Columbia General Hospital, located in Johnson County, has observed

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Question Columbia General Hospital, located in Johnson County, has observed10 cases of similar client symptoms in its emergency room in the past 10 hours. Client ages range from 2 to 67 years old. Client symptoms consist of nausea, vomiting, severe abdominal cramps, headache, and diarrhea.  Questions for students:  -What is your initial needs assessment of this situation? -Why might it be important to contact the Johnson County Health Department? -What are the duties and role of the local health department?  -What aspects of vulnerable populations could be factors in this outbreak? Health Science Science Nursing NUR 420 Share QuestionEmailCopy link Comments (0)

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Question Answered step-by-step When considering electronic health records and how aggregated datacould be used to identify trends in patients with cardiovascular disease? How would this compare to data in large databases?  Health Science Science Nursing NURSING DN DNP 825 Share QuestionEmailCopy link Comments (0)
Description MLA, 7-10 PAGESJet Blue Revenue Recognition Case Explain in your own words the steps Jet Blue Should apply in recognizing revenue? Provide citation from the codification 606.What are Jet Blue’s sources of revenue?Explain in your own words what we mean by a performance obligation. Provide citation from the codification.What are Jet Blue’s performance obligation in the case?Are these performance obligations “distinct?” Explain in your won words and provide citation from the codificationExplain in your own words what difference it makes if performance obligations are distinct?How should Jet Blue allocate total revenue to the various performance obligations mentioned in the case? Explain in your own words and provide citation from the codificationHow should Jet Blue account for “upfront ticket purchases and payments?” Explain in your own words and provide citation from the codification. Provide journal entries to record payment and revenue recognition.For each performance obligation in the case, should Jet Blue account for the revenue over time or at a point in time? Explain in your own words and provide citation from the codification.How should Jet Blue account for revenue from its frequent flyer program? Explain in your own words and provide citation from the codification. Provide journal entries.Explain in your own words how Jet blue should account for total fees and fees received from chaining flight reservations? Provide citation from the codification. 2 attachmentsSlide 1 of 2attachment_1attachment_1attachment_2attachment_2.slider-slide > img { width: 100%; display: block; } .slider-slide > img:focus { margin: auto; } Unformatted Attachment Preview Jet Blue Revenue Recognition Case 1. Explain in your own words the steps Jet Blue Should apply in recognizing revenue? Provide citation from the codification 606. 2. What are Jet Blue’s sources of revenue? 3. Explain in your own words what we mean by a performance obligation. Provide citation from the codification. 4. What are Jet Blue’s performance obligation in the case? 5. Are these performance obligations “distinct?” Explain in your won words and provide citation from the codification 6. Explain in your own words what difference it makes if performance obligations are distinct? 7. How should Jet Blue allocate total revenue to the various performance obligations mentioned in the case? Explain in your own words and provide citation from the codification 8. How should Jet Blue account for “upfront ticket purchases and payments?” Explain in your own words and provide citation from the codification. Provide journal entries to record payment and revenue recognition. 9. For each performance obligation in the case, should Jet Blue account for the revenue over time or at a point in time? Explain in your own words and provide citation from the codification. 10. How should Jet Blue account for revenue from its frequent flyer program? Explain in your own words and provide citation from the codification. Provide journal entries. 11. Explain in your own words how Jet blue should account for total fees and fees received from chaining flight reservations? Provide citation from the codification. CASE: A-231 DATE: 07/01/17 JETBLUE AND THE NEW REVENUE RECOGNITION STANDARD The core principle of Topic 606 is that an entity should recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. —Financial Accounting Standards Board (FASB) Accounting Standards Codification® 1 (ASC) 606-10-05-3 In May 2014, the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) issued a converged standard on revenue recognition (ASC Topic 606 and IFRS 15, respectively) aimed at ameliorating difficulties associated with determining when to recognize revenue and at what amount. Prior revenue recognition standards applied broad concepts together with a variety of requirements for specific industries or types of transactions, sometimes resulting in divergent accounting for economically similar transactions.2 In contrast, the new standard outlined a single comprehensive model to use in accounting for revenue from contracts with customers. Although the new standard simplified the guidelines down to one framework, it also generally required firms to use more judgment and estimation than prior guidance. 1 Financial Accounting Standards Board, “Revenue from Contracts with Customers (Topic 606),” Financial Accounting Series, No. 2014-09, May 2014, p. 2. 2 The original effective date for the converged guidance was January 1, 2017, for calendar-year public business entities while private companies were given an additional year to implement the new standard. In August 2015, FASB deferred the effective date of the new revenue recognition standard by one year, with early adoption permitted as of the original effective date. Due to the transitional nature of the implementation process, this case study refers to revenue recognition standards effective prior to the issuance of the new standard as “prior revenue recognition standards” although private companies were permitted to implement “prior” standards until the end of 2018. Emily Booth, Professor Elizabeth Blankespoor, and Jaclyn Foroughi, CFA, prepared this case as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. Copyright © 2017 by the Board of Trustees of the Leland Stanford Junior University. Publicly available cases are distributed through Harvard Business Publishing at hbsp.harvard.edu and The Case Centre at thecasecentre.org; please contact them to order copies and request permission to reproduce materials. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means –– electronic, mechanical, photocopying, recording, or otherwise –– without the permission of the Stanford Graduate School of Business. Every effort has been made to respect copyright and to contact copyright holders as appropriate. If you are a copyright holder and have concerns, please contact the Case Writing Office at businesscases@stanford.edu or write to Case Writing Office, Stanford Graduate School of Business, Knight Management Center, 655 Knight Way, Stanford University, Stanford, CA 94305-5015. This document is authorized for use only in Dr. Tarapada Ghosh's PGP/IMT/2018-19/048 at Institute of Management Technology - Ghaziabad (IMT) from Jun 2018 to Dec 2018. JetBlue and the New Revenue Recognition Standard A-231 p. 2 In its second quarter of 2014 financial statement filed with the Securities and Exchange Commission (SEC) in August 2014, New York-based airliner JetBlue Airways Corporation (JetBlue) [NASDAQ: JBLU] acknowledged the new revenue recognition standard. While it had yet to determine the full impact of adoption, changes were imminent. THE NEW REVENUE RECOGNITION STANDARD At its core, the new standard stated that revenue should be recognized when there is a transfer of promised goods or services to customers, and that the amount is what the firm expected to receive in exchange for those goods or services. To achieve this objective, the boards developed a five-step model: Step 1: Identify the Contract(s) with a Customer A contract does not have to be written; instead, it can also be oral or implied. A contract does, however, need to create enforceable rights and obligations. In addition, the parties need to approve the contract and be committed to perform, and rights and payment terms must be identifiable. Finally, it must be probable that the firm will collect substantially all of the consideration. Step 2: Identify the Performance Obligations in the Contract The performance obligation is the primary unit of account and is used to determine how much revenue to recognize and when to recognize that revenue. After identifying the contract, the firm identifies what goods and services are promised in the contract, such as the sale of goods produced, resale of goods purchased, or performing a contractually agreed upon task for a customer. Promised goods or services are separate performance obligations if they are distinct (see Exhibit 1 for an illustration regarding distinct good or services). The promises can be oral, explicit in the contract, or can even be implied by customary business practices (e.g., if a firm sells a car and usually also provides free maintenance for the car, that could be considered a promise). After determining the promises in the contract, a company then determines if the promises are distinct. A promise can only be a performance obligation if it is distinct, meaning it is both: (1) capable of being distinct and (2) distinct in the context of the contact. Capable of being distinct A good or service is capable of being distinct if a customer can benefit from the good or service on its own (whether used, consumed, or sold) or with readily available resources. These could be resources sold separately by the firm or others in the market, or resources already provided by the firm in the contract. The timing of delivery of goods and services can also affect whether the customer can benefit from the good or service. For example, suppose a firm sells a television (TV) and a customized remote control. The firm only sells the TV and remote control together, and no one else sells either product. The customer can use the TV by manually turning it on and off without the remote, but the remote provides no value to the customer without the TV. This document is authorized for use only in Dr. Tarapada Ghosh's PGP/IMT/2018-19/048 at Institute of Management Technology - Ghaziabad (IMT) from Jun 2018 to Dec 2018. JetBlue and the New Revenue Recognition Standard A-231   p. 3 Case 1: The firm delivers the TV first, and the remote control second. In this case, there are two performance obligations. The customer benefits from the TV on its own and from the remote control using a readily available resource—the TV. Case 2: The entity delivers the remote control first, and the TV second. In this case, there is only one performance obligation. The remote control provides no benefit to the customer either on its own or with readily available resources (because the TV has not been delivered yet). Distinct within the context of the contract The second part of being distinct is whether the good or service can be separated from other promises in the contract—distinct within the context of the contract. To determine this, the firm should identify what the customer actually expects to receive as the final product. Some contracts have promises for multiple goods, but the customer is not purchasing individual items—just one final item. To be separable, the items must not be any of the following: (1) an input to produce or deliver a combined final product, (2) a significant modification to another item in the contract, or (3) highly interrelated with other items in the contract. For example, when constructing a building, a contractor might design the building, clear the site, construct the structure, and install electrical and plumbing fixtures. Although the contractor sells these services individually, making them capable of being distinct, they are likely not distinct within the context of the contract. The contractor’s main service is to integrate these components and deliver a building, which suggests that the items are used as inputs for one final product. This means the building is one performance obligation. Customer options Contracts may include options for the customer to purchase additional goods or services at some point in the future. These options or marketing incentives are separate performance obligations if they provide a material right that the customer would not otherwise have (such as discounted or free services, hotel loyalty points, a year of “free” car maintenance, or contract renewal options). The performance obligation is the option itself, rather than the underlying goods and services for which the option represents. Revenue is recognized when future goods and services are transferred or when the option expires. Immaterial promises If a promise is immaterial from the customer’s perspective, the firm does not have to consider it as a separate performance obligation. Step 3: Determine the Transaction Price The transaction price is the amount an entity expects to be entitled to in exchange for transferring promised goods or services to a customer, excluding amounts collected on behalf of third parties. The transaction price is straightforward when the contract is for a fixed amount. For example, if a firm contracts with a customer to construct a building for $5,000, the transaction price is $5,000. This document is authorized for use only in Dr. Tarapada Ghosh's PGP/IMT/2018-19/048 at Institute of Management Technology - Ghaziabad (IMT) from Jun 2018 to Dec 2018. p. 4 JetBlue and the New Revenue Recognition Standard A-231 The transaction price becomes more complex when the contract includes variable consideration, i.e., when the amount to be received is contingent on a future event and must be estimated (e.g., bonuses, refunds, rebates, discounts, and penalties). For example, a firm contracts with a customer to construct a building for $5,000, plus the entity will receive a $1,000 bonus if the job is finished before the end of the year. In this case, the transaction price could be either $5,000 or $6,000—the entity needs to estimate how much of the variable consideration to include ($0 or $1,000). The bonus is variable because it is contingent on a future event: finishing the building before the end of the year. The standard describes two methods to estimate variable consideration. Companies should use the method that better predicts the consideration based on its facts and circumstances, using all information that is reasonably available (historical, current, and forecast).  Expected value – the sum of the probability-weighted amounts in a range of possible considerations. This approach may be appropriate if the entity has a large number of contracts with similar characteristics. Using the example above, the contractor will receive $5,000 for construction of the building plus a $1,000 bonus if completed by the end of the year, a $500 bonus if completed by the first quarter of next year, and a $100 bonus if completed by the second quarter of next year. The contractor believes there is a 70 percent chance of finishing by the end of the year, a 20 percent chance of finishing by the first quarter of next year, and a 10 percent chance of finishing by the second quarter of next year. The expected value is as follows: $5,000 + $1,000 = $6,000 x 70% $5,000 + $500 = $5,500 x 20% $5,000 + $100 = $5,100 x 10% Total probability-weighted consideration  = $4,200 = $1,100 = $510 = $5,810 Most likely amount – the most likely amount in a range of possible outcomes. This may be appropriate if the variable consideration has a discrete number of outcomes. In this example, the contractor either will or will not receive the bonus, depending on when the job is finished. If the contractor believes it is more likely that the job will be finished by the end of the year, the transaction price would be $6,000 ($5,000 + $1,000). When determining the transaction price, management should assume that the contract will be fulfilled as agreed upon and not cancelled, renewed, or modified. In addition, variable consideration should only be included in the price to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. When evaluating whether variable consideration should be included, firms should consider both the likelihood and magnitude of a revenue reversal. Step 4: Allocate the Transaction Price to the Performance Obligations in the Contract The new standard requires that the transaction price be allocated to each separate performance obligation based on relative standalone selling prices determined at contract inception and not This document is authorized for use only in Dr. Tarapada Ghosh's PGP/IMT/2018-19/048 at Institute of Management Technology - Ghaziabad (IMT) from Jun 2018 to Dec 2018. JetBlue and the New Revenue Recognition Standard A-231 p. 5 adjusted to reflect subsequent changes in the standalone selling prices. The standalone selling price is the price at which a company would sell a promised good or service separately to a customer. Allocation based on standalone selling prices is generally consistent with prior practice, except the new standard no longer prescribes a hierarchy for estimating the standalone selling price. Step 5: Recognize Revenue When (or as) the Entity Satisfies a Performance Obligation The new revenue recognition model is a control-based model, in which control means being able to direct the use of an asset and obtain substantially all the remaining benefits from the asset. Control is not the same as risks and rewards (although risks and rewards are a part of control), nor is it the same as culmination of an earnings process like prior revenue recognition. Revenue is recognized upon satisfaction of a performance obligation by transferring control of the promised good or service to a customer. Performance obligations are either satisfied over time or at a point in time. Generally, the sale of a good will be recognized at a point in time and the sale of a service will be recognized over time, but this is not always the case. A company transfers control of a good or service (and thus satisfies a performance obligation) over time if any one of the following criteria was met:    The customer simultaneously receives and consumes the benefits provided by the firm’s performance as the firm performs. If the firm were to stop performing and another firm resumed the contract, would the new entity have to redo the first entity’s work? (e.g., services—the customer receives and consumes the benefit of the service as the entity performs) The firm’s performance creates or enhances an asset that the customer controls as the asset is created or enhanced. If the firm were to stop performing, would the customer be able to control the work that has been done to date? (e.g., a construction company contracts with a customer to build a house on land that the customer owns) The firm’s performance does not create an asset with an alternative use to the firm, and the firm has an enforceable right to payment for performance completed to date. If the customer suddenly canceled the contract, would the firm be able to sell the asset to another customer without incurring significant cost? (e.g., a firm creates a highly specialized asset for a customer) If none of the above over-time criteria are met, then the performance obligation is satisfied at the point in time when the customer obtains control of the promised good or service. Unexercised Rights Firms that receive prepayments from customers should recognize a liability until the performance obligation has been satisfied. However, if the firm expects some customers not to exercise their right to the good or service, the firm should recognize the expected breakage amount as revenue in proportion to the pattern of rights exercised by the customer. Because breakage essentially causes the consideration for each performance obligation to be variable, This document is authorized for use only in Dr. Tarapada Ghosh's PGP/IMT/2018-19/048 at Institute of Management Technology - Ghaziabad (IMT) from Jun 2018 to Dec 2018. JetBlue and the New Revenue Recognition Standard A-231 p. 6 revenue should only be recognized if it is probable there will not be a significant reversal of revenue. Contract Modifications Unlike prior U.S. Generally Accepted Accounting Principles (GAAP), the new standard also provides explicit guidance on accounting for contract modifications. A contract modification includes changes in the goods and services to be provided, the price, or both. If the new goods and services are distinct (as defined earlier) and are offered at the standalone selling price, they should be recognized as a separate contract. If they are distinct but not provided at the standalone selling price, the old contract has effectively been ended and a new contract created. Any unrecognized revenue from the old contract should be allocated to the remaining goods and services and recognized along with the new revenue over the new contract period. Finally, if the new goods and services are not distinct, the estimate of the price and the measure of progress are simply updated to incorporate the change in the contract. Disclosures Under prior U.S. GAAP, there are few requirements for revenue disclosures. This makes it extremely difficult for users to understand a firm’s revenues, as well as the judgments and estimates made in recognizing those revenues. The goal of the new disclosure requirements is to help users understand the nature, amount, timing, and uncertainty of revenue and cash flows from contracts with customers. Under the new standard, firms will provide qualitative and quantitative information about contracts with customers, significant judgments, and assets from capitalized costs. AN ANALYSIS OF THE IMPACT ON JETBLUE Overview of Revenue Sources and Revenue Recognition Policies JetBlue was an American passenger carrier company that provided air transportation services across the United States, the Caribbean, and Latin America. JetBlue entered into several contracts with customers with the principal activity being traveling from one location to another. A single passenger revenue transaction could have contained three types of goods or services: the flight transportation, frequent flyer award miles, and ancillary services. Revenue for flight transportation was recognized either when transportation was provided or after the ticket or customer credit expired (where expiration of the ticket or credit without use was called “breakage”). If passengers did not show up to their flight, the ticket expired at the time of the flight. If passengers canceled a nonrefundable ticket prior to the flight, their flight credits were good for one year after the date of the flight. Tickets sold but not yet recognized as revenue and unexpired credits were included in air traffic liability on the consolidated balance sheets. JetBlue prepared its financial statements in accordance with U.S. GAAP (see Exhibit 2 for JetBlue’s 2015 financial statements). This document is authorized for use only in Dr. Tarapada Ghosh's PGP/IMT/2018-19/048 at Institute of Management Technology - Ghaziabad (IMT) from Jun 2018 to Dec 2018. JetBlue and the New Revenue Recognition Standard A-231 p. 7 Pricing Model In June 2015, JetBlue launched its new pricing model, Fare Options. Customers could purchase tickets at one of three branded fares: Blue, Blue Plus, and Blue Flex. Each fare included different offerings such as free checked bags, reduced change fees, and additional TrueBlue® points (see Customer Loyalty Program below), with all fares inclusive of free in-flight entertainment, snacks and non-alcoholic beverages. JetBlue also provided a premium product called “Mint,” which offered customers a business-class experience. Customer Loyalty Program Under JetBlue’s frequent-flyer program, points were awarded based on dollars spent on a flight. According to JetBlue’s 2015 annual report: TrueBlue® is JetBlue’s customer loyalty program designed to reward and recognize loyal customers. Members earn points based upon the amount paid for JetBlue flights and services from certain commercial partners. The points do not expire, the program has no black-out dates or seat restrictions, and any JetBlue destination can be booked if the TrueBlue® member has enough points to exchange for the value of an open seat. Mosaic® is an additional level for the most loyal customers who either (1) fly a minimum of 30 times with JetBlue and acquire at least 12,000 base flight points within a calendar year or (2) accumulate 15,000 base flight points within a calendar year. Over 1.4 million TrueBlue® one-way redemption awards were flown during 2015, representing approximately 4 percent of the total revenue passenger miles.3 Prior to introduction of the new standard, JetBlue accounted for loyalty programs using the incremental cost method, whereby it did not consider the issuance of loyalty points to be a component of revenue. JetBlue recorded a liability for the estimated incremental cost (which was usually less than the standalone selling price) of outstanding points earned from JetBlue purchases that were expected to be redeemed. Ancillary Services Passenger revenue included seat revenue and revenue from ancillary product offerings. In addition to the flight itself, JetBlue offered several upgrades and additions for its customers to purchase. EvenMore™ Space JetBlue’s largest ancillary product, the EvenMore™ Space seats, generated approximately $228 million in revenue in 2015. The EvenMore™ Space seats were available for purchase across all fleets, giving customers the opportunity to enjoy additional legroom, as well as early boarding access. Under prior revenue recognition guidance, fees paid to guarantee certain seat 3 JetBlue Airways Corporation 2015 Annual Report, http://blueir.investproductions.com/~/media/Files/J/Jetblue-IRV2/Annual%20Reports/2015-ar-10k.pdf (July 16, 2017), p. 9. This document is authorized for use only in Dr. Tarapada Ghosh's PGP/IMT/2018-19/048 at Institute of Management Technology - Ghaziabad (IMT) from Jun 2018 to Dec 2018. JetBlue and the New Revenue Recognition Standard A-231 p. 8 assignments and fees paid for the ability to board early were recognized at the time of service (i.e., the flight) as part of Passenger Revenue. Other Sources of Revenue The primary components of Other Revenue were the fees from reservation changes and excess baggage charged to customers. JetBlue also included the marketing component of TrueBlue® point sales, on-board product sales, charters, ground-handling fees of other airlines, and rental income. Fly-Fi™ Fly-Fi™ was JetBlue’s Internet product and was available on all flights. Unlike other airlines, which typically charged customers for in-flight Internet, JetBlue offered free Wi-Fi to its customers. Under prior guidance, companies that charged a fee for in-flight Internet access recognized revenue at the time of service (i.e., the flight). Companies that did not charge fees for Internet access did not recognize revenue, and simply recognized the costs of providing in-flight Wi-Fi. In-flight entertainment JetBlue offered all of its customers 36 complimentary channels of DIRECTV®. In addition, had the option to purchase JetBlue Features movies for $5 per movie on all domestic flights over 2 hours (there was no charge on all flights outside of the United States). Under prior guidance, companies who charged a fee for in-flight entertainment recognized revenue at the time of service (i.e., the flight). Companies that did not charge for these services did not recognize revenue, and simply recognized the costs of providing in-flight entertainment. Onboard purchases JetBlue offered snacks and non-alcoholic beverages to all its customers, and customers had the option to purchase premium beverage and food selections. JetBlue also provided its customers with the option to purchase additional products such as blankets, headphones, or pillows. “Mint” customers had access to complimentary premium food, premium beverages and products. Under prior guidance, companies that offered free snacks and beverages simply recognized the costs of the goods provided. Companies that charged for these items recognized revenue at the time of service (i.e., the flight). Excess baggage charges JetBlue’s fees for checked baggage varied by ticket purchased. Customers received two free checked bags with the Blue Flex fare, one free checked bag with the Blue Plus fare, and no free checked bags with the Blue fare. Additional checked bags over the allowed amount, overweight bags, and large bags all incurred additional fees. Under prior guidance, revenue was recognized for baggage fees at the time of service (i.e., the flight). Change fees Similar to baggage fees, JetBlue’s various fare options included the ability to change a reservation for free. Aside from the Blue Flex option, customers incurred a flat change fee and had to pay any difference in fare price. Under prior guidance, these fees were non-refundable This document is authorized for use only in Dr. Tarapada Ghosh's PGP/IMT/2018-19/048 at Institute of Management Technology - Ghaziabad (IMT) from Jun 2018 to Dec 2018. JetBlue and the New Revenue Recognition Standard A-231 p. 9 and did not relate to the ticket price for any future change. Therefore, revenue was recognized at the time of service, which was the time the change was created, pre-flight. Study Questions 1. For each of the following topics, describe the prior accounting, the likely changes (if any) the new revenue recognition standard will require, and the potential impact of those changes on patterns of revenue recognition. Indicate the general direction of impacts; do not try to quantify the change amounts):    Flight Transportation (for tickets used and for ticket/credit “breakage”) (Hint: Focus on Unexercised Rights in the new model for breakage) Loyalty Program (Hint: Focus on Step 2 of the new model) Ancillary Services and Other Revenue (Hint: Focus on Step 2 of the new model, and Contract Modifications as well for change fees specifically) 2. Where are the areas for discretion and judgment (and opportunities for earnings management)? 3. Will the new revenue standard provide more decision-useful information than prior U.S. GAAP? This document is authorized for use only in Dr. Tarapada Ghosh's PGP/IMT/2018-19/048 at Institute of Management Technology - Ghaziabad (IMT) from Jun 2018 to Dec 2018. JetBlue and the New Revenue Recognition Standard A-231 p. 10 Exhibit 1 Determining Whether Goods or Services are Distinct Source: Compiled by authors. This document is authorized for use only in Dr. Tarapada Ghosh's PGP/IMT/2018-19/048 at Institute of Management Technology - Ghaziabad (IMT) from Jun 2018 to Dec 2018. JetBlue and the New Revenue Recognition Standard A-231 p. 11 Exhibit 2 JetBlue’s 2015 Financial Statements and Disclosures of Revenue Amounts This document is authorized for use only in Dr. Tarapada Ghosh's PGP/IMT/2018-19/048 at Institute of Management Technology - Ghaziabad (IMT) from Jun 2018 to Dec 2018. JetBlue and the New Revenue Recognition Standard A-231 p. 12 Source: JetBlue Airways Corporation 2015 Annual Report. 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Description I'm working on a accounting project and need guidance to help me understand better. Mini-Practice Set Budgeting and Standard Costs In this project you will apply the techniques and principles of budgeting and standard costs to the operations of Speedway Toys, Inc. You will prepare budgets for the year ended December 31, 20XX, determine standards costs per hour and per unit of product, and compute variances for the month of January 20XX. Company’s Operations Speedway Toys, Inc., manufactures a battery-powered toy car that is sold in toy stores and department stores. In the firm’s manufacturing process, highly skilled employees operate molding machines that form semi-liquid plastic into car bodies. Assembly personnel insert a battery driven motor assembly, which the firm purchases from a subcontractor, into the molded car body. Then the assembly personnel add wheels and axles (also purchased from a subcontract) and decorative trim to complete the car. Preparation Budgets SALES BUDGET The sales manager and her staff have analyzed sales records and other data and forecast that 61,000 cars will be sold in 20XX. Standard costs are to be based on this volume of production, which should require 30,000 direct labor hours. PRODUCTION BUDGET Speedway Toys, Inc., expects to begin 20XX with an inventory of 7,000 completed toy cars. The company would like to reduce its finished goods inventory of toy cars at the end of 20XX by 1,000 cars to 6,000 cars. STANDARDS FOR DIRECT MATERIALS AND DIRECT LABOR Speedway Toys, Inc., has established the following standards for direct materials and direct labor, which should be attainable under normal circumstances. Later you will be instructed to compute the standard cost per hour of direct labor and per unit of product. Data related to direct materials follow: Material Quantity Cost per Unit Cost per Car Plastic 1.5 lb per car $3.40 per lb $5.10 Motor assembly 1 motor per car $6.50 per motor $6.50 Wheels and axles 1 set per car $0.40 per set $0.40 Total $12.00 NOTE: Paint and stickers for decorative trim are considered part of indirect materials. Data related to direct labor follow: Job Title Hours per Car Rate per Car Cost per Car Molders 0.2 $15.00 $3.00 Assemblers 0.3 $18.00 $5.40 Total 0.5 $8.40 MATERIALS BUDGET Beginning inventories of raw materials on January 1, 20XX, are expected to be as follows: Material Amount Plastic 5,500 lb Motors 4,000 motors Wheels and axles 2,500 sets Speedway Toys, Inc., would like to have enough raw materials on hand at the end of the year to equal the following percentages of 20XX budgeted requirements: Material Percentage of 20XX Budget Plastic 5% Motors 10% Wheels and axles 1% MANUFACTURING OVERHEAD BUDGET The following information related to variable and fixed manufacturing overhead costs for 20XX has been assembled. Later you will be directed to complete the manufacturing overhead budget and compute the standard overhead cost per hour and per unit. SPEEDWAY TOYS, INC. Analysis of Fixed and Variable Overhead Costs Year Ended December 31, 20XX VARIABLE OVERHEAD PER HOUR FIXED OVERHEAD Controllable Costs Indirect Materials $0.04 ---- Indirect Labor 2.00 $60,000 Payroll Taxes and Fringe Benefits 2.80 9,000 Utilities 0.32 12,000 Repairs and Miscellaneous 0.34 9,600 Non-controllable Costs Depreciation ---- 42,000 Insurance ---- 12,000 Total Manufacturing Overhead $5.50 $144,600 STANDARD COST ACCOUNTING PROCEDURES TO BE COMPLETED During January 20XX, Speedway Toys, Inc., manufactured 4,800 toy cars. The costs of materials, labor, and overhead were as follows: Material Amount Plastic 7,050 lb at $3.60 per lb Motor 4,975 motors at $6.24 per motor Wheels and axles 4,880 sets at $.425 per set Direct Labor Hours Rate Molders 930 hr $15.20 per hour Assemblers 1510 hr $18.40 per hour Overhead Amount Variable $13,120 Fixed $12,050 You are to prepare the following for the month of January 20XX. For all variances computed, show whether they are favorable or unfavorable. B-1 Prepare a summary of materials costs. B-2 Prepare a summary of labor costs. B-3 Compute the quantity and price variances for each material. B-4 Compute the efficiency and rate variance for each type of labor. B-5 Compute the total manufacturing overhead variance. Analyze the total overhead variance, using the three-variance analysis method. B-6 Prepare entries in general journal form to record each of the following (omit explanations): a. Charge the raw materials to production and record the materials variances. b. Charge the labor to production and record the labor variances. c. Charge the manufacturing overhead to production and record the overhead variances. d. Transfer the completed units to finished goods. All tutors provide: high quality help, quick responsive communication, original explanations and answers with any outside resources cited. 1 attachments Slide 1 of 1 attachment_1 attachment_1 UNFORMATTED ATTACHMENT PREVIEW Mini-Practice Set Budgeting and Standard Costs In this project you will apply the techniques and principles of budgeting and standard costs to the operations of Speedway Toys, Inc. You will prepare budgets for the year ended December 31, 20XX, determine standards costs per hour and per unit of product, and compute variances for the month of January 20XX. Company’s Operations Speedway Toys, Inc., manufactures a battery-powered toy car that is sold in toy stores and department stores. In the firm’s manufacturing process, highly skilled employees operate molding machines that form semi-liquid plastic into car bodies. Assembly personnel insert a battery driven motor assembly, which the firm purchases from a subcontractor, into the molded car body. Then the assembly personnel add wheels and axles (also purchased from a subcontract) and decorative trim to complete the car. Preparation Budgets SALES BUDGET The sales manager and her staff have analyzed sales records and other data and forecast that 61,000 cars will be sold in 20XX. Standard costs are to be based on this volume of production, which should require 30,000 direct labor hours. PRODUCTION BUDGET Speedway Toys, Inc., expects to begin 20XX with an inventory of 7,000 completed toy cars. The company would like to reduce its finished goods inventory of toy cars at the end of 20XX by 1,000 cars to 6,000 cars. STANDARDS FOR DIRECT MATERIALS AND DIRECT LABOR Speedway Toys, Inc., has established the following standards for direct materials and direct labor, which should be attainable under normal circumstances. Later you will be instructed to compute the standard cost per hour of direct labor and per unit of product. Data related to direct materials follow: Material Plastic Motor assembly Wheels and axles Quantity 1.5 lb per car 1 motor per car 1 set per car Cost per Unit $3.40 per lb $6.50 per motor $0.40 per set Cost per Car $5.10 $6.50 $0.40 $12.00 NOTE: Paint and stickers for decorative trim are considered part of indirect materials. Data related to direct labor follow: Job Title Molders Assemblers Hours per Car 0.2 0.3 0.5 Rate per Car $15.00 $18.00 Cost per Car $3.00 $5.40 $8.40 MATERIALS BUDGET Beginning inventories of raw materials on January 1, 20XX, are expected to be as follows: Material Plastic Motors Wheels and axles Amount 5,500 lb 4,000 motors 2,500 sets Speedway Toys, Inc., would like to have enough raw materials on hand at the end of the year to equal the following percentages of 20XX budgeted requirements: Material Plastic Motors Wheels and axles Percentage of 20XX Budget 5% 10% 1% MANUFACTURING OVERHEAD BUDGET The following information related to variable and fixed manufacturing overhead costs for 20XX has been assembled. Later you will be directed to complete the manufacturing overhead budget and compute the standard overhead cost per hour and per unit. SPEEDWAY TOYS, INC. Analysis of Fixed and Variable Overhead Costs Year Ended December 31, 20XX Controllable Costs Indirect Materials Indirect Labor Payroll Taxes and Fringe Benefits Utilities Repairs and Miscellaneous Non-controllable Costs Depreciation Insurance Total Manufacturing Overhead VARIABLE OVERHEAD PER HOUR FIXED OVERHEAD $0.04 2.00 2.80 0.32 0.34 ---$60,000 9,000 12,000 9,600 ------$5.50 42,000 12,000 $144,600 BUDGETING PROCEDURED TO BE COMPLETED To contribute to the budgeting of Speedway Toys, Inc., you are to prepare the following budgets for the year ended December 31, 20XX. Remember that the sales budget has already been prepared. INSTRUCTIONS A-1 Prepare a production budget based on expected production for 20XX. A-2 Prepare a materials budget based on expected production for 20XX. A-3 Prepare a direct labor budget based on expected production for 20XX. A-4 Prepare a monthly flexible overhead budget at 90, 100, and 110 percent of capacity. Capacity is considered to be the 30,000 direct labor hours required to manufacture the 60,000 cars projected for 20XX. A-5 Prepare a manufacturing costs budget. (Include costs per car.) A-6 Using the budget overhead for 20XX computed at 100 percent of capacity (in Instruction A4), compute the standard cost per direct labor hour and the standard cost per unit of product for 20XX. STANDARD COST ACCOUNTING PROCEDURES TO BE COMPLETED During January 20XX, Speedway Toys, Inc., manufactured 4,800 toy cars. The costs of materials, labor, and overhead were as follows: Material Plastic Motors Wheels and axles Amount 7,050 lb at $3.60 per lb 4,975 motors at $6.24 per motor 4,880 sets at $.425 per set Direct Labor Molders Assemblers Hours 930 hr 1510 hr Overhead Variable Fixed Amount $13,120 $12,050 Rate $15.20 per hour $18.40 per hour You are to prepare the following for the month of January 20XX. For all variances computed, show whether they are favorable or unfavorable. B-1 Prepare a summary of materials costs. B-2 Prepare a summary of labor costs. B-3 Compute the quantity and price variances for each material. B-4 Compute the efficiency and rate variance for each type of labor. B-5 Compute the total manufacturing overhead variance. Analyze the total overhead variance, using the three-variance analysis method. B-6 Prepare entries in general journal form to record each of the following (omit explanations): a. b. c. d. Charge the raw materials to production and record the materials variances. Charge the labor to production and record the labor variances. Charge the manufacturing overhead to production and record the overhead variances. Transfer the completed units to finished goods. MANAGERIAL DECISIONS From the data given on the previous pages and the work you have done, answer the following questions about the operations of Speedways Toys, Inc. (Write your answers to these questions on the ruled paper provided in the Study Guide and Working Papers or on separate sheets.) 1. What factors might cause Speedway Toys, Inc., to revise its sales budget for the year? 2. What factors might have influenced the management of Speedway Toys, Inc., to set the level of the ending inventory for plastic, motors, and wheels and axles at 5, 10, and 1 percent budgeted requirements for this year? 3. A. Assume that production in February was 5,500 cars. (1) What would be the total budgeted variable overhead cost? (2) What would be the total budgeted fixed overhead cost? (3) What would be the total budgeted overhead cost? 4. B. Assume that production in March was 5,250 cars. (1) What would be the total budgeted cost for indirect materials? (2) What would be the total budgeted cost for utilities? (3) What would be the total budgeted cost for insurance? 5. The president of Speedway Toys, Inc., thinks that the standard costs should be based on theoretical standards instead of normal standards as a way to motivate employees to reach a higher level of performance. What do you think about this plan? 6. Explain how the variances that you have computed for Speedway Toys, Inc., wanted to make a gross profit of 40 percent for the year, what selling price would it set for the toy cars? 7. Answer the following questions about the materials variances: a. Give some possible causes for each materials variance that you computed b. Which person in the company is probably responsible for each of these variances? 8. Answer the following questions about the labor variances: a. Give some possible causes for each labor variance that you computed. b. Which person in the company is probably responsible for each of these variances? 9. Answer the following questions about the manufacturing overhead variances: a. Give some possible causes for each overhead variance that you computed. b. Which person in the company is probably responsible for each of these variances? 10. The financial vice president states that he has heard of a four-variance method for analyzing overhead variances and asks you what it is and how much each variance would have been if that analysis method had been used. Respond to his question. Purchase answer to see full attachment Tags: Total Material costs Wheels and axles Direct Labor Molders hours Assemblers hours User generated content is uploaded by users for the purposes of learning and should be used following Studypool's honor code & terms of service.
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