AirQual Test Corporation provides on-site air quality testing services. The company has provided the following cost formulas and actual results for the month of February:
Fixed Component Variable Component Actual Total
per Month per Job for February
Revenue $276 $35,890
Technician wages $8,600 $8,450
Mobile lab operating expenses $4,600 $34 $9,200
Office expenses $2,800 $3 $3,070
Advertising expenses $1,580 $1,650
Insurance $2,890 $2,890
Miscellaneous expenses $930 $1 $375
The company uses the number of jobs as its measure of activity. For example, mobile lab operating expenses should be $4,600 plus $34 per job, and the actual mobile lab operating expenses for February were $9,200. The company expected to work 140 jobs in February, but actually worked 150 jobs.
Required:
Complete the flexible budget performance report showing AirQual Test Corporation’s revenue and spending variances and activity variances for February.

Answer:

AirQual Test Corporation

Flexible Budget:

                                           Fixed     Variable  Actual   Flexible  Variance

Revenue                                             $276 $35,890  $41,400  ($5,510)  U

Technician wages             $8,600                $8,450      8,600        150   F    

Mobile lab operating exp. $4,600      $34  $9,200      9,700        500   F

Office expenses                $2,800         $3  $3,070     3,250         180   F

Advertising expenses        $1,580                $1,650      1,580          (70)  U

Insurance                           $2,890              $2,890      2,890          0   N/A

Miscellaneous expenses     $930         $1     $375       1,080        705   F

Total                                                           $10,255   $14,300   $4,045   U

Explanation:

a) Data and Calculations:

                                           Fixed     Variable  Actual

Revenue                                             $276 $35,890  

Technician wages             $8,600                $8,450  

Mobile lab operating exp. $4,600      $34  $9,200  

Office expenses                $2,800         $3  $3,070  

Advertising expenses        $1,580                $1,650  

Insurance                           $2,890              $2,890  

Miscellaneous expenses     $930         $1     $375

Expected number of jobs to be worked = 140

Actual number of jobs worked = 150

Flexible costs:

Revenue = $276 * 150 = $41,400

Mobile lab operating expense:

Fixed element = $4,600

Variable element = $34 * 150 = $5,100

Total flexible budget = $9,700

Office Expenses:

Fixed element = $2,800

Variable element =  $3 * 150 = $450

Total flexible budget =  $3,250

Miscellaneous expenses:

Fixed element = $930

Variable element = $1 * 150 = $150

Total flexible budget = $1,080

Spending Variances:

Technician wages             $8,600                $8,450      8,600        150   F      

Advertising expenses        $1,580                $1,650      1,580          (70)  U

Insurance                           $2,890              $2,890      2,890          0   N/A

Spending variances = $80 F

Activity Variances:

Mobile lab operating exp. $4,600      $34  $9,200      9,700        500   F

Office expenses                $2,800         $3  $3,070     3,250         180    F

Miscellaneous expenses     $930         $1     $375       1,080        705    F

Total activity variances = $1,385 F

Camptown Togs, Inc., a children’s clothing manufacturer, has always found payroll processing to be costly because it must be done by a clerk so that the number of piece-goods coupons received by each employee can be collected and the types of tasks performed by each employee can be calculated. Not long ago, an industrial engineer designed a system that partially automates the process by means of a scanner that reads the piece-goods coupons. Management is enthusiastic about this system because it utilizes some personal computer systems that were purchased recently. It is expected that this new automated system will save $45,000 per year in labor. The new system will cost about $30,000 to build and test prior to operation. It is expected that operating costs, including income taxes, will be about $5,000 per year. The system will have a five-year useful life. The expected net salvage value of the system is estimated to be $3,000.
(a) Identify the cash inflows over the life of the project.
(b) Identify the cash outflows over the life of the project.
(c) Determine the net cash flows over the life of the project.

Wildhorse Locomotive Corporation purchased for $604,000 a 40% interest in Lopez Railways, Inc. This investment enables Wildhorse Locomotive to exert significant influence over Lopez Railways. During the year, Lopez Railways earned net income of $159,000 and paid dividends of $27,000. Prepare ZaneLocomotive’s journal entries related to this investment.

If Cho's boss is interested in a graphical representation of the relationship between the price and quantity of televisions demanded, you would advise your coworker to construct_____________ using the data provided. However, if Cho's boss is more interested in the detailed numbers used to construct this visual representation, you would instead advise your coworker that_________ would be more appropriate.

Lincoln, Inc., which uses a volume-based cost system, produces cat condos that sell for $140 each. Direct materials cost $22 per unit, and direct labor costs $15 per unit. Manufacturing overhead is applied at a rate of 280% of direct labor cost. Nonmanufacturing costs are $34 per unit. What is the gross profit margin for the cat condos

The Oxford Company uses a job order cost system and applies factory overhead to jobs on the basis of direct labor cost. During the month of July, the following activities took place in the work-in-process account:

Beginning $15,000
Direct materials 10,000
Direct labor 30,000
Overhead applied 15,000
  
At the end of July, only one job (Job #15), was still in process. This job has been charged with $2,000 of direct materials cost.
Required:
Determine the amount of direct labor cost incurred and overhead applied in the ending inventory of work-in-process on July 31.

Manufacturing overhead for the month was underapplied by $6,000. The company allocates any underapplied or overapplied manufacturing overhead among work in process, finished goods, and cost of goods sold at the end of the month on the basis of the overhead applied during the month in those accounts. The journal entry to record the allocation of any underapplied or overapplied manufacturing overhead for January would include the following:
Work In Process Finished Goods Cost of Goods Sold Total
Direct materials $10,670 $12,000 $81,120 $103,790
Direct labor 11,630 15,000 101,400 128,030
Manufacturing
overhead applied 9,680 9,680 68,640 88,000
Total $31,980 $36,680 $251,160 $319,820
Manufacturing overhead for the month was underapplied by $6,000.
The Corporation allocates any underapplied or overapplied manufacturing overhead among work in process, finished goods, and cost of goods sold at the end of the month on the basis of the manufacturing overhead applied during the month in those accounts.
The journal entry to record the allocation of any underapplied or overapplied manufacturing overhead for May would include the following:
a. credit to Work in Process of $31,980.
b. debit to Work in Process of $660.
c. credit to Work in Process of $660.
d. debit to Work in Process of $31,980.

The service-profit chain is designed to help managers better understand the key linkages in a service delivery system that drive customer loyalty, revenue growth, and higher profits.

a. True
b. False