Going Postal: Analyzing Operating Income of the Wheels of Fortune
The Decision
It was a beautiful Saturday morning as Lance completed his ride in the hill country of central Texas. During his ride Lance thought, “What has caused the operating income of Wheels of Fortune to decline so drastically over the last year?” He was concerned that if the trend persisted, Wheels of Fortune, the bicycle assembly and wholesale company he started ten years ago, would cease to exist.
From the beginning, Wheels of Fortune was Lance’s brainchild. At forty, after surviving a significant health scare, Lance realized his professional cycling career was nearing an end. Yet, he wanted to stay connected to the cycling community he so dearly loved. He reasoned his years of professional cycling experience for the Postal team and firsthand knowledge of the deficiencies in existing bicycle technology uniquely qualified him to build a better bicycle.
During a ride after another grueling season, Lance mentioned his idea for Wheels of Fortune to his long-time training partners and best friends, Tyler and Sam. “Last week, after Sheryl told me she is expecting our first child and I decided to retire.”
Tyler a bit surprised asked, “I knew you were tiring of the professional circuit, but I didn’t think you were ready to retire. What’s next for you?”
Lance replied, “I’m going to start a bicycle company called Wheels of Fortune. The company will assemble bicycles to order from retailers. I know it is sudden, but I would like for you and Sam to be my partners. With your knowledge of bicycle assembly and technology, Sam’s accounting and procurement acumen, and my sales and marketing appeal, we would form an unbeatable team just like we did on the circuit.”

The Challenge

“Who called this meeting?” a slightly annoyed Tyler queried.

“I did,” Lance replied. “My apologies, I know how much we all hate meetings, but it could not be helped. Our operating income decreased drastically in the last year. At this rate, we won’t be in business much longer if we can’t figure out what happened. I asked Sam to generate a comparison of operating income for the past two years.”

Sam explained, “Our operating income decreased over $4 million in just one year even though we sold the same number of bicycles. Over the same period, our contribution margin per bicycle decreased by almost a $1,000. While the average variable cost per bicycle decreased significantly, it was not enough to offset the decrease in our average selling price per bicycle.”

Lance interrupted, “We have always sold professional bicycles for $5,500 and Novice for $1,000. How is it possible for our average sales price to decrease so drastically in one year without a price reduction?”

Sam replied, “That’s an excellent question and I thought the same. Our accounting records show that, while we continue to produce and sell at capacity of 4,500 bicycles, our sales mix shifted drastically. In prior years, 70 percent of total sales were generated from Professional bicycles. However, this year, 70 percent of sales are coming from Novice bicycles. The demand for Professional bicycles has decreased with a corresponding for Novice models.”

“We’ve been assembling the same top-of-the-line Professional bicycle for ten years. How is it possible that sales shifted so drastically?” Tyler asked.

Sam suggested somewhat sarcastically, “Perhaps, our Professional bicycles are no longer considered top-of-the-line.”

Lance sensing Tyler was a little put off chimed in, “So you are saying the shift in sales mix is the reason for our decreased operating income?”

“You are partially correct. The shift in sales mix impacted our average selling price. However, other factors contributed to the decrease in our operating income and need to be quantified. Specifically, we need to analyze our variable manufacturing and fixed selling and general administration costs,” Sam appraised.

“Okay. So, you are suggesting we have the data to analyze those costs?” Tyler asked hopefully.

“Yes; however, analyzing our variable manufacturing costs is much more complex than analyzing sales. We need to begin by comparing our expected or standard costs to assemble a bicycle with the actual cost to calculate manufacturing variances. Analyzing manufacturing variances will provide insight about spending and the efficiency of our assembly process,” Sam explained. “When we started the company, we used the following assumptions to generate standard costs and establish selling prices.”



“So, the direct labor and variable overhead costs are the expected conversion costs to assemble the bicycle kits (direct materials) into a bicycle?” Tyler asked.

Sam replied, “Correct. You will notice the direct labor to assemble Professional bicycles is more than double Novice bicycles. Because the frames and parts are so expensive on Professional bicycles, we decided to assign our most experienced assemblers to that department. In addition, as sales of our Novice bicycles increased, we were forced to transfer idle Professional assemblers to the Novice line to keep up with demand.”

Tyler added, “This is the first I’ve seen this. I am not certain how those changes impact our direct labor costs.”

“Calculating manufacturing variances can help us determine the dollar impact of those changes and others have on our variable manufacturing costs,” Sam affirmed, “I summarized the relevant direct material, direct labor, and variable manufacturing overhead costs in this table. The table shows the actual number of bicycle kits, direct labor hours, and variable overhead costs incurred to assemble 4,500 bicycles last year.”



After reviewing the information, Tyler replied, “It appears you have been keeping track of our actual costs for some time. How come we never calculated manufacturing variances before?”

Sam responded, “There was no need. For the first nine years of Wheels of Fortune, the company consistently generated $6 million in operating income. However, now we need to analyze everything including the $150,000 in raises we gave ourselves last year.”

A concerned Lance asked Sam, “Can you analyze our operating income, so we can make changes? If the trend continues, I might need to be forced to go back to the Postal team and I’m too old and out of shape for that.”

Sam enthusiastically replied, “Absolutely.”

Case Questions: Prepare your responses to the following the case questions as if you were Sam, the accountant for Wheels of Fortune.

1. Think about your initial observations of the potential causes of the decrease in operating income from 2016 to 2017.

2. Impact on operating income: Calculate the following to quantify the impact on decrease in operating incoming from 2016 to 2017 for Wheels of Fortune.

a. Standard variable cost and contribution margin per bicycle (percent & dollars): Utilizing the standard cost components and the selling price per bicycle, calculate the standard variable cost and contribution margin per bicycle at standard.

b. Sales mix impact: Analyze the impact of the shift in sales mix by determining the sales mix variance between 2016 and 2017.

c. Manufacturing variance impact for 2017 only: Calculate the following:

i. Total direct materials cost variance (price + usage/efficiency). DM price variance = variance between standard and actual * DM used and DM efficiency = excess used * standard cost

ii. Total direct labor (rate & efficiency). DL rate = variance in rate * actual DL hours and DL efficiency = DL std. rate * DL hours variance * # of bikes produced

iii. Total variable overhead variance = OH variance between std. & actual * # of bikes

d. Selling and general administration impact: Calculate and analyze the increase in selling and administration costs on Wheels of Fortune 2017 operating income.

e. Operating income reconciliation: Utilizing the operating income reconciliation from 2016 to 2017, check your calculations from items b-d above for accuracy before completing #2.



3. Recommendations: Based on your financial analysis, generate a professional memo to the partners with your short (less than a year) and long-term (up to five years) recommendations on how to improve the company’s operating income integrating information from the schedules you created. A reader with limited financial expertise (e.g. Lance) should be able to comprehend your analysis and associated recommendations.



Table TN-1: Comparative operating income statement



Table TN-2: Summary of standard costs



Table TN-3: Summary of 2017 actual costs



3

2017

Bicycle Kit:

Used1,400

Price per kit3,200$

Direct labor hours15,525

Direct labor rate per hour44$

Variable overhead per bicycle180$

2017

Bicycle Kit:

Used3,200

Price per kit690$

Direct labor hours20,790

Direct labor rate per hour38$

Variable overhead per bicycle65$

Wheels of Fortune

Summary of Actual Costs

Professional

Novice

Difference

Operating Income 20165,757,000$

Total Sales Mix Variance (from 2b)(3,204,000)

Manufacturing Variances:

Direct Materials Variance (from 2c)

Price(568,000)$

Efficiency(180,000)

Direct Labor Variance (from 2c)

Rate(228,420)

Efficiency(137,700)

Variable Overhead Variance (from 2c)

Spending(87,750)

Total Manufacturing Variances(1,201,870)$

Selling & General Administration (from 2d)(150,000)

Operating Income 20171,201,130$

Wheels of Fortune

Income Reconciliation

2016 to 2017

ProfessionalNovice

3,000$ 600$

10 6

40$ 30$

150$ 50$

Summary of Standard Costs

Wheels of Fortune

Summary of Standard Costs

Bicycle Kit per unit

Direct labor hours per bicycle

Variable overhead rate per bicycle

Direct labor rate per hour

Q1.Explain the importance of Bank Reconciliation Statement and give real examples explaining all possible items that make differences between cash balance in general ledger and bank statement balance.(3 marks)

Answer:


Q2.Explain how the direct write-off method and the allowance method are applied in accounting for uncollectible accounts receivables? Explain with examples (3 marks)

Answer

Q3. Define depreciation and list methods of depreciation with numerical examples for each method (4 marks)

https://www.precisionessays.com/in/project
Questions:

1- While performing an audit what kind of observation an auditor should perform for the physical inventory count.

Explain relevant procedures in your own words and give examples?

2- Explain in detail the inherent risks factors are involved while assessing the risks for the intangible assets?

3- Clarify in detail what are substantive analytical procedures can be used in the audit of property, plant, and equipment?

4- Describe in detail the substantive analytical procedures can be used in auditing the income statements?

ACCT 422
ASSIGNMENT 3
You are required to work in this assignment individually. Any suspicious activities or cheating will result zero grade in this assignment.
Q1.Personal Exemption’ is the dollar amount that each individual taxpayer is able to deduct for him or herself or a dependent each year. For tax year 2013, the standard personal exemption amount was $3900 per person. Kate is single and a homeowner. In 2013, she has property taxes on her home of $3,000, makes charitable contributions of $2,000, and pays home mortgage interest of $7,000. Kate’s adjusted gross income for 2013 is $77,000.
Required: Compute her taxable income for 2013.
Q2.The following information is available for Bob and Brenda Horton, a married couple filing a joint return, for 2013. Both Bob and Brenda are age 32 and have no dependents.
Salaries $180,000
Interest income 12,000
Deductible IRA contributions 10,000
Itemized deductions 22,600 https://www.precisionessays.com/in/project
a. What is the amount of their gross income?
b. What is the amount of their adjusted gross income?
c. What is the amount of their taxable income?
Q3. Gross income is an individual’s income and receipts from nearly all sources. It is the starting point for determining the taxes that individual will pay.you are required to mention the items that are included in gross income.

Assignment	3	Marks	10
Course Title	Introduction to Accounting Information System	Code	ACCT402
Submission	End week 11	Dates	Sat 2/12/2017

Q1. The accounting department of Dallah hospital maintains AIS for their financial statements and reports. Imagine that you are appointed as the auditor to audit the organization’s AIS.
a. As an auditor what are your objectives in conducting the accounting information system audits? Explain.
b. What are the concurrent audit techniques that you would apply to continually monitor the system and collect audit evidence while live data are processed during regular operating hours?
Q2. Case Study:
O’Brien Corporation is a midsize, privately owned, industrial instrument manufacturer supplying precision equipment to manufacturers in the Midwest. The corporation is 10 years old and uses an integrated ERP system. The administrative offices are located in a downtown building and the production, shipping, and receiving departments are housed in a renovated warehouse a few blocks away.
Customers place orders on the company’s website, by fax, or by telephone. All sales are on credit, FOB destination. During the past year sales have increased dramatically, but 15% of credit sales have had to written off as uncollectible, including several large online orders to first-time customers who denied ordering or receiving the merchandise.
Customer orders are picked and sent to the warehouse, where they are placed near the loading dock in alphabetical sequence by customer name. The loading dock is used both for outgoing shipments to customers and to receive incoming deliveries. There are ten to twenty incoming deliveries every day, from a variety of sources.
The increased volume of sales has resulted in a number of errors in which customers were sent the wrong items. There have also been some delays in shipping because items that supposedly were in stock could not be found in the warehouse. Although a perpetual inventory is maintained, there has not been a physical count of inventory for two years. When an item is missing, the warehouse staff writes the information down in log book. Once a week, the warehouse staff uses the log book to update the inventory records.
The system is configured to prepare the sales invoice only after shipping employees enter the actual quantities sent to a customer, thereby ensuring that customers are billed only for items actually sent and not for anything on back order.
a. Identify at least three weaknesses in O’Brien Corporation’s revenue cycle activities.
b. Describe the problem resulting from each weakness.
c. Recommend control procedures that should be added to the system to correct the weakness.
3. The expenditure cycle has been called a “mirror image” of the revenue cycle. Explain why? And also bring out the general threats of the expenditure cycle along with the procedure to control them.
4. Product design is one of the basic activity in the production cycle.
a. Explain the main objective of Product design and bring out its threats and control.
b. What are the components of PLM software that helps in improving the efficiency and effectiveness of product design?

Write a 500 – 750 word paper that addresses the following topic:

• Explain the impact of accounting transactions in financial statements.
• Describe the elements and purpose of each financial statement.
• Discuss the components and use of financial analysis.

Your paper must be formatted according to APA 6th edition
2 sources

On July 1, Year 1, Danzer Industies Inc. issued $40,000,000 of 10-year, 7% bonds at a market (effective) interest rate of 8%, receiving cash of $37,282,062. Interest on the bonds is payable semiannually on Dec 31 and June 30. The fiscal year of the company is the calendar year. 1. Journalize the entry to record the amount of cash proceeds from the issuance of the bonds on July 1, Year 1. 2. Journalize the entries to record the following. a. The first semiannual interest payment on Dec 31, Year 1, and the amortization of the bond discount, using the straight-line method. Round to the nearest dollar. b. The interest payment on June 30, Year 2, and the amortization of the bond discount, using the straight line method. Round to the nearest dollar. 3. Determine the total interest expense for Year 1. 4. Will the bond proceeds always be less than the face amount of the bonds when the contract rate is less than the market rate of interest? 5. Compare the price of $37,282,062, received for the bonds by using the present value tables. Round to the nearest dollar.

Use the Internet or the Strayer Online database to research career options within the accounting field and accounting job postings in your local area to respond to the questions in the assignment. Write a one to two (1-2) page paper in which you: Describe at least two (2) career options someone with an accounting education can pursue. Be sure to reference sources such as the Bureau of Labor Statistics and the American Institute of Certified Public Accountants. Describe one (1) researched accounting position, and explain the essential skills that would make a candidate successful in the position. Articulate the primary manner in which the researched accounting positions could add value to the company seeking candidates. Use at least two (2) quality academic resources in this assignment. Note: Wikipedia and other Websites do not qualify as academic resources. Format your assignment according to the following formatting requirements: Typed, double spaced, using Times New Roman font (size 12), with one-inch margins on all sides. Include a cover page containing the title of the assignment, the student’s name, the professor’s name, the course title, and the date. The cover page is not included in the required page length. No need to make the paper to advanced!!!

Write a one to two (1-2) page paper in which you: 1.Describe at least two (2) career options someone with an accounting education can pursue. Be sure to reference sources such as the Bureau of Labor Statistics and the American Institute of Certified Public Accountants.. 2.Describe one (1) researched accounting position, and explain the essential skills that would make a candidate successful in the position. Articulate the primary manner in which the researched accounting positions could add value to the company seeking candidates.. 3.Use at least two (2) quality academic resources in this assignment. Note: Wikipedia and other Websites do not qualify as academic resources.. 4.Format your assignment according to the following formatting requirements: ◦Typed, double spaced, using Times New Roman font (size 12), with one-inch margins on all sides.. ◦Include a cover page containing the title of the assignment, the student’s name, the professor’s name, the course title, and the date. The cover page is not included in the required page length.. . Grading for this assignment will be based on answer quality, logic / organization of the paper, and language and writing skills, using the following rubric.

You, the managerial accountant, are asked by the CFO (Mr. Smith) of Wilson–West Manufacturing (a new company) to set up a product costing system. The following are the types of expenses that will be included:
Direct labor

• Direct materials
• Utilities
• Depreciation
• Maintenance
• Insurance on the equipment
• Rent on the plant
• Administrative salaries
• Rent for the office

In a memo format, explain to Mr. Smith and the president what will be included in product costing.

• Explain what is involved in a product costing system.
• Explain why Wilson–West Manufacturing needs to have a product costing system.
• Allocate the above expenses as fixed, mixed, or variable expenses.
• Prepare calculations for the following, and explain your computations:
  • Variable cost: The unit rate is $0.25, and the actual hours used for manufacturing are 15,000.
  • Mixed cost: The unit rate is $0.25, actual hours are 10,000, and the fixed cost is $5,000 per month.
  • Total cost: Use your calculations from above.
• Explain this to Mr. Smith who will prepare these calculations on a monthly basis.

* Employee theft is a major problem in the U.S. retail industry. Information obtained from SecurityInfoWatch reported that twenty three (23) major retailers alone apprehended over 1.1 million shoplifters and dishonest employees, and recovered more than $189 million from these thieves in 2012.
* Watch J. Farrell’s video titled “Prevent Employee Theft in
* Click here to open the video in a new window.
*
* Analyzing the information contained in the video, identify at least four (4) internal controls effective in mitigating employee theft and / or fraud.
* Provide at least two (2) examples of internal controls that could be implemented to reduce theft in the U.S. retail industry.
* Provide support for your answer.
 

• Use the Internet to research the annual report of at least one (1) merchandising company. Determine which costing method (Last In First Out [LIFO], First In First Out [FIFO], or weighted average cost) that is used to record inventory by your selected company.
• Identify the three (3) primary advantages and three (3) primary disadvantages of using the costing method (LIFO, FIFO, and weighted average) that is used to record inventory.
• Provide support for your response.

1. What are the types of differences that exist between IFRS and U.S. GAAP?
2. Which intangible assets are subject to annual impairment testing?
3. How is goodwill measured in a business combination with a noncontrolling interest?
4. What is the current treatment with respect to borrowing costs?
5. What is a provision, and when must a provision be recognized?
6. What is an onerous contract? How are onerous contracts accounted for?