Reference no: EM132451592

Question 1) A lawyer allocates overhead costs based on his hours working with different clients. The lawyer expects to have $200,000 in overhead during the year and expects to work on clients' cases 2,000 hours during the year. In addition, she wants to pay herself $50 per hour for working with clients. In other words, the lawyer's billing rate is the sum of her hourly fee ($50) and a fee to recover the expected overhead spread over 2,000 hours. The lawyer, however, does not bill all of her clients based on covering overhead costs and her own salary. Some clients pay her on contingency fees. If the lawyer works with a client on a contingency fee basis, the lawyer receives half of any settlement for her client. During the year the lawyer works 1,200 hours that are billable to clients. The remaining hours are worked on a contingency basis. The lawyer wins $300,000 in settlements for his clients of which she receives half. Actual overhead was $210,000.

Required:

1. What does the lawyer earn during the year after expenses?

Question 2) Eastern University prides itself on providing faculty and staff a competitive compensation package. One aspect of this package is a faculty and staff child tuition benefit of $4,000 per child per year for up to four years to offset the cost of a college education. The faculty or staff member's child can attend any college or university, including Eastern University, and receive the tuition benefit. If a staff member has three children in college one year, the staff member receives a $12,000 tuition benefit. This money is not taxed to the individual staff or faculty member.
Eastern University pays the benefit directly to the university where the staff/faculty member's child is enrolled or if the student is attending Eastern, it reduces the amount of tuition owed by the faculty/staff member. The university then charges this payment to a benefits account. This benefits account is then allocated back to the various colleges and departments based on total salaries in the college or department.

Required:

1. Evaluate the pros and cons of the present university accounting for tuition benefits. What changes would you recommend making?

Question 3) The Cope Company had an over-absorbed overhead balance at year-end. The firm wrote off one-third of it to Cost of Goods Sold, thereby raising net income by $100,000, and the remainder was charged to inventory accounts. Overhead is allocated to products using direct labor dollars. The firm uses a flexible budget to calculate its overhead rate. Before the year began, the variable overhead rate and budgeted volume were estimated to be $7.00 per direct labor dollar and $1 million, respectively. Actual overhead incurred for the year was $9.7 million, and actual direct labor cost was $1,250,000.

Required:

1. What budgeted fixed overhead amount did the Cope Company use in calculating the overhead rate?

Question 4) An October 25, 1999, article in BusinessWeek by D. Brady, "Why Xerox Is Struggling," reported:

President and Chief Executive G. Richard Thoman is a big-picture guy. For the past two years, he has preached a digital revolution at the copier giant. Get down to the detail, though, and it's clear that the revolution isn't going as planned: In both copiers and printers, Xerox is losing ground. On October 18, the company announced lower than expected earnings and the stock price tumbled more than 13% on that day. Xerox stock is down 60% from its recent high of $60 in July. Xerox blamed the bad news on short-term surprises: sagging productivity in the sales force after a big reorganization as well as weakness in Brazil. But the sheer scope of bad news shocked even Thoman, who told investors in a conference call that he was "disappointed and sad about this quarter."
Thoman took the top job in April and vowed annual earnings growth in the "mid-to-high teens."
Beginning November 1, 1999, Xerox factories increased their hours from five eight-hour days a week to six ten-hour days a week through the end of the year. The factory managers were told to build inventories in expectation of higher sales in the fourth quarter of 1999. Fourth-quarter sales were expected to be higher because of anticipation that the new sales force reorganization would increase sales.

Required:

1. Offer an alternative reason(s) for Xerox's decision to increase output in its factories. Explain with details.