Maurice Tutor
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Klyn Manufacturing Company experienced the following accounting events during its first year of operation. Except for the depreciation adjusting entries, all transactions are cash transactions.
1.    Acquired $50,000 cash from the issue of common stock.
2.    Paid $6,800 for the materials that were used to make its products. All products started were completed during the period.
3.    Paid salaries of $4,300 to selling and administrative employees.
4.    Paid wages of $7,200 to production workers.      Â
5.    On January 1, paid $9,000 to buy furniture used in selling and administrative offices.
6.    Recorded annual depreciation on the furniture referred to in Event 5. The furniture had a $1,000 estimated salvage value and a 5-year useful life.
7.    On January 1, paid $23,000 to buy manufacturing equipment.
8.    Recorded annual depreciation on the equipment referred to in Event 7. It had a $3,000 estimated salvage value and a 4-year useful life.
9.    Completed 4,000 units of product. Determine the cost per unit and the sales price per unit assuming the sales price is cost plus 60% of cost. Record the sale of 3,000 units of product.
10. Code the recognition of cost of goods sold for the units sold in Event 9.
Required
Show how these events would affect the balance sheet and income statement by recording them in a horizontal financial statements model like the one shown below. The first event is recorded as an example.
Horizontal Statements Model
| Â | Â |
Assets |
= |
Equity |
 |  |  |  |  |  |  | ||||||||
|
Event |
 |  |  |
Office |
 |
Manuf. |
 |  |  |
Com. |
 |
Ret. |
 |  |  |  |  |  |  |
|
No. |
 |
Cash |
+ |
Furn.* |
+ |
Equip.* |
+ |
Inv. |
= |
Stk. |
+ |
Ear. |
 |
Rev. |
A????1 |
Exp. |
= |
Net Inc. |
 |
|
1 |
 |
50,000 |
+ |
 |
+ |
 |
+ |
 |
= |
50,000 |
+ |
 |  |  |
A????1 |
 |
= |
 |  |
|
2 |
 |  |
+ |
 |
+ |
 |
+ |
 |
= |
 |
+ |
 |  |  |
A????1 |
 |
= |
 |  |
|
3 |
 |  |
+ |
 |
+ |
 |
+ |
 |
= |
 |
+ |
 |  |  |
A????1 |
 |
= |
 |  |
|
4 |
 |  |
+ |
 |
+ |
 |
+ |
 |
= |
 |
+ |
 |  |  |
A????1 |
 |
= |
 |  |
|
5 |
 |  |
+ |
 |
+ |
 |
+ |
 |
= |
 |
+ |
 |  |  |
A????1 |
 |
= |
 |  |
|
6 |
 |  |
+ |
 |
+ |
 |
+ |
 |
= |
 |
+ |
 |  |  |
A????1 |
 |
= |
 |  |
|
7 |
 |  |
+ |
 |
+ |
 |
+ |
 |
= |
 |
+ |
 |  |  |
A????1 |
 |
= |
 |  |
|
8 |
 |  |
+ |
 |
+ |
 |
+ |
 |
= |
 |
+ |
 |  |  |
A????1 |
 |
= |
 |  |
|
9 |
 |  |
+ |
 |
+ |
 |
+ |
 |
= |
 |
+ |
 |  |  |
A????1 |
 |
= |
 |  |
|
10 |
 |  |
+ |
 |
+ |
 |
+ |
 |
= |
 |
+ |
 |  |  |
A????1 |
 |
= |
 |  |
|
Totals |
 |
22,500 |
+ |
7,400 |
+ |
18,000 |
+ |
4,750 |
= |
50,000 |
+ |
2,650 |
 |
22,800 |
A????1 |
20,150 |
= |
2,650 |
 |
Demonstration Problem 2-1 - Applying Cost Behavior Concepts to Business Decisions (10)
Art On Tour, Inc. (AOTI) contracts with artists to exhibit their work to the public. AOTI has agreed to pay a well-known artist a $20,000 commission for the right to exhibit his work for one month.
Required
Part a A????1 Identifying Cost Behavior
1.    Determine the total commission cost and the commission cost per person if 1,000 / 2,000 / 4,000 people attend the exhibition. Is the commission cost fixed or variable?
2.    AOTI sells to patrons books illustrating the artistA????1s work. The books cost AOTI $5 each. Determine the total cost of books and the cost per person if 1,000 / 2,000 / 4,000 people attend the exhibition and wish to purchase the books. Is the book cost fixed or variable?
a.1.
|
Number of People Attending |
1,000 |
2,000 |
4,000 |
|
Total Commission Cost |
 |  |  |
|
Average Commission Cost Per Person |
 |  |  |
| Â | Â | Â | Â |
Type of cost:
a.2.
|
Number of People Attending |
1,000 |
2,000 |
4,000 |
|
Total Cost of Books |
 |  |  |
|
Average Per Unit Book Cost |
 |  |  |
| Â | Â | Â | Â |
Type of cost:
Part b A????1 Operating Leverage and Risk/Reward Relationship
1.    AOTI pays an artist a $20,000 commission. It sells 4,000 tickets at $6 each. Prepare an income statement. Then prepare revised income statements assuming 10 percent more than 4,000 and 10 percent fewer than 4,000 patrons attend the exhibition. Calculate the percentage changes in revenue and net income if attendance increases or decreases 10 percent.
2.  Alternatively, AOTI pays the artist a commission of $5 per ticket sold. It sells 4,000 tickets at $6 each. Prepare an income statement. Then prepare revised income statements assuming 10 percent more than 4,000 and 10 percent fewer than 4,000 patrons attend the exhibition. Calculate the percentage change in revenue and net income if attendance increases or decreases 10 percent.
b.1.
|
Number of Tickets Sold |
3,600 |
% Change |
4,000 |
% Change |
4,400 |
| Â | Â | Â | Â | Â | Â |
|
Revenue ($6 Per Ticket) |
 |  |  |  |  |
|
Commission Cost (Fixed) |
 |  |  |  |  |
|
Net Income |
$ 1,600 |
 |
$ 4,000 |
 |
$ 6,400 |
| Â | Â | Â | Â | Â | Â |
       % Change in Revenue:____________________  % Change in Net Income: ____________________         Â
b.2.
|
Number of Tickets Sold |
3,600 |
% Change |
4,000 |
% Change |
4,400 |
| Â | Â | Â | Â | Â | Â |
|
Revenue ($6 Per Ticket) |
 |  |
$24,000 |
 |  |
|
Commission Cost (Variable) |
 |  |
20,000 |
 |  |
|
Net Income |
$ 3,600 |
 |
$ 4,000 |
 |
$ 4,400 |
| Â | Â | Â | Â | Â | Â |
       % Change in Revenue:______________________      % Change in Net Income: _________________
Part c --Fixed and Variable Cost Definitions are Context Sensitive
1.    AOTI pays the artist a commission of $20,000 per exhibition. What is the total commission cost and the commission cost per person if 1,000 / 2,000 / 4,000 people attend the exhibition? (Same as part a.1.)
2.    AOTI pays the artist a commission of $20,000 per exhibition. What is the total commission cost and the commission cost per exhibition if AOTI sponsors 1, 2, or 3 exhibitions?
c.1. (Same as part a.1.)
|
Number of People Attending |
1,000 |
2,000 |
4,000 |
|
Total Commission Cost |
 |  |  |
|
Average Commission Cost Per Person |
 |  |  |
| Â | Â | Â | Â |
Type of cost:
c.2.
|
Number of Exhibitions (a) |
1 |
2 |
3 |
|
Total Expected Commission Cost |
 |  |  |
|
Cost Per Exhibition |
 |  |  |
| Â | Â | Â | Â |
Type of cost: