The comparative balance sheets for Pester Company at December $31$ are as follows.

PESTER COMPANY

Comparative Balance Sheets

December $31$

Assets

$2022$

$2021$

Cash

$ $41,000$

$ $57,000$

Accounts receivable

$77,000$

$64,000$

Inventory

$172,000$

$140,000$

Prepaid expenses

$12,140$

$16,540$

Land

$110,000$

$150,000$

Buildings

$250,000$

$250,000$

Accumulated depreciation$$buildings

$(70,000)$

$(50,000)$

Equipment

$215,000$

$175,000$

Accumulated depreciation$$equipment

$(70,000)$

$(42,000)$

Total

$$737,140$

$$760,540$

Liabilities and Stockholders$$ Equity

Accounts payable

$ $58,000$

$ $45,000$

Bonds payable

$235,000$

$265,000$

Common stock,$$1$ par

$280,000$

$250,000$

Retained earnings

$164,140$

$200,540$

Total

$$737,140$

$$760,540$

Additional data:

$1.$ Operating expenses include depreciation expense of $$55,000$ and charges from prepaid expenses of $$4,400.$

$2.$ Land was sold for cash at cost$.$

$3.$ Cash dividends of $$84,290$ were paid.

$4.$ Net income for $2022$ was $$47,890.$

$5.$ Equipment was purchased for $$80,000$ cash. In addition, equipment costing $$40,000$ with a book value of $$33,000$ was sold for $$37,000$ cash.

$6.$ Bonds were converted at face value by issuing $30,000$ shares of $$1$ par value common stock.

IShape$1$

C

nstructions $7$ Points

Prepare a statement of cash flows for the year ended December $31,2022$ using the indirect method.

Pristine Painting Services uses a job order cost system to collect the costs of its home painting business. Each customer$$s house is treated as a separate job. Overhead is applied to each job based on the number of painting hours required for each house. Listed below are the data for the current year:

Estimated overhead $$780,000$

Actual overhead $$772,450$

Estimated painting hours $39,000$

Actual painting hours $38,750$

The company uses Operating Overhead in place of Manufacturing Overhead.

Instructions

$($a$)$ Compute the predetermined overhead rate.

$($b$)$ Prepare the entry to apply the overhead for the year.

$($c$)$ Determine whether the overhead was under$-$ or overapplied and by how much.

$($d$)$ If estimated overhead increases to $$799,500,$ discuss how this would impact $(1)$ applied overhead and $(2)$ actual overhead. Support your discussion with calculations. Determine whether overhead would be under$-$ or overapplied and by how much.

Trendy Toys & Games, Inc. manufactures specialty toys. Trendy uses a traditional product costing system to assign overhead costs uniformly to all products. To meet industry safety standards and to assure its customers of safe and durable toys, Trendy assigns its quality$-$control overhead costs to all products at a rate of $21\%$ of direct labor costs. Its direct labor cost for the month of August for its toddler line of toys is $$324,000.$ In response to repeated requests from its financial vice president, Trendy$$s management agrees to adopt activity$-$based costing. Data relating to the toddler line of toys for the month of August are as follows:

Number of Cost

Overhead Drivers Used

Activity Cost Pools Cost Drivers Rate per Activity

Materials Inspection Number of pounds $$0\mathrm{.}70$ per pound $50,000$ pounds

Assembly Line Inspection Number of finished toys $$0\mathrm{.}15$ per toy $190,000$ toys

National Toy Association

Certification Retail orders $$2\mathrm{.}00$ per order $800$ orders

Instructions

$($a$)$ Compute the quality$-$control overhead cost to be assigned to the toddler toy line for the month of August $(1)$ using the traditional product costing system $($direct labor is the cost driver$),$ and $(2)$ using activity$-$based costing.

$($b$)$ By what amount does the traditional product costing system under$-$cost or over$-$cost the toddler toy line?

$($c$)$ Classify each of the activities as value$-$added or not$-$value added.

$($d$)$ Trendy Toys is exploring options to help reduce overhead costs especially for non$-$value added activities. One of the proposals is from the National Toy Association. For an additional $$1$ per order, this entity could perform additional safety checks that would reduce the assembly line inspection costs by $$\mathrm{.}01$ per toy. Compute the overhead cost assigned to the toddler toy line for the month of August using activity$-$based costing under this proposal. Should Trendy Toys accept the National Toy Association$$s offer?