31. On November 4, 2009, Blue Company acquired an asset (27.5-year residential r

Question

31. On November 4, 2009, Blue Company acquired an asset (27.5-year residential real property) for $200,000 for use in its business. In 2009 and 2010, respectively, Blue took $642 and $5128 of cost recovery. These amounts were incorrect because Blue applied wrong percentage (i.e. those for 39-year rather than 27.5-year). Blue should have taken $910 and $7272 cost recovery in 2009 and 2010. On January 1, 2011, the asset was sold for $180000. Calculate the gain or loss on the sale of the asset in 2011.

34. Western acquires used office machine (seven-tear class asset) on November 2, 2011, for $75000. This is the only asset acquired by western during the year. He does not elect immediate expensing under ss179. On September 15, 2012, western sells the machine.
a. determine Weston

Explanation / Answer

Cost object: Type of car assembled (Corolla or Geo Prism) Cost variability: With respect to changes in the number of cars assembled There may be some debate over classifications of individual items, especially with regard to cost variability. Cost Item D or I V or F A D V B I F C D F D D F E D V F I V G D V H I F 2-22 (15–20 min.) Variable costs and fixed costs. 1. Variable cost per ton of beach sand mined Subcontractor $ 80 per ton Government tax 50 per ton Total $130 per ton Fixed costs per month 0 to 100 tons of capacity per day = $150,000 101 to 200 tons of capacity per day = $300,000 201 to 300 tons of capacity per day = $450,000 2. The concept of relevant range is potentially relevant for both graphs. However, the question does not place restrictions on the unit variable costs. The relevant range for the total fixed costs is from 0 to 100 tons; 101 to 200 tons; 201 to 300 tons, and so on. Within these ranges, the total fixed costs do not change in total. 3. Tons Mined per Day Tons Mined per Month Fixed Unit Cost per Ton Variable Unit Cost per Ton Total Unit Cost per Ton (1) (2) = (1) × 25 (3) = FC ÷ (2) (4) (5) = (3) + (4) (a) 180 4,500 $300,000 ÷ 4,500 = $66.67 $130 $196.67 (b) 220 5,500 $450,000 ÷ 5,500 = $81.82 $130 $211.82 The unit cost for 220 tons mined per day is $211.82, while for 180 tons it is only $196.67. This difference is caused by the fixed cost increment from 101 to 200 tons being spread over an increment of 80 tons, while the fixed cost increment from 201 to 300 tons is spread over an increment of only 20 tons. 2-24 (10–15 min.) Cost drivers and functions. 1. Function Representative Cost Driver 1. Accounting Number of transactions processed 2. Personnel Number of new hires 3. Data Processing Hours of computer processing unit (CPU) 4. Research and Development Number of research scientists 5. Purchasing Number of purchase orders 6. Billing Number of invoices sent 2. Function Representative Cost Driver 1. Accounting Hours of technical work 2. Personnel Number of employees 3. Data Processing Number of computer transactions 4. Research and Development Number of new products being developed 5. Purchasing Number of different types of materials purchased 6. Billing Number of credit sales transactions 2-25 (20 min.) Total costs and unit costs 1. Number of attendees 0 100 200 300 400 500 600 Variable cost per person ($10 caterer charge – $5 student door fee) $5 $5 $5 $5 $5 $5 $5 Fixed Costs $1,500 $1,500 $1,500 $1,500 $1,500 $1,500 $1,500 Variable costs (number of attendees x variable cost per person) 0 500 1,000 1,500 2,000 2,500 3,000 Total costs (fixed + variable) $1,500 $2,000 $2,500 $3,000 $3,500 $4,000 $4,500 2. Number of attendees 0 100 200 300 400 500 600 Total costs (fixed + variable) $1,500 $2,000 $2,500 $3,000 $3,500 $4,000 $4,500 Costs per attendee (total costs number of attendees) $20.00 $12.50 $10.00 $ 8.75 $ 8.00 $ 7.50 As shown in the table above, for 100 attendees the total cost will be $2,000 and the cost per attendee will be $20. 3. As shown in the table in requirement 2, for 500 attendees the total cost will be $4,000 and the cost per attendee will be $8. 4. Using the calculations shown in the table in requirement 2, we can construct the cost-per-attendee graph shown below: As president of the student association requesting a grant for the party, you should not use the per unit calculations to make your case. The person making the grant may assume an attendance of 500 students and use a low number like $8 per attendee to calculate the size of your grant. Instead, you should emphasize the fixed cost of $1,500 that you will incur even if no students or very few students attend the party, and try to get a grant to cover as much of the fixed costs as possible as well as a variable portion to cover as much of the $5 variable cost to the student association for each person attending the party.

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