BOR CPAs, Inc. BOR CPAS, Inc. is a closely held corporation owned by three stockholders who used the initials of their last names to form the corporation's name: Cyrus Bailey, John Ogden, and Samuel Rogers. The firm's Certified Public Accountants (CPA) perform audits of both public companies and privately owned companies. BOR's CPAs also provide tax services to both individuals and businesses. The corporation is divided into two profit centers: the Audit Division and the Tax Division. Each division is composed of two cost centers. The Audit Division is composed of two cost-center departments: Public Company Audits and Private Company Audits. The Tax Division is composed of two cost-center departments also: Individual Tax and Business Tax. BOR, a decentralized organization, is interested in evaluating the performance of the two divisions. The stockholders are responsible for deciding on investment in the two divisions. Cyrus Bailey is in charge of the performance evaluation, and turns to you for assistance. Mr. Bailey is only interested in evaluating operations at the profit center (division) level, and not at the cost center (department) level. Mr. Bailey is considering temporarily using some of the staff from the Tax Division to assist the Audit Division during the upcoming busy audit season, and would like to evaluate the effect of this on net income. The Tax Division is estimated to have 800 hours of excess capacity. The unit for determining sales revenue in both divisions is the "engagement", which means the total agreed-upon work for a given client in either audit or tax for a given year. The company charges on average a fee of $75,000 per audit engagement, and $15,750 per tax engagement. The company has its own Payroll Office, which provides payroll services both divisions and will allocate its total expenses to the two divisions as support department allocations. The following chart shows some basic data for the company: $110 $60 110 Hourly market rate for staff (the price the company would have to pay from an outside contractor for staff services) Average hourly cost rate for staff (the average price the company pays to its staff) Number of paychecks issued by Audit Division Number of paychecks issued by Tax Division Total expense for Payroll Office Amount of assets invested in Audit Division by BOR CPAs, Inc. Amount of assets invested in Tax Division by BOR CPAs, Inc. Payroll 340 $29,250 $10,000,000 $5,000,000 Factory Overhead Cost Budget The factory overhead cost budget should be integrated with the production budget to ensure that production is not interrupted during the year. This budget may be supported by departmental schedules, which normally separate factory overhead costs into fixed and variable costs so that department managers may monitor and evaluate costs during the year. For simplicity, Learn Co has not separated costs in this manner. After reviewing the following factory overhead cost budget, you note that LearnCo has completed the budget with the exception of one amount. Fill in the missing amount. Learn Co Factory Overhead Cost Budget For the Year Ending December 31, 2012 Indirect factory wages $5,400 Power and light Depreciation of plant and equipment 1,450 Total factory overhead cost $18,100 Feedback Check My Work You can "back into the missing number by computing from the total along with the other two values. Cost of Goods Sold Budget The cost of goods sold budget integrates the direct materials purchases budget, direct labor cost budget, and factory overhead cost budget. Estimated and desired inventories for direct materials, work in process, and finished goods must also be integrated into the cost of goods sold budget. Complete the preparation of the cost of goods sold budget for Learnco, using information that follows provided by the controller, and using the previous budgets you have prepared. Learn Co Cost of Goods Sold Budget For the Year Ending December 31, 2012 Finished goods inventory, January 1, 2012 $9,870 Work in process inventory, January 1, 2012 $2,010 Direct materials: Direct materials inventory, January 1, 20Y2 $1,600 Direct materials purchases Cost of direct materials available for use Direct materials inventory, December 31, 20Y2 Cost of direct materials placed in production nad 01 (1,440) Direct labor Factory overhead Total manufacturing costs Total work in process during period Work in process inventory, December 31, 20Y2 (1,250) Cost of goods manufactured Cost of finished goods available for sale 11.00 Finished goods inventory, December 31, 2012 (1,500) Cost of goods sold Feedback Check My Work Selling/Admin. Expenses Budget The sales budget is often used as the starting point for the selling and administrative expenses budget. For example, a budgeted increase in sales may require more advertising expenses. LearnCo has prepared its selling and administrative expenses budget as follows. This budget is merely reviewed by you for use on the budgeted income statement. LearnCo Selling and Administrative Expenses Budget For the Year Ending December 31, 20Y2 Selling expenses: Sales salaries expense Advertising expense $45,000 15,000 5,400 Travel expense Total selling expenses Administrative expenses: $65,400 Officers' salaries expense $85,000 Office salaries expense Office rent expense Office supplies expense 35,000 26,000 6,400 1,600 Miscellaneous administrative expenses Total administrative expenses 154,000 Total selling and administrative expenses $219,400 Budgeted Income Statement The budgeted income statement is prepared by integrating the sales budget, cost of goods sold budget, and selling and administrative expenses budget. Additional information that may be helpful in preparing the budgeted income statement are on the following Budgeted Income Statement Data Table Review the Budgeted Income Statement Data Table, then complete the budgeted income statement that follows the table. Round the computed amount for income tax to the nearest whole dollar. Budgeted Income Statement Data Table Interest revenue for the year $2,000 Interest expense for the year $1,500 Learn Co's income tax rate 40% LearnCo Budgeted Income Statement For the Year Ending December 31, 20Y2 Revenue from sales Cost of goods sold Gross profit Selling and administrative expenses: Selling expenses Administrative expenses Total selling and administrative expenses Operating income Other revenue and expense: Interest revenue Interest expense Income before income tax Income tax Net income Feedback Check My Work BOR CPAs, Inc. BOR CPAS, Inc. is a closely held corporation owned by three stockholders who used the initials of their last names to form the corporation's name: Cyrus Bailey, John Ogden, and Samuel Rogers. The firm's Certified Public Accountants (CPA) perform audits of both public companies and privately owned companies. BOR's CPAs also provide tax services to both individuals and businesses. The corporation is divided into two profit centers: the Audit Division and the Tax Division. Each division is composed of two cost centers. The Audit Division is composed of two cost-center departments: Public Company Audits and Private Company Audits. The Tax Division is composed of two cost-center departments also: Individual Tax and Business Tax. BOR, a decentralized organization, is interested in evaluating the performance of the two divisions. The stockholders are responsible for deciding on investment in the two divisions. Cyrus Bailey is in charge of the performance evaluation, and turns to you for assistance. Mr. Bailey is only interested in evaluating operations at the profit center (division) level, and not at the cost center (department) level. Mr. Bailey is considering temporarily using some of the staff from the Tax Division to assist the Audit Division during the upcoming busy audit season, and would like to evaluate the effect of this on net income. The Tax Division is estimated to have 800 hours of excess capacity. The unit for determining sales revenue in both divisions is the "engagement", which means the total agreed-upon work for a given client in either audit or tax for a given year. The company charges on average a fee of $75,000 per audit engagement, and $15,750 per tax engagement. The company has its own Payroll Office, which provides payroll services both divisions and will allocate its total expenses to the two divisions as support department allocations. The following chart shows some basic data for the company: $110 $60 110 Hourly market rate for staff (the price the company would have to pay from an outside contractor for staff services) Average hourly cost rate for staff (the average price the company pays to its staff) Number of paychecks issued by Audit Division Number of paychecks issued by Tax Division Total expense for Payroll Office Amount of assets invested in Audit Division by BOR CPAs, Inc. Amount of assets invested in Tax Division by BOR CPAs, Inc. Payroll 340 $29,250 $10,000,000 $5,000,000 Factory Overhead Cost Budget The factory overhead cost budget should be integrated with the production budget to ensure that production is not interrupted during the year. This budget may be supported by departmental schedules, which normally separate factory overhead costs into fixed and variable costs so that department managers may monitor and evaluate costs during the year. For simplicity, Learn Co has not separated costs in this manner. After reviewing the following factory overhead cost budget, you note that LearnCo has completed the budget with the exception of one amount. Fill in the missing amount. Learn Co Factory Overhead Cost Budget For the Year Ending December 31, 2012 Indirect factory wages $5,400 Power and light Depreciation of plant and equipment 1,450 Total factory overhead cost $18,100 Feedback Check My Work You can "back into the missing number by computing from the total along with the other two values. Cost of Goods Sold Budget The cost of goods sold budget integrates the direct materials purchases budget, direct labor cost budget, and factory overhead cost budget. Estimated and desired inventories for direct materials, work in process, and finished goods must also be integrated into the cost of goods sold budget. Complete the preparation of the cost of goods sold budget for Learnco, using information that follows provided by the controller, and using the previous budgets you have prepared. Learn Co Cost of Goods Sold Budget For the Year Ending December 31, 2012 Finished goods inventory, January 1, 2012 $9,870 Work in process inventory, January 1, 2012 $2,010 Direct materials: Direct materials inventory, January 1, 20Y2 $1,600 Direct materials purchases Cost of direct materials available for use Direct materials inventory, December 31, 20Y2 Cost of direct materials placed in production nad 01 (1,440) Direct labor Factory overhead Total manufacturing costs Total work in process during period Work in process inventory, December 31, 20Y2 (1,250) Cost of goods manufactured Cost of finished goods available for sale 11.00 Finished goods inventory, December 31, 2012 (1,500) Cost of goods sold Feedback Check My Work Selling/Admin. Expenses Budget The sales budget is often used as the starting point for the selling and administrative expenses budget. For example, a budgeted increase in sales may require more advertising expenses. LearnCo has prepared its selling and administrative expenses budget as follows. This budget is merely reviewed by you for use on the budgeted income statement. LearnCo Selling and Administrative Expenses Budget For the Year Ending December 31, 20Y2 Selling expenses: Sales salaries expense Advertising expense $45,000 15,000 5,400 Travel expense Total selling expenses Administrative expenses: $65,400 Officers' salaries expense $85,000 Office salaries expense Office rent expense Office supplies expense 35,000 26,000 6,400 1,600 Miscellaneous administrative expenses Total administrative expenses 154,000 Total selling and administrative expenses $219,400 Budgeted Income Statement The budgeted income statement is prepared by integrating the sales budget, cost of goods sold budget, and selling and administrative expenses budget. Additional information that may be helpful in preparing the budgeted income statement are on the following Budgeted Income Statement Data Table Review the Budgeted Income Statement Data Table, then complete the budgeted income statement that follows the table. Round the computed amount for income tax to the nearest whole dollar. Budgeted Income Statement Data Table Interest revenue for the year $2,000 Interest expense for the year $1,500 Learn Co's income tax rate 40% LearnCo Budgeted Income Statement For the Year Ending December 31, 20Y2 Revenue from sales Cost of goods sold Gross profit Selling and administrative expenses: Selling expenses Administrative expenses Total selling and administrative expenses Operating income Other revenue and expense: Interest revenue Interest expense Income before income tax Income tax Net income Feedback Check My Work