A cash payment of 130 on account was recorded as a 310 debit to ...

[SGallaher96]

A cash payment of 130 on account was recorded as a 310 debit to Accounts Payable and a 310 credit to Cash. The necessary correcting entry is
 a. debit Cash, 180; credit Accounts Receivable, 180.
   b. debit Accounts Payable, 180; credit Cash, 180.
   c. debit Cash, 180; credit Accounts Payable, 180.
   d. debit Accounts Receivable, 180; credit Cash, 180.
   e. debit Cash 130, credit Accounts Payable, 130.

Question 2

Activity-based budgeting.
 
  The Jerico store of Jiffy Mart, a chain of small neighborhood convenience stores, is preparing its activity-based budget for January 2015. Jiffy Mart has three product categories: soft drinks (35 of cost of goods sold COGS), fresh produce (25 of COGS), and packaged food (40 of COGS). The following table shows the four activities that consume indirect resources at the Jerico store, the cost drivers and their rates, and the cost-driver amount budgeted to be consumed by each activity in January 2015.
 
  Required:
  1. What is the total budgeted indirect cost at the Jerico store in January 2015? What is the total budgeted cost of each activity at the Jerico store for January 2015? What is the budgeted indirect cost of each product category for January 2015?
  2. Which product category has the largest fraction of total budgeted indirect costs?
  3. Given your answer in requirement 2, what advantage does Jiffy Mart gain by using an activity-based approach to budgeting over, say, allocating indirect costs to products based on cost of goods sold?

[vboyd24]

Answer to Question 1

c

Answer to Question 2

1.

Activity Cost
Hierarchy Soft
Drinks Fresh
Snacks Packaged
Food
Total
Ordering
45  14; 24; 14
Delivery
41  12; 62; 19
Shelf-stocking
10.50  16; 172; 94
Customer support
0.09  4,600; 34,200; 10,750
Total budgeted indirect costs

Percentage of total indirect costs

Batch-level

Batch-level
Output-unit-level
Output-unit-level
 630

492

168

414
1,704

12.5
1,080

2,542

1,806

3,078
8,506

62.7
 630

779

987

968
3,364

24.8
 2,340

3,813

2,961

4,460
13,574
Total indirect costs allocated
according to COGS
(30; 25; 45  13,574) 4,072 3,394 6,108

2. Refer to the last row of the table in requirement 1. Fresh snacks, which represents the smallest portion of COGS (25), is the product category that consumes the largest share (62.7) of the indirect resources. Fresh snacks demand the highest level of ordering, delivery, shelf-stocking, and customer support resources of all three product categoriesit has to be ordered, delivered, and stocked in small, perishable batches, and convenience store customers often require more assistance when purchasing.

3. An ABB approach recognizes how different products require different mixes of support activities. The relative percentage of how each product area uses the cost driver at each activity area is:

Activity Cost
Hierarchy Soft
Drinks Fresh
Snacks Packaged
Food
Total
Ordering
Delivery
Shelf-stocking
Customer support Batch-level
Batch-level
Output-unit-level
Output-unit-level 27
13
6
9 46
67
61
69 27
20
33
22 100
100
100
100

By recognizing these differences, Jiffy Mart's managers are better able to budget for different unit sales levels and different mixes of individual product-line items sold. Using a single cost driver (such as COGS) assumes homogeneity in the use of indirect costs (support activities) across product lines which does not occur at Jiffy Mart. If Jiffy Mart had used COGS to allocate costs, Fresh Snacks would have been allocated 25 of the indirect costs, much lower than the 62.7 of the indirect costs based on an analysis of the activities it actually uses. Other benefits cited by managers include: (1) better identification of resource needs, (2) clearer linking of costs with staff responsibilities, and (3) identification of budgetary slack.