Unit 4 Discussion: 7-38. Predetermined Overhead Rates: Ethical Issues (ACC301 Cost Accounting)
Marine Components produces parts for airplanes and ships. The parts are produced to specification by their customers, who pay either a fixed price (the price does not depend directly on the cost of the job) or price equal to recorded cost plus a fixed fee (cost plus). For the upcoming year (year 2), Marine expects only two clients (client 1 and client 2). The work done for client 1 will all be done under fixed-price contracts while the work done for client 2 will all be done under cost-plus contracts.
Manufacturing overhead for year 2 is estimated to be $10 million. Other budgeted data for year 2 include the following.
Client 1 Client 2
Machine-hours (thousands) 2,000 2,000
Direct labor cost ($000) $2,500 $7,500
a. Compute the predetermined rate assuming that Marine Components uses machine-hours to apply overhead.
b. Compute the predetermined rate assuming that Marine Components uses direct labor cost to apply overhead.
c. Which allocation base will provide higher income for Marine Components?
d. Is it ethical to choose an allocation method based on which one leads to higher income for the firm?
Unit 4 Discussion (ACC303 Intermediate Accounting)
Please complete judgment Case 4-5 (page 227-228). Please include explanations with your answers.
Judgment Case 4–5 Income statement presentation; unusual items; comprehensive income
Norse Manufacturing Inc. prepares an annual single, continuous statement of income and comprehensive income. The following situations occurred during the company’s 2024 fiscal year:
1. Restructuring costs were incurred due to the closing of a factory.
2. Investments were sold, and a loss was recognized.
3. A positive foreign currency translation adjustment was recognized.
4. Interest expense was incurred.
5. A division was sold that qualifies as a separate component of the entity according to GAAP.
6. Obsolete inventory was written off.
7. The controller discovered an error in the calculation of 2023’s patent amortization expense.
1. For each situation, identify the appropriate reporting treatment from the list below (consider each event to be material):
a. As a component of operating income
b. As a nonoperating income item (other income or expense)
c. As a discontinued operation
d. As an other comprehensive income item
e. As an adjustment to retained earnings
2. Identify the situations that would be reported net-of-tax.
Unit 4 DB: Willingness to Pay (ECO201 Macroeconomics)
Read and consider the “Willingness to Pay” example in Section 7-1 (Chapter 7 Section 1).
Everyone shops for things they need for themselves and for gifts for others. Imagine you are taking an online class and you are looking to buy a new computer because your old one died. Class starts in two days. The market for computers is very competitive. There are several brands that have similar characteristics such as storage capacity, processor speed, number of USB ports, etc. but you have owned one that you liked and you want to buy that same brand, the X-Mark.
You have a budget of $1,000. One popular store has the brand you like on sale for $850 because other stores are selling them for that price. You have a friend at that store who tells you that the store paid $700 for that computer.
Please evaluate and explain the willingness to pay, consumer surplus, demand, producer surplus, cost, and willingness to sell of this transaction. Define these terms in your explanation, not as separate definitions. Incorporate the meaning into your narrative so that you write a convincing story.
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