . . . . 110,000

Actual cost of direct labor used in production-Mixing . . . . . . . . . . . . . . . 103,000

Labor rate variance-Mixing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000 F

Labor efficiency variance-Mixing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,000 U

Standard cost of direct labor for actual production-Blending . . . . . . . . . . 95,000

Actual cost of direct labor used in production-Blending . . . . . . . . . . . . . 110,000

Labor rate variance-Blending . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,000 U

Labor efficiency variance-Blending . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,000 U

Actual factory overhead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145,000

Factory overhead applied-Mixing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85,000

Factory overhead applied-Blending . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70,000

Prepare journal entries for the following:

1. The issuance of direct materials into production and the recording of the materials variances.

2. The use of direct labor in production and the recording of the labor variances.

3. The entries to record the actual and applied factory overhead.

4. The entries to transfer the production costs from Mixing to

Blending and from Blending to finished goods.

6. Montana Manufacturing Co. normally produces 10,000 units of product X each month. Each unit requires 2 hours of direct labor, and factory overhead is applied on a direct labor hour basis. Fixed costs and variable costs in factory overhead at the normal capacity are $5 and $3 per unit, respectively. Cost and production data for May follow:

Production for the month . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,000 units

Direct labor hours used . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18,500 hours

Factory overhead incurred for:

Variable costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $28,500

Fixed costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $52,000

a. Calculate the flexible-budget variance.

b. Calculate the production-volume variance.

c. Was the total factory overhead under or overapplied? By what amount?

Reference no: EM13785061

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